JOINT Corp

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Basis of Presentation

These financial statements represent the consolidated financial statements of The Joint Corp., which includes its variable interest entities (“VIEs”), and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses, other (expenses) income, and income taxes that are reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that we may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue, accounting for leases, and accounting for income taxes, see Note 2, Revenue Disclosures, Note 9, Income Taxes, and Note 10, Commitments and Contingencies.

The results of operations of the corporate clinic segment are reported in Income (loss) from discontinued operations before income tax expense in its consolidated income statements for all periods presented and the related assets and liabilities associated with discontinued operations are classified as discontinued operation assets and liabilities in the consolidated balance sheets at December 31, 2025 and 2024. The consolidated statement of cash flows includes cash flows related to the discontinued operations and accordingly, cash flow amounts for discontinued operations are disclosed in Note 3, Divestitures. All results and information in the consolidated financial statements are presented as continuing operations and exclude the corporate clinic segment unless otherwise noted specifically as discontinued operations. For additional information, refer to Note 3, Divestitures.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of The Joint and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which was dormant for all periods presented. We consolidate VIEs in which we are the primary beneficiary in accordance with Accounting Standards Codification 810, Consolidations (“ASC 810”). Non-controlling interests represent third-party equity ownership interests in VIEs. All significant inter-affiliate accounts and transactions between The Joint and its VIEs have been eliminated in consolidation.

Comprehensive Income (Loss)

Net income (loss) and comprehensive income (loss) are the same for the years ended December 31, 2025 and 2024.

Nature of Operations

The Joint Corp., a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising, developing, selling regional developer rights, supporting the operations of franchised chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed for the years ended December 31, 2025 and 2024. All company-owned or managed clinics operations are recorded as discontinued operations:

Variable Interest Entities

Certain states prohibit the “corporate practice of chiropractic,” which restricts business corporations from practicing chiropractic care by exercising control over clinical decisions by chiropractic doctors. In states that prohibit the corporate practice of chiropractic, we typically enter into long-term management agreements with professional corporations (“PCs”) that are owned by licensed chiropractic doctors, which, in turn, employ or contract with doctors who provide professional chiropractic care in our clinics. Under these management agreements with PCs, we provide, on an exclusive basis, all non-clinical services of the chiropractic practice. We have entered into such management agreements with four PCs. In connection with the sale offive company-owned or managed clinics located in Kansas and Missouri, we terminated our management agreement withone PC as of June 30, 2025. For additional information on clinic sales, refer to Note 3, Divestitures. If an entity is deemed to be the primary beneficiary of a VIE, the entity is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. In accordance with relevant accounting guidance, these PCs were determined to be VIEs, as fees paid by the PCs to us as our management service provider are considered variable interests because the fees do not meet all the following criteria: (1) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services; (2) the decision maker or service provider does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns; and (3) the service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. Additionally, we have determined that we have the ability to direct the activities that most significantly impact the performance of these PCs and has an obligation to absorb losses or receive benefits which could potentially be significant to the PCs. Accordingly, the PCs are VIEs for which we are the primary beneficiary and are consolidated by us.

The revenues of VIEs represent the revenues of company-managed clinics in states that prohibit the corporate practice of chiropractic. Our involvement with VIEs affects our financial performance and cash flows primarily through amounts recorded as revenues from company-owned or managed clinics and general and administrative expenses, which are principally comprised of payroll and related expenses, merchant card fees and insurance expense, all of which are reported in Income (loss) from discontinued operations before income tax expense in our consolidated income statements. The management fees/income provided by the management agreements are considered intercompany transactions and therefore eliminated upon consolidation of VIEs.

VIE net income (including the management fee) for the years ended December 31, 2025 and 2024 is included in Income (loss) from discontinued operations before income tax expense and income tax expense from discontinued operations in the consolidated income statements as follows:

The carrying amount of the VIEs’ assets and liabilities is included in discontinued operations as of December 31, 2025 and 2024 in the consolidated balance sheets as follows:

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. We continually monitor our positions with, and the credit quality of, the financial institutions with which we invest. As of the balance sheet date and periodically throughout the period, we have maintained balances in various operating accounts in excess of federally insured limits. We invest our cash primarily in short-term bank deposits and money market funds. We had $19.2 million andzero cash equivalents invested in money market funds as of December 31, 2025 and 2024, respectively.

Restricted Cash

Restricted cash relates to cash that franchisees and company-owned or managed clinics contribute to our National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with our Franchise Disclosure Document with a focus on regional and national marketing and advertising. While such cash balance is not legally segregated and restricted as to withdrawal or usage, our accounting policy is to classify these funds as restricted cash.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable primarily represent amounts due from franchisees for royalty and software fees. Receivables are unsecured; however, the franchise agreements provide us the right to withdraw funds from the franchisee’s bank account or to terminate the franchise for nonpayment. We record an allowance for credit losses as a reduction to our accounts receivables for amounts that we do not expect to recover. An allowance for credit losses is determined through assessments of collectability based on historical trends, the financial condition of our franchisees, including any known or anticipated bankruptcies, and an evaluation of current economic conditions, as well as our expectations of conditions in the future. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of December 31, 2025, we had a $0.4 million allowance for credit losses. As of December 31, 2024, we had a $0.2 million allowance for credit losses on accounts receivable.

The following table provides a rollforward of the activity related to our allowance for credit losses:

Deferred Franchise Costs and Regional Development Costs

Deferred franchise and regional development costs represent commissions that are direct and incremental to us and are paid in conjunction with the sale of a franchise license or regional development rights. These costs are recognized as an expense, in franchise and regional development cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise or regional developer agreement.

Property and Equipment

Property and equipment are stated at cost and relate mostly to the corporate headquarters leasehold improvements, its furniture and fixtures and other office and computer equipment. Depreciation is computed using the straight-line method over estimated useful lives, which is generally three toten years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the assets. Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. We recorded Net loss on disposition or impairment of $8 thousand and $17 thousand in our consolidated income statements related to continuing operations for the years ended December 31, 2025 and 2024, respectively.

Capitalized Software

We capitalize certain software development costs, including costs to implement cloud computing arrangements that is a service contract. These capitalized costs are primarily related to software used by clinics for operations and by us for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Internally developed software is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internally developed software is amortized on a straight-line basis over its estimated useful life, which is generally three tofive years. Implementation costs incurred in connection with a cloud computing arrangement that is a service contract are included in prepaid expenses in our consolidated balance sheets.

Leases

We lease property and equipment under operating and finance leases. We lease our corporate office space and the space for each of the company-owned or managed clinics in the portfolio. We recognize a right-of-use (“ROU”) asset and lease liability for all leases. The lease for our corporate office space is recognized as a ROU and lease liability in our consolidated balance sheets as continuing operations while all other leases for each of the company-owned or managed clinics are reported in discontinued operations. Certain leases includeone or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at our sole discretion and, as such, we typically determine that exercise of these renewal options is not reasonably certain. As a result, we do not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the ROU asset and lease liability. When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. In such cases, we estimate our incremental borrowing rate as the interest rate we would pay to borrow an amount equal to the lease payments over a similar term, with similar collateral as in the lease, and in a similar economic environment. We estimate these rates using available evidence such as rates imposed by third-party lenders to us in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to our estimated creditworthiness.

For operating leases that include rent holidays and rent escalation clauses, we recognize lease expense on a straight-line basis over the lease term from the date we take possession of the leased property. Pre-opening costs are recorded as incurred in general and administrative expenses. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased corporate office space are expensed as incurred in general and administrative expenses on the consolidated income statements. Any variable costs associated with the leased property for company-owned or managed clinics are expensed as incurred and are included in Income (loss) from discontinued operations before income tax expense in our consolidated income statements.

During the years ended December 31, 2025 and 2024, certain leases related to discontinued operations were terminated early with the landlord as a result of corporate clinic closures. The net losses to terminate the leases were recorded in Income (loss) from discontinued operations before income tax expense in our consolidated income statements of $1.4 million for the year ended December 31, 2025 and $0.4 million for the year ended December 31, 2024.

Intangible Assets

Intangible assets consist primarily of reacquired franchise rights and customer relationships. All of our intangible assets are reported in discontinued operations. We amortize the fair value of reacquired franchise rights over the remaining contractual terms of the reacquired franchise rights at the time of the acquisition, which generally range fromone tonine years. The fair value of customer relationships is amortized over their estimated useful life oftwo tofour years. Intangible assets are attributable entirely to discontinued operations.

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions of franchises. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are tested for impairment annually and more frequently if a triggering event occurs that makes it more likely than not that the fair value of a reporting unit is below carrying value. As required, we perform an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if a triggering event occurs. Goodwill is attributable entirely to discontinued operations.

During the fourth quarter of 2025, we performed a quantitative assessment of the fair value of the reporting unit and concluded that the fair value of the corporate clinic reporting unit exceeded its carrying value. The fair value of the reporting unit was determined using Level 2 inputs, which includes a potential buyer agreed-upon selling price, or Level 3 inputs, which includes consideration of a market approach using a multiple of earnings assumption based on clinic-level historical financial performance as well as an income approach using discounted cash flow models that use significant unobservable inputs and assumptions.

No impairment of goodwill was recorded for the years ended December 31, 2025 and 2024.

Discontinued Operations

In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as discontinued operations, we first analyze whether the group of assets being disposed of represents a component of the entity or group of components of the entity. A component typically has historic operations and cash flows that are clearly distinguishable for both operations and financial reporting purposes. In addition, we consider whether the disposal represents a strategic shift that has or will have a major effect on our operations and financial results. This strategic shift could include a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity.

We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of its carrying amount or fair value less cost to sell. When a portion of a reporting unit that constitutes a business is to be disposed of, the goodwill associated with that business is included in the carrying amount of the business based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. See Note 3, Divestitures for additional information.

Long-Lived Assets - Continuing Operations

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. We look primarily to estimated undiscounted future cash flows in our assessment of whether or not long-lived assets are recoverable. We record an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value. During the year ended December 31, 2024, certain long-lived asset groups were determined to not be recoverable and were written down from their carrying values to their respective fair values resulting in the following non-cash impairment losses which are included in Net loss on disposition or impairment related to continuing operations. Net impairment losses on long-lived assets were not material for the year ended December 31, 2025.

Long-Lived Assets - Discontinued Operations

During the year ended December 31, 2024, certain long-lived asset groups classified as held and used were determined to not be recoverable were written down from their carrying values to their respective fair values resulting in the following non-cash impairment losses which are included in Income (loss) from discontinued operations before income tax expense in the consolidated income statements.

Long-lived assets that meet the criteria for the held for sale designation are reported at the lower of their carrying value or fair value less estimated cost to sell. As a result of its evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the clinics estimated fair values, we recorded an estimated net loss on disposal, which is included in Income (loss) from discontinued operations before income tax expense in the consolidated income statements:

A valuation allowance of $6.3 million and $5.1 million as of December 31, 2025 and 2024, respectively, are included in Discontinued operations current assets on the consolidated balance sheets.

The following table shows the composition of our impairment losses and disposal gains and losses recorded in Income (loss) from discontinued operations before income tax expense for the years ended December 31, 2025 and 2024:

Advertising Fund

We have established an advertising fund for national or regional marketing and advertising of services offered by our clinics. The monthly marketing fee is 2% of clinic sales. We segregate the advertising funds collected and any unspent amounts, if applicable, are included in restricted cash on our consolidated balance sheets. As amounts are expended from the fund, we recognize a related expense. Such costs are included in selling and marketing expenses on the consolidated income statements.

Co-Op Marketing Funds

Some franchises have established regional Co-Ops for advertising within their local and regional markets. We maintain a custodial relationship under which the Co-Op Marketing Funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The Co-Op Marketing Funds are included in restricted cash on our consolidated balance sheets.

Revenue Recognition

We generate revenue primarily through company-owned or managed clinics and through royalties, franchise fees, advertising fund contributions, IT related income and computer software fees from our franchisees.

Revenues from Company-Owned or Managed Clinics. We earn revenues from clinics that we own and operate or manage throughout the United States. Revenues from clinics that we own and operate are recognized when services are performed and are related to discontinued operations. We offer a variety of membership and wellness packages which feature discounted pricing as compared with our single-visit pricing. Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service is performed. Any unused visits associated with monthly memberships are recognized on a month-to-month basis. We recognize a contract liability (or a deferred revenue liability) related to the prepaid treatment plans for which we have an ongoing performance obligation. We derecognize this contract liability, and recognize revenue, as the patient consumes his or her visits related to the package and we transfer our services. If we determine that it is not subject to unclaimed property laws for the portion of the package that we do not expect to be redeemed (referred to as “breakage”), then we recognize breakage revenue in proportion to the pattern of exercised rights by the patient.

Royalties and Advertising Fund Revenue. We collect royalties, as stipulated in the franchise agreement, equal to 7% of gross sales, and a marketing and advertising fee currently equal to 2% of gross sales. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which generally requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price). As the franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement, such sales-based royalties are recognized as franchisee clinic level sales occur. Royalties are collected semi-monthly, two working days after each sales period has ended.

Franchise Fees. We require the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of 10 years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement. Our services under the franchise agreement include the training of franchisees and staff, site selection, construction/vendor management and ongoing operations support. We provide no financing to franchisees and offer no guarantees on their behalf. The services provided by us are highly interrelated with the franchise license and as such are considered to represent a single performance obligation. Renewal franchise fees, as well as transfer fees, are also recognized as revenue on a straight-line basis over the term of the respective franchise agreement.

Software Fees. We collect a monthly fee from our franchisees for the use of our proprietary chiropractic software, computer support and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement.

Capitalized Sales Commissions. Sales commissions earned by the regional developers and our sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.

Upfront Regional Developer Rights Fees

We have a regional developer program where regional developers are granted an exclusive geographical territory and commit to a minimum development obligation within that defined territory. Upon granting of the exclusive rights to develop a territory, a regional developer will pay an upfront fee to us. Upfront regional developer fees represent consideration received from a vendor to act as our agent within an exclusive territory. The upfront regional developer rights fee is accounted for as a reduction of cost of revenues, in franchise and regional development cost of revenues, to offset the respective future commissions paid to the regional developer. The fees are ratably recognized over the term of the related regional developer agreement.

Regional developers receive fees which are funded by the initial franchise fees collected from franchisees upon the sale of franchises within their exclusive geographical territory and a royalty of 3% of sales generated by franchised clinics in their exclusive geographical territory. Initial fees related to the sale of franchises within their exclusive geographical territory are initially deferred as deferred franchise costs and are recognized as an expense in franchise cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise agreement. Royalties of 3% of sales generated by franchised clinics in their regions are also recognized as franchise cost of revenues as franchisee clinic level sales occur. This 3% fee is funded by the 7% royalties we collect from the franchisees in their regions. Certain regional developer agreements result in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, fees collected from the sale of the royalty stream is recognized as a decrease to franchise and regional developer cost of revenues over the remaining life of the respective franchise agreements.

Regional Developer Rights Contract Termination Costs

From time to time, subject to our strategy, regional developer rights are reacquired by us, resulting in a termination of the contract. The termination costs to reacquire the regional developer rights are recognized at fair value, less any unrecognized upfront regional developer fee liability balance, as a general and administrative expense in the period in which the contract is terminated in accordance with the contract terms and are recorded within general and administrative expenses.

Advertising Costs

Advertising costs are advertising and marketing expenses incurred by us, primarily through advertising funds. We expense production costs of commercial advertising upon first airing and expenses the costs of communicating the advertising in the period in which the advertising occurs. Advertising expenses, excluding National Marketing Fund costs, were $0.6 million and $0.8 million for the years ended December 31, 2025 and 2024, respectively.

Income Taxes

Income taxes are accounted for using a balance sheet approach known as the asset and liability method. The asset and liability method accounts for deferred income taxes by applying the statutory tax rates in effect at the date of the consolidated balance sheets to differences between the book basis and the tax basis of assets and liabilities. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The differences relate principally to depreciation of property and equipment and treatment of revenue for franchise fees and regional developer fees collected. Tax positions are reviewed at least quarterly and adjusted as new information becomes available. The recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These estimates of future taxable income inherently require significant judgment. To the extent it is considered more likely than not that a deferred tax asset will be not recovered, a valuation allowance is established. We applied the intra-period allocation rules under ASC 740-20-45-1 to allocate the tax provision between continuing operations and discontinued operations. The tax provision amount reported as Income tax expense and disclosed at Note 9, Income Taxes is all related to continuing operations and the remaining provision amount is allocated as discontinued operations and reported as Income tax expense from discontinued operations for the years ended December 31, 2025 and 2024.

We account for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We have identified $0.6 million and $0.9 million in uncertain tax positions related to our VIEs in discontinued operations as of December 31, 2025 and 2024, respectively. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.

With exceptions due to the generation and utilization of net operating losses or credits, as of December 31, 2025, we are no longer subject to federal and state examinations by taxing authorities for tax years before 2022 and 2021, respectively.

Earnings (Loss) per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by giving effect to all potentially dilutive common shares including restricted stock and stock options. Diluted earnings (loss) per common share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

Potentially dilutive securities excluded from the calculation of diluted net income (loss) per common share as the effect would be anti-dilutive were as follows:

Stock-Based Compensation

We account for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. We determine the estimated grant-date fair value of restricted shares using the closing price on the date of the grant and the grant-date fair value of stock options using the Black-Scholes-Merton model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. We recognize compensation costs ratably over the period of service using the straight-line method. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%.

Retirement Benefit Plan

Our employees are eligible to participate in a defined contribution retirement plan, the Joint Corp. 401(k) Retirement Plan (the “401(k) Plan”), under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, employees may contribute their eligible compensation, not to exceed the annual limits set by the IRS. The 401(k) Plan allows us to match participants’ contributions in an amount determined in our sole discretion. We matched participants’ contributions for the years ended December 31, 2025 and 2024, up to a maximum of 4% of the employee’s eligible compensation. Employer contributions for both continuing and discontinued operations totaled $0.6 million for each of the years ended December 31, 2025 and 2024.

Loss Contingencies

ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, if an accrual is not required, we provide additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on us. Legal costs to be incurred in connection with a loss contingency are expensed as such costs are incurred.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include loss contingencies, share-based compensations, useful lives and realizability of long-lived assets, deferred revenue and revenue recognition related to breakage, deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, intangible assets, other long-lived assets, and purchase price allocations and related valuations. Deferred revenue related to breakage, goodwill and intangible assets are related to discontinued operations. Refer to Note 3, Divestitures for more information on discontinued operations.

Recently Adopted Accounting Guidance and Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold. ASU 2023-09 also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis, with a retrospective option, and early adoption is permitted. We have adopted ASU 2023-09 for the 2025 annual period on a retrospective basis. Refer to Note 9, Income Taxes for the revised disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within the reported measure(s) of a segment’s profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment’s profit or loss to assess performance and decide how to allocate resources. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, applied retrospectively with early adoption permitted. We have adopted ASU 2023-07 for the 2024 annual period and have identified no material effect on our consolidated financial statements or disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03 will require us to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the consolidated statements of operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require us to disclose both the amount and our definition of selling expenses. The transition method is prospective with the retrospective method permitted and will be effective for our annual period ending December 31, 2027 and interim periods for the interim period beginning January 1, 2028. We are currently evaluating the impact of adoption of ASU 2024-03 on our consolidated financial statements and disclosures.

Note 2: Revenue Disclosures

Franchising Fees, Royalty Fees, Advertising Fund Revenue, and Software Fees

As of December 31, 2025, we had 885 franchised clinics in operation,82 clinic licenses sold but not yet developed and 57 executed letters of intent for future clinic licenses. The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires us to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with our past or ongoing activities. The nature of our promise in granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by us are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise arrangement primarily consists of (a) initial franchise fees, (b) continuing franchise fees (royalties), (c) advertising fees, and (d) software fees. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which otherwise requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price).

We recognize the primary components of the transaction price as follows:

•Initial and renewal franchise fees, as well as transfer fees, are recognized as revenue ratably on a straight-line basis over the term of the respective franchise agreement commencing with the execution of the franchise, renewal, or transfer agreement. As these fees are typically received in cash at or near the beginning of the contract term, the cash received is initially recorded as a contract liability until recognized as revenue over time.

•We are entitled to royalties and advertising fees based on a percentage of the franchisee’s gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee’s sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the consolidated balance sheets.

•We are entitled to a software fee, which is charged monthly. We recognize revenue related to software fees ratably on a straight-line basis over the term of the franchise agreement.

In determining the amount and timing of revenue from contracts with customers, we exercise significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment as it is based on either the franchise term or the reported sales of the franchisee, neither of which requires estimation. We believe that our franchising arrangements do not contain a significant financing component.

We recognize advertising fees received under franchise agreements as advertising fund revenue.

Capitalized Sales Commissions

Sales commissions earned by the regional developers and our sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.

Disaggregation of Revenue

We believe that the captions contained on the consolidated income statements appropriately reflect the disaggregation of our revenue by major type for the years ended December 31, 2025 and 2024. Other revenues primarily consist of merchant income associated with preferred vendor royalties associated with franchisees’ credit card transactions.

The following table shows our revenues disaggregated according to the timing of transfer of services:

Rollforward of Accounts Receivable

Changes in our accounts receivable, net during the years ended December 31, 2025 and 2024 were as follows:

Changes in our contract liability for deferred franchise fees during the years ended December 31, 2025 and 2024 were as follows:

Our deferred franchise and development costs represent capitalized sales commissions. Changes during the years ended December 31, 2025 and 2024 were as follows:

The following table illustrates revenues expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of December 31, 2025. We have elected to exclude short term contracts, sales and usage-based royalties and any other variable consideration recognized on an “as invoiced” basis.

Note 3: Divestitures

Corporate Clinic Segment Divestiture

In 2023, we initiated plans to refranchise the majority of our company-owned or managed clinics with plans to retain a small portion of high-performing clinics. During the third quarter of 2024, we expanded the refranchising plan to include additional clinic markets of company-owned or managed clinics, marketing the clinics in clusters grouped by proximity to larger private equity firms. Because we have formalized a plan to sell our entire corporate clinic reportable segment, we have concluded that the overall refranchising plan represents a strategic shift that will have a major effect on our operations and financial results.

Since December 31, 2024, the corporate clinics classified as held for sale are reported separately as discontinued operations in the consolidated income statements and consolidated balance sheets. As permitted, we elected not to adjust the consolidated statements of cash flows for the years ended December 31, 2025 and 2024 to exclude cash flows attributable to discontinued operations. Accordingly, we disclosed the depreciation and amortization, capital expenditures and significant operating and investing non-cash items related to the corporate clinic segment below.

The key components of Net income (loss) from discontinued operations that were included in our consolidated income statements are as follows:

The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in our consolidated balance sheets:

The key components of cash flows from discontinued operations are as follows:

The clustered clinics are in varying stages of sales negotiations with approximately all of the company-owned or managed clinics expected to be recognized as a completed sale withinone year with an estimated fair value of $2.6 million at December 31, 2025. Effective with the designation as held for sale, we discontinued recording depreciation on property and equipment, net, amortization of intangible assets, net and amortization of ROU assets for the clinics as required by GAAP. We reported the related assets and liabilities of the clinics as held for sale as discontinued operations in our December 31, 2025 and 2024 consolidated balance sheets.

Long-lived assets that meet the criteria for the held for sale designation are reported at the lower of their carrying value or fair value less estimated cost to sell. As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the clinics estimated fair values, we recorded an estimated loss on disposal of $2.7 million and $4.5 million for the years ended December 31, 2025 and 2024, respectively, in Income (loss) from discontinued operations before income tax expense in our consolidated income statements and a valuation allowance included in discontinued operations current assets in our consolidated balance sheets.

During the year ended December 31, 2025, in connection with the sale of company-owned or managed clinics classified as held for sale as of December 31, 2024 for a combined sales price of $7.8 million, we sold $16.4 million assets held for sale, net of a $1.0 million valuation allowance and $7.4 million of liabilities to be disposed of in the consolidated balance sheets as of December 31, 2024. As a result of the sales, we recorded a loss of $0.6 million included in Income (loss) from discontinued operations before income tax expense on the consolidated income statements for the year ended December 31, 2025.

During the year ended December 31, 2024, in connection with the sale of company-owned or managed clinics classified as held for sale as of December 31, 2023 for a combined sales price of $0.6 million, we sold $1.3 million assets held for sale, net of a $0.1 million valuation allowance and $0.8 million of liabilities to be disposed of in the consolidated balance sheets as of December 31, 2023. As a result of the sales, we recorded a gain of $0.1 million included in Income (loss) from discontinued operations before income tax expense on the consolidated income statements for the year ended December 31, 2024.

The principal components of the held for sale assets and liabilities to be disposed of as of December 31, 2025 and 2024 were as follows:

The pre-tax income of the clinics designated as held for sale as of December 31, 2025 was $4.6 million and $4.7 million for the years ended December 31, 2025 and 2024, respectively, the results of which exclude the allocation of corporate overhead.

Note 4: Property and Equipment

Property and equipment consist of the following:

Depreciation expense was $1.6 million and $1.4 million for the years ended December 31, 2025 and 2024, respectively.

Construction in progress at December 31, 2025 and 2024 related primarily to internal use software in development.

Note 5: Fair Value Consideration

Our financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses. The carrying amounts of our financial instruments, excluding cash equivalents, approximate their fair value due to their short maturities. Cash equivalents consist of money market funds for which cost approximates fair values. Cash equivalents have an approximate fair value of $19.2 million as of December 31, 2025, which was determined using Level 1 inputs.

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of our company. Unobservable inputs are inputs that reflect our assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of December 31, 2025 and 2024, we did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.

Our non-financial assets, included in both continuing and discontinued operations, which primarily consist of goodwill, intangible assets, property, plant and equipment, and operating lease ROU assets, are not required to be measured at fair value on a recurring basis, and instead are reported at their carrying amount. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying amount may not be fully recoverable (and at least annually for goodwill), non-financial assets are assessed for impairment. If the fair value is determined to be lower than the carrying amount, an impairment charge is recorded to write down the asset to its fair value, which is considered Level 3 within the fair value hierarchy.

The assets and liabilities resulting from acquisitions, included in discontinued operations, were recorded at fair values on a nonrecurring basis at the date of acquisition and are considered Level 3 within the fair value hierarchy.

Long-lived assets that meet the held for sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. The estimated fair values of the company-owned or managed clinics classified as Held for Sale (see Note 3, Divestitures) were recorded in discontinued operations current assets at fair values on a nonrecurring basis and are based upon Level 2 inputs, which includes a potential buyer agreed-upon selling price or Level 3 inputs, which includes consideration of a market approach using a multiple of earnings assumption based on clinic-level historical financial performance as well as an income approach using discounted cash flow ("DCF") models that use significant unobservable inputs and assumptions. Key inputs in the DCF models included projected cash flows over a 10-year forecast period, based on clinic-level historical financial performance and management's expectations of future operating results. A terminal value was estimated using the Gordon Growth Model for locations with positive cash flows. For locations with projected negative cash flows, no terminal value was assigned, as these clinics were assumed to cease operations upon lease termination. The future cash flows and terminal value were discounted to present value using a discount rate of 13.5% for clinics with positive cash flows and 4.2% for clinics with negative cash flows, which reflect the risk profile of the underlying operations and market conditions as of the measurement date. The fair value measurement of the assets held for sale as of December 31, 2025, which included all company-owned or managed clinics, was recorded as $0.1 million based upon Level 2 inputs and $2.5 million based upon Level 3 inputs. As a result, we maintain a valuation allowance of $6.3 million to adjust the carrying value of the disposal group to fair value less cost to sell as of December 31, 2025. The fair value measurement of the assets held for sale as of December 31, 2024, which included all company-owned or managed clinics, was recorded as $0.4 million based upon Level 2 inputs and $26.9 million based upon Level 3 inputs as of December 31, 2024. As a result, we recorded a valuation allowance of $5.1 million to adjust the carrying value of the disposal group to fair value less cost to sell during the year ended December 31, 2024.

Long-lived assets classified as held and used where the asset group was not determined to be recoverable are tested for impairment. During the years ended December 31, 2025 and 2024, in connection with the planned sale or determined closure of certain company-owned or managed clinics, we recorded an impairment loss ofzero and $2.7 million, respectively, included in Income (loss) from discontinued operations before income tax expense in our consolidated income statements for impairment of long-lived assets classified as held and used where the asset group was not determined recoverable. The asset group was determined to be the clinic level, as this is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The long-lived assets fair values were determined by the following: Level 1 inputs, which included observable inputs from executed lease termination agreements; Level 2 inputs where available, which included using a valuation multiple (e.g., price per square foot) based on observable prices for comparable long-lived assets; and Level 3 inputs, which included a multiple of earnings assumption using our historical earnings trend data, comparable historical asset sales by us and franchisees that were not exact matches, and (for calculating the fair value of intangible assets specifically) our historical experience, future projections and comparable market data include future cash flows, long-term growth rates, attrition rates and discount rates. Generally, a change in the assumption used for the multiple inputs would have resulted in a directionally similar change of the fair value measurement where a multiple of earnings assumption was used.

The carrying values of these asset groups impaired to their fair value during the year ended December 31, 2024 included ROU assets of $5.8 million that were written down to $4.3 million determined by Level 1 and Level 2 inputs. The carrying values of these asset groups impaired to their fair value also included property and equipment of $3.9 million that were written down to $2.8 million and reacquired rights of $299 thousand that were written down to $253 thousand both determined by Level 3 inputs discussed above. The carrying value for nearly all company-owned or managed asset groups were reclassified to assets held for sale as of December 31, 2024.

Note 6: Debt

Credit Agreement

On February 28, 2020, we entered into a Credit Agreement (the “Credit Agreement”), with JPMorgan Chase Bank, N.A., individually, and as Administrative Agent and Issuing Bank (“JPMorgan Chase” or the “Lender”). The Credit Agreement provided for senior secured credit facilities (the “Credit Facilities”) in the amount of $7.5 million, including a $2.0 million revolver (the “Revolver”) and a $5.5 million development line of credit (the “Line of Credit”). The Revolver included amounts available for letters of credit of up to $1.0 million and an uncommitted additional amount of $2.5 million. All outstanding principal and interest on the Revolver were due on February 28, 2022.

On February 28, 2022, we entered into an amendment to the Credit Facilities (as amended, the “2022 Credit Facility”) with the Lender. Under the 2022 Credit Facility, the Revolver increased to $20.0 million (from $2.0 million), the portion of the Revolver available for letters of credit increased to $5.0 million (from $1.0 million), the uncommitted additional amount increased to

$30.0 million (from $2.5 million) and the developmental line of credit of $5.5 million was terminated. The Revolver will be used for working capital needs, general corporate purposes and for acquisitions, development and capital improvement uses. At our option, borrowings under the 2022 Credit Facility bear interest at: (i) the adjusted Secured Overnight Financing Rate (“SOFR”), which is the daily simple SOFR, plus 0.10%, plus 1.75%, payable on the last day of the selected interest period of one, three or six months, and on the three-month anniversary of the beginning of any six-month interest period, if applicable; or (ii) an Alternative Base Rate (ABR), plus 1.00%, payable monthly. The ABR is the greatest of: (A) the prime rate (as published by the Wall Street Journal), (B) the Federal Reserve Bank of New York rate, plus 0.5%, and (C) the adjusted one-month term SOFR rate. Amounts outstanding under the Revolver on February 28, 2022 continued to bear interest at the rate selected under the Credit Facilities prior to the amendment until the last day of the interest period in effect, at which time, if not repaid, the amounts outstanding under the Revolver will bear interest at the 2022 Credit Facility rate. The 2022 Credit Facility will terminate and all principal and interest will become due and payable on the fifth anniversary of the amendment (February 28, 2027). On January 17, 2024, we paid down the outstanding balance on our Debt under the Credit Agreement of $2.0 million.

The Credit Facilities contain customary events of default, including but not limited to nonpayment; material inaccuracy of representations and warranties; violations of covenants; certain bankruptcies and liquidations; cross-default to material indebtedness; certain material judgments; and certain fundamental changes such as a merger or sale of substantially all assets (as further defined in the Credit Facilities). The Credit Facilities require us to comply with customary affirmative, negative and financial covenants, including minimum interest coverage and maximum net leverage. A breach of any of these operating or financial covenants would result in a default under the Credit Facilities. If an event of default occurs and is continuing, the lenders could elect to declare all amounts then outstanding, together with accrued interest, to be immediately due and payable. The Credit Facilities are collateralized by substantially all of our assets, including the assets in our company-owned or managed clinics. We intend to use the Revolver for general working capital needs.

On September 30, 2025, we entered into a consent and third amendment to the Credit Agreement (as amended, the “2025 Credit Facility”) with the Lender. Among other things, the 2025 Credit Facility contains the consent of the Lender to our refranchising of all company-owned or managed clinics which would have triggered certain default events included in the Credit Agreement. The 2025 Credit Facility also extended the maturity date of the Credit Facilities to August 31, 2027.

As of December 31, 2025, there areno outstanding balances under our Credit Facilities or the 2025 Credit Facility. As of December 31, 2025, we were in default of our Credit Facilities due to a violation of our fixed charge coverage ratio covenant primarily due to stock repurchases under the 2025 SRP, which constitute restricted payments. This prohibits our ability to draw upon our $20.0 million Revolver under the 2022 Credit Facility until the covenant violation is resolved.

In connection with the issuance of the Credit Facilities and the 2022 Credit Facility, we incurred debt issuance costs of $53 thousand and $76 thousand, respectively. Interest expense and amortization expense related to debt issuance costs are being amortized to “Other expense, net” and was $22 thousand and $79 thousand for the years ended December 31, 2025 and 2024, respectively.

Note 7: Stockholders' Equity

Stock Repurchase Program

On June 3, 2025, our Board of Directors approved the 2025 SRP to repurchase up to $5.0 million of our common stock, par value $0.001 per share, from time to time until June 3, 2027 or such other date as we have exhausted, or the Board of Directors otherwise terminates, the repurchase authorization. On November 4, 2025, the Board of Directors authorized an additional $12.0 million under the 2025 SRP and extended the repurchase date through November 4, 2027.

The timing, volume, price, and terms of the repurchases will depend on market and business conditions, applicable legal requirements, and other factors. The repurchases may be made on the open market, in privately negotiated transactions, or in such other manner (e.g., accelerated share repurchase transactions, block trades, derivatives, or otherwise) that complies with the terms of applicable federal and state securities laws and regulations.

During the year ended December 31, 2025, we repurchased $11.3 million of common stock at an average price of $8.73 per share, excluding related costs and fees. As of December 31, 2025, we had a remaining $5.7 million authorized for repurchasing shares of our common stock. All shares of common stock that we repurchased are held as treasury stock.

Treasury Stock

During the years ended December 31, 2025 and 2024, shares of common stock at a total cost of $8 thousand and $10 thousand, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock awards. hares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased by us but are not part of publicly announced stock repurchase programs.

Note 8: Stock-Based Compensation

We grant stock-based awards under our 2024 Incentive Stock Plan (the “2024 Plan”). The shares issued as a result of stock-based compensation transactions generally have been funded with the issuance of new shares of our common stock.

We may grant the following types of incentive awards under the 2024 Plan: (i) non-qualified stock options; (ii) incentive stock options; (iii) stock appreciation rights; (iv) restricted stock; and (v) restricted stock units. Each award granted under the 2024 Plan is subject to an award agreement that incorporates, as applicable, the exercise price, the term of the award, the periods of restriction, the number of shares to which the award pertains, and such other terms and conditions as the plan committee determines. Awards granted under the 2024 Plan are classified as equity awards, which are recorded in stockholders’ equity in our consolidated balance sheets. Through December 31, 2025, we have granted under the 2024 Plan (i) non-qualified stock options; (ii) incentive stock options; and (iii) restricted stock. There were no stock appreciation rights or restricted stock units granted under the 2024 Plan as of December 31, 2025. As of December 31, 2025,1,725,057 shares of common stock remained available for issuance under the 2024 Plan.

Stock Options

Our closing price on the date of grant is the basis of fair value of its common stock used in determining the value of share-based awards. To the extent that the value of our share-based awards involves a measure of volatility, we use available historical volatility of our common stock over a period of time corresponding to the expected stock option term. We use the simplified method to calculate the expected term of stock option grants to employees. Accordingly, the expected life of the options granted is based on the average of the vesting term, which is generally four years and the contractual term, which is generallyten years. The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%.

We didnot grant any options during the year ended December 31, 2025. We have computed the fair value of all options granted using the Black-Scholes-Merton model during the year ended December 31, 2024, using the following assumptions:

The information below summarizes the stock options activity:

The weighted-average grant-date fair value of our stock options granted during the year ended December 31, 2024 was $6.21.

The aggregate fair value of our stock options vested during 2025 and 2024 was $157 thousand and $319 thousand, respectively.

We recognize compensation costs ratably over the period of service using the straight-line method. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%. For the years ended December 31, 2025 and 2024, stock-based compensation expense for stock options was $73 thousand and $141 thousand, respectively.

Unrecognized stock-based compensation expense for stock options as of December 31, 2025 was $166 thousand, which is expected to be recognized ratably over the next 2.8 years.

Restricted Stock

Restricted stock awards granted to employees generally vest infour equal annual installments. Restricted stock awards granted to non-employee directors vest on the earlier of (i)one year from the grant date and (ii) the date of the next annual meeting of the shareholders of our company occurring after the date of grant.

The information below summarizes the restricted stock activity:

For the years ended December 31, 2025 and 2024, stock-based compensation expense for restricted stock was $1.2 million and $1.5 million, respectively. Unrecognized stock-based compensation expense for restricted stock awards as of December 31, 2025 was $2.9 million to be recognized ratably over 2.9 years.

Tax Benefits

Net income (loss) for 2025 and 2024 included pre-tax expense related to stock-based compensation of $1.3 million and $1.7 million, respectively. We recognized federal income tax benefits ofzero and $0.1 million from the exercises of stock options and restricted stock awards for 2025 and 2024, respectively.

Note 9: Income Taxes

The components of loss from continuing operations before the provision for income taxes, by taxing jurisdiction are as follows:

Income tax expense reported in the consolidated income statements is comprised of the following:

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and liabilities are provided below:

A valuation allowance of $11.3 million and $12.3 million was recorded against the deferred tax asset balance of The Joint Corp., without its VIEs, as of December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, the valuation allowance decreased by $1.0 million. As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets in each reporting jurisdiction. A significant piece of objective evidence evaluated was the cumulative loss incurred in each jurisdiction over the three-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth, in evaluating the need for a valuation allowance. As a result, we determined that it is more likely than not that The Joint Corp. will not realize its deferred tax assets as of December 31, 2025, and has recorded a valuation allowance after consideration of any recorded deferred tax liabilities.

Additionally, deferred tax assets attributable to its VIEs of $1.0 million and $1.1 million were classified as discontinued operations as of December 31, 2025 and 2024, respectively, and are related to deferred revenue. See Note 3, Divestitures for more information on discontinued operations.

The Joint Corp., without the VIEs, has federal gross net operating loss carryforwards of $10.2 million and $12.3 million as of December 31, 2025 and 2024, respectively. The federal tax effected impacts of these net operating losses were $2.1 million and $2.6 million as of December 31, 2025 and 2024, respectively. $7.8 million of the federal net operating loss as of December 31, 2025 is subject to a 20-year carryforward, with a portion beginning to expire in 2036. $2.3 million of the federal net operating loss as of December 31, 2025 has an indefinite carryforward period.

The Joint Corp., without the VIEs, has state net operating loss carryforwards of $10.2 million and $3.6 million as of December 31, 2025 and 2024, respectively. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating loss carryforwards are not utilized, a portion will begin to expire in 2026.

We have research and development credits of $14 thousand that will begin to expire in 2031 and California Alternative Minimum Tax credits of $22 thousand that do not expire.

The provision for income taxes differs from the amount calculated using the statutory federal corporate income tax rate of 21% due to the following items:

(1) State taxes in Arizona, California and Texas made up the majority (greater than 50%) of the tax effect in this category.

(2) Share based compensation includes incentive stock options, non-qualified stock options and restricted stock awards.

Changes in our income tax expense relate primarily to state income taxes (net of federal tax and permanent differences), changes in tax rates, stock compensation, shortfall/windfall on stock compensation expense, change in valuation allowance and uncertain tax positions during the year ended December 31, 2025, as compared to the year ended December 31, 2024. For the years ended December 31, 2025 and 2024, effective tax rates were (16.8)% and (0.3)%, respectively. The difference between the statutory federal income tax rate and our effective tax rate was primarily due to the uncertain tax position net impact and state taxes (net of federal taxes) for the year ended December 31, 2025. The difference between the statutory federal income tax rate and our effective tax rate was primarily due to the valuation allowance, change in tax rate and uncertain tax position for the year ended December 31, 2024.

We apply a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit or obligation as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments.

For the years ended December 31, 2025 and 2024, we had gross uncertain tax positions attributable to the VIEs, recorded as discontinued operations, of $0.6 million and $0.9 million, respectively.

As of December 31, 2025 and December 31, 2024, there were $20 thousand and $22 thousand, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. Accrued interest and penalties were $178 thousand and $202 thousand for the years ended December 31, 2025 and 2024, respectively, and recorded as other liabilities.

The amount of cash paid for income taxes (net of refunds received) was as follows:

With exceptions due to the generation and utilization of net operating losses or credits, as of December 31, 2025, we are no longer subject to federal and state examinations by taxing authorities for tax years before 2022 and 2021, respectively.

Note 10: Commitments and Contingencies

Leases

The table below summarizes the components of lease expense and income statement location for the years ended December 31, 2025 and 2024:

Supplemental information and balance sheet location related to leases for the years ended December 31, 2025 and 2024 was as follows:

Supplemental cash flow information related to leases for the years ended December 31, 2025 and 2024 were as follows:

Maturities of lease liabilities as of December 31, 2025 were as follows:

Guaranties in Connection with the Sale of the Divested Business

In connection with the sale of company-owned or managed clinics, we guaranteed 39 future operating lease commitments assumed by the buyers. We are obligated to perform under the guaranties if the buyers fail to perform under the lease agreements at any time during the remainder of the term of the lease agreements, the latest of which expires on December 31, 2033. As of December 31, 2025, the undiscounted maximum remaining lease payments totaled $5.0 million. We have not recorded a liability with respect to our obligations under the guaranties as of December 31, 2025, as we concluded that payment under the guaranties was not probable.

Litigation

In the normal course of business, we are party to litigation and claims from time to time. We maintain insurance to cover certain litigation and claims, subject to policy limits.

During the second quarter of 2024, we entered into settlement agreements from litigation related to employment matters of $1.5 million that was outside the normal course of business which we have accrued for in discontinued operations current liabilities as of December 31, 2025. The settlement is expected to be paid out during the first quarter of 2026.

Additionally, ongoing litigation related to a medical injury claim between a patient (“the Claimant”) and us filed on September 5, 2023 reached a settlement agreement on February 25, 2025. Per the terms of the settlement agreement, we and our insurance will pay the claimant $3.4 million. We accrued the settlement recorded in discontinued operations current liabilities for $3.4 million as of December 31, 2024. The expense from the accrual was offset by a receivable recorded as discontinued operations current assets from our insurance providers for $1.9 million as of December 31, 2024. The settlement was paid in full during the first quarter of 2025.

In 2025, we determined that the likelihood of a loss related to multiple lawsuits, including three cases consolidated into one class action lawsuit (but not yet certified), six individual cases related to each other by the court and two unrelated individual cases, all filed against us and a chiropractor employed by the professional corporation providing clinical services in 2024, 2025 and 2026 in the State of California became probable. The initial lawsuit was filed against us on June 6, 2024 with the Superior Court of California in Los Angeles County. The lawsuits allege, among other claims, an invasion of privacy, negligence, emotional distress, sexual harassment, unlawful recording, failure to provide a safe environment and trespass on person at one of our company-owned or managed clinics. The lawsuits are currently in discovery and trial is scheduled to begin in early 2027. We intend to continue to defend these cases vigorously, but it is not possible at this time to reasonably estimate the outcome of or any potential liability from these cases and therefore, no accrual exists as of December 31, 2025. We also note that our exposure to these cases may be limited by our insurance coverage, but the potential exposure is undetermined as of December 31, 2025.

During the year ended December 31, 2025, we incurred litigation expenses, including settlement costs related to employment matters that were outside the normal course of business, of $0.4 million, included as Income (loss) from discontinued operations before income tax expense in our consolidated income statements.

During the year ended December 31, 2024, we incurred litigation expenses, including settlement costs related to employment matters that were outside the normal course of business and a medical injury claim, of $3.0 million, included as Income (loss) from discontinued operations before income tax expense in our consolidated income statements.

Note 11: Segment Reporting

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”) to evaluate performance and make operating decisions. We have identified the Chief Executive Officer as our CODM.

Historically, we hadtwo operating business segments: (1) Corporate Clinics, and (2) Franchise Operations. The Corporate Clinics segment is comprised of the activities of the company-owned or managed clinics. In the fourth quarter of 2024, as part of our refranchising strategy, all but one of the company-owned or managed clinics in the Corporate Clinic segment met the criteria to be reported as discontinued operations as of December 31, 2024 (Refer to Note 3, Divestitures for financial information on the discontinued operating Corporate Clinics segment). Therefore, since December 31, 2024, we have hadone reportable segment: Franchise Operations. As of December 31, 2025, all company-owned or managed clinics in the Corporate Clinic segment met the criteria to be reported as discontinued operations. In accordance with Accounting Standards Codification 205-20, Discontinued Operations, expenses that in prior periods were partially allocated to the Corporate Clinic segment that are not wholly related to the activity of the segment have been recast to be presented in continuing operations, which is now Franchise Operations. Additionally, any expenses previously identified as Corporate Unallocated have been allocated entirely to the Franchise Operations segment.

The Franchise Operations segment is comprised of the operating activities of the franchise business unit. The Franchise Operations segment derives revenue primarily from customers by providing access to our franchise license, which represents symbolic intellectual property (See Note 2, Revenue Disclosures for additional details). The Franchise Operations segment is managed on a consolidated basis because all operations are located within a similar economic and regulatory environment, provide the same services and share the same business model and pricing strategies. As of December 31, 2025, the franchise system consisted of 885 clinics in operation. The accounting policies for the franchise segment are the same as those described in Note 1, Nature of Operations and Summary of Significant Accounting Policies. The CODM uses the following metrics to assess performance and determine how to allocated resources; Net Income, Gross Profit, Operating Income, and Adjusted EBITDA. Net Income, Gross Profit, and Operating Income are reported on the consolidated income statements. Adjusted EBITDA is presented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Non-GAAP Financial Measures and is reconciled back to consolidated Net loss from continuing operations on the consolidated income statements. The measure of segment assets is reported on the balance sheet as total consolidated assets. The CODM uses these financial measures to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits in the Franchise Segment or into other parts of the entity, such as new products or services, expanding into new geographic territories, acquisitions or reacquisitions, or stock buybacks. Net Income and Adjusted EBITDA are used to monitor budget verses actual results. The CODM also uses Net Income and Adjusted EBITDA in conjunction with certain non-financial metrics in competitive analysis by benchmarking to our competitors. The competitive analysis along with the monitoring of budgeted verses actual results are used in assessing performance of the segment and in establishing management’s compensation.

The following table summarizes total revenue and significant expense categories and amounts for our reportable segment that aligns with the segment level information that is regularly provided to the CODM:

(a)Other segment items, net includes interest income, acquisition related expenses, net loss on disposition or impairment, costs related to restatement filings, and restructuring costs.

Note 12: Related Party Transactions

Mr. Jefferson Gramm, Managing Partner of Bandera Partners LLC, who is a beneficial holder of more than 5% of our outstanding common stock (approximately 28% as of December 31, 2025), was appointed to the Board of Directors effective as of January 2, 2024.

In December 2020, we soldtwo franchise licenses at $40 thousand and $30 thousand each (which reflects the $10 thousand multi-unit discount for the second license per the Franchise Disclosure Document) to Marshall Gramm, who is a family member of Mr. Jefferson Gramm. In April 2020 and 2021, we soldtwo franchise licenses at $40 thousand and $30 thousand, respectively (which reflects the $10 thousand multi-unit discount for the second license per the Franchise Disclosure Document), to a franchisee of which Mr. Jefferson Gramm is a 50% co-partner in the business. In the fourth quarter of 2024, Mr. Jefferson Gramm divested his interest in the clinics to which he is a 50% co-partner in the business.

These transactions involved terms no less favorable to us than those that would have been obtained in the absence of such affiliation. Although we have no way of estimating the aggregate amount of franchise fees, royalties, advertising fund fees, IT related income and computer software fees that these franchisees will pay over the life of the franchise licenses, the franchisees affiliated with Mr. Gramm are subject to such fees under the same terms and conditions as all other franchisees.

In October 2020, Mr. Gramm loaned approximately $370 thousand to an unaffiliated franchisee that owns and operatesone franchise clinic. The loan is not secured by the assets of the business and there are no foreclosure rights. As of December 31, 2025, the remaining balance on the unsecured loan was approximately $196 thousand.

Note 13: Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years ended December 31, 2025 and 2024 is summarized below: