MEDIFAST INC

For the Years Ended December 31, 2025, 2024, and 2023

1. NATURE OF THE BUSINESS

Medifast, Inc. (the “Company” or “Medifast”) is a Delaware corporation, incorporated in 1989. The Company’s operations are primarily conducted through its wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTAVIA LLC, Jason Enterprises, Inc., Jason Properties, LLC, OPTAVIA (Hong Kong) Limited, and OPTAVIA Health Consultation (Shanghai) Co., Ltd. Medifast is the health and wellness company known for its habit-based and coach-guided lifestyle solution OPTAVIA. The Company hasone modern, United States Food and Drug Administration (the “FDA”) approved manufacturing facility located in Owings Mills, Maryland.

Medifast sells a variety of weight loss, weight management and healthy living products all based on our proprietary formulas under the Essential Fuelings, OPTAVIA ASCEND, and OPTAVIA ACTIVE categories. The Company’s product line includes approximately 74 consumable options, including, but not limited to, bars, cereal, snack straws, hot chocolate, hearty choices, oatmeal, pancakes, pudding, soft serve, shakes, smoothies, soft bakes, and soups. Medifast’s nutritional products are formulated with high-quality ingredients. The processing, formulation, packaging, labeling and advertising of the Company’s products are subject to regulation by one or more federal agencies, including the FDA, the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the United States Department of Agriculture, and the United States Environmental Protection Agency.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company’s fiscal year ends on December 31.

Use of Estimates - The preparation of financial statements in conformity with GAAP 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 reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

The Company is, from time to time, subject to a variety of litigation and similar proceedings that arise out of the ordinary course of its business. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or liquidity. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

Cash and Cash Equivalents - Cash and cash equivalents consist of cash on deposit in financial institutions, institutional money market funds and other short-term investments with a maturity of 90 days or less at the time of purchase. All credit card and debit card transactions that process in less than seven days are classified as cash and cash equivalents. The amounts due from banks for these transactions classified as cash and cash equivalents totaled$3.1 million as of December 31, 2025 and$4.8 million as of December 31, 2024.

Concentration of Credit Risk - Our cash and cash equivalents and available-for-sale debt securities are maintained at several financial institutions and the balances with these financial institutions often exceed the amount of insurance provided on such accounts by the Federal Deposit Insurance Corporation. The cash and cash equivalents generally are maintained with financial institutions with reputable credit, and therefore bear minimal credit risk. Historically, we have not experienced any losses due to such concentration of credit risk.

Fair Value of Financial Instruments - Our financial instruments include cash and cash equivalents, and investments in debt and equity securities. The carrying amounts of cash and cash equivalents approximate fair value due to their short maturities. The fair value of investments in available-for-sale debt securities are based on third-party pricing services provided by the Company’s investment advisory firm. The fair value of investments in equity securities with readily determinable fair values are based on the closing price on the last trading day of the period from the applicable exchange.

Inventories - Inventories consist principally of raw materials and packaged meal replacements held in the Company’s warehouses and outsourced distribution center. Inventories are stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor, and other indirect manufacturing costs. On a quarterly basis, management reviews inventories for unsalable or obsolete inventories.

Investments - The Company’s investments consist of debt securities classified as available-for-sale securities and equity investments with readily determinable fair values.

Available-for-sale debt securities are stated at fair value and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Interest and dividends on marketable debt securities are recognized in income when declared. Realized gains and losses, if any, are included in income.

Equity investments with readily determinable fair values are those securities in which the Company has no control or significant influence and is not the primary beneficiary. The securities are stated at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1). Gains and losses are recorded in other income (expense), net on the accompanying Consolidated Statements of Operations.

Property, Plant, and Equipment - Property, plant and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows:

(1)The depreciation life for leasehold improvements is the lesser of the estimated useful life or the term of the related lease.

(2)Capitalized costs of cloud software are reported in Other assets on the consolidated balance sheet and are amortized over an estimated useful life of 2 to 5 years.

Long-lived Asset Impairment - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Revenue Recognition - Our revenue is derived primarily from point-of-sale transactions executed over an e-commerce platform for weight loss, weight management, and other healthy living products. Revenue is recognized when control of the promised products is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products. When determining whether the customer has obtained control of the products, we consider any future performance obligations.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. Our contracts have performance obligations to fulfill and deliver products from the point of sale transaction along with the related customer reward programs.

Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a point in time accounted for substantially all of our revenue for the years ended December 31, 2025, 2024, and 2023. Revenue on these contracts is recognized when the obligations under the terms of the contract with our customer are satisfied.

Sales returns

Our return policy allows for customer returns of consumable products from the time of order until 30 days following the date of receipt, and upon our authorization. We adjust revenues for the products expected to be returned and a liability is recognized for expected refunds to customers. We estimate expected returns based on historical levels and project this experience into the future.

Customer reward programs and sales incentives

Our sales contracts may give customers the option to purchase additional products priced at a discount. Options to acquire additional products at a discount can come in many forms, such as customer reward programs and incentive offerings including pricing arrangements and promotions.

We reduce the transaction price for certain customer reward programs and incentive offerings including pricing arrangements, promotions, and incentives that represent variable consideration and separate performance obligations. The Company accounts for sales rewards that provide the customer with a material right as a separate performance obligation of the transactions, and therefore allocates consideration between the initial sale of products and the customer reward program and incentive offering. The Company discontinued its reward program in July 2025.

Shipping and handling costs

Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and are recorded in revenue in the accompanying Consolidated Statements of Operations upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of products to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Consolidated Statements of Operations.

Contract costs

We expense coach compensation and credit card fees during the period in which the corresponding revenue is earned. These costs are recorded in selling, general and administrative expense in the accompanying Consolidated Statements of Operations.

Leases - The Company determines if an arrangement is a lease at inception and categorizes leases with contractual terms longer than twelve months as either operating or finance. All the Company’s leases are operating leases. The right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments and lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense.

Advertising Costs - Advertising costs are expensed as incurred. They are recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of Operations. Advertising expense, excluding agency fees, for the years ended December 31, 2025, 2024 and 2023, amounted to $7.5 million, $14.1 million and $3.4 million, respectively.

Research and Development - The Company incurs research and development costs in connection with the development of new products and programs and clinical research activities, which are expensed as incurred. They are recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of Operations. The Company incurred $4.3 million, $4.6 million, $4.6 million in research and development expense for the years ended December 31, 2025, 2024 and 2023, respectively.

Share-Based Compensation - Share-based compensation consists primarily of restricted stock awards, performance-based share awards, and stock options granted to employees and directors. Restricted stock awards are measured at the grant date, based on the calculated fair value of the award, and are recognized as an expense over the requisite service period. Performance-based share awards are measured based on the grant-date market price of the Company's common stock adjusted by expected level of achievement over the performance period. Market and performance-based share awards that are tied to the Company's total stockholder return ("TSR") are valued using the Monte Carlo method. The fair value of the incentive stock options and non-qualified stock options is calculated using the Black-Scholes option pricing model as of the grant date and recognized over the service period.

Income Taxes - Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating losses, capital losses, and tax credit carryforwards. We evaluate the realizability of our deferred tax assets on a quarterly basis to determine whether a valuation allowance is necessary and reduce such assets to the amount that is more likely than not to be realized. This evaluation requires significant judgment and involves the consideration of all available positive and negative evidence, including our historical operating results, the existence of cumulative losses in recent years, ongoing prudent and feasible tax planning strategies, and projections of future taxable income.

The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense.

For 2025, the Company recorded $13.0 million in income tax expense, an effective tax rate of negative 231.1%, as compared to $1.7 million in income tax expense and an effective tax rate of 44.8%, for 2024. The decrease in the effective tax rate for 2025 as compared to 2024 was primarily driven by the 214.0% impact of the valuation allowance on the net deferred tax asset balance, the 34.5% impact of the tax shortfall from stock compensation, and the 23.5% impact of state taxes, partially offset by the 26.2% increase from the impact of research and development tax credits, all of which were magnified by the loss position in the current period versus the near breakeven income position in the prior year.

On July 4, 2025, the tax legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was signed into law, to provide for reconciliation pursuant to title II of H. Con. Res. 14. The provisions of the OBBBA do not significantly impact the Company’s effective tax rate but do impact timing items such as deductibility of research and development (“R&D”) costs and deductibility of newly acquired fixed assets.

Earnings Per Share - Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of shares of common stock outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of shares of common stock outstanding adjusted for the effect of dilutive common stock equivalents.

Comprehensive Income - Other comprehensive income refers to revenues, expenses, and gains and losses that are not included in net income but rather are recorded directly in stockholders’ equity. Comprehensive income consists of net income, unrealized gains and losses on available-for-sale debt securities, and foreign currency translation adjustments.

Accounting Pronouncements - Adopted in 2025

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures, including jurisdictional information, by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. Prospective application is required, though retrospective application is permitted. Entities are permitted to early adopt the standard. The Company adopted the standard during the period ended December 31, 2025 using the retrospective method. The Company's income tax disclosures are reported in Footnote 11.

Recently Issued Accounting Pronouncements - Pending Adoption

In November 2024, the FASB issued ASU 2024-03 Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“DISE”) to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The ASU is effective for public business entities for annual periods beginning after December 15, 2026. Prospective application is required, though retrospective application is permitted. Entities are permitted to early adopt the standard. The Company did not early adopt for the 2025 reporting period. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06 Internal-Use Software (Subtopic 250-40): Targeted Improvements to the Accounting for Internal-Use Software to increase the operability of the recognition guidance considering different methods of software development. The ASU is effective for public business entities for annual periods beginning after December 15, 2026. The amendments can be adopted on a prospective, modified, or retrospective basis. Entities are permitted to early adopt the standard. The Company did not early adopt for the 2025 reporting period. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements.

3. INVENTORIES

Inventories consisted of the following (in thousands):

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment consisted of the following (in thousands):

Depreciation expense for the years ended December 31, 2025, 2024 and 2023 was $10.5 million, $17.4 million and $10.0 million, respectively.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following (in thousands):

6. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted EPS for the years ended December 31, 2025, 2024 and 2023 (in thousands, except per share data):

The Company was in loss position as of December 31, 2025, and as such all awards were anti-dilutive. If the Company was not in a loss position, the calculation of diluted EPS would have included the effect of dilutive common stock equivalents of 121 thousand and would have excluded 217 thousand antidilutive restricted stock awards for the year ended December 31, 2025. The calculation of diluted EPS for the years ended December 31, 2024 and 2023 excluded 223 thousand and 24 thousand antidilutive restricted stock awards, respectively.

7. EQUITY

Authorized Shares

Pursuant to the Company’s Restated and Amended Certificate of Incorporation, the Company has the authority to issue 21.5 million capital shares consisting of: (i)20.0 million shares of common stock having a par value of $0.001 per share and (ii)1.5 million shares of preferred stock having a par value $0.001 per share. As of December 31, 2025, there were approximately 11.0 million and 0 shares of common stock and preferred stock issued, respectively.

Issuance of Additional Common Stock

The stockholders of the Company approved the Medifast, Inc. Amended and Restated 2012 Share Incentive Plan (the “Amended and Restated 2012 Plan”) that increased the number of shares of the Company’s common stock that may be awarded under the Amended and Restated 2012 Plan by 0.6 million and 0.5 million on June 18, 2025 and June 19, 2024, respectively, resulting in anaggregate of 2.7 million and 2.1 million shares available for issuance under the Amended and Restated 2012 Plan as of these dates.

Stock Repurchase Plan

The Company implemented a stock repurchase plan on September 16, 2014 (the “Stock Repurchase Plan”). On September 12, 2019, the Company's Board of Directors authorized an additional 2.0 million shares for repurchase under the Stock Repurchase Plan. The Company didnot repurchase any shares during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, there were approximately 1.3 million shares of common stock remaining under the Company’s Stock Repurchase Plan. There is no guarantee as to the exact number of shares of the Company’s common stock, if any, that will be repurchased under the Stock Repurchase Plan.

8. SHARE-BASED COMPENSATION

Stock Options:

The Company has issued non-qualified and incentive stock options to employees and non-employee directors. The fair value of these options were estimated on the date of grant using the Black-Scholes option pricing model, which required estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of December 31, 2025 generally vested over a period of 3 years and expire 10 years from the date of grant. The exercise price of these options is $66.68. Due to the Company’s lack of option exercise history on the date of grant, the expected term was calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk-free interest rate was based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponded to the expected term of the option. The expected volatility was based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. The dividend yield was computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the years ended December 31, 2025 and 2024, the Company didnot grant stock options.

The number of stock options and weighted-average exercise prices as of December 31, 2025 and 2024 are as follows:

As of December 31, 2025, the weighted-average remaining contractual life for both outstanding and exercisable stock options was 2.1 years with an aggregate intrinsic value of $0. There wasno unrecognized compensation on the awards for the period ended December 31, 2025. The Company received $0 thousand, $36 thousand, and $188 thousand in cash proceeds from the exercise of stock options during the years ended December 31, 2025, 2024, and 2023, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2025, 2024, and 2023 was $0 thousand, $15 thousand, and $440 thousand, respectively.

Restricted Stock:

The Company has granted restricted stock under the 2012 Plan to employees and non-employee directors generally with vesting terms up to 3 years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. A summary of outstanding restricted stock activity as of December 31, 2025 and 2024 are as follows:

The Company withheld approximately 27 thousand,11 thousand, and 9 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the years ended December 31, 2025, 2024, and 2023, respectively. The total fair value of restricted stock awards vested during the years ended December 31, 2025, 2024, and 2023 was $1.1 million, $1.3 million, and $8.3 million, respectively.

Market and Performance-based Share Awards:

The Company has granted market and performance-based share awards in 2022, 2023 and 2025 and performance-based share awards in 2020, 2021, and 2024 under the 2012 Plan to certain key executives who were granted deferred shares and may earn between 0% and 211% of the target number depending upon both the Company's total stockholder return ("TSR"), for those with market conditions, and the Company's performance against predetermined performance goals over athree-year performance period after the date of grant. Market and performance-based share awards that are tied to the Company's TSR are valued using the Monte Carlo method and recognized ratably as expense over the award's performance period. The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by expected level of achievement over the performance period. Expense for performance-based share awards is amortized ratably over the performance period. In the event that management determines that the Company will not reach the lower threshold of the predetermined performance goals established in the grant agreement, any previously recognized expense is reversed in the period in which such a determination is made. Management reversed previously recorded share-based compensation expenses after determining that market and performance-based share awards grants in March 2022, 2023, and 2024 would not meet predetermined performance goals. Specifically, $1.4 million was reversed for 2022 awards in December 2023, $1.4 million for 2023 awards in September 2024, and $1.2 million for 2024 awards in September 2025. The Company continues to record stock-based compensation expense on the performance-based share awards granted in March of 2023 and March of 2024 at the revised performance factor over the life of the awards.

No market and performance-based share awards were issued during the year ended December 31, 2025, as a result of the market and performance-based share awards granted in March of 2022 not reaching the lower threshold of the predetermined performance goals. The total fair value of market and performance-based share awards issued during the year ended December 31, 2024 and 2023 was$1.3 million and$5.7 million, respectively. The Company withheld approximately 8 thousand and 22 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of performance-based share awards for the years ended December 31, 2024 and 2023, respectively.

Share-based compensation expense for all types of awards is recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of Operations. The total expenses during the years ended December 31, 2025, 2024, and 2023 are as follows (in thousands):

The total income tax benefit recognized in the accompanying Consolidated Statements of Operations for stock awards was $0.6 million, $1.0 million and $0.6 million for the years ended December 31, 2025, 2024, and 2023, respectively.

There was$7.0 million of total unrecognized compensation expense related to restricted stock awards as of December 31, 2025, which is expected to be recognized over a weighted-average period of 20 months. There was$3.8 million of unrecognized compensation expense related to the 325 thousand market and performance-based shares and 38 thousand performance-based shares presented in the table above as of December 31, 2025, which is expected to be recognized over a weighted-average period of 22 months.

9. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands):

10. INVESTMENTS

Certain financial assets and liabilities are accounted for at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant.

The following tables present the Company’s cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels (in thousands):

The Company had $3.3 million and $95 thousand in realized gains for the years ended December 31, 2025, and 2024. The Company hadno realized gains or losses for the year ended December 31, 2023.

During the fourth quarter of 2023, the Company entered into an agreement with LifeMD (Nasdaq: LFMD), a leading provider of virtual primary care, to purchase shares of common stock of LifeMD for $10 million. The 180-day lock-up period expired on June 8, 2024, and the registration process was completed, effective July 18, 2024. During the second quarter of 2025, the Company sold all of its holdings in LifeMD common stock. Prior to the sale, the fair value of the investment was recorded within the investment securities. The net proceeds received from the sale were recorded within cash and cash equivalents of the

Consolidated Balance Sheets. The gains and losses related to the Company’s LifeMD investment for the year ended December 31, 2025, 2024, and 2023 are summarized in the table below (in thousands):

During the fourth quarter of 2023, the Company concurrently entered into an agreement in which LifeMD would provide services to stand-up the collaboration between LifeMD and the Company. The Company recognized $0.0 million,$5.0 million, and $5.0 million within selling, general, and administrative expenses for services performed by LifeMD for the twelve months ended December 31, 2025, 2024, and 2023.

11. INCOME TAXES

Pretax income (loss) for the years ended December 31, 2025, 2024, and 2023 consisted of the following (in thousands):

Income tax expense for the years ended December 31, 2025, 2024, and 2023 consisted of the following (in thousands):

The total provision for income taxes for the years ended December 31, 2025, 2024, and 2023 was $13.1 million, $1.6 million, and $29.5 million, respectively. Those amounts have been allocated to the following financial statement items (in thousands):

The total income tax paid or refunded for the tax years ended December 31, 2025, 2024, and 2023 was a $10.5 million payment, a $1.6 million refund, and a $34.3 million payment, respectively (in thousands):

*Jurisdiction below the threshold for the period presented

The reconciliation of the United States federal statutory tax provision to the Company’s provision for income taxes for the years ended December 31, 2025, 2024, and 2023 (in thousands, except percentages):

The makeup of the majority of the state income tax expense is comprised of state income taxes in Maryland, California, New York, Pennsylvania, Illinois, and Texas for the year ended December 31, 2025; Texas for the year ended December 31, 2024; and Texas, Pennsylvania, and Maryland for the year ended December 31, 2023.

Significant components of the Company’s deferred tax assets (liabilities) consisted of the following (in thousands):

On July 4, 2025, tax legislation entitled an Act to provide for reconciliation pursuant to title II of H. Con. Res. 14 (“the “Act”) and commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The primary provisions of the Act do not impact the Company’s effective tax rate but do impact the timing of tax deductions related to research and development costs and fixed asset expenditures after January 19, 2025.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize our existing deferred tax assets. A significant piece of objective negative evidence evaluated is our current year loss, declining financial performance in recent years, and our projections of short-term future losses. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. We have determined that the reversal of future taxable temporary differences corresponding to our deferred tax liabilities will provide a sufficient source of income for realization of a portion of our deferred tax assets. In 2025, we recorded an additional valuation allowance of $12.1 million.

We file income tax returns in the United States and various states and foreign jurisdictions. The Company has separate federal, state, and foreign net operating loss ("NOL") carry forwards totaling $49.2 million with $13.3 million of the state NOLs that start expiring in 2029. The federal NOLs do not have an expiration as do a significant portion of the state NOLs. The Company has recorded a valuation allowance for the net operating loss carry forwards which are not expected to be realized.

As of December 31, 2025, the Company had $5.6 million of gross unrecognized tax benefits, which would have a net $4.5 million impact on the effective tax rate, if recognized. As of December 31, 2024, the Company had $7.4 million of gross unrecognized tax benefits, which would have a net $6.2 million impact on the effective tax rate, if recognized. The change for 2025 primarily relates to a settlement of tax examination and for 2024 primarily relates to additional gross unrecognized benefits for current tax positions and reductions of gross unrecognized benefits for prior year tax positions and lapses in statute of limitations. The amounts of unrecognized tax benefits were as follows (in thousands):

The Company recognizes interest and penalty expenses related to unrecognized tax positions as a component of the income tax provision. As of December 31, 2025, and 2024, interest and penalties accrued were $1.3 million and $1.7 million, respectively. For 2025 and 2024, the Company recorded expenses related to interest and penalties of $0.6 million and $0.4 million, respectively. As of December 31, 2025, the current year reduction primarily relates to the settlement of a tax examination. Our tax returns are subject to examination by various federal, state, and local tax authorities. The Company believes that it has adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. Pending the resolution of two examinations, and specific to jurisdictions where the Company has filed tax returns and examination of such returns is constrained by a statute of limitations, we are no longer subject to United States federal, state, and local income tax examinations by tax authorities for years prior to 2022.

12. COMMITMENTS

Unconditional purchase obligations:

At December 31, 2025, the Company had $3.5 million in unconditional purchase obligations with a remaining term in excess of one year primarily for outsourced information technology.

13. LEASES

Operating Leases:

The Company has operating leases for office and warehouse space and certain equipment. In certain of the Company’s lease agreements, the rental payments are adjusted periodically based on defined terms within the lease. The Company did not have any finance leases for the years ended December 31, 2025 and 2024.

Our leases relating to office and warehouse space have lease terms of 65 months to 102 months. Our leases relating to equipment have lease terms of 36 months, with certain of them having clauses relating to automatic renewal clauses.

The Company’s warehouse agreements also contain non-lease components, in the form of payments towards variable logistics services and labor charges, which the Company is obligated to pay based on the services consumed by it. Such amounts are not included in the measurement of the lease liability but will be recognized as expense when they are incurred.

The operating lease expense was $4.9 million, $4.9 million and $5.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Supplemental cash flow information related to the Company’s operating leases were as follows (in thousands):

As of December 31, 2025, the weighted average remaining lease term was 3 years and the weighted average discount rate was 2.3%.

The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2025 (in thousands):

During the three months ended September 30, 2025, the Company entered into a lease agreement for new headquarters office space in 1501 South Clinton Street, Baltimore, Maryland 21224, with a lease term of 8 years and 7 months. The lease is expected to commence in March 2026, at which time the Company will record a right-of-use asset and corresponding lease liability. The Company will not renew its office space lease in 100 International Drive, Baltimore, Maryland 201202, when it expires in February 2026. As of December 31, 2025, the future minimum lease commitments related to this lease are not included in the tables above as the lease has not yet commenced.

14. DEBT

Credit Agreement

On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement (the “Credit Agreement”) among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as administrative agent. On May 31, 2022, the Credit Agreement was amended to increase the borrowing capacity and convert the interest rate to be based on Secured Overnight Financing Rate ("SOFR"), from London Inter-Bank Offered Rate (LIBOR) ("the "Amended Credit Agreement"). The Amended Credit Agreement provided for a $225.0 million senior secured revolving credit facility with a $20.0 million letter of credit sublimit. The Amended Credit Agreement also provided for an uncommitted incremental facility that permitted the Company, subject to certain conditions, to increase the senior secured revolving credit facility by up to $100.0 million. The Credit Agreement otherwise would have matured on April 13, 2026.

On October 30, 2024, the Company terminated its Amended Credit Agreement with Citibank, N.A. The Company hadno borrowings under the Amended Credit Agreement, inclusive of the credit facility and letter of credit sublimit as of the termination date.

15. SEGMENT REPORTING

The Company's OPTAVIA segment derives revenues from customers through the sale of our products which are shipped directly to customers. Our coaches help customers adopt healthy habits and learn the benefits of our products. The accounting policies of the Company's single segment are the same as those described in the Company's Significant Accounting Policies.

The Company’s chief operating decision maker (“CODM”) is the chief executive officer. The CODM assesses performance for the segment and decides how to allocate resources based on net income that also is reported on the accompanying Consolidated Statements of Operations as net income. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets. The CODM uses net income to evaluate income generated from segment assets in deciding whether to reinvest profits into the segment or into other parts of the entity, such as for share buybacks. Net income is used to monitor budget versus actual results. The CODM also uses net income in competitive analysis by benchmarking to the Company’s competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation. The Company does not have significant intra-entity sales or transfers.

The Company hasone reportable segment: OPTAVIA. The OPTAVIA segment recognizes revenue when control of the products is transferred to the customer. The segment pays commissions on the sale of products to coaches. The Company derives all of its revenue from sales within the United States and manages the business activities on a consolidated basis.

The following table presents the OPTAVIA segment's revenue, significant segment expenses, and segment net income for the years ended December 31, 2025, 2024, and 2023 (in thousands):

(1) Other income included within Segment net income includes interest income, interest expense, and realized and unrealized gains and losses on LifeMD common stock.

Segment depreciation expense for the years ended December 31, 2025, 2024, and 2023 was $10.5 million, $17.4 million and $10.0 million, respectively. Segment additions of property, plant, and equipment for the years ended December 31, 2025, 2024, and 2023 were $5.6 million, $7.5 million, and $6.5 million, respectively.

16. SUPPLY CHAIN OPTIMIZATION

During the year ended December 31, 2024, the Company completed a supply chain optimization initiative with the goal of aligning the Company’s distribution footprint with current demand levels. On June 28, 2024, the Company closed its Maryland Distribution Center located in Ridgely, Maryland. The assets within the facility were sold during the year ended December 31, 2024, with the impact reflected below as the loss of impairment of equipment held for sale. The Company identified certain other supply chain assets at other locations within its distribution network that will no longer be utilized and are no longer useful to the Company’s operations, and adjusted their respective useful lives accordingly, with the impact reflected below in the accelerated depreciation charges.

The components of the Company’s supply chain optimization charges were as follows:

The supply chain optimization charges were recorded in the Company’s accompanying Consolidated Statements of Operations as follows:

During the three months ended December 31, 2024, the Company readied and listed the Maryland Distribution Center building and land for sale. The building and land remain held for sale through December 31, 2025. The net book value of the building and land is $1.4 million. The fair value of assets exceed their carrying value andno impairment was recognized. The assets are recorded within prepaid expenses and other current assets on the Consolidated Balance Sheets. The Company closed on the sale of the land and building in February 2026.