What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-09-03 compared with 2024-08-28 · 73 added, 43 removed, 243 unchanged (32% of the section changed)

6 unchanged sentences

These changes in distribution channels could also reduce the volume of foot traffic around our salons, and in turn, our revenues may be adversely affected.

We may be unable to successfully realize the anticipated benefits of the Alline Acquisition.

On December 19, 2024, we acquired Alline, a former franchisee of Regis, which immediately prior to the acquisition owned and operated 314 stores under our Cost Cutters, Holiday Hair, and Supercuts brand names (the Alline Stores).

The success of the Alline Acquisition depends on our ability to successfully integrate the Alline Stores with our existing limited network of company-owned stores and operate the Alline Stores as company-owned stores.

The anticipated benefits of the Alline Acquisition may not be realized fully, or at all, or may take longer to realize than expected.

We may face significant challenges in realizing the anticipated benefits of the Alline Acquisition, including, without limitation:

• the diversion of management’s attention from ongoing business concerns and performance shortfalls as a result of the devotion of management’s attention to the integration of the Alline Stores and Alline personnel;

• retaining key business relationships and retaining and attracting employees and stylists;

• potential unknown liabilities associated with the Alline Acquisition;

• unforeseen expenses and delays related to the integration of Alline Stores into our system.

Many of these factors will be outside of our control and any one of them could result in increased costs or decreased revenue, which may have a materially adverse effect on our business, financial condition, and results of operation.

We are subject to laws and regulations that could require us to modify our current business practices and incur increased costs, which could have an adverse effect on our business, financial condition, and revenues.

1 unchanged sentence

Legal requirements are frequently changed and subject to interpretations, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.

If we or our franchisees fail to comply with any present or future laws or regulations, we or they could be subject to future liabilities or a prohibition on the operation of salons.

If we or our franchisees fail to comply with any present or future laws or regulations, we or they could be subject to future liabilities or a prohibition on the operation of salons and we could be prohibited from offering franchises for sale in certain states.

A number of U.S.

25 unchanged sentences

Changes to the U.S., Canada, and U.K.'s economies have an impact on our business.

General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders, and other casualty events that influence consumer confidence and spending, may impact our business and results of operations.

General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, tariffs, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders, and other casualty events that influence consumer confidence and spending, may impact our business and results of operations.

In particular, visitation patterns to our salons can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels.

3 unchanged sentences

Remote work arrangements reduce foot traffic in downtowns, city centers, and other business districts where our salons are located, causing a reduction in our revenue.

We were previously subject to delisting proceedings, and we may not be able to maintain compliance with the continued listing standards of any national securities exchange.

Since January 9, 2024, the Company’s common stock has traded on the Global Market tier of The Nasdaq Stock Market, LLC (Nasdaq).

The Company moved its trading to the Nasdaq after failing to regain compliance with the New York Stock Exchange's minimum market capitalization requirement.

Under Nasdaq's continued listing standards currently applicable to the Company, the Company is required to maintain, among other things, a market value of publicly held shares of at least $15.0 million.

We are currently in compliance with the Nasdaq continued listing standards.

However, if we fail to comply with the currently applicable listing standards, including with regard to the market value of the Company’s publicly held shares, we do not believe we will be able to satisfy alternative listing standards for the Nasdaq Global Market tier and we do not believe we would qualify to transfer to another Nasdaq tier;

therefore, our common stock may be delisted from Nasdaq.

If, for any reason, Nasdaq were to suspend or remove our securities from trading on the Nasdaq Global Market and we were unable to qualify for listing on another tier or national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our shareholders:

• the liquidity and marketability of our common stock;

• the market price of our common stock;

• our ability to obtain financing for the continuation of our operations;

• the number of institutional and general investors that will consider investing in our common stock;

• the number of market makers in our common stock;

• the availability of information concerning the trading prices and volume of our common stock;

• the number of broker-dealers willing to execute trades in shares of our common stock.

In addition, if we ceased eligibility for trading on the Nasdaq Global Market, we may have to pursue trading on a less recognized or accepted market, such as the over-the-counter markets, our stock may be traded as a “penny stock” which would make transactions in our stock more difficult and cumbersome, and we may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock.

This may also cause the market price of our common stock to further decline.

Operating Risks

8 unchanged sentences

If we are not able to identify the right level of support and effectively deliver those resources to our franchisees, our results of operations and business may be adversely affected.

Furthermore, as a fully franchised business, we may be exposed to additional legal, compliance and operational risks specific to this business model, including the business failure of unproven new salon owners.

Furthermore, as a franchised business, we may be exposed to additional legal, compliance and operational risks specific to this business model, including the business failure of unproven new salon owners.

Materially increasing the number of salons that we own and operate could expose us to additional risk and adversely affect our financial results.

Previously, we transitioned to a fully franchised business model.

However, in connection with the Alline Acquisition, we acquired 314 stores under our Cost Cutters, Holiday Hair, and Supercuts brand names.

We now operate 294 salons, or approximately 7.5% of the salons in our system.

Operating salons can expose us to additional risks or exacerbate those risks to which we are already exposed as a franchisor.

Operating additional salons inherently increases the operating lease costs, advertising and marketing expenses, professional fees and other expenses.

Furthermore, as a result of the Alline Acquisition, we initially increased our number of employees by more than 1,600.

This increase in employees may expose us to additional liability and operating costs, such as risks associated with labor shortages, minimum wage requirements, employment taxes, increased overtime pay and benefits, increased costs for insurance, employment and labor liability, and regulatory compliance risks.

We could also be subject to additional liability such as property, environmental and other liability as a result of being a direct operator and lessee of additional salons and liability arising from regulatory compliance.

Furthermore, it may create additional costs, expose us to additional legal and compliance risks, cause disruption to our business and impact our financial condition and results of operation.

Our salons are dependent on a third-party preferred supplier agreement for merchandise.

In fiscal year 2023, we entered into a preferred supplier agreement with a supplier.

This change has reduced our product sales revenue.

We depend on a third-party preferred supplier agreement for merchandise.

If our supplier is unable to source the products at the prices expected by our franchisees, our franchisees' profitability and our profitability may be adversely impacted.

Further, events or circumstances beyond our control, including economic instability and other impactful events and circumstances in the regions in which our supplier and its manufacturers are located, the financial instability of our supplier, our supplier's failure to meet our terms and conditions or our supplier standards, product safety and quality issues, disruption or delay in the transportation of products from our supplier and its manufacturers to our salons, transport availability and cost, transport security, inflation and other factors relating to the supplier and the areas in which it operates, may adversely impact our and our franchisees' profitability.

security, inflation and other factors relating to the supplier and the areas in which it operates, may adversely impact our and our franchisees' profitability.

It is important for us and our franchisees to attract, train and retain talented stylists and salon leaders.

2 unchanged sentences

In order to profitably grow our business, it is important for our salons to attract, train and retain talented stylists and salon leaders and to adequately staff our salons.

Regulations passed by the Department of Education could reduce access to Federal financial aid for beauty schools which could reduce the number of qualified stylists to recruit if licensing requirements are not adjusted.

Regulations promulgated by the Department of Education, and changes to the Higher Education Act recently enacted as part of the "One Big Beautiful Bill Act" could reduce access to Federal financial aid for beauty schools which could reduce the number of qualified stylists to recruit if licensing requirements are not adjusted.

Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is highly competitive.

7 unchanged sentences

Our continued success depends, in part, on the success of our franchisees, which operate independently.

As of June 30, 2024, 99.6% of our salons were franchised locations.

As of June 30, 2025, approximately 92.5% of our salons were franchised locations.

We derive revenues associated with our franchised locations primarily from royalties and fees.

7 unchanged sentences

In addition, our franchisees are subject to the same general economic risks as our Company, and their results are influenced by competition for both guests and stylists, market trends, price competition and disruptions in their markets and business operations due to public health issues, including pandemics, severe weather, and other external events.

Our franchisees may be located in areas that are subject to natural disasters such as severe weather and other potential risks and costs associated with the impacts of climate change.

Like us, they rely on external vendors for some critical functions and to protect their company data.

36 unchanged sentences

Business within each of those 1,049 salons relies primarily on the traffic of visitors to the Walmart location, so our success is tied to Walmart's success in bringing shoppers into their stores.

We have limited control over the locations and markets in which we open new SmartStyle locations, as we only have potential opportunities in locations offered to us by Walmart.

We have limited control over the locations and markets in which we open new locations, as we only have potential opportunities in locations offered to us by Walmart.

Furthermore, Walmart has the right to (a) close up to 100 salons per year for any reason, upon payment of certain buyout fees;

5 unchanged sentences

Further, Walmart may attempt to impose changes to the terms and conditions of our agreements, which may be contrary to our economic interests.

Operating SmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart.

Operating these salons adds complexity in overseeing franchise compliance and coordination with Walmart.

Additionally, there are various remodel requirements of our franchisees, whether it be upon lease expiration or the remodeling of a Walmart location.

1 unchanged sentence

The cost of these remodels may be prohibitive to our franchisees and could lead to the Company bearing a portion of the cost, or closures if the remodel requirement is not satisfied.

Our future growth and profitability may depend, in part, on our ability to build awareness and drive traffic with advertising and marketing efforts and on delivering a quality guest experience to drive repeat visits to our salons.

Our future growth and profitability may depend, in part, on our ability to build awareness and drive traffic through advertising and marketing efforts and on delivering a quality guest experience to drive repeat visits to our salons.

Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons.

2 unchanged sentences

If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our salons, our business, financial condition, and results of operations may be adversely affected.

Additionally, we plan to continue expanding our digital marketing efforts, and the success of those efforts is dependent upon our franchisees’ proper continued use of Zenoti salon technology platform, accurate and consistent guest data capture, and customers continuing to opt-in to receive marketing messages from us.

Additionally, we plan to continue expanding our digital marketing efforts, and the success of those efforts is dependent upon our franchisees’ proper continued use of the Zenoti salon technology platform, accurate and consistent guest data capture, and customers continuing to opt-in to receive marketing messages from us.

Our success depends substantially on the value of our brands.

Our success depends, in large part, on our ability to maintain and enhance the value of our brands, our customers' connection to our brands and a positive relationship with our franchisees.

Declining franchisee revenue reduces the advertising funds available to invest in the brands and a decline in the Company's investment in its brands could reduce brand awareness and the overall value of our brands.

Declining revenue reduces the advertising funds available to invest in the brands and a decline in the Company's investment in its brands could reduce brand awareness and the overall value of our brands.

Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity, including via social media or if they result in litigation.

10 unchanged sentences

These management information systems may require upgrades or replacements periodically, which involve implementation and other operational risks.

In addition, our management information systems are developed and maintained by external vendors, including the Zenoti salon technology platform used by our franchisees.

In addition, our management information systems are developed and maintained by external vendors, including the Zenoti salon technology platform used by our franchisees and company-owned salons.

The failure of our management information systems to perform as we anticipate, to meet the continuously evolving needs of our business, or to provide an affordable long-term solution, could disrupt our business operations and result in other negative consequences, including remediation costs, loss of revenue and reputational damage.

9 unchanged sentences

Our vendors are also responsible for the security of certain Company data, as discussed above.

If one of our key vendors becomes unable to continue to provide products and services, if their systems fail or are compromised, or if the quality of their systems deteriorate, we may suffer operational difficulties and financial loss.

If one of our key vendors becomes unable to continue to provide products and services, if their systems fail or are compromised, or if the quality of their systems deteriorates, we may suffer operational difficulties and financial loss.

The use of social media may have an adverse effect on our reputation.

18 unchanged sentences

Any such loss or delay in payment could have a material and adverse effect on a franchisee's ability to satisfy its obligations under its franchise agreement, including its ability to make royalty payments.

We are implementing a new enterprise resource planning system, and challenges with the planning or implementation of the system may impact our internal control over financial reporting, business and operations.

We are undertaking a multi-year process of implementing an enterprise resource planning (“ERP”) system, which is a major undertaking that will replace most of our existing financial systems.

An ERP system is used to maintain financial records, enhance data security and operational functionality and resiliency, and provide timely information to management related to the operation of a business.

The implementation will require the integration of the new ERP system with existing information systems and business processes.

Our ERP planning has required, and the ongoing planning and future implementation of the new ERP will continue to require, investment of significant capital and human resources, requiring the attention of members of our management team.

Any deficiencies in the design, or delays or issues encountered in the implementation, of the new ERP

system could result in significantly greater capital expenditures and employee time and attention than currently contemplated and could adversely affect our ability to operate our business, including effective management of our invoicing and accounts receivable and collections processes, file timely reports with the SEC or otherwise affect the proper and efficient operation of our controls.

If the system as implemented, or after necessary investments, does not result in our ability to maintain accurate books and records, our financial condition, results of operations, and cash flows could be materially adversely impacted.

If we are unable to adequately plan, implement and maintain procedures and controls relating to our ERP, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired and impact the effectiveness of our internal control over financial reporting.

All of the above could result in harm to our reputation or our customers and franchisees, as well as expose us to regulatory actions or claims, any of which could materially impact our business, results of operations, financial condition and stock price.

Financial and Economic Risks

4 unchanged sentences

If we fail to comply with the terms in our existing financing arrangements, such a failure may cause a default under our financing arrangement, which could limit our ability to obtain new replacement financing or additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness.

The impacts of significant business disruptions could ultimately impair our ability to comply with our covenants, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is secured by a lien on substantially all of the Company's assets.

The impact of significant business disruptions could ultimately impair our ability to comply with our covenants, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is secured by a lien on substantially all of the Company's assets.

Premature termination of franchise agreements can cause losses.

7 unchanged sentences

Failure to manage our labor and benefit rates, advertising and marketing expenses, professional fees, operating lease costs, other expenses, or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.

Any audit by the Internal Revenue Service with respect to Alline’s receipt of an employee retention credit under The Coronavirus Aid, Relief, and Economic Security (CARES) Act could result in additional taxes or costs to Alline for which we may ultimately be liable.

Alline applied for and received an employee retention credit (ERC) under the CARES Act amounting to approximately $29 million.

In July 2023, the Internal Revenue Service (IRS) stated its intention to shift its focus to review ERC claims for compliance concerns, including intensifying audit work.

Although Alline received the amounts related to the ERC from the IRS, no formal determination regarding Alline’s eligibility to claim the ERC was received, and such eligibility remains subject to audit by the IRS.

If the IRS audits Alline during the applicable statute of limitations period and finds that Alline was not eligible to receive all or part of the ERC, Alline would be required to return some or all of the ERC to the IRS, together with any applicable interest and penalties.

While the former owners of Alline would be required to indemnify us for any such amounts required to be repaid to the IRS (together with any applicable interest and penalties, and all reasonable costs and expenses incurred by us in defending or addressing any matters related to the ERC), we may not ultimately be able to timely or fully recoup such amounts from the former owners of Alline.

If we are ultimately required to repay the ERC, and we are unable

to sufficiently recover such amounts from the former owners of Alline, our financial condition, results of operations and liquidity may be materially adversely affected.

If we are not able to successfully compete in our business markets, our financial results may be affected.

12 unchanged sentences

In addition, our business may be harmed if we lose too many individuals with institutional knowledge.

In August of 2024 we executed a workforce reduction.The risks related to the workforce reduction include the potential for business disruption, diversion of time and attention from on-going operations, loss of human capital talent, temporarily reduced productivity and the risk of failing to achieve some or all of the anticipated benefits of the organizational changes.

If we are unable to successfully manage and implement this workforce reduction, we may not achieve or sustain the expected cost savings benefits or otherwise impair our ability to continue execution of our operations and strategic plans.

Failure to attract and retain key personnel, including the Chief Executive Officer, could adversely affect the business and prospects.

On June 20, 2025, our former President, Chief Executive Officer, and Director, Matthew Doctor, resigned from his positions and as a member of our Board of Directors.

Our Board of Directors appointed our EVP Brand Operations - Supercuts and Cost Cutters, Jim Lain, to serve as interim President and CEO while the Board conducts a comprehensive search for a permanent successor.

Doctor was available in a support role until August 31, 2025.

Although we intend to hire a qualified candidate for CEO, no assurance can be given that we will be able to attract and retain a suitable CEO.

An extended period of time without a permanent CEO could potentially have an adverse effect on our operations or financial condition.

Furthermore, in the event we are unable to effect a seamless transition from our Interim CEO to a new CEO, or if a new CEO should unexpectedly prove to be unsuitable for our Company, the resulting disruption could have an adverse effect on our operations or financial condition or impede our ability to execute our strategic plan.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results and prevent or detect material misstatements due to fraud, which could reduce investor confidence and adversely affect the value of our common stock.

9 unchanged sentences

In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.

We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies.

We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service (IRS) and other tax authorities and governmental bodies.

We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes and payroll tax accruals.

2 unchanged sentences

The results of an audit or litigation could have a material effect on our Consolidated Financial Statements in the period or periods where that determination is made.

Also, in the future, our effective income tax rate could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in tax laws or the outcome of income examinations.

Our actual effective tax rate may vary from our expectation and that variance may be material.

A number of factors may increase our effective income tax rate, including changes in valuation allowances on our deferred tax assets, changes in the mix of earnings in countries with different statutory tax rates, changes in tax laws or the outcome of income examinations.

Our Board has adopted a Tax Benefits Preservation Plan, which may not protect the future availability of the Company’s tax assets in all circumstances, and which could delay or discourage takeover attempts that some shareholders may consider favorable.

3 unchanged sentences

Pursuant to Section 382 (Section 382) of the U.S.

Internal Revenue Code of 1986, as amended (the "Code”), and the Treasury Regulations issued thereunder, a corporation that undergoes an "ownership change” is subject to limitations on its use of its

existing NOL and interest expense carryforwards and certain other tax attributes (collectively, "Tax Assets”), which can be utilized in certain circumstances to offset future U.S.

Internal Revenue Code of 1986, as amended (the Code), and the Treasury Regulations issued thereunder, a corporation that undergoes an "ownership change” is subject to limitations on its use of its existing NOL and interest expense carryforwards and certain other tax attributes (collectively, Tax Assets), which can be utilized in certain circumstances to offset future U.S.

tax liabilities.

4 unchanged sentences

With respect to the substantial majority of our Tax Assets, while we have, in recent years, experienced significant changes in the ownership of our stock, we do not believe we have undergone an "ownership change” that would limit our ability to use these Tax Assets.

However, there can be no assurance that the Internal Revenue Service will not challenge this position.

However, there can be no assurance that the IRS will not challenge this position.

On January 28, 2024, our Board of Directors authorized and declared a dividend of one preferred stock purchase right for each outstanding share of Common Stock.

See Note 1 of the Consolidated Financial Statements for additional information on the terms and operation of the Tax Benefits Preservation Plan (the "Plan”), dated as of January 28, 2024, as the same may be amended from time to time, between the Company and Equiniti Trust Company, LLC, as Rights Agent.

By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its NOLs and other tax attributes to offset potential future income tax liabilities.

See Note 1 to the Consolidated Financial Statements for additional information on the terms and operation of the Tax Benefits Preservation Plan (the "Plan”), dated as of January 29, 2024, as the same may be amended from time to time, between the Company and Equiniti Trust Company, LLC, as Rights Agent.

On January 27, 2025, the Company entered into Amendment No.

1 to the Plan, extending the expiration date of the Plan from January 29, 2025, to January 29, 2028 (the Extension).

Pursuant to the terms of the Plan, the Company will submit the Extension to its shareholders for ratification at the next annual or special meeting of its shareholders.

By extending the Plan, the Board of Directors is seeking to protect the Company’s ability to use its NOLs and other tax attributes to offset potential future income tax liabilities.

The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an "ownership change,” as defined in Section 382.

1 unchanged sentence

However, there can be no assurance that the Plan will prevent an "ownership change” from occurring for purposes of Section 382, and events outside of our control and which may not be subject to the Plan, such as sales of our stock by certain existing shareholders, may result in such an "ownership change” in the future.

While we currently have a valuation allowance against our NOLs and other historic Tax Assets for financial accounting purposes, if we have undergone or, in the future, undergo an ownership change that applies to our Tax Assets, our ability to use these Tax Assets could be substantially limited after the ownership change, and this limit could have a substantial adverse effect on our cash flows and financial position.

If we have undergone or, in the future undergo, an ownership change that applies to our Tax Assets, our ability to use these Tax Assets could be substantially limited after the ownership change, and this limit could have a substantial adverse effect on our cash flows and financial position including but not limited to a change in the valuation allowance on our deferred tax assets.

Although the Plan is not principally intended to prevent a takeover, it may have an anti-takeover effect because an “acquiring person” thereunder may be diluted upon the occurrence of a triggering event.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors