| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
March 31, 2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| ||||
Delaware (State or other jurisdiction of incorporation or organization) | 90-0544160 (IRS Employer Identification No.) | ||||
16767 N. Perimeter Drive, Suite Arizona | |||||
(Address of principal executive offices) | 85260 (Zip Code) | ||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.001 Par Value Per Share | JYNT | The NASDAQ Capital Market LLC | ||||||
| Large accelerated filer | ☑ | Accelerated filer | ☐ | ||||||||||||
| Non- accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||
| Emerging growth company | |||||||||||||||
☑
PAGE NO. | ||||||||||
Condensed Consolidated Balance Sheets as of | ||||||||||
Condensed Consolidated Income Statements for the Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||
| Part II, Items 3, 4, and 5 - Not applicable | ||||||||||
September 30, December 31, 2017 2016 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 2,628,648 $ 3,009,864 Restricted cash 157,470 334,394 Accounts receivable, net 1,277,862 1,021,733 Income taxes receivable 3,054 42,014 Notes receivable - current portion 128,781 40,826 Deferred franchise costs - current portion 617,131 748,300 Prepaid expenses and other current assets 604,777 499,525 Total current assets 5,417,723 5,696,656 Property and equipment, net 3,849,952 4,724,706 Notes receivable, net of current portion and reserve 295,779 - Deferred franchise costs, net of current portion 811,350 836,350 Intangible assets, net 1,888,607 2,338,922 Goodwill 2,750,338 2,750,338 Deposits and other assets 634,257 707,889 Total assets $ 15,648,006 $ 17,054,861 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 718,412 $ 1,054,946 Accrued expenses 131,665 299,997 Co-op funds liability 98,188 73,246 Payroll liabilities 533,881 750,421 Notes payable - current portion 100,000 331,500 Deferred rent - current portion 147,496 215,450 Deferred revenue - current portion 2,325,728 3,077,430 Other current liabilities 54,455 60,894 Total current liabilities 4,109,825 5,863,884 Notes payable, net of current portion 1,000,000 - Deferred rent, net of current portion 840,163 1,400,790 Deferred revenue, net of current portion 4,233,334 2,231,712 Deferred tax liability 187,397 120,700 Other liabilities 583,915 512,362 Total liabilities 10,954,634 10,129,448 Commitments and contingencies Stockholders' equity: Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of September 30, 2017, and December 31, 2016 - - Common stock, $0.001 par value; 20,000,000 shares authorized, 13,499,684 shares issued and 13,485,600 shares outstanding as of September 30, 2017 and 13,317,393 shares issued and 13,020,889 outstanding as of December 31, 2016 13,499 13,317 Additional paid-in capital 36,811,327 36,398,588 Treasury stock 14,084 shares as of September 30, 2017 and 296,504 shares as of December 31, 2016, at cost (86,045 ) (503,118 ) Accumulated deficit (32,045,409 ) (28,983,374 ) Total stockholders' equity 4,693,372 6,925,413 Total liabilities and stockholders' equity $ 15,648,006 $ 17,054,861 March 31,
2022December 31,
2021ASSETS (unaudited) Current assets: Cash and cash equivalents $ 18,251,194 $ 19,526,119 Restricted cash 594,717 386,219 Accounts receivable, net 3,612,802 3,700,810 Deferred franchise and regional development costs, current portion 985,557 994,587 Prepaid expenses and other current assets 2,426,409 2,281,765 Total current assets 25,870,679 26,889,500 Property and equipment, net 14,880,942 14,388,946 Operating lease right-of-use asset 18,927,052 18,425,914 Deferred franchise and regional development costs, net of current portion 5,601,142 5,505,420 Intangible assets, net 4,829,941 5,403,390 Goodwill 5,085,203 5,085,203 Deferred tax assets 9,205,410 9,188,634 Deposits and other assets 662,080 567,202 Total assets $ 85,062,449 $ 85,454,209 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,874,911 $ 1,705,568 Accrued expenses 1,644,709 1,809,460 Co-op funds liability 594,717 386,219 Payroll liabilities ($0.7 million and $0.4 million attributable to VIE) 2,383,977 3,906,317 Operating lease liability, current portion 4,872,292 4,613,843 Finance lease liability, current portion 34,479 49,855 Deferred franchise and regional developer fee revenue, current portion 3,130,856 3,191,892 Deferred revenue from company clinics ($3.6 million and $3.5 million attributable to VIE) 5,546,856 5,235,745 Other current liabilities 541,250 539,500 Total current liabilities 20,624,047 21,438,399 Operating lease liability, net of current portion 17,184,696 16,872,093 Finance lease liability, net of current portion 81,928 87,939 Debt under the Credit Agreement 2,000,000 2,000,000 Deferred franchise and regional developer fee revenue, net of current portion 15,410,136 15,458,921 Other liabilities 27,230 27,230 Total liabilities 55,328,037 55,884,582 Commitments and contingencies 0 0 Stockholders' equity: Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of March 31, 2022 and December 31, 2021 — — Common stock, $0.001 par value; 20,000,000 shares authorized, 14,493,049 shares issued and 14,461,332 shares outstanding as of March 31, 2022 and 14,451,355 shares issued and 14,419,712 outstanding as of December 31, 2021 14,492 14,450 Additional paid-in capital 44,273,294 43,900,157 Treasury stock 31,717 shares as of March 31, 2022 and 31,643 shares as of December 31, 2021, at cost (853,436) (850,838) Accumulated deficit (13,724,938) (13,519,142) Total The Joint Corp. stockholders' equity 29,709,412 29,544,627 Non-controlling Interest 25,000 25,000 Total equity 29,734,412 29,569,627 Total liabilities and stockholders' equity $ 85,062,449 $ 85,454,209
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues: | |||||||||||
| Revenues from company-owned or managed clinics | $ | 12,606,999 | $ | 9,466,083 | |||||||
| Royalty fees | 6,008,932 | 4,769,246 | |||||||||
| Franchise fees | 640,965 | 695,427 | |||||||||
| Advertising fund revenue | 1,710,717 | 1,374,741 | |||||||||
| Software fees | 956,998 | 760,537 | |||||||||
| Regional developer fees | 201,787 | 217,956 | |||||||||
| Other revenues | 312,140 | 263,975 | |||||||||
| Total revenues | 22,438,538 | 17,547,965 | |||||||||
| Cost of revenues: | |||||||||||
| Franchise and regional development cost of revenues | 2,002,813 | 1,624,572 | |||||||||
| IT cost of revenues | 309,958 | 140,745 | |||||||||
| Total cost of revenues | 2,312,771 | 1,765,317 | |||||||||
| Selling and marketing expenses | 3,287,488 | 2,489,279 | |||||||||
| Depreciation and amortization | 1,629,176 | 1,169,866 | |||||||||
| General and administrative expenses | 15,378,623 | 10,087,060 | |||||||||
| Total selling, general and administrative expenses | 20,295,287 | 13,746,205 | |||||||||
| Net loss on disposition or impairment | 6,906 | 64,767 | |||||||||
| (Loss) income from operations | (176,426) | 1,971,676 | |||||||||
| Other expense, net | (16,147) | (21,537) | |||||||||
| (Loss) income before income tax benefit | (192,573) | 1,950,139 | |||||||||
| Income tax expense (benefit) | 13,224 | (364,148) | |||||||||
| Net (loss) income | $ | (205,797) | $ | 2,314,287 | |||||||
| Earnings per share: | |||||||||||
| Basic (loss) earnings per share | $ | (0.01) | $ | 0.16 | |||||||
| Diluted (loss) earnings per share | $ | (0.01) | $ | 0.16 | |||||||
| Basic weighted average shares | 14,432,652 | 14,178,542 | |||||||||
| Diluted weighted average shares | 14,432,652 | 14,854,809 | |||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Revenues and management fees from company clinics | $ | 2,929,850 | $ | 2,341,471 | $ | 8,106,121 | $ | 6,137,277 | ||||||||
| Royalty fees | 1,958,249 | 1,540,264 | 5,518,409 | 4,337,643 | ||||||||||||
| Franchise fees | 229,715 | 602,400 | 1,036,815 | 1,641,409 | ||||||||||||
| Advertising fund revenue | 775,221 | 595,955 | 1,995,235 | 1,218,256 | ||||||||||||
| IT related income and software fees | 290,250 | 235,925 | 839,788 | 686,459 | ||||||||||||
| Regional developer fees | 259,230 | 123,921 | 455,859 | 496,538 | ||||||||||||
| Other revenues | 103,336 | 63,654 | 282,289 | 225,086 | ||||||||||||
| Total revenues | 6,545,851 | 5,503,590 | 18,234,516 | 14,742,668 | ||||||||||||
| Cost of revenues: | ||||||||||||||||
| Franchise cost of revenues | 715,610 | 660,126 | 2,103,619 | 2,023,712 | ||||||||||||
| IT cost of revenues | 103,590 | 58,636 | 227,903 | 162,752 | ||||||||||||
| Total cost of revenues | 819,200 | 718,762 | 2,331,522 | 2,186,464 | ||||||||||||
| Selling and marketing expenses | 1,172,559 | 1,272,524 | 3,189,489 | 3,184,484 | ||||||||||||
| Depreciation and amortization | 468,800 | 695,579 | 1,550,013 | 1,908,238 | ||||||||||||
| General and administrative expenses | 4,462,922 | 5,435,219 | 13,694,690 | 16,749,945 | ||||||||||||
| Total selling, general and administrative expenses | 6,104,281 | 7,403,322 | 18,434,192 | 21,842,667 | ||||||||||||
| Loss on disposition or impairment | - | - | 417,971 | - | ||||||||||||
| Loss from operations | (377,630 | ) | (2,618,494 | ) | (2,949,169 | ) | (9,286,463 | ) | ||||||||
| Other (expense) income, net | 9,907 | 5,877 | (33,589 | ) | 5,200 | |||||||||||
| Loss before income tax expense | (367,723 | ) | (2,612,617 | ) | (2,982,758 | ) | (9,281,263 | ) | ||||||||
| Income tax expense | (36,085 | ) | (14,277 | ) | (79,277 | ) | (132,144 | ) | ||||||||
| Net loss and comprehensive loss | $ | (403,808 | ) | $ | (2,626,894 | ) | $ | (3,062,035 | ) | $ | (9,413,407 | ) | ||||
| Loss per share: | ||||||||||||||||
| Basic and diluted loss per share | $ | (0.03 | ) | $ | (0.21 | ) | $ | (0.23 | ) | $ | (0.74 | ) | ||||
| Basic and diluted weighted average shares | 13,262,032 | 12,730,624 | 13,144,764 | 12,657,435 | ||||||||||||
(unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,062,035 | ) | $ | (9,413,407 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| (Recovery) provision for bad debts | - | (10,830 | ) | |||||
| Regional developer fees recognized upon acquisition of development rights | - | (138,500 | ) | |||||
| Net franchise fees recognized upon termination of franchise agreements | (46,115 | ) | (314,859 | ) | ||||
| Depreciation and amortization | 1,550,013 | 1,908,238 | ||||||
| Gain on sale of fixed assets | (34,355 | ) | - | |||||
| Loss on disposition or impairment of assets | 417,971 | - | ||||||
| Deferred income taxes | 66,697 | - | ||||||
| Stock based compensation expense | 412,512 | 1,012,700 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Restricted cash | 176,924 | (91,383 | ) | |||||
| Accounts receivable | (303,590 | ) | (1,108,181 | ) | ||||
| Income taxes receivable | 38,960 | 32,167 | ||||||
| Prepaid expenses and other current assets | (105,252 | ) | (525,905 | ) | ||||
| Deferred franchise costs | 139,369 | 194,300 | ||||||
| Deposits and other assets | 73,632 | 49,649 | ||||||
| Accounts payable | (336,534 | ) | (1,183,328 | ) | ||||
| Accrued expenses | (168,332 | ) | (119,990 | ) | ||||
| Co-op funds liability | 24,942 | (95,893 | ) | |||||
| Payroll liabilities | (216,540 | ) | (1,079,085 | ) | ||||
| Other liabilities | (555,982 | ) | 33,837 | |||||
| Deferred rent | (377,995 | ) | 912,730 | |||||
| Deferred revenue | 889,213 | (405,977 | ) | |||||
| Net cash used in operating activities | (1,416,497 | ) | (10,343,717 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash paid for acquisitions | - | (811,450 | ) | |||||
| Reacquisition and termination of regional developer rights | - | (325,000 | ) | |||||
| Purchase of property and equipment | (190,589 | ) | (1,497,874 | ) | ||||
| Payments received on notes receivable | 39,888 | 25,945 | ||||||
| Net cash used in investing activities | (150,701 | ) | (2,608,379 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings on revolving credit note payable | 1,000,000 | - | ||||||
| Issuance of common stock, offering costs adjustment | - | (1,042 | ) | |||||
| Purchases of treasury stock under employee stock plans | (2,655 | ) | (83,391 | ) | ||||
| Proceeds from sale of treasury stock | 292,671 | - | ||||||
| Proceeds from exercise of stock options | 127,466 | 66,527 | ||||||
| Repayments on notes payable | (231,500 | ) | (436,350 | ) | ||||
| Net cash provided by (used in) financing activities | 1,185,982 | (454,256 | ) | |||||
| Net decrease in cash | (381,216 | ) | (13,406,352 | ) | ||||
| Cash at beginning of period | 3,009,864 | 16,792,850 | ||||||
| Cash at end of period | $ | 2,628,648 | $ | 3,386,498 | ||||
| Common Stock | Additional Paid In Capital | Treasury Stock | Accumulated Deficit | Total The Joint Corp. stockholders' equity | Non-controlling interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | 14,451,355 | $ | 14,450 | $ | 43,900,157 | 31,643 | $ | (850,838) | $ | (13,519,141) | $ | 29,544,628 | $ | 25,000 | $ | 29,569,628 | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 323,556 | — | — | — | 323,556 | — | 323,556 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 36,722 | 37 | (37) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 4,972 | 5 | 49,618 | — | — | — | 49,623 | — | 49,623 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock under employee stock plans | — | — | — | 74 | (2,598) | — | (2,598) | — | (2,598) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (205,797) | (205,797) | — | (205,797) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 (unaudited) | 14,493,049 | $ | 14,492 | $ | 44,273,294 | 31,717 | $ | (853,436) | $ | (13,724,938) | $ | 29,709,412 | $ | 25,000 | $ | 29,734,412 | |||||||||||||||||||||||||||||||||||||
During the nine months ended September 30, 2017 and 2016, cash paid for income taxes was $22,838 and $10,466, respectively. During the nine months ended September 30, 2017 and 2016, cash paid for interest was $81,993 and $15,262, respectively.
Supplemental disclosure of non-cash activity:
As of September 30, 2016, we had property and equipment purchases of $7,105 which were included in accounts payable.
In connection with our acquisitions of franchises during the nine months ended September 30, 2016, we acquired $293,014 of property and equipment, intangible assets of $339,000, goodwill of $269,780 and assumed deferred revenue associated with membership packages paid in advance of $45,072 in exchange for $839,000 in cash and notes payable issued to the sellers for an aggregate amount of $186,000. Additionally, at the time of these transactions, we carried deferred revenue of $29,000, representing franchise fees collected upon the execution of franchise agreements, and deferred costs of $1,450, related to our acquisition of undeveloped franchises. We netted these amounts against the aggregate purchase price of the acquisitions (Note 2).
In connection with our reacquisition and termination of regional developer rights during the nine months ended September 30, 2016, we had deferred revenue of $224,750 representing license fees collected upon the execution of the regional developer agreements. In accordance with ASC-952-605, we netted these amounts against the aggregate purchase price of the acquisitions.
In connection with our sale of the regional developer territories in Central Florida, Maryland/Washington DC, and Minnesota we issued notes receivable in the amount of $423,622 with revenue to be recognized over the anticipated number of clinics to be opened in the respective territories. We have recognized $9,412 of revenue related to these notes in the nine months ended September 30, 2017.
| Common Stock | Additional Paid In Capital | Treasury Stock | Accumulated Deficit | Total The Joint Corp. stockholders' equity | Non-controlling interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020, as revised | 14,174,237 | $ | 14,174 | $ | 41,350,001 | 17,167 | $ | (143,111) | $ | (20,094,912) | $ | 21,126,152 | $ | 100 | $ | 21,126,252 | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 246,494 | — | — | — | 246,494 | — | 246,494 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 7,879 | 8 | (8) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 105,995 | 106 | 620,670 | — | — | — | 620,776 | — | 620,776 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock under employee stock plans | — | — | — | 13,619 | (618,154) | — | (618,154) | — | (618,154) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 2,314,287 | 2,314,287 | — | 2,314,287 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021, as revised (unaudited) | 14,288,111 | $ | 14,288 | $ | 42,217,157 | 30,786 | $ | (761,265) | $ | (17,780,625) | $ | 23,689,555 | $ | 100 | $ | 23,689,655 | |||||||||||||||||||||||||||||||||||||
AND AFFILIATES
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) income | $ | (205,797) | $ | 2,314,287 | |||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 1,629,176 | 1,169,866 | |||||||||
| Net loss on disposition or impairment (non-cash portion) | 6,906 | 99,022 | |||||||||
| Net franchise fees recognized upon termination of franchise agreements | — | (69,702) | |||||||||
| Deferred income taxes | (16,776) | (418,810) | |||||||||
| Stock based compensation expense | 323,556 | 246,494 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 88,008 | (442,008) | |||||||||
| Prepaid expenses and other current assets | (144,644) | (384,377) | |||||||||
| Deferred franchise costs | (86,692) | (204,112) | |||||||||
| Deposits and other assets | (94,878) | (3,313) | |||||||||
| Accounts payable | 59,461 | (443,463) | |||||||||
| Accrued expenses | (164,751) | 60,493 | |||||||||
| Payroll liabilities | (1,522,340) | (217,020) | |||||||||
| Deferred revenue | 296,487 | 329,383 | |||||||||
| Other liabilities | 280,162 | 234,708 | |||||||||
| Net cash provided by operating activities | 447,878 | 2,271,448 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | (1,289,943) | (951,641) | |||||||||
| Reacquisition and termination of regional developer rights | (250,000) | (1,388,700) | |||||||||
| Net cash used in investing activities | (1,539,943) | (2,340,341) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments of finance lease obligation | (21,387) | (18,238) | |||||||||
| Purchases of treasury stock under employee stock plans | (2,598) | (618,154) | |||||||||
| Proceeds from exercise of stock options | 49,623 | 620,776 | |||||||||
| Repayment of debt under the Paycheck Protection Program | — | (2,727,970) | |||||||||
| Net cash provided by (used in) financing activities | 25,638 | (2,743,586) | |||||||||
| Decrease in cash, cash equivalents and restricted cash | (1,066,427) | (2,812,479) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 19,912,338 | 20,819,629 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 18,845,911 | $ | 18,007,150 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash: | March 31, 2022 | March 31, 2021 | |||||||||
| Cash and cash equivalents | $ | 18,251,194 | $ | 17,834,526 | |||||||
| Restricted cash | 594,717 | 172,624 | |||||||||
| $ | 18,845,911 | $ | 18,007,150 | ||||||||
The Company consolidates VIEs in which the Company is 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 intercompanyinter-affiliate accounts and transactions between The Joint Corp. and its subsidiaryVIEs have been eliminated in consolidation. Certain balances were reclassified from general and administrative expenses to other (expense)
Comprehensive Loss
Net loss and comprehensive lossincome are the same for the three and nine months ended September 30, 2017March 31, 2022 and 2016.
2021.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||
| Franchised clinics: | 2017 | 2016 | 2017 | 2016 | Franchised clinics: | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Clinics open at beginning of period | 336 | 280 | 309 | 265 | Clinics open at beginning of period | 610 | 515 | ||||||||||||||||||||||||||||||||
| Opened or Purchased during the period | 6 | 13 | 35 | 38 | |||||||||||||||||||||||||||||||||||
| Opened during the period | Opened during the period | 27 | 12 | ||||||||||||||||||||||||||||||||||||
| Sold during the period | Sold during the period | — | — | ||||||||||||||||||||||||||||||||||||
| Closed during the period | Closed during the period | (1) | — | ||||||||||||||||||||||||||||||||||||
| Clinics in operation at the end of the period | Clinics in operation at the end of the period | 636 | 527 | ||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| Company-owned or managed clinics: | Company-owned or managed clinics: | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Clinics open at beginning of period | Clinics open at beginning of period | 96 | 64 | ||||||||||||||||||||||||||||||||||||
| Opened during the period | Opened during the period | 4 | 1 | ||||||||||||||||||||||||||||||||||||
| Acquired during the period | - | - | - | (6 | ) | Acquired during the period | — | — | |||||||||||||||||||||||||||||||
| Closed during the period | - | - | (2 | ) | (4 | ) | Closed during the period | — | — | ||||||||||||||||||||||||||||||
| Clinics in operation at the end of the period | 342 | 293 | 342 | 293 | Clinics in operation at the end of the period | 100 | 65 | ||||||||||||||||||||||||||||||||
| Total clinics in operation at the end of the period | Total clinics in operation at the end of the period | 736 | 592 | ||||||||||||||||||||||||||||||||||||
| Clinic licenses sold but not yet developed | Clinic licenses sold but not yet developed | 239 | 223 | ||||||||||||||||||||||||||||||||||||
| Executed letters of intent for future clinic licenses | Executed letters of intent for future clinic licenses | 39 | 37 | ||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Company-owned or managed clinics: | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Clinics open at beginning of period | 47 | 61 | 61 | 47 | ||||||||||||
| Opened during the period | - | - | - | 8 | ||||||||||||
| Acquired during the period | - | - | - | 6 | ||||||||||||
| Closed or Sold during the period | - | - | (14 | ) | - | |||||||||||
| Clinics in operation at the end of the period | 47 | 61 | 47 | 61 | ||||||||||||
| Total clinics in operation at the end of the period | 389 | 354 | 389 | 354 | ||||||||||||
| Clinics licenses sold but not yet developed | 105 | 134 | 105 | 134 | ||||||||||||
| Executed letters of intent for future clinic licenses | 5 | - | 5 | - | ||||||||||||
Variable Interest Entities
Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropracticsimilar services be provided by legal entities organized under state laws as professional corporations or PCs. Such PCs are VIEs. In these states,negotiated at arm’s length. Additionally, the Company has entered into management services agreements with such PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. The Company has analyzed its relationship with the PCs and has determined that it has the Company does not have the powerability to direct the activities that most significantly impact the
Cash and Cash Equivalents
2021.
Concentrations of Credit Risk
From timeWhile such cash balance is not legally segregated and restricted as to time,withdrawal or usage, the Company grants credit in the normal course of businessCompany's accounting policy is to franchisees and PCs related to the collection of royalties and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of September 30, 2017, one PC entity and four franchisees represented 19% of outstanding accountsclassify these funds as restricted cash.
Accounts Receivable
Accounts receivableprimarily represent amounts due from franchisees for initial franchise fees and royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords.fees. The Company considersrecords an allowance for credit losses as a reservereduction to its accounts receivables for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracksdoes not expect to recover. An allowance for credit losses is determined through assessments of collectability based on historical trends, the financial condition of the Company’s franchisees, including any known or anticipated bankruptcies, and an ongoing basis.evaluation of current economic conditions, as well as the Company’s 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 September 30, 2017,March 31, 2022 and December 31, 2016,2021, the Company had an allowance for doubtful accounts of $0 and $131,830, respectively.
The Company writes off accounts receivable when it deems them uncollectible and records recoveries of accounts receivable previously written off when it receives them. In the nine months ended September 30, 2017, the Company determined that certain working capital advances from its PC entities in Illinois and New York were no longer collectible as a result of the sale or closure of the related clinics. Accordingly, the Company wrote-off approximately $47,000 of accounts receivable to loss on disposition or impairment related to these entities during the nine months ended September 30, 2017.
$0.
and Regional Development Costs
the related franchise or regional development agreement.
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.
Software Developed
Implementation costs incurred in connection with a cloud computing arrangement that is a service contract are included in prepaid expenses in the Company’s consolidated balance sheets.
March 31, 2022.
Such costs are included in selling and marketing expenses on the consolidated income statements.
Accounting for Costs Associated with Exit or Disposal Activities
The Company recognizes a liability for the cost associated with an exit or disposal activity that is measured initially at its fair value in the period in which the liability is incurred.
Costs to terminate an operating lease or other contracts are (a) costs to terminate the contract before the end of its term or (b) costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is recognized at the cease-use date. In periods subsequent to initial measurement, changes to the liability are measured using the credit adjusted risk-free rate that was used to measure the fair value of the liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change.
As of September 30, 2017, the Company maintained a lease exit liability of approximately $0.4 million classified in other liabilities on its condensed consolidated balance sheets related to remaining operating leases that will no longer provide economic benefit to the Company, net of estimated sublease income.
| Lease exit liability at December 31, 2016 | $ | 338,151 | ||
| Additions | 883,146 | |||
| Settlements | (706,991 | ) | ||
| Net Accretion | (66,030 | ) | ||
| Lease exit liability at September 30, 2017 | $ | 448,276 |
In the nine months ended September 30, 2017, the Company ceased use of eight clinic locations from its corporate clinics segment and recognized a liability for lease exit costs incurred based on the remaining lease rental due, reduced by estimated sublease rental income that could be reasonably obtained for the properties. The Company recognized the resulting expense of approximately $418,000 in loss on disposition or impairment in the accompanying condensed consolidated statement of operations.
Deferred Rent
The Company leases office space for its corporate offices and company-owned or managed clinics under operating leases, which may include rent holidays and rent escalation clauses. It recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the term of the lease. The Company records tenant improvement allowances as deferred rent and amortizes the allowance over the term of the lease, as a reduction to rent expense.
Revenue Recognition
Franchise Fees. The Company requires the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of ten years. Initial franchise fees are recognized as revenue when the Company has substantially completed its initial services under the franchise agreement, which typically occurs upon opening of the clinic. The Company’s services under the franchise agreement include: training of franchisees and staff, site selection, construction/vendor management and ongoing operations support. The Company provides no financing to franchisees and offers no guarantees on their behalf.
Regional Developer Fees. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee rangingfranchisees.
For the nine months ended September 30, 2017, the Company entered into eight regional developer agreements for which it received approximately $1.7 million, which was deferred as of the respective transaction dates and will be recognized on a pro-rata basis over the estimated number of franchised clinics to be opened in the respective regions. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.
Revenues and Management Fees from CompanyCompany-Owned or Managed Clinics.
Royalties.patient.
IT Related Income
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.
The Company uses
The Company accounts 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. The Company measures the tax benefits and expenses recognized in the condensed 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.
At September 30, 2017 and December 31, 2016, the Company maintained a liability for income taxes for uncertain tax positions of approximately $27,000 and $40,000, respectively, of which $26,000 and $27,000, respectively, represent penalties and interest and are recorded in the “other liabilities” sectioninterim period. The computation of the accompanying condensed consolidated balance sheets. Interestannual estimated effective tax rate at each interim period requires certain estimates and penalties associated withsignificant judgment including, but not limited to, the expected pre-tax income for the year and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include 2013 through the current period for state, and 2014 through the current period for federal reporting purposes.
Loss(Loss) Earnings per Common Share
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Net loss | $ | (403,808 | ) | $ | (2,626,894 | ) | $ | (3,062,035 | ) | $ | (9,413,407 | ) | |||||||||||||||||||||||||||
| Net (loss) income | Net (loss) income | $ | (205,797) | $ | 2,314,287 | ||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding - basic | 13,262,032 | 12,730,624 | 13,144,764 | 12,657,435 | Weighted average common shares outstanding - basic | 14,432,652 | 14,178,542 | ||||||||||||||||||||||||||||||||
| Effect of dilutive securities: | Effect of dilutive securities: | ||||||||||||||||||||||||||||||||||||||
| Stock options | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Unvested restricted stock and stock options | Unvested restricted stock and stock options | — | 676,267 | ||||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | 13,262,032 | 12,730,624 | 13,144,764 | 12,657,435 | Weighted average common shares outstanding - diluted | 14,432,652 | 14,854,809 | ||||||||||||||||||||||||||||||||
| Basic and diluted loss per share | $ | (0.03 | ) | $ | (0.21 | ) | $ | (0.23 | ) | $ | (0.74 | ) | |||||||||||||||||||||||||||
| Basic (loss) earnings per share | Basic (loss) earnings per share | $ | (0.01) | $ | 0.16 | ||||||||||||||||||||||||||||||||||
| Diluted (loss) earnings per share | Diluted (loss) earnings per share | $ | (0.01) | $ | 0.16 | ||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Unvested restricted stock | 63,700 | 92,415 | 63,700 | 92,415 | ||||||||||||
| Stock options | 1,011,686 | 899,370 | 1,011,686 | 899,370 | ||||||||||||
| Warrants | 90,000 | 90,000 | 90,000 | 90,000 | ||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| Weighted average dilutive securities: | 2022 | 2021 | |||||||||||||||||||||
| Restricted stocks | 7,447 | 1,698 | |||||||||||||||||||||
| Stock options | 502,107 | 14,801 | |||||||||||||||||||||
Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%. allocations and related valuations. Adopted and Not Yet Adoptedquoted market pricesthe closing price on the date of the grant and the grant-date fair value of stock options using the Black-Scholes option pricingBlack-Scholes-Merton model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method. condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts,credit losses, loss contingencies, share-based compensation arrangements, fair value of stock options,compensations, useful lives and realizability of long-lived assets, classification of deferred revenue and revenue recognition related to breakage, deferred franchise costs, uncertain tax positions,calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, and intangible assets, other long-lived assets, and purchase price allocations.May 2014,June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)ASU No. 2014-09, “2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company adopted Topic 326 on December 31, 2021 and the adoption had no impact on the Company’s consolidated financial statements. The Company reviewed other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements upon future adoption.Contractsclinics that it owns and operates or manages throughout the United States. Revenues are recognized when services are performed. The Company offers a variety of membership and wellness packages which feature discounted pricing as compared with Customers,”its single-visit pricing. Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service is performed or in accordance with the Company’s breakage policy as discussed in Note 1, Revenue Recognition. requires an entity to recognize the amount of revenue to which it expects to be entitled foris the transfer of promised goods or servicesthe franchise license. The intellectual property subject to customers. The standard also calls for additional disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP whenfranchise license is symbolic intellectual property as it becomes effective. The new standard becomes effective for the Company on January 1, 2018. The Company has performed a preliminary review of ASU 2014-09 and does not expect the adoption of ASU 2014-09 to have a material impact on its revenuessignificant standalone functionality, and management fees from company clinics or franchise royalty revenues, which are based on a percent of sales. The Company expects the adoption of Topic 606 to impact its accounting for initial franchise fees and regional developer fees. Currently, the Company recognizes revenue from initial franchise fees and regional developer fees upon the opening of a franchised clinic when the Company has performedsubstantially all of the utility is derived from its material obligations and initial services underassociation with the respective agreements. UponCompany’s past or ongoing activities. The nature of the adoption of Topic 606,Company’s promise in granting the Company expectsfranchise license is to recognizeprovide the revenue relatedfranchisee with access to initial franchise fees and regional developer feesthe brand’s symbolic intellectual property over the term of the relatedlicense. The services provided by the Company are highly interrelated with the franchise agreement or regional developer agreement. license and as such are considered to represent a single performance obligation.Company istransaction 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 processrecognition of implementing this standard and has drafted certain accounting policies. The Company will be finalizing accounting policies, selecting its transition method, quantifying the impact of adopting this standard, and designing internal controls during the fourth quarter of the year ending December 31, 2017. The Company is currently unablesales-based royalties promised in exchange for a license (which otherwise requires reporting entity to estimate the impact on its consolidated financial statements.
amount of variable consideration to which it will be entitled in the transaction price).11In February 2016,The Company recognizes the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The ASU requires that substantially all operating leases beprimary components of the transaction price as follows:assets and liabilitiesrevenue ratably on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases as off-balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations. The right to use the leased property is to be capitalized as an asset and the expected lease paymentsstraight-line basis over the lifeterm of the lease will be accounted for as a liability. The effective date is for fiscal years beginning after December 31, 2018. While the Company has not yet quantified the impact that this standard will have on its financial statements, it will result in a significant increase in the assets and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially decrease the Company’s reported net income.In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contractsrespective franchise agreement commencing with Customers (Topic 606): Identifying Performance Obligations and Licensing,” to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (a consensus of the FASB Emerging Issues Task Force), to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendments should be applied using a retrospective transition method, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,”to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments should be applied prospectively, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements. 12In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This update simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. This update is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718.The amendments are effective for fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.In August 2017, the FASB issued ASU No. 2017-12,“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. Specifically, the guidance creates better alignment of hedge accounting with risk management activities, eliminates the separate measurement and recording of hedge ineffectiveness, simplifies effectiveness assessments, and improves presentation and disclosure. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently evaluating the impact of this amendment on its financial statements.
Note 2: Acquisitions
During the nine months ended September 30, 2016, the Company entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of six developed franchises and one undeveloped franchise throughout California and New Mexico for an aggregate purchase price of $1,025,000, subject to certain adjustments, consisting of cash of $839,000 and notes payable of $186,000. The Company is operating the six developed franchises as company-owned or managed clinics and has terminated the undeveloped clinic license. At the time these transactions were consummated, the Company carried a deferred revenue balance of $29,000, representing franchise fees collected upon the execution of the franchise, agreements,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.
The Company incurred approximately $64,000 of transaction costs related to these acquisitions for the nine months ended September 30, 2016, which are included in general and administrative expenses in the accompanying statements of operations.
Purchase Price Allocation
The following summarizes the aggregate estimated fair valuesnature of the assets acquired and liabilities assumed during 2016 asCompany’s promise in granting the development rights is to provide the regional developer with access to the brand’s symbolic intellectual property over the term of the acquisition date:
| Property and equipment | $ | 293,014 | ||
| Intangible assets | 339,000 | |||
| Favorable leases | 140,728 | |||
| Goodwill | 269,780 | |||
| Total assets acquired | 1,042,522 | |||
| Deferred membership revenue | (45,072 | ) | ||
| Net purchase price | $ | 997,450 |
Intangible assets in the table above consist of reacquired franchise rights of $181,000 and customer relationships of $158,000, and will be amortized over their estimated useful lives ranging from six to eight years and two years, respectively.
Goodwill recorded in connection with these acquisitions was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible.
Pro Forma Results of Operations (Unaudited)
agreement. The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the three and nine months ended September 30, 2017 and 2016 as if the acquisitions in 2016 had been completed on January 1, 2016.
| Pro Forma for the Three Months Ended | Pro Forma for the Nine Months Ended | |||||||||||||||
| September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
| Revenues, net | $ | - | $ | 5,503,590 | $ | - | $ | 14,723,514 | ||||||||
| Net loss | $ | - | $ | (2,614,518 | ) | $ | - | $ | (9,475,157 | ) | ||||||
This selected unaudited pro forma condensed consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisitions had been completed on that date. Moreover, this information is not indicative of what the Company’s future operating results will be. The information for 2016 is included based on prior accounting records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adoptedservices provided by the Company followingare highly interrelated with the acquisitions. For 2016, this information includes actual datadevelopment of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation.
| Deferred Revenue short and long-term | |||||
| Balance at December 31, 2021 | $ | 18,650,813 | |||
| Revenue recognized that was included in the contract liability at the beginning of the year | (833,633) | ||||
| Net increase during the three months ended March 31, 2022 | 723,812 | ||||
| Balance at March 31, 2022 | $ | 18,540,992 | |||
| Deferred Franchise and Development Costs short and long-term | |||||
| Balance at December 31, 2021 | $ | 6,500,007 | |||
| Recognized as cost of revenue during the year | (261,789) | ||||
| Net increase during the three months ended March 31, 2022 | 348,481 | ||||
| Balance at March 31, 2022 | $ | 6,586,699 | |||
The pro forma amounts includedbe recognized in the table above reflect the application of accounting policies and adjustment of the results of the clinicsfuture related to reflect the additional depreciation and amortizationperformance obligations that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2016, together with the consequential tax impacts.
Note 3: Notes Receivable
Effective July 2012, the Company sold a company-owned clinic, including the license agreement, equipment, and customer base, in exchange for a $90,000 unsecured promissory note. The note bore interest at 6% per annum for fifty-four months and required monthly principal and interest payments over forty-two months, beginning on August 2013. The note matured in January 2017 and was paid in full upon maturity.
Effective July 2015, the Company entered into two license transfer agreements, in exchange for $10,000 and $29,925 in separate unsecured promissory notes. The non-interest-bearing notes require monthly principal payments over 24 months, beginning on September 1, 2015. The note was settled in full in 2017.
Effective May 2016, the Company entered into three license transfer agreements, in exchange for three separate $7,500 unsecured promissory notes. The non-interest-bearing notes require monthly principal payments over six months, beginning on May 1, 2017. The note matured in October, 2017 and was paid in full upon maturity.
Effective April 29, 2017, the Company entered into a regional developer agreement for certain territories in the state of Florida in exchange for $320,000, of which $187,000 was funded through a promissory note. The note bears interest at 10% per annum for 42 months and requires monthly principal and interest payments over 36 months, beginning November 1, 2017 and maturing on October 1, 2020. The note is secured by the regional developer rights in the respective territory.
Effective August 31, 2017, the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for $220,000, of which $117,475 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and interest payments over 36 months, beginning September 1, 2017 and maturing on August 1, 2020. The note is secured by the regional developer rights in the respective territory.
Effective September 22, 2017, the Company entered into a regional developer and asset purchase agreement for certain territories in Minnesota in exchange for $228,293, of which $119,147 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and interest payments over 36 months, beginning October 1, 2017 and maturing on September 1, 2020. The note is secured by the regional developer rights in the respective territory.
The net outstanding balances of the noteswere unsatisfied (or partially unsatisfied) as of September 30, 2017 and DecemberMarch 31, 2016 were $424,560 and $40,826, respectively.
| Contract liabilities expected to be recognized in | Amount | ||||
| 2022 (remainder) | $ | 2,400,777 | |||
| 2023 | 2,942,332 | ||||
| 2024 | 2,481,706 | ||||
| 2025 | 2,284,526 | ||||
| 2026 | 2,181,117 | ||||
| Thereafter | 6,250,534 | ||||
| Total | $ | 18,540,992 | |||
| September 30, | December 31, | ||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||
| Office and computer equipment | $ | 1,126,758 | $ | 1,083,039 | Office and computer equipment | $ | 3,908,479 | $ | 3,704,425 | ||||||||||
| Leasehold improvements | 5,099,374 | 5,085,366 | Leasehold improvements | 13,903,974 | 13,457,765 | ||||||||||||||
| Software developed | 1,048,697 | 891,192 | Software developed | 5,438,511 | 5,044,339 | ||||||||||||||
| Finance lease assets | Finance lease assets | 267,252 | 267,252 | ||||||||||||||||
| 7,274,829 | 7,059,597 | 23,518,216 | 22,473,780 | ||||||||||||||||
| Accumulated depreciation | (3,664,357 | ) | (2,566,172 | ) | |||||||||||||||
| Accumulated depreciation and amortization | Accumulated depreciation and amortization | (10,084,892) | (9,184,932) | ||||||||||||||||
| 3,610,472 | 4,493,425 | 13,433,324 | 13,288,847 | ||||||||||||||||
| Construction in progress | 239,480 | 231,281 | Construction in progress | 1,447,618 | 1,100,099 | ||||||||||||||
| $ | 3,849,952 | $ | 4,724,706 | ||||||||||||||||
| Property and equipment, net | Property and equipment, net | $ | 14,880,942 | $ | 14,388,946 | ||||||||||||||
In
Note 5:4: Fair Value Consideration
Measurements
The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.
| As of September 30, 2017 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Value | ||||||||||
| Amortized intangible assets: | ||||||||||||
| Reacquired franchise rights | $ | 1,673,000 | $ | 596,129 | $ | 1,076,871 | ||||||
| Customer relationships | 701,000 | 649,417 | 51,583 | |||||||||
| Reacquired development rights | 1,162,000 | 401,847 | 760,153 | |||||||||
| $ | 3,536,000 | $ | 1,647,393 | $ | 1,888,607 | |||||||
| As of December 31, 2016 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Value | ||||||||||
| Amortized intangible assets: | ||||||||||||
| Reacquired franchise rights | $ | 1,673,000 | $ | 410,688 | $ | 1,262,312 | ||||||
| Customer relationships | 701,000 | 509,042 | 191,958 | |||||||||
| Reacquired development rights | 1,162,000 | 277,348 | 884,652 | |||||||||
| $ | 3,536,000 | $ | 1,197,078 | $ | 2,338,922 | |||||||
| As of March 31, 2022 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||
| Reacquired franchise rights | $ | 6,795,865 | $ | (3,468,788) | $ | 3,327,077 | |||||||||||
| Customer relationships | 2,603,006 | (1,700,012) | 902,994 | ||||||||||||||
| Reacquired development rights | 4,561,024 | (4,008,114) | 552,910 | ||||||||||||||
| Assembled workforce | 59,311 | (12,351) | 46,960 | ||||||||||||||
| $ | 14,019,206 | $ | (9,189,265) | $ | 4,829,941 | ||||||||||||
| As of December 31, 2021 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||
| Reacquired franchise rights | $ | 6,795,865 | $ | (3,153,037) | $ | 3,642,828 | |||||||||||
| Customer relationships | 2,603,006 | (1,587,443) | 1,015,563 | ||||||||||||||
| Reacquired development rights | 4,406,221 | (3,715,594) | 690,627 | ||||||||||||||
| Assembled workforce | 59,311 | (4,939) | 54,372 | ||||||||||||||
| $ | 13,864,403 | $ | (8,461,013) | $ | 5,403,390 | ||||||||||||
| Amount | |||||
| 2022 (remainder) | $ | 1,563,440 | |||
| 2023 | 1,233,884 | ||||
| 2024 | 666,142 | ||||
| 2025 | 386,006 | ||||
| 2026 | 286,602 | ||||
| Thereafter | $ | 693,867 | |||
| Total | $ | 4,829,941 | |||
| 2017 (remaining) | $ | 128,564 | ||
| 2018 | 439,589 | |||
| 2019 | 413,256 | |||
| 2020 | 413,256 | |||
| 2021 | 348,034 | |||
| Thereafter | 145,908 | |||
| Total | $ | 1,888,607 |
Note 7:6: Debt
Notes Payable
During 2015, the Company delivered 12 notes payable totaling $800,350 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates range from 1.5% to 5.25% with maturities through
During 2016, the Company delivered two notes payable totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes are 4.25% with maturities through May 2017. The remaining note payable is expected to be settled in the quarter ended December 31, 2017.
Maturities of notes payable are as follows as of September 30, 2017:
| 2017 (remaining) | $ | 100,000 | ||
| Thereafter | - | |||
| Total | $ | 100,000 |
Credit and Security Agreement
On January 3, 2017,28, 2020, the Company entered into a Credit and Security Agreement (the “Credit Agreement”), with JPMorgan Chase Bank, N.A., individually, and signedas 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 $7,500,000, including a revolving$2,000,000 revolver (the "Revolver") and $5,500,000 development line of credit note payable(the "Line of Credit"). The Revolver included amounts available for letters of credit of up to $1,000,000 and an uncommitted additional amount of $2,500,000. All outstanding principal and interest on the lender.Revolver were due on February 28, 2022.
Note 8: Equity
Stock Options
In the nine months ended September 30, 2017,
Upon
expected stock option term. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%.
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Expected volatility | 42% | 43% | - | 45% | ||||
| Expected dividends | None | None | ||||||
| Expected term (years) | 5.5 | to | 7 | 7 | ||||
| Risk-free rate | 1.98% | to | 2.14% | 1.19% | to | 1.68% | ||
| Forfeiture rate | 20% | 20% | ||||||
| March 31, | |||||
| 2021 | |||||
| Expected volatility | 57% | ||||
| Expected dividends | None | ||||
| Expected term (years) | 7 | ||||
| Risk-free rate | 0.97% | ||||
| Forfeiture rate | 5% | ||||
| Weighted | Weighted | Weighted | ||||||||||||||
| Average | Average | Average | ||||||||||||||
| Number of | Exercise | Fair | Remaining | |||||||||||||
| Shares | Price | Value | Contractual Life | |||||||||||||
| Outstanding at December 31, 2016 | 953,075 | $ | 3.66 | $ | 1.86 | 6.9 | ||||||||||
| Granted at market price | 195,286 | 3.70 | ||||||||||||||
| Exercised | (106,221 | ) | 1.20 | |||||||||||||
| Cancelled | (30,454 | ) | 5.21 | |||||||||||||
| Outstanding at September 30, 2017 | 1,011,686 | $ | 3.87 | $ | 1.76 | 7.4 | ||||||||||
| Exercisable at September 30, 2017 | 370,634 | $ | 4.67 | $ | 2.17 | 5.6 | ||||||||||
The intrinsic value ofactivity for the Company’s stock options outstanding was $1,405,592 at September 30, 2017.
three months ended March 31, 2022:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||||||
| Outstanding at December 31, 2021 | 595,089 | $ | 9.72 | 5.9 | |||||||||||||
| Granted | — | — | |||||||||||||||
| Exercised | (4,972) | 9.98 | |||||||||||||||
| Cancelled | (2,418) | 25.81 | |||||||||||||||
| Outstanding at March 31, 2022 | 587,699 | $ | 9.65 | 5.6 | |||||||||||||
| Exercisable at March 31, 2022 | 473,229 | $ | 6.55 | 5.1 | |||||||||||||
| Restricted Stock Awards | Shares | Weighted Average Grant-Date Fair Value per Award | ||||||||||||
| Non-vested at December 31, 2021 | 27,720 | $ | 28.51 | |||||||||||
| Granted | 35,333 | 41.54 | ||||||||||||
| Vested | (6,667) | 19.05 | ||||||||||||
| Cancelled | — | — | ||||||||||||
| Non-vested at March 31, 2022 | 56,386 | $ | 37.79 | |||||||||||
Restricted Stock
The information below summaries the restricted stock activity:
For the three and nine months ended September 30, 2017,2021, stock-based compensation expense for restricted stock was $59,804$152,553 and $151,041,$95,615, respectively. For
Treasury Stock
In December 2013, the Company exercised its right of first refusal under the terms of a Stockholders Agreement dated March 10, 2010 to repurchase 534,000 shares of the Company’s common stock. The shares were purchased for $0.45 per share or $240,000 in cash along with the issuance of an option to repurchase the 534,000 shares. The repurchased shares were recorded as treasury stock, at cost in the amount of $791,638. The option is classified in equity as it is considered indexed to the Company’s stock and meets the criteria for classification in equity. The option was granted to the seller for a term of 8 years. The option contained the following exercise prices:
| Year 1 | $ | 0.56 | ||
| Year 2 | $ | 0.68 | ||
| Year 3 | $ | 0.84 | ||
| Year 4 | $ | 1.03 | ||
| Year 5 | $ | 1.28 | ||
| Year 6 | $ | 1.59 | ||
| Year 7 | $ | 1.97 | ||
| Year 8 | $ | 2.45 |
Consideration given in the form of the option was valued using a Binomial Lattice-Based model resulting in a fair value of $1.03 per share option for a total fair value of $551,638. The option was valued using the Binomial Lattice-Based valuation methodology because that model embodies all of the relevant assumptions that address the features underlying the instrument.
During December 2016, the option holder partially exercised the call option and purchased 250,872 shares at a total repurchase price of $210,000. The Company reduced the cost of treasury shares by approximately $113,000 related to the transaction, reduced the value of the option by approximately $259,000, and reduced additional paid-in-capital by approximately $162,000.
During September 2017, the option holder exercised the remainder of the call option and purchased 283,128 shares at a total repurchase price of $292,671. The Company reduced the cost of treasury shares by approximately $127,000 related to the transaction, reduced the value of the option by approximately $292,000, and reduced additional paid-in-capital by approximately $127,000.
Note 9: Income Taxes
For the three and nine months ended September 30, 2017,2021, the Company recorded income tax expense (benefit) of approximately $36,000$13,224 and $79,000, respectively, with$(364,148), respectively. The Company’s effective tax rate differs from the differencefederal statutory tax rate due to state tax expense, the impact of certain permanent differences and penalties related to state incometaxes. The Company’s negative effective tax filings pursuant to a voluntary disclosure agreement which was rejected by the tax authority.
For the three and nine months ended September 30, 2016, the Company recorded income tax expense of approximately $14,000 and $132,000, respectively, due to a revised estimate for the valuation allowance on the company’s deferred tax assets, as well as state tax expense as a result of current year state income taxes and a lower estimate of income tax refunds available through net operating loss (NOL) carrybacks.
Note 10: Related Party Transactions
The Company entered into consulting and legal agreements with certain common stockholders related to services performed for the operations and transaction related activities of the Company. Amounts paid to or for the benefit of these stockholders was approximately $56,000 and $169,000rate for the three and nine months ended September 30, 2017, respectively. Amounts paidMarch 31, 2022 is primarily due to or for the benefit of these stockholders was approximately $111,000 and $421,000pre-tax income reported by the Joint Corp., without the VIE. The negative effective tax rate for the three and nine months ended September 30, 2016, respectively.
Operating
Total rent expenseincome statement location for the three and nine months ended September 30, 2017 was $688,031March 31, 2022 and $2,114,118, respectively. Total rent expense for the three2021:
| Line Item in the Company’s Condensed Consolidated Income Statements | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||
| Finance lease costs: | |||||||||||||||||
| Amortization of assets | Depreciation and amortization | $ | 21,797 | $ | 19,913 | ||||||||||||
| Interest on lease liabilities | Other expense, net | 1,437 | 2,623 | ||||||||||||||
| Total finance lease costs | 23,234 | 22,536 | |||||||||||||||
| Operating lease costs | General and administrative expenses | 1,353,676 | $ | 941,037 | |||||||||||||
| Total lease costs | $ | 1,376,910 | $ | 963,573 | |||||||||||||
Future minimum annualbalance sheet location related to leases is as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Operating Leases: | |||||||||||
| Operating lease right-of -use asset | $18,927,052 | $18,425,914 | |||||||||
| Operating lease liability - current portion | $4,872,292 | $4,613,843 | |||||||||
| Operating lease liability - net of current portion | 17,184,696 | 16,872,093 | |||||||||
| Total operating lease liability | $22,056,988 | $21,485,936 | |||||||||
| Finance Leases: | |||||||||||
| Property and equipment, at cost | $267,252 | $267,252 | |||||||||
| Less accumulated amortization | (169,733) | (147,937) | |||||||||
| Property and equipment, net | $97,519 | $119,315 | |||||||||
| Finance lease liability - current portion | 34,479 | 49,855 | |||||||||
| Finance lease liability - net of current portion | 81,928 | 87,939 | |||||||||
| Total finance lease liabilities | $116,407 | $137,794 | |||||||||
| Weighted average remaining lease term (in years): | |||||||||||
| Operating leases | 5.4 | 5.4 | |||||||||
| Finance lease | 3.8 | 3.6 | |||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | 4.4 | % | 4.6 | % | |||||||
| Finance leases | 4.5 | % | 4.8 | % | |||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||
| Cash paid for amounts included in measurement of liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 1,397,213 | $ | 979,349 | |||||||
| Operating cash flows from finance leases | 1,437 | 2,623 | |||||||||
| Financing cash flows from finance leases | 21,387 | 18,238 | |||||||||
| Non-cash transactions: ROU assets obtained in exchange for lease liabilities | |||||||||||
| Operating lease | $ | 1,508,371 | $ | 2,191,809 | |||||||
| Finance lease | — | 6,141 | |||||||||
| Operating Leases | Finance Lease | ||||||||||
| 2022 (remainder) | $ | 4,324,014 | $ | 31,547 | |||||||
| 2023 | 5,156,450 | 27,600 | |||||||||
| 2024 | 4,603,382 | 27,600 | |||||||||
| 2025 | 4,134,635 | 27,600 | |||||||||
| 2026 | 2,291,865 | 11,500 | |||||||||
| Thereafter | 4,084,024 | — | |||||||||
| Total lease payments | $ | 24,594,370 | $ | 125,847 | |||||||
| Less: Imputed interest | (2,537,382) | (9,440) | |||||||||
| Total lease obligations | 22,056,988 | 116,407 | |||||||||
| Less: Current obligations | (4,872,292) | (34,479) | |||||||||
| Long-term lease obligation | $ | 17,184,696 | $ | 81,928 | |||||||
| 2017 (remaining) | $ | 599,401 | ||
| 2018 | 1,910,339 | |||
| 2019 | 1,591,678 | |||
| 2020 | 1,321,133 | |||
| 2021 | 1,180,012 | |||
| 2022 | 1,072,743 | |||
| Thereafter | 3,060,963 | |||
| Total | $ | 10,736,269 |
The tables below present financial information for the Company’s two2 operating business segments (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Corporate clinics | $ | 2,930 | $ | 2,341 | $ | 8,106 | $ | 6,137 | ||||||||
| Franchise operations | 3,616 | 3,163 | 10,128 | 8,605 | ||||||||||||
| Total revenues | $ | 6,546 | $ | 5,504 | $ | 18,234 | $ | 14,743 | ||||||||
| Segment operating (loss) income: | ||||||||||||||||
| Corporate clinics | $ | (196 | ) | $ | (1,527 | ) | $ | (1,233 | ) | $ | (4,863 | ) | ||||
| Franchise operations | 1,671 | 1,195 | 4,479 | 3,197 | ||||||||||||
| Total segment operating (loss) income | $ | 1,475 | $ | (332 | ) | $ | 3,246 | $ | (1,666 | ) | ||||||
| Depreciation and amortization: | ||||||||||||||||
| Corporate clinics | $ | 379 | $ | 599 | $ | 1,222 | $ | 1,625 | ||||||||
| Franchise operations | - | - | - | - | ||||||||||||
| Corporate administration | 90 | 97 | 328 | 283 | ||||||||||||
| Total depreciation and amortization | $ | 469 | $ | 696 | $ | 1,550 | $ | 1,908 | ||||||||
| Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands): | ||||||||||||||||
| Total segment operating (loss) income | $ | 1,475 | $ | (332 | ) | $ | 3,246 | $ | (1,666 | ) | ||||||
| Unallocated corporate | (1,853 | ) | (2,287 | ) | (6,195 | ) | (7,620 | ) | ||||||||
| Consolidated loss from operations | (378 | ) | (2,619 | ) | (2,949 | ) | (9,286 | ) | ||||||||
| Other (expense) income, net | 10 | 6 | (34 | ) | 5 | |||||||||||
| Loss before income tax expense | $ | (368 | ) | $ | (2,613 | ) | $ | (2,983 | ) | $ | (9,281 | ) | ||||
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Segment assets: | ||||||||
| Corporate clinics | $ | 9,250 | $ | 10,481 | ||||
| Franchise operations | 2,353 | 2,003 | ||||||
| Total segment assets | $ | 11,603 | $ | 12,484 | ||||
| Unallocated cash and cash equivalents and restricted cash | $ | 2,786 | $ | 3,344 | ||||
| Unallocated property and equipment | 655 | 781 | ||||||
| Other unallocated assets | 604 | 446 | ||||||
| Total assets | $ | 15,648 | $ | 17,055 | ||||
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| Revenues: | 2022 | 2021 | |||||||||||||||||||||
| Corporate clinics | $ | 12,606,999 | $ | 9,466,083 | |||||||||||||||||||
| Franchise operations | 9,831,539 | 8,081,882 | |||||||||||||||||||||
| Total revenues | $ | 22,438,538 | $ | 17,547,965 | |||||||||||||||||||
| Depreciation and amortization: | |||||||||||||||||||||||
| Corporate clinics | 1,376,196 | 1,093,833 | |||||||||||||||||||||
| Franchise operations | 173,487 | 342 | |||||||||||||||||||||
| Corporate administration | 79,493 | 75,691 | |||||||||||||||||||||
| Total depreciation and amortization | $ | 1,629,176 | $ | 1,169,866 | |||||||||||||||||||
| Segment operating (loss) income: | |||||||||||||||||||||||
| Corporate clinics | $ | (438,064) | $ | 1,349,057 | |||||||||||||||||||
| Franchise operations | 4,403,238 | 3,847,773 | |||||||||||||||||||||
| Total segment operating income | $ | 3,965,174 | $ | 5,196,830 | |||||||||||||||||||
| Reconciliation of total segment operating income to consolidated earnings before income taxes: | |||||||||||||||||||||||
| Total segment operating income | $ | 3,965,174 | $ | 5,196,830 | |||||||||||||||||||
| Unallocated corporate | (4,141,600) | (3,225,154) | |||||||||||||||||||||
| Consolidated (loss) income from operations | (176,426) | 1,971,676 | |||||||||||||||||||||
| Other expense, net | 16,147 | 21,537 | |||||||||||||||||||||
| (Loss) income before income tax benefit | $ | (192,573) | $ | 1,950,139 | |||||||||||||||||||
| Segment assets: | March 31, 2022 | December 31, 2021 | |||||||||
| Corporate clinics | $ | 41,328,616 | $ | 40,722,898 | |||||||
| Franchise operations | 12,844,303 | 12,593,912 | |||||||||
| Total segment assets | 54,172,919 | 53,316,810 | |||||||||
| Unallocated cash and cash equivalents and restricted cash | 18,845,911 | 19,912,338 | |||||||||
| Unallocated property and equipment | 807,832 | 857,176 | |||||||||
| Other unallocated assets | 11,235,787 | 11,367,885 | |||||||||
| Total assets | $ | 85,062,449 | $ | 85,454,209 | |||||||
new medical procedures and techniques, could reduce or eliminate our competitive advantages. disease epidemics and other health-related concerns, such as the current COVID-19 outbreak. 2021. - three months ended March 31, 2022 compared with three months ended March 31, 2021 Net cash used in investing activities was regional developer rights for $1.4 million. 20162021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K.The informationdiscussionManagement’s Discussion and Analysis or MD&A, contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management; and accounting estimates and the impact of new or recently issued accounting pronouncements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations as described from time to time in our SEC reports, including those risks outlined under “Risk Factors” which are contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 20162021 and in Part II, Item 1A of this Form 10-Q for the quarter ended September 30, 2017.10-Q. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. You should carefully consider these risks and uncertainties and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. Some of the important factors contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A of this Form 10-Q that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following:•we may not be able to successfully implement our growth strategy if we or our franchisees are unable to locate and secure appropriate sites for clinic locations, obtain favorable lease terms, and attract patients to our clinics;•we have limited experience operating company-owned or managed clinics, and we may not be able to duplicate the success of some of our franchisees, and in the case of certain company-owned or managed clinics that we have closed or may close, we were not able to duplicate the success of our most successful franchisees;•we may not be able to continue to sell franchises to qualified franchisees;•we may not be able to identify, recruit and train enough qualified chiropractors to staff our clinics;22•new clinics may not be profitable, and we may not be able to maintain or improve revenues and franchise fees from existing franchised clinics;•we may not be able to acquire operating clinics from existing franchisees or develop company-owned or managed clinics on attractive terms;•any acquisitions that we make could disrupt our business and harm our financial condition;•the chiropractic industry is highly competitive, with many well-established competitors, which could prevent us from increasing our market share or result in reduction in our market share;•recent administrative actions and rulings regarding the corporate practice of medicine and joint employer responsibility may jeopardize our business model;•we may face negative publicity or damage to our reputation, which could arise from concerns expressed by opponents of chiropractic and by chiropractors operating under traditional service models;•legislation, regulations, as well as new medical procedures and techniques could reduce or eliminate our competitive advantages; and•we face increased costs as a result of being a public company.Additionally, there•major public health concerns, including the outbreak of epidemic or pandemic contagious disease, may beadversely affect revenue at our clinics and disrupt financial markets, adversely affecting our stock price;thatand/or uncertainties;otherwise describedunable to locate and secure appropriate sites for clinic locations, obtain favorable lease terms, and attract patients to our clinics;timeexisting franchisees or develop company-owned or managed clinics on attractive terms;time in the reports that we file with the Securitiesidentify, recruit and Exchange Commission. Any forward-looking statements in this report should be consideredtrain enough qualified chiropractors and other personnel to staff our clinics, particularly in light of various important factors, including the riskscurrent nationwide labor shortage, which might limit our ability to implement our growth strategy;uncertainties listed above,negative opinions posted on the internet may drive down the market price of our common stock and could result in class action lawsuits;others.the sale of regional developer rights, and through direct ownership and management arrangementsdevelopers throughout the United States.we have an attractive businessThe Joint has a sound concept, benefitingwhich was further validated through its resiliency during the pandemic and will benefit from the fundamental changes taking place in the manner in which Americans access chiropractic care and their growing interest in seeking effective, affordable natural solutions for general wellness. These trends join with the strong preference we have seen among chiropractic doctors to reject the insurance-based model to produce a dynamic combination that benefits the consumer and the service provider alike. We believe that these forces create an important opportunity to accelerate the growth of our network.Key Performance Measures.receive both weeklyanticipate that fiscal 2022 will continue to be a volatile macroeconomic environment. While we expect the impacts of COVID-19 on our business to moderate, there still remains uncertainty around the pandemic, its effect on labor or other macroeconomic factors, the severity and monthly performance reports fromduration of the pandemic, the continued availability and effectiveness of vaccines and actions taken by government authorities, including restrictions, laws or regulations, and other third parties in response to the pandemic.clinics which include key performance indicators including gross clinic sales, total royalty income, and patient office visits. We believe these indicators provide us with useful data with which to measure our performance and to measure our franchisees’ and clinics’ performance.Key Clinic Development Trends. Our current growth strategyoperations is to grow through the sale and development of additional franchises and regional developer territories and to foster the growth of acquired and developed clinics that are owned and managed by us.labor costs. In the nine months ended September 30, 2017, we added a netfourth quarter of 33 franchised clinics2021 and closed or sold 14the first quarter of 2022, company-owned or managed clinics were negatively impacted by wage increases, which increased our general and administrative expenses. Further, should we fail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our patient service to suffer. We expect elevated levels of cost inflation to persist throughout 2022. While we anticipate that these headwinds will be partially mitigated by pricing actions in response to inflation, there can beChicago areafuture. A continued increase in labor costs could have an adverse effect on our operating costs, financial condition and results of operations.Upstate New York as partresponse to this conflict have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our planbusiness, financial condition, or results of operations. These and other uncertainties with respect to improve cash usage and progress toward profitability. This broughtthese recent events could result in changes to our current expectations.total numberthree months ended March 31, 2022, compared to the prior year period:389develop franchises in various counties in California. The total consideration for the transaction was $2,400,000. We carried a deferred revenue balance associated with this transaction of $357,721, representing the unrecognized fee collected upon the execution of the regional developer agreement. We accounted for the termination of development rights associated with unsold or undeveloped franchises as a cancellation, and the associated deferred revenue was netted against the aggregate purchase price. We recognized the net amount of September$2,042,279 as reacquired development rights on April 1, 2022, which is amortized over the remaining original contract period of approximately 5.3 years.2017, up from 370 totaland 40, compared to 32 in 2021.at December 31, 2016,by the end of 2023 due to, among other things, our resilient business model, planned new clinic openings and 354 at September 30, 2016. 23We recognize the critical importance of preserving cash and strengthening clinics we have already developed. Therefore, we will not actively pursue the additionexpansion of company-owned or managed clinics duringclinics. However, the 2017 fiscal year, butlong-term impact of COVID-19 on our operational and financial performance will address strategic opportunities as they present themselves. Scaling backdepend on certain developments including the launch of company-owned or managed clinics will allow us to continue to focus on growing gross sales, streamlining operations across all company-owned or managed clinicsduration, spread, severity, and expanding franchise development. During the nine months ended September 30, 2017, our company-owned or managed clinics continued to demonstrate improved performance. As of September 30, 2017, we had 47 company-owned or managed clinics which represented 12%trajectory of the clinic portfolio,virus and economic conditions. These potential developments are uncertain and cannot be predicted, and as comparedsuch, the extent to 61, or 17%which COVID-19 will impact our business, operations, financial condition and results of the clinic portfolio, at the same point of the previous year. Recent DevelopmentsIn January 2017, we entered into a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender. Under the Credit Agreement, we are able to borrow up to an aggregate of $5,000,000 under revolving loans. Interest on the unpaid outstanding principal amount of any revolving loans is at a rate equal to 10% per annum, provided, however, that the minimum amount of interest paid in the aggregate on all revolving loans grantedoperations over the long term of the Credit Agreement is $200,000. Interest is due and payable on the last day of each fiscal quarter in an amount determined by us, but not less than $25,000. The lender’s lending commitments under the Credit Agreement terminate in December 2019, unless sooner terminated in accordance with the provisions of the Credit Agreement. We are using the credit facility for general working capital needs. We have drawn $1,000,000 of the $5,000,000 available under the Credit Agreement.In January 2017, we sold the assets of six of our 11 clinics in the Chicago area for a nominal amount to a limited liability company that includes existing franchisees. The purchaser operates the clinics as franchised locations pursuant to a franchise agreement. Concurrently, we sold regional developer rights to the Chicago area to the purchaser of our six Chicago clinics for $300,000. Pursuant to the regional developer agreement, the developer has agreed to open a minimum of 30 Chicago area clinics over the next 10 years, with plans to open five to 10 clinics over the 18 months following January 2017. We have closed the remaining five Chicago-area clinics, as well as three Company-managed clinics in upstate New York. We recognized an additional lease exit liability in the first quarter of 2017 of $739,000 related to these closures. These assets were designated as held for sale as of December 31, 2016, and we recognized a loss on disposition or impairment of approximately $3.5 million. We made these tactical decisions in the 4th quarter of 2016 to reduce our current cash usage, allowing us to focus on accelerating the point at which we believe we will achieve cash-flow breakeven.In addition to the Chicago regional developer rights discussed above, during the first quarter of 2017, we sold regional developer territories for Philadelphia and Washington State for a total, including the Chicago area, of approximately $650,000. Their combined development schedule requires the opening and operating of a minimum of 70 clinics over a ten-year period. The revenues related to these sales will be recognized over the estimated number of franchised clinics to be opened in the respective territories.During the three months ended June 30, 2017, we sold two regional developer territories for Central Florida and Ohio for a total of $620,000. Their combined development schedule requires the opening and operating of a minimum of 68 new clinics (34 in each territory) over a ten-year period.During the three months ended September 30, 2017, we sold three regional developer territories for New Jersey, Maryland/Washington DC and Minnesota for a total of approximately $440,000. Their combined development schedule requires the opening and operating of a minimum of 50 new clinics over a ten-year period, with respect to New Jersey and Maryland/Washington DC and a five-year period for the Minnesota territory.During the nine months ended September 30, 2017, we terminated two franchise licenses that were in default. In conjunction with these terminations, during the nine months ended September 30, 2017, we recognized $62,915 of revenue and $16,800 of costs, which were previously deferred.
unknown.24 quarterly operating results may fluctuate significantly as a result of a variety of factors, including the timing of new clinic sales, openings, closures, markets in which we operatethey are contained and related expenses, general economic conditions, cost inflation, labor shortages, consumer confidence in the economy, consumer preferences, competitive factors, and competitive factors.ninethree months ended September 30, 2017March 31, 2022 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2016.– Three Months Ended September 30, 2017for the three months ended September 30, 2017were as compared to the three months ended September 30, 2016, are as follows: Three Months Ended September 30, 2017 2016 Change from
Prior Year Percent Change
from Prior YearRevenues: Revenues and management fees from company clinics $ 2,929,850 $ 2,341,471 $ 588,379 25.1 % Royalty fees 1,958,249 1,540,264 417,985 27.1 % Franchise fees 229,715 602,400 (372,685 ) (61.9 )% Advertising fund revenue 775,221 595,955 179,266 30.1 % IT related income and software fees 290,250 235,925 54,325 23.0 % Regional developer fees 259,230 123,921 135,309 109.2 % Other revenues 103,336 63,654 39,682 62.3 % Total revenues $ 6,545,851 $ 5,503,590 $ 1,042,261 18.9 % The reasons for the significant changes in our componentsThree Months Ended
March 31,2022 2021 Change from
Prior YearPercent Change
from Prior YearRevenues: Revenues from company-owned or managed clinics $ 12,606,999 $ 9,466,083 $ 3,140,916 33.2 % Royalty fees 6,008,932 4,769,246 $ 1,239,686 26.0 % Franchise fees 640,965 695,427 $ (54,462) (7.8) % Advertising fund revenue 1,710,717 1,374,741 $ 335,976 24.4 % IT related income and software fees 956,998 760,537 $ 196,461 25.8 % Regional developer fees 201,787 217,956 $ (16,169) (7.4) % Other revenues 312,140 263,975 $ 48,165 18.2 % Total revenues $ 22,438,538 $ 17,547,965 $ 4,890,573 27.9 % $1.0$4.9 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.base and the continued revenue growth and expansion of our company owned or managed clinics portfolio. and management fees from company-owned or managed clinics increased, primarily due primarily to improved same-store sales growth.growth, as well as due to the expansion of our corporate-owned or managed clinics portfolio. As of March 31, 2022 and 2021, there were 100 and 65 company-owned or managed clinics in operation, respectively.haveand advertising fund revenue increased due to an increase in the number of franchised clinics in operation during the current period, along with continued sales growth in existing franchised clinics. As of September 30, 2017,March 31, 2022 and 2016,2021, there were 342636 and 293527 franchised clinics in operation, respectively.timingimpact of accelerated revenue recognition resulting from the terminated franchise license terminations and fewer clinic openings. Inagreements in the three months ended September 30, 2017 and 2016, we recognized revenueprior year period. There were no such comparable events during the first quarter of $63,000 and $196,000, respectively, from terminated licenses. In the three months ended September 30, 2017 and 2016, 6 and 13 new franchised clinics opened, respectively.
2022 .25Regional developer•Software fees increased due to the timing of revenue recognition on the clinic openings on specific RD territories.IT related income and software fees and advertising fund revenue increased due to an increase in our franchisefranchised clinic base and the related revenue recognition over the term of the franchise agreement as described above.Total Revenues – Nine Months Ended September 30, 2017Components of revenues for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, are as follows: Nine Months Ended September 30, 2017 2016 Change from
Prior Year Percent Change
from Prior YearRevenues: Revenues and management fees from company clinics $ 8,106,121 $ 6,137,277 $ 1,968,844 32.1 % Royalty fees 5,518,409 4,337,643 1,180,766 27.2 % Franchise fees 1,036,815 1,641,409 (604,594 ) (36.8 )% Advertising fund revenue 1,995,235 1,218,256 776,979 63.8 % IT related income and software fees 839,788 686,459 153,329 22.3 % Regional developer fees 455,859 496,538 (40,679 ) (8.2 )% Other revenues 282,289 225,086 57,203 25.4 % Total revenues $ 18,234,516 $ 14,742,668 $ 3,491,848 23.7 % The reasons for the significant changes in our components of total revenues are as follows:Consolidated ResultsTotal revenues increased by $3.5 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.Corporate ClinicsRevenues and management•Regional developer fees from company-owned or managed clinics increased due primarily to improved same-store sales growth, which includes contributions from clinics acquired in the second quarter of 2016.Franchise OperationsRoyalty fees have increased due to an increase in the number of franchised clinics in operation during the current period along with continued sales growth in existing franchised clinics. As of September 30, 2017, and 2016, there were 342 and 293 franchised clinics in operation, respectively.Franchise feesrevenue decreased due to the timingimpact of franchise license terminations. Inrepurchased regional developer rights during the nine months ended September 30, 2017 and 2016, we recognized revenuefirst quarter of $63,000 and $477,000, respectively, from terminated licenses.2022.IT related•Other revenues primarily consist of merchant income and software fees and advertising fund revenue increased due to an increase in our franchise clinic base as described above.Cost of RevenuesCost of Revenues 2017 2016 Change from
Prior Year Percent Change
from Prior Year Three Months Ended September 30, $ 819,200 $ 718,762 $ 100,438 14.0 % Nine Months Ended September 30, 2,331,522 2,186,464 145,058 6.6 %
associated with credit card transactions.26Three Months Ended March 31, 2022 2021 Change from
Prior YearPercent Change
from Prior YearCost of Revenues 2,312,771 1,765,317 $ 547,454 31.0 % September 30, 2017,March 31, 2022, as compared with the same period last year,three months ended March 31, 2021, the total cost of revenues increased slightlyprimarily due to an increase in regional developer royalties of $149,000 triggered by$0.4 million and an increase in website hosting costs of royalty revenues of approximately 27%$0.2 million.Three Months Ended March 31, 2022 2021 Change from
Prior YearPercent Change
from Prior YearSelling and Marketing Expenses 3,287,488 2,489,279 $ 798,209 32.1 % same quarterthree months ended March 31, 2021, driven by: (i) an increase in advertising fund expenditures from a larger franchise base, (ii) an increase in local marketing expenditures by the company-owned or managed clinics, and (iii) the timing of the national marketing fund spend and the new brand campaign.Three Months Ended March 31, 2022 2021 Change from
Prior YearPercent Change
from Prior YearDepreciation and Amortization Expenses 1,629,176 1,169,866 $ 459,310 39.3 % Three Months Ended March 31, 2022 2021 Change from
Prior YearPercent Change
from Prior YearGeneral and Administrative Expenses 15,378,623 10,087,060 $ 5,291,563 52.5 % Three Months Ended March 31, 2022 2021 Change from
Prior YearPercent Change
from Prior Year(Loss) Income from Operations (176,426) 1,971,676 $ (2,148,102) (108.9) % a reduction$69,000 in regional developer commissions recognized in conjunction with$3.1 million from company-owned or managed clinics.openings. Foroperations segment had income from operations of $4.4 million for the ninethree months ended September 30, 2017, asMarch 31, 2022, an increase of $0.6 million, compared withto income from operations of $3.8 million for the same period lastprior year theperiod. This increase was primarily due to:increased slightlyprimarily due to an increase in regional developer royalties of $330,000 triggered byand website hosting costs and an increase of royalty revenues$0.6 million in operating expenses, primarily due to an increase in selling and marketingcomparedwell as due to an increase in depreciation and administration expense associated with the same quarter in the prior year, offset by a reductionnew IT platform discussed above of $178,000 in regional developer commissions recognized in conjunction with franchise openings. Selling and Marketing ExpensesSelling and Marketing Expenses 2017 2016 Change from
Prior Year Percent Change
from Prior Year Three Months Ended September 30, $ 1,172,559 $ 1,272,524 $ (99,965 ) (7.9 )% Nine Months Ended September 30, 3,189,489 3,184,484 5,005 0.2 % Selling and marketing$0.2 million. decreased for the three months ended September 30, 2017, asMarch 31, 2022 increased by $0.9 million compared to the prior year period, primarily due to the increases in: (i) professional and advisory fees of $0.5 million, (ii) general overhead and administrative expenses of $0.2 million, and (iii) maintenance expenses for our new software discussed above of $0.2 million.September 30, 2016, due to the sale or closureMarch 31, 2022 and 2021.Three Months Ended March 31, 2022 2021 Non-GAAP Financial Data: Net (loss) income $ (205,797) $ 2,314,287 Net interest expense 15,859 21,537 Depreciation and amortization expense 1,629,176 1,169,866 Tax expense (benefit) 13,224 (364,148) EBITDA 1,452,462 3,141,542 Stock compensation expense 323,556 246,494 Acquisition related expenses — 5,974 Loss on disposition or impairment 6,906 64,767 Adjusted EBITDA $ 1,782,924 $ 3,458,777 14 company-owned or managed clinics, offset by an increase in the overall size of the national marketing fund due to the larger franchise clinic base, and the timing of national marketing fund expenditures.Selling and marketing expenses increased slightly for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, due to the increase in the overall size of the national marketing fund due to the larger franchise clinic base, offset by lower spending on company-owned or managed clinics advertising and promotion due to the sale or closure of 14 clinics and due to the timing of the national conference occurring in the fourth quarter of 2017 versus the third quarter of 2016.Depreciation and Amortization ExpensesDepreciation and Amortization Expenses 2017 2016 Change from
Prior Year Percent Change
from Prior Year Three Months Ended September 30, $ 468,800 $ 695,579 $ (226,779 ) (32.6 )% Nine Months Ended September 30, 1,550,013 1,908,238 (358,225 ) (18.8 )% Depreciationnet income before interest, income taxes, depreciation and amortization, acquisition related expenses, decreasedstock-based compensation expense, bargain purchase gain, and (gain) loss on disposition or impairment. There was no bargain purchase gain for the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, primarily due to the sale or closure of 14 company-owned or managed clinics.General and Administrative ExpensesGeneral and Administrative Expenses 2017 2016 Change from
Prior Year Percent Change
from Prior Year Three Months Ended September 30, $ 4,462,922 $ 5,435,219 $ (972,297 ) (17.9 )% Nine Months Ended September 30, 13,694,690 16,749,945 (3,055,255 ) (18.2 )% General and administrative expenses decreased during the three months ended September 30, 2017 comparedMarch 31, 2022 and 2021. We have provided Adjusted EBITDA because it is a non-GAAP measure of financial performance commonly used for comparing companies in our industry. You should not consider Adjusted EBITDA as a substitute for operating profit as an indicator of our operating performance or as an alternative to cash flows from operating activities as a measure of liquidity. We may calculate Adjusted EBITDA differently from other companies.three months ended September 30, 2016, primarily dueuse of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other outpatient medical clinics, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating Adjusted EBITDA that in the following:•A decrease of approximately $0.2 million in payroll related expenses;•A decrease of approximately $0.3 million in utilities and facilities related expenses due to the closure of 14 company-owned or managed clinics; and•A decrease of approximately $0.3 million of other miscellaneous expenses as a result of certain legal settlements and expensing of real estate development expenses recognized in the three months ended September 30, 2016.
future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same manner.27Generaladministrative expenses decreased duringCapital Resourcesnine months ended September 30, 2017 compared todevelopment line of credit. While the nine months ended September 30, 2016, primarily due toongoing COVID-19 pandemic and the following:•A decrease of approximately $1.0 million in payroll related expenses;•A decrease of approximately $0.5 million in legal and accounting related expenses;•A decrease of approximately $0.5 million in utilities and facilities related expenses; and•A decrease of approximately $0.9 million of other miscellaneous expenses as a result of certain legal settlements and real estate development expenses recognized in the three months ended September 30, 2016.Loss from Operations - Three Months Ended September 30, 2017Profit (Loss) from Operations 2017 2016 Change from
Prior Year Percent Change
from Prior Year Three Months Ended September 30, $ (377,630 ) $ (2,618,494 ) $ 2,240,864 (85.6 )% Consolidated ResultsConsolidated lossUkraine War create potential liquidity risks, as discussed further below, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our development line of credit will be sufficient to fund our anticipated operating and investment needs for at least the next twelve months.$2.2$1.8 million to $0.4 million for the three months ended September 30, 2017March 31, 2022, compared to the three months ended September 30, 2016, primarily driven by the $1.3 million decrease in operating loss in the corporate clinic segment discussed below, a decrease in corporate general and administrative expenses of $0.4 million, and increased net income from franchised operations of $0.5 million discussed below.Corporate ClinicsOur corporate clinics segment (i.e., company-owned or managed clinics) had a loss from operations of $0.2$2.3 million for the three months ended September 30, 2017, a decrease of $1.3 million compared to a loss from operations of $1.5 million for the same period last year. ThisMarch 31, 2021. The decrease was primarily due to:•Anattributable to an increase in revenues of approximately $0.6 million from company-owned or managed clinics; and•A decrease of approximately $0.3 million of utilities and facilities related expense, approximately $0.2 million in selling and marketing expenses, and approximately $0.2 million in depreciation and amortization related to the sale or closure of company-owned or managed clinics.Franchise OperationsOur franchise operations segment had net income from operations of $1.7 million for the three months ended September 30, 2017, an increase of $0.5 million, compared to net income from operations of $1.2 million for the same period ended September 30, 2016. This increase was primarily due to:•An increase of approximately $0.3 million in total revenues (net of national marketing fund contributions), due primarily to an approximately 27% increase in franchise royalty revenues; and•A decrease of approximately $0.1 million in general and administrative expenses.28Loss from Operations - Nine Months Ended September 30, 2017Profit (Loss) from Operations 2017 2016 Change from
Prior Year Percent Change
from Prior Year Nine Months Ended September 30, (2,949,169 ) (9,286,463 ) 6,337,294 (68.2 )% Consolidated ResultsConsolidated loss from operations decreased by $6.3 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily driven by the $3.6 million decrease in operating loss in the corporate clinic segment, discussed below, a decrease in corporate general and administrative expenses of $1.4 million, and increased net income from franchised operations of $1.3 million discussed below.Corporate ClinicsOur corporate clinics segment (i.e., company-owned or managed clinics) had a loss from operations of $1.2 million forover the nine months ended September 30, 2017, a decrease of $3.6 million compared to a loss from operations of $4.8 million for the sameprior year period, last year. This decreasewhich was primarily due to:•An increase in revenues of approximately $2.0 million from company-owned or managed clinics; and•A decrease of approximately $0.6 million of utilities and facilities expense, approximately $0.5 million in selling and marketing expenses and approximately $0.4 million in depreciation and amortization related to the sale or closure of company-owned or managed clinics.Franchise OperationsOur franchise operations segment had net income from operations of $4.5 million for the nine months ended September 30, 2017,partially offset by an increase of $1.3 million, compared to net income from operations of $3.2 million forin revenue over the same period ended September 30, 2016. This increase was primarily due to:•An increase of approximately $0.7 million in total revenues (net of national marketing fund contributions), due primarily to an approximately 27% increase in franchise royalty revenues; and•A decrease of approximately $0.6 million in general and administrative expenses.Liquidity and Capital ResourcesSources of LiquidityWe used a significant amount of the net proceeds from our public offerings for the development of company-owned or managed clinics. We accomplished this by developing new clinics and by repurchasing existing franchises. In addition, we have used proceeds from our offerings to repurchase existing regional developer licenses, to continue to expand our franchised clinic business and for general business purposes. We are holding the remaining net proceeds in cash or short-term bank deposits.As of September 30, 2017, we had cash and short-term bank deposits of approximately $2.6 million. To preserve cash, we will not proactively pursue the addition of any company-owned or managed clinics during the 2017 fiscal year. In addition, our tactical decisions made with respect to the clinics in Chicago and New York in January 2017, as well as the cash infusion from the sale of regional developer territories, has significantly reduced our estimated net cash usage for 2017 to approximately $2.0 million. Cash used in 2016 included expenditures for the acquisition or development of 14 company-owned or managed clinics and working capital losses in the Chicago and New York markets of approximately $2.8 million. As we have no current plan to acquire or develop company-owned or managed clinics during 2017, and have sold or closed 14 clinics in the Chicago and New York markets, our projected use of cash in 2017 is significantly lower than in 2016.
prior year period.29In January 2017, we executed a Credit and Security Agreement which provided a credit facility of up to $5.0 million. We have drawn $1.0 million under the credit facility. See Note 7 to our condensed consolidated financial statements for additional discussion of the credit facility.Analysis of Cash FlowsNet cash used in operating activities decreased by $8,927,220 to $1,416,497 for the nine months ended September 30, 2017, compared to $10,343,717 for the nine months ended September 30, 2016. The decrease in cash used in operating activities was attributable primarily to decreased expenses caused by decreased operating losses and working capital requirements of our company-owned or managed clinics.$150,701$1.5 million and $2,608,380$2.3 million for the ninethree months ended September 30, 2017,March 31, 2022 and 2016,2021, respectively. For the ninethree months ended September 30, 2017,March 31, 2022, this included purchases of fixed assetsproperty and equipment of $0.2$1.3 million and payments received on notes receivable of $39,888. For the nine months ended September 30, 2016, this includes acquisitions of franchises of $0.8 million, the reacquisition and termination of regional developer rights offor $0.3 million,million. For the three months ended March 31, 2021, this included purchases of property and equipment of $1.5$1.0 million and payments received on notes receivablereacquisition and termination of $26,000. provided by (used in)used in financing activities was $1,185,982 and ($454,256) for the ninethree months ended September 30, 2017, and 2016, respectively.March 31, 2022 was less than $50 thousand, compared to $2.7 million for the three months ended March 31, 2021. For the ninethree months ended September 30, 2017,March 31, 2021, this included borrowingsrepayment of $1.0the PPP loan of $2.7 million on our revolving line of credit, proceeds from saleand purchases of treasury stock of $0.3for $0.6 million, which were partially offset by the proceeds from the exercise of stock options of $0.1 million, partially offset by purchases of treasury stock under employee stock plans of $2,655 and repayments on notes payable of $0.2$0.6 million. For the nine months ended September 30, 2016, this includes repayments on notes payable of $0.4 million, purchases of treasury stock under employee stock plans of $83,000 and offering costs adjustment of $1,000, partially offset by proceeds from exercise of stock options of $66,000.ninethree months ended September 30, 2017,March 31, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements. with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017.March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are accumulated and communicated to the company’s management, including its principal executive and principaltheirsuch objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017,March 31, 2022, our Chief Executive Officer and Chief Financial Officermanagement has concluded that, as of such date, ourthe disclosure controls and procedures were not effective atas of that date due to material weaknesses in internal control over financial reporting that were identified in our Form 10-K for the year ended December 31, 2021 as described below.assurance level.
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.30No changeoccurred during the quarterthree months ended September 30, 2017March 31, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.the Company iswe are a party to litigation from time to time. We maintain insurance to cover certain litigation and claims. In June 2021, we received a draft complaint from an employee, claiming that we had vicarious and other liability with respect to alleged wrongful acts committed by a former employee. In February 2022, the claim was settled for a total of $750,000. We also recognized a $250,000 insurance recovery asset associated with the settlement. The $500,000 net impact of the settlement is included in our consolidated income statement for the year ended December 31, 2021.annual report on Form 10-K for the year ended December 31, 2016.2021. Other than the risk factorupdates identified below, which should be read in conjunction with the risk factors as they appear in such Form 10-K, there have been no material changes to our risk factors since the filing of that report.Our business model dependsreport, except for the addition of the following risk factor:proprietaryprofitability and third party management information systems thatmay result in price increases to offset their impact. Further, should we usefail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our patient services to suffer.track financialthose factors disclosed in this Form 10-Q under the caption “Recent Events and operating performanceCOVID-19 Update” in Management’s Discussion and Analysis of our clinics,Financial Condition and any failureResults of Operations -- unfavorable global economic or political conditions, such as the ongoing COVID-19 pandemic, the Ukraine War, and inflation and other cost increases. As further disclosed under the aforementioned caption, we anticipate that fiscal 2022 will continue to successfully designbe a volatile macroeconomic environment and maintain these systems or implement new systems could materially harm our operations.We depend on integrated management information systems, someexpect elevated levels of which are provided by third parties, and standardized procedures for operational and financial information, as well as for patient records and our billing operations. Wecost inflation to persist throughout 2022.experience unanticipated delays, complications, data breaches or expenses in implementing, integrating, and operating our systems. Our management information systems regularly require modifications, improvements or replacements that may require both substantial expenditures as well as interruptions in operations. Our ability to implement these systems is subject to the availability of skilled information technology specialists to assist us in creating, implementing and supporting these systems. Our failure to successfully design, implement and maintain all of our systems could have a material adverse effect onadversely impact our business, financial condition, andor results of operations.nine months ended September 30, 2017,event that a continued deterioration of economic conditions causes a significant decrease in demand for our services, this could negatively impact our ability to meet the financial covenants in our credit facility, although we have experienced unanticipated delayswere in compliance as of the performanceend of the first quarter of 2022 and anticipate remaining in compliance throughout 2022. Furthermore, a deterioration of equity and credit markets may make other debt or equity financing difficult to obtain in a timely manner and on favorable terms, if at all, and if obtained, may be more costly or more dilutive. If we are unable to access our proprietary management information system when migrating the platformcredit facility as a result of noncompliance with its covenants or are unable to a fully redundant cloud environment. We have incurred additional costsobtain other debt or equity financing, this could limit our opportunity to improve system performanceacquire more clinics and have allocated additional resourcesregional developer rights and to stabilize and monitor the system on an ongoing basis. Our failure to stabilize the system could result in us incurring additional expenses and in interruptions to our and our franchisees’ business operations, and our initiatives to upgrade our proprietary management information system may not succeed or may result in greater than anticipated delays and expenditures, either of which could have a material adverse effect on our and our franchisees’ business operations.pursue other corporate initiatives.The Exhibit Index immediately following the Signatures to this Form 10-Q is hereby incorporated by reference into this Form 10-Q.31THE JOINT CORP.Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.THE JOINT CORP.Exhibit
NumberDated: November 13, 2017By: /s/ Peter D. HoltPeter D. HoltPresident and Chief Executive Officer(Principal Executive Officer )Dated: November 13, 2017By: /s/ John P. MelounJohn P. MelounChief Financial Officer(Principal Financial Officer)32ExhibitNumberDescription of Document 3.1 31.13.210.1* 10.2 31.1* 31.2* 31.232** 32101.INS XBRL Instance Document. 101.SCH 101.SCHXBRL Taxonomy Extension Schema Document. 101.CAL 101.CALXBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF 101.DEFXBRL Taxonomy Extension Definition Linkbase Document. 101.LAB 101.LABXBRL Taxonomy Extension Label Linkbase Document. 101.PRE 101.PREXBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 33THE JOINT CORP. Dated: May 6, 2022 By: /s/ Peter D. Holt Peter D. Holt
President and Chief Executive Officer
(Principal Executive Officer)Dated: May 6, 2022 By: /s/ Jake Singleton Jake Singleton
Chief Financial Officer
(Principal Financial Officer)