Exhibit 99.3
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
On August 1, 2019, The Joint Corp. (the “Company”) completed its purchase of one franchisee clinic, located in Myrtle Beach, South Carolina (the “acquisition”). The acquisition was accomplished pursuant to an Asset and Franchise Purchase Agreement (the “Purchase Agreement”) among the Company, RJJ, LLC, a South Carolina limited liability company (“Seller”), and Robin Willey and Judy Willey (together, the “Shareholders”). The Company intends to own and operate the clinic. The total consideration for the acquisition was $750,000, of which $700,000 was paid in cash up front, and $50,000 is payable 90 calendar days after the closing date, each subject to certain adjustments. The Purchase Agreement was filed with the Securities and Exchange Commission (the “SEC”) as an exhibit to the Company’s Current Report on Form 8-K filed on August 5, 2019.
Included herein are the unaudited pro forma condensed combined financial statements, which are not necessarily indicative of what the Company’s financial position or results of operations would have been had the Company completed the acquisition at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the Company after the acquisition. The pro forma information is based on the assumptions, adjustments and eliminations described in the accompanying notes to the unaudited pro forma condensed combined financial statements, which form an integral part of the statements.
The following unaudited pro forma condensed combined financial statements combine the historical consolidated financial statements of the Company, and the historical financial statements of RJJ, LLC adjusted to give effect to the impact of the acquisition and related financing transactions. The unaudited pro forma condensed combined balance sheet presents the combined financial position giving effect to the acquisition and related financing transactions as if they had occurred on June 30, 2019. Because the Company acquired only certain assets from RJJ, LLC, the Company have presented the acquisition of such assets in the pro forma adjustments column. The assets acquired were the assets that derived all of RJJ, LLC’s revenue, and therefore, the Company has included a sperate column for the combined statements of operations pro forma presentation. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2019 and for the year ended December 31, 2018 present the combined results of operations as if the acquisition had occurred on January 1, 2018. These unaudited pro forma condensed combined financial statements have been prepared in accordance with Regulation S-X Article 11.
These unaudited pro forma condensed combined financial statements should be read in connection with:
| · | Separate historical financial statements of the Company as of and for the year ended December 31, 2018, which are incorporated by reference to its Annual Report on Form 10-K; and |
| · | Separate historical financial statements of the Company as of and for the six months ended June 30, 2019, which are incorporated by reference to its Quarterly Report on Form 10-Q for the six months ended June 30, 2019. |
| 1 |
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
As of June 30, 2019
| The Joint Corp. | Pro Forma Adjustments | Pro Forma Condensed Combined | |||||||||||
| ASSETS | |||||||||||||
| Current assets: | |||||||||||||
| Cash and cash equivalents | $ | 9,485,212 | $ | (677,414 | ) | (a) | $ | 8,807,798 | |||||
| Restricted cash | 129,220 | - | 129,220 | ||||||||||
| Accounts receivable, net | 1,033,479 | - | 1,033,479 | ||||||||||
| Income taxes receivable | - | - | - | ||||||||||
| Notes receivable - current portion | 163,573 | - | 163,573 | ||||||||||
| Deferred franchise costs - current portion | 710,796 | (1,530 | ) | (g) | 709,266 | ||||||||
| Prepaid expenses and other current assets | 887,676 | - | 887,676 | ||||||||||
| Total current assets | 12,409,956 | (678,944 | ) | 11,731,012 | |||||||||
| Property and equipment, net | 4,963,037 | 28,662 | (b) | 4,991,699 | |||||||||
| Operating lease right-of-use asset | 10,030,737 | 166,892 | (h) | 10,197,629 | |||||||||
| Notes receivable, net of current portion | 41,683 | - | 41,683 | ||||||||||
| Deferred franchise costs, net of current portion | 3,485,644 | (4,318 | ) | (g) | 3,481,326 | ||||||||
| Intangible assets, net | 1,975,835 | 496,930 | (c) | 2,472,765 | |||||||||
| Goodwill | 3,225,145 | 194,545 | (d) | 3,419,690 | |||||||||
| Deposits and other assets | 337,379 | - | 337,379 | ||||||||||
| Total assets | $ | 36,469,416 | $ | 203,767 | $ | 36,673,183 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
| Current liabilities: | |||||||||||||
| Accounts payable | $ | 1,199,341 | $ | - | $ | 1,199,341 | |||||||
| Accrued expenses | 178,949 | - | 178,949 | ||||||||||
| Co-op funds liability | 129,220 | - | 129,220 | ||||||||||
| Payroll liabilities | 1,602,916 | - | 1,602,916 | ||||||||||
| Notes payable - current portion | 1,000,000 | 50,000 | (a) | 1,050,000 | |||||||||
| Operating lease liability - current portion | 1,827,233 | 26,452 | (h) | 1,853,685 | |||||||||
| Finance lease liability - current portion | 23,075 | - | 23,075 | ||||||||||
| Deferred franchise revenue - current portion | 2,697,669 | (2,700 | ) | (f) | 2,694,969 | ||||||||
| Deferred revenue from company clinics | 2,677,782 | 22,586 | (e) | 2,700,368 | |||||||||
| Other current liabilities | 540,279 | - | 540,279 | ||||||||||
| Total current liabilities | 11,876,464 | 96,338 | 11,972,802 | ||||||||||
| Operating lease liability - net of current portion | 9,049,948 | 115,812 | (h) | 9,165,760 | |||||||||
| Finance lease liability - net of current portion | 46,826 | - | 46,826 | ||||||||||
| Deferred franchise revenue, net of current portion | 12,652,780 | (8,383 | ) | (f) | 12,644,397 | ||||||||
| Deferred tax liability | 83,294 | - | 83,294 | ||||||||||
| Other liabilities | 27,230 | - | 27,230 | ||||||||||
| Total liabilities | 33,736,542 | 203,767 | 33,940,309 | ||||||||||
| Commitments and contingencies | |||||||||||||
| Stockholders' equity: | |||||||||||||
| Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of December 31, 2018 and 2017 | - | - | - | ||||||||||
| Common stock | 13,838 | - | 13,838 | ||||||||||
| Additional paid-in capital | 38,779,538 | - | 38,779,538 | ||||||||||
| Treasury stock | (90,856 | ) | - | (90,856 | ) | ||||||||
| Accumulated deficit | (35,969,746 | ) | - | (35,969,746 | ) | ||||||||
| Total The Joint Corp. stockholders' equity | 2,732,774 | - | 2,732,774 | ||||||||||
| Non-controlling Interest | 100 | - | 100 | ||||||||||
| Total equity | 2,732,874 | - | 2,732,874 | ||||||||||
| Total liabilities and stockholders' equity | $ | 36,469,416 | $ | 203,767 | $ | 36,673,183 | |||||||
The accompanying notes are an integral part of these financial statements
| 2 |
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 2018
| The Joint Corp. (as adjusted) | RJJ, LLC | Pro Forma Adjustments | Pro Forma Adjustments | Pro Forma Adjustments | Pro Forma Condensed Combined | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||
| Revenues from company-owned or managed clinics | $ | 19,545,276 | $ | 572,877 | $ | - | $ | - | $ | - | $ | 20,118,153 | |||||||||||||||
| Royalty fees | 10,141,036 | - | (53,179 | ) | (i) | - | - | 10,087,857 | |||||||||||||||||||
| Franchise fees | 1,688,039 | - | 15,708 | (f) | (2,900 | ) | (j) | - | 1,700,847 | ||||||||||||||||||
| Advertising fund revenue | 2,862,244 | - | - | - | - | 2,862,244 | |||||||||||||||||||||
| Software fees | 1,290,135 | - | (3,300 | ) | (k) | - | - | 1,286,835 | |||||||||||||||||||
| Regional developer fees | 599,370 | - | - | - | - | 599,370 | |||||||||||||||||||||
| Other revenues | 535,560 | - | - | - | - | 535,560 | |||||||||||||||||||||
| Total revenues | 36,661,660 | 572,877 | (40,771 | ) | (2,900 | ) | - | 37,190,866 | |||||||||||||||||||
| Cost of revenues: | |||||||||||||||||||||||||||
| Franchise cost of revenues | 3,956,530 | - | 6,758 | (g) | - | - | 3,963,288 | ||||||||||||||||||||
| IT cost of revenues | 353,719 | - | - | - | - | 353,719 | |||||||||||||||||||||
| Total cost of revenues | 4,310,249 | - | 6,758 | - | - | 4,317,007 | |||||||||||||||||||||
| Selling and marketing expenses | 4,819,555 | 19,611 | - | - | - | 4,839,166 | |||||||||||||||||||||
| Depreciation and amortization | 1,556,240 | 10,137 | 150,885 | (c) | (2,900 | ) | (j) | 15,708 | (f) | 1,730,070 | |||||||||||||||||
| General and administrative expenses | 25,238,121 | 448,976 | - | (53,179 | ) | (i) | (3,300 | ) | (k) | 25,630,618 | |||||||||||||||||
| Total selling, general and administrative expenses | 31,613,916 | 478,724 | 150,885 | (56,079 | ) | 12,408 | 32,199,854 | ||||||||||||||||||||
| Net loss on disposition or impairment | 593,960 | - | - | - | - | 593,960 | |||||||||||||||||||||
| Income (loss) from operations | 143,535 | 94,153 | (198,414 | ) | 53,179 | (12,408 | ) | 80,045 | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||
| Bargain purchase gain | 13,198 | - | - | - | - | 13,198 | |||||||||||||||||||||
| Other expense, net | (47,765 | ) | (2,248 | ) | - | - | - | (50,013 | ) | ||||||||||||||||||
| Total other expense | (34,567 | ) | (2,248 | ) | - | - | - | (36,815 | ) | ||||||||||||||||||
| Income (loss) before income tax expense | 108,968 | 91,905 | (198,414 | ) | 53,179 | (12,408 | ) | 43,230 | |||||||||||||||||||
| Income tax benefit | 37,728 | - | - | (l) | - | - | 37,728 | ||||||||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | 146,696 | $ | 91,905 | $ | (198,414 | ) | $ | 53,179 | $ | (12,408 | ) | $ | 80,958 | |||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.01 | $ | 0.01 | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.01 | $ | 0.01 | |||||||||||||||||||||||
| Basic weighted average shares | 13,669,107 | 13,669,107 | |||||||||||||||||||||||||
| Diluted weighted average shares | 14,031,717 | 14,031,717 | |||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
| 3 |
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2019
| The Joint Corp. | RJJ, LLC | Pro Forma Adjustments | Pro Forma Adjustments | Pro Forma Condensed Combined | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||||
| Revenues from company-owned or managed clinics | $ | 11,416,365 | $ | 355,808 | $ | - | $ | - | $ | 11,772,173 | ||||||||||||
| Royalty fees | 6,290,346 | - | (32,188 | ) | (i) | - | 6,258,158 | |||||||||||||||
| Franchise fees | 864,339 | - | (1,450 | ) | (j) | - | 862,889 | |||||||||||||||
| Advertising fund revenue | 1,819,367 | - | - | - | 1,819,367 | |||||||||||||||||
| Software fees | 742,361 | - | (1,650 | ) | (k) | - | 740,711 | |||||||||||||||
| Regional developer fees | 384,381 | - | - | - | 384,381 | |||||||||||||||||
| Other revenues | 332,197 | - | - | - | 332,197 | |||||||||||||||||
| Total revenues | 21,849,356 | 355,808 | (35,288 | ) | - | 22,169,876 | ||||||||||||||||
| Cost of revenues: | ||||||||||||||||||||||
| Franchise cost of revenues | 2,315,431 | - | (765 | ) | (g) | - | 2,314,666 | |||||||||||||||
| IT cost of revenues | 189,659 | - | - | - | 189,659 | |||||||||||||||||
| Total cost of revenues | 2,505,090 | - | (765 | ) | - | 2,504,325 | ||||||||||||||||
| Selling and marketing expenses | 3,275,356 | 14,970 | - | - | 3,290,326 | |||||||||||||||||
| Depreciation and amortization | 770,143 | 4,694 | 75,443 | (c) | (1,450 | ) | (j) | 848,830 | ||||||||||||||
| General and administrative expenses | 13,780,566 | 260,761 | (32,188 | ) | (i) | (1,650 | ) | (k) | 14,007,489 | |||||||||||||
| Total selling, general and administrative expenses | 17,826,065 | 280,425 | 43,255 | (3,100 | ) | 18,146,645 | ||||||||||||||||
| Net loss on disposition or impairment | 86,927 | - | - | - | 86,927 | |||||||||||||||||
| Income (loss) from operations | 1,431,274 | 75,383 | (77,778 | ) | 3,100 | 1,431,979 | ||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||
| Bargain purchase gain | 19,298 | - | - | - | 19,298 | |||||||||||||||||
| Other expense, net | (26,771 | ) | (105 | ) | - | - | (26,876 | ) | ||||||||||||||
| Total other expense | (7,473 | ) | (105 | ) | - | - | (7,578 | ) | ||||||||||||||
| Income (loss) before income tax expense | 1,423,801 | 75,278 | (77,778 | ) | 3,100 | 1,424,401 | ||||||||||||||||
| Income tax expense | (8,896 | ) | - | - | (l) | - | (8,896 | ) | ||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | 1,414,905 | $ | 75,278 | $ | (77,778 | ) | $ | 3,100 | $ | 1,415,505 | |||||||||||
| Earnings per share: | ||||||||||||||||||||||
| Basic earnings per share | $ | 0.10 | $ | 0.10 | ||||||||||||||||||
| Diluted earnings per share | $ | 0.10 | $ | 0.10 | ||||||||||||||||||
| Basic weighted average shares | 13,774,474 | 13,774,474 | ||||||||||||||||||||
| Diluted weighted average shares | 14,390,320 | 14,390,320 | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
| 4 |
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1:Background and Basis of Presentation
On August 1, 2019, the Company completed its purchase of one franchisee clinic, RJJ, LLC, for $750,000, which consisted of $700,000 paid in cash (less $22,586 of certain adjustment as defined by the Purchase Agreement) and a $50,000 note issued to the seller.
The historical condensed financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are i) directly attributable to the acquisition and related financing transactions, ii) factually supportable and iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the acquisition.
The unaudited pro forma condensed combined financial statements are not necessarily indicative of what the Company’s financial position or results of operations would have been had the Company completed the acquisition and related financing transactions at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the Company after the acquisition. The pro forma information is based on the assumptions, adjustments and eliminations described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The pro forma adjustments are preliminary and are subject to change as more information becomes available and after final analysis of fair values of tangible and intangible assets acquired and liabilities assumed are complete. A final determination of the fair value for certain assets and liabilities will be completed as soon as the information necessary to complete the analysis is obtained, but no later than one year from the acquisition date. Differences between all preliminary estimates included herein and the final acquisition accounting may occur and these differences could be material.
Note 2:Estimate of Assets Acquired
The acquisition will be accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805 - Business Combinations (“ASC 805”), which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded to goodwill.
The total purchase price for the transaction to acquire RJJ, LLC was $727,414, less the recognition of $5,236 of net deferred revenue associated with RJJ, LLC, resulting in total purchase consideration of $722,178. Total purchase price consideration was allocated to assets as follows:
| Property and equipment | $ | 28,662 | ||
| Intangible assets | 496,930 | |||
| Operating lease right-of-use asset | 166,892 | |||
| Operating lease liability - current portion | (26,452 | ) | ||
| Operating lease liability - net of current portion | (115,813 | ) | ||
| Deferred revenue | (22,586 | ) | ||
| Total net assets acquired | 527,633 | |||
| Goodwill | 194,545 | |||
| Net purchase price | $ | 722,178 |
The pro forma purchase price allocation is subject to further adjustment as additional information becomes available and analyses are completed. The final allocation of amounts to assets acquired and liabilities assumed could differ materially from the preliminary amounts presented in these unaudited pro forma condensed combined financial statements. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed from the preliminary valuations presented in these unaudited pro forma condensed combined financial statements would likely result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the acquisition. In addition, if the value of the acquired assets is higher than the preliminary indication, it may result in higher amortization and depreciation expense than is presented in these unaudited pro forma condensed combined financial statements.
| 5 |
Intangible assets consist of reacquired franchise rights of $390,320 and customer relationships of $106,610 and will be amortized over their estimated useful lives of four and two years, respectively. These preliminary estimates of fair value and useful lives could be different from the final acquisition accounting, and the difference could have a material impact on the Company’s consolidated financial statements.
Note 3: Pro forma adjustments
| (a) | Adjustment to cash and note payable in connection with the purchase consideration paid. |
| (b) | Adjustment to record property, plant and equipment at the preliminary fair market value which consisted of leasehold improvement of $28,662 to be depreciated over approximately five years. |
| (c) | Adjustment to record intangible assets and the related additional amortization expense. Intangible assets consist of reacquired franchise rights of $390,320 amortized over an estimated useful life of four years and customer relationships of $106,610 amortized over an estimated useful life of two years. |
| (d) | Adjustment to record goodwill as a result of the acquisition. Goodwill represents the excess of the consideration transferred over the preliminary fair value of the assets acquired and liabilities assumed as described in Note 2. The goodwill will not be amortized, but instead will be tested for impairment annually and whenever events and circumstances have occurred that may indicate a possible impairment exists. In the event management determines that the value of goodwill has become impaired, the Company will incur an accounting charge for the amount of the impairment during the period in which the determination is made. |
| (e) | Adjustment to record deferred revenue related to the wellness packages sold by RJJ, LLC as a result of the acquisition. |
| (f) | Adjustment to eliminate deferred franchise revenue related to RJJ, LLC. |
| (g) | Adjustment to eliminate deferred franchise costs and related amortization expense associated with RJJ, LLC. |
| (h) | Adjustment to record the impact of the adoption of Accounting Standards Codification 842 - Leases related to assumed leases, resulting in a preliminary estimated fair value of acquired right of use lease assets of $166,892 (including the impact of favorable lease assumed), assumed short-term lease liabilities of $26,452, and long-term lease liabilities of $115,813. |
| (i) | Adjustment to eliminate royalty fees (including advertising fee) paid to the Company by RJJ, LLC that are intercompany in nature on a combined basis. |
| (j) | Adjustment to eliminate franchise fees recognized by the Company that are intercompany in nature on a combined basis. |
| (k) | Adjustment to eliminate software fees paid to the Company by RJJ, LLC that are intercompany in nature on a combined basis. |
| (l) | No pro forma adjustment to income taxes was made to the condensed combined statements of operations, as any income tax benefit generated would be fully reserved for, resulting in a net zero impact to income taxes. |
6