QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
The |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
☑ | Smaller reporting company | |||||||||||||
Emerging growth company |
PAGE NO. | ||||||||
Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 | ||||||||
Condensed Consolidated Income Statements for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited) | ||||||||
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2023 and 2022 (unaudited) | ||||||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited) | ||||||||
September 30, 2023 | December 31, 2022 | ||||||||||
ASSETS | (unaudited) | (as restated) | |||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
Accounts receivable, net | |||||||||||
Deferred franchise and regional development costs, current portion | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Assets held for sale | |||||||||||
Total current assets | |||||||||||
Property and equipment, net | |||||||||||
Operating lease right-of-use asset | |||||||||||
Deferred franchise and regional development costs, net of current portion | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Deferred tax assets ($ | |||||||||||
Deposits and other assets | |||||||||||
Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses | |||||||||||
Co-op funds liability | |||||||||||
Payroll liabilities ($ | |||||||||||
Operating lease liability, current portion | |||||||||||
Finance lease liability, current portion | |||||||||||
Deferred franchise revenue, current portion | |||||||||||
Deferred revenue from company clinics ($ | |||||||||||
Upfront regional developer fees, current portion | |||||||||||
Other current liabilities | |||||||||||
Liabilities to be disposed of | |||||||||||
Total current liabilities | |||||||||||
Operating lease liability, net of current portion | |||||||||||
Finance lease liability, net of current portion | |||||||||||
Debt under the Credit Agreement | |||||||||||
Deferred franchise revenue, net of current portion | |||||||||||
Upfront regional developer fees, net of current portion | |||||||||||
Other liabilities ($ | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies (Note 10) | |||||||||||
Stockholders' equity: | |||||||||||
Series A preferred stock, $ |
Common stock, $ | |||||||||||
Additional paid-in capital | |||||||||||
Treasury stock | ( | ( | |||||||||
Accumulated deficit | ( | ( | |||||||||
Total The Joint Corp. stockholders' equity | |||||||||||
Non-controlling interest | |||||||||||
Total equity | |||||||||||
Total liabilities and stockholders' equity | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(as restated) | (as restated) | ||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues from company-owned or managed clinics | $ | $ | $ | $ | |||||||||||||||||||
Royalty fees | |||||||||||||||||||||||
Franchise fees | |||||||||||||||||||||||
Advertising fund revenue | |||||||||||||||||||||||
Software fees | |||||||||||||||||||||||
Other revenues | |||||||||||||||||||||||
Total revenues | |||||||||||||||||||||||
Cost of revenues: | |||||||||||||||||||||||
Franchise and regional development cost of revenues | |||||||||||||||||||||||
IT cost of revenues | |||||||||||||||||||||||
Total cost of revenues | |||||||||||||||||||||||
Selling and marketing expenses | |||||||||||||||||||||||
Depreciation and amortization | |||||||||||||||||||||||
General and administrative expenses | |||||||||||||||||||||||
Total selling, general and administrative expenses | |||||||||||||||||||||||
Net loss on disposition or impairment | |||||||||||||||||||||||
Income (loss) from operations | ( | ( | ( | ||||||||||||||||||||
Other income (expense), net | ( | ( | ( | ||||||||||||||||||||
Income (loss) before income tax (benefit) expense | ( | ( | |||||||||||||||||||||
Income tax (benefit) expense | ( | ( | ( | ||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Earnings per share: | |||||||||||||||||||||||
Basic earnings (loss) per share | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Diluted earnings (loss) per share | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Basic weighted average shares | |||||||||||||||||||||||
Diluted weighted average shares |
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, 2022, as restated | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of treasury stock under employee stock plans | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2023, as revised (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2023 (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of treasury stock under employee stock plans | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2023 (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ |
Common Stock | Additional Paid In Capital | Treasury Stock | Accumulated Deficit | Total The Joint Corp. stockholders' equity | Non-controlling interest | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
(as restated) | (as restated) | (as restated) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, December 31, 2021, as restated | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of treasury stock under employee stock plans | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2022, as restated (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2022, as restated (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of treasury stock under employee stock plans | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
Change in redemption value of non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2022, as restated (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ |
Nine Months Ended September 30, | |||||||||||
2023 | 2022 | ||||||||||
(as restated) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income (loss) | $ | $ | ( | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Net loss on disposition or impairment | |||||||||||
Net franchise fees recognized upon termination of franchise agreements | ( | ( | |||||||||
Deferred income taxes | ( | ||||||||||
Stock-based compensation expense | |||||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
Accounts receivable | ( | ||||||||||
Prepaid expenses and other current assets | ( | ( | |||||||||
Deferred franchise costs | ( | ||||||||||
Deposits and other assets | ( | ( | |||||||||
Accounts payable | ( | ||||||||||
Accrued expenses | ( | ||||||||||
Payroll liabilities | ( | ||||||||||
Deferred revenue | ( | ||||||||||
Upfront regional developer fees | ( | ( | |||||||||
Other liabilities | |||||||||||
Net cash provided by operating activities | |||||||||||
Cash flows from investing activities: | |||||||||||
Acquisition of AZ clinics | ( | ||||||||||
Acquisition of NC clinics | ( | ||||||||||
Acquisition of CA clinics | ( | ||||||||||
Purchase of property and equipment | ( | ( | |||||||||
Net cash used in investing activities | ( | ( | |||||||||
Cash flows from financing activities: | |||||||||||
Payments of finance lease obligation | ( | ( | |||||||||
Purchases of treasury stock under employee stock plans | ( | ( | |||||||||
Proceeds from exercise of stock options | |||||||||||
Repayment of debt under the Paycheck Protection Program | |||||||||||
Net cash provided by financing activities | |||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
Reconciliation of cash, cash equivalents and restricted cash: | September 30, 2023 | September 30, 2022 | |||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
$ | $ |
Nine Months Ended September 30, | |||||||||||
2023 | 2022 | ||||||||||
Net cash paid for: | |||||||||||
Interest | $ | $ | |||||||||
Income taxes | $ | $ | |||||||||
Non-cash investing and financing activity: | |||||||||||
Unpaid purchases of property and equipment | $ | $ | |||||||||
Non-cash investment in acquisition of franchised clinics | $ | $ | |||||||||
September 30, 2022 | September 30, 2022 | ||||||||||||||||
As Previously Reported | Adjustments | As Restated | |||||||||||||||
Intangible assets, net | $ | $ | ( | $ | |||||||||||||
Deferred tax assets | |||||||||||||||||
Total assets | |||||||||||||||||
Current liabilities: | |||||||||||||||||
Deferred franchise and regional development fee revenue, current portion | ( | ||||||||||||||||
Deferred franchise fee revenue, current portion | |||||||||||||||||
Upfront regional developer fees, current portion | |||||||||||||||||
Other current liabilities | |||||||||||||||||
Total current liabilities | |||||||||||||||||
Deferred franchise and regional development fee revenue, net of current portion | ( | ||||||||||||||||
Deferred franchise fee revenue, net of current portion | |||||||||||||||||
Upfront regional developer fees, net of current portion | |||||||||||||||||
Other liabilities | |||||||||||||||||
Total liabilities | |||||||||||||||||
Accumulated deficit | ( | ( | ( | ||||||||||||||
Total The Joint Corp. stockholders' equity | ( | ||||||||||||||||
Total equity | ( | ||||||||||||||||
Total liabilities and stockholders' equity |
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Regional developer fees | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||
Total revenues | ( | ( | ||||||||||||||||||||||||
Cost of revenues: | ||||||||||||||||||||||||||
Franchise and regional developer cost of revenues | ( | ( | ||||||||||||||||||||||||
Total cost of revenues | ( | ( | ||||||||||||||||||||||||
Depreciation and amortization | ( | ( | ||||||||||||||||||||||||
General and administrative expenses | ||||||||||||||||||||||||||
Total selling, general and administrative expenses | ( | |||||||||||||||||||||||||
Income (loss) from operations | ( | ( | ||||||||||||||||||||||||
Income before income tax expense (benefit) | ( | ( | ||||||||||||||||||||||||
Income tax expense (benefit) | ( | ( | ( | ( | ( | |||||||||||||||||||||
Net income (loss) | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||
Basic earnings (loss) per share | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||
Diluted earnings (loss) per share | $ | $ | $ | $ | ( | $ | $ | ( |
Accumulated Deficit | Total The Joint Corp. Stockholder's Equity | Total Equity | |||||||||||||||
Balances, December 31, 2021 (as previously reported) | $ | ( | $ | $ | |||||||||||||
Adjustment due to cumulative error correction | |||||||||||||||||
Balances, December 31, 2021 (as restated) | $ | ( | $ | $ | |||||||||||||
Balances, March 31, 2022 (as previously reported) | $ | ( | $ | $ | |||||||||||||
Adjustment due to cumulative error correction | |||||||||||||||||
Balances, March 31, 2022 (as restated) | $ | ( | $ | $ | |||||||||||||
Balances, June 30, 2022 (as previously reported) | $ | ( | $ | $ | |||||||||||||
Adjustment due to cumulative error correction | ( | ( | ( | ||||||||||||||
Balances, June 30, 2022 (as restated) | $ | (13,647,733) | $ | 30,190,858 | $ | 30,215,858 | |||||||||||
Balances, September 30, 2022 (as previously reported) | $ | ( | $ | $ | |||||||||||||
Adjustment due to cumulative error correction | ( | ( | ( | ||||||||||||||
Balances, September 30, 2022 (as restated) | $ | ( | $ | $ |
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | ||||||||||||||||
As Previously Reported | Adjustments | As Restated | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||||
Net income (loss) | $ | ( | $ | ( | |||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
Depreciation and amortization | ( | ||||||||||||||||
Deferred income taxes | ( | ( | |||||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||
Upfront regional developer fees | ( | ( | |||||||||||||||
Deferred revenue | |||||||||||||||||
Other liabilities | |||||||||||||||||
Net cash provided by (used in) operating activities | ( | ||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||
Reacquisition and termination of regional developer rights | ( | ||||||||||||||||
Net cash used in investing activities | ( | ( | |||||||||||||||
Decrease in cash | ( | ( |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Franchised clinics: | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Clinics open at beginning of period | |||||||||||||||||||||||
Opened during the period | |||||||||||||||||||||||
Acquired during the period | |||||||||||||||||||||||
Sold during the period | ( | ( | ( | ||||||||||||||||||||
Closed during the period | ( | ( | ( | ( | |||||||||||||||||||
Clinics in operation at the end of the period | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Company-owned or managed clinics: | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Clinics open at beginning of period | |||||||||||||||||||||||
Opened during the period | |||||||||||||||||||||||
Acquired during the period | |||||||||||||||||||||||
Sold during the period | ( | ( | |||||||||||||||||||||
Closed during the period | ( | ||||||||||||||||||||||
Clinics in operation at the end of the period | |||||||||||||||||||||||
Total clinics in operation at the end of the period | |||||||||||||||||||||||
Clinic licenses sold but not yet developed | |||||||||||||||||||||||
Licenses for future clinics subject to executed letters of intent |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(as restated) | (as restated) | ||||||||||||||||||||||
Revenues | $ | $ | $ | $ | |||||||||||||||||||
General and administrative expenses |
September 30, 2023 | December 31, 2022 | ||||||||||
Payroll liabilities | $ | $ | |||||||||
Deferred revenue from company managed clinics |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Weighted average common shares outstanding - basic | |||||||||||||||||||||||
Effect of dilutive securities: | |||||||||||||||||||||||
Unvested restricted stock and stock options | |||||||||||||||||||||||
Weighted average common shares outstanding - diluted | |||||||||||||||||||||||
Basic earnings (loss) per share | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Diluted earnings (loss) per share | $ | ( | $ | $ | $ | ( |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Weighted average dilutive securities: | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Restricted stocks | |||||||||||||||||||||||
Stock options |
Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(as restated) | (as restated) | ||||||||||||||||||||||
Revenue recognized at a point in time | $ | $ | $ | $ | |||||||||||||||||||
Revenue recognized over time | |||||||||||||||||||||||
Total Revenues | $ | $ | $ | $ |
Deferred Revenue from company clinics | |||||
Balance at December 31, 2022 | $ | ||||
Revenue recognized that was included in the contract liability at the beginning of the year | ( | ||||
Net increase during the nine months ended September 30, 2023 | |||||
Balance at September 30, 2023 | $ |
Deferred Revenue short and long-term | |||||
Balance at December 31, 2022 | $ | ||||
Revenue recognized that was included in the contract liability at the beginning of the year | ( | ||||
Net increase during the nine months ended September 30, 2023 | |||||
Balance at September 30, 2023 | $ |
Deferred Franchise and Development Costs short and long-term | |||||
Balance at December 31, 2022 | $ | ||||
Cost of revenue recognized that was included in the contract asset at the beginning of the year | ( | ||||
Net increase during the nine months ended September 30, 2022 | |||||
Balance at September 30, 2023 | $ |
Contract liabilities expected to be recognized in | Amount | ||||
2023 (remainder) | $ | ||||
2024 | |||||
2025 | |||||
2026 | |||||
2027 | |||||
Thereafter | |||||
Total | $ |
Property and equipment | $ | |||||||
Operating lease right-of-use asset | ||||||||
Intangible assets | ||||||||
Total assets acquired | ||||||||
Deferred revenue | ( | |||||||
Operating lease liability - current portion | ( | |||||||
Operating lease liability - net of current portion | ( | |||||||
Net purchase consideration | $ |
Property and equipment | $ | ||||
Operating lease right-of-use asset | |||||
Intangible assets | |||||
Total identifiable assets acquired | |||||
Goodwill | |||||
Deferred revenue | ( | ||||
Operating lease liability - current portion | ( | ||||
Operating lease liability - net of current portion | ( | ||||
Net purchase consideration | $ |
Property and equipment | $ | ||||
Operating lease right-of-use asset | |||||
Intangible assets | |||||
Total identifiable assets acquired | |||||
Deferred revenue | ( | ||||
Operating lease liability - current portion | ( | ||||
Operating lease liability - net of current portion | ( | ||||
Net purchase consideration | $ |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Revenues, net | $ | $ | $ | $ | |||||||||||||||||||
Net income | ( | ( |
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 | 2023 | ||||||||||
Revenues, net | $ | $ | |||||||||
Net income |
September 30, 2023 | |||||
Assets | |||||
Property and equipment, net | $ | ||||
Operating lease right-of-use asset | |||||
Intangible assets, net | |||||
Goodwill | |||||
Valuation allowance | ( | ||||
Total assets held for sale | $ | ||||
Liabilities | |||||
Operating lease liability, current and non-current | $ | ||||
Deferred revenue from company clinics | |||||
Total liabilities to be disposed of | $ | ||||
September 30, 2023 | December 31, 2022 | ||||||||||
Office and computer equipment | $ | $ | |||||||||
Leasehold improvements | |||||||||||
Software developed | |||||||||||
Finance lease assets | |||||||||||
Accumulated depreciation and amortization | ( | ( | |||||||||
Construction in progress | |||||||||||
Property and equipment, net | $ | $ |
As of September 30, 2023 | |||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||
Intangible assets subject to amortization: | |||||||||||||||||
Reacquired franchise rights | $ | $ | ( | $ | |||||||||||||
Customer relationships | ( | ||||||||||||||||
Assembled workforce | ( | ||||||||||||||||
$ | $ | ( | $ |
As of December 31, 2022 | |||||||||||||||||
(as restated) | |||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||
Intangible assets subject to amortization: | |||||||||||||||||
Reacquired franchise rights | $ | $ | ( | $ | |||||||||||||
Customer relationships | ( | ||||||||||||||||
Assembled workforce | ( | ||||||||||||||||
$ | $ | ( | $ |
Amount | |||||
2023 (remainder) | $ | ||||
2024 | |||||
2025 | |||||
2026 | |||||
2027 | |||||
Thereafter | $ | ||||
Total | $ |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||||||
Outstanding at December 31, 2022 | $ | ||||||||||||||||
Granted | |||||||||||||||||
Exercised | ( | ||||||||||||||||
Forfeited | ( | ||||||||||||||||
Expired | ( | ||||||||||||||||
Outstanding at September 30, 2023 | $ | ||||||||||||||||
Exercisable at September 30, 2023 | $ |
Restricted Stock Awards | Shares | Weighted Average Grant-Date Fair Value per Award | ||||||||||||
Non-vested at December 31, 2022 | $ | |||||||||||||
Granted | ||||||||||||||
Vested | ( | |||||||||||||
Forfeited | ( | |||||||||||||
Non-vested at September 30, 2023 | $ |
Line Item in the Company’s Condensed Consolidated Income Statements | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||
Finance lease costs: | |||||||||||||||||||||||||||||
Amortization of assets | Depreciation and amortization | $ | $ | $ | $ | ||||||||||||||||||||||||
Interest on lease liabilities | Other expense, net | ||||||||||||||||||||||||||||
Total finance lease costs | |||||||||||||||||||||||||||||
Operating lease costs | General and administrative expenses | $ | $ | ||||||||||||||||||||||||||
Total lease costs | $ | $ | $ | $ |
September 30, 2023 | December 31, 2022 | ||||||||||
Operating Leases: | |||||||||||
Operating lease right-of -use asset | $ | $ | |||||||||
Operating lease liability - current portion | $ | $ | |||||||||
Operating lease liability - net of current portion | |||||||||||
Total operating lease liability | $ | $ | |||||||||
Finance Leases: | |||||||||||
Property and equipment, at cost | $ | $ | |||||||||
Less accumulated amortization | ( | ( | |||||||||
Property and equipment, net | $ | $ | |||||||||
Finance lease liability - current portion | |||||||||||
Finance lease liability - net of current portion | |||||||||||
Total finance lease liabilities | $ | $ | |||||||||
Weighted average remaining lease term (in years): | |||||||||||
Operating leases | |||||||||||
Finance lease | |||||||||||
Weighted average discount rate: | |||||||||||
Operating leases | % | % | |||||||||
Finance leases | % | % |
Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | ||||||||||
Cash paid for amounts included in measurement of liabilities: | |||||||||||
Operating cash flows from operating leases | $ | $ | |||||||||
Operating cash flows from finance leases | |||||||||||
Financing cash flows from finance leases | |||||||||||
Non-cash transactions: ROU assets obtained in exchange for lease liabilities | |||||||||||
Operating lease | $ | $ | |||||||||
Finance lease |
Operating Leases | Finance Lease | ||||||||||
2023 (remainder) | $ | $ | |||||||||
2024 | |||||||||||
2025 | |||||||||||
2026 | |||||||||||
2027 | |||||||||||
Thereafter | |||||||||||
Total lease payments | $ | $ | |||||||||
Less: Imputed interest | ( | ( | |||||||||
Total lease obligations | |||||||||||
Less: Current obligations | ( | ( | |||||||||
Long-term lease obligation | $ | $ |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Revenues: | (as restated) | (as restated) | |||||||||||||||||||||
Corporate clinics | $ | $ | $ | $ | |||||||||||||||||||
Franchise operations | |||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | |||||||||||||||||||
Depreciation and amortization: | |||||||||||||||||||||||
Corporate clinics | $ | $ | $ | $ | |||||||||||||||||||
Franchise operations | |||||||||||||||||||||||
Corporate administration | |||||||||||||||||||||||
Total depreciation and amortization | $ | $ | $ | $ | |||||||||||||||||||
Segment operating income (loss): | |||||||||||||||||||||||
Corporate clinics | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
Franchise operations | |||||||||||||||||||||||
Total segment operating income | $ | $ | $ | $ | |||||||||||||||||||
Reconciliation of total segment operating income to consolidated earnings before income taxes: | |||||||||||||||||||||||
Total segment operating income | $ | $ | $ | $ | |||||||||||||||||||
Unallocated corporate | ( | ( | ( | ( | |||||||||||||||||||
Consolidated (loss) income from operations | ( | ( | ( | ||||||||||||||||||||
Other income (expense), net | ( | ( | ( | ||||||||||||||||||||
(Loss) income before income tax benefit | $ | ( | $ | $ | $ | ( |
Segment assets: | September 30, 2023 | December 31, 2022 | |||||||||
(as restated) | |||||||||||
Corporate clinics | $ | $ | |||||||||
Franchise operations | |||||||||||
Total segment assets | |||||||||||
Unallocated cash and cash equivalents | |||||||||||
Unallocated property and equipment | |||||||||||
Other unallocated assets | |||||||||||
Total assets | $ | $ |
Three Months Ended September 30, | |||||||||||||||||||||||
2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||
(as restated) | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues from company-owned or managed clinics | $ | 17,882,303 | $ | 15,836,327 | $ | 2,045,976 | 12.9 | % | |||||||||||||||
Royalty fees | 7,143,791 | 6,604,653 | 539,138 | 8.2 | % | ||||||||||||||||||
Franchise fees | 754,029 | 642,405 | 111,624 | 17.4 | % | ||||||||||||||||||
Advertising fund revenue | 2,050,106 | 1,881,367 | 168,739 | 9.0 | % | ||||||||||||||||||
IT related income and software fees | 1,301,577 | 1,109,753 | 191,824 | 17.3 | % | ||||||||||||||||||
Other revenues | 342,143 | 375,314 | (33,171) | (8.8) | % | ||||||||||||||||||
Total revenues | $ | 29,473,949 | $ | 26,449,819 | $ | 3,024,130 | 11.4 | % |
Nine Months Ended September 30, | |||||||||||||||||||||||
2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||
(as restated) | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues from company-owned or managed clinics | $ | 52,813,098 | $ | 42,936,298 | $ | 9,876,800 | 23.0 | % | |||||||||||||||
Royalty fees | 21,181,973 | 19,024,799 | 2,157,174 | 11.3 | % | ||||||||||||||||||
Franchise fees | 2,179,822 | 1,970,256 | 209,566 | 10.6 | % | ||||||||||||||||||
Advertising fund revenue | 6,043,563 | 5,417,840 | 625,723 | 11.5 | % | ||||||||||||||||||
IT related income and software fees | 3,746,394 | 3,166,732 | 579,662 | 18.3 | % | ||||||||||||||||||
Other revenues | 1,117,103 | 1,058,008 | 59,095 | 5.6 | % | ||||||||||||||||||
Total revenues | $ | 87,081,953 | $ | 73,573,933 | $ | 13,508,020 | 18.4 | % |
Cost of Revenues | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
(as restated) | ||||||||||||||||||||||||||
Three Months Ended September 30, | $ | 2,604,100 | $ | 2,337,095 | $ | 267,005 | 11.4 | % | ||||||||||||||||||
Nine Months Ended September 30, | $ | 7,674,296 | $ | 6,705,169 | $ | 969,127 | 14.5 | % | ||||||||||||||||||
Selling and Marketing Expenses | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended September 30, | $ | 4,301,017 | $ | 3,539,287 | $ | 761,730 | 21.5 | % | ||||||||||||||||||
Nine Months Ended September 30, | $ | 13,169,079 | $ | 10,666,500 | $ | 2,502,579 | 23.5 | % | ||||||||||||||||||
Depreciation and Amortization Expenses | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
(as restated) | ||||||||||||||||||||||||||
Three Months Ended September 30, | $ | 2,349,206 | $ | 1,779,924 | $ | 569,282 | 32.0 | % | ||||||||||||||||||
Nine Months Ended September 30, | $ | 6,893,529 | $ | 4,578,450 | $ | 2,315,079 | 50.6 | % | ||||||||||||||||||
General and Administrative Expenses | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
(as restated) | ||||||||||||||||||||||||||
Three Months Ended September 30, | $ | 20,212,750 | $ | 17,796,806 | $ | 2,415,944 | 13.6 | % | ||||||||||||||||||
Nine Months Ended September 30, | $ | 60,156,022 | $ | 51,900,533 | $ | 8,255,489 | 15.9 | % | ||||||||||||||||||
Three Months Ended September 30, | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
(as restated) | ||||||||||||||||||||||||||
(Loss) Income from Operations | $ | (898,047) | $ | 732,316 | $ | (1,630,363) | (222.6) | % |
Nine Months Ended September 30, | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
(as restated) | ||||||||||||||||||||||||||
Loss from Operations | $ | (1,925,711) | $ | (636,859) | $ | (1,288,852) | 202.4 | % |
Other Income (Expense), Net | 2023 | 2022 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended September 30, | $ | (6,244) | $ | (25,235) | $ | 18,991 | (75.3) | % | ||||||||||||||||||
Nine Months Ended September 30, | $ | 3,708,399 | $ | (60,668) | $ | 3,769,067 | (6,212.6) | % | ||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(as restated) | (as restated) | ||||||||||||||||||||||
Non-GAAP Financial Data: | |||||||||||||||||||||||
Net income (loss) | $ | (716,273) | $ | 731,096 | $ | 1,289,402 | $ | (136,551) | |||||||||||||||
Net interest expense | 6,244 | 25,235 | 70,905 | 60,668 | |||||||||||||||||||
Depreciation and amortization expense | 2,349,206 | 1,779,924 | 6,893,529 | 4,578,450 | |||||||||||||||||||
Tax (benefit) expense | (188,018) | (24,015) | 493,286 | (560,976) | |||||||||||||||||||
EBITDA | 1,451,159 | 2,512,240 | 8,747,122 | 3,941,591 | |||||||||||||||||||
Stock compensation expense | 526,069 | 305,815 | 1,209,296 | 969,562 | |||||||||||||||||||
Acquisition related expenses | 15,222 | 46,712 | 873,214 | 2,275,380 | |||||||||||||||||||
Loss on disposition or impairment | 904,923 | 264,391 | 1,114,738 | 360,140 | |||||||||||||||||||
Other income related to the ERC | — | — | (3,779,304) | — | |||||||||||||||||||
Adjusted EBITDA | $ | 2,897,373 | $ | 3,129,158 | $ | 8,165,066 | $ | 7,546,673 |
Exhibit Number | Description of Document | |||||||
31.1* | ||||||||
31.2* | ||||||||
32** | ||||||||
101.INS | XBRL Instance Document. | |||||||
101.SCH | XBRL Taxonomy Extension Schema Document. | |||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
THE JOINT CORP. | ||||||||
Dated: November 9, 2023 | By: | /s/ Peter D. Holt | ||||||
Peter D. Holt President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated: November 9, 2023 | By: | /s/ Jake Singleton | ||||||
Jake Singleton Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
/s/ Peter D. Holt | |||||
Peter D. Holt President and Chief Executive Officer (Principal Executive Officer) |
/s/ Jake Singleton | |||||
Jake Singleton Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
By: | /s/ Peter D. Holt | |||||||
Peter D. Holt President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated November 9, 2023 | ||||||||
By: | /s/ Jake Singleton | |||||||
Jake Singleton Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||||||
Dated November 9, 2023 |
Condensed Consolidated Income Statements (unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Revenues: | ||||
Total revenues | $ 29,473,949 | $ 26,449,819 | $ 87,081,953 | $ 73,573,933 |
Cost of revenues: | ||||
Total cost of revenues | 2,604,100 | 2,337,095 | 7,674,296 | 6,705,169 |
Selling and marketing expenses | 4,301,017 | 3,539,287 | 13,169,079 | 10,666,500 |
Depreciation and amortization | 2,349,206 | 1,779,924 | 6,893,529 | 4,578,450 |
General and administrative expenses | 20,212,750 | 17,796,806 | 60,156,022 | 51,900,533 |
Total selling, general and administrative expenses | 26,862,973 | 23,116,017 | 80,218,630 | 67,145,483 |
Net loss on disposition or impairment | 904,923 | 264,391 | 1,114,738 | 360,140 |
Income (loss) from operations | (898,047) | 732,316 | (1,925,711) | (636,859) |
Other income (expense), net | (6,244) | (25,235) | 3,708,399 | (60,668) |
Income (loss) before income tax (benefit) expense | (904,291) | 707,081 | 1,782,688 | (697,527) |
Income tax (benefit) expense | (188,018) | (24,015) | 493,286 | (560,976) |
Net (loss) income | $ (716,273) | $ 731,096 | $ 1,289,402 | $ (136,551) |
Earnings per share: | ||||
Basic earnings (loss) per share (in dollars per share) | $ (0.05) | $ 0.05 | $ 0.09 | $ (0.01) |
Diluted earnings (loss) per share (in dollars per share) | $ (0.05) | $ 0.05 | $ 0.09 | $ (0.01) |
Basic weighted average shares (in shares) | 14,790,663 | 14,512,856 | 14,666,222 | 14,474,323 |
Diluted weighted average shares (in shares) | 15,015,953 | 14,829,629 | 14,931,474 | 15,119,264 |
Revenues from company-owned or managed clinics | ||||
Revenues: | ||||
Total revenues | $ 17,882,303 | $ 15,836,327 | $ 52,813,098 | $ 42,936,298 |
Royalty fees | ||||
Revenues: | ||||
Total revenues | 7,143,791 | 6,604,653 | 21,181,973 | 19,024,799 |
Franchise fees/Franchise and regional development cost of revenues | ||||
Revenues: | ||||
Total revenues | 754,029 | 642,405 | 2,179,822 | 1,970,256 |
Cost of revenues: | ||||
Cost of revenues | 2,228,689 | 1,988,764 | 6,605,964 | 5,694,723 |
Advertising fund revenue | ||||
Revenues: | ||||
Total revenues | 2,050,106 | 1,881,367 | 6,043,563 | 5,417,840 |
Software fees/IT cost of revenues | ||||
Revenues: | ||||
Total revenues | 1,301,577 | 1,109,753 | 3,746,394 | 3,166,732 |
Cost of revenues: | ||||
Cost of revenues | 375,411 | 348,331 | 1,068,332 | 1,010,446 |
Other revenues | ||||
Revenues: | ||||
Total revenues | $ 342,143 | $ 375,314 | $ 1,117,103 | $ 1,058,008 |
Supplemental cash flow disclosures |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental cash flow disclosures | Supplemental cash flow disclosures: The following table represents supplemental cash flow disclosures and non-cash investing and financing activities:
|
Nature of Operations and Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Operations and Summary of Significant Accounting Policies | Nature of Operations and Summary of Significant Accounting Policies Basis of Presentation These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”), which includes its variable interest entities (“VIEs”) and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated interim financial statements should be read in conjunction with The Joint Corp. and Subsidiary and Affiliates consolidated financial statements and the notes thereto as set forth in The Joint’s Amended Annual Report on Form 10-K/A as of and for the year ended December 31, 2022, filed with the SEC on September 26, 2023 (“Form 10-K/A”), which included all disclosures required by GAAP. The results of operations for the periods ended September 30, 2023 and 2022 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the three and nine-month periods ended September 30, 2023 and 2022 is unaudited. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue, accounting for leases and accounting for income taxes, see this Note 1, Nature of Operations and Summary of Significant Accounting Policies. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of The Joint and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which was dormant for all periods presented. 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 inter-affiliate accounts and transactions between The Joint and its VIEs have been eliminated in consolidation. Comprehensive Income Net income was the same as comprehensive income for the three and nine months ended September 30, 2023 and 2022. Restatement of Previously Issued Interim Condensed Financial Statements (Unaudited and Restated) Subsequent to the issuance of the Company's consolidated financial statements as of and for the year ended December 31, 2022, included in the Company's Annual Report on Form 10-K filed with the SEC on March 10, 2023, the following errors were identified: –The Company has historically recorded the re-acquired Regional Developer Rights as an intangible asset and amortized the re-acquired Regional Developer Rights over the contractual terms under the RD Agreement remaining at the time of the re-acquisition. The Company has concluded that this treatment was incorrect in accordance with U.S. GAAP. The Company should not have capitalized the re-acquired Regional Developer Rights but instead should have recognized the full cost of the re-acquisition as an expense in the respective period. –The Company has historically recorded the upfront fee paid by the regional developer as a deferred liability, which was then recognized ratably to revenue as the regional developer performed various service obligations. However, the Company concluded that the deferred liability should be ratably recognized against cost of revenue as an offset against future commissions instead of revenue. –The Company has historically charged the VIEs a management fee for the benefit of the Company providing non-clinical administrative services needed by the professional corporation chiropractic practice. The economic compensation or profitability resulting from an intercompany transaction between two or more parties is based on each party’s relative contribution to the economic activity under analysis. The standalone professional corporations have not historically been profitable from an income tax perspective and are fully valuing their deferred tax assets and related attributes for ASC 740 purposes. The professional corporations' earned annual losses were not consistent with their function, risk and asset profile for transfer pricing. As such, the Company has estimated transfer pricing adjustments, which were computed based on assumed targets of profitability. The resulting operating profit, after incorporating estimated transfer pricing adjustments, were further used as a means for computing overall potential tax exposure and correlative benefit. The Company assessed the impact of these errors on its previously issued interim financial statements and determined them to be quantitatively and qualitatively material to the period ended September 30, 2022 based on its analysis of Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. These errors have been corrected in the consolidated balance sheets as of December 31, 2022 and 2021 and the consolidated income statements, statements of changes in stockholders’ equity and statements of cash flows for the years then ended. The following table summarizes the effect of the errors on the Company’s condensed balance sheet as of September 30, 2022:
The following table summarizes the effect of the errors on the Company’s condensed income statement for the three and nine months ended September 30, 2022:
The following table summarizes the effect of the errors on the Company’s condensed statements of stockholders' equity as of September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021:
The following table summarizes the effect of the errors on the Company’s condensed statement of cash flows for the nine-month period ended September 30, 2022:
Nature of Operations The Joint Corp., a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising and developing chiropractic clinics, selling regional developer rights, supporting the operations of franchised chiropractic clinics and operating and managing corporate chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities. The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September 30, 2023 and 2022:
Variable Interest Entities Certain states prohibit the “corporate practice of chiropractic,” which restricts business corporations from practicing chiropractic care by exercising control over clinical decisions by chiropractic doctors. In states that prohibit the corporate practice of chiropractic, the Company typically enters into long-term management agreements with professional corporations (“PCs”) that are owned by licensed chiropractic doctors, which, in turn, employ or contract with doctors who provide professional chiropractic care in its clinics. Under these management agreements with PCs, the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. The Company has entered into such management agreements with four PCs, including one in New Jersey, in connection with the opening of company-managed clinics in April 2023. If an entity is deemed to be the primary beneficiary of a VIE, the entity is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance; and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. In accordance with relevant accounting guidance, these PCs were determined to be VIEs as fees paid by the PCs to the Company as its management service provider are considered variable interests because the fees do not meet all the following criteria: (1) The fees are compensation for services provided and are commensurate with the level of effort required to provide those services; (2) The decision maker or service provider does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns; and (3) The service arrangement includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. Additionally, the Company has determined that it has the ability to direct the activities that most significantly impact the performance of these PCs and has an obligation to absorb losses or receive benefits which could potentially be significant to the PCs. Accordingly, the PCs are VIEs for which the Company is the primary beneficiary and are consolidated by the Company. VIE total revenue and general administrative expenses for the three and nine-months ended September 30, 2023 and 2022 were as follows:
The carrying amount of the VIEs’ assets and liabilities was immaterial as of September 30, 2023 and December 31, 2022, except for their payroll liability balances and amounts collected in advance for membership and wellness packages, which are recorded as deferred revenue. The VIEs’ payroll liability and deferred revenue from company managed clinics balances as of September 30, 2023 and December 31, 2022 were as follows:
Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with a maturity of three months or less at date of purchase to be cash equivalents. The Company continually monitors its positions with and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2023 and December 31, 2022. Restricted Cash Restricted cash relates to cash that franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising. While such cash balance is not legally segregated and restricted as to withdrawal or usage, the Company's accounting policy is to classify these funds as restricted cash. Accounts Receivable Accounts receivable primarily represents amounts due from franchisees for royalty fees. The Company records an allowance for credit losses as a reduction to its accounts receivables for amounts that the Company does 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 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, 2023 and December 31, 2022, the Company had an allowance for doubtful accounts of $0. Property and Equipment Property and equipment are stated at cost, or for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the straight-line method over estimated useful lives, which is generally to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. The losses on disposed of or retired property or equipment were recorded in net loss on disposition or impairment of $68,200 and $217,810 for the three and nine-months ended September 30, 2023, respectively. The losses on disposed of or retired property or equipment were recorded in net loss on disposition or impairment of $23,554 and $119,303 for the three and nine-months ended September 30, 2022, respectively. LeasesThe Company leases property and equipment under operating and finance leases. The Company leases its corporate office space and the space for each of the company-owned or managed clinics in the portfolio. The Company recognizes a right-of-use ("ROU") asset and lease liability for all leases. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and, as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability. When available, the Company uses the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of its leases. In such cases, the Company estimates its incremental borrowing rate as the interest rate it would pay to borrow an amount equal to the lease payments over a similar term, with similar collateral as in the lease and in a similar economic environment. The Company estimates these rates using available evidence such as rates imposed by third-party lenders to the Company in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to the Company’s estimated creditworthiness. For operating leases that include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. Pre-opening costs are recorded as incurred in general and administrative expenses. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred and are also included in general and administrative expenses on the accompanying consolidated income statements. Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or not long-lived assets are recoverable. The Company records an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value. During the three and nine months ended September 30, 2023, intangible assets related to a clinic planned for closure with a total carrying amount of approximately $80,000 was written down to zero. As a result, the Company recorded a noncash impairment loss of approximately $80,000 during the three and nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, an operating lease ROU asset related to a closed clinic with a total carrying amount of approximately $250,000 was written down to zero. As a result, the Company recorded a noncash impairment loss of approximately $250,000 during the three and nine months ended September 30, 2022. In connection with the planned sale of 16 company-owned and managed clinics, the Company reclassified $2,153,454 of property and equipment and $2,204,293 of ROU assets to Assets held for sale and reclassified $2,585,642 of ROU liability and $386,291 of deferred revenue from company clinics to Liabilities to be disposed of, in the consolidated balance sheet as of September 30, 2023. Long-lived assets that meet the held for sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. As a result, the Company recorded a valuation allowance of $756,228 and $816,429 to adjust the carrying value of the disposal group to fair value less cost to sell during the three and nine months ended September 30, 2023, respectively. Revenue Recognition The Company generates revenue primarily through its company-owned and managed clinics and through royalties, franchise fees, advertising fund contributions, IT related income and computer software fees from its franchisees. Revenues from Company-Owned or Managed Clinics. The Company earns revenues from clinics 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 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. Any unused visits associated with monthly memberships are recognized on a month-to-month basis. The Company recognizes a contract liability (or a deferred revenue liability) related to the prepaid treatment plans for which the Company has an ongoing performance obligation. The Company derecognizes this contract liability and recognizes revenue, as the patient consumes his or her visits related to the package and the Company transfers its services. If the Company determines that it is not subject to unclaimed property laws for the portion of wellness package that it does not expect to be redeemed (referred to as “breakage”), then it recognizes breakage revenue in proportion to the pattern of exercised rights by the patient. Royalties and Advertising Fund Revenue. The Company collects royalties from its franchisees, as stipulated in the franchise agreement, equal to 7% of gross sales and a marketing and advertising fee currently equal to 2% of gross sales. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which generally requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price). Franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to the Company’s performance obligation under the franchise agreement and therefore, such royalties are recognized as franchisee clinic level sales occur. Royalties are collected semi-monthly, two working days after each sales period has ended. Franchise Fees. 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 ratably on a straight-line basis over the term of the franchise agreement. 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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation. Renewal franchise fees, as well as transfer fees, are also recognized as revenue on a straight-line basis over the term of the respective franchise agreement. Software Fees. The Company collects a monthly fee from its franchisees for use of its proprietary chiropractic software, computer support and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement. Capitalized Sales Commissions: Sale commissions earned by the regional developers and the Company's sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement. Regional Developer Fees. The Company has a regional developer program where regional developers are granted an exclusive geographical territory and commit to a minimum development obligation within that defined territory. Regional developer fees paid to the Company are non-refundable and are amortized on a straight-line bases over the term of the regional developer agreement and recognized as a decrease to franchise cost of revenues. In addition, regional developers receive fees that are funded by the initial franchise fees collected from franchisees upon the sale of franchises within their exclusive geographical territory and a royalty of 3% of sales generated by franchised clinics in their exclusive geographical territory. Initial fees related to the sale of franchises within their exclusive geographical territory are initially deferred as deferred franchise costs and are recognized as an expense in franchise cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise agreement. Royalties of 3% of sales generated by franchised clinics in their regions are also recognized as franchise cost of revenues as franchisee clinic level sales occur. This 3% fee is funded by the 7% royalties collected from the franchisees in their regions. Certain regional developer agreements result in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is recognized over the remaining life of the respective franchise agreements. The Company did not enter into any new regional developer agreements during the nine months ended September 30, 2023 and 2022. Advertising Costs Advertising costs are advertising and marketing expenses incurred by the Company, primarily through advertising funds. The Company expenses production costs of commercial advertising upon first airing and expenses the costs of communicating the advertising in the period in which the advertising occurs. Advertising expenses were $1,796,865 and $5,375,156 for the three and nine months ended September 30, 2023, respectively. Advertising expenses were $1,444,783 and $3,763,351 for the three and nine months ended September 30, 2022, respectively. Income Taxes Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date pre-tax income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant 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 environment changes. Earnings (Loss) per Common Share Basic earnings per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed by giving effect to all potentially dilutive common shares, including restricted stock and stock options.
The following common stock equivalents were excluded from the computation of diluted earnings per share for the periods presented because including them would have been antidilutive:
Stock-Based Compensation The Company accounts for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using the closing price on the date of the grant and the grant-date fair value of stock options using the Black-Scholes-Merton model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%. Loss Contingencies ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. The Company records an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, the Company provides additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on the Company. Legal costs to be incurred in connection with a loss contingency are expensed as such costs are incurred. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for credit losses, loss contingencies, share-based compensations, useful lives and realizability of long-lived assets, deferred revenue and revenue recognition related to breakage, deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, intangible assets, other long-lived assets and purchase price allocations and related valuations.Recent Accounting Pronouncements Adopted and Not Yet Adopted The Company reviewed 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.
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Revenue Disclosures |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Disclosures | Revenue Disclosures Company-Owned or Managed Clinics The Company earns revenues from clinics 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 that feature discounted pricing as compared with 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. Franchising Fees, Royalty Fees, Advertising Fund Revenue and Software Fees The Company currently franchises its concept across 41 states, the District of Columbia and Puerto Rico. The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation. The transaction price in a standard franchise arrangement primarily consists of (a) initial franchise fees, (b) continuing franchise fees (royalties), (c) advertising fees, and (d) software fees. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which otherwise requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price). The Company recognizes the primary components of the transaction price as follows: •Initial and renewal franchise fees, as well as transfer fees, are recognized as revenue ratably on a straight-line basis over the term of the respective franchise agreement, commencing with the execution of the franchise, renewal or transfer agreement. As these fees are typically received in cash at or near the beginning of the contract term, the cash received is initially recorded as a contract liability until recognized as revenue over time. •The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee's sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet. •The Company is entitled to a software fee, which is charged monthly. The Company recognizes revenue related to software fees ratably on a straight-line basis over the term of the franchise agreement. In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment as it is based on either the franchise term or the reported sales of the franchisee, none of which require estimation. The Company believes its franchising arrangements do not contain a significant financing component. The Company recognizes advertising fees received under franchise agreements as advertising fund revenue. Capitalized Sales Commissions Sales commissions earned by the regional developers and the Company’s sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement. Disaggregation of Revenue The Company believes that the captions contained on the condensed consolidated income statements appropriately reflect the disaggregation of its revenue by major type for the three and nine months ended September 30, 2023 and 2022. Other revenues primarily consist of preferred vendor royalties associated with franchisees' credit card transactions. The following table shows the Company's revenues disaggregated according to the timing of transfer of services:
Rollforward of Contract Liabilities and Contract Assets Changes in the Company's contract liability for deferred revenue from company clinics during the nine months ended September 30, 2023 were as follows:
Changes in the Company's contract liability for deferred franchise fees during the nine months ended September 30, 2023 were as follows:
The Company's deferred franchise and development costs represent capitalized sales commissions. Changes during the nine months ended September 30, 2023 were as follows:
The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of September 30, 2023:
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Acquisition and Assets Held for Sale |
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Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition and Assets Held for Sale | Acquisitions and Assets Held for Sale 2023 Acquisition On May 22, 2023, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the sellers three operating franchised clinics in California (the “CA Clinics Purchase”). As of the acquisition date, the Company operates the franchises as company-managed clinics. The total purchase price for the transaction was $1,188,764 to the seller (of which $109,767 is to be paid in the fourth quarter of 2023), less $28,997 of net deferred revenue, resulting in total purchase consideration of $1,159,767. Based on the terms of the purchase agreement, the CA Clinics Purchase has been treated as an asset purchase under GAAP as there were no outputs or processes to generate outputs acquired as part of these transactions. Under an asset purchase, assets are recognized based on their cost to the acquiring entity. Cost is allocated to the individual assets acquired or liabilities assumed based on their relative fair values and does not give rise to goodwill. The allocation of the total purchase price of the CA Clinics Purchase was as follows:
2022 Acquisitions On May 19, 2022, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller four operating franchises in Arizona (the "May 19th Acquisition"). The Company operates the franchises as company-owned clinics. The total purchase price for the transaction was $5,761,256, less $70,484 of net deferred revenue, resulting in total purchase consideration of $5,690,772. On July 5, 2022, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller one operating franchise in Arizona (collectively, including the May 19th Acquisition, the “AZ Clinics Purchase”). The Company operates the franchise as a company-owned clinic. The total purchase price for the transaction was $1,205,667, less $13,241 of net deferred revenue, resulting in total purchase consideration of $1,192,426. Based on the terms of the purchase agreements, the AZ Clinics Purchase has been treated as a business combination under U.S. GAAP using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. The allocation of the total purchase price of the AZ Clinics Purchase was as follows:
Intangible assets in the table above consist of re-acquired franchise rights of $2,892,100 amortized over estimated useful lives of approximately to eight years and customer relationships of $797,000 amortized over estimated useful lives of to three years. The fair value of re-acquired franchise rights are estimated using the multi-period excess earnings method. The multi-period excess earnings method model estimates revenues and cash flows derived from the primary asset and then deducts portions of the cash flow that can be attributed to supporting assets, such as assembled workforce and working capital that contributed to the generation of the cash flows. The resulting cash flow, which is attributable solely to the primary asset acquired, is then discounted at a rate of return commensurate with the risk of the asset to calculate a present value. Customer relationships are also calculated using the multi-period excess earnings method. The valuation method involved the use of significant estimates and assumptions primarily related to forecasted revenue growth rates, gross margin, contributory asset charges, customer attrition rates and market-participant discount rates. These measures are based on significant Level 3 inputs not observable in the market. Key assumptions developed based on the Company's historical experience, future projections and comparable market data include future cash flows, long-term growth rates, attrition rates and discount rates. Goodwill represents the excess of the purchase consideration over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included synergies and benefits expected to be gained from leveraging the Company’s existing operations and infrastructures, as well as the expected associated revenue and cash flow projections. Goodwill has been allocated to the Company’s Corporate Clinics segment based on such expected benefits. Goodwill related to the acquisition is expected to be deductible for income tax purposes over 15 years. The Company completed the purchase price allocation during the fourth quarter of 2022. On July 29, 2022, the Company entered into Asset and Franchise Purchase Agreements under which the Company repurchased from the sellers three operating franchises in North Carolina (the “NC Clinics Purchase”). The Company operates the franchises as company-managed clinics. The total purchase price for the transactions was $1,317,312, less $31,647 of net deferred revenue, resulting in total purchase consideration of $1,285,665. Based on the terms of the purchase agreement, the NC Clinics Purchase has been treated as asset purchases under U.S. GAAP as there were no outputs or processes to generate outputs acquired as part of this transaction. Under an asset purchase, assets are recognized based on their cost to the acquiring entity. Cost is allocated to the individual assets acquired or liabilities assumed based on their relative fair values and does not give rise to goodwill. The allocation of the purchase price for the NC Clinics Purchase was as follows:
Intangible assets in the table above consist of re-acquired franchise rights of $546,033 amortized over estimated useful lives of approximately to four years, customer relationships of $426,489 amortized over estimated useful lives of approximately to four years and assembled workforce of $327,085 amortized over an estimated useful life of two years. Pro Forma Results of Operations (Unaudited) The following table summarizes selected unaudited pro forma consolidated income statements for the three and nine months ended September 30, 2023 and 2022 for the 2023 and 2022 acquisitions, as if the CA Clinics Purchase in 2023 and the NC Clinics Purchase in 2022 (which have been accounted for as an asset purchase) and the AZ Clinics Purchase in 2022 (which have been accounted for as a business combination) had all been completed on January 1, 2022.
The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the purchases had taken place on January 1, 2022 or of results that may occur in the future. For 2022, this information includes actual data recorded in the Company’s consolidated financial statements for the period subsequent to the date of the acquisition. The Company’s condensed consolidated income statements for the three and nine months ended September 30, 2023 include net revenue and net income, excluding corporate clinic segment overhead costs, of the acquired California clinics as follows:
Assets Held for Sale In June 2023, the Company entered into negotiations to sell one of its company-managed clinics in California to a franchisee for a total of $0.1 million. The Company executed an LOI with the buyer in October 2023 and the sale is expected to close before the end of 2023, subject to the execution of the purchase agreement and other customary closing conditions contained in the purchase agreement. This transaction did not represent a major strategic shift for the Company, and, therefore, it does not meet the criteria to be classified as a discontinued operation. As a result, the results of this clinic will continue to be reported in the Company’s operating results and in its Corporate Clinics segment until the sale is finalized. Effective with the designation as held for sale in June 2023, the Company discontinued recording depreciation on property and equipment, net and amortization of ROU assets for the clinic as required by GAAP. The Company also separately classified the related assets and liabilities of the clinics as held for sale in its September 30, 2023 condensed consolidated balance sheet. During Q3 2023, the Company committed to a plan to sell specific corporate owned or managed clinics making up under 10% the corporate clinic portfolio with an estimated fair value of $1.6 million. The clinics are in varying stages of sales negotiations with all of them expected to close within one year. The clinics identified to commit to sell during Q3 2023 did not represent a major strategic shift and therefore, they do not meet the criteria to be classified as a discontinued operation. As a result, the results of these clinics will continue to be reported in the Company’s operating results and in its Corporate Clinics segment until the sales are each finalized. Effective with the designation as held for sale in September 2023, the Company discontinued recording depreciation on property and equipment, net, amortization of intangible assets, net and amortization of ROU assets for the clinics as required by GAAP. The Company also separately classified the related assets and liabilities of the clinics as held for sale in its September 30, 2023 condensed consolidated balance sheet. Long-lived assets that meet the criteria for the held for sale designation are reported at the lower of their carrying value or fair value less estimated cost to sell. As a result of its evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales prices or the clinics fair values, the Company recorded an estimated loss on disposal of $756,228 and $816,429 during the three and nine months ended September 30, 2023 as Net loss on disposition or impairment in its condensed consolidated income statement and a valuation allowance included in assets held for sale on its condensed consolidated balance sheet. The principal components of the held for sale assets and liabilities as of September 30, 2023 were as follows:
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Property and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | Property and Equipment Property and equipment consisted of the following, excluding amounts related to properties classified as held for sale:
Depreciation expense was $1,381,170 and $1,046,495 for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $4,027,906 and $2,866,737 for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense related to finance lease assets was $7,570 and $7,570 for the three months ended September 30, 2023 and 2022, respectively. Amortization expense related to finance lease assets was $22,709 and $48,001 for the nine months ended September 30, 2023 and 2022, respectively. Construction in progress at September 30, 2023 and December 31, 2022 principally related to development and construction costs for the company-owned or managed clinics
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements The Company’s financial instruments include cash, restricted cash, accounts receivable, accounts payable, accrued expenses and debt under the Credit Agreement (defined in Note 7, Debt). The carrying amounts of its financial instruments, except for debt, approximate their fair value due to their short maturities. The carrying value of the Company's debt under the Credit Agreement approximates fair value due to its interest rate being calculated from observable quoted prices for similar instruments, which is considered a Level 2 fair value measurement. Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. As of September 30, 2023 and December 31, 2022, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3. The Company’s non-financial assets, which primarily consist of goodwill, intangible assets, property, plant and equipment and operating lease right-of-use assets, are not required to be measured at fair value on a recurring basis and instead are reported at their carrying amount. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying amount may not be fully recoverable (and at least annually for goodwill), non-financial assets are assessed for impairment. If the fair value is determined to be lower than the carrying amount, an impairment charge is recorded to write down the asset to its fair value, which is considered Level 3 within the fair value hierarchy. The assets and liabilities resulting from the Acquisitions (see Note 3, Acquisitions and Assets Held for Sale) were recorded at fair values on a nonrecurring basis and are considered Level 3 within the fair value hierarchy. Long-lived assets that meet the held for sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. The estimated fair values of the company-owned or managed clinics classified as Held for Sale (see Note 3, Acquisitions and Assets Held for Sale) were recorded at fair values on a nonrecurring basis and are based upon Level 2 inputs, which include potential buyer agreed upon selling prices or Level 3 inputs, which include historical and future expected financial performance of the clinic and historical acquisition trends based on previous reacquired franchise clinic purchases. As a result, the Company recorded a valuation allowance of $756,228 and $816,429 to adjust the carrying value of the disposal group to fair value less cost to sell during the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2022, an operating lease ROU asset related to a closed clinic with a total carrying amount of approximately $250,000 was written down to zero. The associated operating lease liability had a life of 39 months as of September 30, 2022. However, the ROU asset was fully impaired due to the abandonment of the lease as of September 30, 2022. The Company considers the ROU asset as abandoned as it lacks the ability to sublease the underlying asset and obtain economic benefits. As a result, the Company recorded a noncash impairment loss of approximately $250,000 during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2023, intangible assets related to a clinic planned for closure with a total carrying amount of approximately $80,000 was written down to zero. The remaining life of the intangible assets related to the clinic extend through December 2025. However, the clinic is planned to close at the end of its lease term in November 2023. The Company considers the intangible assets fully impaired as the ability to obtain economic benefits in the remaining period the clinic will operate is unlikely. As a result, the Company recorded a noncash impairment loss of approximately $80,000 during the three and nine months ended September 30, 2023. In connection with the planned sale of certain company-owned and managed clinics, the Company reclassified $2,153,454 of net property and equipment, $386,280 of intangible assets, net, $44,515 of goodwill and $2,204,293 of ROU assets to Assets held for sale and reclassified $2,585,642 of lease liability and $386,291 of deferred revenue from Company clinics to Liabilities to be disposed of in the condensed balance sheet as of September 30, 2023. Long-lived assets that meet the held for sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. The estimated fair value of assets held for sale are based upon Level 2 inputs, which includes a potential buyer agreed upon selling price or Level 3 inputs, which include historical and future expected financial performance of the clinic and historical acquisition trends based on previous reacquired franchise clinic purchases.
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | Intangible Assets In May 2022, the Company recognized $2.4 million and $0.5 million of reacquired franchise rights and customer relationships, respectively, from the Acquisition (see Note 3, Acquisitions and Assets Held for Sale). In May 2023, the Company recognized $0.7 million, $0.1 million and $0.2 million of reacquired franchise rights, customer relationships and acquired workforce, respectively, from the Acquisition (see Note 3, Acquisitions and Assets Held for Sale). Intangible assets consisted of the following:
Amortization expense related to the Company’s intangible assets was $960,466 and $725,859 for the three months ended September 30, 2023 and 2022, respectively. Amortization expense was $2,842,914 and $1,663,712 for the nine months ended September 30, 2023 and 2022, respectively. Estimated amortization expense for 2023 and subsequent years is as follows:
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Debt |
9 Months Ended |
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Sep. 30, 2023 | |
Debt Disclosure [Abstract] | |
Debt | Debt Credit Agreement On February 28, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”), with JPMorgan Chase Bank, N.A., individually and as Administrative Agent and Issuing Bank (the “Lender”). The Credit Agreement provided for senior secured credit facilities (the "Credit Facilities") in the amount of $7,500,000, including a $2,000,000 revolver (the "Revolver") and $5,500,000 development line of credit (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 Revolver were due on February 28, 2022. On February 28, 2022, the Company entered into an amendment to its Credit Facilities (as amended, the “2022 Credit Facility”) with the Lender. Under the 2022 Credit Facility, the Revolver increased to $20,000,000 (from $2,000,000), the portion of the Revolver available for letters of credit increased to $5,000,000 (from $1,000,000), the uncommitted additional amount increased to $30,000,000 (from $2,500,000) and the developmental line of credit of $5,500,000 was terminated. The Revolver will be used for working capital needs, general corporate purposes and for acquisitions, development and capital improvement uses. At the option of the Company, borrowings under the 2022 Credit Facility bear interest at (i) the adjusted SOFR rate, plus 0.10%, plus 1.75%, payable on the last day of the selected interest period of one, three or six months and on the three-month anniversary of the beginning of any six month interest period, if applicable; or (ii) an Alternative Base Rate (ABR), plus 1.00%, payable monthly. The ABR is the greatest of (A) the prime rate (as published by the Wall Street Journal); (B) the Federal Reserve Bank of New York rate, plus 0.5%; and (C) the adjusted one-month term SOFR rate. Amounts outstanding under the Revolver on February 28, 2022 continued to bear interest at the rate selected under the Credit Facilities prior to the amendment until the last day of the interest period in effect, at which time, if not repaid, the amounts outstanding under the Revolver will bear interest at the 2022 Credit Facility rate. The 2022 Credit Facility will terminate and all principal and interest will become due and payable on the fifth anniversary of the amendment (February 28, 2027). The Credit Facilities contain customary events of default, including but not limited to nonpayment; material inaccuracy of representations and warranties, violations of covenants, certain bankruptcies and liquidations, cross-default to material indebtedness, certain material judgments and certain fundamental changes such as a merger or sale of substantially all assets (as further defined in the Credit Facilities). The Credit Facilities require the Company to comply with customary affirmative, negative and financial covenants, including minimum interest coverage and maximum net leverage. A breach of any of these operating or financial covenants would result in a default under the Credit Facilities. If an event of default occurs and is continuing, the lenders could elect to declare all amounts then outstanding, together with accrued interest, to be immediately due and payable. The Credit Facilities are collateralized by substantially all of the Company’s assets, including the assets in the Company’s company-owned or managed clinics. The interest rate on funds borrowed under the Revolver as of September 30, 2023 was 7.09%. As of September 30, 2023, the Company was in compliance with all applicable financial and non-financial covenants under the Credit Agreement and $2,000,000 remains outstanding as of September 30, 2023.
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Stock-Based Compensation |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation The Company grants stock-based awards under its Amended and Restated 2014 Incentive Stock Plan (the “2014 Plan”). The shares issued as a result of stock-based compensation transactions generally have been funded with the issuance of new shares of the Company’s common stock. The Company may grant the following types of incentive awards under the 2014 Plan: (i) non-qualified stock options; (ii) incentive stock options; (iii) stock appreciation rights; (iv) restricted stock; and (v) restricted stock units. Each award granted under the 2014 Plan is subject to an award agreement that incorporates, as applicable, the exercise price, the term of the award, the periods of restriction, the number of shares to which the award pertains and such other terms and conditions as the plan committee determines. Awards granted under the 2014 Plan are classified as equity awards, which are recorded in stockholders’ equity in the Company’s consolidated balance sheets. Through September 30, 2023, the Company has granted under the 2014 Plan (i) non-qualified stock options, (ii) incentive stock options, and (iii) restricted stock. There were no stock appreciation rights and restricted stock units granted under the 2014 Plan as of September 30, 2023. Stock Options The Company’s closing price on the date of grant is the basis of fair value of its common stock used in determining the value of share-based awards. To the extent the value of the Company’s share-based awards involves a measure of volatility, the Company uses available historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term. The Company historically has used the simplified method to calculate the expected term of stock option grants to employees as the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. Accordingly, the expected life of the options granted is based on the average of the vesting term, which is generally four years and the contractual term, which is generally ten years. The Company will continue to evaluate the appropriateness of utilizing such method. The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%. The Company did not grant options during the three and nine months ended September 30, 2023. The information below summarizes the stock option activity for the nine months ended September 30, 2023:
For the three months ended September 30, 2023 and 2022, stock-based compensation expense for stock options was $85,366 and $113,324, respectively. For the nine months ended September 30, 2023 and 2022, stock-based compensation expense for stock options was $235,972 and $420,680, respectively. Restricted Stock Restricted stock granted to employees generally vests in four equal annual installments, although on May 25, 2023, the Company granted 51,401 shares of restricted stock as part of a special award to certain high performing employees that vest in one installment on the first anniversary of the grant. Restricted stock granted to non-employee directors typically vests in full one year after the date of grant. The information below summarizes the restricted stock activity for the nine months ended September 30, 2023:
For the three months ended September 30, 2023 and 2022, stock-based compensation expense for restricted stock was $440,703 and $192,491, respectively. For the nine months ended September 30, 2023 and 2022, stock-based compensation expense for restricted stock was $973,324 and $548,882, respectively.
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Income Taxes |
9 Months Ended |
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Sep. 30, 2023 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income TaxesDuring the three months ended September 30, 2023 and 2022, the Company recorded income tax benefit of $188,018 and $24,015, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded income tax expense of $493,286 and income tax benefit of $560,976, respectively. The Company’s effective tax rates differ from the federal statutory tax rate due to permanent differences, discrete items and state taxes. The Company's effective tax rate differs from the statutory rate for the nine months ended September 30, 2023 primarily due to the Company's ERC refunds from the Internal Revenue Service. The tax effect of the refund amount, net of the related consulting fees, is treated as a discrete item for the nine months ended September 30, 2023. The effective tax rate for the three months ended September 30, 2023 and for the three and nine months ended September 30, 2022 differs from the statutory rate primarily due to the pre-tax income reported by The Joint without the VIEs. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and ContingenciesLeases The table below summarizes the components of lease expense and income statement location for the three and nine months ended September 30, 2023 and 2022:
Supplemental information and balance sheet location related to leases (excluding amounts related to leases classified as held for sale) is as follows:
Supplemental cash flow information related to leases is as follows:
Maturities of lease liabilities as of September 30, 2023 were as follows:
All leases entered into by the Company have commenced as of September 30, 2023. Guarantee in Connection with the Sale of the Divested Business In connection with the sale of a company-managed clinic in 2022, the Company guaranteed one future operating lease commitment assumed by the buyers. The Company is obligated to perform under the guarantee if the buyers fail to perform under the lease agreement at any time during the remainder of the lease agreement, which expires on May 31, 2027. At the date of sale, the undiscounted maximum potential future payments totaled $247,296. As of September 30, 2023, the undiscounted remaining lease payments under the agreement totaled $196,896. The Company had not recorded a liability with respect to the guarantee obligation as of September 30, 2023, as the Company concluded that payment under the lease guarantee was not probable. Litigation In the normal course of business, the Company is party to litigation and claims from time to time. The Company maintains insurance to cover certain litigation and claims.
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Segment Reporting |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | Segment Reporting An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”) to evaluate performance and make operating decisions. The Company has identified its CODM as the Chief Executive Officer. The Company has two operating business segments and one non-operating business segment. The Corporate Clinics segment is composed of the operating activities of the company-owned or managed clinics. As of September 30, 2023, the Company operated or managed 136 clinics under this segment. The Franchise Operations segment is composed of the operating activities of the franchise business unit. As of September 30, 2023, the franchise system consisted of 778 clinics in operation. Corporate is a non-operating segment that develops and implements strategic initiatives and supports the Company’s two operating business segments by centralizing key administrative functions such as finance and treasury, information technology, insurance and risk management, legal and human resources. Corporate also provides the necessary administrative functions to support the Company as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the operating segments. The tables below present financial information for the Company’s two operating business segments.
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Employee Retention Credit |
9 Months Ended |
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Sep. 30, 2023 | |
Unusual or Infrequent Items, or Both [Abstract] | |
Employee Retention Credit | Employee Retention Credit The employee retention credit ("ERC"), as originally enacted through the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) on March 27, 2020, is a refundable credit against certain employment taxes equal to 50% of the qualified wages an eligible employer paid to employees from March 17, 2020 to December 31, 2020. The Disaster Tax Relief Act, enacted on December 27, 2020, extended the ERC for qualified wages paid from January 1, 2021 to June 30, 2021 and the credit was increased to 70% of qualified wages an eligible employer paid to employees during the extended period. The American Rescue Plan Act of 2021, enacted on March 11, 2021, further extended the ERC through December 31, 2021. In October 2022, the Company filed an application with the IRS for the ERC. Employers are eligible for the credit if they experienced full or partial suspension or modification of operations during any calendar quarter because of governmental orders due to the pandemic or a significant decline in gross receipts based on a comparison of quarterly revenue results for 2020 and/or 2021 with the comparable quarter in 2019. The Company’s ERC application was equal to 70% of qualified wages paid to employees during the period from January 1, 2021 to June 30, 2021 for a maximum quarterly credit of $7,000 per employee. In March 2023, the Company received notice and refunds from the IRS related to the overpayment of Federal Employment Tax plus interest in the amount of $4.8 million related to the ERC application. The $4.8 million ERC is subject to a 20% consulting fee. The Company's eligibility remains subject to audit by the IRS for a period of five years. Since there are no generally accepted accounting principles for for-profit business entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a customer, we determined the appropriate accounting treatment by analogy to other guidance. We accounted for the ERC by analogy to International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards. Under an IAS 20 analogy, a business entity would recognize the ERC on a systematic basis over the periods in which the entity recognizes the payroll expenses for which the grant (i.e., tax credit) is intended to compensate when there is reasonable assurance (i.e., it is probable) that the entity will comply with any conditions attached to the grant and the grant (i.e., tax credit) will be received. We have accounted for the $3.8 million ERC, net of the consulting fee, for the nine months ended September 30, 2023 as other income on the Statement of Income when the Company was reasonably assured that the Company met all requirements of the ERC and the grant would be received. The ERC refund is not taxable; however, the credit is subject to expense disallowance rules which increased income tax expense as a discrete item by $0.9 million, net of the consulting expense deduction, for the nine months ended September 30, 2023.
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2023 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events In October 2023, the Company entered into two separate letters of intent to sell two of its company-owned or managed clinics that were part of the 10% clinics identified for sale and classified as held for sale as of September 30, 2023 for a combined total sales price of $185,000. The sales are expected to close during the fourth quarter of 2023, subject to customary closing conditions. On November 6, 2023, the Company discussed certain strategic initiatives of the Company with the Board of Directors and were authorized to initiate a plan to re-franchise the majority of its corporate-owned or managed clinics with plans to retain a small portion of high-performing clinics. Based on the timing and varied scope of the initiative, the Company is unable to estimate the financial impact.
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Pay vs Performance Disclosure - USD ($) |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
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Pay vs Performance Disclosure | ||||
Net income (loss) | $ (716,273) | $ 731,096 | $ 1,289,402 | $ (136,551) |
Insider Trading Arrangements |
3 Months Ended |
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Sep. 30, 2023 | |
Trading Arrangements, by Individual | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |
Nature of Operations and Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2023 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”), which includes its variable interest entities (“VIEs”) and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated interim financial statements should be read in conjunction with The Joint Corp. and Subsidiary and Affiliates consolidated financial statements and the notes thereto as set forth in The Joint’s Amended Annual Report on Form 10-K/A as of and for the year ended December 31, 2022, filed with the SEC on September 26, 2023 (“Form 10-K/A”), which included all disclosures required by GAAP. The results of operations for the periods ended September 30, 2023 and 2022 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the three and nine-month periods ended September 30, 2023 and 2022 is unaudited. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
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Principles of Consolidation | Principles of ConsolidationThe accompanying condensed consolidated financial statements include the accounts of The Joint and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which was dormant for all periods presented. 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 inter-affiliate accounts and transactions between The Joint and its VIEs have been eliminated in consolidation. |
Comprehensive Income | Comprehensive Income Net income was the same as comprehensive income for the three and nine months ended September 30, 2023 and 2022.
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Nature of Operations | Nature of Operations The Joint Corp., a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising and developing chiropractic clinics, selling regional developer rights, supporting the operations of franchised chiropractic clinics and operating and managing corporate chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.
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Variable Interest Entities | Variable Interest EntitiesCertain states prohibit the “corporate practice of chiropractic,” which restricts business corporations from practicing chiropractic care by exercising control over clinical decisions by chiropractic doctors. In states that prohibit the corporate practice of chiropractic, the Company typically enters into long-term management agreements with professional corporations (“PCs”) that are owned by licensed chiropractic doctors, which, in turn, employ or contract with doctors who provide professional chiropractic care in its clinics. Under these management agreements with PCs, the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. The Company has entered into such management agreements with four PCs, including one in New Jersey, in connection with the opening of company-managed clinics in April 2023. If an entity is deemed to be the primary beneficiary of a VIE, the entity is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance; and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. In accordance with relevant accounting guidance, these PCs were determined to be VIEs as fees paid by the PCs to the Company as its management service provider are considered variable interests because the fees do not meet all the following criteria: (1) The fees are compensation for services provided and are commensurate with the level of effort required to provide those services; (2) The decision maker or service provider does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns; and (3) The service arrangement includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. Additionally, the Company has determined that it has the ability to direct the activities that most significantly impact the performance of these PCs and has an obligation to absorb losses or receive benefits which could potentially be significant to the PCs. Accordingly, the PCs are VIEs for which the Company is the primary beneficiary and are consolidated by the Company. |
Cash and Cash Equivalents | Cash and Cash EquivalentsThe Company considers all highly liquid instruments purchased with a maturity of three months or less at date of purchase to be cash equivalents. The Company continually monitors its positions with and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all its cash in short-term bank deposits. |
Restricted Cash | Restricted CashRestricted cash relates to cash that franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising. While such cash balance is not legally segregated and restricted as to withdrawal or usage, the Company's accounting policy is to classify these funds as restricted cash. |
Accounts Receivable | Accounts ReceivableAccounts receivable primarily represents amounts due from franchisees for royalty fees. The Company records an allowance for credit losses as a reduction to its accounts receivables for amounts that the Company does 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 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. |
Property and Equipment | Property and Equipment Property and equipment are stated at cost, or for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the straight-line method over estimated useful lives, which is generally to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. The losses on disposed of or retired property or equipment were recorded in net loss on disposition or impairment of $68,200 and $217,810 for the three and nine-months ended September 30, 2023, respectively. The losses on disposed of or retired property or equipment were recorded in net loss on disposition or impairment of $23,554 and $119,303 for the three and nine-months ended September 30, 2022, respectively.
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Leases | Leases The Company leases property and equipment under operating and finance leases. The Company leases its corporate office space and the space for each of the company-owned or managed clinics in the portfolio. The Company recognizes a right-of-use ("ROU") asset and lease liability for all leases. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and, as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability. When available, the Company uses the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of its leases. In such cases, the Company estimates its incremental borrowing rate as the interest rate it would pay to borrow an amount equal to the lease payments over a similar term, with similar collateral as in the lease and in a similar economic environment. The Company estimates these rates using available evidence such as rates imposed by third-party lenders to the Company in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to the Company’s estimated creditworthiness. For operating leases that include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. Pre-opening costs are recorded as incurred in general and administrative expenses. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred and are also included in general and administrative expenses on the accompanying consolidated income statements.
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Long-Lived Assets | Long-Lived AssetsThe Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or not long-lived assets are recoverable. The Company records an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value. |
Revenue Recognition | Revenue Recognition The Company generates revenue primarily through its company-owned and managed clinics and through royalties, franchise fees, advertising fund contributions, IT related income and computer software fees from its franchisees. Revenues from Company-Owned or Managed Clinics. The Company earns revenues from clinics 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 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. Any unused visits associated with monthly memberships are recognized on a month-to-month basis. The Company recognizes a contract liability (or a deferred revenue liability) related to the prepaid treatment plans for which the Company has an ongoing performance obligation. The Company derecognizes this contract liability and recognizes revenue, as the patient consumes his or her visits related to the package and the Company transfers its services. If the Company determines that it is not subject to unclaimed property laws for the portion of wellness package that it does not expect to be redeemed (referred to as “breakage”), then it recognizes breakage revenue in proportion to the pattern of exercised rights by the patient. Royalties and Advertising Fund Revenue. The Company collects royalties from its franchisees, as stipulated in the franchise agreement, equal to 7% of gross sales and a marketing and advertising fee currently equal to 2% of gross sales. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which generally requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price). Franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to the Company’s performance obligation under the franchise agreement and therefore, such royalties are recognized as franchisee clinic level sales occur. Royalties are collected semi-monthly, two working days after each sales period has ended. Franchise Fees. 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 ratably on a straight-line basis over the term of the franchise agreement. 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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation. Renewal franchise fees, as well as transfer fees, are also recognized as revenue on a straight-line basis over the term of the respective franchise agreement. Software Fees. The Company collects a monthly fee from its franchisees for use of its proprietary chiropractic software, computer support and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement. Capitalized Sales Commissions: Sale commissions earned by the regional developers and the Company's sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement. Regional Developer Fees. The Company has a regional developer program where regional developers are granted an exclusive geographical territory and commit to a minimum development obligation within that defined territory. Regional developer fees paid to the Company are non-refundable and are amortized on a straight-line bases over the term of the regional developer agreement and recognized as a decrease to franchise cost of revenues. In addition, regional developers receive fees that are funded by the initial franchise fees collected from franchisees upon the sale of franchises within their exclusive geographical territory and a royalty of 3% of sales generated by franchised clinics in their exclusive geographical territory. Initial fees related to the sale of franchises within their exclusive geographical territory are initially deferred as deferred franchise costs and are recognized as an expense in franchise cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise agreement. Royalties of 3% of sales generated by franchised clinics in their regions are also recognized as franchise cost of revenues as franchisee clinic level sales occur. This 3% fee is funded by the 7% royalties collected from the franchisees in their regions. Certain regional developer agreements result in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is recognized over the remaining life of the respective franchise agreements. The Company did not enter into any new regional developer agreements during the nine months ended September 30, 2023 and 2022.
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Advertising Costs | Advertising CostsAdvertising costs are advertising and marketing expenses incurred by the Company, primarily through advertising funds. The Company expenses production costs of commercial advertising upon first airing and expenses the costs of communicating the advertising in the period in which the advertising occurs. |
Income Taxes | Income Taxes Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date pre-tax income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant 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 environment changes.
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Earnings (Loss) per Common Share | Earnings (Loss) per Common Share Basic earnings per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed by giving effect to all potentially dilutive common shares, including restricted stock and stock options.
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Stock-Based Compensation | Stock-Based Compensation The Company accounts for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using the closing price on the date of the grant and the grant-date fair value of stock options using the Black-Scholes-Merton model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method. Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%.
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Loss Contingencies | Loss Contingencies ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. The Company records an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, the Company provides additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on the Company. Legal costs to be incurred in connection with a loss contingency are expensed as such costs are incurred.
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Use of Estimates | Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for credit losses, loss contingencies, share-based compensations, useful lives and realizability of long-lived assets, deferred revenue and revenue recognition related to breakage, deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, intangible assets, other long-lived assets and purchase price allocations and related valuations.
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Recent Accounting Pronouncements Adopted and Not Yet Adopted | Recent Accounting Pronouncements Adopted and Not Yet Adopted The Company reviewed 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.
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Nature of Operations and Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Correction of Immaterial Error | The following table summarizes the effect of the errors on the Company’s condensed balance sheet as of September 30, 2022:
The following table summarizes the effect of the errors on the Company’s condensed income statement for the three and nine months ended September 30, 2022:
The following table summarizes the effect of the errors on the Company’s condensed statements of stockholders' equity as of September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021:
The following table summarizes the effect of the errors on the Company’s condensed statement of cash flows for the nine-month period ended September 30, 2022:
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Schedule of Franchisor Disclosure | The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September 30, 2023 and 2022:
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Schedule of Revenue | VIE total revenue and general administrative expenses for the three and nine-months ended September 30, 2023 and 2022 were as follows:
The following table shows the Company's revenues disaggregated according to the timing of transfer of services:
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Schedule of VIEs' Payroll Liability | The carrying amount of the VIEs’ assets and liabilities was immaterial as of September 30, 2023 and December 31, 2022, except for their payroll liability balances and amounts collected in advance for membership and wellness packages, which are recorded as deferred revenue. The VIEs’ payroll liability and deferred revenue from company managed clinics balances as of September 30, 2023 and December 31, 2022 were as follows:
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Schedule of Earnings (Loss) per Common Share |
The following common stock equivalents were excluded from the computation of diluted earnings per share for the periods presented because including them would have been antidilutive:
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Revenue Disclosures (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue | VIE total revenue and general administrative expenses for the three and nine-months ended September 30, 2023 and 2022 were as follows:
The following table shows the Company's revenues disaggregated according to the timing of transfer of services:
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Schedule of Contract with Customer, Asset and Liability | Changes in the Company's contract liability for deferred revenue from company clinics during the nine months ended September 30, 2023 were as follows:
Changes in the Company's contract liability for deferred franchise fees during the nine months ended September 30, 2023 were as follows: The Company's deferred franchise and development costs represent capitalized sales commissions. Changes during the nine months ended September 30, 2023 were as follows:
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Schedule of Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction | The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of September 30, 2023:
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Acquisition and Assets Held for Sale (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed | The allocation of the total purchase price of the CA Clinics Purchase was as follows:
The allocation of the total purchase price of the AZ Clinics Purchase was as follows:
The allocation of the purchase price for the NC Clinics Purchase was as follows:
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Schedule of Business Acquisition, Pro Forma Information | The following table summarizes selected unaudited pro forma consolidated income statements for the three and nine months ended September 30, 2023 and 2022 for the 2023 and 2022 acquisitions, as if the CA Clinics Purchase in 2023 and the NC Clinics Purchase in 2022 (which have been accounted for as an asset purchase) and the AZ Clinics Purchase in 2022 (which have been accounted for as a business combination) had all been completed on January 1, 2022.
The Company’s condensed consolidated income statements for the three and nine months ended September 30, 2023 include net revenue and net income, excluding corporate clinic segment overhead costs, of the acquired California clinics as follows:
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Summary Of Assets And Liabilities Held For Sale | The principal components of the held for sale assets and liabilities as of September 30, 2023 were as follows:
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Property and Equipment (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property, Plant and Equipment | Property and equipment consisted of the following, excluding amounts related to properties classified as held for sale:
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Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Intangible Assets | Intangible assets consisted of the following:
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | Estimated amortization expense for 2023 and subsequent years is as follows:
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Stock-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement, Option, Activity | The information below summarizes the stock option activity for the nine months ended September 30, 2023:
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Share-based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity | The information below summarizes the restricted stock activity for the nine months ended September 30, 2023:
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Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Lease, Cost | The table below summarizes the components of lease expense and income statement location for the three and nine months ended September 30, 2023 and 2022:
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Schedule of Assets And Liabilities, Lessee | Supplemental information and balance sheet location related to leases (excluding amounts related to leases classified as held for sale) is as follows:
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Schedule of Lessee, Operating Lease, Liability, Maturity | Maturities of lease liabilities as of September 30, 2023 were as follows:
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Schedule of Finance Lease, Liability, Maturity | Maturities of lease liabilities as of September 30, 2023 were as follows:
|
Segment Reporting (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment | The tables below present financial information for the Company’s two operating business segments.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Reconciliation of Assets from Segment to Consolidated |
|
Supplemental cash flow disclosures (Details) - USD ($) |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
Interest | $ 163,334 | $ 43,938 | |
Income taxes | 468,289 | 69,274 | |
Unpaid purchases of property and equipment | 155,340 | 225,967 | |
Non-cash investment in acquisition of franchised clinics | 16,493,108 | $ 16,629,735 | |
Franchise Fees Collected Upon Franchise Agreement | |||
Non-cash investment in acquisition of franchised clinics | $ 28,997 | $ 115,372 |
Nature of Operations and Summary of Significant Accounting Policies - Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Variable Interest Entity [Line Items] | ||||
Total revenues | $ 29,473,949 | $ 26,449,819 | $ 87,081,953 | $ 73,573,933 |
General and administrative expenses | 20,212,750 | 17,796,806 | 60,156,022 | 51,900,533 |
Variable Interest Entity | ||||
Variable Interest Entity [Line Items] | ||||
Total revenues | 10,688,500 | 9,150,103 | 30,997,617 | 25,433,407 |
General and administrative expenses | $ 4,525,305 | $ 4,079,552 | $ 13,614,211 | $ 11,212,760 |
Nature of Operations and Summary of Significant Accounting Policies - VIEs' Payroll Liability (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
Sep. 30, 2022 |
---|---|---|---|
Product Information [Line Items] | |||
Payroll liabilities | $ 3,875,453 | $ 2,030,510 | |
Deferred franchise revenue, current portion | 2,512,350 | 2,468,601 | $ 2,410,951 |
Variable Interest Entity, Primary Beneficiary | |||
Product Information [Line Items] | |||
Payroll liabilities | 952,854 | 586,960 | |
Deferred franchise revenue, current portion | $ 4,553,228 | $ 4,702,044 |
Revenue Disclosures - Narrative (Details) |
Sep. 30, 2023
state
|
---|---|
Revenue from Contract with Customer [Abstract] | |
Franchises, number of states and district | 41 |
Revenue Disclosures - Disaggregation of Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 29,473,949 | $ 26,449,819 | $ 87,081,953 | $ 73,573,933 |
Transferred at Point in Time | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | 27,418,343 | 24,697,661 | 81,155,737 | 68,436,945 |
Transferred over Time | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenues | $ 2,055,606 | $ 1,752,158 | $ 5,926,216 | $ 5,136,988 |
Revenue Disclosures - Changes in Contract Assets and Contract Liabilities (Details) |
9 Months Ended |
---|---|
Sep. 30, 2023
USD ($)
| |
Deferred Revenue from company clinics | |
Balance, beginning | $ 7,471,549 |
Revenue recognized that was included in the contract liability at the beginning of the year | (5,959,308) |
nine months ended September 30, 2023 | 5,026,472 |
Balance, ending | 6,538,713 |
Deferred Revenue short and long-term | |
Balance, beginning | 16,629,735 |
Revenue recognized that was included in the contract liability at the beginning of the year | (2,042,823) |
nine months ended September 30, 2023 | 1,906,196 |
Balance, ending | 16,493,108 |
Deferred Franchise and Development Costs short and long-term | |
Balance, beginning | 6,761,738 |
Cost of revenue recognized that was included in the contract asset at the beginning of the year | (863,619) |
nine months ended September 30, 2022 | 566,339 |
Balance, ending | $ 6,464,458 |
Acquisition and Assets Held for Sale - Unaudited Pro Forma Information (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Assets and Franchise Agreement | ||||
Business Acquisition [Line Items] | ||||
Revenues, net | $ 29,473,949 | $ 26,905,560 | $ 87,820,694 | $ 76,866,953 |
Net income | (703,681) | $ 697,316 | 1,290,407 | $ (491,325) |
Asset and Franchise Purchase Agreement, California | ||||
Business Acquisition [Line Items] | ||||
Revenues, net | 375,625 | 544,344 | ||
Net income | $ 41,847 | $ 80,936 |
Acquisition and Assets Held for Sale - Assets and Liabilities Held For Sale (Details) - Disposal Group, Held-for-sale, Not Discontinued Operations |
Sep. 30, 2023
USD ($)
|
---|---|
Assets | |
Property and equipment, net | $ 2,153,454 |
Operating lease right-of-use asset | 2,204,293 |
Intangible assets, net | 386,280 |
Goodwill | 44,515 |
Valuation allowance | (816,429) |
Total assets held for sale | 3,972,113 |
Liabilities | |
Operating lease liability, current and non-current | 2,585,642 |
Deferred revenue from company clinics | 386,291 |
Total liabilities to be disposed of | $ 2,971,933 |
Property and Equipment - Narrative (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense | $ 1,381,170 | $ 1,046,495 | $ 4,027,906 | $ 2,866,737 |
Amortization of assets | $ 7,570 | $ 7,570 | $ 22,709 | $ 48,001 |
Intangible Assets - Intangible Assets Acquired (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 18,296,853 | $ 18,172,096 |
Accumulated Amortization | (9,673,738) | (7,243,801) |
Total | 8,623,115 | 10,928,295 |
Reacquired franchise rights | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 12,924,858 | 12,881,894 |
Accumulated Amortization | (6,069,013) | (4,755,286) |
Total | 6,855,845 | 8,126,608 |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 4,306,684 | 4,330,365 |
Accumulated Amortization | (3,126,081) | (2,352,500) |
Total | 1,180,603 | 1,977,865 |
Assembled workforce | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 1,065,311 | 959,837 |
Accumulated Amortization | (478,644) | (136,015) |
Total | $ 586,667 | $ 823,822 |
Intangible Assets - Estimated Amortization Expense (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
2023 (remainder) | $ 901,345 | |
2024 | 2,675,174 | |
2025 | 1,602,969 | |
2026 | 1,272,426 | |
2027 | 717,394 | |
Thereafter | 1,453,807 | |
Total | $ 8,623,115 | $ 10,928,295 |
Stock-Based Compensation - Restricted Stock Activity (Details) - Restricted stocks |
9 Months Ended |
---|---|
Sep. 30, 2023
$ / shares
shares
| |
Shares | |
Unvested, beginning (in shares) | shares | 70,312 |
Granted (in shares) | shares | 204,122 |
vested (in shares) | shares | (33,782) |
Forfeited (in shares) | shares | (6,010) |
Unvested, ending (in shares) | shares | 234,642 |
Weighted Average Grant-Date Fair Value per Award | |
Non-vested, beginning (in dollars per share) | $ / shares | $ 29.05 |
Granted (in dollar per share) | $ / shares | 14.54 |
Vested (in dollars per share) | $ / shares | 21.95 |
Forfeited (in dollars per share) | $ / shares | 34.43 |
Non-vested, ending (in dollars per share) | $ / shares | $ 18.88 |
Income Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Income Tax Disclosure [Abstract] | ||||
Income tax (benefit) expense | $ (188,018) | $ (24,015) | $ 493,286 | $ (560,976) |
Commitments and Contingencies - Maturities of Lease Liabilities (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Operating Leases | ||
2023 (remainder) | $ 1,633,006 | |
2024 | 6,236,923 | |
2025 | 5,592,674 | |
2026 | 3,979,181 | |
2027 | 3,099,193 | |
Thereafter | 5,193,199 | |
Total lease payments | 25,734,176 | |
Less: Imputed interest | (3,141,086) | |
Total operating lease liability | 22,593,090 | $ 23,968,549 |
Less: Current obligations | (5,392,944) | (5,295,830) |
Long-term lease obligation | 17,200,146 | 18,672,719 |
Finance Lease | ||
2023 (remainder) | 6,900 | |
2024 | 27,600 | |
2025 | 27,600 | |
2026 | 11,500 | |
2027 | 0 | |
Thereafter | 0 | |
Total lease payments | 73,600 | |
Less: Imputed interest | (3,887) | |
Total finance lease liabilities | 69,713 | 87,940 |
Less: Current obligations | (25,223) | (24,433) |
Long-term lease obligation | $ 44,490 | $ 63,507 |
Commitments and Contingencies - Narrative (Details) |
Sep. 30, 2023
USD ($)
|
Dec. 31, 2022
USD ($)
lease
|
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
Number of future operating leases committed | lease | 1 | |
Maximum potential future payments | $ 247,296 | |
Undiscounted remaining lease payments | $ 196,896 |
Segment Reporting - Narrative (Details) |
9 Months Ended | |||||
---|---|---|---|---|---|---|
Sep. 30, 2023
clinic
segment
|
Jun. 30, 2023
clinic
|
Dec. 31, 2022
clinic
|
Sep. 30, 2022
clinic
|
Jun. 30, 2022
clinic
|
Dec. 31, 2021
clinic
|
|
Segment Reporting Information [Line Items] | ||||||
Number of operating segments | segment | 2 | |||||
Number of non-operating segments | segment | 1 | |||||
Number of stores | 914 | 805 | ||||
Company-Owned or Managed Clinics | ||||||
Segment Reporting Information [Line Items] | ||||||
Number of stores | 136 | 134 | 126 | 115 | 107 | 96 |
Franchised Clinics | ||||||
Segment Reporting Information [Line Items] | ||||||
Number of stores | 778 | 756 | 712 | 690 | 662 | 610 |
Segment Reporting - Segment Reporting Information, Assets (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|---|---|
Segment Reporting Information [Line Items] | ||||
Total assets | $ 98,572,626 | $ 93,490,377 | $ 89,499,985 | |
Unallocated cash and cash equivalents | 17,142,353 | 10,550,417 | $ 10,968,142 | $ 19,912,338 |
Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Total assets | 67,161,405 | 68,369,112 | ||
Unallocated corporate | ||||
Segment Reporting Information [Line Items] | ||||
Unallocated cash and cash equivalents | 17,142,353 | 10,550,417 | ||
Unallocated property and equipment | 708,471 | 915,216 | ||
Other unallocated assets | 13,560,397 | 13,655,632 | ||
Corporate clinics | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Total assets | 54,861,935 | 56,008,234 | ||
Franchise operations | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Total assets | $ 12,299,470 | $ 12,360,878 |
Employee Retention Credit (Details) - USD ($) $ in Millions |
1 Months Ended | 9 Months Ended |
---|---|---|
Mar. 31, 2023 |
Sep. 30, 2023 |
|
Unusual or Infrequent Items, or Both [Abstract] | ||
Overpayment amount | $ 4.8 | |
Consulting fee | 20.00% | |
Employee retention credit | $ 3.8 | |
Increase in income tax expense | $ 0.9 |
Subsequent Events (Details) $ in Thousands |
Oct. 31, 2023
USD ($)
clinic
letter
|
Sep. 30, 2023
clinic
|
---|---|---|
Subsequent Event [Line Items] | ||
Number of clinics sold | 16 | |
Disposal Group, Held-for-Sale or Disposed of by Sale, Not Discontinued Operations | Managed Clinics | ||
Subsequent Event [Line Items] | ||
Sale and classified as held for sale Clinics, percentage | 0.10 | |
Subsequent Event | Disposal Group, Held-for-Sale or Disposed of by Sale, Not Discontinued Operations | Managed Clinics | ||
Subsequent Event [Line Items] | ||
Number of letters of intent | letter | 2 | |
Number of clinics sold | 2 | |
Sale and classified as held for sale Clinics, percentage | 0.10 | |
Total consideration | $ | $ 185 |
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