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 | ☐ | ☒ | ||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
Emerging growth company |
PAGE NO. | ||||||||
Part I, Item 3 – Not applicable | ||||||||
Part II, Items 3, 4, and 5 - Not applicable |
June 30, 2020 | December 31, 2019 | ||||||||||
ASSETS | (unaudited) | ||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
Accounts receivable, net | |||||||||||
Notes receivable, net | |||||||||||
Deferred franchise and regional development costs - current portion | |||||||||||
Prepaid expenses and other current assets | |||||||||||
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 | |||||||||||
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 and regional developer fee revenue - current portion | |||||||||||
Deferred revenue from company clinics | |||||||||||
Debt under the Paycheck Protection Program - current portion | |||||||||||
Other current liabilities | |||||||||||
Total current liabilities | |||||||||||
Operating lease liability - net of current portion | |||||||||||
Finance lease liability - net of current portion | |||||||||||
Debt under the Credit Agreement and Paycheck Protection Program, net of current portion | |||||||||||
Deferred franchise and regional developer fee revenue, net of current portion | |||||||||||
Deferred tax liability | |||||||||||
Other liabilities | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies | |||||||||||
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues from company-owned or managed clinics | $ | $ | $ | $ | |||||||||||||||||||
Royalty fees | |||||||||||||||||||||||
Franchise fees | |||||||||||||||||||||||
Advertising fund revenue | |||||||||||||||||||||||
Software fees | |||||||||||||||||||||||
Regional developer 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 (gain) loss on disposition or impairment | ( | ( | ( | ||||||||||||||||||||
Income from operations | |||||||||||||||||||||||
Other (expense) income: | |||||||||||||||||||||||
Bargain purchase gain | |||||||||||||||||||||||
Other expense, net | ( | ( | ( | ( | |||||||||||||||||||
Total other expense | ( | ( | ( | ( | |||||||||||||||||||
Income before income tax expense | |||||||||||||||||||||||
Income tax expense | |||||||||||||||||||||||
Net income and comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
Less: income attributable to the non-controlling interest | $ | $ | $ | $ | |||||||||||||||||||
Net income attributable to The Joint Corp. stockholders | $ | $ | $ | $ | |||||||||||||||||||
Earnings per share: | |||||||||||||||||||||||
Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
Diluted earnings 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, 2019 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
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, 2020 (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2020 (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 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balances, December 31, 2018 (as adjusted) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2019 (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2019 (unaudited) | $ | $ | $ | ( | $ | ( | $ | $ | $ |
Six Months Ended June 30, | |||||||||||
2020 | 2019 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Loss on disposition or impairment | |||||||||||
Net franchise fees recognized upon termination of franchise agreements | ( | ||||||||||
Bargain purchase gain | ( | ||||||||||
Deferred income taxes | ( | ( | |||||||||
Stock based compensation expense | |||||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | ( | ||||||||||
Prepaid expenses and other current assets | ( | ( | |||||||||
Deferred franchise costs | ( | ||||||||||
Deposits and other assets | |||||||||||
Accounts payable | ( | ( | |||||||||
Accrued expenses | ( | ||||||||||
Payroll liabilities | ( | ( | |||||||||
Deferred revenue | ( | ||||||||||
Other, net | ( | ||||||||||
Net cash provided by operating activities | |||||||||||
Cash flows from investing activities: | |||||||||||
Acquisition of business, net of cash acquired | ( | ||||||||||
Purchase of property and equipment | ( | ( | |||||||||
Reacquisition and termination of regional developer rights | ( | ||||||||||
Payments received on notes receivable | |||||||||||
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 | |||||||||||
Proceeds from the Credit Agreement, net of related fees | |||||||||||
Proceeds from the Paycheck Protection Program | |||||||||||
Repayments on notes payable | ( | ||||||||||
Net cash provided by financing activities | |||||||||||
Increase in cash | |||||||||||
Cash and restricted cash, beginning of period | |||||||||||
Cash and restricted cash, end of period | $ | $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
Franchised clinics: | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Clinics open at beginning of period | |||||||||||||||||||||||
Opened during the period | |||||||||||||||||||||||
Sold during the period | ( | ||||||||||||||||||||||
Closed during the period | ( | ( | ( | ( | |||||||||||||||||||
Clinics in operation at the end of the period | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
Company-owned or managed clinics: | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Clinics open at beginning of period | |||||||||||||||||||||||
Opened during the period | |||||||||||||||||||||||
Acquired 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 | |||||||||||||||||||||||
Executed letters of intent for future clinic licenses |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net Income | $ | $ | $ | $ | |||||||||||||||||||
Basic weighted average common shares outstanding | |||||||||||||||||||||||
Effect of dilutive securities: | |||||||||||||||||||||||
Unvested restricted stock and stock options | |||||||||||||||||||||||
Diluted weighted average common shares outstanding | |||||||||||||||||||||||
Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
Diluted earnings per share | $ | $ | $ | $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
Weighted average potentially dilutive securities: | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Unvested restricted stock | |||||||||||||||||||||||
Stock options |
Deferred Revenue short and long-term | |||||
Balance at December 31, 2019 | $ | ||||
Recognized as revenue during the six months ended June 30, 2020 | ( | ||||
Fees received and deferred during the six months ended June 30, 2020 | |||||
Balance at June 30, 2020 | $ |
Deferred Franchise and Development Costs short and long-term | |||||
Balance at December 31, 2019 | $ | ||||
Recognized as cost of revenue during the six months ended June 30, 2020 | ( | ||||
Costs incurred and deferred during the six months ended June 30, 2020 | |||||
Balance at June 30, 2020 | $ |
Contract liabilities expected to be recognized in | Amount | ||||
2020 (remainder) | $ | ||||
2021 | |||||
2022 | |||||
2023 | |||||
2024 | |||||
Thereafter | |||||
Total | $ |
Amount (gross) | |||||
2020 (remaining) | $ | ||||
2021 | |||||
2022 | |||||
Total | $ |
June 30, 2020 | December 31, 2019 | ||||||||||
Office and computer equipment | $ | $ | |||||||||
Leasehold improvements | |||||||||||
Software developed | |||||||||||
Finance lease assets | |||||||||||
Accumulated depreciation and amortization | ( | ( | |||||||||
Construction in progress | |||||||||||
Property and equipment, net | $ | $ |
As of June 30, 2020 | |||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||
Intangible assets subject to amortization: | |||||||||||||||||
Reacquired franchise rights | $ | $ | ( | $ | |||||||||||||
Customer relationships | ( | ||||||||||||||||
Reacquired development rights | ( | ||||||||||||||||
$ | $ | ( | $ |
As of December 31, 2019 | |||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||
Intangible assets subject to amortization: | |||||||||||||||||
Reacquired franchise rights | $ | $ | ( | $ | |||||||||||||
Customer relationships | ( | ||||||||||||||||
Reacquired development rights | ( | ||||||||||||||||
$ | $ | ( | $ |
Amount | |||||
2020 (remainder) | $ | ||||
2021 | |||||
2022 | |||||
2023 | |||||
Total | $ |
Six Months Ended June 30, | |||||||||||
2020 | 2019 | ||||||||||
Expected volatility | |||||||||||
Expected dividends | None | None | |||||||||
Expected term (years) | |||||||||||
Risk-free rate | |||||||||||
Forfeiture rate |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||||||
Outstanding at December 31, 2019 | $ | ||||||||||||||||
Granted | |||||||||||||||||
Exercised | ( | ||||||||||||||||
Cancelled | |||||||||||||||||
Outstanding at June 30, 2020 | $ | ||||||||||||||||
Exercisable at June 30, 2020 | $ |
Restricted Stock Awards | Shares | Weighted Average Grant-Date Fair Value per Award | ||||||||||||
Non-vested at December 31, 2019 | $ | |||||||||||||
Granted | ||||||||||||||
Vested | ( | |||||||||||||
Cancelled | ||||||||||||||
Non-vested at June 30, 2020 | $ |
Line Item in the Company’s Consolidated Statements of Operations | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||||||||||
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 | $ | $ | $ | $ |
June 30, 2020 | December 31, 2019 | ||||||||||
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 | % | % |
Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||
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 | ||||||||||
2020 (remainder) | $ | $ | |||||||||
2021 | |||||||||||
2022 | |||||||||||
2023 | |||||||||||
2024 | |||||||||||
Thereafter | |||||||||||
Total lease payments | $ | $ | |||||||||
Less: Imputed interest | ( | ( | |||||||||
Total lease obligations | |||||||||||
Less: Current obligations | ( | ( | |||||||||
Long-term lease obligation | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||
Revenues: | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Corporate clinics | $ | $ | $ | $ | |||||||||||||||||||
Franchise operations | |||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | |||||||||||||||||||
Depreciation and amortization: | |||||||||||||||||||||||
Corporate clinics | |||||||||||||||||||||||
Franchise operations | |||||||||||||||||||||||
Corporate administration | |||||||||||||||||||||||
Total depreciation and amortization | $ | $ | $ | $ | |||||||||||||||||||
Segment operating income: | |||||||||||||||||||||||
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 income from operations | |||||||||||||||||||||||
Bargain purchase gain | |||||||||||||||||||||||
Other expense, net | ( | ( | ( | ( | |||||||||||||||||||
Income before income tax expense (benefit) | $ | $ | $ | $ |
Segment assets: | June 30, 2020 | December 31, 2019 | |||||||||
Corporate clinics | $ | $ | |||||||||
Franchise operations | |||||||||||
Total segment assets | |||||||||||
Unallocated cash and cash equivalents and restricted cash | |||||||||||
Unallocated property and equipment | |||||||||||
Other unallocated assets | |||||||||||
Total assets | $ | $ |
Three Months Ended June 30, | |||||||||||||||||||||||
2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues from company-owned or managed clinics | $ | 6,856,807 | $ | 5,777,288 | $ | 1,079,519 | 18.7 | % | |||||||||||||||
Royalty fees | 3,268,653 | 3,263,530 | 5,123 | 0.2 | % | ||||||||||||||||||
Franchise fees | 523,964 | 447,266 | 76,698 | 17.1 | % | ||||||||||||||||||
Advertising fund revenue | 930,795 | 927,800 | 2,995 | 0.3 | % | ||||||||||||||||||
IT related income and software fees | 631,198 | 377,125 | 254,073 | 67.4 | % | ||||||||||||||||||
Regional developer fees | 213,424 | 200,524 | 12,900 | 6.4 | % | ||||||||||||||||||
Other revenues | 164,952 | 176,446 | (11,494) | (6.5) | % | ||||||||||||||||||
Total revenues | $ | 12,589,793 | $ | 11,169,979 | $ | 1,419,814 | 12.7 | % |
Six Months Ended June 30, | |||||||||||||||||||||||
2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues from company-owned or managed clinics | $ | 14,151,102 | $ | 11,416,365 | $ | 2,734,737 | 24.0 | % | |||||||||||||||
Royalty fees | 6,986,883 | 6,290,346 | 696,537 | 11.1 | % | ||||||||||||||||||
Franchise fees | 1,036,716 | 864,339 | 172,377 | 19.9 | % | ||||||||||||||||||
Advertising fund revenue | 1,988,413 | 1,819,367 | 169,046 | 9.3 | % | ||||||||||||||||||
IT related income and software fees | 1,276,922 | 742,361 | 534,561 | 72.0 | % | ||||||||||||||||||
Regional developer fees | 421,066 | 384,381 | 36,685 | 9.5 | % | ||||||||||||||||||
Other revenues | 373,177 | 332,197 | 40,980 | 12.3 | % | ||||||||||||||||||
Total revenues | $ | 26,234,279 | $ | 21,849,356 | $ | 4,384,923 | 20.1 | % |
Cost of Revenues | 2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended June 30, | 1,367,641 | 1,299,149 | $ | 68,492 | 5.3 | % | ||||||||||||||||||||
Six Months Ended June 30, | 2,853,797 | 2,505,090 | 348,707 | 13.9 | % |
Selling and Marketing Expenses | 2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended June 30, | 1,783,666 | 1,769,368 | $ | 14,298 | 0.8 | % | ||||||||||||||||||||
Six Months Ended June 30, | 3,838,954 | 3,275,356 | 563,598 | 17.2 | % |
Depreciation and Amortization Expenses | 2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended June 30, | 693,400 | 404,466 | $ | 288,934 | 71.4 | % | ||||||||||||||||||||
Six Months Ended June 30, | 1,347,649 | 770,143 | 577,506 | 75.0 | % |
General and Administrative Expenses | 2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended June 30, | 8,541,108 | 7,227,662 | $ | 1,313,446 | 18.2 | % | ||||||||||||||||||||
Six Months Ended June 30, | 17,235,358 | 13,780,566 | 3,454,792 | 25.1 | % |
Income from Operations | 2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Three Months Ended June 30, | 258,584 | 487,600 | $ | (229,016) | (47.0) | % |
Income from Operations | 2020 | 2019 | Change from Prior Year | Percent Change from Prior Year | ||||||||||||||||||||||
Six Months Ended June 30, | 1,011,934 | 1,431,274 | $ | (419,340) | (29.3) | % |
Exhibit Number | Description of Document | |||||||
3.1 | ||||||||
3.2 | ||||||||
10.1 | ||||||||
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. |
THE JOINT CORP. | ||||||||
Dated: August 7, 2020 | By: | /s/ Peter D. Holt | ||||||
Peter D. Holt President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated: August 7, 2020 | By: | /s/ Jake Singleton | ||||||
Jake Singleton Chief Financial Officer (Principal Financial 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) |
By: | /s/ Peter D. Holt | |||||||
Peter D. Holt President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated August 7, 2020 |
By: | /s/ Jake Singleton | |||||||
Jake Singleton Chief Financial Officer (Principal Financial Officer) | ||||||||
Dated August 7, 2020 |
Notes Receivable |
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||
Notes Receivable | Notes Receivable Effective April 29, 2017, the Company entered into a regional developer agreement for certain territories in the state of Florida in exchange for $320,000, of which $187,000 was funded through a promissory note. The note bears interest at 10% per annum for 42 months and requires monthly principal and interest payments over 3 years, beginning November 1, 2017 and maturing on October 1, 2020. The note is secured by the regional developer rights in the respective territory. Effective August 31, 2017, the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for $220,000, of which $117,475 was funded through a promissory note. The note bears interest at 10% per annum for 3 years and requires monthly principal and interest payments over 3 years, beginning September 1, 2017 and maturing on August 1, 2020. The note is secured by the regional developer rights in the respective territory. Effective October 10, 2017, the Company entered into a regional developer agreement for certain territories in Texas, Oklahoma and Arkansas in exchange for $170,000, of which $135,688 was funded through a promissory note. The note bears interest at 10% per annum for 3 years and requires monthly principal and interest payments over 3 years, maturing on October 24, 2020. The note is secured by the regional developer rights in the territory. Effective April 26, 2019, the Company entered into a promissory note valued at $31,086. The note bears interest at 0% per annum for 3 years and requires monthly principal payments over 3 years, beginning May 15, 2019 and maturing on May 15, 2022. The outstanding balances of the notes as of June 30, 2020 and December 31, 2019 were $71,770 and $155,810, respectively. The allowance for uncollectible amounts on the outstanding notes as of June 30, 2020, and December 31, 2019 were $23,487, and $27,086, respectively. Maturities of notes receivable as of June 30, 2020 are 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 consist of the following:
Depreciation expense was $322,666 and $206,609 for the three months ended June 30, 2020 and 2019, respectively. Depreciation expense was $609,742 and $400,415 for the six months ended June 30, 2020 and 2019, respectively. Amortization expense related to finance lease assets was $19,620 and $6,169 for the three months ended June 30, 2020 and 2019, respectively. Amortization expense related to finance lease assets was $30,173 and $12,337 for the six months ended June 30, 2020 and 2019, respectively. Construction in progress at June 30, 2020 and December 31, 2019 principally relate to development costs for software to be used by clinics for operations and by the Company for the management of operations.
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Fair Value Consideration |
6 Months Ended |
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Jun. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
Fair Value Consideration | Fair Value Consideration The Company’s financial instruments include cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of its financial instruments approximate their fair value due to their short maturities. The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. 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 June 30, 2020, and December 31, 2019, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.
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Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | Intangible Assets Intangible assets consist of the following:
Amortization expense related to the Company’s intangible assets was $351,114 and $707,734 for the three and six months ended June 30, 2020, respectively. Amortization expense related to the Company’s intangible assets was $191,688 and $357,391 for the three and six months ended June 30, 2019, respectively. Estimated amortization expense for 2020 and subsequent years is as follows:
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Debt |
6 Months Ended |
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Jun. 30, 2020 | |
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 (“JPMorgan Chase” or the “Lender”). The Credit Agreement provides 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 includes 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 are due on February 28, 2022. Principal and interest outstanding on the Line of Credit at the end of the first year are converted to a term loan payable in 36 monthly payments with a final maturity date of March 31, 2024. Principal amounts on the Line of Credit borrowed during the second year plus interest thereon which are outstanding at the end of the second year are converted to a second term loan payable in 36 monthly payments with a final maturity date of March 31, 2025. Borrowings under the Credit Facilities bear interest at a rate equal to an applicable margin, which is a one-, three- or six-month reserve adjusted Eurocurrency rate plus 2.00% or, at the election of the Company, an alternative base rate, plus 1.00%. The alternative base rate is the greatest of the prime rate, the Federal Reserve Bank of New York rate plus 0.50% and the one-month reserve adjusted Eurocurrency plus 1.00%. Unused portions of the Credit Facilities bear interest at a rate equal to 0.25% per annum. If the current Eurocurrency rate is no longer available or representative, the loan agreement provides a mechanism for replacing that benchmark rate. The Credit Facilities are pre-payable at any time without penalty, other than customary breakage fees, and any voluntary repayments made by the Company would reduce the future required repayment amounts. 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 Company intends to use the Revolver for general working capital needs and the Line of Credit for acquiring and developing new chiropractic clinics. On March 18, 2020, the Company drew down $2,000,000 under the Revolver as a precautionary measure in order to further strengthen its cash position and provide financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic. As of June 30, 2020, the Company was in compliance with all applicable financial and non-financial covenants under the Credit Agreement. Paycheck Protection Program Loan On April 10, 2020, the Company received a loan in the amount of approximately $2.7 million from JPMorgan Chase Bank, N.A. (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”). The PPP is part of the Coronavirus Aid, Relief, and Economic Security Act (the “Cares Act”), which provides for forgiveness of up to the full principal amount and accrued interest of qualifying loans guaranteed under the PPP. The Loan was granted pursuant to a Note dated April 9, 2020 issued by the Company. The Note matures on April 11, 2022 and bears interest at a rate of 0.98% per annum. Principal and accrued interest are payable monthly in equal installments through the maturity date, commencing on November 9, 2020, unless forgiven as described below. The Note may be prepaid at any time prior to maturity with no prepayment penalties. Loan proceeds may be used only for the Company’s eligible payroll costs (with salary capped at $100,000 on an annualized basis for each employee), rent, and utilities, in each case paid by December 31, 2020. However, at least 60 percent of the Loan proceeds must be used for eligible payroll costs. In general, a PPP loan is fully forgiven if (1) proceeds are used to cover eligible payroll costs, interest on certain mortgage obligations, rent, and utilities that are paid or incurred during the 24-week period following the Loan disbursement (the “covered period”) and (2) full-time employee headcount and salaries are either maintained during the covered period or restored by December 31, 2020. However, the Company intends to elect to use an alternative definition of covered period consisting of only 8 weeks following Loan disbursement, as permitted for loans that were received prior to June 5, 2020. If headcount and salaries are not so maintained during the covered period or restored by December 31, 2020, forgiveness of the Loan will be reduced in accordance with the regulations issued by the SBA. The Company will carefully monitor all qualifying expenses and other requirements necessary to maximize loan forgiveness. However, all PPP loans in excess of $2 million will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. There is no guarantee that the Loan will be forgiven by the SBA.
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Stock-Based Compensation |
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Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation The Company grants stock-based awards under its 2014 Incentive Stock Plan (the “2014 Plan”) and the 2012 Stock Plan (the “2012 Plan”). The 2014 Plan replaced the 2012 Plan, but the 2012 Plan remains in effect for the administration of awards made prior to its replacement by 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. Stock Options The Company stock 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 historically relied on the volatilities from publicly-traded companies with similar business models, as its common stock lacked enough trading history for it to utilize its own historical volatility. Effective July 1, 2019, 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 uses the simplified method to calculate the expected term of stock option grants to employees as the Company does 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. The Company has computed the fair value of all options granted using the Black-Scholes-Merton model during the six months ended June 30, 2020 and 2019, using the following assumptions:
The information below summarizes the stock options activity for the six months ended June 30, 2020:
For the three and six months ended June 30, 2020, stock-based compensation expense for stock options was $128,652 and $275,660, respectively. For the three and six months ended June 30, 2019, stock-based compensation expense for stock options was $99,846 and $196,650, respectively. Restricted Stock Restricted stocks granted to employees generally vest in four equal annual installments. Restricted stocks granted to non-employee directors vest on the earlier of (i) one year from the grant date and (ii) the date of the next annual meeting of the shareholders of the Company occurring after the date of grant. The information below summarizes the restricted stock activity for the six months ended June 30, 2020:
For the three and six months ended June 30, 2020, stock-based compensation expense for restricted stock was $87,429 and $190,813, respectively. For the three and six months ended June 30, 2019, stock-based compensation expense for restricted stock was $79,106 and $154,074, respectively.
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Income Taxes |
6 Months Ended |
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Jun. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes During the three and six months ended June 30, 2020 Company recorded income tax expense of $117,756 and $51,821, respectively. During the three and six months ended June 30, 2019, the Company recorded income tax expense of approximately $10,214 and $8,896, respectively. The Company’s effective tax rate differs from the federal statutory tax rate due to permanent differences, state taxes and changes in the valuation allowance.The CARES Act was signed into law on March 27, 2020, which, may benefit the Company. The Company will continue to assess the income tax effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Leases The table below summarizes the components of lease expense and income statement location for the three and six months ended June 30, 2020 and 2019:
Supplemental information and balance sheet location related to leases is as follows:
Supplemental cash flow information related to leases is as follows:
Maturities of lease liabilities as of June 30, 2020 are as follows:
Litigation In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.
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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 June 30, 2020, the Company operated or managed 62 clinics under this segment. The Franchise Operations segment is composed of the operating activities of the franchise business unit. As of June 30, 2020, the franchise system consisted of 477 clinics in operation. The Corporate segment 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. The Corporate segment 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.
“Unallocated cash and cash equivalents and restricted cash” relates primarily to corporate cash and cash equivalents and restricted cash (see Note 1), “unallocated property and equipment” relates primarily to corporate fixed assets, and “other unallocated assets” relates primarily to deposits, prepaid and other assets. Certain unallocated property and equipment balances were reclassified to Corporate clinics and Franchise operations segments as of December 31, 2019 to conform to the current year presentation.
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Nature of Operations and Summary of Significant Accounting Policies (Policies) |
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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”), 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 interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated 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 Form 10-K, which included all disclosures required by U.S. GAAP. The results of operations for the periods ended June 30, 2020 and 2019 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended June 30, 2020 and 2019 is unaudited. The preparation of financial statements in conformity with U.S. 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 and comprehensive income are the same for the three and six months ended June 30, 2020 and 2019.
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Nature of Operations | Nature of Operations The Joint, a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer rights and supporting the operations of franchised 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 Entities An entity deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a VIE 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. Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized under state laws as professional corporations or PCs. In these states, the Company has entered into management services agreements with PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. Such PCs are VIEs, as fees paid by the PCs to the Company as its management service provider are considered variable interests because they are liabilities on the PC’s books and 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; 3) The service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. The Company assessed the governance structure and operating procedures of the PCs and determined that the Company has the power to control certain significant non-clinical activities of the PCs, as defined by ASC 810, therefore, the Company is the primary beneficiary of the VIEs, and per ASC 810, must consolidate the VIEs. The carrying amount of VIE assets and liabilities are immaterial as of June 30, 2020, and December 31, 2019.
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Cash and Cash Equivalents | Cash and Cash EquivalentsThe Company considers all highly liquid instruments purchased with an original maturity of three months or less 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. |
Accounts Receivable | Accounts ReceivableAccounts receivable primarily represent amounts due from franchisees for royalty fees. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. |
Deferred Franchise and Regional Development Costs | Deferred Franchise and Regional Development Costs Deferred franchise and regional development costs represent commissions that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise license or regional development rights. These costs are recognized as an expense, in franchise and regional development cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise or regional development agreement.
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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 of to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life 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.
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Capitalized Software | Capitalized Software The Company capitalizes certain software development costs. These capitalized costs are primarily related to software used by clinics for operations and by the Company for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally five years.
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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 clinic in the portfolio. The Company recognizes a right-of-use ("ROU") asset and lease liability for all leases. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease liability for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and if the optional period and payments should be included in the calculation of the associated ROU asset and liability. In making this determination, all relevant economic factors are considered that would compel the Company to exercise or not exercise an option. 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. The Company records the straight-line lease expense and any contingent rent, if applicable, in general and administrative expenses on the condensed consolidated statements of operations. Many of the Company’s leases also require it to pay real estate taxes, common area maintenance costs and other occupancy costs which are also included in general and administrative expenses on the condensed consolidated statements of operations.
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Intangible Assets | Intangible Assets Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships. The Company amortizes the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which generally range from to eight years. In the case of regional developer rights, the Company generally amortizes the re-acquired regional developer rights over seven years. The fair value of customer relationships is amortized over their estimated useful life of two years.
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Goodwill | Goodwill Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions of franchises. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are tested for impairment annually and more frequently if a triggering event occurs that makes it more likely than not that the fair value of a reporting unit is below carrying value. As required, the Company performs an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if a triggering event occurs. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step 2 of the current goodwill impairment test that requires a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment loss will instead be measured at the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. The provision of this ASU is effective for years beginning after December 15, 2022 for smaller reporting companies, as defined by the SEC, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. The Company adopted this ASU provision on January 1, 2020. As a result of the COVID-19 pandemic and its impact on the Company's projected cash flows, the Company tested goodwill for impairment at the end of the first quarter of 2020. The Company did not identify any triggering event during the second quarter of 2020.
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Long-Lived Assets | 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. As a result of the current COVID-19 pandemic, the Company evaluated whether the carrying values of the long-lived assets in certain corporate clinics were recoverable at the end of the first quarter of 2020. The Company did not identify any triggering event during the second quarter of 2020.
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Advertising Fund | Advertising Fund The Company has established an advertising fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is 2% of clinic sales. The Company segregates the marketing funds collected which are included in restricted cash on its consolidated balance sheets. As amounts are expended from the fund, the Company recognizes a related expense.
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Co-Op Marketing Funds | Co-Op Marketing Funds Some franchises have established regional Co-Ops for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included in restricted cash on the Company’s condensed consolidated balance sheets.
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Revenue Recognition | Revenue Recognition The Company generates revenue primarily through its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer software fees. Revenues from Company-Owned or Managed Clinics. The Company earns revenues from clinics that it owns and operates or manages throughout the United States. In those states where the Company owns and operates or manages the clinic, 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. The Company recognizes a contract liability related to the prepaid treatment plans for which the Company has an ongoing performance obligation. The Company recognizes this contract liability, and recognizes revenue, as the patient consumes his or her visits related to the package and the Company transfers its services. Based on a historical lag analysis and an evaluation of legal obligation by jurisdiction, the Company concluded that any remaining contract liability that exists after 12 to 24 months from transaction date will be deemed breakage. Breakage revenue is recognized only at that point, when the likelihood of the patient exercising his or her remaining rights becomes remote. Royalties and Advertising Fund Revenue. The Company collects royalties, 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 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 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. Software Fees. The Company collects a monthly fee 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. Regional Developer Fees. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee for each franchise they received the right to develop within the region. In 2017, the program was revised to grant exclusive geographical territory and establish a minimum development obligation within that defined territory. Regional developer fees paid to the Company are non-refundable and are recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement. The Company’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation. In addition, regional developers receive fees which 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. 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, which 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 entered into one regional developer agreement for the six months ended June 30, 2020 for which it received approximately $201,000. This fee was deferred as of the transaction date and will be recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement.
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Advertising Costs | Advertising CostsAdvertising costs are expensed as incurred. |
Income Taxes | Income Taxes The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property and equipment, amortization of goodwill, accounting for leases and stock-based compensation and treatment of revenue for franchise fees and regional developer fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has not identified any material uncertain tax positions as of June 30, 2020 and December 31, 2019. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. With exceptions due to the generation and utilization of net operating losses or credits, as of June 30, 2020 and December 31, 2019, the Company is no longer subject to federal and state examinations by taxing authorities for tax years before 2016 and 2015, respectively.
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Earnings per Common Share | Earnings per Common Share Basic earnings per common share is computed by dividing the net income 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.
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Retirement Benefit Plans | Retirement Benefit Plan Employees of the Company are eligible to participate in a defined contribution retirement plan, the Joint Corp. 401(k) Retirement Plan (“401(k) Plan”), under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, employees may contribute their eligible compensation, not to exceed the annual limits set by the IRS. The 401(k) Plan allows the Company to match participants’ contributions in an amount determined at the sole discretion of the Company.
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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 doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and revenue recognition related to breakage, classification of deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, intangible assets, and other long-lived assets, and purchase price allocations and related valuations.
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Recent Accounting Pronouncements | Recent Accounting Pronouncements On January 1, 2020, the Company early adopted ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step 2 of the current goodwill impairment test that requires a hypothetical purchase price allocation to measure goodwill impairment. The Company reviewed other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements upon future adoption.
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Nature of Operations and Summary of Significant Accounting Policies (Tables) |
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2020 and 2019:
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Schedule of Earnings (Loss) per Common Share |
Potentially dilutive securities excluded from the calculation of diluted net income per common share as the effect would be anti-dilutive were as follows:
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Revenue Disclosures (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract with Customer, Asset and Liability | Changes in the Company's contract liability for deferred franchise and regional development fees during the six months ended June 30, 2020 were as follows:
Changes in the Company's contract assets for deferred franchise and regional development costs during the six months ended June 30, 2020 were as follows:
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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 June 30, 2020:
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Notes Receivable (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of Financing Receivables, Minimum Payments | Maturities of notes receivable as of June 30, 2020 are as follows:
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Property and Equipment (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | Property and equipment consist of the following:
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Intangible Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Intangible Assets | Intangible assets consist of the following:
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | Estimated amortization expense for 2020 and subsequent years is as follows:
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Stock-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | The Company has computed the fair value of all options granted using the Black-Scholes-Merton model during the six months ended June 30, 2020 and 2019, using the following assumptions:
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Share-based Payment Arrangement, Option, Activity | The information below summarizes the stock options activity for the six months ended June 30, 2020:
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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 six months ended June 30, 2020:
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Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lease, Cost | The table below summarizes the components of lease expense and income statement location for the three and six months ended June 30, 2020 and 2019:
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Assets And Liabilities, Lessee | Supplemental information and balance sheet location related to leases is as follows:
Supplemental cash flow information related to leases is as follows:
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Lessee, Operating Lease, Liability, Maturity | Maturities of lease liabilities as of June 30, 2020 are as follows:
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Finance Lease, Liability, Maturity | Maturities of lease liabilities as of June 30, 2020 are as follows:
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Segment Reporting (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment | The tables below present financial information for the Company’s two operating business segments.
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Reconciliation of Assets from Segment to Consolidated |
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Supplemental Disclosure of Non-cash Activity (Details) - USD ($) |
6 Months Ended | 12 Months Ended | |
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Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
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Income taxes | $ 37,800 | $ 23,396 | |
Interest paid | 16,111 | 50,000 | |
Payment to acquire assets | 0 | 30,000 | |
Total consideration | 14,805,096 | $ 15,107,276 | |
Assets and franchise agreement | |||
Property and equipment acquired | 9,166 | ||
Intangible assets acquired | 62,000 | ||
Total consideration | 3,847 | ||
License fees collected upon execution of regional developer agreements | |||
Total consideration | 44,334 | ||
Property and equipment purchases included in accounts payable | |||
Accounts payable and accrued expenses | 71,723 | 100,609 | 196,671 |
Property and equipment purchases included in accrued expenses | |||
Accounts payable and accrued expenses | $ 5,267 | $ 46,773 | $ 15,250 |
Revenue Disclosures - Narrative (Details) |
Jun. 30, 2020
state
|
---|---|
Revenue from Contract with Customer [Abstract] | |
Franchises, number of states | 33 |
Revenue Disclosures - Changes in Contract Assets and Contract Liabilities (Details) |
6 Months Ended |
---|---|
Jun. 30, 2020
USD ($)
| |
Revenue from Contract with Customer [Abstract] | |
Balance, beginning | $ 15,107,276 |
Recognized as revenue during the period | (1,457,782) |
Fees received and deferred during the period | 1,155,602 |
Balance, ending | 14,805,096 |
Balance, beginning | 4,392,733 |
Recognized as cost of revenue during the period | (415,277) |
Costs incurred and deferred during the period | 363,874 |
Balance, ending | $ 4,341,330 |
Notes Receivable - Narrative (Details) - USD ($) |
Apr. 26, 2019 |
Oct. 10, 2017 |
Aug. 31, 2017 |
Apr. 29, 2017 |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|---|---|---|---|
Receivables [Abstract] | ||||||
Regional development agreement | $ 170,000 | $ 220,000 | $ 320,000 | |||
Promissory note | $ 31,086 | $ 135,688 | $ 117,475 | $ 187,000 | $ 71,770 | $ 155,810 |
Interest rate on promissory note | 0.00% | 10.00% | 10.00% | 10.00% | ||
Term of promissory note | 3 years | 3 years | 3 years | 42 months | ||
Term of principal and interest on promissory note | 3 years | 3 years | 3 years | 3 years | ||
Allowance reserve on outstanding notes | $ 23,487 | $ 27,086 |
Notes Receivable - Schedule of Minimum Payments Due (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
Apr. 26, 2019 |
Oct. 10, 2017 |
Aug. 31, 2017 |
Apr. 29, 2017 |
---|---|---|---|---|---|---|
Receivables [Abstract] | ||||||
2020 (remaining) | $ 53,084 | |||||
2021 | 9,600 | |||||
2022 | 9,086 | |||||
Total | $ 71,770 | $ 155,810 | $ 31,086 | $ 135,688 | $ 117,475 | $ 187,000 |
Property and Equipment - Summary of Property and Equipment (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 11,462,871 | $ 10,022,131 |
Accumulated depreciation and amortization | (6,217,198) | (5,671,366) |
Property and equipment, net | 8,003,837 | 6,581,588 |
Construction in progress | 2,758,164 | 2,230,823 |
Office and computer equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 2,066,718 | 1,594,364 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 7,975,967 | 7,154,156 |
Software developed | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 1,193,007 | 1,193,007 |
Finance lease assets | ||
Property, Plant and Equipment [Line Items] | ||
Finance lease assets | 227,179 | 80,604 |
Property and equipment excluding construction in progress | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, net | $ 5,245,673 | $ 4,350,765 |
Property and Equipment - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense | $ 322,666 | $ 206,609 | $ 609,742 | $ 400,415 |
Amortization of assets | $ 19,620 | $ 6,169 | $ 30,173 | $ 12,337 |
Intangible Assets - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization of Intangible assets | $ 351,114 | $ 191,688 | $ 707,734 | $ 357,391 |
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Series A preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Series A preferred stock, shares authorized (in shares) | 50,000 | 50,000 |
Series A preferred stock, shares issued (in shares) | 0 | 0 |
Series A preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized (in shares) | 20,000,000 | 20,000,000 |
Common stock, shares issued (in shares) | 14,042,854 | 13,898,694 |
Common stock, shares outstanding (in shares) | 14,026,841 | 13,882,932 |
Treasury stock, shares (in shares) | 16,013 | 15,762 |
Intangible Assets - Intangible Assets Acquired (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Gross Carrying Amount | $ 6,552,950 | $ 6,552,950 |
Accumulated Amortization | (4,040,893) | (3,333,159) |
Net Carrying Value | 2,512,057 | 3,219,791 |
Reacquired franchise rights | ||
Gross Carrying Amount | 3,246,494 | 3,246,494 |
Accumulated Amortization | (1,753,808) | (1,400,086) |
Net Carrying Value | 1,492,686 | 1,846,408 |
Customer relationships | ||
Gross Carrying Amount | 1,255,975 | 1,255,975 |
Accumulated Amortization | (998,892) | (865,478) |
Net Carrying Value | 257,083 | 390,497 |
Reacquired development rights | ||
Gross Carrying Amount | 2,050,481 | 2,050,481 |
Accumulated Amortization | (1,288,193) | (1,067,595) |
Net Carrying Value | $ 762,288 | $ 982,886 |
Intangible Assets - Estimated Amortization Expense (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
2020 (remainder) | $ 702,228 | |
2021 | 1,212,703 | |
2022 | 539,750 | |
2023 | 57,376 | |
Net Carrying Value | $ 2,512,057 | $ 3,219,791 |
Stock-Based Compensation - Narrative (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020
USD ($)
installment
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
installment
|
Jun. 30, 2019
USD ($)
|
|
Stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Vesting term | 4 years | |||
Contractual term | 10 years | |||
Stock-based compensation expense | $ 128,652 | $ 99,846 | $ 275,660 | $ 196,650 |
Unvested restricted stock | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Vesting term | 1 year | |||
Stock-based compensation expense | $ 87,429 | $ 79,106 | $ 190,813 | $ 154,074 |
Number of installments | installment | 4 | 4 |
Stock-Based Compensation - Fair Value Assumptions of Options Granted (Details) - Stock options |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Expected volatility | 53.00% | 35.00% |
Expected term (years) | 7 years | 7 years |
Risk-free rate | 0.89% | 2.61% |
Forfeiture rate | 5.00% | 20.00% |
Stock-Based Compensation - Restricted Stock Activity (Details) - Unvested restricted stock |
6 Months Ended |
---|---|
Jun. 30, 2020
$ / shares
shares
| |
Shares | |
Unvested, beginning (in shares) | shares | 38,976 |
Granted (in shares) | shares | 28,680 |
Vested (in shares) | shares | (17,780) |
Cancelled (in shares) | shares | 0 |
Unvested, ending (in shares) | shares | 49,876 |
Weighted Average Grant-Date Fair Value per Award | |
Non-vested, beginning (in dollars per share) | $ / shares | $ 12.31 |
Granted (in dollar per share) | $ / shares | 14.92 |
Vested (in dollars per share) | $ / shares | 15.38 |
Cancelled (in dollars per share) | $ / shares | 0 |
Non-vested, ending (in dollars per share) | $ / shares | $ 12.72 |
Income Taxes - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Income Tax Disclosure [Abstract] | ||||
Income tax expense | $ (117,756) | $ (10,214) | $ (51,821) | $ (8,896) |
Commitments and Contingencies - Lease Expense and Supplemental Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
Amortization of assets | $ 19,620 | $ 6,169 | $ 30,173 | $ 12,337 | |
Interest on lease liabilities | 3,332 | 1,778 | 5,712 | 3,689 | |
Total finance lease costs | 22,952 | 7,947 | 35,885 | 16,026 | |
Operating lease costs | 890,777 | 706,368 | 1,767,112 | 1,394,100 | |
Total lease costs | 913,729 | $ 714,315 | 1,802,997 | 1,410,126 | |
Operating lease right-of-use asset | 12,181,547 | 12,181,547 | $ 12,486,672 | ||
Operating lease liability - current portion | 2,700,024 | 2,700,024 | 2,313,109 | ||
Operating lease liability - net of current portion | 11,484,267 | 11,484,267 | 11,901,040 | ||
Total operating lease liability | 14,184,291 | 14,184,291 | 14,214,149 | ||
Property and equipment, net | 8,003,837 | 8,003,837 | 6,581,588 | ||
Finance lease liability - current portion | 68,273 | 68,273 | 24,253 | ||
Finance lease liability - net of current portion | 168,290 | 168,290 | 34,398 | ||
Total finance lease liabilities | $ 236,563 | $ 236,563 | $ 58,651 | ||
Operating leases | 5 years | 5 years | 5 years 4 months 24 days | ||
Finance lease | 4 years 4 months 24 days | 4 years 4 months 24 days | 2 years 3 months 18 days | ||
Operating leases | 8.50% | 8.50% | 8.70% | ||
Finance leases | 5.50% | 5.50% | 10.00% | ||
Operating cash flows from operating leases | $ 1,600,783 | 1,469,684 | |||
Operating cash flows from finance leases | 5,712 | 3,689 | |||
Financing cash flows from finance leases | 23,509 | 10,704 | |||
Operating lease | 919,607 | 400,980 | |||
Finance lease | 201,423 | $ 80,604 | |||
Finance Leases | |||||
Property and equipment, at cost | $ 282,027 | 282,027 | $ 80,604 | ||
Less accumulated amortization | (54,848) | (54,848) | (24,675) | ||
Property and equipment, net | $ 227,179 | $ 227,179 | $ 55,929 |
Commitments and Contingencies - Maturities of Lease Liabilities (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Operating Leases | ||
2020 (remainder) | $ 1,874,302 | |
2021 | 3,769,452 | |
2022 | 3,654,025 | |
2023 | 2,940,504 | |
2024 | 2,319,724 | |
Thereafter | 2,845,788 | |
Total lease payments | 17,403,795 | |
Less: Imputed interest | (3,219,504) | |
Total operating lease liability | 14,184,291 | $ 14,214,149 |
Less: Current obligations | (2,700,024) | (2,313,109) |
Long-term lease obligation | 11,484,267 | 11,901,040 |
Finance Lease | ||
2020 (remainder) | 39,450 | |
2021 | 78,900 | |
2022 | 48,975 | |
2023 | 27,600 | |
2024 | 27,600 | |
Thereafter | 39,100 | |
Total lease payments | 261,625 | |
Less: Imputed interest | (25,062) | |
Total finance lease liabilities | 236,563 | 58,651 |
Less: Current obligations | (68,273) | (24,253) |
Long-term lease obligation | $ 168,290 | $ 34,398 |
Condensed Consolidated Statements of Operations - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Revenues: | ||||
Revenues | $ 12,589,793 | $ 11,169,979 | $ 26,234,279 | $ 21,849,356 |
Cost of Revenue [Abstract] | ||||
Cost of revenues | 1,367,641 | 1,299,149 | 2,853,797 | 2,505,090 |
Selling and marketing expenses | 1,783,666 | 1,769,368 | 3,838,954 | 3,275,356 |
Depreciation and amortization | 693,400 | 404,466 | 1,347,649 | 770,143 |
General and administrative expenses | 8,541,108 | 7,227,662 | 17,235,358 | 13,780,566 |
Total selling, general and administrative expenses | 11,018,174 | 9,401,496 | 22,421,961 | 17,826,065 |
Net (gain) loss on disposition or impairment | (54,606) | (18,266) | (53,413) | 86,927 |
Income from operations | 258,584 | 487,600 | 1,011,934 | 1,431,274 |
Other (expense) income: | ||||
Bargain purchase gain | 0 | 0 | 0 | 19,298 |
Other expense, net | (25,243) | (15,126) | (29,581) | (26,771) |
Total other expense | (25,243) | (15,126) | (29,581) | (7,473) |
Income before income tax expense | 233,341 | 472,474 | 982,353 | 1,423,801 |
Income tax expense | 117,756 | 10,214 | 51,821 | 8,896 |
Net income and comprehensive income | 115,585 | 462,260 | 930,532 | 1,414,905 |
Less: income attributable to the non-controlling interest | 0 | 0 | 0 | 0 |
Net income attributable to The Joint Corp. stockholders | $ 115,585 | $ 462,260 | $ 930,532 | $ 1,414,905 |
Earnings per share: | ||||
Basic earnings per share (in dollars per share) | $ 0.01 | $ 0.03 | $ 0.07 | $ 0.10 |
Diluted earnings per share (in dollars per share) | $ 0.01 | $ 0.03 | $ 0.06 | $ 0.10 |
Basic weighted average shares (in shares) | 13,980,984 | 13,797,497 | 13,935,829 | 13,774,474 |
Diluted weighted average shares (in shares) | 14,491,639 | 14,477,007 | 14,487,083 | 14,390,319 |
Revenues from company-owned or managed clinics | ||||
Revenues: | ||||
Revenues | $ 6,856,807 | $ 5,777,288 | $ 14,151,102 | $ 11,416,365 |
Royalty fees | ||||
Revenues: | ||||
Revenues | 3,268,653 | 3,263,530 | 6,986,883 | 6,290,346 |
Franchise fees/Franchise and regional development cost of revenues | ||||
Revenues: | ||||
Revenues | 523,964 | 447,266 | 1,036,716 | 864,339 |
Cost of Revenue [Abstract] | ||||
Cost of revenues | 1,275,191 | 1,198,378 | 2,692,682 | 2,315,431 |
Advertising fund revenue | ||||
Revenues: | ||||
Revenues | 930,795 | 927,800 | 1,988,413 | 1,819,367 |
Software fees/IT cost of revenues | ||||
Revenues: | ||||
Revenues | 631,198 | 377,125 | 1,276,922 | 742,361 |
Cost of Revenue [Abstract] | ||||
Cost of revenues | 92,450 | 100,771 | 161,115 | 189,659 |
Regional developer fees | ||||
Revenues: | ||||
Revenues | 213,424 | 200,524 | 421,066 | 384,381 |
Other revenues | ||||
Revenues: | ||||
Revenues | $ 164,952 | $ 176,446 | $ 373,177 | $ 332,197 |
Segment Reporting - Narrative (Details) |
6 Months Ended | |||||
---|---|---|---|---|---|---|
Jun. 30, 2020
clinic
segment
|
Mar. 31, 2020
clinic
|
Dec. 31, 2019
clinic
|
Jun. 30, 2019
clinic
|
Mar. 31, 2019
clinic
|
Dec. 31, 2018
clinic
|
|
Number of operating segments | segment | 2 | |||||
Number of non-operating segments | segment | 1 | |||||
Number of Stores | 539 | 468 | ||||
Company-owned or managed clinics | ||||||
Number of Stores | 62 | 61 | 60 | 51 | 50 | 48 |
Franchised clinics | ||||||
Number of Stores | 477 | 469 | 453 | 417 | 404 | 394 |
Segment Reporting - Segment Reporting Financial Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Revenues | $ 12,589,793 | $ 11,169,979 | $ 26,234,279 | $ 21,849,356 |
Depreciation and amortization | 693,400 | 404,466 | 1,347,649 | 770,143 |
Operating income (loss) | 258,584 | 487,600 | 1,011,934 | 1,431,274 |
Bargain purchase gain | 0 | 0 | 0 | 19,298 |
Other expense, net | (25,243) | (15,126) | (29,581) | (26,771) |
Income before income tax expense | 233,341 | 472,474 | 982,353 | 1,423,801 |
Operating segments | ||||
Operating income (loss) | 3,094,736 | 3,195,020 | 6,722,739 | 6,424,350 |
Unallocated corporate | ||||
Operating income (loss) | (2,836,152) | (2,707,420) | (5,710,805) | (4,993,076) |
Corporate clinics | ||||
Revenues | 6,856,807 | 5,777,288 | 14,151,102 | 11,416,365 |
Depreciation and amortization | 614,365 | 353,501 | 1,191,909 | 666,156 |
Operating income (loss) | 565,220 | 564,044 | 1,348,925 | 1,404,025 |
Franchise operations | ||||
Revenues | 5,732,986 | 5,392,691 | 12,083,177 | 10,432,991 |
Depreciation and amortization | 342 | 288 | 685 | 456 |
Operating income (loss) | 2,529,516 | 2,630,976 | 5,373,814 | 5,020,325 |
Corporate administration | ||||
Depreciation and amortization | $ 78,693 | $ 50,677 | $ 155,055 | $ 103,531 |
Segment Reporting - Segment Reporting Information, Assets (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Assets | $ 49,608,067 | $ 43,705,667 |
Unallocated cash and cash equivalents and restricted cash | 14,573,266 | 8,455,989 |
Unallocated property and equipment | 8,003,837 | 6,581,588 |
Operating segments | ||
Assets | 32,325,989 | 32,855,776 |
Segment Reconciling Items | ||
Unallocated cash and cash equivalents and restricted cash | 14,808,305 | 8,641,877 |
Unallocated property and equipment | 1,177,679 | 996,385 |
Other unallocated assets | 1,296,094 | 1,211,629 |
Corporate clinics | Operating segments | ||
Assets | 24,583,866 | 25,389,147 |
Franchise operations | Operating segments | ||
Assets | $ 7,742,123 | $ 7,466,629 |
Supplemental Disclosure of Non-cash Activity |
6 Months Ended |
---|---|
Jun. 30, 2020 | |
Supplemental Cash Flow Information [Abstract] | |
Supplemental Disclosure of Non-cash Activity | During the six months ended June 30, 2020 and 2019, cash paid for income taxes was $37,800 and $23,396, respectively. During the six months ended June 30, 2020 and 2019, cash paid for interest was $16,111 and $50,000, respectively. Supplemental disclosure of non-cash activity: As of June 30, 2020, accounts payable and accrued expenses include property and equipment purchases of $71,723 and $5,267, respectively. As of June 30, 2019, accounts payable and accrued expenses include property and equipment purchases of $100,609 and $46,773, respectively. As of December 31, 2019, accounts payable and accrued expenses include property and equipment purchases of $196,671, and $15,250, respectively. In connection with the acquisition during the six months ended June 30, 2019, the Company acquired $9,166 of property and equipment and intangible assets of $62,000, in exchange for $30,000 in cash to the seller. Additionally, at the time of these transactions, the Company carried net deferred revenue of $3,847, representing net franchise fees collected upon the execution of the franchise agreement. The Company netted this amount against the purchase price of the acquisitions. In connection with the Company’s reacquisition and termination of regional developer rights during the six months ended June 30, 2019, the Company had deferred revenue of $44,334 representing license fees collected upon the execution of the regional developer agreements. The Company netted these amounts against the aggregate purchase price of the acquisitions.
|
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”), 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 interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated 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 Form 10-K, which included all disclosures required by U.S. GAAP. The results of operations for the periods ended June 30, 2020 and 2019 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended June 30, 2020 and 2019 is unaudited. The preparation of financial statements in conformity with U.S. 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 and accounting for leases, see Note 2, Revenue Disclosures and Note 10, Commitments and Contingencies, respectively. 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 and comprehensive income are the same for the three and six months ended June 30, 2020 and 2019. Nature of Operations The Joint, a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer rights and supporting the operations of franchised 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 six months ended June 30, 2020 and 2019:
Variable Interest Entities An entity deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a VIE 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. Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized under state laws as professional corporations or PCs. In these states, the Company has entered into management services agreements with PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. Such PCs are VIEs, as fees paid by the PCs to the Company as its management service provider are considered variable interests because they are liabilities on the PC’s books and 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; 3) The service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. The Company assessed the governance structure and operating procedures of the PCs and determined that the Company has the power to control certain significant non-clinical activities of the PCs, as defined by ASC 810, therefore, the Company is the primary beneficiary of the VIEs, and per ASC 810, must consolidate the VIEs. The carrying amount of VIE assets and liabilities are immaterial as of June 30, 2020, and December 31, 2019. Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with an original maturity of three months or less 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 June 30, 2020 and December 31, 2019. 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. Accounts Receivable Accounts receivable primarily represent amounts due from franchisees for royalty fees. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of June 30, 2020 and December 31, 2019, the Company had an allowance for doubtful accounts of $0. Deferred Franchise and Regional Development Costs Deferred franchise and regional development costs represent commissions that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise license or regional development rights. These costs are recognized as an expense, in franchise and regional development cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise or regional development agreement. 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 of to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life 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. Capitalized Software The Company capitalizes certain software development costs. These capitalized costs are primarily related to software used by clinics for operations and by the Company for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally five years. 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 clinic in the portfolio. The Company recognizes a right-of-use ("ROU") asset and lease liability for all leases. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease liability for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and if the optional period and payments should be included in the calculation of the associated ROU asset and liability. In making this determination, all relevant economic factors are considered that would compel the Company to exercise or not exercise an option. 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. The Company records the straight-line lease expense and any contingent rent, if applicable, in general and administrative expenses on the condensed consolidated statements of operations. Many of the Company’s leases also require it to pay real estate taxes, common area maintenance costs and other occupancy costs which are also included in general and administrative expenses on the condensed consolidated statements of operations. Intangible Assets Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships. The Company amortizes the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which generally range from to eight years. In the case of regional developer rights, the Company generally amortizes the re-acquired regional developer rights over seven years. The fair value of customer relationships is amortized over their estimated useful life of two years. Goodwill Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions of franchises. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are tested for impairment annually and more frequently if a triggering event occurs that makes it more likely than not that the fair value of a reporting unit is below carrying value. As required, the Company performs an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if a triggering event occurs. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step 2 of the current goodwill impairment test that requires a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment loss will instead be measured at the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. The provision of this ASU is effective for years beginning after December 15, 2022 for smaller reporting companies, as defined by the SEC, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. The Company adopted this ASU provision on January 1, 2020. As a result of the COVID-19 pandemic and its impact on the Company's projected cash flows, the Company tested goodwill for impairment at the end of the first quarter of 2020. The Company did not identify any triggering event during the second quarter of 2020. No impairments of goodwill were recorded for the three and six months ended June 30, 2020 and 2019. 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. As a result of the current COVID-19 pandemic, the Company evaluated whether the carrying values of the long-lived assets in certain corporate clinics were recoverable at the end of the first quarter of 2020. The Company did not identify any triggering event during the second quarter of 2020. No impairments of long-lived assets were recorded for the three and six months ended June 30, 2020 and 2019. Advertising Fund The Company has established an advertising fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is 2% of clinic sales. The Company segregates the marketing funds collected which are included in restricted cash on its consolidated balance sheets. As amounts are expended from the fund, the Company recognizes a related expense. Co-Op Marketing Funds Some franchises have established regional Co-Ops for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included in restricted cash on the Company’s condensed consolidated balance sheets. Revenue Recognition The Company generates revenue primarily through its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer software fees. Revenues from Company-Owned or Managed Clinics. The Company earns revenues from clinics that it owns and operates or manages throughout the United States. In those states where the Company owns and operates or manages the clinic, 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. The Company recognizes a contract liability related to the prepaid treatment plans for which the Company has an ongoing performance obligation. The Company recognizes this contract liability, and recognizes revenue, as the patient consumes his or her visits related to the package and the Company transfers its services. Based on a historical lag analysis and an evaluation of legal obligation by jurisdiction, the Company concluded that any remaining contract liability that exists after 12 to 24 months from transaction date will be deemed breakage. Breakage revenue is recognized only at that point, when the likelihood of the patient exercising his or her remaining rights becomes remote. Royalties and Advertising Fund Revenue. The Company collects royalties, 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 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 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. Software Fees. The Company collects a monthly fee 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. Regional Developer Fees. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee for each franchise they received the right to develop within the region. In 2017, the program was revised to grant exclusive geographical territory and establish a minimum development obligation within that defined territory. Regional developer fees paid to the Company are non-refundable and are recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement. The Company’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation. In addition, regional developers receive fees which 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. 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, which 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 entered into one regional developer agreement for the six months ended June 30, 2020 for which it received approximately $201,000. This fee was deferred as of the transaction date and will be recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement. Advertising Costs Advertising costs are expensed as incurred. Advertising expenses were $597,933 and $1,256,606 for the three and six months ended June 30, 2020, respectively. Advertising expenses were $656,476 and $1,095,913 for the three and six months ended June 30, 2019, respectively. Income Taxes The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property and equipment, amortization of goodwill, accounting for leases and stock-based compensation and treatment of revenue for franchise fees and regional developer fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has not identified any material uncertain tax positions as of June 30, 2020 and December 31, 2019. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. With exceptions due to the generation and utilization of net operating losses or credits, as of June 30, 2020 and December 31, 2019, the Company is no longer subject to federal and state examinations by taxing authorities for tax years before 2016 and 2015, respectively. Earnings per Common Share Basic earnings per common share is computed by dividing the net income 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.
Potentially dilutive securities excluded from the calculation of diluted net income per common share as the effect would be anti-dilutive were as follows:
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. Retirement Benefit Plan Employees of the Company are eligible to participate in a defined contribution retirement plan, the Joint Corp. 401(k) Retirement Plan (“401(k) Plan”), under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, employees may contribute their eligible compensation, not to exceed the annual limits set by the IRS. The 401(k) Plan allows the Company to match participants’ contributions in an amount determined at the sole discretion of the Company. 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 doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and revenue recognition related to breakage, classification of deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, intangible assets, and other long-lived assets, and purchase price allocations and related valuations. Recent Accounting Pronouncements On January 1, 2020, the Company early adopted ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step 2 of the current goodwill impairment test that requires a hypothetical purchase price allocation to measure goodwill impairment. The Company reviewed other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements upon future adoption.
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Revenue Disclosures |
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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 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 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 33 states. 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. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required. The Company recognizes the primary components of the transaction price as follows: •Franchise fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the execution of the franchise agreement. As these fees are typically received in cash at or near the beginning of the franchise 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. Regional Developer Fees The Company currently utilizes regional developers to assist in the development of the brand across certain geographic territories. The arrangement is documented in the form of a regional developer agreement. The arrangement between the Company and the regional developer requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the regional developer, but instead represent a single performance obligation, which is the transfer of the development rights to the defined geographic region. The intellectual property subject to the development rights 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 development rights is to provide the regional developer with access to the brand’s symbolic intellectual property over the term of the agreement. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation. The transaction price in a standard regional developer arrangement primarily consists of the initial territory fees. The Company recognizes the regional developer fee as revenue ratably on a straight-line basis over the term of the regional developer agreement commencing with the execution of the regional developer agreement. As these fees are typically received in cash at or near the beginning of the term of the regional developer agreement, the cash received is initially recorded as a contract liability until recognized as revenue over time. Disaggregation of Revenue The Company believes that the captions contained on the condensed consolidated statements of operations appropriately reflect the disaggregation of its revenue by major type for the three and six months ended June 30, 2020 and 2019. Other revenues primarily consist of merchant income associated with credit card transactions. Rollforward of Contract Liabilities and Contract Assets Changes in the Company's contract liability for deferred franchise and regional development fees during the six months ended June 30, 2020 were as follows:
Changes in the Company's contract assets for deferred franchise and regional development costs during the six months ended June 30, 2020 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 June 30, 2020:
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