UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the transition period from __________________ to _________________

 

Commission file number: 001-36724

 

The Joint Corp.

(Exact name of registrant as specified in its charter)

 

Delaware 90-0544160

(State or other jurisdiction of incorporation or

organization)

(IRS Employer Identification No.)

 

16767 N. Perimeter Drive, Suite 240, Scottsdale

Arizona

85260
(Address of principal executive offices) (Zip Code)

 

(480) 245-5960

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer     Accelerated filer  
       
Non-accelerated filer     Smaller reporting company  
       
        Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).    Yes     No 

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 Par Value Per Share JYNT The NASDAQ Capital Market LLC

 

As of August 6, 2019, the registrant had 13,844,072 shares of Common Stock ($0.001 par value) outstanding.

 

 

 

 

 

 

THE JOINT CORP.

FORM 10-Q

 

TABLE OF CONTENTS

 

        PAGE
NO.
PART I FINANCIAL INFORMATION  
         
  Item 1.   Financial Statements:  
      Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 1
      Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited) 2
      Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2019 and 2018 (unaudited) 3
      Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited) 4
      Notes to Unaudited Condensed Consolidated Financial Statements 6
         
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
         
  Item 4.   Controls and Procedures 36
         
Part I, Item 3 – Not applicable  
     
PART II OTHER INFORMATION  
         
  Item 1.   Legal Proceedings 37
         
  Item 1A.   Risk Factors 37
         
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 38
         
  Item 6.   Exhibits 38
         
SIGNATURES 38
         
EXHIBIT INDEX 39
         
Part II, Items 3, 4, and 5 - Not applicable  

 

 

 

 

 

 

 

 

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

  

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,  December 31,
   2019  2018
ASSETS     (as adjusted)
Current assets:          
Cash and cash equivalents  $9,485,212   $8,716,874 
Restricted cash   129,220    138,078 
Accounts receivable, net   1,033,479    806,350 
Notes receivable - current portion   163,573    149,349 
Deferred franchise costs - current portion   710,796    611,047 
Prepaid expenses and other current assets   887,676    882,290 
Total current assets   12,409,956    11,303,988 
Property and equipment, net   4,963,037    3,658,007 
Operating lease right-of-use asset   10,030,737    - 
Notes receivable, net of current portion and reserve   41,683    128,723 
Deferred franchise costs, net of current portion   3,485,644    2,878,163 
Intangible assets, net   1,975,835    1,634,060 
Goodwill   3,225,145    3,225,145 
Deposits and other assets   337,379    599,627 
Total assets  $36,469,416   $23,427,713 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $1,199,341   $1,253,274 
Accrued expenses   178,949    266,322 
Co-op funds liability   129,220    104,057 
Payroll liabilities   1,602,916    2,035,658 
Notes payable - current portion   1,000,000    1,100,000 
Deferred rent - current portion   -    136,550 
Operating lease liability - current portion   1,827,233    - 
Finance lease liability - current portion   23,075    - 
Deferred franchise and regional developer fee revenue - current portion   2,697,669    2,370,241 
Deferred revenue from company clinics   2,677,782    2,529,497 
Other current liabilities   540,279    477,528 
Total current liabilities   11,876,464    10,273,127 
Deferred rent, net of current portion   -    721,730 
Operating lease liability - net of current portion   9,049,948    - 
Finance lease liability - net of current portion   46,826    - 
Deferred franchise and regional developer fee revenue, net of current portion   12,652,780    11,239,221 
Deferred tax liability   83,294    76,672 
Other liabilities   27,230    389,362 
Total liabilities   33,736,542    22,700,112 
Stockholders' equity:          
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of June 30, 2019 and December 31, 2018   -    - 
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,838,016 shares issued and 13,823,346 shares outstanding as of June 30, 2019 and 13,757,200 shares issued and 13,742,530 outstanding as of December 31, 2018   13,838    13,757 
Additional paid-in capital   38,779,538    38,189,251 
Treasury stock 14,670 shares as of June 30, 2019 and December 31, 2018, at cost   (90,856)   (90,856)
Accumulated deficit   (35,969,746)   (37,384,651)
Total The Joint Corp. stockholders' equity   2,732,774    727,501 
Non-controlling Interest   100    100 
Total equity   2,732,874    727,601 
Total liabilities and stockholders' equity  $36,469,416   $23,427,713 

 

Note: The Condensed Consolidated Balance Sheet as of December 31, 2018 has been derived from the audited consolidated financial statements, restated to reflect the consolidation of variable interest entities. See Note 1 of “Notes to Condensed Consolidated Financial Statements” under the heading “Prior Period Financial Statement Correction of Immaterial Error” for more details. The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 1 

 

 

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2019  2018  2019  2018
      (as adjusted)     (as adjusted)
Revenues:                    
Revenues from company-owned or managed clinics  $5,777,288   $4,668,638   $11,416,365   $9,474,311 
Royalty fees   3,263,530    2,421,185    6,290,346    4,695,173 
Franchise fees   447,266    449,144    864,339    797,481 
Advertising fund revenue   927,800    687,752    1,819,367    1,346,782 
Software fees   377,125    315,910    742,361    623,385 
Regional developer fees   200,524    137,412    384,381    261,423 
Other revenues   176,446    124,744    332,197    253,194 
Total revenues   11,169,979    8,804,785    21,849,356    17,451,749 
Cost of revenues:                    
Franchise cost of revenues   1,198,378    977,782    2,315,431    1,850,550 
IT cost of revenues   100,771    73,802    189,659    173,366 
Total cost of revenues   1,299,149    1,051,584    2,505,090    2,023,916 
Selling and marketing expenses   1,769,368    1,293,663    3,275,356    2,395,967 
Depreciation and amortization   404,466    404,975    770,143    792,392 
General and administrative expenses   7,227,662    5,867,512    13,780,566    12,136,198 
Total selling, general and administrative expenses   9,401,496    7,566,150    17,826,065    15,324,557 
Net (gain) loss on disposition or impairment   (18,266)   251,290    86,927    251,678 
Income (loss) from operations   487,600    (64,239)   1,431,274    (148,402)
                     
Other income (expense):                    
Bargain purchase gain   -    30,455    19,298    30,455 
Other income (expense), net   (15,126)   (11,103)   (26,771)   (21,910)
Total other income (expense)   (15,126)   19,352    (7,473)   8,545 
                     
Income (loss) before income tax (expense) benefit   472,474    (44,887)   1,423,801    (139,857)
                     
Income tax (expense) benefit   (10,214)   (5,951)   (8,896)   57,404 
                     
Net income (loss) and comprehensive income (loss)  $462,260   $(50,838)  $1,414,905   $(82,453)
                     
Less: income (loss) attributable to the non-controlling interest  $-   $-   $-   $- 
                     
Net income (loss) attributable to The Joint Corp. stockholders  $462,260   $(50,838)  $1,414,905   $(82,453)
                     
Earnings (loss) per share:                    
Basic earnings (loss) per share  $0.03   $-   $0.10   $(0.01)
Diluted earnings (loss) per share  $0.03   $-   $0.10   $(0.01)
                     
Basic weighted average shares   13,797,497    13,622,710    13,774,474    13,605,370 
Diluted weighted average shares   14,477,007    13,622,710    14,390,320    13,605,370 

 

Note: The Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2018 are unaudited and have been restated to reflect the consolidation of variable interest entities. See Note 1 of “Notes to Condensed Consolidated Financial Statements” under the heading “Prior Period Financial Statement Correction of Immaterial Error” for more details. The accompanying notes are an integral part of these condensed consolidated financial statements.

  

 2 

 

 

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

         Additional                  
   Common Stock  Paid In  Treasury Stock  Accumulated  Total The Joint Corp.  Non-controlling   
   Shares  Amount  Capital  Shares  Amount  Deficit  stockholders' equity  interest  Total
Balances, December 31, 2018 (as adjusted)   13,757,200   $13,757   $38,189,251    14,670   $(90,856)  $(37,384,651)  $727,501   $100   $727,601 
Stock-based compensation expense   -    -    350,724    -    -    -    350,724    -    350,724 
Issuance of vested restricted stock   33,012    33    (33)   -    -    -    -    -    - 
Exercise of stock options   47,804    48    239,596    -    -    -    239,644    -    239,644 
Net income   -    -    -    -    -    1,414,905    1,414,905    -    1,414,905 
Balances, June 30, 2019 (unaudited)   13,838,016   $13,838   $38,779,538    14,670   $(90,856)  $(35,969,746)  $2,732,774   $100   $2,732,874 

 

         Additional                  
   Common Stock  Paid In  Treasury Stock  Accumulated  Total The Joint Corp.  Non-controlling   
   Shares  Amount  Capital  Shares  Amount  Deficit  stockholders' equity  interest  Total
Balances, December 31, 2017 (as adjusted)   13,600,338   $13,600   $37,229,869    14,084   $(86,045)  $(37,531,345)  $(373,921)  $100   $(373,821)
Stock-based compensation expense   -    -    346,629    -    -    -    346,629    -    346,629 
Issuance of vested restricted stock   59,700    60    (60)   -    -    -    -    -    - 
Exercise of stock options   -    78    274,810    -    -    -    274,888    -    274,888 
Net income (loss)   -    -    -    -    -    (82,453)   (82,453)   -    (82,453)
Balances, June 30, 2018 (unaudited)   13,660,038   $13,738   $37,851,248    14,084   $(86,045)  $(37,613,798)  $165,143   $100   $165,243 

 

 

Note: The Condensed Consolidated Statement of Changes in Stockholders’ Equity is unaudited and has been restated to reflect the consolidation of variable interest entities. See Note 1 of “Notes to Condensed Consolidated Financial Statements” under the heading “Prior Period Financial Statement Correction of Immaterial Error” for more details. The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 3 

 

 

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   Six Months Ended
   June 30,
   2019  2018
      (as adjusted)
Cash flows from operating activities:          
Net income (loss)  $1,414,905   $(82,453)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization   770,143    792,392 
Net loss on disposition or impairment of assets   86,927    251,678 
Net franchise fees recognized upon termination of franchise agreements   -    (72,450)
Bargain purchase gain   (19,298)   (30,455)
Deferred income taxes   (4,788)   (75,882)
Stock based compensation expense   350,724    346,629 
Changes in operating assets and liabilities:          
Accounts receivable   (227,129)   (91,211)
Prepaid expenses and other current assets   (5,386)   (90,449)
Deferred franchise costs   (707,230)   (260,774)
Deposits and other assets   262,248    42,360 
Accounts payable   (154,542)   (384,538)
Accrued expenses   (134,146)   33,982 
Payroll liabilities   (432,742)   104,538 
Other liabilities   (286,054)   (28,527)
Deferred revenue   1,923,148    158,370 
Net cash provided by operating activities   2,836,780    613,210 
           
Cash flows from investing activities:          
Acquisition of business, net of cash acquired   (30,000)   (80,000)
Purchase of property and equipment   (1,567,556)   (370,757)
Reacquisition and termination of regional developer rights   (681,500)   - 
Payments received on notes receivable   72,816    83,824 
Net cash used in investing activities   (2,206,240)   (366,933)
           
Cash flows from financing activities:          
Payments of finance lease obligation   (10,704)   - 
Proceeds from exercise of stock options   239,644    141,607 
Repayments on notes payable   (100,000)   - 
Net cash provided by financing activities   128,940    141,607 
           
Increase in cash   759,480    387,884 
Cash and restricted cash, beginning of period   8,854,952    4,320,040 
Cash and restricted cash, end of period  $9,614,432   $4,707,924 

 

 

 4 

 

 

 

During the six months ended June 30, 2019 and 2018, cash paid for income taxes was $23,396 and $19,522, respectively. During the six months ended June 30, 2019 and 2018, cash paid for interest was $50,000 and $50,000, respectively.

 

Supplemental disclosure of non-cash activity:

 

As of June 30, 2019, we had property and equipment purchases of $100,609 and $46,773 included in accounts payable and accrued expenses, respectively. As of December 31, 2018, we had property and equipment purchases of $121,038 and $1,595 included in accounts payable and accrued expenses, respectively.

 

In connection with our acquisition during the six months ended June 30, 2019, we 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, we carried deferred revenue of $3,847, representing franchise fees collected upon the execution of the franchise agreement.  We netted this amount against the purchase price of the acquisition (Note 2).

 

In connection with our reacquisition and termination of regional developer rights during the six months ended June 30, 2019, we had deferred revenue of $44,334 representing license fees collected upon the execution of the regional developer agreements.  We netted these amounts against the aggregate purchase price of the acquisitions (Note 8)

 

As of June 30, 2018, we had stock option exercise proceeds of $133,281 included in accounts receivable.  

 

 

 

Note: The Condensed Consolidated Statements of Cash Flows is unaudited and has been restated to reflect the consolidation of variable interest entities. See Note 1 of “Notes to Condensed Consolidated Financial Statements” under the heading “Prior Period Financial Statement Correction of Immaterial Error” for more details. The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 5 

 

 

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1: 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”). 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 Corp.’s Form 10-K, which included all disclosures required by generally accepted accounting principles (“GAAP”) and the “prior period financial statement correction of immaterial error” note below. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position on a consolidated basis and the consolidated results of operations, equity and cash flows for the interim periods presented. The results of operations for the periods ended June 30, 2019 and 2018 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, 2019 and 2018 is unaudited.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue and accounting for leases, see Note 3, Revenue Disclosures and Note 13, Commitments and Contingencies, respectively.

 

Prior Period Financial Statement Correction of Immaterial Error

 

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. The PCs are VIEs as defined by Accounting Standards Codification 810, Consolidations (“ASC 810”). During the first quarter of 2019, the Company reassessed 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. Prior to 2019, the Company did not consolidate the PCs. The Company has concluded the previous accounting policy to not consolidate the PCs was an immaterial error and has determined that the PCs should be consolidated. The adjustments will result in an increase to revenues from company clinics and a corresponding increase to general and administrative expenses. This will have no impact on net income (loss), except when the PC has sold treatment packages and wellness plans. Revenue from these treatment packages and wellness plans will now be deferred and will be recognized when patients use their visits. The Company has corrected this immaterial error by restating the 2018 condensed consolidated financial statements and related notes included herein.

 

 6 

 

 

The immaterial impacts of this error correction in the three and six months ended June 30, 2018 and the fiscal year ended December 31, 2018 are as follows:

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Three Months Ended  Adjustments Due To  Three Months Ended
   June 30, 2018  VIE Consolidation  June 30, 2018
   (as reported)     (as adjusted)
Revenues:               
Revenues from company-owned or managed clinics  $3,420,685    1,247,953   $4,668,638 
Total revenues   7,556,832    1,247,953    8,804,785 
General and administrative expenses   4,656,308    1,211,204    5,867,512 
Total selling, general and administrative expenses   6,354,946    1,211,204    7,566,150 
Loss from operations   (100,402)   36,163    (64,239)
                
Other income (expense):               
Bargain purchase gain   75,264    (44,809)   30,455 
Total other income   63,575    (44,223)   19,352 
                
Loss before income tax expense   (36,827)   (8,060)   (44,887)
                
Net loss and comprehensive loss  $(42,778)   (8,060)  $(50,838)

 

 

 

 

 

 

 

 

 

 

 7 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Six Months Ended  Adjustments Due To  Six Months Ended
   June 30, 2018  VIE Consolidation  June 30, 2018
    (as reported)         (as adjusted) 
Revenues:               
Revenues from company-owned or managed clinics  $6,677,309    2,797,002   $9,474,311 
Total revenues   14,654,747    2,797,002    17,451,749 
General and administrative expenses   9,731,234    2,404,964    12,136,198 
Total selling, general and administrative expenses   12,919,593    2,404,964    15,324,557 
Loss from operations   (539,466)   391,064    (148,402)
                
Other income (expense):               
Bargain purchase gain   75,264    (44,809)   30,455 
Total other income   52,380    (43,835)   8,545 
                
Loss before income tax expense   (487,086)   347,229    (139,857)
                
Net loss and comprehensive loss  $(429,682)   347,229   $(82,453)
                
Loss per share:               
Basic and diluted loss per share  $(0.03)   0.02   $(0.01)
                
Basic and diluted weighted average shares   13,605,370    -    13,605,370 

 

 

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

   December 31,  Adjustments Due To  December 31,
   2018  VIE Consolidation  2018
ASSETS  (as reported)     (as adjusted)
Current assets:               
Accounts receivable, net   1,213,707    (407,357)   806,350 
Total current assets   11,711,345    (407,357)   11,303,988 
Goodwill   2,916,426    308,719    3,225,145 
Total assets  $23,526,352   $(98,639)  $23,427,713 
                
LIABILITIES AND STOCKHOLDERS' EQUITY               
Current liabilities:               
Deferred revenue from company clinics   994,493    1,535,004    2,529,497 
Total current liabilities   8,738,123    1,535,004    10,273,127 
Total liabilities   21,165,108    1,535,004    22,700,112 
Commitments and contingencies               
Equity:               
The Joint Corp. stockholders' equity:               
Accumulated deficit   (35,750,908)   (1,633,743)   (37,384,651)
Total The Joint Corp. stockholders' equity   2,361,244    (1,633,743)   727,501 
Non-controlling Interest   -    100    100 
Total equity   2,361,244    (1,633,643)   727,601 
Total liabilities and equity  $23,526,352   $(98,639)  $23,427,713 

 

 8 

 

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of The Joint Corp. 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 ASC 810. Non-controlling interests represent third-party equity ownership interests in VIEs.

 

All significant inter-affiliate accounts and transactions between The Joint Corp. and its VIEs have been eliminated in consolidation. Certain balances were reclassified from regional developer fees to other revenues for the three and six months ended June 30, 2018 to conform to the current year presentation.

 

Comprehensive Income (Loss)

 

Net income (loss) and comprehensive income (loss) are the same for the three and six months ended June 30, 2019 and 2018.

  

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, 2019 and 2018:

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
Franchised clinics:  2019  2018  2019  2018
Clinics open at beginning of period   404    359    394    352 
Opened or Purchased during the period   14    8    26    15 
Acquired or sold during the period       (1)   (1)   (1)
Closed during the period   (1)   (1)   (2)   (1)
Clinics in operation at the end of the period   417    365    417    365 

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
Company-owned or managed clinics:  2019  2018  2019  2018
Clinics open at beginning of period   50    47    48    47 
Opened during the period   1        3     
Acquired during the period       1    1    1 
Closed or Sold during the period           (1)    
Clinics in operation at the end of the period   51    48    51    48 
                     
Total clinics in operation at the end of the period   468    413    468    413 
                     
Clinic licenses sold but not yet developed   176    117    176    117 
Executed letters of intent for future clinic licenses   28    9    28    9 

 

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.

 

 9 

 

 

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. Such PCs are VIEs, as fees paid by the PC 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. 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. During the first quarter of 2019, the Company reassessed 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, 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, 2019 and December 31, 2018.

  

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 represent amounts due from franchisees for initial franchise fees and 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, 2019, and December 31, 2018, the Company had an allowance for doubtful accounts of $0.

  

Deferred Franchise Costs

 

Deferred franchise costs represent commissions that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise. These costs 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.

 

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 three 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.

 

 10 

 

 

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, generally five years.

 

Leases

 

The Company adopted the guidance of Accounting Standards Codification 842 – Leases (“ASC 842”) on January 1, 2019 which requires lessees to recognize a right-of-use ("ROU") asset and lease liability for all leases. The Company elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are or contain leases, lease classification and determination of initial direct costs.

 

The Company leases property and equipment under finance and operating leases. The Company leases its corporate office space and the space for each of the company-owned or managed clinic in the portfolio. 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 could 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. Once a clinic opens, 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 four 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. 

 

 11 

 

 

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 subject to annual impairment tests. As required, the Company performs an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. No impairments of goodwill were recorded for the three and six months ended June 30, 2019 and 2018.

 

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. No impairments of long-lived assets were recorded for the three and six months ended June 30, 2019 and 2018.

 

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 (or a deferred revenue 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, the Company concluded that any remaining contract liability that exists after 24 months from transaction date will be deemed breakage, and only at that point when the likelihood of the patient exercising his or her remaining rights becomes remote will the Company recognize any breakage revenue.

 

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 bi-monthly two working days after each sales period has ended.

 

 12 

 

 

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 franchise license 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 is 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. Royalty of 3% of sales generated by franchised clinics in their region are recognized as franchise cost of revenues as franchisee clinic level sales occur.

 

The Company entered into one regional developer agreement for the six months ended June 30, 2019 for which it received approximately $290,000 which 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. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.

  

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising expenses were $656,476 and $1,095,913 for the three and six months ended June 30, 2019, respectively. Advertising expenses were $471,056 and $881,694 for the three and six months ended June 30, 2018, 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 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.

 

 13 

 

 

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, 2019 and December 31, 2018. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.

 

The Company's tax returns for tax years subject to examination by tax authorities included 2014 through the current period for state and 2015 through the current period for federal reporting purposes.

 

Earnings (Loss) per Common Share

 

Basic earnings (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock, and stock options.

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2019  2018  2019  2018
      (as adjusted)     (as adjusted)
Net Income (loss)  $462,260   $(50,838)  $1,414,905   $(82,453)
                     
Weighted average common shares outstanding - basic   13,797,497    13,622,710    13,774,474    13,605,370 
Effect of dilutive securities:                    
Unvested restricted stock and stock options   679,510        615,845     
Weighted average common shares outstanding - diluted   14,477,007    13,622,710    14,390,320    13,605,370 
                     
Basic earnings (loss) per share  $0.03   $   $0.10   $(0.01)
Diluted earnings (loss) per share  $0.03   $   $0.10   $(0.01)

 

Potentially dilutive securities excluded from the calculation of diluted net income per common share as the effect would be anti-dilutive were as follows:

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
Weighted average potentially dilutive securities:  2019  2018  2019  2018
Unvested restricted stock           2,569     
Stock options           41,035     

 

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 quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.

 

 14 

 

 

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 and intangible assets and purchase price allocations.

 

Recent Accounting Pronouncements

 

Accounting Standards Adopted Effective January 1, 2019

 

On January 1, 2019, the Company adopted ASC 842, which requires lessees to recognize a ROU asset and lease liability on their balance sheet for all leases with terms beyond twelve months. The new standard also requires enhanced disclosures that provide more transparency and information to financial statement users about lease portfolios. Effective January 1, 2019, the Company adopted the requirements of ASC 842 using the modified retrospective approach using the optional transition method and elected to apply the provisions of the standard as of the adoption date rather than the earliest date presented. The consolidated financial statements for the period ended June 30, 2019 are presented under the new standard, while comparative periods presented have not been adjusted and continue to be reported in accordance with the previous standard.

 

During the process of adoption, the Company made the following elections:

 

  · The Company elected the package of practical expedients which allowed the Company to not reassess:

 

  · Whether existing or expired contracts contain leases under the new definition of a lease;

 

  · Lease classification for existing or expired leases; and

 

  · Initial direct costs for any expired or existing leases to determine if they would qualify for capitalization under ASC 842.

 

  · The Company did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.

 

  · The Company did not elect the land easement practical expedient, which permits an entity to continue applying its current policy for accounting for land easements that existed as of, or expired before, the effective date of ASC 842.

 

  · The Company elected to make the accounting policy election for short-term leases, permitting the Company to not apply the recognition requirements of ASC 842 to short-term leases with terms of 12 months or less.

 

The adoption of ASC 842 does not materially impact the Company’s results of operations other than recognition of the operating lease ROU asset and lease liability. See Note 13 for additional disclosures required by ASC 842.

 

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.

 

Note 2: Acquisition

 

On April 6, 2018, the Company entered into an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller one operating franchise in San Diego, California and (ii) the parties agreed to mutually terminate a second franchise agreement for an operating franchise. The Company operates the remaining franchise as a company-managed clinic. The total purchase price for the transaction was $100,000, less $12,998 of deferred revenue resulting in total purchase consideration of $87,002 related to the transaction.

 

On March 18, 2019, the Company entered into an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller one operating franchise in West Covina, California and (ii) the parties agreed to terminate a second franchise agreement for an operating franchise. The Company intends to operate the remaining franchise as a company-managed clinic. The total purchase price for the transaction was $30,000, less $3,847 of deferred revenue resulting in total purchase consideration of $26,153.

  

 15 

 

 

Purchase Price Allocation

 

The following summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed during 2019 as of the acquisition date:

 

Property and equipment  $9,166 
Intangible assets   62,000 
Total assets acquired   71,166 
Deferred revenue   (14,305)
Deferred tax liability   (11,410)
Bargain purchase gain   (19,298)
Net purchase price  $26,153 

 

Intangible assets in the table above consist of reacquired franchise rights of $30,000 amortized over an estimated useful life of three years and customer relationships of $32,000 amortized over an estimated useful life of two years.

 

Pro Forma Results of Operations (Unaudited)

 

The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the three and six months ended June 30, 2019 and 2018 as if the acquisition in 2019 had been completed on January 1, 2018.

 

   Pro Forma for the Three Months Ended  Pro Forma for the Six Months Ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
Revenues, net  $11,169,979   $8,863,340   $21,894,980   $17,633,044 
Net income (loss)  $462,260   $(90,437)  $1,439,451   $(207,928)

 

This selected unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisition had been completed on that date. Moreover, this information is not indicative of what the Company’s future operating results will be. The information for 2018 and 2019 prior to the acquisition is included based on prior accounting records maintained by the acquired company. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisition. For 2018, this information includes actual data recorded in the Company’s financial statements for the period subsequent to the date of the acquisition. The Company’s condensed consolidated statement of operations for the three months ended June 30, 2019 includes net revenue and net loss of approximately $73,000 and ($2,000), respectively, attributable to the acquisition. The Company’s consolidated statement of operations for the six months ended June 30, 2019 includes net revenue and net loss of approximately $73,000 and ($13,000), respectively, attributable to the acquisition.

 

The pro forma amounts included in the table above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2018.

 

Note 3: 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.  

 

 16 

 

 

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.

  

 17 

 

 

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, 2019 and 2018.

 

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, 2019 were as follows (in thousands):

 

   Deferred Revenue
   short and long-term
Balance at December 31, 2018  $13,609 
Recognized as revenue during the six months ended June 30, 2019   (1,249)
Fees received and deferred during the six months ended June 30, 2019   2,990 
Balance at June 30, 2019  $15,350 

 

Changes in the Company's contract assets for deferred franchise costs during the six months ended June 30, 2019 are as follows (in thousands):

 

   Deferred Franchise Costs
   short and long-term
Balance at December 31, 2018  $3,489 
Recognized as cost of revenue during the six months ended June 30, 2019   (325)
Costs incurred and deferred during the six months ended June 30, 2019   1,032 
Balance at June 30, 2019  $4,196 

 

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, 2019 (in thousands):

 

Contract liabilities expected to be recognized in  Amount
2019 (remainder)  $1,356 
2020   2,694 
2021   2,572 
2022   2,150 
2023   1,788 
Thereafter   4,790 
Total  $15,350 

 

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Note 4. Restricted Cash

 

The table below reconciles the cash and cash equivalents balance and restricted cash balances from The Company’s condensed consolidated balance sheet to the amount of cash reported on the condensed consolidated statement of cash flows:

 

   June 30,  December 31,
   2019  2018
Cash and cash equivalents  $9,485,212   $8,716,874 
Restricted cash   129,220    138,078 
Total cash, cash equivalents and restricted cash  $9,614,432   $8,854,952 

 

Note 5: 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 36 months, beginning November 1, 2017 and maturing on October 1, 2020. The note is secured by the regional developer rights in the respective territory.

 

Effective August 31, 2017, the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for $220,000, of which $117,475 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and interest payments over 36 months, beginning September 1, 2017 and maturing on August 1, 2020. The note is secured by the regional developer rights in the respective territory.

 

Effective September 22, 2017, the Company entered into a regional developer and asset purchase agreement for certain territories in Minnesota in exchange for $228,293, of which $119,147 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and interest payments over 36 months, beginning October 1, 2017 and maturing on September 1, 2020. The note is collateralized by the regional developer rights in the territory. The note was paid in full on September 28, 2018.

 

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 36 months and requires monthly principal and interest payments over 36 months, 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 36 months and requires monthly principal and interest payments over 36 months, beginning May 15, 2019 and maturing on May 15, 2022.

 

The net outstanding balances of the notes as of June 30, 2019 and December 31, 2018 were $235,343 and $278,072, respectively. Maturities of notes receivable as of June 30, 2019 are as follows:

 

2019 (remaining)  $79,534 
2020   137,123 
2021   9,600 
2022   9,086 
Total  $235,343 

 

 

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Note 6: Property and Equipment

 

Property and equipment consist of the following:

 

   June 30,  December 31,
   2019  2018
       
Office and computer equipment  $1,373,775   $1,243,104 
Leasehold improvements   5,784,728    5,407,915 
Software developed   1,193,007    1,145,742 
Finance lease assets   80,604     
    8,432,114    7,796,761 
Accumulated depreciation and amortization   (5,256,290)   (4,909,002)
    3,175,824    2,887,759 
Construction in progress   1,787,213    770,248 
Property and equipment, net  $4,963,037   $3,658,007 

 

Depreciation expense was $206,609 and $400,415 for the three and six months ended June 30, 2019, respectively. Depreciation expense was $284,265 and $548,618 for the three and six months ended June 30, 2018, respectively. 

 

Amortization expense related to finance lease assets was $6,169 and $12,337 for the three and six months ended June 30, 2019, respectively.

 

Construction in progress at June 30, 2019 and December 31, 2018 principally relate to development costs for a software to be used by clinics for operations and by the Company for the management of operations.

 

Note 7: 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, 2019, and December 31, 2018, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.

 

The intangible assets resulting from the acquisition (reference Note 2) were recorded at fair value on a non-recurring basis and are considered Level 3 within the fair value hierarchy.

 

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Note 8: Intangible Assets

 

On February 4, 2019, the Company entered into an agreement under which it repurchased the right to develop franchises in various counties in South Carolina and Georgia. The total consideration for the transaction was $681,500. The Company carried a deferred revenue balance associated with these transactions of $44,334, representing license fees collected upon the execution of the regional developer agreements.  The Company accounted for the termination of development rights associated with unsold or undeveloped franchises as a cancellation, and the associated deferred revenue was netted against the aggregate purchase price.  

 

Intangible assets consist of the following:

 

   As of June 30, 2019
   Gross Carrying  Accumulated  Net Carrying
   Amount  Amortization  Value
Intangible assets subject to amortization:               
Reacquired franchise rights  $1,788,000   $(1,058,822)  $729,178 
Customer relationships   777,000    (733,828)   43,172 
Reacquired development rights   2,050,482    (846,997)   1,203,485 
   $4,615,482   $(2,639,647)  $1,975,835 

 

   As of December 31, 2018
   Gross Carrying  Accumulated  Net Carrying
   Amount  Amortization  Value
Intangible assets subject to amortization:               
Reacquired franchise rights  $1,758,000   $(921,138)  $836,862 
Customer relationships   745,000    (717,498)   27,502 
Reacquired development rights   1,413,316    (643,620)   769,696 
   $3,916,316   $(2,282,256)  $1,634,060 

 

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. Amortization expense related to the Company’s intangible assets was $120,710 and $243,774 for the three and six months ended June 30, 2018, respectively. 

 

Estimated amortization expense for 2019 and subsequent years is as follows:

 

2019 (remainder)  $379,140 
2020   741,790 
2021   657,850 
2022   184,842 
2023   12,213 
Total  $1,975,835 

 

Note 9: Debt

 

Notes Payable

 

During 2016, the Company issued two notes payable totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes were 4.25% with maturities through May 2017. As of December 31, 2018, there was one outstanding note with a balance of $100,000 which was paid in February 2019.

 

Credit and Security Agreement

 

On January 3, 2017, the Company entered into a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender. Under the Credit Agreement, the Company is able to borrow up to an aggregate of $5,000,000 under revolving loans. Interest on the unpaid outstanding principal amount of any revolving loans is at a rate equal to 10% per annum, provided that the minimum amount of interest paid in the aggregate on all revolving loans granted over the term of the Credit Agreement is $200,000. Interest is due and payable on the last day of each fiscal quarter in an amount determined by the Company, but not less than $25,000. The Credit Agreement terminates in December 2019, unless sooner terminated in accordance with the provisions of the Credit Agreement. The Credit Agreement is collateralized by the assets in the Company’s company-owned or managed clinics. The Company is using the credit facility for general working capital needs. As of June 30, 2019, the Company had drawn $1,000,000 of the $5,000,000 available under the Credit Agreement.

 

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As of June 30, 2019, the Company was in compliance with all applicable financial and non-financial covenants under the Credit Agreement.

 

Note 10: Stock-Based Compensation

 

Stock Options

 

During the six months ended June 30, 2019, the Company granted 62,944 stock options to employees with an exercise price of $12.02.

 

The Company’s stock trading 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 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. For future grants, the Company plans to use 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 during the six months ended June 30, 2019 and 2018, using the following assumptions:

 

   Six Months Ended June 30,
   2019  2018
Expected volatility   35%   42% - 43%
Expected dividends   None    None 
Expected term (years)   7    7 
Risk-free rate   2.61%   2.53% to 2.63%
Forfeiture rate   20%    20% 

 

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The information below summarizes the stock options activity:

 

            Weighted
      Weighted  Weighted  Average
      Average  Average  Remaining
   Number of  Exercise  Fair  Contractual Life
   Shares  Price  Value  (Years)
Outstanding at December 31, 2017   1,003,916   $4.18   $1.87    8.1 
Granted   145,792    7.00           
Exercised   (95,162)   3.48           
Cancelled   (67,855)   3.37           
Outstanding at December 31, 2018   986,691   $4.72   $2.09    6.8 
Granted   62,944    12.02           
Exercised   (47,804)   5.01           
Cancelled                  
Outstanding at June 30, 2019   1,001,831   $5.17   $2.25    6.2 
Exercisable at June 30, 2019   541,238   $4.61   $2.01    6.2 

 

The aggregate intrinsic value of the Company’s stock options outstanding and expected to vest was $11,894,226 at June 30, 2019.

 

The aggregate intrinsic value of the Company’s stock options exercisable was $7,354,410 at June 30, 2019.

 

For the three and six months ended June 30, 2019, stock-based compensation expense for stock options was $99,846 and $196,650, respectively.  For the three and six months ended June 30, 2018, stock-based compensation expense for stock options was $69,640 and $208,813, respectively. Unrecognized stock-based compensation expense for stock options as of June 30, 2019 was $920,988, which is expected to be recognized ratably over the next 2.8 years.

 

Restricted Stock

 

Restricted stocks granted to employees generally vest in four equal annual installments. Restricted stocks granted to non-employee directors typically vest in full one year after the date of grant.

 

The information below summaries the restricted stock activity:

 

Restricted Stock Awards  Shares
Non-vested at December 31, 2018   51,134 
Granted   26,131 
Vested   (33,012)
Cancelled    
Non-vested at June 30, 2019   44,253 

 

For the three and six months ended June 30, 2019, stock-based compensation expense for restricted stock was $79,106 and $154,074, respectively. For the three and six months ended June 30, 2018, stock-based compensation expense for restricted stock was $69,347 and $137,816, respectively.

 

Unrecognized stock-based compensation expense for restricted stock awards as of June 30, 2019 was $469,307, which is expected to be recognized ratably over the next 2.2 years.

 

Note 11: Income Taxes

 

During the three and six months ended June 30, 2019, the Company recorded income tax expense of approximately $10,000 and $9,000, 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.

 

During the three and six months ended June 30, 2018, the Company recorded income tax expense of approximately $6,000 and income tax benefit of approximately $57,000, 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.

 

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Note 12: Related Party Transactions

 

The Company entered into a legal agreement with a certain common stockholder related to services performed for the operations and transaction related activities of the Company. Amounts paid to or for the benefit of this stockholder was approximately $98,000 and $181,000 for the three and six months ended June 30, 2019, respectively. Amounts paid to or for the benefit of this stockholder was approximately $68,000 and $116,000 for the three and six months ended June 30, 2018, respectively.

 

Note 13: 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, 2019:

 

   Line Item in the Company’s Consolidated
Statements of Operations
  Three Months Ended
June 30, 2019
  Six Months Ended
June 30, 2019
          
Finance lease costs:             
Amortization of assets  Depreciation and amortization  $6,169   $12,337 
Interest on lease liabilities  Other income (expense), net   1,778    3,689 
Total finance lease costs      7,947    16,026 
Operating lease costs  General and administrative expenses  $706,368   $1,394,100 
Total lease costs     $714,315   $1,410,126 

 

Supplemental information and balance sheet location related to leases is as follows:

 

   June 30, 2019
    
Operating Leases:     
Operating lease right-of -use asset  $10,030,737 
      
Operating lease liability - current portion  $1,827,233 
Operating lease liability - net of current portion   9,049,948 
Total operating lease liability  $10,877,181 
      
Finance Leases:     
Property and equipment, at cost  $80,604 
Less accumulated amortization   (12,337)
Property and equipment, net  $68,267 
      
      
Finance lease liability - current portion  $23,075 
Finance lease liability - net of current portion   46,826 
Total finance lease liabilities  $69,901 
      
Weighted average remaining lease term (in years):     
Operating leases   5.71 
Finance lease   2.77 
      
Weighted average discount rate:     
Operating leases   9.20%
Finance leases   10.00%

 

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Supplemental cash flow information related to leases is as follows:

 

   Six Months Ended
June 30, 2019
    
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases  $1,469,684 
Operating cash flows from finance leases   3,689 
Financing cash flows from finance leases   10,704 
      
Non-cash transactions: ROU assets obtained in exchange for lease liabilities
Operating lease  $400,980 
Finance lease   80,604 

 

Maturities of lease liabilities as of June 30, 2019 are as follows:

 

   Operating Leases  Finance Lease
2019 (remainder)  $1,372,050   $14,393 
2020   2,642,993    28,786 
2021   2,545,456    28,786 
2022   2,454,666    7,676 
2023   1,776,161     
Thereafter   3,180,176     
Total lease payments  $13,971,502   $79,641 
Less: Imputed interest   (3,094,321)   (9,740)
Total lease obligations   10,877,181    69,901 
Less: Current obligations   (1,827,233)   (23,075)
Long-term lease obligation  $9,049,948   $46,826 

 

The future minimum obligations under operating leases in effect as of December 31, 2018 having a noncancelable term in excess of one year as determined prior to the adoption of ASC 842 are as follows:

 

   Operating Leases
2019  $2,630,443 
2020   2,406,645 
2021   2,299,887 
2022   2,195,077 
2023   1,474,396 
Thereafter   2,772,575 
Total lease payments  $13,779,023 

 

In May 2019, the Company entered into an operating lease for its new corporate office space that has not yet commenced. The new lease is expected to result in additional ROU asset and liability of approximately $2.1 million. The lease is expected to commence during the fourth quarter of 2019, with a lease term of six years.

 

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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Note 14: 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. The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of June 30, 2019, the Company operated or managed 51 clinics under this segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit. As of June 30, 2019, the franchise system consisted of 417 clinics in operation. Corporate is a non-operating segment that develops and implements strategic initiatives and supports the Company’s two operating business segments by centralizing key administrative functions such as finance and treasury, information technology, insurance and risk management, legal and human resources. Corporate also provides the necessary administrative functions to support the Company as a publicly-traded company. A portion of the expenses incurred by Corporate are allocated to the operating segments.  

  

The tables below present financial information for the Company’s two operating business segments (in thousands).

 

   Three Months Ended  Six Months Ended
  June 30,   June 30,
   2019  2018  2019  2018
      (as adjusted)     (as adjusted)
Revenues:            
Corporate clinics  $5,777   $4,669   $11,416   $9,474 
Franchise operations   5,393    4,136    10,433    7,978 
Total revenues  $11,170   $8,805   $21,849   $17,452 
                     
Segment operating income (loss):                    
Corporate clinics  $564   $(50)  $1,404   $416 
Franchise operations   2,631    1,974    5,020    3,789 
Total segment operating income (loss)  $3,195   $1,924   $6,424   $4,205 
                     
Depreciation and amortization:                    
Corporate clinics  $353   $245   $666   $548 
Franchise operations   -    -    -    - 
Corporate administration   51    160    104    244 
Total depreciation and amortization  $404   $405   $770   $792 
                     
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands): 
Total segment operating income (loss)  $3,195   $1,924   $6,424   $4,205 
Unallocated corporate   (2,707)   (1,988)   (4,993)   (4,353)
Consolidated income (loss) from operations   488    (64)   1,431    (148)
Bargain purchase gain   -    30    19    30 
Other income (expense), net   (15)   (11)   (26)   (22)
Income (loss) before income tax expense  $473   $(45)  $1,424   $(140)

 

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   June 30,  December 31,
   2019  2018
Segment assets:     (as adjusted)
Corporate clinics  $19,249   $8,828 
Franchise operations   5,181    4,455 
Total segment assets  $24,430   $13,283 
           
Unallocated cash and cash equivalents and restricted cash  $9,614   $8,855 
Unallocated property and equipment   1,551    487 
Other unallocated assets   874    803 
Total assets  $36,469   $23,428 

 

“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.

 

Note 15: Subsequent Events

 

In July and August 2019, the Company acquired five franchised clinics for a total consideration of approximately $2.8 million. One of the purchased clinics is located in Arizona and the other four clinics are located in Georgia and South Carolina. The Company plans to file separate financial statements and pro forma financial information, as required by SEC rules, in a Current Report on Form 8-K within the prescribed 75-day period following consummation of the transactions.

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K.

 

Forward-Looking Statements

 

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management; and accounting estimates and the impact of new or recently issued accounting pronouncements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations as described from time to time in our SEC reports, including those risks outlined under “Risk Factors” which are contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2018 and any material changes thereto included in subsequently-filed Forms 10-Q, including in Part II, Item 1A of this Form 10-Q. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. You should carefully consider these risks and uncertainties and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. Some of the important factors contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2018 and in subsequently-filed Forms 10-Q that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following:

 

  we may not be able to successfully implement our growth strategy if we or our franchisees are unable to locate and secure appropriate sites for clinic locations, obtain favorable lease terms, and attract patients to our clinics;

 

  we have limited experience operating company-owned or managed clinics, and we may not be able to duplicate the success of some of our franchisees;

 

  we may not be able to acquire operating clinics from existing franchisees or develop company-owned or managed clinics on attractive terms;

 

  any acquisitions that we make could disrupt our business and harm our financial condition;

 

  we may not be able to continue to sell franchises to qualified franchisees;

 

  we may not be able to identify, recruit and train enough qualified chiropractors to staff our clinics;

 

  the chiropractic industry is highly competitive, with many well-established competitors;

 

  recent administrative actions and rulings regarding the corporate practice of medicine and joint employer responsibility may jeopardize our business model;

 

  we may face negative publicity or damage to our reputation, which could arise from concerns expressed by opponents of chiropractic and by chiropractors operating under traditional service models;

 

  legislation and regulations, as well as new medical procedures and techniques, could reduce or eliminate our competitive advantages; and

 

  we face increased costs as a result of being a public company.

   

Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission. Any forward-looking statements in this report should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others.

 

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Overview

  

Our principal business is to develop, own, operate, support and manage chiropractic clinics through franchising and the sale of regional developer rights and through direct ownership and management arrangements throughout the United States.

 

We seek to be the leading provider of chiropractic care in the markets we serve and to become the most recognized brand in our industry through the rapid and focused expansion of chiropractic clinics in key markets throughout North America and abroad.   

Key Performance Measures.  We receive monthly performance reports from our system and our clinics which include key performance indicators per clinic including gross sales, comparable same-store sales growth, or “Comp Sales”, number of new patients, conversion percentage, and member attrition. In addition, we review monthly reporting related to system-wide sales, clinic openings, clinic license sales, and various earnings metrics in the aggregate and per clinic. We believe these indicators provide us with useful data with which to measure our performance and to measure our franchisees’ and clinics’ performance. Comp Sales include the sales from both company-owned or managed clinics and franchised clinics that in each case have been open at least 13 full months and exclude any clinics that have closed. System-wide sales include sales at all clinics, whether operated by us or by franchisees. While franchised sales are not recorded as revenues by us, management believes the information is important in understanding the overall brand’s financial performance, because these sales are the basis on which we calculate and record royalty fees and are indicative of the financial health of the franchisee base.

  

Key Clinic Development Trends.   As of June 30, 2019, we and our franchisees operated 468 clinics, of which 417 were operated by franchisees and 51 were operated as company-owned or managed clinics. Of the 51 company-owned or managed clinics, 19 were constructed and developed by us, and 32 were acquired from franchisees.

 

Our current strategy is to grow through the sale and development of additional franchises, build upon our regional developer strategy, and reinitiate our efforts to expand our corporate clinic portfolio within clustered locations in a deliberate and measured manner. The number of franchise licenses sold for the year ended December 31, 2018 increased to 99 licenses, up from 37 and 22 licenses for the years ended December 31, 2017 and 2016, respectively. We ended the first six months of 2019 with 21 regional developers who were responsible for 95% of the 75 licenses sold during the period. The growth reflects the power of the regional developer program to accelerate the number of clinics sold, and eventually opened, across the country.

 

In addition, we believe that we can accelerate the development of, and revenue generation from, company-owned or managed clinics through the further selective acquisition of existing franchised clinics and opening of greenfield units. We will seek to acquire existing franchised clinics that meet our criteria for demographics, site attractiveness, proximity to other clinics and additional suitability factors. As of June 30, 2019, we opened three greenfield units, executed two leases for future greenfield clinic locations, and had 13 additional letters-of-intent in place for further greenfield expansion.

 

We believe that The Joint has a sound concept, benefiting from the fundamental changes taking place in the manner in which Americans access chiropractic care and their growing interest in seeking effective, affordable natural solutions for general wellness. These trends join with the strong preference we have seen among chiropractic doctors to reject the insurance-based model to produce a combination that benefits the consumer and the service provider alike. We believe that these forces create an important opportunity to accelerate the growth of our network.

 

Significant Events and/or Recent Developments

 

We continue to deliver on our strategic initiatives and to progress toward sustained profitability.

 

For the three months ended June 30, 2019 we saw:

 -Comp Sales of clinics that have been open for at least 13 full months – increased 25%.
 -Comp Sales for mature clinics open 48 months or more increased 18%.

 

For the six months ended June 30, 2019:

  - System-wide sales for all clinics open for any amount of time grew 33% to $101.6 million.
  - We opened 26 new franchised clinics and three company-owned or managed greenfields for a total of 29 units.

 

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We saw over 434,000 new patients in 2018, an increase of 25% from our new patient count the year before, with approximately 26% of those new patients having never been to a chiropractor before. We are not only increasing our percentage of market share but expanding the chiropractic market. These factors, along with continued leverage of our operating expenses, drove improvement in our bottom line.

 

On March 4, 2019, we entered into a regional developer agreement for a number of counties in the states of Virginia, Pennsylvania and West Virginia for $290,000. The development schedule requires a minimum of 40 clinics open over a ten-year period.

 

Factors Affecting Our Performance

 

Our operating results may fluctuate significantly as a result of a variety of factors, including the timing of new clinic sales, openings, closures, markets in which they are contained and related expenses, general economic conditions, consumer confidence in the economy, consumer preferences, and competitive factors.

 

Significant Accounting Polices and Estimates

  

There were no changes in our significant accounting policies and estimates during the six months ended June 30, 2019 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018, except as outlined in Note 1, Nature of Operations and Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this report as it relates to revenue recognition under Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”) and leases under Accounting Standards Codification 842 – Leases (“ASC 842”). In addition, we have restated prior period financial statements as discussed below.

 

Results of Operations

 

The following discussion and analysis of our financial results encompasses our consolidated results and results of our two business segments: Corporate Clinics and Franchise Operations. 

  

Prior Period Financial Statement Correction of Immaterial Error

 

Certain states, in which we manage 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. The PCs are variable interest entities (“VIEs”) as defined by Accounting Standards Codification 810, Consolidations (“ASC 810”). During the first quarter of 2019, we reassessed the governance structure and operating procedures of the PCs and determined that we have the power to control certain significant non-clinical activities of the PCs, as defined by ASC 810. Therefore, we are the primary beneficiary of the VIEs, and per ASC 810, must consolidate the VIEs. Prior to 2019, we did not consolidate the PCs. We have concluded the previous accounting policy to not consolidate the PCs was an immaterial error and have determined that the PCs should be consolidated. The adjustments will result in an increase to revenues from company clinics and a corresponding increase to general and administrative expenses. This will have no impact on net income (loss), except when the PC has sold treatment packages and wellness plans. Revenue from these treatment packages and wellness plans will now be deferred and will be recognized when patients use their visits. We have corrected these immaterial errors by restating the 2018 condensed consolidated financial statements as presented below.

 

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Total Revenues - three months ended June 30, 2019 compared with three months ended June 30, 2018

 

Components of revenues were as follows:

 

   Three Months Ended      
   June 30,      
   2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
Revenues:     (as adjusted)      
                     
Revenues from company-owned or managed clinics  $5,777,288   $4,668,638   $1,108,650    23.7%
Royalty fees   3,263,530    2,421,185    842,345    34.8%
Franchise fees   447,266    449,144    (1,878)   (0.4)%
Advertising fund revenue   927,800    687,752    240,048    34.9%
IT related income and software fees   377,125    315,910    61,215    19.4%
Regional developer fees   200,524    137,412    63,112    45.9%
Other revenues   176,446    124,744    51,702    41.4%
                     
Total revenues  $11,169,979   $8,804,785   $2,365,194    26.9%

 

Consolidated Results

 

  Total revenues increased by $3.6 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.

  

Corporate Clinics

 

  Revenues from company-owned or managed clinics increased, primarily due to improved same-store sales growth.

 

Franchise Operations

 

  Royalty fees increased due to an increase in the number of franchised clinics in operation during the current period along with continued sales growth in existing franchised clinics. As of June 30, 2019 and 2018, there were 417 and 365 franchised clinics in operation, respectively.

  

  Regional developer fees increased due to the sale of additional regional developer territories and the related revenue recognition over the term of the regional developer agreement.

 

  Software fees revenue increased due to an increase in our franchise clinic base and the related revenue recognition over the term of the franchise agreement as described above.

   

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Total Revenues - Six months ended June 30, 2019 compared with six months ended June 30, 2018

 

Components of revenues were as follows:

 

   Six Months Ended      
   June 30,      
   2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
Revenues:     (as adjusted)      
             
Revenues from company-owned or managed clinics  $11,416,365   $9,474,311   $1,942,054    20.5%
Royalty fees   6,290,346    4,695,173    1,595,173    34.0%
Franchise fees   864,339    797,481    66,858    8.4%
Advertising fund revenue   1,819,367    1,346,782    472,585    35.1%
Software fees   742,361    623,385    118,976    19.1%
Regional developer fees   384,381    261,423    122,958    47.0%
Other revenues   332,197    253,194    79,003    31.2%
                     
Total revenues  $21,849,356   $17,451,749   $4,397,607    25.2%

 

The reasons for the significant changes in our components of total revenues were as follows:

 

Consolidated Results

 

  Total revenues increased by $4.4 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.

  

Corporate Clinics

 

  Revenues from company-owned or managed clinics increased, primarily due to improved same-store sales growth.

 

Franchise Operations

 

  Royalty fees increased due to an increase in the number of franchised clinics in operation during the current period along with continued sales growth in existing franchised clinics. As of June 30, 2019 and 2018, there were 417 and 365 franchised clinics in operation, respectively.

  

  Regional developer fees increased due to the sale of additional regional developer territories and the related revenue recognition over the term of the regional developer agreement.

 

  Software fees revenue increased due to an increase in our franchise clinic base and the related revenue recognition over the term of the franchise agreement as described above.

 

Cost of Revenues

 

Cost of Revenues  2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
             
Three Months Ended June 30,  $1,299,149   $1,051,584   $247,565    23.5%
Six Months Ended June 30,   2,505,090    2,023,916    481,174    23.8%

 

For the three months ended June 30, 2019, as compared with the three months ended June 30, 2018, the total cost of revenues increased primarily due to an increase in regional developer royalties of $0.2 million, which is in line with an increase in franchise royalty revenues of approximately 35%, coupled with a larger portion of our franchise base operating in regional developer territories.

 

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For the six months ended June 30, 2019, as compared with the six months ended June 30, 2018, the total cost of revenues increased primarily due to an increase in regional developer royalties of $0.5 million, which is in line with an increase in franchise royalty revenues of approximately 34%, coupled with a larger portion of our franchise base operating in regional developer territories.

 

Selling and Marketing Expenses

 

Selling and Marketing Expenses  2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
             
Three Months Ended June 30,  $1,769,368   $1,293,663   $475,705    36.8%
Six Months Ended June 30,   3,275,356    2,395,967    879,389    36.7%

 

Selling and marketing expenses increased for the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018, driven by an increase in advertising fund expenditures from a larger franchise base and an increase in local marketing expenditures by the company-owned or managed clinics. 

 

Depreciation and Amortization Expenses

 

Depreciation and Amortization Expenses  2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
             
Three Months Ended June 30,  $404,466   $404,975   $(509)   (0.1)%
Six Months Ended June 30,   770,143    792,392    (22,249)   (2.8)%

 

Depreciation and amortization expenses decreased for the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018, primarily due to assets reaching the end of their estimated depreciable lives during the period.

 

General and Administrative Expenses

 

General and Administrative Expenses  2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
      (as adjusted)      
                     
Three Months Ended June 30,  $7,227,662   $5,867,512   $1,360,150    23.2%
Six Months Ended June 30,   13,780,566    12,136,198    1,644,368    13.5%

 

General and administrative expenses increased during the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018, primarily due to an increase in payroll and related expenses to support continued clinic count and revenue growth. As a percentage of revenue, general and administrative expenses during the three and six months ended June 30, 2019 were 65% and 63%, respectively, compared to the three and six months ended June 30, 2018 of 67% and 70%, respectively, reflecting improved leverage of our operating model.

 

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Profit (Loss) from Operations - Three Months Ended June 30, 2019

 

Profit (Loss) from Operations  2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
      (as adjusted)      
                     
Three Months Ended June 30,  $487,600   $(64,239)  $551,839    859.0%

 

Consolidated Results

 

Consolidated profit (loss) from operations increased by $1.6 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily driven by the improved operating income in both the corporate clinics and the franchise operations segments, partially offset by increased expenses in the unallocated corporate segment discussed below.

 

Corporate Clinics

 

Our corporate clinics segment had net income from operations of $1.4 million for the six months ended June 30, 2019, an increase of $1.0 million compared to income from operations of $0.4 million for the prior year period. The increase was primarily due to:

  

  An increase in revenues of $1.1 million from company-owned or managed clinics; partially offset by
     
  A $0.5 million increase in depreciation and amortization and general and administrative expenses, primarily driven by an increase in payroll related expenses due to a higher head count.

 

Franchise Operations

 

Our franchise operations segment had net income from operations of $2.6 million for the three months ended June 30, 2019, an increase of $0.7 million, compared to net income from operations of $1.9 million for the prior year period. This increase was primarily due to:

 

  An increase of $1.3 million in total revenues; partially offset by
     
  An increase of $0.2 million in cost of revenues primarily due to an increase in regional developer royalties and an increase of $0.4 million in operating expenses, primarily due to an increase of $0.3 million in selling and marketing expenses resulting from a larger franchise base.

 

Unallocated Corporate

 

Unallocated corporate expenses for the three months ended June 30, 2019 increased by $0.7 million compared to the prior year period, primarily due to: i) $0.5 million of higher payroll related expenses due to increased head count and reduced incentive compensation accrual in the prior year period and ii) $0.3 million of higher selling and marketing expenses mostly related to the national franchisee convention. These negative impacts were partially offset by the lower depreciation and amortization expense of $0.1 million.

 

Profit (Loss) from Operations - Six Months Ended June 30, 2019

 

Profit (Loss) from Operations  2019  2018  Change from
Prior Year
  Percent Change
from Prior Year
      (as adjusted)      
                     
Six Months Ended June 30,   1,431,274    (148,402)   1,579,676    1064.5%

 

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Consolidated Results

 

Consolidated profit (loss) from operations increased by $1.6 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily driven by the improved operating income in both the corporate clinics and the franchise operations segments, partially offset by increased expenses in the unallocated corporate segment discussed below.

 

Corporate Clinics

 

Our corporate clinics segment had net income from operations of $1.4 million for the six months ended June 30, 2019, an increase of $1.0 million compared to income from operations of $0.4 million for the prior year period. The increase was primarily due to:

  

  An increase in revenues of $1.9 million from company-owned or managed clinics; partially offset by
     
  A $0.9 million increase in operating expenses, primarily driven by an increase in payroll related expenses due to a higher head count.

  

Franchise Operations

 

Our franchise operations segment had net income from operations of $5.0 million for the six months ended June 30, 2019, an increase of $1.2 million, compared to net income from operations of $3.8 million for the prior year period. This increase was primarily due to:

 

  An increase of $2.4 million in total revenues; partially offset by
     
  An increase of $0.5 million in cost of revenues primarily due to an increase in regional developer royalties and an increase of $0.7 million in operating expenses, primarily due to an increase in selling and marketing expenses resulting from a larger franchise base.

 

Unallocated Corporate

 

Unallocated corporate expenses for the six months ended June 30, 2019 increased by $0.6 million compared to the prior year period, primarily due to: i) $0.5 million of higher general and administrative expenses mostly due to higher payroll related expenses and ii) $0.2 million of higher selling and marketing expenses related to the national convention. These negative impacts were partially offset by the lower depreciation and amortization expense of $0.1 million.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

As of June 30, 2019, we had cash and short-term bank deposits of $9.5 million. We provided $2.8 million of cash flow from operating activities in the six months ended June 30, 2019. We will continue to preserve cash, and while we have resumed the acquisition and development of company-owned or managed clinics, we intend to progress at a measured pace and target geographic clusters where we are able to increase efficiencies through a consolidated real estate penetration strategy, leverage cooperative advertisement and marketing and attain general corporate and administrative operating efficiencies.

 

In January 2017, we executed a Credit and Security Agreement which provided a credit facility up to $5.0 million. We have drawn $1.0 million under the credit facility. See Note 9 to our condensed consolidated financial statements included in this report for additional discussion of the credit facility. 

 

In addition to $9.5 million of unrestricted cash on hand as of June 30, 2019, our principal sources of liquidity are expected to be cash flows from operations, proceeds from debt financings or equity issuances, and/or proceeds from the sale of assets. We expect our available cash and cash flows from operations, debt financings or equity issuances, or proceeds from the sale of assets to be sufficient to fund our short-term working capital requirements. Our long-term capital requirements, primarily for acquisitions and other corporate initiatives, could be dependent on our ability to access additional funds through the debt and/or equity markets. From time to time, we consider and evaluate transactions related to our portfolio and capital structure including debt financings, equity issuances, purchases and sales of assets, and other transactions. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to obtain the capital necessary to meet our short and long-term capital requirements.

 

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As outlined in Note 15, Subsequent Events, to our condensed consolidated financial statements included in this report, subsequent to June 30, 2019, we acquired five franchised clinics for a total consideration of approximately $2.8 million.

 

Analysis of Cash Flows

 

Net cash provided by operating activities increased by $2.2 million to $2.8 million for the six months ended June 30, 2019 compared to $0.6 million for the six months ended June 30, 2018. The change was attributable primarily to improved operating income over the prior year period.

 

Net cash used in investing activities was $2.2 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.  For the six months ended June 30, 2019 this included an acquisition of $30,000, purchases of property and equipment of $1.6 million and reacquisition and termination of regional developer rights of $0.7 million, offset by payments received on notes receivable of $0.1 million. For the six months ended June 30, 2018, this included an acquisition of $0.1 million and purchases of property and equipment of $0.4 million, offset by payments received on notes receivable of $0.1 million.  

 

Net cash provided by financing activities was $0.1 million for both six months ended June 30, 2019 and 2018. For the six months ended June 30, 2019, this included proceeds from the exercise of stock options of $0.2 million, offset by repayments on notes payable of $0.1 million. For the six months ended June 30, 2018, this included proceeds from exercise of stock options of $0.1 million.

 

Recent Accounting Pronouncements

 

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this report for information regarding recently issued accounting pronouncements that may impact our financial statements.

   

Off-Balance Sheet Arrangements

 

During the three and six months ended June 30, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.

   

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving such objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our management concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. 

 

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Changes in Internal Control over Financial Reporting

 

During the first quarter of 2019, we implemented new controls in connection with our adoption of ASC 842. No other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the six months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In the normal course of business, we are a party to litigation from time to time.

 

ITEM 1A. RISK FACTORS

 

We documented our risk factors in Item 1A of Part I of our Form 10-K for the year ended December 31, 2018. Other than updates to the risk factors identified below, which should be read in conjunction with the risk factors as they appear in such Form 10-K, there have been no material changes to our risk factors since the filing of that report.

 

The disclosures in the risk factor under the heading “Our management services agreements, according to which we provide non-clinical services to affiliated PCs, could be challenged by a state or chiropractor under laws regulating the practice of chiropractic, and some state chiropractic boards have made inquiries concerning our business model” have been updated below with regard to Arkansas and North Carolina:

 

In February 2019, a bill was introduced in the Arkansas state legislature to prohibit the ownership and management of a chiropractic corporation by a non-chiropractor. The bill was drafted by the Arkansas State Board of Chiropractic Examiners. This bill has since been withdrawn. While the prohibition might not have been applicable to our business model in Arkansas, depending upon how the language of the bill was interpreted, it could have posed a threat to that model if passed. We have no assurance that another bill posing a similar or greater threat to our business model will not be introduced in the future. Previously, in 2015, the Arkansas Board had questioned whether our business model might violate Arkansas law in its response to an inquiry we made on behalf of one of our franchisees. While the Arkansas Board did not thereafter pursue the matter of a possible violation, it might choose to do so at any time in the future.

 

In February 2019, the North Carolina Board of Chiropractic Examiners delivered notices alleging certain violations to sixteen chiropractors working for clinics in North Carolina for which our franchisees provide management services. We retained legal counsel in this matter, and a preliminary hearing was conducted on February 21, 2019. The North Carolina Board issued its findings to each of the individual chiropractors, which generally included an overall finding that probable cause existed to show that the chiropractors violated one or more of the North Carolina Board’s rules. The findings each also proposed an Informal Settlement Agreement in lieu of proceeding to a full hearing before the North Carolina Board. On April 22, 2019, each of the chiropractors, through their attorneys, delivered to the North Carolina Board notices refuting the North Carolina Board’s findings and seeking revisions to the Settlement Agreement. The North Carolina Board replied with certain counterproposals, and we believe that 13 of the 16 chiropractors have accepted the terms and the remaining 3 chiropractors will be directed by the North Carolina Board to attend a hearing in September 2019.  While the allegations consist primarily of quality of care and advertising issues, it is possible that the actions of the North Carolina Board arise out of concerns related to our business model, and if so, we have no assurance that the North Carolina Board will not pursue other claims against the chiropractors.

 

The disclosures in the risk factor under the heading “State regulations on corporate practice of chiropractic” have been updated below with regard to Arkansas:

 

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In February 2019, a bill was introduced in the Arkansas state legislature prohibiting the ownership and management of a chiropractic corporation by a non-chiropractor. This bill has since been withdrawn. While it is questionable whether the prohibition would have been applicable to our business model in Arkansas, the bill could have been interpreted to challenge that model if it had passed in its proposed form. We have no assurance that another bill posing a similar or greater challenge to our business model will not be introduced in the future.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Use of Proceeds from Registered Securities

 

None.

 

ITEM 6. EXHIBITS

 

The Exhibit Index immediately following the Signatures to this Form 10-Q is hereby incorporated by reference into this Form 10-Q. 

 

THE JOINT CORP.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  THE JOINT CORP.
       
Dated: August 9, 2019 By:   /s/ Peter D. Holt  
    Peter D. Holt  
    President and Chief Executive Officer
    (Principal Executive Officer)
   
   
       
Dated: August 9, 2019 By:   /s/ Jake Singleton  
    Jake Singleton  
    Chief Financial Officer
    (Principal Financial Officer)

 

  

 

 38 

 

 

EXHIBIT INDEX

 

 

 

Exhibit Number   Description of Document
     
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, (filed herewith).
     
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, (filed herewith).
     
32   Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
     
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.

 

 

 

 

 

 

39

 

 

 Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14(a) AND 15a-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

I, Peter D. Holt, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 of The Joint Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: August 9, 2019

 

/s/ Peter D. Holt  

Peter D. Holt

President and Chief Executive Officer

(Principal Executive Officer) 

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULES 13a-14(a) AND 15a-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

I, Jake Singleton, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 of The Joint Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: August 9, 2019

 

/s/ Jake Singleton  

Jake Singleton

Chief Financial Officer

(Principal Financial Officer) 

Exhibit 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of The Joint Corp. (the “Company”), for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, in his or her capacity as an officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

  

By:      /s/ Peter D. Holt  
  Peter D. Holt  
  President and Chief Executive Officer
  (Principal Executive Officer) 
     
Dated August 9, 2019

 

By:      /s/ Jake Singleton  
  Jake Singleton  
  Chief Financial Officer
  (Principal Financial Officer) 
     
Dated August 9, 2019

 

 

 

v3.19.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 06, 2019
Document Information [Line Items]    
Entity Registrant Name JOINT Corp  
Entity Central Index Key 0001612630  
Trading Symbol jynt  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Current Reporting Status Yes  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Small Business true  
Entity Common Stock, Shares Outstanding (in shares)   13,844,072
Entity Shell Company false  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Title of 12(b) Security Common Stock  
v3.19.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 9,485,212 $ 8,716,874
Restricted cash 129,220 138,078
Accounts receivable, net 1,033,479 806,350
Notes receivable - current portion 163,573 149,349
Deferred franchise costs - current portion 710,796 611,047
Prepaid expenses and other current assets 887,676 882,290
Total current assets 12,409,956 11,303,988
Property and equipment, net 4,963,037 3,658,007
Operating lease right-of-use asset 10,030,737
Notes receivable, net of current portion and reserve 41,683 128,723
Deferred franchise costs, net of current portion 3,485,644 2,878,163
Intangible assets, net 1,975,835 1,634,060
Goodwill 3,225,145 3,225,145
Deposits and other assets 337,379 599,627
Total assets 36,469,416 23,427,713
Current liabilities:    
Accounts payable 1,199,341 1,253,274
Accrued expenses 178,949 266,322
Co-op funds liability 129,220 104,057
Payroll liabilities 1,602,916 2,035,658
Notes payable - current portion 1,000,000 1,100,000
Deferred rent - current portion 136,550
Operating lease liability - current portion 1,827,233
Finance lease liability - current portion 23,075
Deferred franchise and regional developer fee revenue - current portion 2,697,669 2,370,241
Deferred revenue from company clinics 2,677,782 2,529,497
Other current liabilities 540,279 477,528
Total current liabilities 11,876,464 10,273,127
Deferred rent, net of current portion 721,730
Long-term lease obligation 9,049,948
Finance lease liability - net of current portion 46,826
Deferred franchise and regional developer fee revenue, net of current portion 12,652,780 11,239,221
Deferred tax liability 83,294 76,672
Other liabilities 27,230 389,362
Total liabilities 33,736,542 22,700,112
Stockholders' equity:    
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of June 30, 2019 and December 31, 2018
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,838,016 shares issued and 13,823,346 shares outstanding as of June 30, 2019 and 13,757,200 shares issued and 13,742,530 outstanding as of December 31, 2018 13,838 13,757
Additional paid-in capital 38,779,538 38,189,251
Treasury stock 14,670 shares as of June 30, 2019 and December 31, 2018, at cost (90,856) (90,856)
Accumulated deficit (35,969,746) (37,384,651)
Total The Joint Corp. stockholders' equity 2,732,774 727,501
Non-controlling Interest (100) (100)
Total equity 2,732,874 727,601
Total liabilities and stockholders' equity $ 36,469,416 $ 23,427,713
v3.19.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
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) 13,838,016 13,757,200
Common stock, shares outstanding (in shares) 13,823,346 13,742,530
Treasury stock, shares (in shares) 14,670 14,670
v3.19.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenues:        
Revenues from company-owned or managed clinics $ 11,169,979 $ 8,804,785 $ 21,849,356 $ 17,451,749
Cost of revenues:        
Total cost of revenues 1,299,149 1,051,584 2,505,090 2,023,916
Selling and marketing expenses 1,769,368 1,293,663 3,275,356 2,395,967
Depreciation and amortization 404,466 404,975 770,143 792,392
General and administrative expenses 7,227,662 5,867,512 13,780,566 12,136,198
Total selling, general and administrative expenses 9,401,496 7,566,150 17,826,065 15,324,557
Net (gain) loss on disposition or impairment (18,266) 251,290 86,927 251,678
Income (loss) from operations 487,600 (64,239) 1,431,274 (148,402)
Other income (expense):        
Bargain purchase gain 30,455 19,298 30,455
Other income (expense), net (15,126) (11,103) (26,771) (21,910)
Total other income (expense) (15,126) 19,352 (7,473) 8,545
Income (loss) before income tax (expense) benefit 472,474 (44,887) 1,423,801 (139,857)
Income tax (expense) benefit (10,214) (5,951) (8,896) 57,404
Net income (loss) and comprehensive income (loss) 462,260 (50,838) 1,414,905 (82,453)
Less: income (loss) attributable to the non-controlling interest
Net income (loss) attributable to The Joint Corp. stockholders $ 462,260 $ (50,838) $ 1,414,905 $ (82,453)
Earnings (loss) per share:        
Basic earnings (loss) per share (in dollars per share) $ 0.03 $ 0.10 $ (0.01)
Diluted earnings (loss) per share (in dollars per share) $ 0.03 $ 0.10 $ (0.01)
Basic weighted average shares (in shares) 13,797,497 13,622,710 13,774,474 13,605,370
Diluted weighted average shares (in shares) 14,477,007 13,622,710 14,390,320 13,605,370
Revenues and Management Fees from Company Clinics [Member]        
Revenues:        
Revenues from company-owned or managed clinics $ 5,777,288 $ 4,668,638 $ 11,416,365 $ 9,474,311
Royalty [Member]        
Revenues:        
Revenues from company-owned or managed clinics 3,263,530 2,421,185 6,290,346 4,695,173
Franchise [Member]        
Revenues:        
Revenues from company-owned or managed clinics 447,266 449,144 864,339 797,481
Cost of revenues:        
Cost of Goods and Services Sold 1,198,378 977,782 2,315,431 1,850,550
Advertising [Member]        
Revenues:        
Revenues from company-owned or managed clinics 927,800 687,752 1,819,367 1,346,782
Technology Service [Member]        
Revenues:        
Revenues from company-owned or managed clinics 377,125 315,910 742,361 623,385
Cost of revenues:        
Cost of Goods and Services Sold 100,771 73,802 189,659 173,366
Regional Developer Fees [Member]        
Revenues:        
Revenues from company-owned or managed clinics 200,524 137,412 384,381 261,423
Product and Service, Other [Member]        
Revenues:        
Revenues from company-owned or managed clinics $ 176,446 $ 124,744 $ 332,197 $ 253,194
v3.19.2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Parent [Member]
Noncontrolling Interest [Member]
Total
Balance (in shares) at Dec. 31, 2017 13,600,338   14,084        
Balance at Dec. 31, 2017 $ 13,600 $ 37,229,869 $ (86,045) $ (37,531,345) $ (373,921) $ 100 $ (373,821)
Stock-based compensation expense 346,629 346,629 346,629
Issuance of vested restricted stock (in shares) 59,700          
Issuance of vested restricted stock $ 60 (60)
Exercise of stock options (in shares)          
Exercise of stock options $ 78 274,810 274,888 274,888
Net income (loss) (82,453) (82,453) (82,453)
Balance (in shares) at Jun. 30, 2018 13,660,038   14,084        
Balance at Jun. 30, 2018 $ 13,738 37,851,248 $ (86,045) (37,613,798) 165,143 100 165,243
Balance (in shares) at Dec. 31, 2017 13,600,338   14,084        
Balance at Dec. 31, 2017 $ 13,600 37,229,869 $ (86,045) (37,531,345) (373,921) 100 (373,821)
Balance (in shares) at Dec. 31, 2018 13,757,200   14,670        
Balance at Dec. 31, 2018 $ 13,757 38,189,251 $ (90,856) (37,384,651) 727,501 100 727,601
Stock-based compensation expense 350,724 350,724 350,724
Issuance of vested restricted stock (in shares) 33,012          
Issuance of vested restricted stock $ 33 (33)
Exercise of stock options (in shares) 47,804          
Exercise of stock options $ 48 239,596 239,644 239,644
Net income (loss) 1,414,905 1,414,905 1,414,905
Balance (in shares) at Jun. 30, 2019 13,838,016   14,670        
Balance at Jun. 30, 2019 $ 13,838 $ 38,779,538 $ (90,856) $ (35,969,746) $ 2,732,774 $ 100 $ 2,732,874
v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net income (loss) $ 1,414,905 $ (82,453)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 770,143 792,392
Net loss on disposition or impairment of assets 86,927 251,678
Net franchise fees recognized upon termination of franchise agreements (72,450)
Bargain purchase gain (19,298) (30,455)
Deferred income taxes (4,788) (75,882)
Stock based compensation expense 350,724 346,629
Changes in operating assets and liabilities:    
Accounts receivable (227,129) (91,211)
Prepaid expenses and other current assets (5,386) (90,449)
Deferred franchise costs (707,230) (260,774)
Deposits and other assets 262,248 42,360
Accounts payable (154,542) (384,538)
Accrued expenses (134,146) 33,982
Payroll liabilities (432,742) 104,538
Other liabilities (286,054) (28,527)
Deferred revenue 1,923,148 158,370
Net cash provided by operating activities 2,836,780 613,210
Cash flows from investing activities:    
Acquisition of business, net of cash acquired (30,000) (80,000)
Purchase of property and equipment (1,567,556) (370,757)
Reacquisition and termination of regional developer rights (681,500)
Payments received on notes receivable 72,816 83,824
Net cash used in investing activities (2,206,240) (366,933)
Cash flows from financing activities:    
Payments of finance lease obligation (10,704)
Proceeds from exercise of stock options 239,644 141,607
Repayments on notes payable (100,000)
Net cash provided by financing activities 128,940 141,607
Increase in cash 759,480 387,884
Cash and restricted cash, beginning of period 8,854,952 4,320,040
Cash and restricted cash, end of period $ 9,614,432 $ 4,707,924
v3.19.2
Supplemental Disclosure of Non-cash Activity
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Cash Flow, Supplemental Disclosures [Text Block]
During the
six
months ended
June 30, 2019
and
2018,
cash paid for income taxes was
$23,396
and
$19,522,
respectively. During the
six
months ended
June 30, 2019
and
2018,
cash paid for interest was
$50,000
and
$50,000,
respectively.
 
Supplemental disclosure of non-cash activity:
 
As of
June 30, 2019,
we had property and equipment purchases of
$100,609
and
$46,773
included in accounts payable and accrued expenses, respectively. As of
December 31, 2018,
we had property and equipment purchases of
$121,038
and
$1,595
included in accounts payable and accrued expenses, respectively.
 
In connection with our acquisition during the
six
months ended
June 30, 2019,
we 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, we carried deferred revenue of
$3,847,
representing franchise fees collected upon the execution of the franchise agreement.  We netted this amount against the purchase price of the acquisition (Note
2
).
 
In connection with our reacquisition and termination of regional developer rights during the
six
months ended
June 30, 2019,
we had deferred revenue of
$44,334
representing license fees collected upon the execution of the regional developer agreements.  We netted these amounts against the aggregate purchase price of the acquisitions (Note
8
)
 
As of
June 30, 2018,
we had stock option exercise proceeds of
$133,281
included in accounts receivable.  
 
 
 
Note: The Condensed Consolidated Statements of Cash Flows is unaudited and has been restated to reflect the consolidation of variable interest entities. See Note
1
of “Notes to Condensed Consolidated Financial Statements” under the heading “
Prior Period Financial Statement Correction of Immaterial Error
” for more details. The accompanying notes are an integral part of these condensed consolidated financial statements.
v3.19.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]
Note
1:
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”). 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 Corp.’s Form
10
-K, which included all disclosures required by generally accepted accounting principles (“GAAP”) and the “
prior period financial statement correction of immaterial error
” note below. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position on a consolidated basis and the consolidated results of operations, equity and cash flows for the interim periods presented. The results of operations for the periods ended
June 30, 2019
and
2018
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, 2019
and
2018
is unaudited.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company
may
undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results
may
be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue and accounting for leases, see Note
3,
 
Revenue Disclosures
and Note
13
, Commitments and Contingencies
, respectively
.
 
Prior Period Financial Statement Correction of Immaterial Error
 
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. The PCs are VIEs as defined by Accounting Standards Codification
810,
Consolidations (“ASC
810”
). During the
first
quarter of
2019,
the Company reassessed 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. Prior to
2019,
the Company did
not
consolidate the PCs. The Company has concluded the previous accounting policy to
not
consolidate the PCs was an immaterial error and has determined that the PCs should be consolidated. The adjustments will result in an increase to revenues from company clinics and a corresponding increase to general and administrative expenses. This will have
no
impact on net income (loss), except when the PC has sold treatment packages and wellness plans. Revenue from these treatment packages and wellness plans will now be deferred and will be recognized when patients use their visits. The Company has corrected this immaterial error by restating the
2018
condensed consolidated financial statements and related notes included herein.
 
The immaterial impacts of this error correction in the
three
and
six
months ended
June 30, 2018
and the fiscal year ended
December 31, 2018
are as follows:
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 
 
Three Months Ended
 
Adjustments Due To
 
Three Months Ended
 
 
June 30, 2018
 
VIE Consolidation
 
June 30, 2018
 
 
(as reported)
 
 
 
(as adjusted)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from company-owned or managed clinics
 
$
3,420,685
 
 
 
1,247,953
 
 
$
4,668,638
 
Total revenues
 
 
7,556,832
 
 
 
1,247,953
 
 
 
8,804,785
 
General and administrative expenses
 
 
4,656,308
 
 
 
1,211,204
 
 
 
5,867,512
 
Total selling, general and administrative expenses
 
 
6,354,946
 
 
 
1,211,204
 
 
 
7,566,150
 
Loss from operations
 
 
(100,402
)
 
 
36,163
 
 
 
(64,239
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
Bargain purchase gain
 
 
75,264
 
 
 
(44,809
)
 
 
30,455
 
Total other income
 
 
63,575
 
 
 
(44,223
)
 
 
19,352
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before income tax expense
 
 
(36,827
)
 
 
(8,060
)
 
 
(44,887
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and comprehensive loss
 
$
(42,778
)
 
 
(8,060
)
 
$
(50,838
)
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 
 
Six Months Ended
 
Adjustments Due To
 
Six Months Ended
 
 
June 30, 2018
 
VIE Consolidation
 
June 30, 2018
 
 
 
(as reported)
 
 
 
 
 
 
 
(as adjusted)
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from company-owned or managed clinics
 
$
6,677,309
 
 
 
2,797,002
 
 
$
9,474,311
 
Total revenues
 
 
14,654,747
 
 
 
2,797,002
 
 
 
17,451,749
 
General and administrative expenses
 
 
9,731,234
 
 
 
2,404,964
 
 
 
12,136,198
 
Total selling, general and administrative expenses
 
 
12,919,593
 
 
 
2,404,964
 
 
 
15,324,557
 
Loss from operations
 
 
(539,466
)
 
 
391,064
 
 
 
(148,402
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
Bargain purchase gain
 
 
75,264
 
 
 
(44,809
)
 
 
30,455
 
Total other income
 
 
52,380
 
 
 
(43,835
)
 
 
8,545
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before income tax expense
 
 
(487,086
)
 
 
347,229
 
 
 
(139,857
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and comprehensive loss
 
$
(429,682
)
 
 
347,229
 
 
$
(82,453
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted loss per share
 
$
(0.03
)
 
 
0.02
 
 
$
(0.01
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted weighted average shares
 
 
13,605,370
 
 
 
-
 
 
 
13,605,370
 
 
 
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
 
 
December 31,
 
Adjustments Due To
 
December 31,
 
 
2018
 
VIE Consolidation
 
2018
ASSETS
 
(as reported)
 
 
 
(as adjusted)
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
 
 
1,213,707
 
 
 
(407,357
)
 
 
806,350
 
Total current assets
 
 
11,711,345
 
 
 
(407,357
)
 
 
11,303,988
 
Goodwill
 
 
2,916,426
 
 
 
308,719
 
 
 
3,225,145
 
Total assets
 
$
23,526,352
 
 
$
(98,639
)
 
$
23,427,713
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Deferred revenue from company clinics
 
 
994,493
 
 
 
1,535,004
 
 
 
2,529,497
 
Total current liabilities
 
 
8,738,123
 
 
 
1,535,004
 
 
 
10,273,127
 
Total liabilities
 
 
21,165,108
 
 
 
1,535,004
 
 
 
22,700,112
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
 
The Joint Corp. stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated deficit
 
 
(35,750,908
)
 
 
(1,633,743
)
 
 
(37,384,651
)
Total The Joint Corp. stockholders' equity
 
 
2,361,244
 
 
 
(1,633,743
)
 
 
727,501
 
Non-controlling Interest
 
 
-
 
 
 
100
 
 
 
100
 
Total equity
 
 
2,361,244
 
 
 
(1,633,643
)
 
 
727,601
 
Total liabilities and equity
 
$
23,526,352
 
 
$
(98,639
)
 
$
23,427,713
 
 
Principles of Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of The Joint Corp. 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 ASC
810.
Non-controlling interests represent
third
-party equity ownership interests in VIEs.
 
All significant inter-affiliate accounts and transactions between The Joint Corp. and its VIEs have been eliminated in consolidation. Certain balances were reclassified from regional developer fees to other revenues for the
three
and
six
months ended
June 30, 2018
to conform to the current year presentation.
 
Comprehensive Income (Loss)
 
Net income (loss) and comprehensive income (loss) are the same for the
three
and
six
months ended
June 30, 2019
and
2018.
  
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, 2019
and
2018:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Franchised clinics:
 
2019
 
2018
 
2019
 
2018
Clinics open at beginning of period
 
 
404
 
 
 
359
 
 
 
394
 
 
 
352
 
Opened or Purchased during the period
 
 
14
 
 
 
8
 
 
 
26
 
 
 
15
 
Acquired or sold during the period
 
 
 
 
 
(1
)
 
 
(1
)
 
 
(1
)
Closed during the period
 
 
(1
)
 
 
(1
)
 
 
(2
)
 
 
(1
)
Clinics in operation at the end of the period
 
 
417
 
 
 
365
 
 
 
417
 
 
 
365
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Company-owned or managed clinics:
 
2019
 
2018
 
2019
 
2018
Clinics open at beginning of period
 
 
50
 
 
 
47
 
 
 
48
 
 
 
47
 
Opened during the period
 
 
1
 
 
 
 
 
 
3
 
 
 
 
Acquired during the period
 
 
 
 
 
1
 
 
 
1
 
 
 
1
 
Closed or Sold during the period
 
 
 
 
 
 
 
 
(1
)
 
 
 
Clinics in operation at the end of the period
 
 
51
 
 
 
48
 
 
 
51
 
 
 
48
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total clinics in operation at the end of the period
 
 
468
 
 
 
413
 
 
 
468
 
 
 
413
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clinic licenses sold but not yet developed
 
 
176
 
 
 
117
 
 
 
176
 
 
 
117
 
Executed letters of intent for future clinic licenses
 
 
28
 
 
 
9
 
 
 
28
 
 
 
9
 
 
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. Such PCs are VIEs, as fees paid by the PC 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. 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. During the
first
quarter of
2019,
the Company reassessed 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, 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, 2019
and
December 31, 2018.
  
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 represent amounts due from franchisees for initial franchise fees and 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, 2019,
and
December 31, 2018,
the Company had an allowance for doubtful accounts of
$0.
  
Deferred Franchise Costs
 
Deferred franchise costs represent commissions that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise. These costs 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.
 
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
three
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, generally
five
years.
 
Leases
 
The Company adopted the guidance of Accounting Standards Codification
842
– Leases (“ASC
842”
) on
January 1, 2019
which requires lessees to recognize a right-of-use ("ROU") asset and lease liability for all leases. The Company elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are or contain leases, lease classification and determination of initial direct costs.
 
The Company leases property and equipment under finance and operating leases. The Company leases its corporate office space and the space for each of the company-owned or managed clinic in the portfolio. 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 could 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. Once a clinic opens, 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
four
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 subject to annual impairment tests. As required, the Company performs an annual impairment test of goodwill as of the
first
day of the
fourth
quarter or more frequently if events or circumstances change that would more likely than
not
reduce the fair value of a reporting unit below its carrying value.
No
impairments of goodwill were recorded for the
three
and
six
months ended
June 30, 2019
and
2018.
 
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.
No
impairments of long-lived assets were recorded for the
three
and
six
months ended
June 30, 2019
and
2018.
 
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 (or a deferred revenue 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, the Company concluded that any remaining contract liability that exists after
24
months from transaction date will be deemed breakage, and only at that point when the likelihood of the patient exercising his or her remaining rights becomes remote will the Company recognize any breakage revenue.
 
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 bi-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 franchise license 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 is 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. Royalty of
3%
of sales generated by franchised clinics in their region are recognized as franchise cost of revenues as franchisee clinic level sales occur.
 
The Company entered into
one
regional developer agreement for the
six
months ended
June 30, 2019
for which it received approximately
$290,000
which 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. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.
  
Advertising Costs
 
Advertising costs are expensed as incurred. Advertising expenses were
$656,476
and
$1,095,913
for the
three
and
six
months ended
June 30, 2019,
respectively. Advertising expenses were
$471,056
and
$881,694
for the
three
and
six
months ended
June 30, 2018,
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 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, 2019
and
December 31, 2018.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.
 
The Company's tax returns for tax years subject to examination by tax authorities included
2014
through the current period for state and
2015
through the current period for federal reporting purposes.
 
Earnings (Loss) per Common Share
 
Basic earnings (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock, and stock options.
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(as adjusted)
 
 
 
(as adjusted)
Net Income (loss)
 
$
462,260
 
 
$
(50,838
)
 
$
1,414,905
 
 
$
(82,453
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
 
13,797,497
 
 
 
13,622,710
 
 
 
13,774,474
 
 
 
13,605,370
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unvested restricted stock and stock options
 
 
679,510
 
 
 
 
 
 
615,845
 
 
 
 
Weighted average common shares outstanding - diluted
 
 
14,477,007
 
 
 
13,622,710
 
 
 
14,390,320
 
 
 
13,605,370
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
0.03
 
 
$
 
 
$
0.10
 
 
$
(0.01
)
Diluted earnings (loss) per share
 
$
0.03
 
 
$
 
 
$
0.10
 
 
$
(0.01
)
 
Potentially dilutive securities excluded from the calculation of diluted net income per common share as the effect would be anti-dilutive were as follows:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Weighted average potentially dilutive securities:
 
2019
 
2018
 
2019
 
2018
Unvested restricted stock
 
 
 
 
 
 
 
 
2,569
 
 
 
 
Stock options
 
 
 
 
 
 
 
 
41,035
 
 
 
 
 
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 quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.
 
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 and intangible assets and purchase price allocations.
 
Recent Accounting Pronouncements
 
Accounting Standards Adopted Effective
January 1, 2019
 
On
January 1, 2019,
the Company adopted ASC
842,
which requires lessees to recognize a ROU asset and lease liability on their balance sheet for all leases with terms beyond
twelve
months. The new standard also requires enhanced disclosures that provide more transparency and information to financial statement users about lease portfolios. Effective
January 1, 2019,
the Company adopted the requirements of ASC
842
using the modified retrospective approach using the optional transition method and elected to apply the provisions of the standard as of the adoption date rather than the earliest date presented. The consolidated financial statements for the period ended
June 30, 2019
are presented under the new standard, while comparative periods presented have
not
been adjusted and continue to be reported in accordance with the previous standard.
 
During the process of adoption, the Company made the following elections:
 
 
·
The Company elected the package of practical expedients which allowed the Company to
not
reassess:
 
 
·
Whether existing or expired contracts contain leases under the new definition of a lease;
 
 
·
Lease classification for existing or expired leases; and
 
 
·
Initial direct costs for any expired or existing leases to determine if they would qualify for capitalization under ASC
842.
 
 
·
The Company did
not
elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.
 
 
·
The Company did
not
elect the land easement practical expedient, which permits an entity to continue applying its current policy for accounting for land easements that existed as of, or expired before, the effective date of ASC
842.
 
 
·
The Company elected to make the accounting policy election for short-term leases, permitting the Company to
not
apply the recognition requirements of ASC
842
to short-term leases with terms of
12
months or less.
 
The adoption of ASC
842
does
not
materially impact the Company’s results of operations other than recognition of the operating lease ROU asset and lease liability. See Note
13
for additional disclosures required by ASC
842.
 
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.
v3.19.2
Note 2 - Acquisition
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
Note
2:
Acquisition
 
On
April 6, 2018,
the Company entered into an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller
one
operating franchise in San Diego, California and (ii) the parties agreed to mutually terminate a
second
franchise agreement for an operating franchise. The Company operates the remaining franchise as a company-managed clinic. The total purchase price for the transaction was
$100,000,
less
$12,998
of deferred revenue resulting in total purchase consideration of
$87,002
related to the transaction.
 
On
March 18, 2019,
the Company entered into an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller
one
operating franchise in West Covina, California and (ii) the parties agreed to terminate a
second
franchise agreement for an operating franchise. The Company intends to operate the remaining franchise as a company-managed clinic. The total purchase price for the transaction was
$30,000,
less
$3,847
of deferred revenue resulting in total purchase consideration of
$26,153.
  
Purchase Price Allocation
 
The following summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed during
2019
as of the acquisition date:
 
Property and equipment   $
9,166
 
Intangible assets    
62,000
 
Total assets acquired    
71,166
 
Deferred revenue    
(14,305
)
Deferred tax liability    
(11,410
)
Bargain purchase gain    
(19,298
)
Net purchase price   $
26,153
 
 
Intangible assets in the table above consist of reacquired franchise rights of
$30,000
amortized over an estimated useful life of
three
years and customer relationships of
$32,000
amortized over an estimated useful life of
two
years.
 
Pro Forma Results of Operations (Unaudited)
 
The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the
three
and
six
months ended
June 30, 2019
and
2018
as if the acquisition in
2019
had been completed on
January 1, 2018.
 
    Pro Forma for the Three Months Ended   Pro Forma for the Six Months Ended
    June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018
Revenues, net   $
11,169,979
    $
8,863,340
    $
21,894,980
    $
17,633,044
 
Net income (loss)   $
462,260
    $
(90,437
)   $
1,439,451
    $
(207,928
)
 
This selected unaudited pro forma consolidated financial data is included only for the purpose of illustration and does
not
necessarily indicate what the operating results would have been if the acquisition had been completed on that date. Moreover, this information is
not
indicative of what the Company’s future operating results will be. The information for
2018
and
2019
prior to the acquisition is included based on prior accounting records maintained by the acquired company. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisition. For
2018,
this information includes actual data recorded in the Company’s financial statements for the period subsequent to the date of the acquisition. The Company’s condensed consolidated statement of operations for the
three
months ended
June 30, 2019
includes net revenue and net loss of approximately
$73,000
and (
$2,000
), respectively, attributable to the acquisition. The Company’s consolidated statement of operations for the
six
months ended
June 
30,
2019
includes net revenue and net loss of approximately
$73,000
and (
$13,000
), respectively, attributable to the acquisition.
 
The pro forma amounts included in the table above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from
January 1, 2018.
v3.19.2
Note 3 - Revenue Disclosures
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
Note
3:
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, 2019
and
2018.
 
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, 2019
were as follows (in thousands):
 
    Deferred Revenue
    short and long-term
Balance at December 31, 2018   $
13,609
 
Recognized as revenue during the six months ended June 30, 2019    
(1,249
)
Fees received and deferred during the six months ended June 30, 2019    
2,990
 
Balance at June 30, 2019   $
15,350
 
 
Changes in the Company's contract assets for deferred franchise costs during the
six
months ended
June 30, 2019
are as follows (in thousands):
 
    Deferred Franchise Costs
    short and long-term
Balance at December 31, 2018   $
3,489
 
Recognized as cost of revenue during the six months ended June 30, 2019    
(325
)
Costs incurred and deferred during the six months ended June 30, 2019    
1,032
 
Balance at June 30, 2019   $
4,196
 
 
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, 2019 (
in thousands):
 
Contract liabilities expected to be recognized in   Amount
2019 (remainder)   $
1,356
 
2020    
2,694
 
2021    
2,572
 
2022    
2,150
 
2023    
1,788
 
Thereafter    
4,790
 
Total   $
15,350
 
v3.19.2
Note 4 - Restricted Cash
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Restricted Cash [Text Block]
Note
4.
Restricted Cash
 
The table below reconciles the cash and cash equivalents balance and restricted cash balances from The Company’s condensed consolidated balance sheet to the amount of cash reported on the condensed consolidated statement of cash flows:
 
    June 30,   December 31,
    2019   2018
Cash and cash equivalents   $
9,485,212
    $
8,716,874
 
Restricted cash    
129,220
     
138,078
 
Total cash, cash equivalents and restricted cash   $
9,614,432
    $
8,854,952
 
v3.19.2
Note 5 - Notes Receivable
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
Note
5:
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
36
months, beginning
November 1, 2017
and maturing on
October 1, 2020. 
The note is secured by the regional developer rights in the respective territory.
 
Effective
August 31, 2017,
the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for
$220,000,
of which
$117,475
was funded through a promissory note. The note bears interest at
10%
per annum for
36
months and requires monthly principal and interest payments over
36
months, beginning
September 1, 2017
and maturing on
August 1, 2020.
The note is secured by the regional developer rights in the respective territory.
 
Effective
September 22, 2017,
the Company entered into a regional developer and asset purchase agreement for certain territories in Minnesota in exchange for
$228,293,
of which
$119,147
was funded through a promissory note. The note bears interest at
10%
per annum for
36
months and requires monthly principal and interest payments over
36
months, beginning
October 1, 2017
and maturing on
September 1, 2020.
The note is collateralized by the regional developer rights in the territory. The note was paid in full on
September 28, 2018.
 
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
36
months and requires monthly principal and interest payments over
36
months, 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
36
months and requires monthly principal and interest payments over
36
months, beginning
May 15, 2019
and maturing on
May 15, 2022.
 
The net outstanding balances of the notes as of
June 30, 2019
and
December 31, 2018
were
$235,343
and
$278,072,
respectively. Maturities of notes receivable as of
June 30, 2019
are as follows:
 
2019 (remaining)   $
79,534
 
2020    
137,123
 
2021    
9,600
 
2022    
9,086
 
Total   $
235,343
 
v3.19.2
Note 6 - Property and Equipment
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Property, Plant and Equipment Disclosure [Text Block]
Note
6:
Property and Equipment
 
Property and equipment consist of the following:
 
    June 30,   December 31,
    2019   2018
         
Office and computer equipment   $
1,373,775
    $
1,243,104
 
Leasehold improvements    
5,784,728
     
5,407,915
 
Software developed    
1,193,007
     
1,145,742
 
Finance lease assets    
80,604
     
 
     
8,432,114
     
7,796,761
 
Accumulated depreciation and amortization    
(5,256,290
)    
(4,909,002
)
     
3,175,824
     
2,887,759
 
Construction in progress    
1,787,213
     
770,248
 
Property and equipment, net   $
4,963,037
    $
3,658,007
 
 
Depreciation expense was
$206,609
and
$400,415
for the
three
and
six
months ended
June 30, 2019,
respectively. Depreciation expense was
$284,265
and
$548,618
for the
three
and
six
months ended
June 30, 2018,
respectively. 
 
Amortization expense related to finance lease assets was
$6,169
and
$12,337
for the
three
and
six
months ended
June 30, 2019,
respectively.
 
Construction in progress at
June 30, 2019
and
December 31, 2018
principally relate to development costs for a software to be used by clinics for operations and by the Company for the management of operations.
v3.19.2
Note 7 - Fair Value Consideration
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
Note
7:
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, 2019,
and
December 31, 2018,
the Company did
not
have any financial instruments that were measured on a recurring basis as Level
1,
2
or
3.
 
The intangible assets resulting from the acquisition (reference Note
2
) were recorded at fair value on a non-recurring basis and are considered Level
3
within the fair value hierarchy.
v3.19.2
Note 8 - Intangible Assets
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Intangible Assets Disclosure [Text Block]
Note
8:
Intangible Assets
 
On
February 4, 2019,
the Company entered into an agreement under which it repurchased the right to develop franchises in various counties in South Carolina and Georgia. The total consideration for the transaction was
$681,500.
The Company carried a deferred revenue balance associated with these transactions of
$44,334,
representing license fees collected upon the execution of the regional developer agreements.  The Company accounted for the termination of development rights associated with unsold or undeveloped franchises as a cancellation, and the associated deferred revenue was netted against the aggregate purchase price.  
 
Intangible assets consist of the following:
 
    As of June 30, 2019
    Gross Carrying   Accumulated   Net Carrying
    Amount   Amortization   Value
Intangible assets subject to amortization:                        
Reacquired franchise rights   $
1,788,000
    $
(1,058,822
)   $
729,178
 
Customer relationships    
777,000
     
(733,828
)    
43,172
 
Reacquired development rights    
2,050,482
     
(846,997
)    
1,203,485
 
    $
4,615,482
    $
(2,639,647
)   $
1,975,835
 
 
    As of December 31, 2018
    Gross Carrying   Accumulated   Net Carrying
    Amount   Amortization   Value
Intangible assets subject to amortization:                        
Reacquired franchise rights   $
1,758,000
    $
(921,138
)   $
836,862
 
Customer relationships    
745,000
     
(717,498
)    
27,502
 
Reacquired development rights    
1,413,316
     
(643,620
)    
769,696
 
    $
3,916,316
    $
(2,282,256
)   $
1,634,060
 
 
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. Amortization expense related to the Company’s intangible assets was
$120,710
and
$243,774
for the
three
and
six
months ended
June 30, 2018,
respectively. 
 
Estimated amortization expense for
2019
and subsequent years is as follows:
 
2019 (remainder)   $
379,140
 
2020    
741,790
 
2021    
657,850
 
2022    
184,842
 
2023    
12,213
 
Total   $
1,975,835
 
v3.19.2
Note 9 - Debt
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
9:
Debt
 
Notes Payable
 
During
2016,
the Company issued
two
notes payable totaling
$186,000
as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes were
4.25%
with maturities through
May 2017.
As of
December 31, 2018,
there was
one
outstanding note with a balance of
$100,000
which was paid in
February 2019.
 
Credit and Security Agreement
 
On
January 3, 2017,
the Company entered into a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender. Under the Credit Agreement, the Company is able to borrow up to an aggregate of
$5,000,000
under revolving loans. Interest on the unpaid outstanding principal amount of any revolving loans is at a rate equal to
10%
per annum, provided that the minimum amount of interest paid in the aggregate on all revolving loans granted over the term of the Credit Agreement is
$200,000.
Interest is due and payable on the last day of each fiscal quarter in an amount determined by the Company, but
not
less than
$25,000.
The Credit Agreement terminates in
December 2019,
unless sooner terminated in accordance with the provisions of the Credit Agreement. The Credit Agreement is collateralized by the assets in the Company’s company-owned or managed clinics. The Company is using the credit facility for general working capital needs. As of
June 30, 2019,
the Company had drawn
$1,000,000
of the
$5,000,000
available under the Credit Agreement.
 
As of
June 30, 2019,
the Company was in compliance with all applicable financial and non-financial covenants under the Credit Agreement.
v3.19.2
Note 10 - Stock-based Compensation
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note
10:
Stock-Based Compensation
 
Stock Options
 
During the
six
months ended
June 30, 2019,
the Company granted
62,944
stock options to employees with an exercise price of
$12.02.
 
The Company’s stock trading 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 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. For future grants, the Company plans to use 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 during the
six
months ended
June 30, 2019
and
2018,
using the following assumptions:
 
    Six Months Ended June 30,
    2019   2018
Expected volatility    
35%
   
42%
-
43%
Expected dividends    
None
   
 
None
 
Expected term (years)    
7
   
 
7
 
Risk-free rate    
2.61%
   
2.53%
to
2.63%
Forfeiture rate    
20%
   
 
20%
 
 
The information below summarizes the stock options activity:
 
                Weighted
   
 
 
Weighted
 
Weighted
 
Average
   
 
 
Average
 
Average
 
Remaining
   
Number of
 
Exercise
 
Fair
 
Contractual Life
   
Shares
 
Price
 
Value
 
(Years)
Outstanding at December 31, 2017    
1,003,916
 
  $
4.18
 
  $
1.87
 
   
8.1
 
Granted    
145,792
 
   
7.00
 
   
 
 
   
 
 
Exercised    
(95,162
)
   
3.48
 
   
 
 
   
 
 
Cancelled    
(67,855
)
   
3.37
 
   
 
 
   
 
 
Outstanding at December 31, 2018    
986,691
 
  $
4.72
 
  $
2.09
 
   
6.8
 
Granted    
62,944
 
   
12.02
 
   
 
 
   
 
 
Exercised    
(47,804
)
   
5.01
 
   
 
 
   
 
 
Cancelled    
 
   
 
   
 
 
   
 
 
Outstanding at June 30, 2019    
1,001,831
 
  $
5.17
 
  $
2.25
 
   
6.2
 
Exercisable at June 30, 2019    
541,238
 
  $
4.61
 
  $
2.01
 
   
6.2
 
 
The aggregate intrinsic value of the Company’s stock options outstanding and expected to vest was
$11,894,226
at
June 30, 2019.
 
The aggregate intrinsic value of the Company’s stock options exercisable was
$7,354,410
at
June 30, 2019.
 
For the
three
and
six
months ended
June 30, 2019,
stock-based compensation expense for stock options was
$99,846
and
$196,650,
respectively.  For the
three
and
six
months ended
June 30, 2018,
stock-based compensation expense for stock options was
$69,640
and
$208,813,
respectively. Unrecognized stock-based compensation expense for stock options as of
June 30, 2019
was
$920,988,
which is expected to be recognized ratably over the next
2.8
years.
 
Restricted Stock
 
Restricted stocks granted to employees generally vest in
four
equal annual installments. Restricted stocks granted to non-employee directors typically vest in full
one
year after the date of grant.
 
The information below summaries the restricted stock activity:
 
Restricted Stock Awards   Shares
Non-vested at December 31, 2018    
51,134
 
Granted    
26,131
 
Vested    
(33,012
)
Cancelled    
 
Non-vested at June 30, 2019    
44,253
 
 
For the
three
and
six
months ended
June 30, 2019,
stock-based compensation expense for restricted stock was
$79,106
and
$154,074,
respectively. For the
three
and
six
months ended
June 30, 2018,
stock-based compensation expense for restricted stock was
$69,347
and
$137,816,
respectively.
 
Unrecognized stock-based compensation expense for restricted stock awards as of
June 30, 2019
was
$469,307,
which is expected to be recognized ratably over the next
2.2
years.
v3.19.2
Note 11 - Income Taxes
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
11:
Income Taxes
 
During the
three
and
six
months ended
June 30, 2019,
the Company recorded income tax expense of approximately
$10,000
and
$9,000,
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.
 
During the
three
and
six
months ended
June 30, 2018,
the Company recorded income tax expense of approximately
$6,000
and income tax benefit of approximately
$57,000,
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.
v3.19.2
Note 12 - Related Party Transactions
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]
Note
12:
Related Party Transactions
 
The Company entered into a legal agreement with a certain common stockholder related to services performed for the operations and transaction related activities of the Company. Amounts paid to or for the benefit of this stockholder was approximately
$98,000
and
$181,000
for the
three
and
six
months ended
June 30, 2019,
respectively. Amounts paid to or for the benefit of this stockholder was approximately
$68,000
and
$116,000
for the
three
and
six
months ended
June 30, 2018,
respectively.
v3.19.2
Note 13 - Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
Note
13:
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, 2019:
 
    Line Item in the Company’s Consolidated
Statements of Operations
  Three Months Ended
June 30, 2019
  Six Months Ended
June 30, 2019
             
Finance lease costs:                    
Amortization of assets  
Depreciation and amortization
  $
6,169
    $
12,337
 
Interest on lease liabilities  
Other income (expense), net
   
1,778
     
3,689
 
Total finance lease costs  
 
   
7,947
     
16,026
 
Operating lease costs  
General and administrative expenses
  $
706,368
    $
1,394,100
 
Total lease costs  
 
  $
714,315
    $
1,410,126
 
 
Supplemental information and balance sheet location related to leases is as follows:
 
    June 30, 2019
     
Operating Leases:        
Operating lease right-of -use asset   $
10,030,737
 
         
Operating lease liability - current portion   $
1,827,233
 
Operating lease liability - net of current portion    
9,049,948
 
Total operating lease liability   $
10,877,181
 
         
Finance Leases:        
Property and equipment, at cost   $
80,604
 
Less accumulated amortization    
(12,337
)
Property and equipment, net   $
68,267
 
         
         
Finance lease liability - current portion   $
23,075
 
Finance lease liability - net of current portion    
46,826
 
Total finance lease liabilities   $
69,901
 
         
Weighted average remaining lease term (in years):        
Operating leases    
5.71
 
Finance lease    
2.77
 
         
Weighted average discount rate:        
Operating leases    
9.20
%
Finance leases    
10.00
%
 
Supplemental cash flow information related to leases is as follows:
 
    Six Months Ended
June 30, 2019
     
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases   $
1,469,684
 
Operating cash flows from finance leases    
3,689
 
Financing cash flows from finance leases    
10,704
 
         
Non-cash transactions: ROU assets obtained in exchange for lease liabilities
Operating lease   $
400,980
 
Finance lease    
80,604
 
 
Maturities of lease liabilities as of
June 30, 2019
are as follows:
 
    Operating Leases   Finance Lease
2019 (remainder)   $
1,372,050
    $
14,393
 
2020    
2,642,993
     
28,786
 
2021    
2,545,456
     
28,786
 
2022    
2,454,666
     
7,676
 
2023    
1,776,161
     
 
Thereafter    
3,180,176
     
 
Total lease payments   $
13,971,502
    $
79,641
 
Less: Imputed interest    
(3,094,321
)    
(9,740
)
Total lease obligations    
10,877,181
     
69,901
 
Less: Current obligations    
(1,827,233
)    
(23,075
)
Long-term lease obligation   $
9,049,948
    $
46,826
 
 
The future minimum obligations under operating leases in effect as of
December 31, 2018
having a noncancelable term in excess of
one
year as determined prior to the adoption of ASC
842
are as follows:
 
    Operating Leases
2019   $
2,630,443
 
2020    
2,406,645
 
2021    
2,299,887
 
2022    
2,195,077
 
2023    
1,474,396
 
Thereafter    
2,772,575
 
Total lease payments   $
13,779,023
 
 
In
May 2019,
the Company entered into an operating lease for its new corporate office space that has
not
yet commenced. The new lease is expected to result in additional ROU asset and liability of approximately
$2.1
million. The lease is expected to commence during the
fourth
quarter of
2019,
with a lease term of
six
years.
 
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.
v3.19.2
Note 14 - Segment Reporting
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]
Note
14:
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. The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of
June 30, 2019,
the Company operated or managed
51
clinics under this segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit. As of
June 30, 2019,
the franchise system consisted of
417
clinics in operation. Corporate is a non-operating segment that develops and implements strategic initiatives and supports the Company’s
two
operating business segments by centralizing key administrative functions such as finance and treasury, information technology, insurance and risk management, legal and human resources. Corporate also provides the necessary administrative functions to support the Company as a publicly-traded company. A portion of the expenses incurred by Corporate are allocated to the operating segments.  
  
The tables below present financial information for the Company’s
two
operating business segments (in thousands).
 
    Three Months Ended   Six Months Ended
  June 30,   June 30,
    2019   2018   2019   2018
        (as adjusted)       (as adjusted)
Revenues:                
Corporate clinics   $
5,777
    $
4,669
    $
11,416
    $
9,474
 
Franchise operations    
5,393
     
4,136
     
10,433
     
7,978
 
Total revenues   $
11,170
    $
8,805
    $
21,849
    $
17,452
 
                                 
Segment operating income (loss):                                
Corporate clinics   $
564
    $
(50
)   $
1,404
    $
416
 
Franchise operations    
2,631
     
1,974
     
5,020
     
3,789
 
Total segment operating income (loss)   $
3,195
    $
1,924
    $
6,424
    $
4,205
 
                                 
Depreciation and amortization:                                
Corporate clinics   $
353
    $
245
    $
666
    $
548
 
Franchise operations    
-
     
-
     
-
     
-
 
Corporate administration    
51
     
160
     
104
     
244
 
Total depreciation and amortization   $
404
    $
405
    $
770
    $
792
 
                                 
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
 
Total segment operating income (loss)   $
3,195
    $
1,924
    $
6,424
    $
4,205
 
Unallocated corporate    
(2,707
)    
(1,988
)    
(4,993
)    
(4,353
)
Consolidated income (loss) from operations    
488
     
(64
)    
1,431
     
(148
)
Bargain purchase gain    
-
     
30
     
19
     
30
 
Other income (expense), net    
(15
)    
(11
)    
(26
)    
(22
)
Income (loss) before income tax expense   $
473
    $
(45
)   $
1,424
    $
(140
)
 
 
    June 30,   December 31,
    2019   2018
Segment assets:  
 
 
(as adjusted)
Corporate clinics   $
19,249
    $
8,828
 
Franchise operations    
5,181
     
4,455
 
Total segment assets   $
24,430
    $
13,283
 
                 
Unallocated cash and cash equivalents and restricted cash   $
9,614
    $
8,855
 
Unallocated property and equipment    
1,551
     
487
 
Other unallocated assets    
874
     
803
 
Total assets   $
36,469
    $
23,428
 
 
“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.
v3.19.2
Note 15 - Subsequent Events
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Subsequent Events [Text Block]
Note
15:
Subsequent Events
 
In
July
and
August 2019,
the Company acquired
five
franchised clinics for a total consideration of approximately
$2.8
million. One of the purchased clinics is located in Arizona and the other
four
clinics are located in Georgia and South Carolina. The Company plans to file separate financial statements and pro forma financial information, as required by SEC rules, in a Current Report on Form
8
-K within the prescribed
75
-day period following consummation of the transactions.
v3.19.2
Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]
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”). 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 Corp.’s Form
10
-K, which included all disclosures required by generally accepted accounting principles (“GAAP”) and the “
prior period financial statement correction of immaterial error
” note below. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position on a consolidated basis and the consolidated results of operations, equity and cash flows for the interim periods presented. The results of operations for the periods ended
June 30, 2019
and
2018
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, 2019
and
2018
is unaudited.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company
may
undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results
may
be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue and accounting for leases, see Note
3,
 
Revenue Disclosures
and Note
13
, Commitments and Contingencies
, respectively
.
Reclassification, Policy [Policy Text Block]
Prior Period Financial Statement Correction of Immaterial Error
 
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. The PCs are VIEs as defined by Accounting Standards Codification
810,
Consolidations (“ASC
810”
). During the
first
quarter of
2019,
the Company reassessed 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. Prior to
2019,
the Company did
not
consolidate the PCs. The Company has concluded the previous accounting policy to
not
consolidate the PCs was an immaterial error and has determined that the PCs should be consolidated. The adjustments will result in an increase to revenues from company clinics and a corresponding increase to general and administrative expenses. This will have
no
impact on net income (loss), except when the PC has sold treatment packages and wellness plans. Revenue from these treatment packages and wellness plans will now be deferred and will be recognized when patients use their visits. The Company has corrected this immaterial error by restating the
2018
condensed consolidated financial statements and related notes included herein.
 
The immaterial impacts of this error correction in the
three
and
six
months ended
June 30, 2018
and the fiscal year ended
December 31, 2018
are as follows:
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    Three Months Ended   Adjustments Due To   Three Months Ended
    June 30, 2018   VIE Consolidation   June 30, 2018
    (as reported)       (as adjusted)
Revenues:                        
Revenues from company-owned or managed clinics   $
3,420,685
     
1,247,953
    $
4,668,638
 
Total revenues    
7,556,832
     
1,247,953
     
8,804,785
 
General and administrative expenses    
4,656,308
     
1,211,204
     
5,867,512
 
Total selling, general and administrative expenses    
6,354,946
     
1,211,204
     
7,566,150
 
Loss from operations    
(100,402
)    
36,163
     
(64,239
)
                         
Other income (expense):                        
Bargain purchase gain    
75,264
     
(44,809
)    
30,455
 
Total other income    
63,575
     
(44,223
)    
19,352
 
                         
Loss before income tax expense    
(36,827
)    
(8,060
)    
(44,887
)
                         
Net loss and comprehensive loss   $
(42,778
)    
(8,060
)   $
(50,838
)
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    Six Months Ended   Adjustments Due To   Six Months Ended
    June 30, 2018   VIE Consolidation   June 30, 2018
      (as reported)               (as adjusted)  
Revenues:                        
Revenues from company-owned or managed clinics   $
6,677,309
     
2,797,002
    $
9,474,311
 
Total revenues    
14,654,747
     
2,797,002
     
17,451,749
 
General and administrative expenses    
9,731,234
     
2,404,964
     
12,136,198
 
Total selling, general and administrative expenses    
12,919,593
     
2,404,964
     
15,324,557
 
Loss from operations    
(539,466
)    
391,064
     
(148,402
)
                         
Other income (expense):                        
Bargain purchase gain    
75,264
     
(44,809
)    
30,455
 
Total other income    
52,380
     
(43,835
)    
8,545
 
                         
Loss before income tax expense    
(487,086
)    
347,229
     
(139,857
)
                         
Net loss and comprehensive loss   $
(429,682
)    
347,229
    $
(82,453
)
                         
Loss per share:                        
Basic and diluted loss per share   $
(0.03
)    
0.02
    $
(0.01
)
                         
Basic and diluted weighted average shares    
13,605,370
     
-
     
13,605,370
 
 
 
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
    December 31,   Adjustments Due To   December 31,
    2018   VIE Consolidation   2018
ASSETS  
(as reported)
 
 
 
(as adjusted)
Current assets:                        
Accounts receivable, net    
1,213,707
 
   
(407,357
)    
806,350
 
Total current assets    
11,711,345
 
   
(407,357
)    
11,303,988
 
Goodwill    
2,916,426
 
   
308,719
     
3,225,145
 
Total assets   $
23,526,352
 
  $
(98,639
)   $
23,427,713
 
                         
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities:                        
Deferred revenue from company clinics    
994,493
 
   
1,535,004
     
2,529,497
 
Total current liabilities    
8,738,123
 
   
1,535,004
     
10,273,127
 
Total liabilities    
21,165,108
 
   
1,535,004
     
22,700,112
 
Commitments and contingencies                        
Equity:                        
The Joint Corp. stockholders' equity:                        
Accumulated deficit    
(35,750,908
)
   
(1,633,743
)    
(37,384,651
)
Total The Joint Corp. stockholders' equity    
2,361,244
 
   
(1,633,743
)    
727,501
 
Non-controlling Interest    
-
 
   
100
     
100
 
Total equity    
2,361,244
 
   
(1,633,643
)    
727,601
 
Total liabilities and equity   $
23,526,352
 
  $
(98,639
)   $
23,427,713
 
 
Consolidation, Policy [Policy Text Block]
Principles of Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of The Joint Corp. 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 ASC
810.
Non-controlling interests represent
third
-party equity ownership interests in VIEs.
 
All significant inter-affiliate accounts and transactions between The Joint Corp. and its VIEs have been eliminated in consolidation. Certain balances were reclassified from regional developer fees to other revenues for the
three
and
six
months ended
June 30, 2018
to conform to the current year presentation.
Comprehensive Income, Policy [Policy Text Block]
Comprehensive Income (Loss)
 
Net income (loss) and comprehensive income (loss) are the same for the
three
and
six
months ended
June 30, 2019
and
2018.
Nature of Operations Policy [Policy Text Block] <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><div style="display: inline; font-weight: bold;"><div style="display: inline; font-style: italic;">Nature of Operations</div></div></div> <div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"> </div> <div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Joint, a Delaware corporation, was formed on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> March 10, 2010 </div>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.  </div> <div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"> </div> <div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">three</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">six</div> months ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2019 </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2018:</div></div> <div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"> </div> <div style=" font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></div> <div> <table style="border-collapse: collapse; font: 10pt Times New Roman, Times, Serif; min-width: 700px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; text-align: right"> </td> <td style="font-weight: bold"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center">Three Months Ended</td> <td style="font-weight: bold"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center">Six Months Ended</td> </tr> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; text-align: right"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</td> </tr> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; font-weight: bold">Franchised clinics:</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2018</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2018</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 40%; text-align: left; padding-left: 10pt">Clinics open at beginning of period</td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">404</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">359</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">394</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">352</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-left: 20pt">Opened or Purchased during the period</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">14</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">8</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">26</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">15</div></td> <td style="white-space: nowrap; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-left: 20pt">Acquired or sold during the period</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; text-align: left">)</td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 20pt">Closed during the period</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(2</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 10pt">Clinics in operation at the end of the period</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">417</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">365</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">417</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">365</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> </tr> </table> </div> <div style=" margin: 0"> </div> <div> <table style="border-collapse: collapse; font: 10pt Times New Roman, Times, Serif; min-width: 700px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; text-align: right"> </td> <td style="font-weight: bold"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center">Three Months Ended</td> <td style="font-weight: bold"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center">Six Months Ended</td> </tr> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; text-align: right"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</td> </tr> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; font-weight: bold">Company-owned or managed clinics:</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2018</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2018</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 40%; text-align: left; padding-left: 10pt">Clinics open at beginning of period</td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">50</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">47</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">48</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> <td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 11%; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">47</div></td> <td style="white-space: nowrap; width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-left: 20pt">Opened during the period</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">3</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-left: 20pt">Acquired during the period</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1</div></td> <td style="white-space: nowrap; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 20pt">Closed or Sold during the period</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">(1</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">–</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 10pt">Clinics in operation at the end of the period</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">51</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">48</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">51</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td> <td style="border-bottom: Black 1pt solid; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">48</div></td> <td style="white-space: nowrap; border-bottom: Black 1pt solid; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: right"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 2.5pt">Total clinics in operation at the end of the period</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="border-bottom: Black 2.5pt double; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">468</div></td> <td style="white-space: nowrap; border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="border-bottom: Black 2.5pt double; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">413</div></td> <td style="white-space: nowrap; border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="border-bottom: Black 2.5pt double; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">468</div></td> <td style="white-space: nowrap; border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td> <td style="border-bottom: Black 2.5pt double; text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">413</div></td> <td style="white-space: nowrap; border-bottom: Black 2.5pt double; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: right"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="white-space: nowrap; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Clinic licenses sold but not yet developed</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">176</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">117</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">176</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">117</div></td> <td style="white-space: nowrap; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Executed letters of intent for future clinic licenses</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">28</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">9</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">28</div></td> <td style="white-space: nowrap; text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">9</div></td> <td style="white-space: nowrap; text-align: left"> </td> </tr> </table> </div></div></div>
Consolidation, Variable Interest Entity, Policy [Policy Text Block]
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. Such PCs are VIEs, as fees paid by the PC 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. 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. During the
first
quarter of
2019,
the Company reassessed 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, 2019.
Cash and Cash Equivalents, Policy [Policy Text Block]
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, 2019
and
December 31, 2018.
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]
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 [Policy Text Block]
Accounts Receivable
 
Accounts receivable represent amounts due from franchisees for initial franchise fees and 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, 2019,
and
December 31, 2018,
the Company had an allowance for doubtful accounts of
$0.
Deferred Charges, Policy [Policy Text Block]
Deferred Franchise Costs
 
Deferred franchise costs represent commissions that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise. These costs 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.
Property, Plant and Equipment, Policy [Policy Text Block]
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
three
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.
Internal Use Software, Policy [Policy Text Block]
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, generally
five
years.
Lessee, Leases [Policy Text Block]
Leases
 
The Company adopted the guidance of Accounting Standards Codification
842
– Leases (“ASC
842”
) on
January 1, 2019
which requires lessees to recognize a right-of-use ("ROU") asset and lease liability for all leases. The Company elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are or contain leases, lease classification and determination of initial direct costs.
 
The Company leases property and equipment under finance and operating leases. The Company leases its corporate office space and the space for each of the company-owned or managed clinic in the portfolio. 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 could 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. Once a clinic opens, 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, Finite-Lived, Policy [Policy Text Block]
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
four
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 and Intangible Assets, Goodwill, Policy [Policy Text Block]
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 subject to annual impairment tests. As required, the Company performs an annual impairment test of goodwill as of the
first
day of the
fourth
quarter or more frequently if events or circumstances change that would more likely than
not
reduce the fair value of a reporting unit below its carrying value.
No
impairments of goodwill were recorded for the
three
and
six
months ended
June 30, 2019
and
2018.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
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.
No
impairments of long-lived assets were recorded for the
three
and
six
months ended
June 30, 2019
and
2018.
Advertising Fund, Policy [Policy Text Block]
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, Policy [Policy Text Block]
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 from Contract with Customer [Policy Text Block]
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 (or a deferred revenue 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, the Company concluded that any remaining contract liability that exists after
24
months from transaction date will be deemed breakage, and only at that point when the likelihood of the patient exercising his or her remaining rights becomes remote will the Company recognize any breakage revenue.
 
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 bi-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 franchise license 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 is 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. Royalty of
3%
of sales generated by franchised clinics in their region are recognized as franchise cost of revenues as franchisee clinic level sales occur.
 
The Company entered into
one
regional developer agreement for the
six
months ended
June 30, 2019
for which it received approximately
$290,000
which 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. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.
Advertising Cost [Policy Text Block]
Advertising Costs
 
Advertising costs are expensed as incurred. Advertising expenses were
$656,476
and
$1,095,913
for the
three
and
six
months ended
June 30, 2019,
respectively. Advertising expenses were
$471,056
and
$881,694
for the
three
and
six
months ended
June 30, 2018,
respectively
Income Tax, Policy [Policy Text Block]
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 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, 2019
and
December 31, 2018.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.
 
The Company's tax returns for tax years subject to examination by tax authorities included
2014
through the current period for state and
2015
through the current period for federal reporting purposes.
Earnings Per Share, Policy [Policy Text Block]
Earnings (Loss) per Common Share
 
Basic earnings (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock, and stock options.
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2019   2018   2019   2018
        (as adjusted)       (as adjusted)
Net Income (loss)   $
462,260
    $
(50,838
)   $
1,414,905
    $
(82,453
)
                                 
Weighted average common shares outstanding - basic    
13,797,497
     
13,622,710
     
13,774,474
     
13,605,370
 
Effect of dilutive securities:                                
Unvested restricted stock and stock options    
679,510
     
     
615,845
     
 
Weighted average common shares outstanding - diluted    
14,477,007
     
13,622,710
     
14,390,320
     
13,605,370
 
                                 
Basic earnings (loss) per share   $
0.03
    $
    $
0.10
    $
(0.01
)
Diluted earnings (loss) per share   $
0.03
    $
    $
0.10
    $
(0.01
)
 
Potentially dilutive securities excluded from the calculation of diluted net income per common share as the effect would be anti-dilutive were as follows:
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Weighted average potentially dilutive securities:   2019   2018   2019   2018
Unvested restricted stock                
2,569
       
Stock options                
41,035
       
Share-based Payment Arrangement [Policy Text Block]
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 quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.
Use of Estimates, Policy [Policy Text Block]
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 and intangible assets and purchase price allocations.
New Accounting Pronouncements, Policy [Policy Text Block]
Recent Accounting Pronouncements
 
Accounting Standards Adopted Effective
January 1, 2019
 
On
January 1, 2019,
the Company adopted ASC
842,
which requires lessees to recognize a ROU asset and lease liability on their balance sheet for all leases with terms beyond
twelve
months. The new standard also requires enhanced disclosures that provide more transparency and information to financial statement users about lease portfolios. Effective
January 1, 2019,
the Company adopted the requirements of ASC
842
using the modified retrospective approach using the optional transition method and elected to apply the provisions of the standard as of the adoption date rather than the earliest date presented. The consolidated financial statements for the period ended
June 30, 2019
are presented under the new standard, while comparative periods presented have
not
been adjusted and continue to be reported in accordance with the previous standard.
 
During the process of adoption, the Company made the following elections:
 
 
·
The Company elected the package of practical expedients which allowed the Company to
not
reassess:
 
 
·
Whether existing or expired contracts contain leases under the new definition of a lease;
 
 
·
Lease classification for existing or expired leases; and
 
 
·
Initial direct costs for any expired or existing leases to determine if they would qualify for capitalization under ASC
842.
 
 
·
The Company did
not
elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.
 
 
·
The Company did
not
elect the land easement practical expedient, which permits an entity to continue applying its current policy for accounting for land easements that existed as of, or expired before, the effective date of ASC
842.
 
 
·
The Company elected to make the accounting policy election for short-term leases, permitting the Company to
not
apply the recognition requirements of ASC
842
to short-term leases with terms of
12
months or less.
 
The adoption of ASC
842
does
not
materially impact the Company’s results of operations other than recognition of the operating lease ROU asset and lease liability. See Note
13
for additional disclosures required by ASC
842.
 
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.
v3.19.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Error Corrections and Prior Period Adjustments [Table Text Block]
    Three Months Ended   Adjustments Due To   Three Months Ended
    June 30, 2018   VIE Consolidation   June 30, 2018
    (as reported)       (as adjusted)
Revenues:                        
Revenues from company-owned or managed clinics   $
3,420,685
     
1,247,953
    $
4,668,638
 
Total revenues    
7,556,832
     
1,247,953
     
8,804,785
 
General and administrative expenses    
4,656,308
     
1,211,204
     
5,867,512
 
Total selling, general and administrative expenses    
6,354,946
     
1,211,204
     
7,566,150
 
Loss from operations    
(100,402
)    
36,163
     
(64,239
)
                         
Other income (expense):                        
Bargain purchase gain    
75,264
     
(44,809
)    
30,455
 
Total other income    
63,575
     
(44,223
)    
19,352
 
                         
Loss before income tax expense    
(36,827
)    
(8,060
)    
(44,887
)
                         
Net loss and comprehensive loss   $
(42,778
)    
(8,060
)   $
(50,838
)
    Six Months Ended   Adjustments Due To   Six Months Ended
    June 30, 2018   VIE Consolidation   June 30, 2018
      (as reported)               (as adjusted)  
Revenues:                        
Revenues from company-owned or managed clinics   $
6,677,309
     
2,797,002
    $
9,474,311
 
Total revenues    
14,654,747
     
2,797,002
     
17,451,749
 
General and administrative expenses    
9,731,234
     
2,404,964
     
12,136,198
 
Total selling, general and administrative expenses    
12,919,593
     
2,404,964
     
15,324,557
 
Loss from operations    
(539,466
)    
391,064
     
(148,402
)
                         
Other income (expense):                        
Bargain purchase gain    
75,264
     
(44,809
)    
30,455
 
Total other income    
52,380
     
(43,835
)    
8,545
 
                         
Loss before income tax expense    
(487,086
)    
347,229
     
(139,857
)
                         
Net loss and comprehensive loss   $
(429,682
)    
347,229
    $
(82,453
)
                         
Loss per share:                        
Basic and diluted loss per share   $
(0.03
)    
0.02
    $
(0.01
)
                         
Basic and diluted weighted average shares    
13,605,370
     
-
     
13,605,370
 
    December 31,   Adjustments Due To   December 31,
    2018   VIE Consolidation   2018
ASSETS  
(as reported)
 
 
 
(as adjusted)
Current assets:                        
Accounts receivable, net    
1,213,707
 
   
(407,357
)    
806,350
 
Total current assets    
11,711,345
 
   
(407,357
)    
11,303,988
 
Goodwill    
2,916,426
 
   
308,719
     
3,225,145
 
Total assets   $
23,526,352
 
  $
(98,639
)   $
23,427,713
 
                         
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities:                        
Deferred revenue from company clinics    
994,493
 
   
1,535,004
     
2,529,497
 
Total current liabilities    
8,738,123
 
   
1,535,004
     
10,273,127
 
Total liabilities    
21,165,108
 
   
1,535,004
     
22,700,112
 
Commitments and contingencies                        
Equity:                        
The Joint Corp. stockholders' equity:                        
Accumulated deficit    
(35,750,908
)
   
(1,633,743
)    
(37,384,651
)
Total The Joint Corp. stockholders' equity    
2,361,244
 
   
(1,633,743
)    
727,501
 
Non-controlling Interest    
-
 
   
100
     
100
 
Total equity    
2,361,244
 
   
(1,633,643
)    
727,601
 
Total liabilities and equity   $
23,526,352
 
  $
(98,639
)   $
23,427,713
 
Schedule of Franchisor Disclosure [Table Text Block]
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Franchised clinics:   2019   2018   2019   2018
Clinics open at beginning of period    
404
     
359
     
394
     
352
 
Opened or Purchased during the period    
14
     
8
     
26
     
15
 
Acquired or sold during the period    
     
(1
)    
(1
)    
(1
)
Closed during the period    
(1
)    
(1
)    
(2
)    
(1
)
Clinics in operation at the end of the period    
417
     
365
     
417
     
365
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Company-owned or managed clinics:   2019   2018   2019   2018
Clinics open at beginning of period    
50
     
47
     
48
     
47
 
Opened during the period    
1
     
     
3
     
 
Acquired during the period    
     
1
     
1
     
1
 
Closed or Sold during the period    
     
     
(1
)    
 
Clinics in operation at the end of the period    
51
     
48
     
51
     
48
 
                                 
Total clinics in operation at the end of the period    
468
     
413
     
468
     
413
 
                                 
Clinic licenses sold but not yet developed    
176
     
117
     
176
     
117
 
Executed letters of intent for future clinic licenses    
28
     
9
     
28
     
9
 
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2019   2018   2019   2018
        (as adjusted)       (as adjusted)
Net Income (loss)   $
462,260
    $
(50,838
)   $
1,414,905
    $
(82,453
)
                                 
Weighted average common shares outstanding - basic    
13,797,497
     
13,622,710
     
13,774,474
     
13,605,370
 
Effect of dilutive securities:                                
Unvested restricted stock and stock options    
679,510
     
     
615,845
     
 
Weighted average common shares outstanding - diluted    
14,477,007
     
13,622,710
     
14,390,320
     
13,605,370
 
                                 
Basic earnings (loss) per share   $
0.03
    $
    $
0.10
    $
(0.01
)
Diluted earnings (loss) per share   $
0.03
    $
    $
0.10
    $
(0.01
)
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Weighted average potentially dilutive securities:   2019   2018   2019   2018
Unvested restricted stock                
2,569
       
Stock options                
41,035
       
v3.19.2
Note 2 - Acquisition (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]
Property and equipment   $
9,166
 
Intangible assets    
62,000
 
Total assets acquired    
71,166
 
Deferred revenue    
(14,305
)
Deferred tax liability    
(11,410
)
Bargain purchase gain    
(19,298
)
Net purchase price   $
26,153
 
Business Acquisition, Pro Forma Information [Table Text Block]
    Pro Forma for the Three Months Ended   Pro Forma for the Six Months Ended
    June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018
Revenues, net   $
11,169,979
    $
8,863,340
    $
21,894,980
    $
17,633,044
 
Net income (loss)   $
462,260
    $
(90,437
)   $
1,439,451
    $
(207,928
)
v3.19.2
Note 3 - Revenue Disclosures (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Contract with Customer, Asset and Liability [Table Text Block]
    Deferred Revenue
    short and long-term
Balance at December 31, 2018   $
13,609
 
Recognized as revenue during the six months ended June 30, 2019    
(1,249
)
Fees received and deferred during the six months ended June 30, 2019    
2,990
 
Balance at June 30, 2019   $
15,350
 
    Deferred Franchise Costs
    short and long-term
Balance at December 31, 2018   $
3,489
 
Recognized as cost of revenue during the six months ended June 30, 2019    
(325
)
Costs incurred and deferred during the six months ended June 30, 2019    
1,032
 
Balance at June 30, 2019   $
4,196
 
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Table Text Block]
Contract liabilities expected to be recognized in   Amount
2019 (remainder)   $
1,356
 
2020    
2,694
 
2021    
2,572
 
2022    
2,150
 
2023    
1,788
 
Thereafter    
4,790
 
Total   $
15,350
 
v3.19.2
Note 4 - Restricted Cash (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Reconciliation of Cash, Cash Equivalents and Restricted Cash Balance [Table Text Block]
    June 30,   December 31,
    2019   2018
Cash and cash equivalents   $
9,485,212
    $
8,716,874
 
Restricted cash    
129,220
     
138,078
 
Total cash, cash equivalents and restricted cash   $
9,614,432
    $
8,854,952
 
v3.19.2
Note 5 - Notes Receivable (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Financing Receivables, Minimum Payments [Table Text Block]
2019 (remaining)   $
79,534
 
2020    
137,123
 
2021    
9,600
 
2022    
9,086
 
Total   $
235,343
 
v3.19.2
Note 6 - Property and Equipment (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Property, Plant and Equipment [Table Text Block]
    June 30,   December 31,
    2019   2018
         
Office and computer equipment   $
1,373,775
    $
1,243,104
 
Leasehold improvements    
5,784,728
     
5,407,915
 
Software developed    
1,193,007
     
1,145,742
 
Finance lease assets    
80,604
     
 
     
8,432,114
     
7,796,761
 
Accumulated depreciation and amortization    
(5,256,290
)    
(4,909,002
)
     
3,175,824
     
2,887,759
 
Construction in progress    
1,787,213
     
770,248
 
Property and equipment, net   $
4,963,037
    $
3,658,007
 
v3.19.2
Note 8 - Intangible Assets (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Intangible Assets and Goodwill [Table Text Block]
    As of June 30, 2019
    Gross Carrying   Accumulated   Net Carrying
    Amount   Amortization   Value
Intangible assets subject to amortization:                        
Reacquired franchise rights   $
1,788,000
    $
(1,058,822
)   $
729,178
 
Customer relationships    
777,000
     
(733,828
)    
43,172
 
Reacquired development rights    
2,050,482
     
(846,997
)    
1,203,485
 
    $
4,615,482
    $
(2,639,647
)   $
1,975,835
 
    As of December 31, 2018
    Gross Carrying   Accumulated   Net Carrying
    Amount   Amortization   Value
Intangible assets subject to amortization:                        
Reacquired franchise rights   $
1,758,000
    $
(921,138
)   $
836,862
 
Customer relationships    
745,000
     
(717,498
)    
27,502
 
Reacquired development rights    
1,413,316
     
(643,620
)    
769,696
 
    $
3,916,316
    $
(2,282,256
)   $
1,634,060
 
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]
2019 (remainder)   $
379,140
 
2020    
741,790
 
2021    
657,850
 
2022    
184,842
 
2023    
12,213
 
Total   $
1,975,835
 
v3.19.2
Note 10 - Stock-based Compensation (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]
    Six Months Ended June 30,
    2019   2018
Expected volatility    
35%
   
42%
-
43%
Expected dividends    
None
   
 
None
 
Expected term (years)    
7
   
 
7
 
Risk-free rate    
2.61%
   
2.53%
to
2.63%
Forfeiture rate    
20%
   
 
20%
 
Share-based Payment Arrangement, Option, Activity [Table Text Block]
                Weighted
   
 
 
Weighted
 
Weighted
 
Average
   
 
 
Average
 
Average
 
Remaining
   
Number of
 
Exercise
 
Fair
 
Contractual Life
   
Shares
 
Price
 
Value
 
(Years)
Outstanding at December 31, 2017    
1,003,916
 
  $
4.18
 
  $
1.87
 
   
8.1
 
Granted    
145,792
 
   
7.00
 
   
 
 
   
 
 
Exercised    
(95,162
)
   
3.48
 
   
 
 
   
 
 
Cancelled    
(67,855
)
   
3.37
 
   
 
 
   
 
 
Outstanding at December 31, 2018    
986,691
 
  $
4.72
 
  $
2.09
 
   
6.8
 
Granted    
62,944
 
   
12.02
 
   
 
 
   
 
 
Exercised    
(47,804
)
   
5.01
 
   
 
 
   
 
 
Cancelled    
 
   
 
   
 
 
   
 
 
Outstanding at June 30, 2019    
1,001,831
 
  $
5.17
 
  $
2.25
 
   
6.2
 
Exercisable at June 30, 2019    
541,238
 
  $
4.61
 
  $
2.01
 
   
6.2
 
Share-based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity [Table Text Block]
Restricted Stock Awards   Shares
Non-vested at December 31, 2018    
51,134
 
Granted    
26,131
 
Vested    
(33,012
)
Cancelled    
 
Non-vested at June 30, 2019    
44,253
 
v3.19.2
Note 13 - Commitments and Contingencies (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Lease, Cost [Table Text Block]
    Line Item in the Company’s Consolidated
Statements of Operations
  Three Months Ended
June 30, 2019
  Six Months Ended
June 30, 2019
             
Finance lease costs:                    
Amortization of assets  
Depreciation and amortization
  $
6,169
    $
12,337
 
Interest on lease liabilities  
Other income (expense), net
   
1,778
     
3,689
 
Total finance lease costs  
 
   
7,947
     
16,026
 
Operating lease costs  
General and administrative expenses
  $
706,368
    $
1,394,100
 
Total lease costs  
 
  $
714,315
    $
1,410,126
 
    June 30, 2019
     
Operating Leases:        
Operating lease right-of -use asset   $
10,030,737
 
         
Operating lease liability - current portion   $
1,827,233
 
Operating lease liability - net of current portion    
9,049,948
 
Total operating lease liability   $
10,877,181
 
         
Finance Leases:        
Property and equipment, at cost   $
80,604
 
Less accumulated amortization    
(12,337
)
Property and equipment, net   $
68,267
 
         
         
Finance lease liability - current portion   $
23,075
 
Finance lease liability - net of current portion    
46,826
 
Total finance lease liabilities   $
69,901
 
         
Weighted average remaining lease term (in years):        
Operating leases    
5.71
 
Finance lease    
2.77
 
         
Weighted average discount rate:        
Operating leases    
9.20
%
Finance leases    
10.00
%
    Six Months Ended
June 30, 2019
     
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases   $
1,469,684
 
Operating cash flows from finance leases    
3,689
 
Financing cash flows from finance leases    
10,704
 
         
Non-cash transactions: ROU assets obtained in exchange for lease liabilities
Operating lease   $
400,980
 
Finance lease    
80,604
 
Lessee, Leases, Liability, Maturity [Table Text Block]
    Operating Leases   Finance Lease
2019 (remainder)   $
1,372,050
    $
14,393
 
2020    
2,642,993
     
28,786
 
2021    
2,545,456
     
28,786
 
2022    
2,454,666
     
7,676
 
2023    
1,776,161
     
 
Thereafter    
3,180,176
     
 
Total lease payments   $
13,971,502
    $
79,641
 
Less: Imputed interest    
(3,094,321
)    
(9,740
)
Total lease obligations    
10,877,181
     
69,901
 
Less: Current obligations    
(1,827,233
)    
(23,075
)
Long-term lease obligation   $
9,049,948
    $
46,826
 
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]
    Operating Leases
2019   $
2,630,443
 
2020    
2,406,645
 
2021    
2,299,887
 
2022    
2,195,077
 
2023    
1,474,396
 
Thereafter    
2,772,575
 
Total lease payments   $
13,779,023
 
v3.19.2
Note 14 - Segment Reporting (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Segment Reporting Information, by Segment [Table Text Block]
    Three Months Ended   Six Months Ended
  June 30,   June 30,
    2019   2018   2019   2018
        (as adjusted)       (as adjusted)
Revenues:                
Corporate clinics   $
5,777
    $
4,669
    $
11,416
    $
9,474
 
Franchise operations    
5,393
     
4,136
     
10,433
     
7,978
 
Total revenues   $
11,170
    $
8,805
    $
21,849
    $
17,452
 
                                 
Segment operating income (loss):                                
Corporate clinics   $
564
    $
(50
)   $
1,404
    $
416
 
Franchise operations    
2,631
     
1,974
     
5,020
     
3,789
 
Total segment operating income (loss)   $
3,195
    $
1,924
    $
6,424
    $
4,205
 
                                 
Depreciation and amortization:                                
Corporate clinics   $
353
    $
245
    $
666
    $
548
 
Franchise operations    
-
     
-
     
-
     
-
 
Corporate administration    
51
     
160
     
104
     
244
 
Total depreciation and amortization   $
404
    $
405
    $
770
    $
792
 
                                 
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
 
Total segment operating income (loss)   $
3,195
    $
1,924
    $
6,424
    $
4,205
 
Unallocated corporate    
(2,707
)    
(1,988
)    
(4,993
)    
(4,353
)
Consolidated income (loss) from operations    
488
     
(64
)    
1,431
     
(148
)
Bargain purchase gain    
-
     
30
     
19
     
30
 
Other income (expense), net    
(15
)    
(11
)    
(26
)    
(22
)
Income (loss) before income tax expense   $
473
    $
(45
)   $
1,424
    $
(140
)
Reconciliation of Assets from Segment to Consolidated [Table Text Block]
    June 30,   December 31,
    2019   2018
Segment assets:  
 
 
(as adjusted)
Corporate clinics   $
19,249
    $
8,828
 
Franchise operations    
5,181
     
4,455
 
Total segment assets   $
24,430
    $
13,283
 
                 
Unallocated cash and cash equivalents and restricted cash   $
9,614
    $
8,855
 
Unallocated property and equipment    
1,551
     
487
 
Other unallocated assets    
874
     
803
 
Total assets   $
36,469
    $
23,428
 
v3.19.2
Supplemental Disclosure of Non-cash Activity (Details Textual) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Apr. 06, 2019
Mar. 18, 2019
Income Taxes Paid $ 23,396 $ 19,522      
Interest Paid, Including Capitalized Interest, Operating and Investing Activities, Total 50,000 50,000      
Payments to Acquire Businesses, Net of Cash Acquired, Total 30,000 $ 80,000      
Contract with Customer, Liability, Total 15,350,000   $ 13,609,000    
Stock Option Proceeds Receivable 133,281        
Assets and Franchise Agreement [Member]          
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment, Total 9,166       $ 9,166
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles 62,000       62,000
Contract with Customer, Liability, Total 3,847     $ 12,998 $ 3,847
License Fee Collection Upon Regional Developer Agreement [Member]          
Contract with Customer, Liability, Total 44,334        
Purchase of Property, Plant and Equipment Included in Accounts Payable [Member]          
Capital Expenditures Incurred but Not yet Paid 100,609   121,038    
Purchase of Property, Plant and Equipment Included in Accrued Expenses [Member]          
Capital Expenditures Incurred but Not yet Paid $ 46,773   $ 1,595    
v3.19.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Cash Equivalents, at Carrying Value, Total $ 0   $ 0   $ 0
Accounts Receivable, Allowance for Credit Loss, Ending Balance 0   0   0
Goodwill, Impairment Loss     0 $ 0  
Impairment of Long-Lived Assets Held-for-use     $ 0 0  
Franchise Monthly Marketing Fee Gross Sales Percentage     2.00%    
Franchise Royalty Gross Sales Percentage     7.00%    
Regional Developers Royalty Sales Generated by Franchises Percentage     3.00%    
Contract with Customer, Liability, Total 15,350,000   $ 15,350,000   $ 13,609,000
Advertising Expense 656,476 $ 471,056 $ 1,095,913 $ 881,694  
State and Local Jurisdiction [Member]          
Open Tax Year     2014 2015 2016 2017 2018 2019    
Domestic Tax Authority [Member]          
Open Tax Year     2015 2016 2017 2018 2019    
Regional Development Agreement [Member]          
Contract with Customer, Liability, Total $ 290,000   $ 290,000    
Computer Software, Intangible Asset [Member]          
Finite-Lived Intangible Asset, Useful Life     5 years    
Development Rights [Member]          
Finite-Lived Intangible Asset, Useful Life     7 years    
Customer Relationships [Member]          
Finite-Lived Intangible Asset, Useful Life     2 years    
Minimum [Member]          
Property, Plant and Equipment, Useful Life     3 years    
Minimum [Member] | Franchise Rights [Member]          
Finite-Lived Intangible Asset, Useful Life     4 years    
Maximum [Member]          
Property, Plant and Equipment, Useful Life     7 years    
Maximum [Member] | Franchise Rights [Member]          
Finite-Lived Intangible Asset, Useful Life     8 years    
v3.19.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Impacts of Error Correction ASC 810 (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Dec. 31, 2017
Revenues from company-owned or managed clinics $ 11,169,979 $ 8,804,785 $ 21,849,356 $ 17,451,749    
General and administrative expenses 7,227,662 5,867,512 13,780,566 12,136,198    
Total selling, general and administrative expenses 9,401,496 7,566,150 17,826,065 15,324,557    
Loss from operations 487,600 (64,239) 1,431,274 (148,402)    
Bargain purchase gain 30,455 19,298 30,455    
Total other income (15,126) 19,352 (7,473) 8,545    
Loss before income tax expense 472,474 (44,887) 1,423,801 (139,857)    
Net income (loss) 462,260 (50,838) 1,414,905 $ (82,453)    
Basic and diluted loss per share (in dollars per share)       $ (0.01)    
Basic and diluted weighted average shares (in shares)       13,605,370    
Accounts receivable, net 1,033,479   1,033,479   $ 806,350  
Total current assets 12,409,956   12,409,956   11,303,988  
Goodwill 3,225,145   3,225,145   3,225,145  
Total assets 36,469,416   36,469,416   23,427,713  
Deferred revenue from company clinics 2,677,782   2,677,782   2,529,497  
Total current liabilities 11,876,464   11,876,464   10,273,127  
Total liabilities 33,736,542   33,736,542   22,700,112  
Commitments and contingencies          
Accumulated deficit (35,969,746)   (35,969,746)   (37,384,651)  
Total The Joint Corp. stockholders' equity 2,732,774   2,732,774   727,501  
Non-controlling Interest (100)   (100)   (100)  
Total equity 2,732,874 165,243 2,732,874 $ 165,243 727,601 $ (373,821)
Total liabilities and equity 36,469,416   36,469,416   23,427,713  
Revenues and Management Fees from Company Clinics [Member]            
Revenues from company-owned or managed clinics $ 5,777,288 4,668,638 $ 11,416,365 9,474,311    
Previously Reported [Member]            
Revenues from company-owned or managed clinics   7,556,832   14,654,747    
General and administrative expenses   4,656,308   9,731,234    
Total selling, general and administrative expenses   6,354,946   12,919,593    
Loss from operations   (100,402)   (539,466)    
Bargain purchase gain   75,264   75,264    
Total other income   63,575   52,380    
Loss before income tax expense   (36,827)   (487,086)    
Net income (loss)   (42,778)   $ (429,682)    
Basic and diluted loss per share (in dollars per share)       $ (0.03)    
Basic and diluted weighted average shares (in shares)       13,605,370    
Accounts receivable, net         1,213,707  
Total current assets         11,711,345  
Goodwill         2,916,426  
Total assets         23,526,352  
Deferred revenue from company clinics         994,493  
Total current liabilities         8,738,123  
Total liabilities         21,165,108  
Accumulated deficit         (35,750,908)  
Total The Joint Corp. stockholders' equity         2,361,244  
Non-controlling Interest          
Total equity         2,361,244  
Total liabilities and equity         23,526,352  
Previously Reported [Member] | Revenues and Management Fees from Company Clinics [Member]            
Revenues from company-owned or managed clinics   3,420,685   $ 6,677,309    
Restatement Adjustment [Member]            
Revenues from company-owned or managed clinics   1,247,953   2,797,002    
General and administrative expenses   1,211,204   2,404,964    
Total selling, general and administrative expenses   1,211,204   2,404,964    
Loss from operations   36,163   391,064    
Bargain purchase gain   (44,809)   (44,809)    
Total other income   (44,223)   (43,835)    
Loss before income tax expense   (8,060)   347,229    
Net income (loss)   (8,060)   $ 347,229    
Basic and diluted loss per share (in dollars per share)       $ 0.02    
Basic and diluted weighted average shares (in shares)          
Accounts receivable, net         (407,357)  
Total current assets         (407,357)  
Goodwill         308,719  
Total assets         (98,639)  
Deferred revenue from company clinics         1,535,004  
Total current liabilities         1,535,004  
Total liabilities         1,535,004  
Accumulated deficit         (1,633,743)  
Total The Joint Corp. stockholders' equity         (1,633,743)  
Non-controlling Interest         100  
Total equity         (1,633,643)  
Total liabilities and equity         $ (98,639)  
Restatement Adjustment [Member] | Revenues and Management Fees from Company Clinics [Member]            
Revenues from company-owned or managed clinics   $ 1,247,953   $ 2,797,002    
v3.19.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Clinics in Operation Under Franchise Agreements or Company-owned or Managed (Details)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Clinics in operation at the end of the period 468 413 468 413    
Total clinics in operation at the end of the period 468 413 468 413 468 413
Clinic licenses sold but not yet developed         176 117
Executed letters of intent for future clinic licenses         28 9
Franchised Units [Member]            
Clinics open at beginning of period 404 359 394 352    
Opened or Purchased during the period 14 8 26 15    
Acquired or sold during the period (1) (1) (1)    
Closed during the period (1) (1) (2) (1)    
Clinics in operation at the end of the period 417 365 417 365    
Total clinics in operation at the end of the period 404 359 394 352 417 365
Entity Operated Units [Member]            
Clinics open at beginning of period 50 47 48 47    
Opened or Purchased during the period 1 3    
Acquired or sold during the period 1 1 1    
Closed during the period (1)    
Clinics in operation at the end of the period 51 48 51 48    
Total clinics in operation at the end of the period 50 47 48 47 51 48
v3.19.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Earnings (Loss) Per Common Share (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net income (loss) $ 462,260 $ (50,838) $ 1,414,905 $ (82,453)
Basic weighted average shares (in shares) 13,797,497 13,622,710 13,774,474 13,605,370
Unvested restricted stock and stock options (in shares) 679,510 615,845
Weighted average common shares outstanding - diluted (in shares) 14,477,007 13,622,710 14,390,320 13,605,370
Basic earnings (loss) per share (in dollars per share) $ 0.03 $ 0.10 $ (0.01)
Diluted earnings (loss) per share (in dollars per share) $ 0.03 $ 0.10 $ (0.01)
Restricted Stock [Member]        
Anti-dilutive securities (in shares)     2,569  
Share-based Payment Arrangement, Option [Member]        
Anti-dilutive securities (in shares)     41,035  
v3.19.2
Note 2 - Acquisition (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Apr. 06, 2019
Mar. 18, 2019
Jun. 30, 2019
Jun. 30, 2019
Dec. 31, 2018
Contract with Customer, Liability, Total     $ 15,350,000 $ 15,350,000 $ 13,609,000
Customer Relationships [Member]          
Finite-Lived Intangible Asset, Useful Life       2 years  
Assets and Franchise Agreement [Member]          
Business Combination, Consideration Transferred, Total $ 100,000 $ 30,000      
Contract with Customer, Liability, Total 12,998 3,847 3,847 $ 3,847  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net, Including Bargain Purchase Gain $ 87,002 26,153      
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   62,000 62,000 62,000  
Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual     73,000 73,000  
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual     $ (2,000) $ (13,000)  
Assets and Franchise Agreement [Member] | Franchise Rights [Member]          
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   $ 30,000      
Finite-Lived Intangible Asset, Useful Life   3 years      
Assets and Franchise Agreement [Member] | Customer Relationships [Member]          
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   $ 32,000      
Finite-Lived Intangible Asset, Useful Life   2 years      
v3.19.2
Note 2 - Acquisition - Purchase Price Allocation (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 18, 2019
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Apr. 06, 2019
Bargain purchase gain   $ (30,455) $ (19,298) $ (30,455)  
Assets and Franchise Agreement [Member]            
Property and equipment $ 9,166 9,166   9,166    
Intangible assets 62,000 $ 62,000   $ 62,000    
Total assets acquired 71,166          
Deferred revenue (14,305)          
Deferred tax liability (11,410)          
Bargain purchase gain (19,298)          
Net purchase price $ 26,153         $ 87,002
v3.19.2
Note 2 - Acquisition - Pro Forma Results of Operations (Unaudited) (Details) - Assets and Franchise Agreement [Member] - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenues, net $ 11,169,979 $ 8,863,340 $ 21,894,980 $ 17,633,044
Net income (loss) $ 462,260 $ (90,437) $ 1,439,451 $ (207,928)
v3.19.2
Note 3 - Revenue Disclosures (Details Textual)
Jun. 30, 2019
Number of States in which Entity Operates 33
v3.19.2
Note 3 - Revenue Disclosures - Changes in Contract Assets and Contract Liabilities (Details)
$ in Thousands
6 Months Ended
Jun. 30, 2019
USD ($)
Balance, contract liabilities $ 13,609
Recognized as revenue during the six months ended June 30, 2019 (1,249)
Fees received and deferred during the six months ended June 30, 2019 2,990
Balance, contract liabilities 15,350
Balance, contract assets 3,489
Recognized as cost of revenue during the six months ended June 30, 2019 (325)
Costs incurred and deferred during the six months ended June 30, 2019 1,032
Balance, contract assets $ 4,196
v3.19.2
Note 3 - Revenue Disclosures - Revenue Related to Performance Obligations (Details)
Jun. 30, 2019
USD ($)
Revenue expected to be recognized $ 15,350
v3.19.2
Note 3 - Revenue Disclosures - Revenue Related to Performance Obligations 2 (Details)
Jun. 30, 2019
USD ($)
Revenue expected to be recognized $ 15,350
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-07-01  
Remaining Performance Obligation, Expected Timing of Satisfaction (Year) 1 year
Revenue expected to be recognized $ 1,356
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01  
Remaining Performance Obligation, Expected Timing of Satisfaction (Year) 1 year
Revenue expected to be recognized $ 2,694
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01  
Remaining Performance Obligation, Expected Timing of Satisfaction (Year) 1 year
Revenue expected to be recognized $ 2,572
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01  
Remaining Performance Obligation, Expected Timing of Satisfaction (Year) 1 year
Revenue expected to be recognized $ 2,150
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01  
Remaining Performance Obligation, Expected Timing of Satisfaction (Year) 1 year
Revenue expected to be recognized $ 1,788
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01  
Remaining Performance Obligation, Expected Timing of Satisfaction (Year) 1 year
Revenue expected to be recognized $ 4,790
v3.19.2
Note 4 - Restricted Cash - Reconciliation of Cash, Cash Equivalents and Restricted Cash Balance (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Jun. 30, 2018
Dec. 31, 2017
Cash and cash equivalents $ 9,485,212 $ 8,716,874    
Restricted cash 129,220 138,078    
Total cash, cash equivalents and restricted cash $ 9,614,432 $ 8,854,952 $ 4,707,924 $ 4,320,040
v3.19.2
Note 5 - Notes Receivable (Details Textual) - USD ($)
1 Months Ended
Apr. 26, 2019
Oct. 10, 2017
Apr. 29, 2017
Sep. 22, 2017
Aug. 31, 2017
Jun. 30, 2019
Dec. 31, 2018
Financing Receivable, after Allowance for Credit Loss, Total           $ 235,343  
Company-owned Clinic [Member]              
Financing Receivable, after Allowance for Credit Loss, Total           $ 235,343 $ 278,072
The 0% Interest Bearing Promissory Note Maturing May 15, 2022 [Member]              
Financing Receivable, after Allowance for Credit Loss, Total $ 31,086            
Notes Receivable, Interest Rate 0.00%            
Notes Receivable, Contractual Term 3 years            
Notes Receivable, Principal and Interest, Term 3 years            
Regional Developer Territory in Central Florida [Member]              
Regional Development Agreement     $ 320,000        
Regional Developer Territory in Central Florida [Member] | 10% Interest Bearing Promissory Note Maturing October 1, 2020 [Member]              
Financing Receivable, after Allowance for Credit Loss, Total     $ 187,000        
Notes Receivable, Interest Rate     10.00%        
Notes Receivable, Contractual Term     3 years 180 days        
Notes Receivable, Principal and Interest, Term     3 years        
Regional Developer Territory in Maryland/Washington DC [Member]              
Regional Development Agreement         $ 220,000    
Regional Developer Territory in Maryland/Washington DC [Member] | 10% Interest Bearing Promissory Note Maturing August 1, 2020 [Member]              
Financing Receivable, after Allowance for Credit Loss, Total         $ 117,475    
Notes Receivable, Interest Rate         10.00%    
Notes Receivable, Contractual Term         3 years    
Notes Receivable, Principal and Interest, Term         3 years    
Regional Developer Territory in Minnesota [Member]              
Regional Development Agreement       $ 228,293      
Regional Developer Territory in Minnesota [Member] | 10% Interest Bearing Promissory Note Maturing September 1, 2020 [Member]              
Financing Receivable, after Allowance for Credit Loss, Total       $ 119,147      
Notes Receivable, Interest Rate       10.00%      
Notes Receivable, Contractual Term       3 years      
Notes Receivable, Principal and Interest, Term       3 years      
Regional Developer Territories with Texas, Arkansas, and Oklahoma [Member]              
Regional Development Agreement   $ 170,000          
Regional Developer Territories with Texas, Arkansas, and Oklahoma [Member] | 10% Interest Bearing Promissory Note Maturing October 24, 2020 [Member]              
Financing Receivable, after Allowance for Credit Loss, Total   $ 135,688          
Notes Receivable, Interest Rate   10.00%          
Notes Receivable, Contractual Term   3 years          
Notes Receivable, Principal and Interest, Term   3 years          
v3.19.2
Note 5 - Notes Receivable - Schedule of Minimum Payments Due (Details)
Jun. 30, 2019
USD ($)
2019 (remaining), notes receivable $ 79,534
2020, notes receivable 137,123
2021, notes receivable 9,600
2022, notes receivable 9,086
Total, notes receivable $ 235,343
v3.19.2
Note 6 - Property and Equipment (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Depreciation, Total $ 206,609 $ 284,265 $ 400,415 $ 548,618
Finance Lease, Right-of-Use Asset, Amortization $ 6,169   $ 12,337  
v3.19.2
Note 6 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Property and equipment, gross $ 8,432,114 $ 7,796,761
Accumulated depreciation and amortization (5,256,290) (4,909,002)
Property and equipment, net 4,963,037 3,658,007
Construction in progress 1,787,213 770,248
Office Equipment [Member]    
Property and equipment, gross 1,373,775 1,243,104
Leasehold Improvements [Member]    
Property and equipment, gross 5,784,728 5,407,915
Software Development [Member]    
Property and equipment, gross 1,193,007 1,145,742
Property, Plant and Equipment, Finance Leases [Member]    
Property and equipment, gross 80,604
Accumulated depreciation and amortization (12,337)  
Property and equipment, net 68,267  
Property Plant and Equipment, Excluding Construction in Progress [Member]    
Property and equipment, net $ 3,175,824 $ 2,887,759
v3.19.2
Note 7 - Fair Value Consideration (Details Textual) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Financial Instruments, Owned, at Fair Value, Total $ 0 $ 0
v3.19.2
Note 8 - Intangible Assets (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Feb. 04, 2019
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Contract with Customer, Liability, Total   $ 15,350,000   $ 15,350,000   $ 13,609,000
Revenue from Contract with Customer, Including Assessed Tax   11,169,979 $ 8,804,785 21,849,356 $ 17,451,749  
Amortization of Intangible Assets, Total   $ 191,688 $ 120,710 $ 357,391 $ 243,774  
Regional Developer Rights in South Carolina and Georgia [Member]            
Contract with Customer, Liability, Total $ 681,500          
Revenue from Contract with Customer, Including Assessed Tax $ 44,334          
v3.19.2
Note 8 - Intangible Assets - Intangible Assets Acquired (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Gross Carrying Amount $ 4,615,482 $ 3,916,316
Accumulated Amortization (2,639,647) (2,282,256)
Net Carrying Value 1,975,835 1,634,060
Franchise Rights [Member]    
Gross Carrying Amount 1,788,000 1,758,000
Accumulated Amortization (1,058,822) (921,138)
Net Carrying Value 729,178 836,862
Customer Relationships [Member]    
Gross Carrying Amount 777,000 745,000
Accumulated Amortization (733,828) (717,498)
Net Carrying Value 43,172 27,502
Development Rights [Member]    
Gross Carrying Amount 2,050,482 1,413,316
Accumulated Amortization (846,997) (643,620)
Net Carrying Value $ 1,203,485 $ 769,696
v3.19.2
Note 8 - Intangible Assets - Estimated Amortization Expense (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
2019 (remainder) $ 379,140  
2020 741,790  
2021 657,850  
2022 184,842  
2023 12,213  
Total $ 1,975,835 $ 1,634,060
v3.19.2
Note 9 - Debt (Details Textual)
12 Months Ended
Jan. 03, 2017
USD ($)
Dec. 31, 2016
USD ($)
Jun. 30, 2019
USD ($)
Feb. 28, 2019
USD ($)
Number of Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions   2    
Debt Instrument, Face Amount       $ 100,000
Revolving Credit Facility [Member]        
Debt Instrument, Interest Rate, Stated Percentage 10.00%      
Line of Credit Facility, Maximum Borrowing Capacity $ 5,000,000      
Line of Credit Facility, Minimum Interest Payment Over Life of Credit Agreement 200,000      
Line of Credit Facility, Periodic Payment, Interest $ 25,000      
Long-term Line of Credit, Total     $ 1,000,000  
Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions [Member]        
Debt Instrument, Face Amount   $ 186,000    
Debt Instrument, Interest Rate, Stated Percentage   4.25%    
v3.19.2
Note 10 - Stock-based Compensation (Details Textual) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross     62,944    
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price     $ 12.02    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value $ 11,894,226   $ 11,894,226    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value 7,354,410   $ 7,354,410    
Share-based Payment Arrangement, Option [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross     62,944   145,792
Share-based Payment Arrangement, Expense 99,846 $ 69,640 $ 196,650 $ 208,813  
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount   920,988   920,988  
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition     2 years 292 days    
Restricted Stock [Member]          
Share-based Payment Arrangement, Expense 79,106 $ 69,347 $ 154,074 $ 137,816  
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition     2 years 73 days    
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount $ 469,307   $ 469,307    
v3.19.2
Note 10 - Stock-based Compensation - Fair Value Assumptions of Options Granted (Details) - Share-based Payment Arrangement, Option [Member]
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Expected volatility 35.00%  
Expected term (Year) 7 years 7 years
Risk-free rate 2.61%  
Forfeiture rate 20.00% 20.00%
Minimum [Member]    
Expected volatility   42.00%
Risk-free rate   2.53%
Maximum [Member]    
Expected volatility   43.00%
Expected term (Year)   5 years 182 days
Risk-free rate   2.63%
v3.19.2
Note 10 - Stock-based Compensation - Stock Options Activity (Details) - $ / shares
6 Months Ended 12 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Dec. 31, 2017
Granted, Number of Shares (in shares) 62,944    
Share-based Payment Arrangement, Option [Member]      
Outstanding, Number of Shares (in shares) 986,691 1,003,916  
Outstanding, Weighted Average Exercise Price (in dollars per share) $ 4.72 $ 4.18  
Outstanding, Weighted Average Fair Value (in dollars per share) $ 2.25 $ 2.09 $ 1.87
Outstanding, Weighted Average Remaining Contractual Life (Year) 6 years 73 days 6 years 292 days 8 years 36 days
Granted, Number of Shares (in shares) 62,944 145,792  
Granted, Weighted Average Exercise Price (in dollars per share) $ 12.02 $ 7  
Exercised, Number of Shares (in shares) (47,804) (95,162)  
Exercised, Weighted Average Exercise Price (in dollars per share) $ 5.01 $ 3.48  
Cancelled, Number of Shares (in shares) (67,855)  
Cancelled, Weighted Average Exercise Price (in dollars per share) $ 3.37  
Outstanding, Number of Shares (in shares) 1,001,831 986,691 1,003,916
Outstanding, Weighted Average Exercise Price (in dollars per share) $ 5.17 $ 4.72 $ 4.18
Exercisable, Number of Shares (in shares) 541,238    
Exercisable, Weighted Average Exercise Price (in dollars per share) $ 4.61    
Exercisable, Weighted Average Fair Value (in dollars per share) $ 2.01    
Exercisable, Weighted Average Remaining Contractual Life (Year) 6 years 73 days    
v3.19.2
Note 10 - Stock-based Compensation - Restricted Stock Activity (Details)
6 Months Ended
Jun. 30, 2019
shares
Unvested (in shares) 51,134
Awards granted (in shares) 26,131
Awards vested (in shares) (33,012)
Awards forfeited (in shares)
Unvested (in shares) 44,253
v3.19.2
Note 11 - Income Taxes (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Tax Expense (Benefit), Total $ 10,214 $ 5,951 $ 8,896 $ (57,404)
v3.19.2
Note 12 - Related Party Transactions (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Shareholder [Member]        
Related Party Transaction, Amounts of Transaction $ 98,000 $ 68,000 $ 181,000 $ 116,000
v3.19.2
Note 13 - Commitments and Contingencies (Details Textual)
$ in Millions
May 31, 2019
USD ($)
Operating Lease, Lease Not yet Commenced, Right-of-use Asset $ 2.1
Operating Lease, Lease Not yet Commenced, Lease Liability $ 2.1
Lessee, Operating Lease, Lease Not yet Commenced, Term of Contract 6 years
v3.19.2
Note 13 - Commitments and Contingencies - Lease Expense and Supplemental Information (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Amortization of assets $ 6,169 $ 12,337    
Interest on lease liabilities 1,778 3,689    
Total finance lease costs 7,947 16,026    
Operating lease costs 706,368 1,394,100    
Total lease costs 714,315 1,410,126    
Operating lease right-of -use asset 10,030,737 10,030,737  
Operating lease liability - current portion 1,827,233 1,827,233  
Operating lease liability - net of current portion 9,049,948 9,049,948  
Total operating lease liability 10,877,181 10,877,181    
Property and equipment, at cost 8,432,114 8,432,114   7,796,761
Less accumulated amortization (5,256,290) (5,256,290)   (4,909,002)
Unallocated property and equipment 4,963,037 4,963,037   3,658,007
Finance lease liability - current portion 23,075 23,075  
Finance lease liability - net of current portion 46,826 46,826  
Total finance lease liabilities $ 69,901 $ 69,901    
Operating leases (Year) 5 years 259 days 5 years 259 days    
Finance lease (Year) 2 years 281 days 2 years 281 days    
Operating leases 9.20% 9.20%    
Finance leases 10.00% 10.00%    
Operating cash flows from operating leases   $ 1,469,684    
Operating cash flows from finance leases   3,689    
Financing cash flows from finance leases   10,704  
Operating lease   400,980    
Finance lease   80,604    
Property, Plant and Equipment, Finance Leases [Member]        
Property and equipment, at cost $ 80,604 80,604  
Less accumulated amortization (12,337) (12,337)    
Unallocated property and equipment $ 68,267 $ 68,267    
v3.19.2
Note 13 - Commitments and Contingencies - Maturities of Lease Liabilities (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
2019 (remainder) $ 1,372,050  
2019 (remainder), finance lease 14,393  
2020 2,642,993  
2020, finance lease 28,786  
2021 2,545,456  
2021, finance lease 28,786  
2022 2,454,666  
2022, finance lease 7,676  
2023 1,776,161  
2023, finance lease  
Thereafter 3,180,176  
Thereafter, finance lease  
Total lease payments 13,971,502  
Total lease payments, finance lease 79,641  
Less: Imputed interest (3,094,321)  
Less: Imputed interest, finance lease 9,740  
Total lease obligations 10,877,181  
Total lease obligations, finance lease 69,901  
Less: Current obligations (1,827,233)
Less: Current obligations, finance lease 23,075
Long-term lease obligation 9,049,948
Long-term lease obligation, finance lease $ 46,826
v3.19.2
Note 13 - Commitments and Contingencies - Future Minimum Annual Lease Payments for Operating Leases (Details)
Dec. 31, 2018
USD ($)
2019, operating lease $ 2,630,443
2020, operating lease 2,406,645
2021, operating lease 2,299,887
2022, operating lease 2,195,077
2023, operating lease 1,474,396
Thereafter, operating lease 2,772,575
Total lease payments, operating lease $ 13,779,023
v3.19.2
Note 14 - Segment Reporting (Details Textual)
6 Months Ended
Jun. 30, 2019
Number of Operating Segments 2
v3.19.2
Note 14 - Segment Reporting - Segment Reporting Financial Information (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenues $ 11,170,000 $ 8,805,000 $ 21,849,000 $ 17,452,000
Operating income (loss) 487,600 (64,239) 1,431,274 (148,402)
Depreciation and amortization 404,000 405,000 770,143 792,392
Bargain purchase gain 30,455 19,298 30,455
Other income (expense), net (15,126) (11,103) (26,771) (21,910)
Loss before income tax expense 472,474 (44,887) 1,423,801 (139,857)
Operating Segments [Member]        
Operating income (loss) 3,195,000 1,924,000 6,424,000 4,205,000
Corporate, Non-Segment [Member]        
Operating income (loss) (2,707,000) (1,988,000) (4,993,000) (4,353,000)
Corporate Clinics [Member]        
Revenues 5,777,000 4,669,000 11,416,000 9,474,000
Operating income (loss) 564,000 (50,000) 1,404,000 416,000
Depreciation and amortization 353,000 245,000 666,000 548,000
Franchise Operations [Member]        
Revenues 5,393,000 4,136,000 10,433,000 7,978,000
Operating income (loss) 2,631,000 1,974,000 5,020,000 3,789,000
Depreciation and amortization
Corporate Segment [Member]        
Depreciation and amortization $ 51,000 $ 160,000 $ 104,000 $ 244,000
v3.19.2
Note 14 - Segment Reporting - Segment Reporting Information, Assets (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Total assets $ 36,469,416 $ 23,427,713
Unallocated cash and cash equivalents and restricted cash 9,485,212 8,716,874
Unallocated property and equipment 4,963,037 3,658,007
Operating Segments [Member]    
Total assets 24,430,000 13,283,000
Unallocated cash and cash equivalents and restricted cash 9,614,000 8,855,000
Unallocated property and equipment 1,551,000 487,000
Other unallocated assets 874,000 803,000
Corporate Clinics [Member]    
Total assets 19,249,000 8,828,000
Franchise Operations [Member]    
Total assets $ 5,181,000 $ 4,455,000
v3.19.2
Note 15 - Subsequent Events (Details Textual)
$ in Millions
2 Months Ended
Aug. 30, 2019
USD ($)
Franchised Clinics [Member] | Subsequent Event [Member]  
Business Combination, Consideration Transferred, Total $ 2.8