The accompanying notes are an integral part of these condensed consolidated
financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Supplemental
disclosure of cash flow information:
During the nine months ended September 30, 2016
and 2015, cash paid for income taxes was $10,466 and $0, respectively. During the nine months ended September 30, 2016 and 2015,
cash paid for interest was $15,262 and $1,445, respectively.
Supplemental disclosure of non-cash activity:
As of September 30, 2016, we had property and
equipment purchases of $7,105 which were included in accounts payable.
In connection with our reacquisition and termination
of regional developer rights during the nine months ended September 30, 2016 and 2015, we had deferred revenue of $224,750 and
$914,000, respectively, representing license fees collected upon the execution of the regional developer agreements. In
accordance with ASC-952-605, we netted these amounts against the aggregate purchase price of the acquisitions (Note 5).
In connection with our acquisitions of franchises
during the nine months ended September 30, 2016, we acquired $293,014 of property and equipment, intangible assets of $339,000,
goodwill of $269,780 and assumed deferred revenue associated with membership packages paid in advance of $45,072 in exchange for
$839,000 in cash and notes payable issued to the sellers for an aggregate amount of $186,000. Additionally, at the time of these
transactions, we carried deferred revenue of $29,000, representing franchise fees collected upon the execution of franchise agreements,
and deferred costs of $1,450, related to our acquisition of undeveloped franchises. We netted these amounts against the aggregate
purchase price of the acquisitions (Note 2).
In connection with our acquisitions of franchises
during the nine months ended September 30, 2015, we acquired $1,539,321 of property and equipment, intangible assets of $1,531,041,
goodwill of $2,312,259, favorable leases of $17,469 and assumed deferred revenue associated with membership packages paid in advance
of $117,301 in exchange for $4,652,525 in cash and notes payable issued to the sellers for an aggregate amount of $744,350. Additionally,
at the time of these transactions, we carried deferred revenue of $976,500, representing franchise fees collected upon the execution
of franchise agreements, and deferred costs of $478,200, related to our acquisition of undeveloped franchises. We netted these
amounts against the aggregate purchase price of the acquisitions (Note 2).
During the quarter ended September 30, 2016, the final valuation of a December 2015
acquisition was completed. The purchase price allocation for this acquisition was adjusted accordingly:
Property and equipment
|
|
$
|
(53,836
|
)
|
Intangible assets
|
|
$
|
4,820
|
|
Favorable leases
|
|
$
|
6,250
|
|
Goodwill
|
|
$
|
68,616
|
|
Unfavorable leases
|
|
$
|
(25,850
|
)
|
As of December 31, 2014, we recorded a deposit
of $507,500 for the reacquisition and termination of regional developer rights, which were paid in advance. During
the nine months ended September 30, 2015, upon the effective date of the reacquisition and termination agreement, we reclassified
$507,500 from deposits to intangible assets.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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”), 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 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.
In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to
present fairly our financial position on a consolidated basis and the consolidated results of operations and cash flows for the
interim periods presented. The results of operations for the periods ended September 30, 2016 and 2015 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
September 30, 2016 and 2015 is unaudited.
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.
All significant intercompany accounts and transactions
between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from selling
and marketing expenses to general and administrative expenses for the three and nine months ended September 30, 2015 to conform
to current year presentation.
Comprehensive Loss
Net loss and comprehensive loss are the same
for the three and nine months ended September 30, 2016 and 2015.
Nature of Operations
The Joint, a Delaware corporation, was formed
on March 10, 2010 for the principal purpose of franchising and developing 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 nine months ended September
30, 2016 and 2015:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Franchised clinics:
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Clinics in operation at beginning of period
|
|
|
280
|
|
|
|
239
|
|
|
|
265
|
|
|
|
242
|
|
Opened during the period
|
|
|
13
|
|
|
|
13
|
|
|
|
38
|
|
|
|
36
|
|
Acquired during the period
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(23
|
)
|
Closed during the period
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(7
|
)
|
Clinics in operation at the end of the period
|
|
|
293
|
|
|
|
248
|
|
|
|
293
|
|
|
|
248
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Company-owned or managed clinics:
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Clinics in operation at beginning of period
|
|
|
61
|
|
|
|
23
|
|
|
|
47
|
|
|
|
4
|
|
Opened during the period
|
|
|
-
|
|
|
|
4
|
|
|
|
8
|
|
|
|
4
|
|
Acquired during the period
|
|
|
-
|
|
|
|
2
|
|
|
|
6
|
|
|
|
23
|
|
Closed during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
Clinics in operation at the end of the period
|
|
|
61
|
|
|
|
29
|
|
|
|
61
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total clinics in operation at the end of the period
|
|
|
354
|
|
|
|
277
|
|
|
|
354
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinics licenses sold but not yet developed
|
|
|
134
|
|
|
|
180
|
|
|
|
134
|
|
|
|
180
|
|
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 variable interest entity (“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. Investments where the Company does not hold the controlling interest and are not the primary beneficiary
are accounted for under the equity method.
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. 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. The Company has analyzed its relationship with the PCs and has determined that the Company does not have the power
to direct the activities of the PCs. As such, the activity of the PCs is not included in the Company’s condensed consolidated
financial statements
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 of its cash in short-term bank deposits. The Company had no cash equivalents as of September 30,
2016 and December 31, 2015.
Restricted Cash
Restricted cash relates to cash franchisees
and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash 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.
Concentrations of Credit Risk
From time to time, the Company grants credit
in the normal course of business to franchisees and PCs related to the collection of royalties, and other operating revenues.
The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce
credit risk. As of September 30, 2016 and December 31, 2015, three PC entities and six franchisees represented 52% and 31%, respectively,
of outstanding accounts receivable. The Company did not have any customers that represented greater than 10% of its revenues during
the three and nine months ended September 30, 2016 and 2015.
Accounts Receivable
Accounts receivable represent amounts due
from franchisees for initial franchise fees, royalty fees, working capital advances due from PCs, and tenant improvement allowances
due from landlords. 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 September 30, 2016 and December 31, 2015, the
Company had an allowance for doubtful accounts of $131,830 and $142,660, respectively.
Deferred Franchise Costs
Deferred franchise costs represent commissions
that are paid in conjunction with the sale of a franchise and are expensed when the respective revenue is recognized, which is
generally upon the opening of a clinic.
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.
Software Developed
The Company capitalizes certain software development
costs. These capitalized costs are primarily related to proprietary 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.
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
range from six to eight years. In the case of regional developer rights the Company amortizes the 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 discussed in Note 2. 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 nine months ended September 30, 2016 and 2015.
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 have
been impaired. No impairments of long-lived assets were recorded for the three and nine months ended September 30, 2016 and 2015.
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 advertising fund revenue and a related expense. Amounts collected
in excess of marketing expenditures are included in restricted cash on the Company’s condensed consolidated balance sheets.
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.
Deferred Rent
The Company leases office space for its corporate
offices and company-owned or managed clinics under operating leases, which may include rent holidays and rent escalation clauses.
It recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the term of the lease. The
Company records tenant improvement allowances as deferred rent and amortizes the allowance over the term of the lease, as a reduction
to rent expense.
Revenue Recognition
The Company generates revenue through initial
franchise fees, regional developer fees, royalties, advertising fund revenue, IT related income, and computer software fees, and
from its company-owned and managed clinics.
Franchise Fees.
The Company requires
the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial
term of ten years. Initial franchise fees are recognized as revenue when the Company has substantially completed its initial services
under the franchise agreement, which typically occurs upon opening of the clinic. The Company’s services under
the franchise agreement include: training of franchisees and staff, site selection, construction/vendor management and ongoing
operations support. The Company provides no financing to franchisees and offers no guarantees on their behalf.
Regional Developer Fees
. During 2011,
the Company established a regional developer program to engage independent contractors to assist in developing specified geographical
regions. Under this program, regional developers pay a license fee ranging from $7,250 to 25% of the then current franchise fee
for each franchise they receive the right to develop within the region. Each regional developer agreement establishes a minimum
number of franchises that the regional developer must develop. Regional developers receive fees ranging from $14,500 to $19,950,
which are collected upon the sale of franchises within their region, and a royalty of 3% of sales generated by franchised clinics
in their region. Regional developer license fees are non-refundable and are recognized as revenue when the Company has performed
substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening
of each franchised clinic. Upon the execution of a regional developer agreement, the Company estimates the number of franchised
clinics to be opened, which is typically consistent with the contracted minimum. When the Company anticipates that the number of
franchised clinics to be opened will exceed the contracted minimum, the license fee on a per-clinic basis is determined by dividing
the total fee collected from the regional developer by the revised number of clinics expected to be opened within the region. Certain
regional developer agreements provide that no additional fee is required for franchises developed by the regional developer above
the contracted minimum, while other regional developer agreements require a supplemental payment. The Company reassesses the number
of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change
to the original estimate becomes apparent, the fee per clinic is revised on a prospective basis, and the unrecognized fees are
allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region.
The regional developer’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. Several of the regional developer agreements grant the Company the option to repurchase the regional
developer’s license.
Revenues and Management Fees from Company
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 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. In other states where state law requires the chiropractic practice to be owned by a licensed chiropractor,
the Company enters into a management agreement with the doctor’s PC. Under the management agreement, the Company provides
administrative and business management services to the doctor’s PC in return for a monthly management fee. When the
collectability of the full management fee is uncertain, the Company recognizes management fee revenue only to the extent of fees
expected to be collected from the PCs.
Royalties.
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. Certain franchisees with franchise agreements acquired during the formation of the Company pay a monthly
flat fee. Royalties are recognized as revenue when earned. Royalties are collected bi-monthly two working days after each sales
period has ended.
IT Related Income and Software Fees.
The
Company collects a monthly computer software fee for use of its proprietary chiropractic software, computer support, and internet
services support. These fees are recognized on a monthly basis as services are provided. IT related revenue represents a flat fee
to purchase a clinic’s computer equipment, operating software, preinstalled chiropractic system software, key card scanner
(patient identification card), credit card scanner and credit card receipt printer. These fees are recognized as revenue upon
receipt of equipment by the franchisee.
Advertising Costs
Advertising costs are expensed as incurred.
Advertising expenses were $600,804 and $1,770,699 for the three and nine months ended September 30, 2016, respectively. Advertising
expenses were $377,122 and $853,110 for the three and nine months ended September 30, 2015, 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 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.
At September 30, 2016 and December 31, 2015,
the Company maintained a liability for income taxes for uncertain tax positions of approximately $39,500 and $66,000, respectively,
of which $26,000 and $33,000, respectively, represent penalties and interest and are recorded in the “other liabilities”
section of the accompanying condensed consolidated balance sheets. 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 include 2011 through the current period for state and 2012 through the current period for federal reporting
purposes.
Loss per Common Share
Basic loss per common share is computed by
dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,626,894
|
)
|
|
$
|
(1,656,722
|
)
|
|
$
|
(9,413,407
|
)
|
|
$
|
(5,416,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
12,730,624
|
|
|
|
9,844,964
|
|
|
|
12,657,435
|
|
|
|
9,777,119
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares outstanding - diluted
|
|
|
12,730,624
|
|
|
|
9,844,964
|
|
|
|
12,657,435
|
|
|
|
9,777,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.55
|
)
|
Anti-Dilutive shares:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Unvested restricted stock
|
|
|
92,415
|
|
|
|
116,818
|
|
|
|
92,415
|
|
|
|
453,846
|
|
Stock options
|
|
|
899,370
|
|
|
|
271,895
|
|
|
|
899,370
|
|
|
|
376,275
|
|
Warrants
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
90,000
|
|
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. Prior to the Company’s initial public offering (“IPO”),
the grant date fair value was determined by the Board of Directors. 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 accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance
for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived
assets, classification of deferred revenue and deferred franchise costs, uncertain tax positions, realizability of deferred tax
assets, impairment of goodwill and intangible assets and purchase price allocations.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board, (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “
Revenue from Contracts
with Customers
”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP
when it becomes effective. The new standard becomes effective for the Company on January 1, 2018. The Company is evaluating the
effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected
a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In August 2014, the FASB issued ASU No. 2014-15,
“
Presentation of Financial Statements - Going Concern: Disclosures about an Entity’s Ability to Continue as a Going
Concern.
” The new standard requires management to perform interim and annual assessments of an entity’s ability
to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain
disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The
new guidance is effective for the Company’s December 31, 2016 Form 10-K, and interim periods thereafter. The Company does
not expect any changes to its consolidated financial position, results of operations and cash flows as a result of adoption of
this standard, however, additional disclosures might be required in its financial statements.
In January 2016, the FASB issued ASU No. 2016-01,
“
Financial Instruments - Overall (Subtopic 825-10)
,” Recognition and Measurement of Financial Assets and Financial
Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years, and early adoption is not permitted. The Company is currently evaluating the effect of adoption of this standard, if any,
on its consolidated financial position, results of operations and cash flows.
In February 2016, the FASB issued ASU No. 2016-02,
“
Leases (Topic 842).
” The ASU requires that substantially all operating leases be recognized as assets and liabilities
on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases
as off balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations.
The right to use the leased property is to be capitalized as an asset and the expected lease payments over the life of the lease
will be accounted for as a liability. The effective date is for fiscal years beginning after December 31, 2018. While the Company
has not yet quantified the impact this standard will have on its financial statements, it will result in a significant
increase in the asset and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation
and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially
decrease the Company’s reported net income.
In March 2016, the FASB issued ASU 2016-09, “
Compensation
- Stock Compensation: Improvements to Employee Share-Based Payment Accounting
” (“ASU 2016-09”), which amends
ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The standard is intended to simplify several areas
of accounting for share-based compensation arrangements, including the accounting for income taxes, classification of excess tax
benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either
equity or liabilities, and classification of employee taxes paid on the statement of cash flows when an employer withholds shares
for tax-withholding purposes. ASU 2016-09 is effective for interim and annual reporting periods beginning January 1, 2017. Early
adoption is permitted. The Company is currently evaluating the method of adoption and impact the update will have on its consolidated
financial statements and related disclosures.
In April 2016, the FASB issued ASU No. 2016-10,
“
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
”, to clarify
the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The
effective date and transition requirements for these amendments are the same as the effective date and transition requirements
of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its financial statements.
In May 2016, the FASB issued ASU No. 2016-12,
“
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
”, to
clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications
and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted.
The effective date and transition requirements for these amendments are the same as the effective date and transition requirements
of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”.
This update
addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in
practice. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is
permitted. The Company is currently evaluating the impact of this amendment on its financial statements.
Note 2: Acquisitions
Franchises acquired during 2016
During the nine months ended September 30,
2016, the Company continued to execute its growth strategy and entered into a series of unrelated transactions with existing franchisees
to re-acquire an aggregate of six developed franchises and one undeveloped franchise throughout California and New Mexico for an
aggregate purchase price of $1,025,000, subject to certain adjustments, consisting of cash of $839,000 and notes payable of $186,000.
The Company is operating the six developed franchises as company-owned or managed clinics and has terminated the undeveloped clinic
license. At the time these transactions were consummated, the Company carried
a deferred
revenue balance of $29,000, representing franchise fees collected upon the execution of the franchise agreements, and deferred
franchise costs of $1,450, related to an undeveloped franchise. The Company accounted for the franchise rights associated
with the undeveloped franchise as a cancellation, and the respective deferred revenue and deferred franchise costs were netted
against the aggregate purchase price. The remaining $997,450 was accounted for as consideration paid for the acquired
franchises.
The Company incurred approximately $64,000
of transaction costs related to these acquisitions for the nine months ended September 30, 2016, which are included in general
and administrative expenses in the accompanying statements of operations.
Purchase Price Allocation
The following summarizes the aggregate estimated
fair values of the assets acquired and liabilities assumed during 2016 as of the acquisition date:
Property and equipment
|
|
$
|
293,014
|
|
Intangible assets
|
|
|
339,000
|
|
Favorable leases
|
|
|
140,728
|
|
Goodwill
|
|
|
269,780
|
|
Total assets acquired
|
|
|
1,042,522
|
|
Deferred membership revenue
|
|
|
(45,072
|
)
|
Net purchase price
|
|
$
|
997,450
|
|
Intangible assets in the table above consist
of reacquired franchise rights of $181,000 and customer relationships of $158,000, and will be amortized over their estimated useful
lives ranging from six to eight years and two years, respectively.
Goodwill recorded in connection with these
acquisitions was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities.
All of the recorded goodwill is tax-deductible.
Franchises acquired during 2015
During the year ended December 31, 2015, the
Company entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of 24 developed and
35 undeveloped franchises throughout Arizona, California, and New York for an aggregate purchase price of $5,725,875, subject to
certain adjustments, consisting of cash of $4,925,525 and notes payable of $800,350. Of the 24 developed franchises, the Company
is operating 22 as company-owned or managed clinics and has closed the remaining two clinics. The 35 undeveloped franchises have
been terminated and the Company may relocate them. At the time these transactions were consummated, the Company carried
a
deferred revenue balance of $1,005,500, representing franchise fees collected upon the execution of the franchise agreements, and
deferred franchise costs of $493,500, related to undeveloped franchises. The Company accounted for the franchise rights
associated with the undeveloped franchises as a cancellation, and the respective deferred revenue and deferred franchise costs
were netted against the aggregate purchase price. The remaining $5,213,875 was accounted for as consideration paid for
the acquired franchises.
Additionally, in January 2015, in connection
with the default by a franchisee under its franchise agreement, the Company assumed substantially all of the assets of a clinic
in Tempe, Arizona in exchange for $25,000. The Company has accounted for this as a business combination. The Company
completed its valuation of the fair value of the assets acquired, including intangible assets, in September 2015. Because the net
assets acquired exceeded the consideration paid, the Company recognized a bargain purchase gain of $233,804 during the year ended
December 31, 2015.
The Company also recognized a bargain purchase
gain of $27,343 related to the acquisition of two developed franchises and seven undeveloped franchises in San Diego, California.
Total bargain purchase gain for the year ended December 31, 2015 was $261,147.
The Company incurred $393,069 of transaction
costs related to these acquisitions for the year ended December 31, 2015 which are included in general and administrative expenses
in the accompanying statements of operations.
Purchase Price Allocation
The purchase price allocations for these acquisitions
are complete. The following summarizes the aggregate fair values of the assets acquired and liabilities assumed during 2015 as
of the acquisition date:
Property and equipment
|
|
$
|
1,450,333
|
|
Intangible assets
|
|
|
1,947,000
|
|
Favorable leases
|
|
|
528,075
|
|
Goodwill
|
|
|
1,899,449
|
|
Total assets acquired
|
|
|
5,824,857
|
|
Unfavorable leases
|
|
|
(74,927
|
)
|
Deferred membership revenue
|
|
|
(106,908
|
)
|
Net assets acquired
|
|
|
5,643,022
|
|
Deferred tax liability
|
|
|
(168,000
|
)
|
Bargain purchase gain
|
|
|
(261,147
|
)
|
Net purchase price
|
|
$
|
5,213,875
|
|
Intangible assets in the table above consist
of reacquired franchise rights of $1,449,000 and customer relationships of $498,000, and will be amortized over their estimated
useful lives ranging from six to eight years and two years, respectively.
Goodwill recorded in connection with these
acquisitions was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities.
All of the recorded goodwill is tax-deductible.
Pro Forma Results of Operations (Unaudited)
The following table summarizes selected unaudited
pro forma condensed consolidated statements of operations data for the three and nine months ended September 30, 2016 and 2015
as if the acquisitions in 2016 had been completed on January 1, 2015.
|
|
Pro Forma for the Three Months Ended
|
|
Pro Forma for the Nine Months Ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
September 30, 2016
|
|
September 30, 2015
|
Revenues, net
|
|
|
5,503,590
|
|
|
|
4,609,455
|
|
|
|
14,723,514
|
|
|
|
12,276,203
|
|
Net loss
|
|
|
(2,614,518
|
)
|
|
|
(2,172,039
|
)
|
|
|
(9,475,157
|
)
|
|
|
(6,431,788
|
)
|
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 acquisitions had been completed on that date. Moreover, this information is not indicative of what the Company’s
future operating results will be. The information for 2015 and 2016 prior to the acquisitions is included based on prior accounting
records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adopted
by the Company following the acquisitions. For 2016, this information includes actual data recorded in the Company’s financial
statements for the period subsequent to the date of the acquisitions. The Company’s consolidated statement of operations
for the three months ended September 30, 2016 includes net revenue and net income of approximately $2.1 million and $0.1 million,
respectively, attributable to the acquisitions. The Company’s consolidated statement of operations for the nine months ended
September 30, 2016 includes net revenue and net income of approximately $5.6 million and $0.5 million, respectively, attributable
to the acquisitions.
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, 2015, together with the consequential tax impacts.
Note 3: Notes Receivable
Effective July 2012, the Company sold a company-owned
clinic, including the license agreement, equipment, and customer base, in exchange for a $90,000 unsecured promissory note. The
note bears interest at 6% per annum for fifty-four months and requires monthly principal and interest payments over forty-two months,
beginning August 2013 and maturing January 2017.
Effective July 2015, the Company entered into
two license transfer agreements, in exchange for $10,000 and $29,925 in separate unsecured promissory notes. The non-interest
bearing notes require monthly principal payments over 24 months, beginning on September 1, 2015 and maturing on August 1, 2017.
Effective July 2015, the Company entered into
a license transfer agreement, in exchange for $29,925 in an unsecured promissory note. The note bears interest at 4.0% per
annum, and requires monthly principal payments over 12 months, beginning on August 1, 2015 and matured on July 1, 2016.
Effective May 2016, the Company entered into three license transfer
agreements, in exchange for three separate $7,500 unsecured promissory notes. The non-interest bearing notes require monthly
principal payments over six months, beginning on May 1, 2017 and maturing on October 1, 2017.
The net outstanding balance of the notes as
of September 30, 2016 and December 31, 2015 were $50,785 and $76,731, respectively.
Note 4: Property and Equipment
Property and equipment consists of the following:
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Office and computer equipment
|
|
$
|
1,308,655
|
|
|
$
|
963,299
|
|
Leasehold improvements
|
|
|
7,608,510
|
|
|
|
4,672,582
|
|
Software developed
|
|
|
860,646
|
|
|
|
691,827
|
|
|
|
|
9,777,811
|
|
|
|
6,327,708
|
|
Accumulated depreciation
|
|
|
(2,454,614
|
)
|
|
|
(1,098,438
|
)
|
|
|
|
7,323,197
|
|
|
|
5,229,270
|
|
Construction in progress
|
|
|
203,531
|
|
|
|
1,909,476
|
|
|
|
$
|
7,526,728
|
|
|
$
|
7,138,746
|
|
Depreciation expense was $492,076 and $1,356,176
for the three and nine months ended September 30, 2016, respectively. Depreciation expense was $257,197 and $532,682 for the three
and nine months ended September 30, 2015, respectively.
Note 5: Intangible Assets
On January 1, 2016, the Company entered into
an agreement under which it repurchased the regional development rights to develop franchises in San Bernardino and Riverside Counties
in California. The total consideration for the transaction was $275,000, paid in cash.
The
Company carried a deferred revenue balance associated with these transactions of $36,250, representing license fees collected upon
the execution of the regional developer agreements. The Company accounted for the development rights associated with
the unsold or undeveloped franchises as a cancellation, and the respective deferred revenue was netted against the aggregate purchase
price or recognized as revenue to the extent deferred revenue was in excess of the cash consideration paid.
On June 1, 2016, the Company entered into an
agreement under which it repurchased the regional development rights to develop franchises in Virginia. The total consideration
for the transaction was $50,000, paid in cash.
The Company carried a deferred
revenue balance associated with these transactions of $188,500, representing license fees collected upon the execution of the regional
developer agreements. The Company accounted for the development rights associated with the unsold or undeveloped franchises
as a cancellation, and the respective deferred revenue was netted against the aggregate purchase price or recognized as revenue
to the extent deferred revenue was in excess of the cash consideration paid.
Intangible assets consist of the following:
|
|
As of September 30, 2016
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
$
|
1,711,001
|
|
|
$
|
380,788
|
|
|
$
|
1,330,213
|
|
Customer relationships
|
|
|
728,000
|
|
|
|
437,167
|
|
|
|
290,833
|
|
Reacquired development rights
|
|
|
1,162,000
|
|
|
|
210,268
|
|
|
|
951,732
|
|
|
|
$
|
3,601,001
|
|
|
$
|
1,028,223
|
|
|
$
|
2,572,778
|
|
Amortization expense was $203,503 and $552,062
for the three and nine months ended September 30, 2016, respectively. Amortization expense was $164,193 and $289,807 for the three
and nine months ended September 30, 2015, respectively.
Estimated amortization expense for 2016 and subsequent years is
as follows:
2016 (remaining)
|
|
$
|
195,671
|
|
2017
|
|
|
592,185
|
|
2018
|
|
|
445,018
|
|
2019
|
|
|
418,685
|
|
2020
|
|
|
418,685
|
|
Thereafter
|
|
|
502,534
|
|
Total
|
|
$
|
2,572,778
|
|
Note 6: Notes Payable
During 2015, the Company delivered 12 notes
payable totaling $800,350 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest
rates range from 1.5% to 5.25% with maturities through February of 2017.
During 2016, the Company delivered two notes
payable totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest
rates for both notes are 4.25% with maturities through May of 2017.
Maturities of notes payable are as follows
as of September 30, 2016:
2016 (remaining)
|
|
$
|
65,500
|
|
2017
|
|
|
266,000
|
|
Total
|
|
$
|
331,500
|
|
Note 7: Equity
Stock Options
In the nine months ended September 30, 2016,
the Company granted 590,000 stock options to employees with exercise prices ranging from $2.23 - $4.11.
Upon the completion of the
Company’s IPO in November 2014, its stock trading price became 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, it will rely upon the volatilities from publicly traded companies with similar business models until
its common stock has accumulated enough trading history for it to utilize its own historical volatility. The expected life of
the options granted is based on the average of the vesting term and the contractual term of the option. The risk-free rate
for periods within the expected life of the option is based on the U.S. Treasury 10-year yield curve in effect at the date of
the grant.
The Company has computed the fair value of
all options granted during the nine months ended September 30, 2016 and 2015, using the following assumptions:
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
Expected volatility
|
|
43%
|
-
|
45%
|
|
45%
|
-
|
50%
|
Expected dividends
|
|
|
None
|
|
|
|
None
|
|
Expected term (years)
|
|
|
7
|
|
|
5.5
|
-
|
7
|
Risk-free rate
|
|
1.19%
|
to
|
1.68%
|
|
1.66%
|
-
|
1.92%
|
Forfeiture rate
|
|
|
20%
|
|
|
|
20%
|
|
The information below summarizes the stock options activity:
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Fair
Value
|
|
Weighted
Average
Remaining
Contractual Life
|
Outstanding at December 31, 2015
|
|
|
477,459
|
|
|
$
|
4.30
|
|
|
$
|
2.01
|
|
|
|
8.7
|
|
Granted at market price
|
|
|
590,000
|
|
|
|
3.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(34,154
|
)
|
|
|
1.95
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(133,935
|
)
|
|
|
4.08
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
899,370
|
|
|
$
|
3.77
|
|
|
$
|
1.94
|
|
|
|
8.4
|
|
Exercisable at September 30, 2016
|
|
|
353,692
|
|
|
$
|
4.08
|
|
|
$
|
2.38
|
|
|
|
7.9
|
|
The intrinsic value of the Company’s
stock options outstanding was $209,994 at September 30, 2016.
For the three and nine months ended September
30, 2016, stock based compensation expense for stock options was $183,608, and $522,519, respectively. For the three and nine
months ended September 30, 2015, stock based compensation expense for stock options was $129,704, and $204,701, respectively. Unrecognized
stock-based compensation expense for stock options as of September 30, 2016 was $727,979, which is expected to be recognized ratably
over the next 3.42 years.
Restricted Stock
The information below summaries the restricted
stock activity:
Restricted Stock Awards
|
|
Shares
|
Granted at December 31, 2015
|
|
|
670,375
|
|
Awards vested
|
|
|
(331,087
|
)
|
Unvested at December 31, 2015
|
|
|
339,288
|
|
Awards granted
|
|
|
86,415
|
|
Awards vested
|
|
|
(162,440
|
)
|
Awards forfeited
|
|
|
(170,848
|
)
|
Unvested at September 30, 2016
|
|
|
92,415
|
|
For the three and nine months ended September
30, 2016, stock based compensation expense for restricted stock was $71,698, and $490,181, respectively. For the three and nine
months ended September 30, 2015, stock based compensation expense for restricted stock was $226,875, and $405,376, respectively.
Unrecognized stock based compensation expense for restricted stock awards as of September 30, 2016 was $227,710 to be recognized
ratably over the next 1.12 years.
Modifications
During the nine months ended September 30,
2016, the Company accelerated the vesting of all unvested stock options and restricted stock awards granted to the Company’s
former chief development officer in relation to his separation from the Company. In addition, the Company modified the post-employment
exercise period of the stock options previously granted, extending the exercise period to December 31, 2017.
During the nine months ended September 30,
2016, the Company modified the post-employment exercise period of stock options previously granted to the Company’s former
chief executive officer in relation to his separation from the Company. The modification extended the exercise period to May 13,
2020. In addition, the Company accelerated the vesting of 9,733 shares of the previously granted restricted stock awards that were
scheduled to vest in July 2016. The remaining unvested restricted stock awards were forfeited upon separation.
These modifications resulted in an approximately
$412,000 increase in stock-based compensation for the nine months ended September 30, 2016.
Treasury Stock
During the nine months ended September 30,
2016, the Company acquired approximately 13,376 shares of treasury stock to satisfy minimum tax withholding related to vesting
of restricted stock awards. These shares were acquired at a total cost of $83,391.
Note 8: Income Taxes
During the three and nine months
ended September 30, 2016, the Company recorded income tax expense of approximately $14,000 and $132,000, respectively, due to
a revised estimate for the valuation allowance on the Company’s deferred tax assets, a revised estimate of
the Company’s uncertain tax positions, state tax expense as a result of current year state income taxes and a lower estimate of
income tax refunds available through net operating loss (“NOL”) carrybacks.
Note 9: Related Party Transactions
The Company entered into consulting and legal
agreements with certain common stockholders related to services performed for the operations and transaction related activities
of the Company. Amounts paid to or for the benefit of these stockholders was approximately $111,000 and $421,000 for
the three and nine months ended September 30, 2016, respectively. Amounts paid to or for the benefit of these stockholders was
approximately $100,000 and $471,000 for the three and nine months ended September 30, 2015, respectively.
Note 10: Commitments and Contingencies
Operating Leases
The Company leases its corporate office space and the space for each of the company-owned
or managed clinics in the portfolio.
Total rent expense for the three and nine months
ended September 30, 2016 was $903,771 and $2,510,782, respectively. Total rent expense for the three and nine months ended September
30, 2015 was $402,061 and $756,678, respectively.
Future minimum annual lease payments are as follows:
2016 (remaining)
|
|
$
|
843,053
|
|
2017
|
|
|
3,342,862
|
|
2018
|
|
|
2,753,063
|
|
2019
|
|
|
2,416,784
|
|
2020
|
|
|
2,154,008
|
|
Thereafter
|
|
|
10,112,360
|
|
Total
|
|
$
|
21,622,130
|
|
Litigation
In the normal course of business, the Company
is party to litigation from time to time.
On July 7, 2015, a group of six franchisees,
who formerly owned a total of 13 franchise licenses that were terminated by the Company due to defaults in performance, commenced
a collective arbitration proceeding before the American Arbitration Association in San Diego, California. The claimants’
demand for arbitration asserts claims for breach of contract, promissory fraud, negligent misrepresentation, breach of the implied
covenant of good faith and fair dealing, wrongful termination of franchise agreements and “wrongful competition” pursuant
to unspecified state business practices, unfair competition and franchise statutes. In April 2016, one of the franchisee’s
claims was voluntarily dismissed, thereby leaving a total of five claimants with a collective total of 12 former licenses remaining
as part of the arbitration proceeding. On August 8, 2016, the claimants filed a Second Amended Addendum to Demand in which they
seek, among other things, rescission of all franchise investment- related fees and alleged losses on behalf of all remaining claimants.
Based on a written discovery response served on October 7, 2016, certain of the claimants disclosed that they are alternatively
seeking to recover lost profits, plus punitive damages and attorneys' fees. There is an evidentiary hearing presently set
to commence on January 16, 2017. The Company is vigorously defending the arbitration proceeding, and does not believe a loss contingency
is probable or estimable as of September 30, 2016.
Note 11: 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 September
30, 2016, the Company operated or managed 61 clinics under this segment. The Franchise Operations segment is comprised of the operating
activities of the franchise business unit. As of September 30, 2016, the franchise system consisted of 293 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, litigation 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate clinics
|
|
$
|
2,341
|
|
|
$
|
1,198
|
|
|
$
|
6,137
|
|
|
$
|
2,209
|
|
Franchise operations
|
|
|
3,163
|
|
|
|
2,940
|
|
|
|
8,606
|
|
|
|
7,864
|
|
Total revenues
|
|
$
|
5,504
|
|
|
$
|
4,138
|
|
|
$
|
14,743
|
|
|
$
|
10,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate clinics
|
|
$
|
(1,523
|
)
|
|
$
|
(941
|
)
|
|
$
|
(4,857
|
)
|
|
$
|
(1,526
|
)
|
Franchise operations
|
|
|
1,194
|
|
|
|
1,271
|
|
|
|
3,274
|
|
|
|
3,063
|
|
Total segment operating (loss) income
|
|
$
|
(329
|
)
|
|
$
|
330
|
|
|
$
|
(1,583
|
)
|
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate clinics
|
|
$
|
599
|
|
|
$
|
353
|
|
|
$
|
1,625
|
|
|
$
|
611
|
|
Franchise operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Corporate administration
|
|
|
97
|
|
|
|
68
|
|
|
|
283
|
|
|
|
211
|
|
Total depreciation and amortization
|
|
$
|
696
|
|
|
$
|
421
|
|
|
$
|
1,908
|
|
|
$
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating (loss) income
|
|
$
|
(329
|
)
|
|
$
|
330
|
|
|
$
|
(1,583
|
)
|
|
$
|
1,537
|
|
Unallocated corporate
|
|
|
(2,286
|
)
|
|
|
(2,381
|
)
|
|
|
(7,708
|
)
|
|
|
(7,350
|
)
|
Consolidated loss from operations
|
|
|
(2,615
|
)
|
|
|
(2,051
|
)
|
|
|
(9,291
|
)
|
|
|
(5,812
|
)
|
Bargain purchase gain
|
|
|
-
|
|
|
|
384
|
|
|
|
-
|
|
|
|
384
|
|
Other income, net
|
|
|
2
|
|
|
|
16
|
|
|
|
10
|
|
|
|
18
|
|
Loss before income tax expense
|
|
$
|
(2,613
|
)
|
|
$
|
(1,651
|
)
|
|
$
|
(9,281
|
)
|
|
$
|
(5,410
|
)
|
|
|
September
30,
2016
|
|
December
31,
2015
|
Segment assets:
|
|
|
|
|
|
|
|
|
Corporate clinics
|
|
$
|
14,266
|
|
|
$
|
12,426
|
|
Franchise operations
|
|
|
2,266
|
|
|
|
2,580
|
|
Total segment assets
|
|
$
|
16,532
|
|
|
$
|
15,006
|
|
|
|
|
|
|
|
|
|
|
Unallocated cash and cash equivalents and restricted
cash
|
|
$
|
3,863
|
|
|
$
|
17,178
|
|
Unallocated property and equipment
|
|
|
896
|
|
|
|
802
|
|
Other unallocated assets
|
|
|
835
|
|
|
|
376
|
|
Total assets
|
|
$
|
22,126
|
|
|
$
|
33,362
|
|
“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.