Company Quick10K Filing
Joint
Price19.21 EPS0
Shares15 P/E137
MCap279 P/FCF59
Net Debt-8 EBIT2
TEV271 TEV/EBIT129
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-06
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-11
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-09
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-03-17
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-20
10-Q 2014-09-30 Filed 2014-12-22
8-K 2020-05-29
8-K 2020-05-07
8-K 2020-04-09
8-K 2020-03-18
8-K 2020-03-03
8-K 2020-02-28
8-K 2020-01-09
8-K 2019-11-07
8-K 2019-11-05
8-K 2019-08-15
8-K 2019-08-08
8-K 2019-08-01
8-K 2019-07-17
8-K 2019-05-31
8-K 2019-05-09
8-K 2019-03-28
8-K 2019-03-05
8-K 2018-12-04
8-K 2018-11-06
8-K 2018-10-01
8-K 2018-08-09
8-K 2018-06-19
8-K 2018-06-01
8-K 2018-05-10
8-K 2018-03-12
8-K 2018-03-08
8-K 2018-03-07
8-K 2018-01-18

JYNT 10Q Quarterly Report

Part I: Financial Information
Item 1. Unaudited Financial Statements
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Note 2: Revenue Disclosures
Note 3. Restricted Cash
Note 4: Notes Receivable
Note 5: Property and Equipment
Note 6: Fair Value Consideration
Note 7: Intangible Assets
Note 8: Debt
Note 9: Stock - Based Compensation
Note 10: Income Taxes
Note 11: Commitments and Contingencies
Note 12: Segment Reporting
Note 13: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 jynt-2020331xex311.htm
EX-31.2 jynt-2020331xex312.htm
EX-32 jynt-2020331xex32.htm

Joint Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
453526167-12014201620182020
Assets, Equity
151050-5-102014201620182020
Rev, G Profit, Net Income
2518114-3-102014201620182020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020 
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
(State or other jurisdiction of incorporation or
organization)
90-0544160
(IRS Employer Identification No.)

16767 N. Perimeter Drive, Suite 240, Scottsdale
Arizona
(Address of principal executive offices)
85260
(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)

Securities registered pursuant to Section 12(b) of the Act:

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

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  x    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  x    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 
As of May 5, 2020, the registrant had 13,942,734 shares of Common Stock ($0.001 par value) outstanding.


Table of Contents
THE JOINT CORP.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NO.
Part I, Item 3 – Not applicable
Part II, Items 3, 4, and 5 - Not applicable



Table of Contents
PART I: FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2020
December 31,
2019
ASSETS
(unaudited)
Current assets:
Cash and cash equivalents
$10,712,846  $8,455,989  
Restricted cash
256,623  185,888  
Accounts receivable, net
1,835,522  2,645,085  
Notes receivable, net89,004  128,724  
Deferred franchise and regional development costs - current portion789,968  765,508  
Prepaid expenses and other current assets
1,140,551  1,122,478  
Total current assets
14,824,514  13,303,672  
Property and equipment, net
8,059,393  6,581,588  
Operating lease right-of-use asset
12,430,910  12,486,672  
Deferred franchise and regional development costs, net of current portion3,692,387  3,627,225  
Intangible assets, net
2,863,172  3,219,791  
Goodwill
4,150,461  4,150,461  
Deposits and other assets
393,284  336,258  
Total assets
$46,414,121  $43,705,667  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$1,946,474  $1,525,838  
Accrued expenses
436,512  216,814  
Co-op funds liability
256,624  185,889  
Payroll liabilities
1,117,086  2,844,107  
Operating lease liability - current portion
2,497,097  2,313,109  
Finance lease liability - current portion
46,607  24,253  
Deferred franchise and regional developer fee revenue - current portion
2,817,069  2,740,954  
Deferred revenue from company clinics
3,288,156  3,196,664  
Other current liabilities
481,338  518,686  
Total current liabilities
12,886,963  13,566,314  
Operating lease liability - net of current portion
11,856,766  11,901,040  
Finance lease liability - net of current portion
156,227  34,398  
Debt under the Credit Agreement2,000,000    
Deferred franchise and regional developer fee revenue, net of current portion
12,508,515  12,366,322  
Deferred tax liability
55,457  89,863  
Other liabilities
27,229  27,230  
Total liabilities
39,491,157  37,985,167  
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of March 31, 2020 and December 31, 2019    
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,949,772 shares issued and 13,933,759 shares outstanding as of March 31, 2020 and 13,898,694 shares issued and 13,882,932 outstanding as of December 31, 201913,950  13,899  
Additional paid-in capital
39,846,177  39,454,937  
Treasury stock 16,013 shares as of March 31, 2020 and 15,762 shares as of December 31, 2019, at cost
(114,815) (111,041) 
Accumulated deficit
(32,822,448) (33,637,395) 
Total The Joint Corp. stockholders' equity
6,922,864  5,720,400  
Non-controlling Interest
100  100  
Total equity
6,922,964  5,720,500  
Total liabilities and stockholders' equity
$46,414,121  $43,705,667  

The accompanying notes are an integral part of these condensed consolidated financial statements.
1

Table of Contents
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
20202019
Revenues:
Revenues from company-owned or managed clinics
$7,294,295  $5,639,076  
Royalty fees3,718,230  3,026,815  
Franchise fees512,751  417,073  
Advertising fund revenue1,057,618  891,567  
Software fees645,725  365,236  
Regional developer fees207,642  183,858  
Other revenues208,225  155,751  
Total revenues13,644,486  10,679,376  
Cost of revenues:
Franchise and regional development cost of revenues1,417,491  1,117,053  
IT cost of revenues68,664  88,888  
Total cost of revenues1,486,155  1,205,941  
Selling and marketing expenses2,055,289  1,505,988  
Depreciation and amortization654,249  365,678  
General and administrative expenses8,694,250  6,552,904  
Total selling, general and administrative expenses
11,403,788  8,424,570  
Net loss on disposition or impairment1,193  105,193  
Income from operations753,350  943,672  
Other (expense) income:
Bargain purchase gain  19,298  
Other expense, net4,337  11,645  
Total other (expense) income(4,337) 7,653  
Income before income tax benefit
749,013  951,325  
Income tax benefit(65,934) (1,319) 
Net income and comprehensive income $814,947  $952,644  
Less: income attributable to the non-controlling interest$  $  
Net income attributable to The Joint Corp. stockholders
$814,947  $952,644  
Earnings per share:
Basic earnings per share$0.06  $0.07  
Diluted earnings per share$0.06  $0.07  
Basic weighted average shares13,890,673  13,751,196  
Diluted weighted average shares14,483,584  14,256,006  

The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common StockAdditional
Paid In
Capital
Treasury StockAccumulated
Deficit
Total The Joint Corp.
stockholders'
equity
Non-controlling
interest
Total
SharesAmountSharesAmount
Balances, December 31, 201913,898,694  $13,899  $39,454,937  15,762  $(111,041) $(33,637,395) $5,720,400  $100  $5,720,500  
Stock-based compensation expense—  —  250,392  —  —  —  250,392  —  250,392  
Issuance of vested restricted stock15,578  16  (16) —  —  —  —  —    
Exercise of stock options35,500  35  140,864  —  —  —  140,899  —  140,899  
Purchases of treasury stock under employee stock plans—  —  —  251  (3,774) —  (3,774) —  (3,774) 
Net income—  —  —  —  —  814,947  814,947  —  814,947  
Balances, March 31, 2020 (unaudited)13,949,772  $13,950  $39,846,177  16,013  $(114,815) $(32,822,448) $6,922,864  $100  $6,922,964  

Common StockAdditional
Paid In
Capital
Treasury StockAccumulated
Deficit
Total The Joint Corp.
stockholders'
equity
Non-controlling
interest
SharesAmountSharesAmountTotal
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—  —  171,771  —  —  —  171,771  —  171,771  
Exercise of stock options42,804  43  220,201  —  —  —  220,244  —  220,244  
Net income—  —  —  —  —  952,644  952,644  —  952,644  
Balances, March 31, 2019 (unaudited)13,800,004  $13,800  $38,581,223  14,670  $(90,856) $(36,432,007) $2,072,160  $100  $2,072,260  



The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents
THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
20202019
Cash flows from operating activities:
Net income$814,947  $952,644  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization654,249  365,678  
Net loss on disposition or impairment1,193  105,193  
Net franchise fees recognized upon termination of franchise agreements(14,862)   
Bargain purchase gain  (19,298) 
Deferred income taxes(34,406) (22,425) 
Stock based compensation expense250,392  171,771  
Changes in operating assets and liabilities:
Accounts receivable809,563  (241,850) 
Prepaid expenses and other current assets(18,073) 51,560  
Deferred franchise costs(104,483) (189,722) 
Deposits and other assets(4,378) 268,974  
Accounts payable(80,682) (276,074) 
Accrued expenses205,601  (117,795) 
Payroll liabilities(1,727,021) (1,151,652) 
Deferred revenue339,523  769,216  
Other liabilities380,259  (206,709) 
Net cash provided by operating activities1,471,822  459,511  
Cash flows from investing activities:
Acquisition of business, net of cash acquired  (30,000) 
Purchase of property and equipment(1,261,213) (526,027) 
Reacquisition and termination of regional developer rights  (681,500) 
Payments received on notes receivable39,720  35,954  
Net cash used in investing activities(1,221,493) (1,201,573) 
Cash flows from financing activities:
Payments of finance lease obligation(7,214) (5,285) 
Purchases of treasury stock under employee stock plans(3,774)   
Proceeds from exercise of stock options140,899  189,886  
Proceeds from the Credit Agreement, net of related fees1,947,352    
Repayments on notes payable  (100,000) 
Net cash provided by financing activities2,077,263  84,601  
Increase (decrease) in cash2,327,592  (657,461) 
Cash and restricted cash, beginning of period8,641,877  8,854,952  
Cash and restricted cash, end of period$10,969,469  $8,197,491  

The accompanying notes are an integral part of these condensed consolidated financial statements.
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During the three months ended March 31, 2020 and 2019, cash paid for income taxes was $0 for both periods. During the three months ended March 31, 2020 and 2019, cash paid for interest was $0 and $25,000, respectively.
Supplemental disclosure of non-cash activity:
As of March 31, 2020, accounts payable and accrued expenses include property and equipment purchases of $501,318 and $14,097, respectively. As of December 31, 2019, accounts payable and accrued expenses include property and equipment purchases of $196,671, and $15,250, respectively.
In connection with the acquisitions during the three months ended March 31, 2019, the Company acquired $9,166 of property and equipment and intangible assets of $62,000, in exchange for $30,000 in cash to the seller.  Additionally, at the time of these transactions, the Company carried net deferred revenue of $3,847, representing net franchise fees collected upon the execution of the franchise agreement.  The Company netted this amount against the purchase price of the acquisitions.
In connection with the Company’s reacquisition and termination of regional developer rights during the three months ended March 31, 2019, the Company had deferred revenue of $44,334 representing license fees collected upon the execution of the regional developer agreements.  The Company netted these amounts against the aggregate purchase price of the acquisitions.
As of March 31, 2020, the Company had no stock option exercise proceeds included in accounts receivable. As of March 31, 2019, the Company had $30,358 of proceeds from the exercise of stock options included in accounts receivable.


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”). The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles ("GAAP"). Such unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with The Joint Corp. and Subsidiary and Affiliates consolidated financial statements and the notes thereto as set forth in The Joint’s Form 10-K, which included all disclosures required by U.S. GAAP. The results of operations for the periods ended March 31, 2020 and 2019 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended March 31, 2020 and 2019 is unaudited.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue and accounting for leases, see Note 2, Revenue Disclosures and Note 11, Commitments and Contingencies, respectively.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of The Joint and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which was dormant for all periods presented. The Company consolidates VIEs in which the Company is the primary beneficiary in accordance with Accounting Standards Codification 810, Consolidations
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(“ASC 810”). Non-controlling interests represent third-party equity ownership interests in VIEs. All significant inter-affiliate accounts and transactions between The Joint and its VIEs have been eliminated in consolidation.
Comprehensive Income
Net income and comprehensive income are the same for the three months ended March 31, 2020 and 2019.
Nature of Operations
The Joint, a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer rights and supporting the operations of franchised chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.
The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three months ended March 31, 2020 and 2019:

Three Months Ended
March 31,
Franchised clinics:20202019
Clinics open at beginning of period453  394  
Opened during the period16  12  
Sold during the period  (1) 
Closed during the period  (1) 
Clinics in operation at the end of the period469  404  
Three Months Ended
March 31,
Company-owned or managed clinics:20202019
Clinics open at beginning of period60  48  
Opened during the period1  2  
Acquired during the period  1  
Closed during the period  (1) 
Clinics in operation at the end of the period61  50  
Total clinics in operation at the end of the period530  454  
Clinic licenses sold but not yet developed176  145  
Executed letters of intent for future clinic licenses36  27  
Variable Interest Entities
An entity deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a VIE is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE.
Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized under state laws as professional corporations or PCs. In these states, the Company has entered into management services agreements with PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. Such PCs are VIEs, as fees paid by the PCs to the Company as its management service provider are considered variable interests because they are liabilities on the PC’s books and the fees do not meet all the following criteria: 1) The fees are compensation for services provided and are commensurate with the level of effort required to
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provide those services; 2) The decision maker or service provider does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns; 3) The service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. The Company assessed the governance structure and operating procedures of the PCs and determined that the Company has the power to control certain significant non-clinical activities of the PCs, as defined by ASC 810, Therefore, the Company is the primary beneficiary of the VIEs, and per ASC 810, must consolidate the VIEs. The carrying amount of VIE assets and liabilities are immaterial as of March 31, 2020, and December 31, 2019.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all its cash in short-term bank deposits. The Company had no cash equivalents as of March 31, 2020 and December 31, 2019.
Restricted Cash
Restricted cash relates to cash that franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising. 
Accounts Receivable
Accounts receivable primarily represent amounts due from franchisees for royalty fees. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of March 31, 2020 and December 31, 2019, the Company had an allowance for doubtful accounts of $0.
Deferred Franchise and Regional Development Costs
Deferred franchise and regional development costs represent commissions that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise license or regional development rights. These costs are recognized as an expense, in franchise and regional development cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise or regional development agreement.
Property and Equipment
Property and equipment are stated at cost or for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the straight-line method over estimated useful lives of 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.
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Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally five years.
Leases
The Company leases property and equipment under operating and finance leases. The Company leases its corporate office space and the space for each of the company-owned or managed clinic in the portfolio. The Company recognizes a right-of-use ("ROU") asset and lease liability for all leases. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease liability for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and if the optional period and payments should be included in the calculation of the associated ROU asset and liability. In making this determination, all relevant economic factors are considered that would compel the Company to exercise or not exercise an option. When available, the Company uses the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of its leases. In such cases, the Company estimates its incremental borrowing rate as the interest rate it would pay to borrow an amount equal to the lease payments over a similar term, with similar collateral as in the lease, and in a similar economic environment. The Company estimates these rates using available evidence such as rates imposed by third-party lenders to the Company in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to the Company’s estimated creditworthiness.
For operating leases that include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. Pre-opening costs are recorded as incurred in general and administrative expenses. The Company records the straight-line lease expense and any contingent rent, if applicable, in general and administrative expenses on the condensed consolidated statements of operations. Many of the Company’s leases also require it to pay real estate taxes, common area maintenance costs and other occupancy costs which are also included in general and administrative expenses on the condensed consolidated statements of operations.
Intangible Assets
Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships.  The Company amortizes the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which generally range from three 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.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step 2 of the current goodwill impairment test that requires a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment loss will instead be measured at the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. The provision of this ASU is effective for years beginning after December 15, 2022 for smaller reporting companies, as defined by the SEC, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. The Company adopted this ASU provision on January 1, 2020. As a result of the current COVID-19 outbreak and its impact on the Company's projected cash flows, the Company tested goodwill for impairment at the end of the first quarter of 2020. No impairments of goodwill were recorded for the three months ended March 31, 2020 and 2019.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to estimated undiscounted future cash flows in
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its assessment of whether or not long-lived assets are recoverable. As a result of the current COVID-19 outbreak, the Company evaluated whether the carrying values of the long-lived assets in certain corporate clinics were recoverable. No impairments of long-lived assets were recorded for the three months ended March 31, 2020 and 2019.
Advertising Fund
The Company has established an advertising fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is 2% of clinic sales. The Company segregates the marketing funds collected which are included in restricted cash on its consolidated balance sheets. As amounts are expended from the fund, the Company recognizes a related expense.
Co-Op Marketing Funds
Some franchises have established regional Co-Ops for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included in restricted cash on the Company’s condensed consolidated balance sheets.
Revenue Recognition
The Company generates revenue primarily through its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer software fees.
Revenues from Company-Owned or Managed Clinics.  The Company earns revenues from clinics that it owns and operates or manages throughout the United States.  In those states where the Company owns and operates or manages the clinic, revenues are recognized when services are performed. The Company offers a variety of membership and wellness packages which feature discounted pricing as compared with its single-visit pricing.  Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service is performed.  The Company recognizes a contract liability (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 and an evaluation of legal obligation by jurisdiction, the Company concluded that any remaining contract liability that exists after 12 to 24 months from transaction date will be deemed breakage. Breakage revenue is recognized only at that point, when the likelihood of the patient exercising his or her remaining rights becomes remote.
Royalties and Advertising Fund Revenue. The Company collects royalties, as stipulated in the franchise agreement, equal to 7% of gross sales and a marketing and advertising fee currently equal to 2% of gross sales. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to the Company’s performance obligation under the franchise agreement and are recognized as franchisee clinic level sales occur. Royalties are collected semi-monthly, two working days after each sales period has ended.
Franchise Fees. The Company requires the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of ten years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.  The Company’s services under the franchise agreement include: training of franchisees and staff, site selection, construction/vendor management and ongoing operations support. The Company provides no financing to franchisees and offers no guarantees on their behalf. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.
Software Fees.  The Company collects a monthly fee for use of its proprietary chiropractic software, computer support, and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement.
Regional Developer Fees. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee for each franchise they received the right to develop within the region. In 2017, the program was revised to grant exclusive geographical territory and establish a minimum development obligation within that defined territory. Regional developer fees paid to the Company are non-refundable and are recognized as revenue ratably on a straight-line basis over the term of the regional
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developer agreement, which is considered to begin upon the execution of the agreement. The Company’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation. In addition, regional developers receive fees which are funded by the initial franchise fees collected from franchisees upon the sale of franchises within their exclusive geographical territory and a royalty of 3% of sales generated by franchised clinics in their exclusive geographical territory. Fees related to the sale of franchises within their exclusive geographical territory are initially deferred as deferred franchise costs and are recognized as an expense in franchise cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise agreement. Royalties of 3% of sales generated by franchised clinics in their regions are also recognized as franchise cost of revenues as franchisee clinic level sales occur, which is funded by the 7% royalties collected from the franchisees in their regions. Certain regional developer agreements result in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is recognized over the remaining life of the respective franchise agreements.
The Company entered into one regional developer agreement for the three months ended March 31, 2020 for which it received approximately $201,000. This fee was deferred as of the transaction date and will be recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were $658,673 and $439,436 for the three months ended March 31, 2020, and 2019, respectively.
Income Taxes
The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property and equipment, amortization of goodwill, accounting for leases and stock-based compensation and treatment of revenue for franchise fees and regional developer fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has not identified any material uncertain tax positions as of March 31, 2020 and December 31, 2019. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.
With exceptions due to the generation and utilization of net operating losses or credits, as of March 31, 2020 and December 31, 2019, the Company is no longer subject to federal and state examinations by taxing authorities for tax years before 2016 and 2015, respectively.
Earnings per Common Share
Basic earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed by giving effect to all potentially dilutive common shares including restricted stock and stock options.
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Three Months Ended
March 31,
20202019
Net Income$814,947  $952,644  
Weighted average common shares outstanding - basic13,890,673  13,751,196  
Effect of dilutive securities:
Unvested restricted stock and stock options592,911  504,810  
Weighted average common shares outstanding - diluted14,483,584  14,256,006  
Basic earnings per share$0.06  $0.07  
Diluted earnings per share$0.06  $0.07  
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
March 31,
Weighted average potentially dilutive securities:20202019
Unvested restricted stock  3,339  
Stock options101,692  69,675  
Stock-Based Compensation
The Company accounts for share-based payments by recognizing compensation expense based upon the estimated fair
value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using
the closing price on the date of the grant and the grant-date fair value of stock options using the Black-Scholes-Merton model.
In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model,
including risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could
cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service
using the straight-line method. Forfeitures are estimated based on historical and forecasted turnover. 

Retirement Benefit Plan
Employees of the Company are eligible to participate in a defined contribution retirement plan, the Joint Corp. 401(k). Retirement Plan (“401(k) Plan”), under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, employees may contribute their eligible compensation, not to exceed the annual limits set by the IRS. The 401(k) Plan allows the Company to match participants’ contributions in an amount determined at the sole discretion of the Company.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and revenue recognition related to breakage, classification of deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, intangible assets, and other long-lived assets, and purchase price allocations and related valuations.
Recent Accounting Pronouncements
On January 1, 2020, the Company early adopted ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step 2 of the current goodwill impairment test that requires a hypothetical purchase price allocation to measure goodwill impairment. The Company reviewed other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements upon future adoption.
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Note 2: 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
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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 months ended March 31, 2020 and 2019. Other revenues primarily consist of merchant income associated with credit card transactions.
Rollforward of Contract Liabilities and Contract Assets
Changes in the Company's contract liability for deferred franchise and regional development fees during the three months ended March 31, 2020 were as follows:
Deferred Revenue
short and long-term
Balance at December 31, 2019$15,107,276  
Recognized as revenue during the three months ended March 31, 2020(720,393) 
Fees received and deferred during the three months ended March 31, 2020938,701  
Balance at March 31, 2020$15,325,584  
Changes in the Company's contract assets for deferred franchise and regional development costs during the three months ended March 31, 2020 were as follows:
Deferred Franchise and Development Costs
short and long-term
Balance at December 31, 2019$4,392,733  
Recognized as cost of revenue during the three months ended March 31, 2020(203,501) 
Costs incurred and deferred during the three months ended March 31, 2020293,123  
Balance at March 31, 2020$4,482,355  
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 March 31, 2020:
Contract liabilities expected to be recognized inAmount
2020 (remainder)$2,130,191  
20212,720,283  
20222,334,730  
20232,001,921  
20241,565,354  
Thereafter4,573,105  
Total$15,325,584  

Note 3. Restricted Cash
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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:
March 31, 2020December 31, 2019
Cash and cash equivalents$10,712,846  $8,455,989  
Restricted cash256,623  185,888  
Total cash, cash equivalents and restricted cash$10,969,469  $8,641,877  

Note 4: Notes Receivable
Effective April 29, 2017, the Company entered into a regional developer agreement for certain territories in the state of Florida in exchange for $320,000, of which $187,000 was funded through a promissory note. The note bears interest at 10% per annum for 42 months and requires monthly principal and interest payments over 3 years, beginning November 1, 2017 and maturing on October 1, 2020. The note is secured by the regional developer rights in the respective territory.
Effective August 31, 2017, the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for $220,000, of which $117,475 was funded through a promissory note. The note bears interest at 10% per annum for 3 years and requires monthly principal and interest payments over 3 years, beginning September 1, 2017 and maturing on August 1, 2020. The note is secured by the regional developer rights in the respective territory.
Effective October 10, 2017, the Company entered into a regional developer agreement for certain territories in Texas, Oklahoma and Arkansas in exchange for $170,000, of which $135,688 was funded through a promissory note. The note bears interest at 10% per annum for 3 years and requires monthly principal and interest payments over 3 years, maturing on October 24, 2020. The note is secured by the regional developer rights in the territory.
Effective April 26, 2019, the Company entered into a promissory note valued at $31,086. The note bears interest at 0% per annum for 3 years and requires monthly principal payments over 3 years, beginning May 15, 2019 and maturing on May 15, 2022.
The net outstanding balances of the notes as of March 31, 2020 and December 31, 2019 were $114,590 and $155,810, respectively. The allowance for uncollectible amounts on the outstanding notes as of March 31, 2020, and December 31, 2019 were $25,586, and $27,086, respectively. Maturities of notes receivable as of March 31, 2020 are as follows:

Amount (gross)
2020 (remaining)$95,904  
20219,600  
20229,086  
Total$114,590  

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Table of Contents
Note 5: Property and Equipment
Property and equipment consist of the following:
March 31,
2020
December 31,
2019
Office and computer equipment$2,005,872  $1,594,364  
Leasehold improvements7,631,395  7,154,156  
Software developed1,193,007  1,193,007  
Finance lease assets232,001  80,604  
11,062,275  10,022,131  
Accumulated depreciation and amortization(5,929,760) (5,671,366) 
5,132,515  4,350,765  
Construction in progress2,926,878  2,230,823  
Property and equipment, net$8,059,393  $6,581,588  
Depreciation expense was $287,076 and $193,805 for the three months ended March 31, 2020 and 2019, respectively.
Amortization expense related to finance lease assets was $10,554 and $