EXHIBIT 99.1

 

 

 

 

 

 

Meglin Clinics

 

Combined Financial Statements

as of December 31, 2018, and December 31, 2017 and

for the years ended December 31, 2018 and 2017

 

 

 

 

 

 

 

 

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Table of Contents Pages
FINANCIAL INFORMATION  
   
Financial Statements:  
   
Report of Independent Auditors 3
   
Combined Statements of Financial Position 4
   
Combined Statements of Operations 5
   
Combined Statements of Cash Flows 6
   
Combined Statements of Changes in Members’ Equity 7
   
Notes to Combined Financial Statements 8
   

 

 

 

 

 

 

 

 

 

 

 

 

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Report of Independent Auditors

 

 

To the Board of Directors

Meglin Clinics

 

 

We have audited the accompanying combined financial statements of Twelve Oaks, LLC, TJ of Pooler, LLC, and TJ of Bluffton, LLC, collectively referred to as the “Meglin Clinics” (the "Company"), which comprise the balance sheets as of December 31, 2018 and 2017 and the related statements of operations, members' equity, and cash flows for each of the years then ended, and the related notes to the combined financial statements.

 

Management’s Responsibility for the Combined financial statements

 

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Meglin Clinics as of December 31, 2018 and 2017 and the results of their operations and their cash flows for each of the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

 

 

Plante & Moran, PLLC

 

September 27, 2019

Denver, Colorado

 

 

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MEGLIN CLINICS

COMBINED STATEMENTS OF FINANCIAL POSITIONS

 

   December 31,  December 31,
   2018  2017
ASSETS          
Current assets:          
Cash and cash equivalents  $77,133   $39,601 
Prepaid expenses and other current assets   7,957    - 
Total current assets   85,090    39,601 
Property and equipment, net   147,350    182,698 
Franchise fees, net   33,351    42,051 
Deposits and other assets   12,270    12,270 
Total assets  $278,061   $276,620 
           
LIABILITIES AND MEMBERS' EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $27,456   $30,733 
Deferred revenue   149,521    136,345 
Other current liabilities   10,169    9,410 
Total current liabilities   187,146    176,488 
Other liabilities   53,446    55,996 
Total liabilities   240,592    232,484 
           
Commitments and contingencies (Note 4)          
           
Members' equity   37,469    44,136 
Total liabilities and members' equity  $278,061   $276,620 

 

 

 

 

The accompanying notes are an integral part of these combined financial statements

 

 

 

 

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MEGLIN CLINICS

COMBINED STATEMENTS OF OPERATIONS

 

 

   Year Ended
   December 31,
   2018  2017
Revenues:      
Revenues  $1,477,588   $1,395,980 
           
Expenses:          
Selling and marketing expenses   71,792    36,360 
Depreciation and amortization   44,048    63,479 
General and administrative expenses   1,203,933    1,137,641 
Total selling, general and administrative expenses   1,319,773    1,237,480 
           
Income from operations   157,815    158,500 
           
Other expense, net   (1,391)   (2,271)
           
Net income and comprehensive income  $156,424   $156,229 

 

 

 

  

The accompanying notes are an integral part of these combined financial statements

 

 

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MEGLIN CLINICS

COMBINED STATEMENTS OF CASH FLOWS

 

 

 

   Year Ended
   December 31,
   2018  2017
Cash flows from operating activities:          
Net income  $156,424   $156,229 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   44,048    63,479 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (7,958)   15,321 
Other liabilities   (5,067)   (119,435)
Deferred revenue   13,176    1,081 
Net cash provided by operating activities   200,623    116,675 
           
Cash flows from investing activities:          
Purchase of property and equipment   -    - 
Net cash used in investing activities   -    - 
           
Cash flows from financing activities:          
Distributions to owners   (163,091)   (105,066)
Net cash used in financing activities   (163,091)   (105,066)
           
Increase in cash   37,532    11,609 
Cash, beginning of period   39,601    27,992 
Cash, end of period  $77,133   $39,601 

 

 

 

The accompanying notes are an integral part of these combined financial statements

 

 

 

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MEGLIN CLINICS

COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY

 

 

 

   Total
   members' equity
Balances, January 1, 2017  $(7,027)
Distributions to owners   (105,066)
Net income   156,229 
Balances, December 31, 2017  $44,136 
Distributions to owners   (163,091)
Net income   156,424 
Balances, December 31, 2018  $37,469 

 

 

 

 

 

The accompanying notes are an integral part of these combined financial statements

 

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MEGLIN CLINICS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Note 1: Nature of Operations and Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Combination

  

The accompanying Meglin Clinics combined financial statements include the accounts of the following entities, all of which are under common control and ownership: TJ of Savannah – Twelve Oaks, LLC, a Georgia limited liability company (“TJS”), TJ of Pooler, LLC, a Georgia limited liability company (“TJP”), and TJ of Bluffton, LLC, a South Carolina limited liability company (“TJB”) (TJS, TJP and TJB are referred to herein collectively, as the “Company” or the “Meglin Clinics”). All significant inter-clinic accounts and transactions between the three clinics have been eliminated in combination.

 

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“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 combined 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.

 

Comprehensive Income

 

Net income and comprehensive income are the same for the years ended December 31, 2018 and 2017.

  

Nature of Operations

 

The Company was formed for the purpose of owning and operating franchises for The Joint Corp. ("The Joint"), a franchisor that specializes in providing affordable, convenient, and accessible chiropractic care through licensed chiropractic professionals.

 

On July 17, 2019, the Company entered into an agreement with The Joint in which it sold substantially all of the assets of three developed franchises and terminated its franchise rights under the Company's three franchise agreements for consideration of $1,650,000.

 

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. The Company had no cash equivalents as of December 31, 2018 and 2017.

 

Franchise Fees

 

For each franchise purchased by the Company, a fee of $29,000 is paid to The Joint. The fees are amortized on a straight-line basis over a period of 10 years, which is the term of the franchise agreement. 

 

Property and Equipment

 

Property and equipment are stated at cost. 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.

    

Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or not long-lived assets are recoverable. No impairments of long-lived assets were recorded for the years ended December 31, 2018 and 2017.

 

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Revenue Recognition

 

The Company earns revenues from clinics that it owns and operates, and 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.

   

Royalties and Advertising Fees

 

Pursuant to the franchise agreements, the Company is required to pay royalties and advertising fees to The Joint based on a percentage of sales, including 7% for royalties and 2% for advertising fees. Total royalties and advertising fees for the years ended December 31, 2018 and 2017 were $135,412, and $126,681, respectively. 

 

Advertising Costs

 

The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 2018 and 2017 were $71,792, and $36,360, respectively. 

 

Income Taxes

 

The Company has elected to be treated as a limited liability company for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the members’, and no provision for federal income taxes has been recorded on the accompanying financial statements.

 

The Company applies a more likely than not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the Company's members’ rather than on the Company. Accordingly, there would be no effect on the Company's financial statements.

  

Recent Accounting Pronouncements

 

Newly Issued Accounting Standards Not Yet Adopted

 

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 standard also calls for additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard becomes effective for the Company as of the acquisition date by The Joint.

 

In February 2016, the FASB issued the guidance of Accounting Standards Codification 842 – Leases (“ASC 842”). The new guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually all leases, other than leases with a term of 12 months or less, and to provide additional disclosures about leasing arrangements. The Company will adopt this standard using the modified retrospective approach. The Company is still finalizing its adoption procedures, but it anticipates that the adoption of this standard will result in the recognition of additional right-of-use assets and lease liabilities for minimum commitments under noncancelable operating leases of approximately $425,000 as of the date of adoption.

 

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: Property and Equipment

 

Property and equipment consist of the following:

 

     December 31, 2018      December 31, 2017  
Leasehold improvements  $296,077   $296,077 
Furniture and fixtures   126,926    126,926 
Office equipment   65,927    65,927 
    488,930    488,930 
Less accumulated depreciation   (341,580)   (306,232)
Total property and equipment, net  $147,350   $182,698 

 

Depreciation expense was $35,348 and $54,779 for the years ended December 31, 2018, and 2017, respectively.

 

Note 3: Franchise fees

 

Franchise fees consist of the following:

 

     December 31,
2018
     December 31,
2017
 
Franchise fee  $87,000   $87,000 
Less accumulated amortization   (53,649)   (44,949)
Franchise fee, net  $33,351   $42,051 

 

Amortization expense related to the Company’s franchise fees were $8,700 and $8,700 for the years ended December 31, 2018 and 2017, respectively.

 

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

 

Future amortization expense   
2019  $8,700 
2020   8,700 
2021   8,700 
2022   6,767 
2023   484 
Total  $33,351 

 

Note 4: Commitments and Contingencies

 

The Company leases facilities under non-cancelable operating leases. Rent expenses for the years ended December 31, 2018 and 2017 were $150,095, and $144,299, respectively.

 

Future minimum lease payments under these leases are approximately as follows:

 

Future minimum lease payments   
2019  $121,228 
2020   123,623 
2021   126,110 
2022   127,370 
2023   77,011 
Thereafter   4,958 
Total  $580,300 

 

Litigation

 

In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.

 

 

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