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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 September 30, 2021 
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 110, 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  ☒    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ¨

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

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



Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).    Yes     No ☒
As of November 1, 2021, the registrant had 14,413,339 shares of Common Stock ($0.001 par value) outstanding.


Table of Contents
THE JOINT CORP.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NO.
Condensed Consolidated Income Statements for the three and nine months ended September 30, 2021 and 2020 (unaudited)
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
(unaudited)
September 30,
2021
December 31,
2020
ASSETS
(unaudited)
(as revised)
Current assets:
Cash and cash equivalents
$19,542,685 $20,554,258 
Restricted cash
449,597 265,371 
Accounts receivable, net
2,920,363 1,850,499 
Deferred franchise and regional development costs, current portion992,124 897,551 
Prepaid expenses and other current assets
1,552,946 1,566,025 
Total current assets
25,457,715 25,133,704 
Property and equipment, net
13,353,986 8,747,369 
Operating lease right-of-use asset
15,903,649 11,581,435 
Deferred franchise and regional development costs, net of current portion5,387,147 4,340,756 
Intangible assets, net
5,280,024 2,865,006 
Goodwill
5,085,202 4,625,604 
Deferred tax assets9,997,313 8,088,073 
Deposits and other assets
513,862 431,336 
Total assets$80,978,898 $65,813,283 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$1,788,446 $1,561,648 
Accrued expenses
935,087 770,221 
Co-op funds liability
449,597 248,468 
Payroll liabilities
4,105,821 2,776,036 
Debt under the Credit Agreement2,000,000  
Operating lease liability, current portion3,874,451 2,918,140 
Finance lease liability, current portion64,944 70,507 
Deferred franchise and regional developer fee revenue, current portion3,198,750 3,000,369 
Deferred revenue from company clinics ($3.1 million and $2.6 million attributable to VIEs as of September 30, 2021, and December 31, 2020)
4,637,740 4,201,548 
Debt under the Paycheck Protection Program 2,727,970 
Other current liabilities
404,901 707,085 
Total current liabilities
21,459,737 18,981,992 
Operating lease liability, net of current portion14,977,426 10,632,672 
Finance lease liability, net of current portion93,887 132,469 
Debt under the Credit Agreement 2,000,000 
Deferred franchise and regional developer fee revenue, net of current portion
15,349,878 13,503,745 
Other liabilities
27,231 27,230 
Total liabilities
51,908,159 45,278,108 
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of September 30, 2021 and December 31, 2020
  
Common stock, $0.001 par value; 20,000,000 shares authorized, 14,444,982 shares issued and 14,413,339 shares outstanding as of September 30, 2021 and 14,174,237 shares issued and 14,157,070 outstanding as of December 31, 2020
14,444 14,174 
Additional paid-in capital
43,657,273 41,350,001 
Treasury stock 31,643 shares as of September 30, 2021 and 17,167 shares as of December 31, 2020, at cost
(850,839)(143,111)
Accumulated deficit
(13,775,139)(20,685,989)
Total The Joint Corp. stockholders' equity
29,045,739 20,535,075 
Non-controlling Interest
25,000 100 
Total equity
29,070,739 20,535,175 
Total liabilities and stockholders' equity
$80,978,898 $65,813,283 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues:
Revenues from company-owned or managed clinics
$11,634,009 $8,403,844 $32,537,942 $22,554,946 
Royalty fees5,714,637 4,170,692 15,816,500 11,157,575 
Franchise fees648,598 519,131 1,967,680 1,555,846 
Advertising fund revenue1,627,693 1,187,666 4,521,342 3,176,080 
Software fees840,969 688,046 2,387,543 1,964,968 
Regional developer fees209,651 222,908 642,041 643,974 
Other revenues316,064 218,266 885,335 591,443 
Total revenues20,991,621 15,410,553 58,758,383 41,644,832 
Cost of revenues:
Franchise and regional development cost of revenues1,907,874 1,588,707 5,319,278 4,281,389 
IT cost of revenues392,248 123,539 784,698 284,653 
Total cost of revenues2,300,122 1,712,246 6,103,976 4,566,042 
Selling and marketing expenses2,881,575 1,845,601 8,503,617 5,684,556 
Depreciation and amortization1,662,255 714,288 4,275,140 2,061,937 
General and administrative expenses12,812,331 9,433,062 34,513,378 26,668,420 
Total selling, general and administrative expenses
17,356,161 11,992,951 47,292,135 34,414,913 
Net (gain) loss on disposition or impairment(3,540) 16,967 (53,413)
Income from operations1,338,878 1,705,356 5,345,305 2,717,290 
Other expense, net(16,139)(25,667)(54,050)(55,248)
Income before income tax (benefit) expense1,322,739 1,679,689 5,291,255 2,662,042 
Income tax (benefit) expense(614,356)75,730 (1,644,496)127,551 
Net income$1,937,095 $1,603,959 $6,935,751 $2,534,491 
Earnings per share:
Basic earnings per share$0.13 $0.11 $0.49 $0.18 
Diluted earnings per share$0.13 $0.11 $0.46 $0.17 
Basic weighted average shares14,388,905 14,033,535 14,286,818 13,968,635 
Diluted weighted average shares14,970,328 14,593,107 14,931,759 14,523,329 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Common StockAdditional
Paid In
Capital
Treasury StockAccumulated
Deficit
Total The Joint Corp.
stockholders'
equity
Non-controlling
interest
Total
SharesAmountSharesAmount
Balances, December 31, 2020 as adjusted14,174,237 $14,174 $41,350,001 17,167 $(143,111)$(20,685,989)$20,535,075 $100 $20,535,175 
Stock-based compensation expense— — 246,494 — — — 246,494 — 246,494 
Issuance of restricted stock7,879 8 (8)— — — — —  
Exercise of stock options105,995 106 620,670 — — — 620,776 — 620,776 
Purchases of treasury stock under employee stock plans— — — 13,619 (618,154)— (618,154)— (618,154)
Net income— — — — — 2,314,694 2,314,694 — 2,314,694 
Balances, March 31, 2021 as adjusted (unaudited)14,288,111 $14,288 $42,217,157 30,786 $(761,265)$(18,371,295)$23,098,885 $100 $23,098,985 
Stock-based compensation expense— — 283,564 — — — 283,564 — 283,564 
Issuance of restricted stock4,218 4 (4)— — — — —  
Exercise of stock options113,819 113 641,674 — — — 641,787 — 641,787 
Net income— — — — — 2,683,961 2,683,961 — 2,683,961 
Balances, June 30, 2021 as adjusted (unaudited)14,406,148 14,405 43,142,391 30,786 (761,265)(15,687,334)26,708,197 100 26,708,297 
Stock-based compensation expense— — 296,850 — — — 296,850 — 296,850 
Issuance of restricted stock4,280 4 (4)— — — — —  
Exercise of stock options34,554 35 218,036 — — — 218,071 — 218,071 
Purchases of treasury stock under employee stock plans— — — 857 (89,574)— (89,574)— (89,574)
Change in redemption value of noncontrolling interest— — — — — (24,900)(24,900)24,900  
Net income— — — — — 1,937,095 1,937,095 1,937,095 
Balances, September 30, 2021 (unaudited)14,444,982 14,444 43,657,273 31,643 (850,839)(13,775,139)29,045,739 25,000 29,070,739 
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Common StockAdditional
Paid In
Capital
Treasury StockAccumulated
Deficit
Total The Joint Corp.
stockholders'
equity
Non-controlling
interest
SharesAmountSharesAmountTotal
Balances, January 1, 2020 as adjusted13,898,694 $13,899 $39,454,937 15,762 $(111,041)$(33,853,303)$5,504,492 $100 $5,504,592 
Stock-based compensation expense— — 250,392 — — — 250,392 — 250,392 
Issuance of 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 as adjusted (unaudited)13,949,772 $13,950 $39,846,177 16,013 $(114,815)$(33,038,356)$6,706,956 $100 $6,707,056 
Stock-based compensation expense216,081 216,081 216,081 
Issuance of restricted stock30,882 31 (31)—  
Exercise of stock options62,200 62 246,959 247,021 247,021 
Net income115,584 115,584 115,584 
Balances, June 30, 2020 as adjusted (unaudited)14,042,854 $14,043 $40,309,186 16,013 $(114,815)$(32,922,772)$7,285,642 $100 $7,285,742 
Stock-based compensation expense— $— $212,234 — $— $— $212,234 $212,234 
Issuance of restricted stock4,281 $4 $(4)— $— $— $— $ 
Exercise of stock options26,109 $26 $103,712 — $— $— $103,738 $103,738 
Purchases of treasury stock under employee stock plans— $— $— 30 $(488)$— $(488)$(488)
Net income— $— $— — $— $1,603,959 $1,603,959 $1,603,959 
Balances, September 30, 2020 as adjusted (unaudited)14,073,244 $14,073 $40,625,128 16,043 $(115,303)$(31,318,813)$9,205,085 $100 $9,205,185 



The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(unaudited)
Nine Months Ended
September 30,
20212020
Cash flows from operating activities:
Net income$6,935,751 $2,534,491 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization4,275,140 2,061,937 
Net loss on disposition or impairment (non-cash portion)109,871 1,193 
Net franchise fees recognized upon termination of franchise agreements(98,196)(54,174)
Deferred income taxes(1,909,241)(17,022)
Stock based compensation expense826,908 678,706 
Changes in operating assets and liabilities:
Accounts receivable(1,069,864)831,401 
Prepaid expenses and other current assets13,079 200,919 
Deferred franchise costs(1,245,049)(247,127)
Deposits and other assets(95,176)(4,602)
Accounts payable(49,415)(379,342)
Accrued expenses164,866 677,308 
Payroll liabilities1,329,785 (259,620)
Deferred revenue2,410,202 417,221 
Other liabilities852,926 466,156 
Net cash provided by operating activities12,451,587 6,907,445 
Cash flows from investing activities:
Acquisition of AZ clinics(1,925,000) 
Acquisition of NC clinics(2,568,028) 
Purchase of property and equipment(5,382,857)(2,344,344)
Reacquisition and termination of regional developer rights(1,388,700) 
Payments received on notes receivable 118,398 
Net cash used in investing activities(11,264,585)(2,225,946)
Cash flows from financing activities:
Payments of finance lease obligation(59,285)(40,168)
Purchases of treasury stock under employee stock plans(707,728)(4,262)
Proceeds from exercise of stock options1,480,634 491,658 
Proceeds from the Credit Agreement, net of related fees 1,947,352 
Proceeds from the Paycheck Protection Program 2,727,970 
Repayment of debt under the Paycheck Protection Program(2,727,970) 
Net cash (used in) provided by financing activities(2,014,349)5,122,550 
(Decrease) increase in cash, cash equivalents and restricted cash(827,347)9,804,049 
Cash, cash equivalents and restricted cash, beginning of period20,819,629 8,641,877 
Cash, cash equivalents and restricted cash, end of period$19,992,282 $18,445,926 
Reconciliation of cash, cash equivalents and restricted cash:September 30,
2021
September 30,
2020
Cash and cash equivalents$19,542,685 $18,305,526 
Restricted cash449,597 140,400 
$19,992,282 $18,445,926 
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During the nine months ended September 30, 2021 and 2020, cash paid for income taxes was $592,695 and $167,620, respectively. During the nine months ended September 30, 2021 and 2020, cash paid for interest was $58,533 and $31,458, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Supplemental disclosure of non-cash activity:
As of September 30, 2021, accounts payable include property and equipment purchases of $276,213. As of December 31, 2020, accounts payable and accrued expenses include property and equipment purchases of $126,239, and $163,434, respectively.
In connection with the acquisitions during the nine months ended September 30, 2021, the Company acquired $528,974 of property and equipment and intangible assets of $3,766,972, in exchange for $4,493,028 in cash to the sellers. Additionally, at the time of these transactions, the Company carried net deferred revenue of $87,858, representing net franchise fees collected upon the execution of the franchise agreements. 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 nine months ended September 30, 2021, the Company had deferred revenue of $35,679 representing fees collected upon the execution of the regional developer agreement. The Company netted this amount against the aggregate purchase price of $1,388,700.

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 the financial statements and 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 September 30, 2021 and 2020 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, 2021 and 2020 is unaudited.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue, accounting for leases, and accounting for income taxes, see Note 1, "Nature of Operations and Summary of Significant Accounting Policies".
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of The Joint and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which was dormant for all periods presented. The Company consolidates VIEs in which the Company is the primary beneficiary in accordance with Accounting Standards Codification 810, Consolidations (“ASC 810”). Non-controlling interests represent third-party equity ownership interests in VIEs. All significant inter-affiliate accounts and transactions between The Joint and its VIEs have been eliminated in consolidation.
Comprehensive Income
Net income and comprehensive income are the same for the three and nine months ended September 30, 2021 and 2020.
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Correction of Immaterial Error

During the quarter ended September 30, 2021, the Company identified an immaterial error in the calculation of deferred revenue related to wellness packages. Management assessed the materiality of the error and determined the impact on the Company’s condensed consolidated financial statements was not material. December 31, 2020 balance sheet has been revised to correct the error as of January 1, 2020.

The table below sets forth the impact of the revision on the previously issued consolidated balance sheet:


December 31, 2020
As Previously
ReportedAdjustmentsAs Adjusted
ASSETS
Deferred tax assets8,007,633 80,440 8,088,073 
Total assets$65,732,843 $80,440 $65,813,283 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue from company clinics3,905,200 296,348 4,201,548 
Total current liabilities18,685,644 296,348 18,981,992 
Total liabilities44,981,760 296,348 45,278,108 
Stockholders' equity:
Accumulated deficit(20,470,081)(215,908)(20,685,989)
Total The Joint Corp. stockholders' equity20,750,983 (215,908)20,535,075 
Total equity20,751,083 (215,908)20,535,175 
Total liabilities and stockholders' equity$65,732,843 $80,440 $65,813,283 
Nature of Operations
The Joint Corp., a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising, developing, selling regional developer rights, supporting the operations of franchised chiropractic clinics, and operating and managing corporate chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.
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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, 2021 and 2020:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Franchised clinics:2021202020212020
Clinics open at beginning of period555 477 515 453 
Opened during the period28 21 76 49 
Sold during the period  (8) 
Closed during the period (1) (5)
Clinics in operation at the end of the period583 497 583 497 
Three Months Ended
September 30,
Nine Months Ended
September 30,
Company-owned or managed clinics:2021202020212020
Clinics open at beginning of period78 62 64 60 
Opened during the period5 1 11 3 
Acquired during the period  8  
Closed during the period    
Clinics in operation at the end of the period83 63 83 63 
Total clinics in operation at the end of the period666 560 666 560 
Clinic licenses sold but not yet developed252 178 252 178 
Executed letters of intent for future clinic licenses43 40 43 40 
Variable Interest Entities
Certain states prohibit the “corporate practice of chiropractic,” which restricts business corporations from practicing chiropractic care by exercising control over clinical decisions by chiropractic doctors. In states which prohibit the corporate practice of chiropractic, the Company typically enters into long-term management agreements with professional corporations (“PCs”) that are owned by licensed chiropractic doctors, which, in turn, employ or contract with doctors who provide professional chiropractic care in its clinics. Under these management agreements with PCs, the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice. The Company has entered into such management agreements with two PCs, including one in North Carolina, in connection with the acquisition on April 1, 2021 (reference Note 3).
An entity 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. In accordance with relevant accounting guidance, these PCs were determined to be VIEs. Such PCs are VIEs, as fees paid by the PCs to the Company as its management service provider are considered variable interests because they are liabilities on the PC’s books and the fees do not meet all the following criteria: 1) The fees are compensation for services provided and are commensurate with the level of effort required to provide those services; 2) The decision maker or service provider does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns; 3) The service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. Additionally, the Company has determined that it has the ability to direct the activities that most significantly impact the performance of these PCs and have an obligation to absorb losses or receive benefits which could potentially be significant to the PCs. Accordingly, the PCs are variable interest entities for which the Company is the primary beneficiary and are consolidated by the Company. The carrying amount of the VIEs’ assets and liabilities are immaterial as of September 30, 2021 and December 31, 2020, except for amounts collected in advance for membership and wellness packages, which are recorded as deferred revenue. The VIEs’ deferred revenue liability balance as of September 30, 2021 and December 31, 2020 was $3.1 million and $2.6 million, respectively.
Cash and Cash Equivalents
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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 September 30, 2021 and December 31, 2020.
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. While such cash balance is not legally segregated and restricted as to withdrawal or usage, the Company's accounting policy is to classify these funds as restricted cash.
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 September 30, 2021 and December 31, 2020, the Company had an allowance for doubtful accounts of $0.
Deferred Franchise Costs 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. 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 three to five years.
The FASB issued in August 2018 an update to accounting guidance related to implementation costs incurred in a cloud computing arrangement that is a service contract. The update aligns the requirements for capitalizing implementation costs incurred under such arrangements with the requirements for capitalizing costs incurred to develop or obtain internal-use software. Accordingly, implementation costs incurred in connection with a cloud computing arrangement that is a service contract are capitalized and such costs were included in prepaid expenses in the Company’s condensed consolidated balance sheet.
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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 clinics 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 income statements. 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 income statements.
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 one to nine years. In the case of regional developer rights, the Company generally amortizes the re-acquired regional developer rights over one to seven years. The fair value of customer relationships is amortized over their estimated useful life of two to four 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.
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. The Company records an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value. During the nine months ended September 30, 2021, certain operating lease right-of-use assets related to closed clinics with a total carrying amount of $0.5 million was written down to its fair value of $0.4 million. As a result, the Company recorded a noncash impairment loss of approximately $0.1 million during the nine months ended September 30, 2021. No impairments of long-lived assets were recorded for the three months ended September 30, 2021 and for the three and nine months ended September 30, 2020.
Advertising Fund

The Company has established an advertising fund for national or 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 condensed consolidated balance sheets. As amounts are expended from the fund, the Company recognizes a related expense. Such costs are included in selling and marketing expenses on the condensed consolidated income statements.
Co-Op Marketing Funds
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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 contributions, and software fees from our franchisees.
Revenues from 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. Any unused visits associated with monthly memberships are recognized on a month-to-month basis. 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 derecognizes 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 from its franchisees, 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 revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which generally requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price). As 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, such royalties 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. Renewal franchise fees, as well as transfer fees, are also recognized as revenue on a straight-line basis over the term of the respective franchise agreement.
Software Fees.  The Company collects a monthly fee from its franchisees 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. The Company has a regional developer program where regional developers are granted an exclusive geographical territory and commit to a minimum development obligation within that defined territory. Regional developer fees paid to the Company are non-refundable and are recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement. The Company’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation. In addition, regional developers receive fees which are funded by the initial franchise fees collected from franchisees upon the sale of franchises within their exclusive geographical territory and a royalty of 3% of sales generated by franchised clinics in their exclusive geographical territory. Fees related to the sale of franchises within their exclusive geographical territory are initially deferred as deferred franchise costs and are recognized as an expense in franchise cost of revenues when the respective revenue is recognized, which is generally over the term of the related franchise agreement. Royalties of 3% of sales generated by franchised clinics in their regions are also recognized as franchise cost of revenues as franchisee clinic level sales occur, which is funded by
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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 during the nine months ended September 30, 2020 for which it received approximately $201,000. This fee was deferred as of the transaction date and is recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement. The company did not enter into any new regional developer agreements during the nine months ended September 30, 2021.
Advertising Costs
Advertising costs are advertising and marketing expenses incurred by the Company, primarily through advertising funds.
The Company expenses production costs of commercial advertising upon first airing and expenses the costs of communicating
the advertising in the period in which the advertising occurs. Advertising expenses were $1,170,668 and $3,147,885 for the three and nine months ended September 30, 2021, respectively. Advertising expenses were $674,402 and $1,931,008 for the three and nine months ended September 30, 2020, respectively.
Income Taxes
Income tax expense during interim periods is calculated by applying an estimated annual effective income tax rate to year-to-date pre-tax income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected pre-tax income for the year and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.
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.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net Income$1,937,095 $1,603,959 $6,935,751 $2,534,491 
Weighted average common shares outstanding - basic14,388,905 14,033,535 14,286,818 13,968,635 
Effect of dilutive securities:
Unvested restricted stock and stock options581,423 559,572 644,941 554,694 
Weighted average common shares outstanding - diluted14,970,328 14,593,107 14,931,759 14,523,329 
Basic earnings per share$0.13 $0.11 $0.49 $0.18 
Diluted earnings per share$0.13 $0.11 $0.46 $0.17 
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
September 30,
Nine Months Ended
September 30,
Weighted average potentially dilutive securities:2021202020212020
Unvested restricted stock    
Stock options601 112,768 35,293 133,194 
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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, which is approximately 5%.

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 condensed consolidated financial statements in conformity with GAAP 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 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 Not Yet Adopted

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 becomes effective on December 31, 2021 for the Company. Early adoption is permitted. The Company is currently evaluating the potential impact of Topic 326 on the Company’s consolidated financial statements.
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 35 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.
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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. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which generally requires reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price).
The Company recognizes the primary components of the transaction price as follows:
Initial and renewal franchise fees, as well as transfer fees, are recognized as revenue ratably on a straight-line basis over the term of the respective franchise agreement commencing with the execution of the franchise, renewal, or transfer agreement. As these fees are typically received in cash at or near the beginning of the contract term, the cash received is initially recorded as a contract liability until recognized as revenue over time.
The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee's sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet.
The Company is entitled to a software fee, which is charged monthly. The Company recognizes revenue related to software fees ratably on a straight-line basis over the term of the franchise agreement.
In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment as it is based on either the franchise term or the reported sales of the franchisee, none of which require estimation. The Company believes its franchising arrangements do not contain a significant financing component.
The Company recognizes advertising fees received under franchise agreements as advertising fund revenue.
Regional Developer Fees
The Company currently utilizes regional developers to assist in the development of the brand across certain geographic territories. The arrangement is documented in the form of a regional developer agreement. The arrangement between the Company and the regional developer requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the regional developer, but instead represent a single performance obligation, which is the transfer of the development rights to the defined geographic region. The intellectual property subject to the development rights is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the development rights is to provide the regional developer with access to the brand’s symbolic intellectual property over the term of the agreement. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation.
The transaction price in a standard regional developer arrangement primarily consists of the initial and renewal territory fees. The Company recognizes the regional developer fee as revenue ratably on a straight-line basis over the term of the respective 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 income statements appropriately reflect the disaggregation of its revenue by major type for the three and nine months ended September 30, 2021 and 2020. Other revenues primarily consist of merchant income associated with credit card transactions.
Rollforward of Contract Liabilities and Contract Assets
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Changes in the Company's contract liability for deferred franchise and regional development fees during the nine months ended September 30, 2021 were as follows:
Deferred Revenue
short and long-term
Balance at December 31, 2020$16,504,114 
Revenue recognized that was included in the contract liability at the beginning of the year(2,605,401)
Net increase during the nine months ended September 30, 2021(1)
4,649,915 
Balance at September 30, 2021$18,548,628 
(1) Includes deferred revenues derecognized in connection with the acquisitions of $115,894
Changes in the Company's contract assets for deferred franchise and regional development costs during the nine months ended September 30, 2021 were as follows:
Deferred Franchise and Development Costs
short and long-term
Balance at December 31, 2020$5,238,307 
Recognized as cost of revenue during the nine months ended September 30, 2021