jynt-20240930

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, 2024


☐			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)

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 Exchange Act). Yes ☐ No ☑

As of November 1, 2024, the registrant had 14,983,609 shares of Common Stock ($0.001 par value) outstanding.

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THE JOINT CORP.

FORM 10-Q

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		PAGE NO.
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023	1
	Condensed Consolidated Income Statements for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

SIGNATURES		43

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Forward-Looking Statements

This Quarterly Report on Form 10-Q, especially in the Management’s Discussion and Analysis or MD&A, contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included or incorporated in this Quarterly Report on Form 10-Q could be deemed forward-looking statements, particularly statements about our plans, strategies and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intend,” “seek,” “strive,” or the negative of these terms, “mission,” “goal,” “objective,” or “strategy,” or other comparable terminology. All forward-looking statements in this Quarterly Report on Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations as described from time to time in our SEC reports, including those risks outlined under “Risk Factors” which are contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and in Part II, Item 1A of this or any subsequent quarterly reports on Form 10-Q. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Quarterly Report on Form 10-Q. You should carefully consider the trends, risks and uncertainties described below and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. We undertake no obligation to update or revise publicly any forward-looking statements, other than in accordance with legal and regulatory obligations. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

The specific forward-looking statements in this Quarterly Report on Form 10-Q include the following:

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

•our belief that our monthly performance reports from our system and our clinics include key performance indicators per clinic, including gross sales, comparable same-store sales growth, or “Comp Sales,” number of new patients, conversion percentage and membership attrition;

•our plan to re-franchise or sell the majority of our company-owned or managed clinics, which refined strategy will leverage our greatest strength - our capacity to build a franchise - to drive long-term growth for both our franchisees and The Joint as a public company;

•our belief that the strong results with respect to our franchise licenses sold and our regional developers reflects the power of the regional developer program to accelerate the number of clinics sold, and eventually opened across the country;

•our belief that we continue to have a sound business concept and will benefit from the fundamental changes taking place in the manner in which Americans access chiropractic care and their growing interest in seeking effective, affordable natural solutions for general wellness;

•our belief that these trends join with the preference we have seen among chiropractic doctors to reject the insurance-based model to produce a combination that benefits the consumer and the service provider alike, and our belief that these forces create an important opportunity to accelerate the growth of our network;

•our belief that recent events that may impact our business include unfavorable global economic or political conditions, such as the Ukraine War, the Israel-Gaza conflict, labor shortages, and inflation and other cost increases;

•our anticipation that 2024 will continue to be a volatile macroeconomic environment;

•our belief that we have created a robust framework for the re-franchising effort, organizing clinics into clusters, and generating comprehensive disclosure packets for marketing efficiency, and that we have received significant interest to date from our existing franchisees;

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•our goal to generate significant processes that will provide us with value creating capital allocation opportunities, which opportunities could include, but are not limited to, reinvestment in the brand and related marketing, continued investment in our IT platforms, the repurchase of regional development ("RD") territories, and/or a stock repurchase program;

•our belief that our operating results may fluctuate significantly as a result of a variety of factors, including the timing of new clinic sales, openings, closures, markets in which they are contained and related expenses, general economic conditions, cost inflation, labor shortages, consumer confidence in the economy, consumer preferences, competitive factors, and disease epidemics and other health-related concerns;

•our belief that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our line of credit will be sufficient to fund our anticipated operating and investment needs for at least the next 12 months;

•our belief that we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business; and

•our expectation that for the remainder of 2024, we expect to use or redeploy our cash resources to support our business within the context of prevailing market conditions, which, given the ongoing uncertainties described above, could rapidly and materially deteriorate or otherwise change.

Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following:

•the nationwide labor shortage has negatively impacted our ability to recruit chiropractors and other qualified personnel, which may limit our growth strategy, and the measures we have taken in response to the labor shortage have reduced our net revenues;

•inflation has led to increased labor costs and interest rates and may lead to reduced discretionary spending, all of which may negatively impact our business;

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

•we have limited experience operating company-owned or managed clinics in those geographic areas where we currently have few or no clinics, and we may not be able to duplicate the success of some of our franchisees;

•short-selling strategies and negative opinions posted on the internet may drive down the market price of our common stock and could result in class action lawsuits;

•we have previously identified material weaknesses in our internal controls over financial reporting and we may fail to remediate future material weaknesses in our internal controls over financial reporting or may otherwise be unable to maintain an effective system of internal control over financial reporting, which might negatively impact our ability to accurately report our financial results, prevent fraud, or maintain investor confidence;

•we may fail to successfully design and maintain our proprietary and third-party management information systems or implement new systems;

•we have restated our prior consolidated financial statements, which may lead to additional risks and uncertainties, including loss of investor confidence and negative impacts on our stock price;

•we may fail to properly maintain the integrity of our data or to strategically implement, upgrade or consolidate existing information systems;

•we may not be able to continue to sell franchises to qualified franchisees, and our franchisees may not succeed in developing profitable territories and clinics;

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•new clinics may not reach the point of profitability, and we may not be able to maintain or improve revenues and franchise fees from existing franchised clinics;

•the chiropractic industry is highly competitive, with many well-established independent competitors, which could prevent us from increasing our market share or result in reduction in our market share;

•state administrative actions and rulings regarding the corporate practice of chiropractic and prepayment of chiropractic services may jeopardize our business model;

•expected new federal regulations and state laws and regulations regarding joint employer responsibility could negatively impact the franchise business model, increasing our potential liability for employment law violations by our franchisees and the likelihood that we may be required to participate in collective bargaining with our franchisees’ employees;

•an increased regulatory focus on the establishment of fair franchise practices could increase our risk of liability in disputes with franchisees and the risk of enforcement actions and penalties;

•adverse developments affecting institutions, including bank failures, could adversely affect our liquidity and financial performance;

•negative publicity or damage to our reputation, which could arise from concerns expressed by opponents of chiropractic and by chiropractors operating under traditional service models, could adversely impact our operations and financial position;

•our IT security systems and those of our third-party service providers (as recently experienced by one of our marketing vendors) may be breached, and we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract and retain patients;

•new SEC regulations governing disclosure about risk management, strategy and governance regarding cybersecurity risks and new requirements for reporting of cybersecurity incidents may increase our compliance costs;

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

•the delayed filing of one of our quarterly reports has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital or complete acquisitions.

Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the SEC. Any forward-looking statements in this Quarterly Report on Form 10-Q should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others.

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PART I: FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2024		December 31, 2023
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	20,737,769	$	18,153,609
Restricted cash	1,257,667		1,060,683
Accounts receivable, net	4,295,663		3,718,924
Deferred franchise and regional development costs, current portion	1,052,391		1,047,430
Prepaid expenses and other current assets	2,492,653		2,439,837
Assets held for sale	25,334,715		17,915,055
Total current assets	55,170,858		44,335,538
Property and equipment, net	6,084,785		11,044,317
Operating lease right-of-use asset	7,727,105		12,413,221
Deferred franchise and regional development costs, net of current portion	4,688,487		5,203,936
Intangible assets, net	—		5,020,926
Goodwill	4,237,945		7,352,879
Deferred tax assets ($1.1 million and $1.1 million attributable to VIEs as of September 30, 2024 and December 31, 2023)	963,658		1,031,648
Deposits and other assets	725,984		748,394
Total assets	$	79,598,822	$	87,150,859

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,526,384	$	1,625,088
Accounts payable due to related parties (Note 13)	375,000		—
Accrued expenses	4,093,722		1,963,009
Co-op funds liability	1,257,667		1,060,683
Payroll liabilities ($0.7 million and $0.7 million attributable to VIEs as of September 30, 2024 and December 31, 2023)	6,107,071		3,485,744
Operating lease liability, current portion	3,222,887		3,756,328
Finance lease liability, current portion	26,312		25,491
Deferred franchise fee revenue, current portion	2,535,825		2,516,554
Deferred revenue from company clinics ($3.2 million and $1.6 million attributable to VIEs as of September 30, 2024 and December 31, 2023)	3,183,396		4,463,747
Upfront regional developer Fees, current portion	291,707		362,326
Other current liabilities	544,250		483,249
Liabilities to be disposed of ($1.4 million and $3.6 million attributable to VIEs as of September 30, 2024 and December 31, 2023)	15,124,554		13,831,863
Total current liabilities	38,288,775		33,574,082
Operating lease liability, net of current portion	6,157,147		10,914,997
Finance lease liability, net of current portion	18,172		38,016
Debt under the Credit Agreement	—		2,000,000
Deferred franchise fee revenue, net of current portion	12,680,360		13,597,325
Upfront regional developer fees, net of current portion	743,578		1,019,316

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Other liabilities ($1.2 million and $1.2 million attributable to VIEs as of September 30, 2024 and December 31, 2023)	1,235,241		1,235,241
Total liabilities	59,123,273		62,378,977
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, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value; 20,000,000 shares authorized, 14,991,462 shares issued and 14,958,447 shares outstanding as of September 30, 2024 and 14,783,757 shares issued and 14,751,633 outstanding as of December 31, 2023	14,991		14,783
Additional paid-in capital	49,025,751		47,498,151
Treasury stock 33,015 shares as of September 30, 2024 and 32,124 shares as of December 31, 2023, at cost	(870,058)		(860,475)
Accumulated deficit	(27,720,135)		(21,905,577)
Total The Joint Corp. stockholders' equity	20,450,549		24,746,882
Non-controlling Interest	25,000		25,000
Total equity	20,475,549		24,771,882
Total liabilities and stockholders' equity	$	79,598,822	$	87,150,859

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,
	2024		2023		2024		2023
Revenues:
Revenues from company-owned or managed clinics	$	17,544,658	$	17,882,303	$	52,730,898	$	52,813,098
Royalty fees	7,870,033		7,143,791		23,303,907		21,181,973
Franchise fees	697,688		754,029		2,072,665		2,179,822
Advertising fund revenue	2,247,663		2,050,106		6,654,974		6,043,563
Software fees	1,431,321		1,301,577		4,233,133		3,746,394
Other revenues	407,127		342,143		1,185,640		1,117,103
Total revenues	30,198,490		29,473,949		90,181,217		87,081,953
Cost of revenues:
Franchise and regional development cost of revenues	2,450,400		2,228,689		7,250,351		6,605,964
IT cost of revenues	372,867		375,411		1,115,663		1,068,332
Total cost of revenues	2,823,267		2,604,100		8,366,014		7,674,296
Selling and marketing expenses	4,762,395		4,301,017		14,050,343		13,169,079
Depreciation and amortization	1,239,233		2,349,206		4,166,952		6,893,529
General and administrative expenses	20,754,264		20,212,750		63,588,864		60,156,022
Total selling, general and administrative expenses	26,755,892		26,862,973		81,806,159		80,218,630
Net loss on disposition or impairment	3,805,218		904,923		5,602,641		1,114,738
Loss from operations	(3,185,887)		(898,047)		(5,593,597)		(1,925,711)
Other income (expense), net	83,333		(6,244)		198,873		3,708,399
Income (loss) before income tax expense	(3,102,554)		(904,291)		(5,394,724)		1,782,688
Income tax (benefit) expense	62,585		(188,018)		419,834		493,286
Net (loss) income	$	(3,165,139)	$	(716,273)	$	(5,814,558)	$	1,289,402
Earnings (loss) per share:
Basic (loss) earnings per share	$	(0.21)	$	(0.05)	$	(0.39)	$	0.09
Diluted (loss) earnings per share	$	(0.21)	$	(0.05)	$	(0.39)	$	0.09
Basic weighted average shares	14,959,132		14,790,663		14,903,726		14,666,222
Diluted weighted average shares	15,192,379		15,015,953		15,138,148		14,931,474

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 Stock			Additional Paid In Capital		Treasury Stock			Accumulated Deficit		Total The Joint Corp. stockholders' equity		Non-controlling interest		Total
	Shares	Amount				Shares	Amount
Balances, December 31, 2023	14,783,757	$	14,783	$	47,498,151	32,124	$	(860,475)	$	(21,905,577)	$	24,746,882	$	25,000	$	24,771,882
Stock-based compensation expense	—	—		493,395		—	—		—		493,395		—		493,395
Issuance of restricted stock, net of forfeitures	184,790	184		(184)		—	—		—		—		—		—
Exercise of stock options	—	—		—		—	—		—		—		—		—
Purchases of treasury stock under employee stock plans	—	—		—		707	(6,562)		—		(6,562)		—		(6,562)
Net income	—	—		—		—	—		946,979		946,979		—		946,979
Balances, March 31, 2024 (unaudited)	14,968,547	$	14,967	$	47,991,362	32,831	$	(867,037)	$	(20,958,598)	$	26,180,694	$	25,000	$	26,205,694
Stock-based compensation expense	—	—		552,065		—	—		—		552,065		—		552,065
Issuance of restricted stock, net of forfeitures	21,905	23		(23)		—	—		—		—		—		—
Exercise of stock options	6,335	6		52,092		—	—		—		52,098		—		52,098
Purchases of treasury stock under employee stock plans	—	—		—		184	(3,021)		—		(3,021)		—		(3,021)
Net loss	—	—		—		—	—		(3,596,398)		(3,596,398)		—		(3,596,398)
Balances, June 30, 2024 (unaudited)	14,996,787	$	14,996	$	48,595,496	33,015	$	(870,058)	$	(24,554,996)	$	23,185,438	$	25,000	$	23,210,438
Stock-based compensation expense	—	—		430,250		—	—		—		430,250		—		430,250
Issuance of restricted stock, net of forfeitures	(5,325)	(5)		5		—	—		—		—		—		—
Exercise of stock options	—	—		—		—	—		—		—		—		—
Purchases of treasury stock under employee stock plans	—	—		—		—	—		—		—		—		—
Net loss	—	—		—		—	—		(3,165,139)		(3,165,139)		—		(3,165,139)
Balances, September 30, 2024 (unaudited)	14,991,462	$	14,991	$	49,025,751	33,015	$	(870,058)	$	(27,720,135)	$	20,450,549	$	25,000	$	20,475,549

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	Common Stock			Additional Paid In Capital		Treasury Stock			Accumulated Deficit		Total The Joint Corp. stockholders' equity		Non-controlling interest
	Shares	Amount				Shares	Amount								Total

Balances, December 31, 2022	14,560,353	$	14,560	$	45,558,305	31,866	$	(856,642)	$	(12,153,380)	$	32,562,843	$	25,000	$	32,587,843
Stock-based compensation expense	—	—		266,210		—	—		—		266,210		—		266,210
Issuance of restricted stock, net of forfeitures	95,386	95		(95)		—	—		—		—		—		—
Exercise of stock options	15,621	16		138,441		—	—		—		138,457		—		138,457
Purchases of treasury stock under employee stock plans	—	—		—		169	(2,637)		—		(2,637)		—		(2,637)
Net income	—	—		—		—	—		2,326,164		2,326,164		—		2,326,164
Balances, March 31, 2023, (unaudited)	14,671,360	$	14,671	$	45,962,861	32,035	$	(859,279)	$	(9,827,216)	$	35,291,037	$	25,000	$	35,316,037
Stock-based compensation expense	—	—		417,017		—	—		—		417,017		—		417,017
Issuance of restricted stock, net of forfeitures	91,158	91		(91)		—	—		—		—		—		—
Exercise of stock options	10,002	10		63,919		—	—		—		63,929		—		63,929
Net loss	—	—		—		—	—		(320,489)		(320,489)		—		(320,489)
Balances, June 30, 2023 (unaudited)	14,772,520	$	14,772	$	46,443,706	32,035	$	(859,279)	$	(10,147,705)	$	35,451,494	$	25,000	$	35,476,494
Stock-based compensation expense	—	$	—	$	526,069	—	$	—	$	—	$	526,069	$	—	$	526,069
Issuance of restricted stock, net of forfeitures	13,891	$	14	$	(14)	—	$	—	$	—	$	—	$	—	$	—
Exercise of stock options	—	$	—	$	—	—	$	—	$	—	$	—	$	—	$	—
Purchases of treasury stock under employee stock plans	—	$	—	$	—	89	$	(1,195)	$	—	$	(1,195)	$	—	$	(1,195)
Net loss	—	—		—		—	—		(716,273)		(716,273)		—		(716,273)
Balances, September 30, 2023 (unaudited)	14,786,411	$	14,786	$	46,969,761	32,124	$	(860,474)	$	(10,863,978)	$	35,260,095	$	25,000	$	35,285,095

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

(unaudited)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net income (loss)	$	(5,814,558)	$	1,289,402
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	4,166,952		6,893,529
Net loss on disposition or impairment (non-cash portion)	5,602,641		1,114,738
Net franchise fees recognized upon termination of franchise agreements	(99,966)		(170,720)
Deferred income taxes	67,990		187,062
Stock based compensation expense	1,475,710		1,209,296
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	240,981		258,145
Prepaid expenses and other current assets	(53,888)		(504,203)
Deferred franchise costs	456,894		166,078
Deposits and other assets	15,710		(15,377)
Assets and liabilities held for sale, net	(2,147,354)		—
Accounts payable	276,296		(1,244,767)
Accrued expenses	1,255,713		1,279,949
Payroll liabilities	2,621,327		1,844,943
Deferred revenue	(1,504,305)		(551,226)
Upfront regional developer fees	(346,357)		(496,730)
Other liabilities	(928,850)		34,638
Net cash provided by operating activities	5,284,936		11,294,757

Cash flows from investing activities:
Proceeds from sale of clinics	374,100		—
Acquisition of CA clinics	—		(1,050,000)
Purchase of property and equipment	(901,394)		(3,833,148)
Net cash used in investing activities	(527,294)		(4,883,148)

Cash flows from financing activities:
Payments of finance lease obligation	(19,013)		(18,227)
Purchases of treasury stock under employee stock plans	(9,583)		(3,832)
Proceeds from exercise of stock options	52,098		202,386
Repayment of debt under the Credit Agreement	(2,000,000)		—
Net cash provided by (used in) financing activities	(1,976,498)		180,327

Increase in cash, cash equivalents and restricted cash	2,781,144		6,591,936
Cash, cash equivalents and restricted cash, beginning of period	19,214,292		10,550,417
Cash, cash equivalents and restricted cash, end of period	$	21,995,436	$	17,142,353

Reconciliation of cash, cash equivalents and restricted cash:	September 30, 2024		September 30, 2023
Cash and cash equivalents	$	20,737,769	$	16,050,137
Restricted cash	1,257,667		1,092,216
Cash, cash equivalents and restricted cash, end of period	$	21,995,436	$	17,142,353

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Supplemental cash flow disclosures:

The following table represents supplemental cash flow disclosures and non-cash investing and financing activities:


	Nine Months Ended September 30,
	2024		2023
Net cash paid for:
Interest	$	56,668	$	163,334
Income taxes	$	507,925	$	468,289
Non-cash investing and financing activity:
Unpaid purchases of property and equipment	$	—	$	155,340
Non-cash investment in acquisition of franchised clinics	$	—	$	28,997

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

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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”), which includes 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 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 condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commissions (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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 Annual Report on Form 10-K as of and for the year ended December 31, 2023, filed with the SEC on March 8, 2024, which included all disclosures required by GAAP. The results of operations for the periods ended September 30, 2024 and 2023 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the three and nine-month periods ended September 30, 2024 and 2023 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, long-lived asset impairments 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 (loss) was the same as comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023, respectively.

Nature of Operations

The Joint Corp., a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising and developing chiropractic clinics, selling regional developer rights, supporting the operations of franchised chiropractic clinics, and operating and managing corporate chiropractic clinics at locations throughout the United States. 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, 2024 and 2023:


	Three Months Ended September 30,		Nine Months Ended September 30,
Franchised clinics:	2024	2023	2024	2023
Clinics open at beginning of period	829	756	800	712
Opened during the period	14	24	46	76
Acquired during the period	1	—	3	—
Sold during the period	—	—	—	(3)
Closed during the period	(6)	(2)	(11)	(7)
Clinics in operation at the end of the period	838	778	838	778

	Three Months Ended September 30,		Nine Months Ended September 30,
Company-owned or managed clinics:	2024	2023	2024	2023
Clinics open at beginning of period	131	134	135	126
Opened during the period	—	2	—	9
Acquired during the period	—	—	—	3
Sold during the period	(1)	—	(3)	—
Closed during the period	(5)	—	(7)	(2)
Clinics in operation at the end of the period	125	136	125	136

Total clinics in operation at the end of the period	963	914	963	914

Clinic licenses sold but not yet developed	102	155	102	155
Future clinic licenses subject to executed letters of intent	46	42	46	42

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 that 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 four PCs. If an entity is deemed to be the primary beneficiary of a VIE, the entity 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, as fees paid by the PCs to the Company as its management service provider are considered variable interests because 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; and (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 has an obligation to absorb losses or receive benefits which could potentially be significant to the PCs. Accordingly, the PCs are VIEs for which the Company is the primary beneficiary and are consolidated by the Company.

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VIE total revenue, general and administrative expenses and income tax expense for the three and nine months ended September 30, 2024 and 2023 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Revenues	$	10,242,319	$	10,688,500	$	30,739,977	$	30,997,617
General and administrative expenses	4,527,176		4,525,305		13,749,229		13,614,211
Income tax expense	109,693		129,849		322,562		217,655

The carrying amount of the VIEs’ assets and liabilities was immaterial as of September 30, 2024 and December 31, 2023, except for the balances as follows:


	September 30, 2024	December 31, 2023
Deferred tax assets	1,088,802	1,088,802
Payroll liabilities	710,914	728,130
Deferred revenue from company managed clinics	3,183,397	1,558,178
Liabilities to be disposed of	1,378,295	3,622,481
Other liabilities	1,235,241	1,235,241

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. The Company continually monitors its positions with, and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all of its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2024 and December 31, 2023.

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 represents amounts due from franchisees for royalty fees. The Company records an allowance for credit losses as a reduction to its accounts receivables for amounts that the Company does not expect to recover. An allowance for credit losses is determined through assessments of collectability based on historical trends, the financial condition of the Company’s franchisees, including any known or anticipated bankruptcies and an evaluation of current economic conditions, as well as the Company’s expectations of conditions in the future. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2024 and December 31, 2023, the Company had an allowance for expected credit losses of $0.

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, which is generally three to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives 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. The net losses on disposed of or retired property or equipment were recorded

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in net loss on disposition or impairment of $3,549 and $0.2 million for the three and nine months ended September 30, 2024, respectively. The losses on disposed of or retired property or equipment were recorded in net loss on disposition or impairment of $0.1 million and $0.2 million for the three and nine months ended September 30, 2023, respectively.

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. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and, as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability. 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. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred and are also included in general and administrative expenses on the accompanying condensed consolidated income statements.

During the three and nine months ended September 30, 2024 certain leases were terminated early with the landlord as a result of corporate clinic closures. The net losses to terminate the leases were recorded in net loss on disposition or impairment of $32,775 and $0.4 million for the three and nine months ended September 30, 2024, respectively. No leases were terminated during the nine months ended September 30, 2023.

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 three months ended September 30, 2024, property and equipment, net, and ROU assets related to asset groups determined to not be recoverable were written down from their carrying values to their respective fair values resulting in the following non-cash impairment losses:


	Three Months Ended September 30, 2024
	Carrying Value		Fair Value		Net loss on disposition or impairment

Property and equipment, net	$	600,223	$	476,270	$	123,953
Operating lease right-of-use asset	1,663,127		1,301,787		361,340
Total Net loss on disposition or impairment					$	485,293

During the nine months ended September 30, 2024, property and equipment, net, ROU assets and franchise rights related to asset groups determined to not be recoverable were written down from their carrying values to their respective fair values resulting in the following non-cash impairment losses:

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	Nine Months Ended September 30, 2024
	Carrying Value		Fair Value		Net loss on disposition or impairment

Property and equipment, net	$	2,500,915	$	1,865,255	$	635,660
Operating lease right-of-use asset	2,100,591		1,731,402		369,189
Intangible assets, net	$	298,510	$	252,746	45,764
Total Net loss on disposition or impairment					$	1,050,613

During the three and nine months ended September 30, 2023, intangible assets related to a clinic planned for closure with a total carrying amount of approximately $0.1 million was written down to zero. As a result, the Company recorded a noncash impairment loss of approximately $0.1 million during the three and nine months ended September 30, 2023.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Net loss on disposition or impairment	$	1,865,124	$	756,228	$	2,570,461	$	816,429

A valuation allowance of $3.1 million and $0.7 million as of September 30, 2024 and December 31, 2023, respectively, are included in assets held for sale on its condensed consolidated balance sheet.

Long-lived assets previously classified as held for sale that no longer meet the criteria to be classified as held for sale are reclassified as held and used and are reported at the lower of their carrying amount before the long-lived assets (disposal groups) were classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the long-lived assets (disposal groups) been continuously classified as held and used, or the fair value of the disposal groups at the date of the subsequent change in circumstances no longer meeting the criteria to designate the disposal groups as held for sale. During the three months ended September 30, 2024, certain clinics classified as held for sale at December 31, 2023 no longer met the criteria for held for sale. As a result, the Company reclassified $5.3 million from assets held for sale to $1.4 million in property and equipment, net and $3.8 million in ROU assets and reclassified $5.2 million from liabilities to be disposed of to $3.5 million in operating lease liability and $1.7 million in deferred revenue from company clinics. For the three and nine months ended September 30, 2024, the Company recorded a loss of $1.4 million in net loss disposition and impairment on the condensed consolidated income statement to adjust the carrying values of (i) property and equipment, net down to $0.9 million and (ii) ROU

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assets down to $3.0 million for the depreciation and amortization that would have been recognized had the asset been continuously classified as held and used as of September 30, 2024.

The following table shows a reconciliation of the Company’s impairment losses and disposal gains and losses recorded in net loss on disposition or impairment for the three and nine months ended September 30, 2024 and 2023t:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Impairment on long-lived assets held for use
Property and equipment, net	$	123,953	$	—	$	635,660	$	—
Operating lease right-of-use asset	361,340		80,495		369,189		80,499
Intangible assets, net	—		—		45,764		—
Impairment on assets held for sale
Assets held for sale	1,865,124		756,228		2,570,461		816,429
Impairment on long-lived assets previously held for sale reclassified as held for use
Property and equipment, net	528,849		—		528,849		—
Operating lease right-of-use asset	876,224		—		876,224		—
Loss on disposal of assets
Property and equipment, net	3,549		68,200		196,457		217,810
Operating lease right-of-use asset	32,775		—		406,039		—
Loss (gain) on sale of assets	13,404				(26,002)
Total Net loss on disposition or impairment	$	3,805,218	$	904,923	$	5,602,641	$	1,114,738

Revenue Recognition

The Company generates revenue primarily through its company-owned and managed clinics and through royalties, franchise fees, advertising fund contributions, IT-related income and computer software fees from its 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. If the Company determines that it is not subject to unclaimed property laws for the portion of wellness package that it does not expect to be redeemed (referred to as “breakage”), then it recognizes breakage revenue in proportion to the pattern of exercised rights by the patient.

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). 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 therefore, 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 10 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

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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.

Capitalized Sales Commissions. Sales commissions earned by the regional developers and the Company’s sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the 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 amortized on a straight-line basis over the term of the regional developer agreement and recognized as a decrease to franchise cost of revenues.

In addition, regional developers receive fees that 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 within their exclusive geographical territory. Initial 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. This 3% fee 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 did not enter into any new regional developer agreements during the nine months ended September 30, 2024 and 2023.

Regional Developer Rights Contract Termination Costs

From time to time, subject to the Company’s strategy, regional developer rights are reacquired by the Company, resulting in a termination of the contract. The termination costs to reacquire the regional developer rights are recognized at fair value, less any unrecognized upfront regional developer fee liability balance, as a general and administrative expense in the period in which the contract is terminated in accordance with the contract terms. Termination costs to reacquire the regional developer rights were zero and $0.5 million for the three and nine months ended September 30, 2024, respectively. Termination costs to reacquire the regional developer rights were zero and $0.7 million for the three and nine months ended September 30, 2023, respectively.

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 $1.3 million and $5.3 million for the three and nine months ended September 30, 2024, respectively. Advertising expenses were $1.8 million and $5.4 million for the three and nine months ended September 30, 2023, respectively.

Income Taxes

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date pre-tax income, plus any significant unusual or infrequently occurring items that 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.

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Earnings (loss) per Common Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Net (loss) income	$	(3,165,139)	$	(716,273)	$	(5,814,558)	$	1,289,402

Weighted average common shares outstanding - basic	14,959,132		14,790,663		14,903,726		14,666,222
Effect of dilutive securities:
Unvested restricted stock and stock options	233,247		225,290		234,422		265,252
Weighted average common shares outstanding - diluted	15,192,379		15,015,953		15,138,148		14,931,474

Basic (loss) earnings per share	$	(0.21)	$	(0.05)	$	(0.39)	$	0.09
Diluted (loss) earnings per share	$	(0.21)	$	(0.05)	$	(0.39)	$	0.09

The following common stock equivalents were excluded from the computation of diluted earnings (loss) per share for the periods presented because including them would have been antidilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
Weighted average dilutive securities:	2024	2023	2024	2023
Restricted stocks	—	—	—	—
Stock options	78,764	121,699	81,363	89,883

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. 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%.

Loss Contingencies

ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. The Company records an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, the Company provides additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on the Company. Legal costs to be incurred in connection with a loss contingency are expensed as such costs are incurred.

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 credit losses,

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loss contingencies, share-based compensations, useful lives and realizability of long-lived assets, deferred revenue and revenue recognition related to breakage, deferred franchise costs, calculation of ROU assets and liabilities related to leases, realizability of deferred tax assets, impairment of goodwill, impairment of intangible assets, impairment of other long-lived assets, and purchase price allocations and related valuations.

Recent Accounting Pronouncements Adopted and Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold. The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold. The guidance is effective for annual periods beginning after December 15, 2024 on a prospective basis, with a retrospective option, and early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM and how the CODM uses the reported measure(s) of a segment’s profit or loss to assess performance and decide how to allocate resources. The guidance is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, applied retrospectively with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

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 that 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, Nature of Operations and Summary of Significant Accounting Policies—Revenue Recognition.

Franchising Fees, Royalty Fees, Advertising Fund Revenue, and Software Fees

The Company currently franchises its concept across 41 states, the District of Columbia and Puerto Rico. 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. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which otherwise requires a 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

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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, the reported sales of the franchisee, or the clinic opening date, 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.

Capitalized Sales Commissions

Sales commissions earned by the regional developers and the Company’s sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.

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, 2024 and 2023. Other revenues primarily consist of preferred vendor royalties associated with franchisees’ credit card transactions.

The following table shows the Company’s revenues disaggregated according to the timing of transfer of services:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Revenue recognized at a point in time	$	28,069,481	$	27,418,343	$	83,875,419	$	81,155,737
Revenue recognized over time	2,129,009		2,055,606		6,305,798		5,926,216
Total Revenue	$	30,198,490	$	29,473,949	$	90,181,217	$	87,081,953

Rollforward of Accounts Receivable

Changes in the Company’s accounts receivable, net during the nine months ended September 30, 2024 were as follows:


	Accounts Receivable, Net
Balance at December 31, 2022	$	3,911,272
Balance at December 31, 2023	$	3,718,924
Cash received against accounts receivable included at the beginning of the year	(3,158,145)
Net increase during the nine months ended September 30, 2024	2,859,884
Balance at September 30, 2024	$	4,295,663

Rollforward of Contract Liabilities and Contract Assets

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Changes in the Company’s contract liability for deferred revenue from Company clinics during the nine months ended September 30, 2024 were as follows:


	Deferred Revenue from company clinics
Balance at December 31, 2022	$	7,471,549
Balance at December 31, 2023	$	4,463,747
Revenue recognized that was included in the contract liability at the beginning of the year	(4,173,367)
Net increase during the nine months ended September 30, 2024	2,893,016
Balance at September 30, 2024	$	3,183,396

Changes in the Company’s contract liability for deferred franchise fees during the nine months ended September 30, 2024 were as follows:


	Deferred Revenue short and long-term
Balance at December 31, 2022	$	16,629,735
Balance at December 31, 2023	$	16,113,879
Revenue recognized that was included in the contract liability at the beginning of the year	(1,997,255)
Net increase during the nine months ended September 30, 2024	1,099,561
Balance at September 30, 2024	$	15,216,185

The Company’s deferred franchise and development costs represent capitalized sales commissions. Changes during the nine months ended September 30, 2024 were as follows:


	Deferred Franchise and Development Costs short and long-term
Balance at December 31, 2022	$	6,761,738
Balance at December 31, 2023	$	6,251,366
Cost of revenue recognized that was included in the contract asset at the beginning of the year	(845,304)
Net increase during the nine months ended September 30, 2024	334,816
Balance at September 30, 2024	$	5,740,878

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 September 30, 2024:


Contract liabilities expected to be recognized in	Amount
2024 (remainder)	$	657,508
2025	2,489,091
2026	2,387,514
2027	2,312,074
2028	2,178,929
Thereafter	5,191,069
Total	$	15,216,185

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Note 3: Acquisitions and Assets Held for Sale

2023 Acquisition

On May 22, 2023, the Company entered into an Asset and Franchise Purchase Agreement pursuant to which the Company repurchased from the sellers three operating franchised clinics in California (the “CA Clinics Purchase”). As of the acquisition date, the Company operated the franchises as company-managed clinics. The total purchase price for the transactions was $1,188,764 to the seller (of which $109,767 was paid in the third quarter of 2023)., less $28,997 of net deferred revenue, resulting in total purchase consideration of $1,159,767.

Based on the terms of the purchase agreement, the CA Clinics Purchase has been treated as an asset purchase under GAAP as there were no outputs or processes to generate outputs acquired as part of these transactions. Under an asset purchase, assets are recognized based on their cost to the acquiring entity. Cost is allocated to the individual assets acquired or liabilities assumed based on their relative fair values and does not give rise to goodwill.

The allocation of the total purchase price of the CA Clinics Purchase was as follows:


Property and equipment	$	313,995
Operating lease right-of-use asset	317,662
Intangible assets	1,004,513
Total assets acquired	1,636,170
Deferred revenue	(158,365)
Operating lease liability - current portion	(118,081)
Operating lease liability - net of current portion	(199,957)
Net purchase consideration	$	1,159,767

Intangible assets in the table above primarily consisted of reacquired franchise rights of $0.7 million amortized over their estimated useful lives of six to seven years, customer relationships of $0.1 million amortized over an estimated useful life of two years, and assembled workforce of $0.2 million amortized over an estimated useful life of two years.

Assets Held for Sale

In 2023, the Company initiated plans to re-franchise the majority of its corporate-owned or managed clinics with plans to retain a small portion of high-performing clinics. In Q3 2024, the Company expanded the re-franchising plan to include additional clinic markets of company-owned and company-managed clinics, marketing the clinics in clusters grouped by proximity to larger private equity firms. The clustered clinics are in varying stages of sales negotiations with approximately 60% of the Company's corporate clinic portfolio expected to close within one year with an estimated fair value of $19.5 million at September 30, 2024. The clinics sold or classified as held for sale at September 30, 2024 under the re-franchise plan did not represent a strategic shift that would have a major effect. As a result, the results of these clinics will continue to be reported in the Company’s operating results and in its Corporate Clinics segment until the sales are each finalized. Effective with the designation as held for sale, the Company discontinued recording depreciation on property and equipment, net, amortization of intangible assets, net and amortization of ROU assets for the clinics as required by GAAP. The Company also separately classified the related assets and liabilities of the clinics as held for sale in its September 30, 2024 and December 31, 2023 condensed consolidated balance sheets.

As a result of the change in the re-franchising marketing strategy during the three months ended September 30, 2024, there were certain high performing clinics with an estimated value of $13.8 million classified as held for sale at December 31, 2023 that no longer met the criteria to be classified as held for sale as it was no longer probable the clinics will sell within one year. As of September 30, 2024, the Company reclassified $5.3 million from assets held for sale to $1.4 million in property and equipment, net and $3.8 million in operating lease right-of-use assets and reclassified $5.2 million from liabilities to be disposed of to $3.5 million in operating lease liability and $1.7 million in deferred revenue from company clinics. For the three and nine months ended September 30, 2024, the Company recorded a loss of $1.4 million in net loss disposition and impairment on the condensed consolidated income statement to adjust the carrying values of (i) property and equipment, net down to $0.9 million and (ii)

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operating lease right-of-use assets down to $3.0 million for any depreciation or other expense that would have been recognized had the asset been continuously classified as held and used as of September 30, 2024.

Long-lived assets that meet the criteria for the held for sale designation are reported at the lower of their carrying value or fair value less estimated cost to sell. As a result of its evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales prices or the clinics estimated fair values, the Company recorded an estimated loss on disposal of $1.9 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively, and an estimated loss on disposal of $2.6 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively, in net loss on disposition or impairment in its condensed consolidated income statement.

During the nine months ended September 30, 2024, in connection with the sale of company-owned and managed clinics classified as held for sale as of December 31, 2023 for a combined sales price of $0.4 million, the Company sold $1.0 million assets held for sale, net of a $0.1 million valuation allowance and $0.7 million of liabilities to be disposed of in the condensed consolidated balance sheet as of September 30, 2024. As a result of the sales, the Company recorded a gain of zero and $39,000 in net loss disposition and impairment on the condensed consolidated income statement for the three and nine months ended September 30, 2024, respectively.

The principal components of the held for sale assets and liabilities as of December 31, 2023 and September 30, 2024 were as follows:


	September 30, 2024		December 31, 2023
Assets
Property and equipment, net	$	6,165,086	$	4,887,220
Operating lease right-of-use asset	11,161,964		9,193,496
Intangible assets, net	6,919,371		3,351,430
Goodwill	4,221,293		1,140,529
Valuation allowance	(3,132,999)		(657,620)
Total assets held for sale	$	25,334,715	$	17,915,055

Liabilities
Operating lease liability, current and non-current	$	11,351,605	$	10,209,382
Deferred revenue from company clinics	3,772,949		3,622,481
Total liabilities to be disposed of	$	15,124,554	$	13,831,863

The pre-tax income of the clinics designated as held for sale was $1.3 million and $0.9 million for the three months ended September 30, 2024 and 2023, respectively, the results of which exclude the allocation of overhead. The pre-tax income of the clinics designated as held for sale was $3.6 million and $4.0 million for the nine months ended September 30, 2024 and 2023, respectively, the results of which exclude the allocation of overhead.

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Note 4: Property and Equipment

Property and equipment consisted of the following, excluding amounts related to properties classified as held for sale:


	September 30, 2024		December 31, 2023
Office and computer equipment	$	3,325,514	$	4,169,576
Leasehold improvements	8,917,358		12,013,250
Software developed	5,898,001		5,399,698
Finance lease assets	151,389		151,396
	18,292,262		21,733,920
Accumulated depreciation and amortization	(12,903,490)		(12,005,459)
	5,388,772		9,728,461
Construction in progress	696,013		1,315,856
Property and equipment, net	$	6,084,785	$	11,044,317

Depreciation expense was $0.9 million and $1.4 million for the three months ended September 30, 2024 and 2023, respectively. Depreciation expense was $3.0 million and $4.0 million for the nine months ended September 30, 2024 and 2023, respectively.

Amortization expense related to finance lease assets was $7,570 and $7,570 for the three months ended September 30, 2024 and 2023, respectively. Amortization expense related to finance lease assets was $22,710 and $22,709 for the nine months ended September 30, 2024 and 2023, respectively.

Construction in progress at September 30, 2024 and December 31, 2023 principally related to construction costs for company-owned or managed clinics and to the development of software.

Note 5: Fair Value Measurements

The Company’s financial instruments include cash, restricted cash, accounts receivable, accounts payable, accrued expenses and debt under the Credit Agreement (as defined in Note 7, Debt). The carrying amounts of its financial instruments, except for debt, approximate their fair value due to their short maturities, which is considered a Level 1 fair value measurement. The carrying value of the Company’s debt under the Credit Agreement approximates fair value due to its interest rate being calculated from observable quoted prices for similar instruments, which is considered a Level 2 fair value measurement.

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of September 30, 2024 and December 31, 2023, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.

The Company’s non-financial assets, which primarily consist of goodwill, intangible assets, property, plant and equipment and operating lease right-of-use assets, are not required to be measured at fair value on a recurring basis, and instead are reported at their carrying amount. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying

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amount may not be fully recoverable (and at least annually for goodwill), non-financial assets are assessed for impairment. If the fair value is determined to be lower than the carrying amount, an impairment charge is recorded to write down the asset to its fair value, which is considered Level 3 within the fair value hierarchy.

The assets and liabilities resulting from the Acquisitions (see Note 3, Acquisitions and Assets Held for Sale) were recorded at fair values on a nonrecurring basis and are considered Level 3 within the fair value hierarchy.

Long-lived assets that meet the held for sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. The estimated fair values of the company-owned or managed clinics classified as Held for Sale (see Note 3, Acquisitions and Assets Held for Sale) were recorded at fair values on a nonrecurring basis and are based upon Level 2 inputs, which includes a potential buyer agreed upon selling price or Level 3 inputs, which include the multiple earnings approach using historical financial performance of the clinic and historical acquisition trends based on previous reacquired franchise clinic purchases. The fair value measurement of the assets held for sale was recorded as $2.3 million based upon Level 2 inputs and $17.1 million based upon Level 3 inputs. As a result, the Company maintains a valuation allowance of $3.1 million to adjust the carrying value of the disposal group to fair value less cost to sell as of September 30, 2024.

Long-lived assets classified as held and used where the asset group was not determined to be recoverable are tested for impairment. The asset group was determined to be the clinic level, as this is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The long-lived assets fair values were determined by the following: Level 1 inputs, which included observable inputs from executed lease termination agreements; Level 2 inputs where available, which included using a valuation multiple (e.g, price per square foot) based on observable prices for comparable long-lived assets; and Level 3 inputs, which included the multiple earnings approach using the Company's historical earnings trend data, comparable historical asset sales by the Company and franchisees that were not exact matches, and (for calculating the fair value of intangible assets specifically) the Company’s historical experience, future projections and comparable market data include future cash flows, long-term growth rates, attrition rates and discount rates.

The carrying values of these asset groups impaired to their fair value during the nine months ended September 30, 2024 included ROU assets of $2.1 million that were written down to $1.7 million determined by Level 1 and Level 2 inputs. The carrying values of these asset groups impaired to their fair value also included property and equipment, net of $2.5 million that were written down to $1.9 million and reacquired rights of $298,510 that were written down to $252,746 both determined by Level 3 inputs discussed above. For the three and nine months ended September 30, 2024, the Company recorded an impairment loss of $0.5 million and $1.1 million, respectively, included in the net loss, disposition and impairment on the condensed consolidated income statement for impairment of long-lived assets classified as held and used where the asset group was not determined to be recoverable.

Note 6: Intangible Assets

In May 2023, the Company recognized $0.7 million, $0.1 million and $0.2 million of reacquired franchise rights, customer relationships and acquired workforce, respectively, from the CA Clinics Purchase (see Note 3, Acquisitions and Assets Held for Sale).

Intangible assets consisted of the following, excluding amounts related to intangible assets classified as held for sale:


	As of September 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets subject to amortization:
Reacquired franchise rights	$	883,205	$	(883,205)	$	—
Customer relationships	650,365		(650,365)		—
Assembled workforce	—		—		—
	$	1,533,570	$	(1,533,570)	$	—

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	As of December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets subject to amortization:
Reacquired franchise rights	$	7,385,830	$	(2,926,595)	$	4,459,235
Customer relationships	1,682,807		(1,349,938)		332,869
Assembled workforce	440,844