Annual report pursuant to Section 13 and 15(d)

Acquisitions

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Acquisitions
 12 Months Ended
Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
On April 1, 2021, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller two operating franchises in Phoenix, Arizona (the “AZ Clinics Purchase”). The Company operates the franchises as company-owned clinics. The total purchase price for the transaction was $1,925,000, less $29,417 of net deferred revenue, resulting in total purchase consideration of $1,895,583. Based on the terms of the purchase agreement, the AZ Clinics Purchase has been treated as a business combination under U.S. GAAP using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
The allocation of the purchase price was as follows:

Property and equipment $ 4,928 
Operating lease right-of-use asset 651,197 
Intangible assets 1,579,500 
Total assets acquired 2,235,625 
Goodwill 459,599 
Deferred revenue (123,976)
Operating lease liability - current portion (49,303)
Operating lease liability - net of current portion (626,362)
Net purchase consideration $ 1,895,583 
Intangible assets in the table above consist of re-acquired franchise rights of $1,376,400 amortized over an estimated useful lives of eight to nine years and customer relationships of $203,100 amortized over an estimated useful life of three years. The fair value of re-acquired franchise rights are estimated using the multi-period excess earnings method. The multi-period excess earnings method model estimates revenues and cash flows derived from the primary asset and then deducts portions of the cash flow that can be attributed to supporting assets, such as assembled workforce and working capital that contributed to the generation of the cash flows. The resulting cash flow, which is attributable solely to the primary asset acquired, is then discounted at a rate of return commensurate with the risk of the asset to calculate a present value. Customer relationships are also calculated using the multi-period excess earnings method.

Goodwill represents the excess of the purchase consideration over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included synergies and benefits expected to be gained from leveraging the Company’s existing operations and infrastructures, as well as the expected associated revenue and cash flow projections. Goodwill has been allocated to the Company’s Corporate Clinics segment based on such expected benefits. Goodwill related to the acquisition is expected to be deductible for income tax purposes over 15 years. The Company finalized the purchase price allocation during the fourth quarter of 2021.

On April 1, 2021, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller six operating franchises in North Carolina. The Company operates the franchises as company-managed clinics. The total purchase price for the transaction was $2,568,028, less $58,441 of net deferred revenue, resulting in total purchase consideration of $2,509,587.

On November 1, 2021, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller four operating franchises in North Carolina (collectively, including the April 1st purchase, the “NC Clinics Purchase”). The Company operates the franchises as company-managed clinics. The total purchase price for the transaction was $1,272,107, less $46,681 of net deferred revenue, resulting in total purchase consideration of $1,225,426.

Based on the terms of the purchase agreement, the NC Clinics Purchase has been treated as an asset purchase under U.S. GAAP as there were no outputs or processes to generate outputs acquired as part of this transaction. 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 purchase price for the six North Carolina clinics on April 1, 2021, was as follows:
Property and equipment $ 524,046 
Operating lease right-of-use asset 865,813 
Intangible assets 2,187,472 
Total assets acquired 3,577,331 
Deferred revenue (244,998)
Operating lease liability - current portion (185,181)
Operating lease liability - net of current portion (637,565)
Net purchase consideration $ 2,509,587 
Intangible assets in the table above consist of reacquired franchise rights of $1,195,327 amortized over an estimated useful lives of three to four years and customer relationships of $992,145 amortized over an estimated useful life of three years.

The allocation of the purchase price for the four North Carolina clinics on November 1, 2021, was as follows:
Property and equipment $ 252,631 
Operating lease right-of-use asset 1,341,482 
Intangible assets 1,092,341 
Total assets acquired 2,686,454 
Deferred revenue (144,383)
Operating lease liability - current portion (135,784)
Operating lease liability - net of current portion (1,180,861)
Net purchase consideration $ 1,225,426 
Intangible assets in the table above primarily consist of reacquired franchise rights of $977,244 amortized over an estimated useful lives of four to nine years and customer relationships of $55,786 amortized over an estimated useful life of two years.
Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma consolidated income statements for the years ended December 31, 2021 and 2020, for all 2021 acquisitions, as if both the AZ Clinics Purchase (which has been accounted for as a business combination) and the NC Clinics Purchase (which has been accounted for as an asset purchase) in 2021 had been completed on January 1, 2020.


Year Ended December 31,
2021 2020
Revenues, net $ 81,916,577  $ 59,685,319 
Net income 6,481,836 12,965,799

The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the purchases had taken place on January 1, 2020 or of results that may occur in the future. For 2021, this information includes actual data recorded in the Company’s consolidated financial statements for the period subsequent to the date of the acquisition.

The Company’s consolidated income statements for the year ended December 31, 2021 include net revenue and net income of the acquired clinics in Arizona and North Carolina as follows:

Year Ended December 31,
2021
Revenues, net $ 3,175,914 
Net income 736,714