Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Acquistions

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Note 2 - Acquistions
 3 Months Ended
Mar. 31, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
Note 2:      Acquisitions

Los Angeles County Acquisition of Franchise Units

On December 31, 2014, we acquired substantially all the assets and certain liabilities of six franchises held by The Joint RRC Corp. including franchises that manage four operating clinics in Los Angeles County for a purchase price of $900,000 which was paid in cash on December 31, 2014. We intend to manage four of the acquired franchises as company clinics and to terminate two remaining franchises. On January 1, 2015, we amended the original agreement in which we acquired an additional three undeveloped franchises.  This resulted in a net deferred revenue adjustment of $41,100 to the net purchase price.  No additional consideration was paid.

The purchase price allocation for these acquisitions is subject to further adjustment upon finalization of the opening balance sheet. The following summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

Property and equipment
  $ 297,630  
Intangible assets
    153,000  
Goodwill
    636,104  
Total assets acquired
    1,086,734  
Unfavorable leases
    (227,834 )
Net assets acquired
  $ 858,900  

Intangible assets consist of reacquired franchise rights of $81,000 and customer relationships of $72,000 and will be amortized over their estimated useful lives of seven years and two years, respectively.

Unfavorable leases consist of leases with rents that are in excess of market value. This liability will be amortized over the lives of the associated leases.

Goodwill recorded in connection with this acquisition was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

Acquisition of Franchises in Phoenix and Tucson, Arizona

On February 17, 2015, we acquired substantially all of the assets and certain liabilities of two operating franchises in Phoenix and Tucson, Arizona from Roth & Pelan Enterprises, LLC. The total consideration for this transaction was $935,000, subject to certain adjustments, of which $780,000 was funded from the proceeds of our recent initial public offering and a note for $155,000 was issued to the seller. We intend to operate the two franchises as company clinics.

At the time of the transaction, we carried a deferred revenue balance of $29,000, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $1,450, related to the undeveloped franchise.  In accordance with ASC 952-605, we accounted for the franchise rights associated with the undeveloped franchise as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $907,450 was accounted for as consideration paid for the two acquired franchises. 

The purchase price allocation for this acquisition is preliminary and subject to further adjustment upon finalization of the opening balance sheet. The following summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

Property and equipment
  $ 150,000  
Intangible assets
    155,000  
Goodwill
    626,973  
Total assets acquired
    931,973  
Deferred membership revenue
    (24,523 )
Net assets acquired
  $ 907,450  

Intangible assets consist of reacquired franchise rights of $82,000, customer relationships of $73,000 and will be amortized over their estimated useful lives of seven years and two years, respectively.

Goodwill recorded in connection with this acquisition was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

We have retrospectively adjusted the condensed consolidated balance sheet as of December 31, 2014 related to adjustments to the purchase price allocation of the above acquisition.  The impacts are adjustments to deferred franchise costs, goodwill and deferred revenue, with no changes to total net assets.  There were no impacts on the consolidated statements of operations or cash flows for any prior periods as a result of these adjustments.  The balance sheet impacts are as follows:

   
December 31, 2014
 
   
As reported
   
As revised
 
             
Deferred franchise costs - current portion
  $ 668,700     $ 622,800  
Goodwill
    677,204       636,104  
Deferred revenue - current portion
    2,044,500       1,957,500  

Acquisition of Franchises in Phoenix, Arizona

On March 3, 2015, we completed the repurchase of four developed franchises and one undeveloped franchise from TJSC, LLC. The total consideration for this transaction was approximately $750,000, subject to certain adjustments, of which  $690,000 was funded from the proceeds of our recent initial public offering and a note for $60,000 was issued to the seller. We intend to continue to operate two of the clinics opened under the developed franchises as company clinics.  The franchisee closed the two clinics operated under the remaining developed franchises. We have terminated the undeveloped franchise and may relocate it.

At the time of the transaction, we carried a deferred revenue balance of $29,000, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $1,450, related to the undeveloped franchise.  In accordance with ASC 952-605, we accounted for the franchise rights associated with the undeveloped franchise as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $722,450 was accounted for as consideration paid for the four acquired franchises. 

The purchase price allocation for these acquisitions is preliminary and subject to further adjustment upon finalization of the opening balance sheet. The following summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

Property and equipment
  $ 150,000  
Intangible assets
    123,000  
Goodwill
    492,996  
Total assets acquired
    765,996  
Deferred membership revenue
    (43,546 )
Net assets acquired
  $ 722,450  

Intangible assets consist of reacquired franchise rights of $65,000 customer relationships of $58,000 and will be amortized over their estimated useful lives of seven years and two years, respectively.

Goodwill recorded in connection with this acquisition was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

Acquisition of Franchises in San Gabriel Valley, California

On March 6, 2015, we completed our repurchase of nine franchises from The Joint San Gabriel Valley, Inc. The transaction involved the repurchase of two developed franchises and seven undeveloped franchises. We intend to manage the clinics opened under the two developed franchises and to terminate, re-locate or re-sell the seven undeveloped franchises.  The total consideration for this transaction was $300,000, subject to adjustment, of which $270,000 was funded from the proceeds of our recent initial public offering and a note of $30,000 was issued to the seller.

At the time of the transaction, we carried a deferred revenue balance of $203,000, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $107,100, related to the seven unopened clinics.  In accordance with ASC 952-605, we accounted for the franchise rights associated with the unopened clinics as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $204,100 was accounted for as consideration paid for the two acquired franchises. 

The purchase price allocation for this acquisition is preliminary and subject to further adjustment upon finalization of the opening balance sheet.  The $204,100 of net consideration paid to acquire the two clinics was allocated to assets and liabilities as follows:

Property and equipment
  $ 150,000  
Intangible assets
    34,000  
Goodwill
    20,100  
Total assets acquired
  $ 204,100  

Intangible assets consist of reacquired franchise rights of $18,000, customer relationships of $16,000 and will be amortized over their estimated useful lives of seven years and two years, respectively.

Goodwill recorded in connection with this acquisition was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

Acquisition of Franchises in Glendale, Arizona

On March 23, 2015, we completed our repurchase of one developed franchise from The Joint Arrowhead Ranch, LLC. We intend to operate the acquired clinic as a company clinic. The total consideration for this transaction was approximately $100,000, subject to adjustment, of which $90,000 was funded from the proceeds of our recent initial public offering and a note for $10,000 was issued to the seller.

The purchase price allocation for this acquisition is preliminary and subject to further adjustment upon finalization of the opening balance sheet. The following summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

Property and equipment
  $ 75,000  
Intangible assets
    17,000  
Goodwill
    21,170  
Total assets acquired
    113,170  
Deferred membership revenue
    (13,170 )
Net assets acquired
  $ 100,000  

Intangible assets consist of reacquired franchise rights of $9,000 customer relationships of $8,000 and will be amortized over their estimated useful lives of seven years and two years, respectively.

Goodwill recorded in connection with this acquisition was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

Acquisition of Franchisee Upon Default

In January 2015, in connection with the default by a franchisee under its franchise agreement, we assumed substantially all of the assets of a clinic in Tempe, Arizona.  We are accounting for this as a business combination.  As no consideration was transferred to the franchisee, we expect to recognize a bargain purchase gain equal to the fair value of the net assets acquired; however, no amounts have been recorded in the consolidated financial statements for the three months ended March 31, 2015, as information is not yet available to reasonably estimate the fair value of the net assets acquired.

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma consolidated statements of operations data for the three months ended March 31, 2015 and 2014 as if the acquisitions had been completed at the beginning of the year.

   
Pro Forma for the Three Months Ended
 
   
March 31, 2015
   
March 31, 2014
 
Revenues, net
  $ 2,667,820     $ 1,848,689  
Net loss
    (1,979,530 )     (505,834 )

This selected unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisitions had been completed on that date. Moreover, this information does not indicate what our future operating results will be. The information for 2014 and 2015 prior to the acquisitions is included based on prior accounting records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisitions. For 2015, this information includes actual data recorded in our financial statements for the period subsequent to the date of the acquisition. The Company’s consolidated statement of operations for the three months ended March 31, 2015 include net revenue and net loss of $406,706 and $153,547, respectively, attributable to the acquisitions.

The pro forma amounts included in the table above reflect the application of our accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2014, together with the consequential tax impacts.