Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Acquisitions

v3.7.0.1
Note 2 - Acquisitions
6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
Note
2:
      Acquisitions
 
Franchises acquired during
2016
 
During the
six
months ended
June 30, 2016,
the Company continued to execute its growth strategy and entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of
six
developed franchises and
one
undeveloped franchise throughout California and New Mexico for an aggregate purchase price of
$1,025,000,
subject to certain adjustments, consisting of cash of
$839,000
and notes payable of
$186,000.
The Company is operating the
six
developed franchises as company-owned or managed clinics and has terminated the undeveloped clinic license. At the time these transactions were consummated, the Company 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 an undeveloped franchise.  The Company 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
$997,451
was accounted for as consideration paid for the acquired franchises.
 
The Company incurred approximately
$49,000
of transaction costs related to these acquisitions for the
six
months ended
June 30, 2016
which are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.
 
Purchase Price Allocation
 
The following summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed during
2016
as of the acquisition date:
 
Property and equipment   $
296,571
 
Intangible assets    
294,772
 
Goodwill    
478,326
 
Total assets acquired    
1,069,669
 
Deferred membership revenue    
(72,218
)
Net assets acquired    
997,451
 
Net purchase price   $
997,451
 
 
Intangible assets in the table above consist of reacquired franchise rights of
$201,409
and customer relationships of
$93,363,
and will be amortized over their estimated useful lives ranging from
six
to
eight
years and
two
years, respectively.
 
Goodwill recorded in connection with these acquisitions 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. 
 
Pro Forma Results of Operations (Unaudited)
 
The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the
three
and
six
months ended
June 30, 2017
and
2016
as if the acquisitions in
2016
had been completed on
January 1, 2016.
 
    Pro Forma for the Three Months Ended   Pro Forma for the Six Months Ended
    June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
Revenues, net    
-
    $
4,954,003
     
-
    $
9,219,436
 
Net loss    
-
    $
(3,224,469
)    
-
    $
(6,728,596
)
 
This selected unaudited pro forma condensed 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 is
not
indicative of what the Company’s future operating results will be. The information for
2016
and
2017
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
2016,
this information includes actual data recorded in the Company’s condensed consolidated financial statements for the period subsequent to the date of the acquisitions. The Company’s condensed consolidated statement of operations for the
three
months ended
June 
30,
2016
includes net revenue and net income of approximately
$1.9
million and
$0.3
million, respectively, attributable to the acquisitions. The Company’s condensed consolidated statement of operations for the
six
months ended
June 30, 2016
includes net revenue and net income of approximately
$3.5
million and
$0.4
million, respectively, attributable to the acquisitions.
 
The pro forma amounts included in the table above reflect the application of 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, 2016,
together with the consequential tax impacts.