Quarterly report pursuant to Section 13 or 15(d)

Acquisition

v3.21.2
Acquisition
 9 Months Ended
Sep. 30, 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 459,597 
Deferred revenue (123,974)
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 reacquired 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.

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 the next 15 years. The purchase price allocation is preliminary, and the Company expects to finalize the 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 “NC Clinics Purchase”). 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. 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 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.

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma condensed consolidated income statements for the three and nine months ended September 30, 2021 and 2020 as if both the AZ Clinics Purchase and the NC Clinics Purchase in 2021 had been completed on January 1, 2020.
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2021 2020
Revenues, net $ 16,241,551  $ 59,369,874  $ 43,972,250 
Net income 1,599,294  6,605,749  2,437,978 

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 financial statements for the period subsequent to the date of the acquisition.

The Company’s condensed consolidated income statements for the three and nine months ended September 30, 2021 include net revenue and net income of the acquired clinics in Arizona and North Carolina as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2021
Revenues, net $ 938,103  $ 1,944,837 
Net income $ 163,546  $ 477,263