jynt-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			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 May 1, 2023, the registrant had 14,678,848 shares of Common Stock ($0.001 par value) outstanding.

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THE JOINT CORP.

FORM 10-Q/A

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		PAGE NO.
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022	1
	Condensed Consolidated Income Statements for the Three Months Ended March 31, 2023 and 2022 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 6.	Exhibits	39

SIGNATURES		40

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EXPLANATORY NOTE

The Joint Corp. (the “Company”) filed its Form 10-Q for the three months ended March 31, 2023 with the U.S. Securities and Exchange Commission (“SEC”) on May 5, 2023 (the “Original Form 10-Q”). This Form 10-Q/A contains the restatement of the Company's unaudited consolidated financial statements covering the quarter ended March 31, 2022. This Amendment also amends the Company’s conclusions and disclosures included in Part I, Item 4 Controls and Procedures of the Original Form 10-Q related to disclosure controls and procedures and internal control over financial reporting.

Restatement Background

As previously disclosed, on August 30, 2023, the Chief Financial Officer of the Company, after meeting with the members of the Audit Committee to discuss the matters disclosed herein and in consultation with BDO USA, P.C. (“BDO”), the Company’s independent registered public accounting firm, concluded that the Company’s previously issued audited financial statements as of and for the year ended December 31, 2022 contained in the Annual Report on Form 10-K for the year ended December 31, 2022 and the unaudited interim financial statements contained in the Quarterly Reports on Form 10-Q for the quarters and cumulative periods ended June 30, 2022 and September 30, 2022 (the “2022 Previously Issued Financial Statements”) contained material errors and should be restated, which conclusion was thereafter formally ratified by the Audit Committee and the Board of Directors of the Company. On September 11, 2023, the Chief Financial Officer of the Company, after meeting with the members of the Audit Committee to discuss the matters disclosed herein and in consultation with BDO, further concluded that the Company’s previously issued audited financial statements as of and for the year ended December 31, 2021 contained in the Annual Report on Form 10-K for the year ended December 31, 2022 and the unaudited interim financial statements contained in the Quarterly Reports on Form 10-Q for the quarters and cumulative periods ended March 31, 2022 and 2021, June 30, 2021, and September 30, 2021 (the “Additional Previously Issued Financial Statements,” and together with the 2022 Previously Issued Financial Statements, the “Previously Issued Financial Statements”) contained material errors and should be restated, which conclusion was thereafter formally ratified by the Board of Directors of the Company. These determinations occurred following discussions of the matter among BDO, officers of the Company and members of the Company’s Board of Directors. Accordingly, investors and all other persons should no longer rely upon the Previously Issued Financial Statements included in the Company’s previously filed Form 10-K and Form 10-Qs for the periods listed above. In addition, any previously issued or filed earnings releases, investor presentations or other communications describing the Previously Issued Financial Statements and other related financial information covering these periods should no longer be relied upon.

The Company enters into agreements with its regional developers (the “RD Agreements”). Under each RD Agreement, the Company sells to each of its regional developers the exclusive rights to open a minimum number of clinics in a defined territory (the “Regional Developer Rights”). Upon entering into each RD Agreement, the regional developer pays the Company an upfront fee for such Regional Developer Rights. Each regional developer helps the Company to identify and qualify potential new franchisees in its territory and assists the Company in providing field training, clinic openings and ongoing support. In return, the Company shares with the regional developer part of the initial upfront franchise fee paid to the Company by new franchisees in the regional developer’s protected territory and pays the regional developer 3% of the 7% ongoing royalties the Company collects from the franchisees in the regional developer’s protected territory. From time to time, the Company has re-acquired Regional Developer Rights from certain of its regional developers.

Historically, the Company has recorded the re-acquired Regional Developer Rights as an intangible asset and amortized the re-acquired Regional Developer Rights over the contractual terms under the RD Agreement remaining at the time of the re-acquisition. The Company has concluded that this treatment was incorrect in accordance with U.S. GAAP. The Company should not have capitalized the re-acquired Regional Developer Rights but instead should have recognized the full cost of the re-acquisition as an expense in the respective period. In addition, the Company has historically recorded the upfront fee paid by the regional developer as a deferred liability, which was then recognized ratably to revenue as the regional developer performed various service obligations. The amended treatment will still defer the upfront payment, but the deferred liability will be ratably recognized against cost of revenue as an offset against future commissions.

Additionally, the Company files standalone Federal corporate and State tax returns as well as city income and franchise tax returns for itself and its four variable interest entities (“VIEs"), which it controls under its corresponding management agreements. The four VIEs were set up due to the various States’ regulatory and legal requirements. The Company has management agreements with each of the four VIEs (“PCs” or “professional corporations”).

The Company has historically charged the VIEs a management fee for the benefit of the Company providing non-clinical administrative services needed by the professional corporation chiropractic practice. However, the standalone professional

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corporations have not historically been profitable from an income tax perspective and are fully valuing their deferred tax assets and related attributes for ASC 740 purposes. As such, the Company has initiated a review of its transfer pricing with the VIEs.

The economic compensation or profitability resulting from an intercompany transaction between two or more parties is based on each party’s relative contribution to the economic activity under analysis. Or stated in transfer pricing terms, the economic compensation or profitability from an intercompany transaction is based on each party’s functions performed, risks assumed, and assets employed in the activity.

Overall, the PCs' earned annual losses were not consistent with their function, risk, and asset profile for transfer pricing. As such, the Company has estimated transfer pricing adjustments which were computed based on assumed targets of profitability. The resulting operating profit, after incorporating estimated transfer pricing adjustments, were further used as a means for computing overall potential tax exposure and correlative benefit.

Internal Control Considerations

As a result of this restatement, the Company’s management has re-evaluated the effectiveness of the Company’s internal control over financial reporting as of March 31, 2023. Management has concluded that the Company's internal controls over financial reporting were not effective as of March 31, 2023, due to material weaknesses in internal controls over the accounting of complex areas, including income taxes, revenue recognition and asset acquisition transactions.

For a discussion of management’s considerations of the Company’s internal control over financial reporting and the material weaknesses identified, refer to Controls and Procedures in Part I, Item 4.

Items Amended in this Form 10-Q/A

This Form 10-Q/A for the quarters ended March 31, 2023, and March 31, 2022, reflects changes to the Consolidated Balance Sheet at March 31, 2022 and the Consolidated Income Statements, Statements of Stockholders’ Equity, and Statements of Cash Flows for the quarter ended March 31, 2022, and the related notes thereto. Restatement of consolidated financial statements for the quarter ended March 31, 2022 is disclosed in Note 1 to the consolidated financial statements. Other sections impacted are:

• Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations

• Part I, Item 4, Controls and Procedures

• Part II, Item 6, Exhibits

The Company has not filed, and does not intend to file, amendments to the previously filed Quarterly Report on Form 10-Q for the quarter for ended March 31, 2022. Accordingly, investors should rely only on the financial information and other disclosures regarding the restated period in this Form 10-Q/A or in future filings with the SEC (as applicable), and not on any previously issued or filed reports, earnings releases or similar communications relating to these periods.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by the Company’s principal executive officer and principal financial officer are filed herewith as exhibits to this Form 10-Q/A pursuant to Rule 13a-14(a) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

See Note 1 to the consolidated financial statements, included in Part I of this Form 10-Q/A, for additional information on the restatement and the related consolidated financial statement effects.

Except as described above, this Amendment does not amend, update or change any other disclosures in the Original Form 10-Q. In addition, the information contained in this Amendment does not reflect events occurring after the Original Form 10-Q and does not modify or update the disclosures therein. This Amendment should be read in conjunction with the Company’s other filings with the SEC.

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PART I: FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

THE JOINT CORP. AND SUBSIDIARY AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2023		December 31, 2022
ASSETS	(unaudited)		(as restated)
Current assets:
Cash and cash equivalents	$	14,773,225	$	9,745,066
Restricted cash	731,379		805,351
Accounts receivable, net	3,525,643		3,911,272
Deferred franchise and regional development costs, current portion	1,059,126		1,054,060
Prepaid expenses and other current assets	3,468,749		2,098,359
Total current assets	23,558,122		17,614,108
Property and equipment, net	17,500,027		17,475,152
Operating lease right-of-use asset	22,451,137		20,587,199
Deferred franchise and regional development costs, net of current portion	5,678,935		5,707,678
Intangible assets, net	9,991,070		10,928,295
Goodwill	8,493,407		8,493,407
Deferred tax assets	11,194,762		11,928,152
Deposits and other assets	755,585		756,386
Total assets	$	99,623,045	$	93,490,377

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,836,853	$	2,966,589
Accrued expenses	1,996,427		1,069,610
Co-op funds liability	731,379		805,351
Payroll liabilities ($0.9 million and $0.6 million attributable to VIE)	3,571,008		2,030,510
Operating lease liability, current portion	5,622,576		5,295,830
Finance lease liability, current portion	24,693		24,433
Deferred franchise fee revenue, current portion	2,487,795		2,468,601
Deferred revenue from company clinics ($4.9 million and $4.7 million attributable to VIE)	7,713,735		7,471,549
Upfront regional developer fees, current portion	491,142		487,250
Other current liabilities	592,293		597,294
Total current liabilities	25,067,901		23,217,017
Operating lease liability, net of current portion	20,211,159		18,672,719
Finance lease liability, net of current portion	57,235		63,507
Debt under the Credit Agreement	2,000,000		2,000,000
Deferred franchise fee revenue, net of current portion	14,233,564		14,161,134
Upfront regional developer fees, net of current portion	1,449,270		1,500,278
Other liabilities	1,287,879		1,287,879
Total liabilities	64,307,008		60,902,534
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of March 31, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value; 20,000,000 shares authorized, 14,671,360 shares issued and 14,639,325 shares outstanding as of March 31, 2023 and 14,560,353 shares issued and 14,528,487 outstanding as of December 31, 2022	14,671		14,560
Additional paid-in capital	45,962,861		45,558,305
Treasury stock 32,035 shares as of March 31, 2023 and 31,866 shares as of December 31, 2022, at cost	(859,279)		(856,642)
Accumulated deficit	(9,827,216)		(12,153,380)
Total The Joint Corp. stockholders' equity	35,291,037		32,562,843
Non-controlling Interest	25,000		25,000
Total equity	35,316,037		32,587,843
Total liabilities and stockholders' equity	$	99,623,045	$	93,490,377

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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 March 31,
	2023		2022
			(as restated)
Revenues:
Revenues from company-owned or managed clinics	$	17,127,957	$	12,606,999
Royalty fees	6,866,023		6,008,932
Franchise fees	754,425		640,965
Advertising fund revenue	1,952,406		1,710,717
Software fees	1,210,005		956,998
Other revenues	390,004		312,140
Total revenues	28,300,820		22,236,751
Cost of revenues:
Franchise and regional development cost of revenues	2,140,835		1,801,026
IT cost of revenues	333,850		309,958
Total cost of revenues	2,474,685		2,110,984
Selling and marketing expenses	4,160,244		3,287,488
Depreciation and amortization	2,215,055		1,336,656
General and administrative expenses	20,038,476		15,533,426
Total selling, general and administrative expenses	26,413,775		20,157,570
Net loss on disposition or impairment	65,469		6,906
Loss from operations	(653,109)		(38,709)
Other income (expense), net	3,821,162		(16,147)
Income (loss) before income tax benefit	3,168,053		(54,856)
Income tax expense	841,889		(59,076)
Net income (loss)	$	2,326,164	$	4,220
Earnings (loss) per share:
Basic earnings (loss) per share	$	0.16	$	—
Diluted earnings (loss) per share	$	0.16	$	—
Basic weighted average shares	14,566,185		14,432,652
Diluted weighted average shares	14,861,734		14,432,652

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, 2022, as restated	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	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


	Common Stock			Additional Paid In Capital		Treasury Stock			Accumulated Deficit		Total The Joint Corp. stockholders' equity		Non-controlling interest
	Shares	Amount				Shares	Amount								Total
									(as restated)		(as restated)				(as restated)
Balances, December 31, 2021, as restated	14,451,355	$	14,450	$	43,900,157	31,643	$	(850,838)	$	(12,780,085)	$	30,283,684	$	25,000	$	30,308,684
Stock-based compensation expense	—	—		323,556		—	—		—		323,556		—		323,556
Issuance of restricted stock	36,722	37		(37)		—	—		—		—		—		—
Exercise of stock options	4,972	5		49,618		—	—		—		49,623		—		49,623
Purchases of treasury stock under employee stock plans	—	—		—		74	(2,598)		—		(2,598)		—		(2,598)
Net loss	—	—		—		—	—		4,220		4,220		—		4,220
Balances, March 31, 2022, as restated (unaudited)	14,493,049	$	14,492	$	44,273,294	31,717	$	(853,436)	$	(12,775,865)	$	30,658,485	$	25,000	$	30,683,485

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)


	Three Months Ended March 31,
	2023	2022
		(as restated)
Cash flows from operating activities:
Net income (loss)	$

SEC Form 10-Q/A filed by The Joint Corp. (Amendment)