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Acquisition and Assets Held for Sale | 9 Months Ended
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Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
Acquisition and Assets Held for Sale | Acquisition and Assets Held for Sale Acquisition On May 19, 2022, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller four operating franchises in Arizona. The Company operates the franchises as company-owned clinics. The total purchase price for the transaction was $5,761,256, less $70,484 of net deferred revenue, resulting in total purchase consideration of $5,690,772. On July 5, 2022, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the seller one operating franchise in Arizona (collectively, including the May 19th purchase, the “AZ Clinics Purchase”). The Company operates the franchise as a company-owned clinic. The total purchase price for the transaction was $1,205,667 less $13,241 of net deferred revenue, resulting in total purchase consideration of $1,192,426. Based on the terms of the purchase agreements, 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 total purchase price of AZ Clinics Purchase was as follows:
Property and equipment | $ | 241,511 |
Operating lease right-of-use asset | 912,937 |
Intangible assets | 3,689,100 |
Total identifiable assets acquired | 4,843,548 |
Goodwill | 3,408,205 |
Deferred revenue | (455,317) |
Operating lease liability - current portion | (128,516) |
Operating lease liability - net of current portion | (784,722) |
Net purchase consideration | $ | 6,883,198 |
Intangible assets in the table above consist of re-acquired franchise rights of $2,892,100 amortized over estimated useful lives of approximately four to eight years and customer relationships of $797,000 amortized over estimated useful lives of two to 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 expects to finalize the purchase price allocation during the fourth quarter of 2022. On July 29, 2022, the Company entered into Asset and Franchise Purchase Agreements under which the Company repurchased from the sellers three operating franchises in North Carolina (the “NC Clinics Purchase”). The Company operates the franchises as company-managed clinics. The total purchase price for the transactions was $1,317,312, less $31,647 of net deferred revenue, resulting in total purchase consideration of $1,285,665. Based on the terms of the purchase agreement, the NC Clinics Purchase has been treated as asset purchases 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 NC Clinics Purchase was as follows:
Property and equipment | $ | 142,395 |
Operating lease right-of-use asset | 122,641 |
Intangible assets | 1,299,607 |
Total identifiable assets acquired | 1,564,643 |
Deferred revenue | (153,176) |
Operating lease liability - current portion | (85,414) |
Operating lease liability - net of current portion | (40,388) |
Net purchase consideration | $ | 1,285,665 |
Intangible assets in the table above consist of re-acquired franchise rights of $546,033 amortized over estimated useful lives of approximately two to four years, customer relationships of $426,489 amortized over estimated useful lives of approximately three to four years, and assembled workforce of $327,085 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 three and nine months ended September 30, 2022 and 2021 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) had been completed on January 1, 2021.
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Revenues, net | $ | 26,706,585 |  |  | $ | 22,154,271 |  |  | $ | 76,417,098 |  |  | $ | 62,093,498 |
Net income | 498,670 |  |  | 1,772,429 |  |  | 400,324 |  |  | 6,561,995 |
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, 2021 or of results that may occur in the future. For 2022, 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 condensed consolidated income statements for the three and nine months ended September 30, 2022 include net revenue and net income of acquired clinics in Arizona and North Carolina as follows:
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2022 |  | 2022
Revenues, net | $ | 1,093,373 |  |  | $ | 1,615,858 |
Net income | 228,625 |  |  | 509,000 |
Assets Held for Sale In May 2022, the Company entered into two separate letters of intent to sell two of its company-managed clinics in California to two existing franchisees for a combined total of $105,200. One of the two clinics was sold during August 2022, and the second clinic was sold in October 2022. These transactions do not represent a strategic shift for the Company, and, therefore, it does not meet the criteria to be classified as a discontinued operation. As a result, the results of these two clinics were reported in the Company’s operating results and in its Corporate Clinics segment until the sales were finalized. Effective with the designation as held for sale in June 2022, the Company discontinued recording depreciation on Property and equipment, net and amortization of ROU assets for these two clinics as required by U.S. GAAP. The Company also separately classified the related assets and liabilities of the clinics as held for sale in its June 30, 2022 condensed consolidated balance sheet. Assets and liabilities held for sale as of September 30, 2022 represent the assets and liabilities of the second clinic sold in October 2022. Long-lived assets that meet the criteria for the held for sale designation are reported at the lower of their carrying value or fair value less estimated cost to sell. As a result of its evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, the Company recorded an estimated loss on disposal of $60,580 during the nine months ended September 30, 2022 as Net loss on disposition or impairment in its condensed consolidated income statement and a valuation allowance included in assets held for sale on its condensed consolidated balance sheet. The principal components of the held for sale assets and liabilities as of September 30, 2022 were as follows:
| September 30, 2022
Assets |
Property and equipment, net | $ | 137,971 |
Operating lease right-of-use asset | 165,996 |
Valuation allowance | (60,580) |
Total assets held for sale | $ | 243,387 |
Liabilities |
Operating lease liability, current and non-current | $ | (187,808) |
Deferred revenue from company clinics | (35,479) |
Total liabilities to be disposed of | $ | (223,287) |

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