THE JOINT CORP.

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08/05JOINT CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)
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JOINT CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/05/2022 | 09:36am EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q and the audited consolidated financial statements and notes
thereto as of and for the year ended December 31, 2021 and the related
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both of which are contained in our Annual Report on Form 10-K for
the year ended December 2021.

Forward-Looking Statements


This Quarterly Report on Form 10-Q, especially in this Management's Discussion
and Analysis or MD&A, contains forward-looking statements and information within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, ("the Exchange
Act"), which are subject to the "safe harbor" created by those sections. These
forward-looking statements include, but are not limited to, statements
concerning our strategy, future operations, future financial position, future
revenues, projected costs, prospects and plans and objectives of management; and
accounting estimates and the impact of new or recently issued accounting
pronouncements. The words "anticipates," "believes," "estimates," "expects,"
"intends," "may," "plans," "projects," "will," "should," "could," "predicts,"
"potential," "continue," "would" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements and you
should not place undue reliance on our forward-looking statements. Actual
results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements that we make. The
forward-looking statements are applicable only as of the date on which they are
made, and we do not assume any obligation to update any forward-looking
statements. All forward-looking statements in this Form 10-Q are made based on
our current expectations, forecasts, estimates and assumptions, and involve
risks, uncertainties and other factors that could cause results or events to
differ materially from those expressed in the forward-looking statements. In
evaluating these statements, you should specifically consider various factors,
uncertainties and risks that could affect our future results or operations as
described from time to time in our SEC reports, including those risks outlined
under "Risk Factors" which are contained in Part I, Item 1A of our Form 10-K for
the year ended December 31, 2021 and in Part II, Item 1A of this Form 10-Q.
These factors, uncertainties and risks may cause our actual results to differ
materially from any forward-looking statement set forth in this Form 10-Q. You
should carefully consider these risks and uncertainties and other information
contained in the reports we file with or furnish to the SEC before making any
investment decision with respect to our securities. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by this cautionary statement. Some of the important
factors contained in Part I, Item 1A of our Form 10-K for the year ended
December 31, 2021 and in Part II, Item 1A of this Form 10-Q that could cause our
actual results to differ materially from those projected in any forward-looking
statements include, but are not limited to, the following:

•major public health concerns, including the outbreak of epidemic or pandemic contagious disease, may adversely affect revenue at our clinics and disrupt financial markets, adversely affecting our stock price;

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•the impact of the COVID-19 pandemic on the economy and our operations, including the measures taken by governmental authorities to address it, may precipitate or exacerbate other risks and/or uncertainties;

•inflation, exacerbated by COVID-19 and the current war in Ukraine (the "Ukraine War"), has led to increased labor costs and interest rates and may lead to reduced discretionary spending, all of which may negatively impact our business;

•we may not be able to successfully implement our growth strategy if we or our franchisees are unable to locate and secure appropriate sites for clinic locations, obtain favorable lease terms, and attract patients to our clinics;


•we have limited experience operating company-owned or managed clinics in those
geographic areas where we currently have few or no clinics, and we may not be
able to duplicate the success of some of our franchisees;

•we may not be able to acquire operating clinics from existing franchisees or develop company-owned or managed clinics on attractive terms;

•we may not be able to identify, recruit and train enough qualified chiropractors and other personnel to staff our clinics, particularly in light of the current nationwide labor shortage, which might limit our ability to implement our growth strategy;

•short-selling strategies and negative opinions posted on the internet may drive down the market price of our common stock and could result in class action lawsuits;


•we may fail to remediate the current or future material weaknesses in our
internal controls over financial reporting or may otherwise be unable to
maintain an effective system of internal control over financial reporting, which
might negatively impact our ability to accurately report our financial results,
prevent fraud, or maintain investor confidence;

•we may fail to successfully design and maintain our proprietary and third-party management information systems or implement new systems;

•we may fail to properly maintain the integrity of our data or to strategically implement, upgrade or consolidate existing information systems;


• franchised clinic acquisitions that we make could disrupt our business and
harm our financial condition if we cannot continue their operational success or
successfully integrate them;

•we may not be able to continue to sell franchises to qualified franchisees, and our franchisees may not succeed in developing profitable territories and clinics;

•new clinics may not reach the point of profitability, and we may not be able to maintain or improve revenues and franchise fees from existing franchised clinics;


•the chiropractic industry is highly competitive, with many well-established
independent competitors, which could prevent us from increasing our market share
or result in reduction in our market share;

•state administrative actions and rulings regarding the corporate practice of
chiropractic and federal and state laws and regulations regarding joint employer
responsibility may jeopardize our business model;

•negative publicity or damage to our reputation, which could arise from concerns
expressed by opponents of chiropractic and by chiropractors operating under
traditional service models, could adversely impact our operations and financial
position;

•our security systems may be breached, and we may face civil liability and
public perception of our security measures could be diminished, either of which
would negatively affect our ability to attract and retain patients; and

•legislation, regulations, as well as new medical procedures and techniques, could reduce or eliminate our competitive advantages.

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Overview

Our principal business is to develop, own, operate, support and manage chiropractic clinics through direct ownership, management arrangements, franchising and regional developers throughout the United States.


We seek to be the leading provider of chiropractic care in the markets we serve
and to become the most recognized brand in our industry through the rapid and
focused expansion of chiropractic clinics in key markets throughout North
America and potentially abroad.

Key Performance Measures. We receive monthly performance reports from our system
and our clinics which include key performance indicators per clinic including
gross sales, comparable same-store sales growth, or "Comp Sales," number of new
patients, conversion percentage, and membership attrition. In addition, we
review monthly reporting related to system-wide sales, clinic openings, clinic
license sales, adjusted EBITDA, and various earnings metrics in the aggregate
and per clinic. We believe these indicators provide us with useful data with
which to measure our performance and to measure our franchisees' and clinics'
performance. Comp Sales include the sales from both company-owned or managed
clinics and franchised clinics that in each case have been open at least 13 full
months and exclude any clinics that have closed. System-wide sales include sales
at all clinics, whether operated by us or by franchisees. While franchised sales
are not recorded as revenues by us, management believes the information is
important in understanding the overall brand's financial performance, because
these sales are the basis on which we calculate and record royalty fees and are
indicative of the financial health of the franchisee base. Adjusted EBITDA
consists of net income before interest, income taxes, depreciation and
amortization, acquisition related expenses, stock-based compensation expense,
bargain purchase gain, and (gain) loss on disposition or impairment. There was
no bargain purchase gain for the three and six months ended June 30, 2022 and
2021.

Key Clinic Development Trends.  As of June 30, 2022, we and our franchisees
operated or managed 769 clinics, of which 662 were operated or managed by
franchisees and 107 were operated as company-owned or managed clinics. Of the
107 company-owned or managed clinics, 50 were constructed and developed by us,
and 57 were acquired from franchisees.

Our current strategy is to grow through the sale and development of additional
franchises, build upon our regional developer strategy, and continue to expand
our corporate clinic portfolio within clustered locations. The number of
franchise licenses sold for the year ended December 31, 2021 was 156, compared
with 121 and 126 licenses for the years ended December 31, 2020 and 2019,
respectively. We ended the first half of 2022 with 19 regional developers who
were responsible for 67% of the 46 licenses sold during the period. This strong
result reflects the power of the regional developer program to accelerate the
number of clinics sold, and eventually opened, across the country.

In addition, we believe that we can accelerate the development of, and revenue
generation from, company-owned or managed clinics through the accelerated
development of greenfield units and the further selective acquisition of
existing franchised clinics. We will seek to acquire existing franchised clinics
that meet our criteria for demographics, site attractiveness, proximity to other
clinics and additional suitability factors. During the quarter ended June 30,
2022, we opened three greenfield clinics, and as of June 30, 2022, we executed
nine leases for future greenfield clinic locations for further greenfield
expansion.

We believe that The Joint has a sound concept, which was further validated
through its resiliency during the pandemic and will benefit from the fundamental
changes taking place in the manner in which Americans access chiropractic care
and their growing interest in seeking effective, affordable natural solutions
for general wellness. These trends join with the preference we have seen among
chiropractic doctors to reject the insurance-based model to produce a
combination that benefits the consumer and the service provider alike. We
believe that these forces create an important opportunity to accelerate the
growth of our network.

Recent Events and COVID-19 Update


Recent events that may impact our business include unfavorable global economic
or political conditions, such as the ongoing COVID-19 pandemic, the Ukraine War,
and inflation and other cost increases. We anticipate that the second half of
2022 will continue to be a volatile macroeconomic environment. While we expect
the impacts of COVID-19 on our business to moderate, there still remains
uncertainty around the pandemic, its effect on labor or other macroeconomic
factors, the severity and duration of the pandemic, the continued availability
and effectiveness of vaccines and actions taken by government authorities,
including restrictions, laws or regulations, and other third parties in response
to the pandemic.

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The primary inflationary factor affecting our operations is labor costs. In the
fourth quarter of 2021 and the first half of 2022, company-owned or managed
clinics were negatively impacted by wage increases, which increased our general
and administrative expenses. Further, should we fail to increase our wages
competitively in response to increasing wage rates, the quality of our workforce
could decline, causing our patient service to suffer. We expect elevated levels
of cost inflation to persist for the remainder of 2022. While we anticipate that
these headwinds will be partially mitigated by pricing actions in response to
inflation, there can be no assurance that we will be able to continue to do so
in the future. A continued increase in labor costs could have an adverse effect
on our operating costs, financial condition and results of operations.

Also, the Ukraine War and the sanctions imposed on Russia in response to this
conflict have increased global economic and political uncertainty. In addition,
the recent increase in interest rates and the expectation that interest rates
will continue to rise, may adversely affect patients' financial conditions,
resulting in reduced spending on our services. While the impact of these factors
remains uncertain, we will continue to evaluate the extent to which these
factors will impact our business, financial condition, or results of operations.
These and other uncertainties with respect to these recent events could result
in changes to our current expectations.
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Other Significant Events and/or Recent Developments

For the three months ended June 30, 2022, compared to the prior year period:

•Comp Sales of clinics that have been open for at least 13 full months increased 8%.

•Comp Sales for mature clinics open 48 months or more increased 3%.

•System-wide sales for all clinics open for any amount of time grew 21%.


On July 5, 2022, we entered into an Asset and Franchise Purchase Agreement under
which we repurchased from the seller an operating franchise in Arizona. We
operate the franchise as a company-owned clinic. The total purchase price for
the transaction was $1,218,000, less $13,241 of net deferred revenue, resulting
in total purchase consideration of $1,204,759. Based on the terms of the
purchase agreement, the acquisition 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 will be recorded as goodwill.

On May 19, 2022, we entered into an Asset and Franchise Purchase Agreement under
which we repurchased from the seller four operating franchises in Arizona. We
operate 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. Based on the terms of the
purchase agreement, the acquisition has been treated as a business combination.

On April 1, 2022, we entered into an agreement under which we repurchased the
right to develop franchises in various counties in California. The total
consideration for the transaction was $2,400,000. We carried a deferred revenue
balance associated with this transaction of $357,721, representing the
unrecognized fee collected upon the execution of the regional developer
agreement. We accounted for the termination of development rights associated
with unsold or undeveloped franchises as a cancellation, and the associated
deferred revenue was netted against the aggregate purchase price. We recognized
the net amount of $2,042,279 as reacquired development rights on April 1, 2022,
which is amortized over the remaining original contract period of approximately
5.3 years.

On March 18, 2022, we entered into an agreement under which we repurchased the
right to develop franchises in various counties in New Jersey. The total
consideration for the transaction was $250,000. We carried a deferred revenue
balance associated with this transaction of $95,197, representing the
unrecognized fee collected upon the execution of the regional developer
agreement. We accounted for the termination of development rights associated
with unsold or undeveloped franchises as a cancellation, and the associated
deferred revenue was netted against the aggregate purchase price. We recognized
the net amount of $154,803 as reacquired development rights on March 18, 2022,
which is amortized over the remaining original contract period of approximately
5.5 years.

On February 28, 2022, we entered into an amendment to our Credit Facilities (as
amended, the "2022 Credit Facility") with the Lender. Under the 2022 Credit
Facility, the Revolver increased to $20,000,000 (from $2,000,000), the portion
of the Revolver available for letters of credit increased to $5,000,000 (from
$1,000,000), the uncommitted additional amount increased to $30,000,000 (from
$2,500,000) and the developmental line of credit of $5,500,000 was terminated.
The Revolver will be used for working capital needs, general corporate purposes
and for acquisitions, development and capital improvement uses.

For the three months ended June 30, 2022, we constructed and developed three new corporate clinics.




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2022 Full Year Outlook


•We now expect our revenues to be between $98 million and $102 million, compared
to $80.9 million in 2021.
•We now expect our adjusted EBITDA to be between $12 million and $14 million,
compared to $12.6 million in 2021.
•We expect franchised clinic openings to be between 110 and 130, compared to 110
in 2021.
•We expect Company-owned or managed clinics, through a combination of both
greenfields and buybacks, to increase by between 30 and 40, compared to 32 in
2021.

We believe we are well positioned to continue our rapid clinic expansion due to,
among other things, our resilient business model, planned new clinic openings
and expansion of company-owned or managed clinics. However, the long-term impact
of COVID-19, increased global economic uncertainty, and the recent increase in
interest rates and the expectation that interest rates will continue to rise,
may adversely affect patients' financial conditions, resulting in reduced
spending on our services. Rising interest rates would also make it more
expensive for a potential franchisee to finance a transaction. These and other
uncertainties with respect to these recent events could result in changes to our
current expectations.

Factors Affecting Our Performance


Our operating results may fluctuate significantly as a result of a variety of
factors, including the timing of new clinic sales, openings, closures, markets
in which they are contained and related expenses, general economic conditions,
cost inflation, labor shortages, consumer confidence in the economy, consumer
preferences, competitive factors, and disease epidemics and other health-related
concerns, such as the current COVID-19 outbreak.

Significant Accounting Polices and Estimates


There were no changes in our significant accounting policies and estimates
during the six months ended June 30, 2022 from those set forth in "Significant
Accounting Policies and Estimates" in our Annual Report on Form 10-K for the
year ended December 31, 2021.

Results of Operations

The following discussion and analysis of our financial results encompasses our
consolidated results and results of our two business segments: Corporate Clinics
and Franchise Operations.

Total Revenues - three months ended June 30, 2022 compared with three months ended June 30, 2021

Components of revenues were as follows:

                                                       Three Months Ended
                                                            June 30,
                                                                                           Change from          Percent Change
                                                   2022                  2021               Prior Year         from Prior Year
Revenues:
Revenues from company-owned or managed
clinics                                       $ 14,492,972          $ 11,433,072          $ 3,059,900                   26.8  %
Royalty fees                                     6,411,214             5,332,618          $ 1,078,596                   20.2  %
Franchise fees                                     686,886               623,655          $    63,231                   10.1  %
Advertising fund revenue                         1,825,757             1,518,908          $   306,849                   20.2  %
IT related income and software fees              1,099,981               786,037          $   313,944                   39.9  %
Regional developer fees                            169,953               214,434          $   (44,481)                 (20.7) %
Other revenues                                     370,555               310,074          $    60,481                   19.5  %
Total revenues                                $ 25,057,318          $ 20,218,798          $ 4,838,520                   23.9  %

Consolidated Results

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Total revenues increased by $4.8 million, primarily due to the continued expansion and revenue growth of our franchise base and the continued revenue growth and expansion of our company owned or managed clinics portfolio.

Corporate Clinics

Revenues from company-owned or managed clinics increased, primarily due to improved same-store sales growth, as well as due to the expansion of our corporate-owned or managed clinics portfolio. As of June 30, 2022 and 2021, there were 107 and 78 company-owned or managed clinics in operation, respectively.

Franchise Operations


•Royalty fees and advertising fund revenue increased due to an increase in the
number of franchised clinics in operation during the current period, along with
continued sales growth in existing franchised clinics. As of June 30, 2022 and
2021, there were 662 and 555 franchised clinics in operation, respectively.

•Franchise fees increased due to an increase in executed franchise agreements,
as these fees are recognized ratably over the term of the respective franchise
agreement.

•Software fees revenue increased due to an increase in our franchised clinic base and the related revenue recognition over the term of the franchise agreement as described above.

•Regional developer fees revenue decreased due to the impact of repurchased regional developer rights during the second quarter of 2022.

•Other revenues primarily consisted of merchant income associated with credit card transactions.

Total Revenues - six months ended June 30, 2022 compared with six months ended June 30, 2021

Components of revenues were as follows:

                                                        Six Months Ended
                                                            June 30,
                                                                                           Change from          Percent Change
                                                   2022                  2021               Prior Year         from Prior Year
Revenues:
Revenues from company-owned or managed
clinics                                       $ 27,099,971          $ 20,903,933          $ 6,196,038                   29.6  %
Royalty fees                                    12,420,146            10,101,862          $ 2,318,284                   22.9  %
Franchise fees                                   1,327,851             1,319,082          $     8,769                    0.7  %
Advertising fund revenue                         3,536,474             2,893,650          $   642,824                   22.2  %
IT related income and software fees              2,056,979             1,546,574          $   510,405                   33.0  %
Regional developer fees                            371,740               432,390          $   (60,650)                 (14.0) %
Other revenues                                     682,695               569,271          $   113,424                   19.9  %
Total revenues                                $ 47,495,856          $ 37,766,762          $ 9,729,094                   25.8  %

Consolidated Results

Total revenues increased by $9.7 million, primarily due to the continued expansion and revenue growth of our franchise base and of our company owned or managed clinics portfolio.

Corporate Clinics

Revenues from company-owned or managed clinics increased, primarily due to improved same-store sales growth, as well as due to the expansion of our corporate-owned or managed clinics portfolio. As of June 30, 2022 and 2021, there were 107 and 78 company-owned or managed clinics in operation, respectively.

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Franchise Operations


•Royalty fees and advertising fund revenue increased due to an increase in the
number of franchised clinics in operation during the current period, along with
continued sales growth in existing franchised clinics. As of June 30, 2022 and
2021, there were 662 and 555 franchised clinics in operation, respectively.

•Franchise fees were relatively flat over the prior year period as the impact of
the increase in executed franchise agreements was partially offset by the impact
of greater accelerated revenue recognition resulting from the terminated
franchise license agreements in the prior year period compared to the current
period.

•Software fees revenue increased due to an increase in our franchised clinic base and the related revenue recognition over the term of the franchise agreement as described above.

•Regional developer fees revenue decreased due to the impact of repurchased regional developer rights during the first and second quarters of 2022.

•Other revenues primarily consisted of merchant income associated with credit card transactions.


                                                                  Change 

from Percent Change

      Cost of Revenues               2022            2021          Prior 

Year from Prior Year

Three Months Ended June 30, 2,427,045 2,038,538 $ 388,507

                19.1  %

Six Months Ended June 30, 4,739,816 3,803,854 $ 935,962

                24.6  %


For the three months ended June 30, 2022, as compared with the three months
ended June 30, 2021, the total cost of revenues increased primarily due to an
increase in regional developer royalties and sales commissions of $0.3 million
and an increase in website hosting costs of $0.1 million. For the six months
ended June 30, 2022, as compared with the six months ended June 30, 2021, the
total cost of revenues increased primarily due to an increase in regional
developer royalties and sales commissions of $0.6 million and an increase in
website hosting costs of $0.3 million.

Selling and Marketing Expenses


                                                                     Change 

from Percent Change

 Selling and Marketing Expenses         2022            2021         Prior 

Year from Prior Year

Three Months Ended June 30, 3,839,724 3,132,715 $ 707,009

                22.6  %

Six Months Ended June 30, 7,127,212 5,622,043 $ 1,505,169

                26.8  %



Selling and marketing expenses increased for the three and six months ended June
30, 2022, as compared to the three and six months ended June 30, 2021, driven by
an increase in advertising fund expenditures from a larger franchise base and an
increase in local marketing expenditures by the company-owned or managed
clinics.

Depreciation and Amortization Expenses

                                                                                                 Change from          Percent Change
   Depreciation and Amortization Expenses               2022                  2021               Prior Year          from Prior Year

        Three Months Ended June 30,                   1,700,476             1,443,018          $    257,458                   17.8  %
         Six Months Ended June 30,                    3,329,653             2,612,884          $    716,769                   27.4  %


Depreciation and amortization expenses increased for the three and six months
ended June 30, 2022, as compared to the three and six months ended June 30,
2021, driven by the depreciation expenses associated with the expansion of our
corporate-owned or
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managed clinics portfolio in 2021 and 2022 and depreciation expenses associated
with the new IT platform used by clinics for operations and for the management
of operations, which went live in July 2021.

General and Administrative Expenses

                                                                                                     Change from          Percent Change
     General and Administrative Expenses                   2022                   2021               Prior Year          from Prior Year

         Three Months Ended June 30,                    16,528,022             11,614,444          $  4,913,578                   42.3  %
          Six Months Ended June 30,                     31,906,644             21,701,047          $ 10,205,597                   47.0  %


General and administrative expenses increased for the three months ended
June 30, 2022, as compared to the three months ended June 30, 2021, primarily
due to the increases in the following to support continued clinic count and
revenue growth in both operating segments: (i) payroll and related expenses of
$3.5 million, (ii) general overhead and administrative expenses of $1.0 million,
(iii) professional and advisory fees of $0.3 million, and (iv) software and
maintenance expense of $0.1 million. General and administrative expenses
increased for the six months ended June 30, 2022, as compared to the six months
ended June 30, 2021, primarily due to the increases in the following to support
continued clinic count and revenue growth in both operating segments: (i)
payroll and related expenses of $6.9 million, (ii) general overhead and
administrative expenses of $2.1 million, (iii) professional and advisory fees of
$0.9 million, and (iv) software and maintenance expense of $0.3 million. As a
percentage of revenue, general and administrative expenses during the six months
ended June 30, 2022 and 2021 were 66% and 57%, respectively.

Income from Operations - three months ended June 30, 2022 compared with three
months ended June 30, 2021
                                                                Change from       Percent Change
 Three Months Ended June 30,        2022           2021          Prior Year       from Prior Year

Income from Operations 473,207 2,034,343 $ (1,561,136)

              (76.7) %


Consolidated Results

Consolidated income from operations decreased by $1.6 million for the three
months ended June 30, 2022 compared with the three months ended June 30, 2021,
primarily due to the increased expenses in the corporate clinics and unallocated
corporate segments discussed below.

Corporate Clinics


Our corporate clinics segment had income from operations of $0.3 million for the
three months ended June 30, 2022, a decrease of $1.5 million compared to income
from operations of $1.8 million for the prior year period. The decrease was
primarily due to:

•A $4.4 million increase in operating expenses due to the increases in the
following: (i) payroll-related expenses of $3.5 million due to a higher head
count to support the expansion of our corporate clinic portfolio and general
wage increases to remain competitive in the current labor market, (ii)
depreciation expense associated with the expansion of our corporate-owned or
managed clinics portfolio in 2021 and 2022 and the new IT platform discussed
above of $0.2 million, and (iii) general overhead and administrative expenses to
support the expansion of our corporate clinic portfolio of $0.6 million;
partially offset by

•An increase in revenues of $3.1 million from company-owned or managed clinics.

Franchise Operations


Our franchise operations segment had income from operations of $4.2 million for
the three months ended June 30, 2022, an increase of $0.3 million, compared to
income from operations of $3.9 million for the prior year period. This increase
was primarily due to:

•An increase of $1.8 million in total revenues; partially offset by

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•An increase of $0.4 million in cost of revenues primarily due to an increase in
regional developer royalties and website hosting costs and an increase of $1.1
million in operating expenses, primarily due to an increase in: (i) selling and
marketing expenses resulting from a larger franchise base of $0.7 million, (ii)
payroll-related expenses of $0.2 million, and (iii) depreciation expense
associated with the new IT platform discussed above of $0.2 million.

Unallocated Corporate


Unallocated corporate expenses for the three months ended June 30, 2022
increased by $0.4 million compared to the prior year period, primarily due to
the increase in general and administrative expenses of $0.5 million, which was
partially offset by the lower amortization expense of 0.1 million.

Income from Operations - six months ended June 30, 2022 compared with six months
ended June 30, 2021

                                                                Change from       Percent Change
  Six Months Ended June 30,         2022           2021          Prior Year       from Prior Year

Income from Operations 296,782 4,006,426 $ (3,709,644)

              (92.6) %


Consolidated Results

Consolidated income from operations decreased by 3.7 million for the six months
ended June 30, 2022 compared with six months ended June 30, 2021, primarily due
to the increased expenses in the corporate clinics and unallocated corporate
segments discussed below.

Corporate Clinics

Our corporate clinics segment had loss from operations of 0.1 million for the
six months ended June 30, 2022, a decrease of $3.3 million compared to income
from operations of $3.2 million for the prior year period. The decrease was
primarily due to:

•A $9.4 million increase in operating expenses due to the increases in the
following: (i) payroll-related expenses of $7.0 million due to a higher head
count to support the expansion of our corporate clinic portfolio and general
wage increases to remain competitive in the current labor market, (ii)
depreciation expense associated with the expansion of our corporate-owned or
managed clinics portfolio in 2021 and 2022 and the new IT platform discussed
above of $0.5 million, (iii) selling and marketing expenses due to increased
local marketing expenditures by the company-owned or managed clinics of $0.4
million, and (iv) general overhead and administrative expenses to support the
expansion of our corporate clinic portfolio of $1.5 million; partially offset by

•An increase in revenues of $6.2 million from company-owned or managed clinics.

Franchise Operations


Our franchise operations segment had income from operations of $8.6 million for
the six months ended June 30, 2022, an increase of $0.9 million, compared to
income from operations of $7.7 million for the prior year period. This increase
was primarily due to:

•An increase of $3.5 million in total revenues; partially offset by


•An increase of $0.9 million in cost of revenues primarily due to an increase in
regional developer royalties and website hosting costs and an increase of $1.7
million in operating expenses, primarily due to an increase in: (i) selling and
marketing expenses resulting from a larger franchise base of $1.1 million, (ii)
depreciation expense associated with the new IT platform discussed above of $0.4
million, and (iii) payroll-related expenses of $0.2 million.

Unallocated Corporate


Unallocated corporate expenses for the six months ended June 30, 2022 increased
by $1.3 million compared to the prior year period, primarily due to the
increases in professional and advisory fees of $0.7 million and general overhead
and administrative expenses of $0.7 million.
                                       37

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Non-GAAP Financial Measures

The table below reconciles net income to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021.


                                               Three Months Ended June 30,                     Six Months Ended June 30,
                                                2022                     2021                  2022                   2021

Non-GAAP Financial Data:

  Net income                           $       344,742              $ 

2,683,962 $ 138,945 $ 4,998,657

  Net interest expense                          19,286                   16,373                  35,433               37,909
  Depreciation and amortization
expense                                      1,700,476                1,443,018               3,329,653            2,612,884
  Tax expense (benefit)                        109,179                 (665,992)                122,403           (1,030,140)
   EBITDA                                    2,173,683                3,477,361               3,626,434            6,619,310
  Stock compensation expense                   340,191                  283,564                 663,747              530,058
  Acquisition related expenses                  31,874                   39,373                  31,586               45,346
  Loss (gain) on disposition or
impairment                                      88,844                  (44,260)                 95,749               20,508
   Adjusted EBITDA                     $     2,634,592              $ 3,756,038          $    4,417,516          $ 7,215,222


Adjusted EBITDA consists of net income before interest, income taxes,
depreciation and amortization, acquisition related expenses, stock-based
compensation expense, bargain purchase gain, and (gain) loss on disposition or
impairment. There was no bargain purchase gain for the three and six months
ended June 30, 2022 and 2021. We have provided Adjusted EBITDA because it is a
non-GAAP measure of financial performance commonly used for comparing companies
in our industry. You should not consider Adjusted EBITDA as a substitute for
operating profit as an indicator of our operating performance or as an
alternative to cash flows from operating activities as a measure of liquidity.
We may calculate Adjusted EBITDA differently from other companies.

We believe that the use of Adjusted EBITDA provides an additional tool for
investors to use in evaluating ongoing operating results and trends and in
comparing our financial measures with other outpatient medical clinics, which
may present similar non-GAAP financial measures to investors. In addition, you
should be aware when evaluating Adjusted EBITDA that in the future we may incur
expenses similar to those excluded when calculating these measures. Our
presentation of these measures should not be construed as an inference that our
future results will be unaffected by unusual or non-recurring items. Our
computation of Adjusted EBITDA may not be comparable to other similarly titled
measures computed by other companies, because all companies do not calculate
Adjusted EBITDA in the same manner.

Liquidity and Capital Resources


As of June 30, 2022, we had unrestricted cash and short-term bank deposits of
$9.4 million and $18 million of available capacity under the development line of
credit. While the ongoing COVID-19 pandemic and the Ukraine War create potential
liquidity risks, as discussed further below, we believe that our existing cash
and cash equivalents, our anticipated cash flows from operations and amounts
available under our development line of credit will be sufficient to fund our
anticipated operating and investment needs for at least the next twelve months.

While the interruptions, delays and/or cost increases resulting from the ongoing
COVID-19 pandemic, political instability and geopolitical tensions, such as the
Ukraine War, economic weakness, inflationary pressures, recent increase in
interest rates and other factors have created uncertainty as to general economic
conditions for the remainder of 2022 and beyond, as of the date of this report,
we believe we have adequate capital resources and sufficient access to external
financing sources to satisfy our current and reasonably anticipated requirements
for funds to conduct our operations and meet other needs in the ordinary course
of our business. For the remainder of 2022, we expect to use or redeploy our
cash resources to support our business within the context of prevailing market
conditions, which, given the ongoing uncertainties described above, could
rapidly and materially deteriorate or otherwise change. Our long-term capital
requirements, primarily for acquisitions and other corporate initiatives, could
be dependent on our ability to access additional funds through the debt and/or
equity markets. If the equity and credit markets deteriorate, including as a
result of economic weakness, a resurgence of COVID-19, political unrest or war,
including the Ukraine War, or any other reason, it may make any necessary equity
or debt financing more difficult to obtain in a timely manner and on
                                       38
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favorable terms, if at all, and if obtained, it may be more costly or more
dilutive. From time to time, we consider and evaluate transactions related to
our portfolio and capital structure, including debt financings, equity
issuances, purchases and sales of assets, and other transactions. Given the
ongoing uncertainties described above, the levels of our cash flows from
operations for 2022 may be impacted. There can be no assurance that we will be
able to generate sufficient cash flows or obtain the capital necessary to meet
our short and long-term capital requirements.

Analysis of Cash Flows


Net cash provided by operating activities decreased by $7.5 million to $1.5
million for the six months ended June 30, 2022, compared to $9.0 million for the
six months ended June 30, 2021. The decrease was primarily attributable to an
increase in general and administrative expenses over the prior year period,
which was partially offset by an increase in revenue over the prior year period.

Net cash used in investing activities was $11.4 million and $8.9 million for the
six months ended June 30, 2022 and 2021, respectively. For the six months ended
June 30, 2022, this included acquisitions of $5.6 million, purchases of property
and equipment of $3.2 million and reacquisition and termination of regional
developer rights for $2.7 million. For the six months ended June 30, 2021, this
included acquisitions of $4.3 million, purchases of property and equipment of
$3.2 million and reacquisition and termination of regional developer rights for
$1.4 million.

Net cash used in financing activities for the six months ended June 30, 2022 was
less than $100 thousand, compared to $2.1 million for the six months ended June
30, 2021. For the six months ended June 30, 2021, this included repayment of the
PPP loan of $2.7 million and purchases of treasury stock for $0.6 million, which
were partially offset by the proceeds from the exercise of stock options of $1.3
million.

Recent Accounting Pronouncements


See Note 1, Nature of Operations and Summary of Significant Accounting
Policies, to our condensed consolidated financial statements included in this
report for information regarding recently issued accounting pronouncements that
may impact our financial statements.

Off-Balance Sheet Arrangements


During the six months ended June 30, 2022, we did not have any relationships
with unconsolidated organizations or financial partnerships, such as structured
finance or special purpose entities that would have been established for the
purpose of facilitating off-balance sheet arrangements.

© Edgar Online, source Glimpses

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