SPOUSE: MANAGEMENT REPORT AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS (Kind 10-Ok)

The next dialogue and evaluation of the outcomes of operations and monetary situation ofThe Joint Corp. for the years endedDecember 31, 2020 and 2019 must be learn along side the consolidated monetary statements and the notes thereto, and different monetary data contained elsewhere on this Kind 10-Ok. Overview Our principal enterprise is to develop, personal, function, assist and handle chiropractic clinics via franchising and the sale of regional developer rights and thru direct possession and administration preparations all throughthe United States . We search to be the main supplier of chiropractic care within the markets we serve and to turn out to be essentially the most acknowledged model in our business via the fast and targeted growth of chiropractic clinics in key markets all throughNorth America and doubtlessly overseas. We noticed over 584,000 new sufferers in 2020, regardless of the pandemic and with roughly 27% of these new sufferers visiting a chiropractor for the primary time. We're not solely growing our proportion of market share, however increasing the chiropractic market. Key Efficiency Measures. We obtain month-to-month efficiency studies from our system and our clinics which embody key efficiency indicators per clinic together with product sales, comparable same-store gross sales development, or "Comp Gross sales," variety of new sufferers, conversion proportion, and member attrition. As well as, we overview month-to-month reporting associated to system-wide gross sales, clinic openings, clinic license gross sales, and varied earnings metrics within the mixture and per clinic. We imagine these indicators present us with helpful information with which to measure our efficiency and to measure our franchisees' and clinics' efficiency. Comp Gross sales embody the gross sales from each company-owned or managed clinics and franchised clinics that in every case have been open at the least 13 full months and exclude any clinics which have closed. System-wide gross sales embody gross sales in any respect clinics, whether or not operated by us or by franchisees. Whereas franchised gross sales will not be recorded as revenues by us, administration believes the data is essential in understanding the general model's monetary efficiency, as a result of these gross sales are the idea on which we calculate and file royalty charges and are indicative of the monetary well being of the franchisee base. Key Clinic Improvement Developments. As ofDecember 31, 2020 , we and our franchisees operated or managed 579 clinics, of which 515 had been operated or managed by franchisees and 64 had been operated as company-owned or managed clinics. Of the 64 company-owned or managed clinics, 23 had been constructed and developed by us, and 41 had been acquired from franchisees. Our present technique is to develop via the sale and improvement of further franchises, construct upon our regional developer technique, and proceed to increase our company clinic portfolio inside clustered areas. The variety of franchise licenses offered for the 12 months endedDecember 31, 2020 was 121, in contrast with 126 and 99 licenses for the years endedDecember 31, 2019 and 2018, respectively. We ended 2020 with 22 regional builders who had been liable for 83% of the 121 licenses offered through the 12 months. This sturdy outcome displays the energy of the regional developer program to speed up the variety of clinics offered, and ultimately opened, throughout the nation. As well as, we imagine that we will speed up the event of, and income technology from, company-owned or managed clinics via the accelerated improvement of greenfield items and the additional selective acquisition of present franchised clinics. We'll search to amass present franchised clinics that meet our standards for demographics, web site attractiveness, proximity to different clinics and extra suitability components. We imagine that The Joint has a sound idea, which was additional validated via its resiliency through the pandemic and can profit from the elemental modifications going down within the method wherein People entry chiropractic care and their rising curiosity in in search of efficient, reasonably priced pure options for basic wellness. These developments be part of with the desire we now have seen amongst chiropractic medical doctors to reject the insurance-based mannequin to provide a mixture that advantages the buyer and the service supplier alike. We imagine that these forces create an essential alternative to speed up the development of our community.
Replace on the COVID-19 pandemic
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Contents
The COVID-19 pandemic has had a big impression on our enterprise, monetary situation, money flows and outcomes of operations in 2020. Virus-related considerations, momentary clinic closures and government-imposed restrictions resulted in decreased affected person site visitors and spending developments and in membership freezes and cancellations in our clinics throughout 2020. This unfavorable impression on our franchisees' clinics has additionally negatively impacted our royalty and promoting charge income. Roughly 10% of our system-wide clinics had been closed throughout April, with some clinics starting to reopen in Could. Roughly 99% of our clinics have reopened as of the date of this report, though some are working on decreased hours. Our company clinics and headquarters have been in a position to function with none furloughs or lay-offs as we carried out enhanced sanitary measures to make sure affected person and worker security. Our new sanitary and security measures embody cleansing of devices between every affected person use, elimination of non-essential gadgets, bodily distancing, and masks for all Joint workers. Attributable to the government-imposed restrictions, our outcomes of operations had been most negatively impacted through the month of April. With the intention to rebuild, we launched our summer season promotional exercise through the second and third quarters of 2020, which included incentives to unfreeze wellness plan memberships, free chiropractic care to new sufferers, and a restoration promotion, which was geared toward lapsed sufferers and former plan members. Our summer season promotion, coupled with the easing of presidency restrictions, have resulted in enchancment in most of our key metrics, together with product sales, Comp Gross sales, affected person site visitors, and new affected person conversion price. As well as, the attrition price amongst present sufferers has remained comparatively secure through the second half of the 12 months. Regardless of enhancements through the second half of the 12 months, vital uncertainty stays concerning the period and extent of the impression on our enterprise of the COVID-19 pandemic. Our 2020 income and earnings had been negatively impacted in comparison with our pre-COVID-19 pandemic expectations, and the pandemic could have a unfavorable impression on our income and internet revenue in 2021. At the same time as authorities restrictions are lifted and clinics reopen, the continuing financial impacts and well being considerations related to the pandemic could proceed to have an effect on affected person habits and spending ranges and will end in decreased visits and affected person spending developments that adversely impression our monetary place and outcomes of operations. In addition, the impression of the COVID-19 pandemic depends upon components past our information or management, together with the period and severity of the outbreak, different further vital will increase within the quantity or severity of circumstances in future durations, and actions taken to comprise its unfold and mitigate its public well being results. On account of the COVID-19 pandemic, we took the next steps to protect liquidity and make sure the Firm's monetary flexibility in 2020: •Reviewed discretionary working bills and deferred sure capital expenditures and hiring. •Drew down the$2 million of our revolving credit score facility withJ.P. Morgan Chase Financial institution, N.A . in March, noting we now have a further$5.5 million below a developmental line of credit score that's unavailable for basic company functions. •Secured a$2.7 million mortgage below CARES Act Paycheck Safety Program in April, bringing complete unrestricted money to$21 million as ofDecember 31, 2020 . Vital Occasions and/or Latest Developments We proceed to ship on our strategic initiatives and to progress towards sustained profitability. For the 12 months endedDecember 31, 2020 : •Comp Gross sales of clinics which have been open for at the least 13 full months elevated 9%. •Comp Gross sales for mature clinics open 48 months or extra elevated 5%. •System-wide gross sales for all clinics open for any period of time grew 18% to$260 million . Regardless of the government-imposed restrictions and decreased site visitors through the second quarter of 2020, we noticed over 584,000 new sufferers in 2020, in contrast with 585,000 new sufferers in 2019, with roughly 27% of these new sufferers having by no means been to a chiropractor earlier than. We're not solely growing our proportion of market share, however increasing the chiropractic market. These components, together with decreased discretionary working bills, drove enchancment in our backside line. Through the first quarter of 2020, we entered right into a regional developer settlement for the states ofIowa ,Nebraska ,South Dakota and the county ofRock Island in the state ofIllinois for which we obtained roughly$201,000 . The settlement requires the opening of a minimal of 18 clinics over a seven-year interval. As well as, through the third quarter of 2020, we entered right into a regional developer settlement for the state ofWisconsin and the remaining obtainable territories throughout the state of 32 -------------------------------------------------------------------------------- Desk of ContentsIllinois for which we obtained roughly$340,000 . The settlement requires the opening of a minimal of 19 clinics over a ten-year interval. OnDecember 31, 2020 , we entered into an settlement below which we repurchased the correct to develop franchises in varied counties inNorth Carolina . The whole consideration for the transaction was$1,039,500 . We carried a deferred income steadiness related to this transaction of$36,781 , representing the charge collected upon the execution of the regional developer settlement. We accounted for the termination of improvement rights related to unsold or undeveloped franchises as a cancellation, and the related deferred income was netted in opposition to the combination buy value. OnJanuary 1, 2021 , the Firm entered into an settlement below which the Firm repurchased the correct to develop franchises in varied counties inGeorgia . The whole consideration for the transaction was$1,388,700 . The Firm carried a deferred income steadiness related to this transaction of$35,679 , representing the charge collected upon the execution of the regional developer settlement. The Firm accounted for the termination of improvement rights related to unsold or undeveloped franchises as a cancellation, and the related deferred income was netted in opposition to the combination buy value. For the 12 months endedDecember 31, 2020 , we acquired one clinic for$534,000 and constructed and developed three new company clinics. Components Affecting Our Efficiency Our working outcomes could fluctuate considerably on account of quite a lot of components, together with the timing of latest clinic gross sales and clinic openings and closures, the magnitude of bills associated to the foregoing, the financial situation of the markets wherein our clinics are situated, basic financial situations, client confidence within the economic system, client preferences, aggressive components, and illness epidemics and different health-related considerations, similar to the present COVID-19 pandemic. Vital Accounting Polices and Estimates The preparation of consolidated monetary statements requires us to make estimates and assumptions. These estimates and assumptions have an effect on the reported quantities of belongings and liabilities and disclosure of contingent belongings and liabilities on the date of the consolidated monetary statements, and the reported quantities of revenues and bills through the reporting interval. We base our accounting estimates on historic expertise and different components that we imagine to be cheap below the circumstances. Precise outcomes may differ from these estimates. We've mentioned the event and number of vital accounting insurance policies and estimates with our Audit Committee. Intangible Property Intangible belongings consist primarily of re-acquired franchise and regional developer rights and buyer relationships. We amortize the truthful worth of re-acquired franchise rights over the remaining contractual phrases of the re-acquired franchise rights on the time of the acquisition, which vary from one to eight years. Within the case of regional developer rights, we amortize the acquired regional developer rights over the remaining contractual phrases on the time of the acquisition, which vary from two to seven years. The truthful worth of buyer relationships is amortized over their estimated helpful life which ranges from two to 4 years. GoodwillGoodwill consists of the surplus of the acquisition value over the truthful worth of tangible and identifiable intangible belongings acquired within the acquisitions of franchises.Goodwill and intangible belongings deemed to have indefinite lives are not amortized however are topic to annual impairment assessments. As required, we carry out an annual impairment take a look at of goodwill as of the primary day of the fourth quarter or extra often if occasions or circumstances change that might extra probably than not scale back the truthful worth of a reporting unit beneath its carrying worth. No impairments of goodwill had been recorded for the years endedDecember 31, 2020 and 2019. Lengthy-Lived Property We overview our long-lived belongings for impairment every time occasions or modifications in circumstances point out that the carrying quantity of the asset might not be recovered. We glance primarily to estimated undiscounted future money flows in its evaluation of whether or not or not long-lived belongings are recoverable. On account of the present COVID-19 pandemic, we evaluated whether or not the carrying values of the long-lived belongings in sure company clinics had been recoverable on the finish of the primary quarter of 2020. We 33 -------------------------------------------------------------------------------- Desk of Contents didn't determine any triggering occasion through the the rest of 2020. No impairments of long-lived belongings had been recorded for the years endedDecember 31, 2020 and 2019. Inventory-Based mostly Compensation We account for share-based funds by recognizing compensation expense primarily based upon the estimated truthful worth of the awards on the date of grant. We decide the estimated grant-date truthful worth of restricted shares utilizing the closing value on the date of the grant and the grant-date truthful worth of inventory choices utilizing the Black-Scholes-Merton mannequin. With the intention to calculate the truthful worth of the choices, sure assumptions are made relating to the elements of the mannequin, together with risk-free rate of interest, volatility, anticipated dividend yield and anticipated choice life. Adjustments to the assumptions may trigger vital changes to the valuation. We acknowledge compensation prices ratably over the interval of service utilizing the straight-line methodology. Forfeitures are estimated primarily based on historic and forecasted turnover, which is roughly 5%. Income Recognition We generate income primarily via our company-owned and managed clinics and via royalties, franchise charges, promoting fund contributions, IT associated revenue and laptop software program charges from our franchisees. Revenues from Firm-Owned orManaged Clinics . We earn income from clinics that we personal and function or handle all throughthe USA . In these states the place we personal and function the clinic, revenues are acknowledged when companies are carried out. We provide quite a lot of membership and wellness packages which characteristic discounted pricing as in contrast with our single-visit pricing. Quantities collected prematurely for membership and wellness packages are recorded as deferred income and acknowledged when the service is carried out. Any unused visits related to month-to-month memberships are acknowledged on a month-to-month foundation. We acknowledge a contract legal responsibility (or a deferred income legal responsibility) associated to the pay as you go therapy plans for which we now have an ongoing efficiency obligation. We acknowledge this contract legal responsibility, and acknowledge income, because the affected person consumes his or her visits associated to the bundle and we carry out the companies. Based mostly on a historic lag evaluation and an analysis of authorized obligation by jurisdiction, we concluded that any remaining contract legal responsibility that exists after 12 to 24 months from transaction date can be deemed breakage. Breakage income is acknowledged solely at that time, when the chance of the affected person exercising his or her remaining rights turns into distant. Royalties and Promoting Fund Income. We accumulate royalties from our franchisees, as stipulated within the franchise settlement, equal to 7% of gross gross sales and a advertising and marketing and promoting charge presently equal to 2% of product sales. Royalties, together with franchisee contributions to promoting funds, are calculated as a proportion of clinic gross sales over the time period of the franchise settlement. The franchise settlement royalties, inclusive of promoting fund contributions, signify sales-based royalties which are associated fully to our efficiency obligation below the franchise settlement and are acknowledged as franchisee clinic stage gross sales happen. Royalties and advertising and marketing and promoting charges are collected bi-monthly two working days after every gross sales interval has ended. Franchise Charges. We require the complete non-refundable preliminary franchise charge to be paid upon execution of a franchise settlement, which generally has an preliminary time period of ten years. Preliminary franchise charges are acknowledged ratably on a straight-line foundation over the time period of the franchise settlement. Our companies below the franchise settlement embody: coaching of franchisees and workers, web site choice, development/vendor administration and ongoing operations assist. We present no financing to franchisees and supply no ensures on their behalf. The companies we offer are extremely interrelated with the franchise license and as such are thought-about to signify a single efficiency obligation. Software program Charges. We accumulate a month-to-month charge from our franchisees to be used of our proprietary or chosen chiropractic or buyer relationship administration software program, laptop assist, and web companies assist. These charges are acknowledged ratably on a straight-line foundation over the time period of the respective franchise settlement. Regional Developer Charges. Throughout 2011, we established a regional developer program to interact impartial contractors to help in creating specified geographical areas. Below the unique program, regional builders paid a license charge for every franchise they obtained the correct to develop throughout the area. In 2018, this system was revised to grant unique geographical territory and set up a minimal improvement obligation inside that outlined territory. Regional developer charges are non-refundable and are acknowledged as income ratably on a straight-line foundation over the time period of the regional developer settlement, which is taken into account to start upon the execution of the settlement. Our companies below regional developer agreements embody web site choice, grand opening assist for the clinics, gross sales assist for identification of certified franchisees, basic operational assist and advertising and marketing assist to promote for possession alternatives. The companies we offer are extremely interrelated with the event of the territory and the ensuing franchise licenses offered by the regional developer and as such are thought-about to 34 -------------------------------------------------------------------------------- Desk of Contents signify a single efficiency obligation. As well as, regional builders obtain charges that are funded by the preliminary franchise charges collected from franchisees upon the sale of franchises inside their unique geographical territory and a royalty of three% of gross sales generated by franchised clinics of their unique geographical territory. Charges associated to the sale of franchises inside their unique geographical territory are initially deferred as deferred franchise prices and are acknowledged as an expense in franchise price of revenues when the respective income is acknowledged, which is mostly over the time period of the associated franchise settlement. Royalties of three% of product sales generated by franchised clinics of their areas are additionally acknowledged as franchise price of revenues as franchisee clinic stage gross sales happen, which is funded by the 7% royalties collected from the franchisees of their areas. Sure regional developer agreements outcome within the regional developer buying the rights to present royalty streams from clinics already open within the respective territory. In these cases, the income related from the sale of the royalty stream is acknowledged over the remaining lifetime of the respective franchise agreements. Leases We adopted, efficient the primary quarter of 2019, accounting steering associated to leases. The steering, amongst different modifications, requires lessees to acknowledge a right-of-use ("ROU") asset and a lease legal responsibility within the steadiness sheet for many leases, however retains an expense recognition mannequin just like the earlier steering. The lease legal responsibility is measured at present worth of the fastened lease funds over the lease time period and the ROU asset is measured on the lease legal responsibility quantity, adjusted for lease prepayments, lease incentives obtained and the lessee's preliminary direct prices. Figuring out the lease time period and quantity of lease funds to incorporate within the calculation of the ROU asset and lease legal responsibility for leases containing choices requires using judgment to decide whether or not the train of an choice within reason sure and if the non-obligatory interval and funds must be included within the calculation of the related ROU asset and legal responsibility. In making this willpower, all related financial components are thought-about that might compel us to train or not train an choice. When obtainable, we use the speed implicit within the lease to low cost lease funds; nonetheless, the speed implicit within the lease shouldn't be readily determinable for considerably all of our leases. In such circumstances, we estimate our incremental borrowing price because the rate of interest we might pay to borrow an quantity equal to the lease funds over the same time period, with comparable collateral as in the lease, and in the same financial setting. We estimate these charges utilizing obtainable proof similar to charges imposed by third-party lenders in current financings or observable risk-free rate of interest and credit score spreads for business debt of the same period, with credit score spreads correlating to our estimated creditworthiness. For working leases that embody lease holidays and lease escalation clauses, we acknowledge lease expense on a straight-line foundation over the lease time period from the date we take possession of the leased property. Pre-opening prices are recorded as incurred on the whole and administrative bills. We file the straight-line lease expense and any contingent lease, if relevant, on the whole and administrative bills on the consolidated revenue statements. Lots of our leases additionally require us to pay actual property taxes, frequent space upkeep prices and different occupancy prices that are additionally included on the whole and administrative bills on the consolidated revenue statements. Revenue Taxes We acknowledge deferred tax belongings and liabilities for each the anticipated impression of variations between the monetary assertion quantity and the tax foundation of belongings and liabilities and for the anticipated future tax profit to be derived from tax losses and tax credit score carryforwards. We file a valuation allowance in opposition to deferred tax belongings when it's thought-about extra probably than not that every one or a portion of our deferred tax belongings won't be realized. In making this willpower, we're required to present vital weight to proof that may be objectively verified. It's typically troublesome to conclude {that a} valuation allowance shouldn't be wanted when there may be vital unfavorable proof, similar to cumulative losses in recent times. Forecasts of future taxable revenue are thought-about to be much less goal than previous outcomes. Due to this fact, cumulative losses weigh closely within the general evaluation. Along with contemplating forecasts of future taxable revenue, we're additionally required to guage and quantify different potential sources of taxable revenue in order to evaluate the belief of our deferred tax belongings, specifically the reversal of present momentary variations, the carry again of losses and credit as allowed below present tax regulation, and the implementation of tax planning methods. Evaluating and quantifying these quantities entails vital judgments. Every supply of revenue have to be evaluated primarily based on all optimistic and unfavorable proof; this analysis entails assumptions about future exercise. In 2019, we continued to take care of a full valuation allowance on the deferred tax belongings as a result of current cumulative losses as ofDecember 31, 2019 . As ofDecember 31, 2020 , we recorded an revenue tax good thing about$7.8 million primarily as a result of discount within the valuation allowance. The valuation allowance was decreased as a result of the load of proof relating to the longer term realizability of the deferred tax belongings had turn out to be predominately optimistic and realization of the deferred tax belongings was extra probably than not. The optimistic proof thought-about in our evaluation of the realizability of the deferred tax belongings included the 35 -------------------------------------------------------------------------------- Desk of Contents technology of great optimistic cumulative revenue for the three-year interval endedDecember 31, 2020 and projections of future taxable revenue. Based mostly on our earnings efficiency pattern and anticipated continued profitability, administration decided it was extra probably than not that every one of our deferred tax belongings would be realized. The unfavorable proof thought-about included historic loss in 2017, marginal pre-tax revenue generated in 2018, and basic financial uncertainties associated to the impression of the pandemic. Nevertheless, administration has concluded that optimistic proof outweighed this unfavorable proof. Vital judgment can be required in evaluating our unsure tax positions. We set up accruals for unsure tax positions once we imagine that the complete quantity of the related tax profit might not be realized. If we prevail in issues for which accruals have been established beforehand or pay quantities in extra of reserves, there may very well be an impact on our revenue tax provisions within the interval wherein such willpower is made. We usually assess the tax danger of our tax return submitting positions and we now have not recognized any materials unsure tax positions as ofDecember 31, 2020 and 2019, respectively. Outcomes of Operations The next dialogue and evaluation of our monetary outcomes encompasses our consolidated outcomes and outcomes of our two enterprise segments:Company Clinics and Franchise Operations. Complete Revenues Parts of revenues for the 12 months endedDecember 31, 2020 , as in comparison with the 12 months endedDecember 31, 2019 , are as follows: 12 months Ended December 31, Change from P.c Change 2020 2019 Prior 12 months from Prior 12 months Revenues: Revenues from company-owned or managed clinics$ 31,771,288 $ 25,807,584 $ 5,963,704 23.1 % Royalty charges 15,886,051 13,557,170 2,328,881 17.2 % Franchise charges 2,100,800 1,791,545 309,255 17.3 % Promoting fund income 4,506,413 3,884,055 622,358 16.0 % Software program charges 2,694,520 1,865,779 828,741 44.4 % Regional developer charges 876,804 803,849 72,955 9.1 % Different revenues 847,100 740,918 106,182 14.3 % Complete revenues$ 58,682,976 $ 48,450,900 $ 10,232,076 21.1 % The explanations for the numerous modifications in our elements of complete revenues are as follows: Consolidated Outcomes •Complete revenues elevated by$10.2 million , primarily as a result of continued growth and income development of our franchise base and the continued income development and growth of our firm owned or managed clinics portfolio, which was partially offset by the unfavorable impression of the pandemic.Company Clinics •Revenues from company-owned or managed clinics elevated, primarily as a consequence of improved same-store development, in addition to the growth of our corporate-owned or managed clinics portfolio, which was partially offset by the unfavorable impression of the pandemic. Franchise Operations •Royalty charges and promoting fund income elevated, as a consequence of a rise within the variety of franchised clinics in operation together with continued gross sales development in present franchised clinics. These will increase had been partially offset by the 36 -------------------------------------------------------------------------------- Desk of Contents gross sales decline within the present franchised clinics as a result of pandemic. As ofDecember 31, 2020 , and 2019, there have been 515 and 453 franchised clinics in operation, respectively. •Franchise charges elevated as a consequence of a rise in executed franchise agreements, as these charges are acknowledged ratably over the time period of the respective franchise settlement. For the 12 months endedDecember 31, 2020 , there have been executed franchise license gross sales or letters-of-intent for 121 franchise licenses, in comparison with 126 for the 12 months endedDecember 31, 2019 . •Regional developer charges elevated as a result of sale of further developer territories and the associated income recognition over the lifetime of the regional developer agreements. We entered into two new regional developer agreements in 2020 collectively masking 5 states and one new regional developer settlement in 2019 masking various counties in every of three states. Given the ratable recognition of the income, the agreements executed through the course of 2019 now have a full 12 months of recognition in 2020. •Software program charges income elevated as a consequence of a rise in our franchise clinic base and the associated income recognition over the time period of the franchise settlement as described above. •Different revenues primarily include service provider revenue related to bank card transactions. Value of Revenues 12 months Ended December 31, Change
of the share change
2020 2019 Prior
12 months of earlier 12 months
Value of Revenues 6,507,468 5,565,917$ 941,551 16.9 % For the 12 months endedDecember 31, 2020 , as in contrast with the 12 months endedDecember 31, 2019 , the entire price of revenues elevated primarily as a consequence of an improve in regional developer royalties of$0.9 million , which is in step with a rise in franchise royalty revenues of 17%, coupled with a bigger portion of our franchise base working in regional developer territories. Promoting and Advertising and marketing Bills 12 months Ended December 31, Change from P.c Change 2020 2019 Prior 12 months from Prior 12 months Promoting and Advertising and marketing Bills 7,804,420 6,913,709$ 890,711 12.9 % Promoting and advertising and marketing bills elevated$0.9 million for the 12 months endedDecember 31, 2020 , as in comparison with the 12 months endedDecember 31, 2019 , pushed by an improve in promoting fund expenditures from a bigger franchise base and elevated native advertising and marketing expenditures by the company-owned or managed clinics. Depreciation and Amortization Bills 12 months Ended December 31, Change from P.c Change 2020 2019 Prior 12 months from Prior 12 months Depreciation and Amortization Bills 2,734,462 1,899,257$ 835,205 44.0 % Depreciation and amortization bills elevated for the 12 months endedDecember 31, 2020 , as in comparison with the 12 months endedDecember 31, 2019 , primarily as a result of amortization of intangibles associated to the 2019 acquisitions, coupled with depreciation bills related to the growth of our corporate-owned or managed clinics portfolio in 2019. Normal and Administrative Bills 37
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Desk of Contents 12 months Ended December 31, Change from P.c Change 2020 2019 Prior 12 months from Prior 12 months Normal and Administrative Bills 36,195,817 30,543,030$ 5,652,787 18.5 % Normal and administrative bills elevated through the 12 months endedDecember 31, 2020 , in comparison with the 12 months endedDecember 31, 2019 , primarily as a consequence of a rise in payroll and associated bills, in addition to working bills to assist continued clinic rely and income development in each working segments. As a proportion of income, basic and administrative bills through the 12 months endedDecember 31, 2020 and 2019 had been 62% and 63%, respectively. Normal and administrative bills as a proportion of income had been comparatively flat for the present 12 months interval primarily as a consequence of decrease than anticipated income development due to the pandemic, which was principally offset by the income development through the second half of 2020. Regardless of the unfavorable impression of the pandemic on our pre-COVID-19 income development expectations, we continued to function our company clinics and headquarters with none furloughs or lay-offs whereas working to extend sanitary measures to make sure affected person and worker security. Revenue from Operations 12 months Ended December 31, Change from P.c Change 2020 2019 Prior 12 months from Prior 12 months Revenue from Operations 5,492,130 3,414,635$ 2,077,495 60.8 % Consolidated Outcomes Consolidated revenue from operations elevated by$2.1 million for the 12 months endedDecember 31, 2020 in comparison with the 12 months endedDecember 31, 2019 , primarily as a consequence of the improved working revenue in each the company clinics and the franchise operations segments, partially offset by elevated bills within the unallocated company section mentioned beneath. Company Clinics Our company clinics section had revenue from operations of$4.5 million for the 12 months endedDecember 31, 2020 , a rise of$1.1 million in comparison with revenue from operations of$3.4 million for the 12 months endedDecember 31, 2019 . This improve was primarily as a consequence of: •A rise in revenues of$6.0 million from company-owned or managed clinics primarily as a consequence of improved same-store development, in addition to the growth of our corporate-owned or managed clinics portfolio; partially offset by •A$4.8 million improve in working bills primarily pushed by: (i) an improve in payroll-related bills as a consequence of a better head rely to assist the growth of our company clinic portfolio, (ii) a rise in depreciation and administration expense as a result of amortization of intangibles associated to the 2019 acquisitions, coupled with depreciation bills related to the growth of our corporate-owned or managed clinics portfolio in 2019, and (iii) a rise in promoting and advertising and marketing bills as a consequence of elevated native advertising and marketing expenditures by the company-owned or managed clinics. Franchise Operations Our franchise operations section had revenue from operations of$12.6 million for the 12 months endedDecember 31, 2020 , a rise of$1.6 million , in comparison with revenue from operations of$11.0 million for the 12 months endedDecember 31, 2019 . This improve was primarily as a consequence of: •A rise of$4.3 million in complete revenues as a consequence of a rise within the quantity of franchised clinics in operation together with continued gross sales development in present franchised clinics; partially offset by •A rise of$1.0 million in price of revenues primarily as a consequence of (i) an improve in regional developer royalties and (ii) a rise of$1.7 million in working bills. The rise in working bills displays the 38 -------------------------------------------------------------------------------- Desk of Contents improve in our franchise base, which resulted in (a) a rise in payroll-related bills as a consequence of a better head rely, and (b) a rise in promoting and advertising and marketing bills. Revenue Tax (Profit) Expense 12 months Ended December 31, Change from P.c Change 2020 2019 Prior 12 months from Prior 12 months Revenue tax (profit) expense (7,754,662) 48,706$ (7,803,368) (16,021.4) % For the years endedDecember 31, 2020 and 2019, the efficient tax charges had been (143.3)% and 1.4%, respectively. The fluctuation within the efficient price was primarily attributable to the reversal of the valuation allowance on deferred tax belongings onDecember 31, 2020 . In 2019, a full valuation allowance was established on all deferred tax belongings as a consequence of historic losses in sure prior years and uncertainty about future earnings forecast. The valuation allowance was decreased in 2020 as a result of the load of proof relating to the longer term realizability of the deferred tax belongings had turn out to be predominately optimistic. Please see Be aware 9, "Revenue Taxes" within the Notes to Consolidated Monetary Statements included in Merchandise 8 of this report for additional dialogue. Liquidity and Capital Assets Sources of Liquidity As ofDecember 31, 2020 , we had money and short-term financial institution deposits of$20.6 million . We generated$11.2 million of money circulation from working actions in the 12 months endedDecember 31, 2020 . InFebruary 2020 , we executed a line of credit score settlement, which supplies a credit score facility of as much as$7.5 million , together with a$2.0 million revolver and$5.5 million improvement line of credit score. OnMarch 18, 2020 , we drew down$2.0 million below the credit score settlement as a precautionary measure so as to additional strengthen our money place and supply monetary flexibility in mild of the uncertainty within the world markets ensuing from the COVID-19 pandemic. As well as, onApril 10, 2020 , we obtained a mortgage within the quantity of roughly$2.7 million fromJPMorgan Chase Financial institution, N.A ., pursuant to the Paycheck Safety Program ("PPP"). We'll proceed to protect money, and whereas we deferred nearly all of our deliberate 2020 capital expenditures given the dynamic nature of the COVID-19 pandemic, our long-term aim and development alternatives stay unchanged. We presently plan to renew the acquisition and improvement of company-owned or managed clinics in 2021 and past and to proceed to progress in the direction of our aim, concentrating on geographic clusters the place we are in a position to improve efficiencies via a consolidated actual property penetration technique, leveraged cooperative promoting and advertising and marketing and basic company and administrative working efficiencies. Along with$20.6 million of unrestricted money readily available as ofDecember 31, 2020 , our principal sources of liquidity are anticipated to be money flows from operations and proceeds from the credit score facility, debt financings or fairness issuances, and/or proceeds from the sale of belongings. We count on our obtainable money and money flows from operations and the credit score facility to be adequate to fund our short-term working capital necessities. As well as, we imagine we can be in a position to fund future liquidity and capital necessities via money flows generated from working actions for a interval of at the least twelve months from the date our monetary statements are issued. Our long-term capital necessities, primarily for acquisitions and different company initiatives, may be depending on our skill to entry further funds via the debt and/or fairness markets. Infrequently, we take into account and consider transactions associated to our portfolio and capital construction, together with debt financings, fairness issuances, purchases and gross sales of belongings, and different transactions. As a result of COVID-19 pandemic, the degrees of our money flows from operations for 2021 could also be impacted. There may be no assurance that we can generate adequate money flows or receive the capital mandatory to fulfill our quick and long-term capital necessities. Evaluation of Money Flows Internet money offered by working actions was$11.2 million for the 12 months endedDecember 31, 2020 , in comparison with internet money offered by working actions of$7.5 million for the 12 months endedDecember 31, 2019 . The rise was primarily attributable to: (i) the gathering of tenant leasehold enchancment allowance of$0.7 million , (ii) a rise in income over the prior 12 months interval, (iii), impacts of price containment initiatives, and (iv) the sale of two regional developer agreements for which we obtained roughly$0.5 million , which had been partially offset by a rise on the whole and administrative bills over the prior 12 months interval. Internet money utilized in investing actions was$4.6 million and$7.1 million throughout the years endedDecember 31, 2020 and 2019, respectively. For the 12 months endedDecember 31, 2020 , this included acquisition of a enterprise for$0.5 million , purchases 39 -------------------------------------------------------------------------------- Desk of Contents of property and tools for$3.2 million , and reacquisition and termination of regional developer rights for$1.0 million . For the 12 months endedDecember 31, 2019 , this included acquisitions of companies for$3.1 million , purchases of property and tools for$3.5 million , and reacquisition and termination of regional developer rights for$0.7 million . Internet money offered by (utilized in) financing actions was$5.6 million and$(0.6) million through the years endedDecember 31, 2020 and 2019, respectively. For the 12 months endedDecember 31, 2020 , this included proceeds from: (i) the credit score facility, internet of associated charges of$1.9 million , (ii) the mortgage below the CARES Act Paycheck Safety Program of$2.7 million , and (iii) the train of inventory choices of$1.0 million . For the 12 months endedDecember 31, 2019 , this included proceeds from train of inventory choices of$0.5 million and repayments on notes payable of$1.1 million Latest Accounting Pronouncements Please see Be aware 1, "Nature of Operations and Abstract of Vital Accounting Insurance policies" within the Notes to Consolidated Monetary Statements included in Merchandise 8 of this report for data relating to lately issued accounting pronouncements that will impression our monetary statements. Contractual Obligations and Danger The next desk summarizes our contractual obligations atDecember 31, 2020 and the impact that such obligations are anticipated to have on our liquidity and money flows in future durations: Funds Due by Fiscal 12 months Complete 2021 2022 2023 2024 2025 Thereafter Working leases$ 16,385,465 3,925,287 3,797,361 3,099,227 2,494,385 2,077,593 991,612 Off-Steadiness Sheet Preparations Through the 12 months endedDecember 31, 2020 , we didn't have any relationships with unconsolidated organizations or monetary partnerships, similar to structured finance or particular function entities that had been established for the aim of facilitating off-balance sheet preparations.
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