10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to _________________

Commission file number: 001-36724

The Joint Corp.

(Exact name of registrant as specified in its charter)

Delaware	90-0544160
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

16767 N. Perimeter Drive, Suite 240, Scottsdale Arizona	85260
(Address of principal executive offices)	(Zip Code)

(480) 245-5960

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

As of November 6, 2017, the registrant had 13,518,146 shares of Common Stock ($0.001 par value) outstanding.

THE JOINT CORP.

FORM 10-Q

TABLE OF CONTENTS

			PAGE NO.
PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016	1
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)	2
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)	3
		Notes to Unaudited Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 4.	Controls and Procedures	30
Part I, Item 3 – Not applicable
PART II OTHER INFORMATION
	Item 1.	Legal Proceedings	31
	Item 1A.	Risk Factors	31
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 6.	Exhibits	31
	SIGNATURES		32
	EXHIBIT INDEX		33
Part II, Items 3, 4, and 5 - Not applicable

PART I: FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

THE JOINT CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2017			2016
ASSETS		(unaudited)
Current assets:
Cash and cash equivalents	$	2,628,648		$	3,009,864
Restricted cash		157,470			334,394
Accounts receivable, net		1,277,862			1,021,733
Income taxes receivable		3,054			42,014
Notes receivable - current portion		128,781			40,826
Deferred franchise costs - current portion		617,131			748,300
Prepaid expenses and other current assets		604,777			499,525
Total current assets		5,417,723			5,696,656
Property and equipment, net		3,849,952			4,724,706
Notes receivable, net of current portion and reserve		295,779			-
Deferred franchise costs, net of current portion		811,350			836,350
Intangible assets, net		1,888,607			2,338,922
Goodwill		2,750,338			2,750,338
Deposits and other assets		634,257			707,889
Total assets	$	15,648,006		$	17,054,861
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	718,412		$	1,054,946
Accrued expenses		131,665			299,997
Co-op funds liability		98,188			73,246
Payroll liabilities		533,881			750,421
Notes payable - current portion		100,000			331,500
Deferred rent - current portion		147,496			215,450
Deferred revenue - current portion		2,325,728			3,077,430
Other current liabilities		54,455			60,894
Total current liabilities		4,109,825			5,863,884
Notes payable, net of current portion		1,000,000			-
Deferred rent, net of current portion		840,163			1,400,790
Deferred revenue, net of current portion		4,233,334			2,231,712
Deferred tax liability		187,397			120,700
Other liabilities		583,915			512,362
Total liabilities		10,954,634			10,129,448
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of September 30, 2017, and December 31, 2016		-			-
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,499,684 shares issued and 13,485,600 shares outstanding as of September 30, 2017 and 13,317,393 shares issued and 13,020,889 outstanding as of December 31, 2016		13,499			13,317
Additional paid-in capital		36,811,327			36,398,588
Treasury stock 14,084 shares as of September 30, 2017 and 296,504 shares as of December 31, 2016, at cost		(86,045	)		(503,118	)
Accumulated deficit		(32,045,409	)		(28,983,374	)
Total stockholders' equity		4,693,372			6,925,413
Total liabilities and stockholders' equity	$	15,648,006		$	17,054,861

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

THE JOINT CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues:
Revenues and management fees from company clinics	$	2,929,850		$	2,341,471		$	8,106,121		$	6,137,277
Royalty fees		1,958,249			1,540,264			5,518,409			4,337,643
Franchise fees		229,715			602,400			1,036,815			1,641,409
Advertising fund revenue		775,221			595,955			1,995,235			1,218,256
IT related income and software fees		290,250			235,925			839,788			686,459
Regional developer fees		259,230			123,921			455,859			496,538
Other revenues		103,336			63,654			282,289			225,086
Total revenues		6,545,851			5,503,590			18,234,516			14,742,668
Cost of revenues:
Franchise cost of revenues		715,610			660,126			2,103,619			2,023,712
IT cost of revenues		103,590			58,636			227,903			162,752
Total cost of revenues		819,200			718,762			2,331,522			2,186,464
Selling and marketing expenses		1,172,559			1,272,524			3,189,489			3,184,484
Depreciation and amortization		468,800			695,579			1,550,013			1,908,238
General and administrative expenses		4,462,922			5,435,219			13,694,690			16,749,945
Total selling, general and administrative expenses		6,104,281			7,403,322			18,434,192			21,842,667
Loss on disposition or impairment		-			-			417,971			-
Loss from operations		(377,630	)		(2,618,494	)		(2,949,169	)		(9,286,463	)
Other (expense) income, net		9,907			5,877			(33,589	)		5,200
Loss before income tax expense		(367,723	)		(2,612,617	)		(2,982,758	)		(9,281,263	)
Income tax expense		(36,085	)		(14,277	)		(79,277	)		(132,144	)
Net loss and comprehensive loss	$	(403,808	)	$	(2,626,894	)	$	(3,062,035	)	$	(9,413,407	)
Loss per share:
Basic and diluted loss per share	$	(0.03	)	$	(0.21	)	$	(0.23	)	$	(0.74	)
Basic and diluted weighted average shares		13,262,032			12,730,624			13,144,764			12,657,435

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

THE JOINT CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(3,062,035	)	$	(9,413,407	)
Adjustments to reconcile net loss to net cash used in operating activities:
(Recovery) provision for bad debts		-			(10,830	)
Regional developer fees recognized upon acquisition of development rights		-			(138,500	)
Net franchise fees recognized upon termination of franchise agreements		(46,115	)		(314,859	)
Depreciation and amortization		1,550,013			1,908,238
Gain on sale of fixed assets		(34,355	)		-
Loss on disposition or impairment of assets		417,971			-
Deferred income taxes		66,697			-
Stock based compensation expense		412,512			1,012,700
Changes in operating assets and liabilities:
Restricted cash		176,924			(91,383	)
Accounts receivable		(303,590	)		(1,108,181	)
Income taxes receivable		38,960			32,167
Prepaid expenses and other current assets		(105,252	)		(525,905	)
Deferred franchise costs		139,369			194,300
Deposits and other assets		73,632			49,649
Accounts payable		(336,534	)		(1,183,328	)
Accrued expenses		(168,332	)		(119,990	)
Co-op funds liability		24,942			(95,893	)
Payroll liabilities		(216,540	)		(1,079,085	)
Other liabilities		(555,982	)		33,837
Deferred rent		(377,995	)		912,730
Deferred revenue		889,213			(405,977	)
Net cash used in operating activities		(1,416,497	)		(10,343,717	)
Cash flows from investing activities:
Cash paid for acquisitions		-			(811,450	)
Reacquisition and termination of regional developer rights		-			(325,000	)
Purchase of property and equipment		(190,589	)		(1,497,874	)
Payments received on notes receivable		39,888			25,945
Net cash used in investing activities		(150,701	)		(2,608,379	)
Cash flows from financing activities:
Borrowings on revolving credit note payable		1,000,000			-
Issuance of common stock, offering costs adjustment		-			(1,042	)
Purchases of treasury stock under employee stock plans		(2,655	)		(83,391	)
Proceeds from sale of treasury stock		292,671			-
Proceeds from exercise of stock options		127,466			66,527
Repayments on notes payable		(231,500	)		(436,350	)
Net cash provided by (used in) financing activities		1,185,982			(454,256	)
Net decrease in cash		(381,216	)		(13,406,352	)
Cash at beginning of period		3,009,864			16,792,850
Cash at end of period	$	2,628,648		$	3,386,498

3

During the nine months ended September 30, 2017 and 2016, cash paid for income taxes was $22,838 and $10,466, respectively. During the nine months ended September 30, 2017 and 2016, cash paid for interest was $81,993 and $15,262, respectively.

Supplemental disclosure of non-cash activity:

As of September 30, 2016, we had property and equipment purchases of $7,105 which were included in accounts payable.

In connection with our acquisitions of franchises during the nine months ended September 30, 2016, we acquired $293,014 of property and equipment, intangible assets of $339,000, goodwill of $269,780 and assumed deferred revenue associated with membership packages paid in advance of $45,072 in exchange for $839,000 in cash and notes payable issued to the sellers for an aggregate amount of $186,000. Additionally, at the time of these transactions, we carried deferred revenue of $29,000, representing franchise fees collected upon the execution of franchise agreements, and deferred costs of $1,450, related to our acquisition of undeveloped franchises. We netted these amounts against the aggregate purchase price of the acquisitions (Note 2).

In connection with our reacquisition and termination of regional developer rights during the nine months ended September 30, 2016, we had deferred revenue of $224,750 representing license fees collected upon the execution of the regional developer agreements. In accordance with ASC-952-605, we netted these amounts against the aggregate purchase price of the acquisitions.

In connection with our sale of the regional developer territories in Central Florida, Maryland/Washington DC, and Minnesota we issued notes receivable in the amount of $423,622 with revenue to be recognized over the anticipated number of clinics to be opened in the respective territories. We have recognized $9,412 of revenue related to these notes in the nine months ended September 30, 2017.

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE JOINT CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Basis of Presentation

These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”) and its wholly owned subsidiary The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). These unaudited condensed consolidated financial statements should be read in conjunction with The Joint Corp. and Subsidiary consolidated financial statements and the notes thereto as set forth in The Joint Corp.’s Form 10-K, which included all disclosures required by generally accepted accounting principles. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position on a consolidated basis and the consolidated results of operations and cash flows for the interim periods presented. The results of operations for the periods ended September 30, 2017 and 2016 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended September 30, 2017 and 2016 is unaudited.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of The Joint Corp. and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which was dormant for all periods presented.

All significant intercompany accounts and transactions between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from general and administrative expenses to other (expense) income, net, as well as certain balances from other revenues to revenues and management fees from company clinics for the three and nine months ended September 30, 2016 to conform to the current year presentation and align with the segment footnote presentation.

5

Comprehensive Loss

Net loss and comprehensive loss are the same for the three and nine months ended September 30, 2017 and 2016.

Nature of Operations

The Joint, a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer rights and supporting the operations of franchised chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.  

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Franchised clinics:	2017		2016		2017			2016
Clinics open at beginning of period		336		280		309			265
Opened or Purchased during the period		6		13		35			38
Acquired during the period		-		-		-			(6	)
Closed during the period		-		-		(2	)		(4	)
Clinics in operation at the end of the period		342		293		342			293

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Company-owned or managed clinics:	2017		2016		2017			2016
Clinics open at beginning of period		47		61		61			47
Opened during the period		-		-		-			8
Acquired during the period		-		-		-			6
Closed or Sold during the period		-		-		(14	)		-
Clinics in operation at the end of the period		47		61		47			61
Total clinics in operation at the end of the period		389		354		389			354
Clinics licenses sold but not yet developed		105		134		105			134
Executed letters of intent for future clinic licenses		5		-		5			-

Variable Interest Entities

An entity deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”) is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. Investments where the Company does not hold the controlling interest and is not the primary beneficiary are accounted for under the equity method.

Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized under state laws as professional corporations or PCs. Such PCs are VIEs. In these states, the Company has entered into management services agreements with such PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice.  The Company has analyzed its relationship with the PCs and has determined that the Company does not have the power to direct the activities of the PCs. As such, the activities of the PCs are not included in the Company’s condensed consolidated financial statements.

6

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2017 and December 31, 2016.

Restricted Cash

Restricted cash relates to cash that franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising. 

Concentrations of Credit Risk

From time to time, the Company grants credit in the normal course of business to franchisees and PCs related to the collection of royalties and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of September 30, 2017, one PC entity and four franchisees represented 19% of outstanding accounts receivable, compared to three PC entities and six franchisees representing 24% of outstanding accounts receivable as of December 31, 2016. The Company did not have any customers that represented greater than 10% of its revenues during the three or nine months ended September 30, 2017 and 2016.

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees and royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2017, and December 31, 2016, the Company had an allowance for doubtful accounts of $0 and $131,830, respectively.

The Company writes off accounts receivable when it deems them uncollectible and records recoveries of accounts receivable previously written off when it receives them. In the nine months ended September 30, 2017, the Company determined that certain working capital advances from its PC entities in Illinois and New York were no longer collectible as a result of the sale or closure of the related clinics. Accordingly, the Company wrote-off approximately $47,000 of accounts receivable to loss on disposition or impairment related to these entities during the nine months ended September 30, 2017.

Deferred Franchise Costs

Deferred franchise costs represent commissions that are paid in conjunction with the sale of a franchise and are recognized as an expense when the respective revenue is recognized, which is generally upon the opening of a clinic.

Property and Equipment

Property and equipment are stated at cost or for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the straight-line method over estimated useful lives of three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the assets.

Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

7

Software Developed

The Company capitalizes certain software development costs. These capitalized costs are primarily related to proprietary software used by clinics for operations and by the Company for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally five years. 

Intangible Assets

Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships.  The Company amortizes the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which range from six to eight years. In the case of regional developer rights, the Company amortizes the acquired regional developer rights over seven years. The fair value of customer relationships is amortized over their estimated useful life of two years. 

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions completed in the years ended December 31, 2014 through December 31, 2016.  Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. As required, the Company performs an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. No impairments of goodwill were recorded for the nine months ended September 30, 2017 and 2016.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. No impairments of long-lived assets were recorded for the nine months ended September 30, 2017 and 2016.

Advertising Fund

The Company has established an advertising fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is 2% of clinic sales. The Company segregates the marketing funds collected which are included in restricted cash on its condensed consolidated balance sheets. As amounts are expended from the fund, the Company recognizes advertising fund revenue and a related expense.

Co-Op Marketing Funds

Some franchises have established regional Co-Ops for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included in restricted cash on the Company’s condensed consolidated balance sheets.

Accounting for Costs Associated with Exit or Disposal Activities

The Company recognizes a liability for the cost associated with an exit or disposal activity that is measured initially at its fair value in the period in which the liability is incurred.

8

Costs to terminate an operating lease or other contracts are (a) costs to terminate the contract before the end of its term or (b) costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is recognized at the cease-use date. In periods subsequent to initial measurement, changes to the liability are measured using the credit adjusted risk-free rate that was used to measure the fair value of the liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change.

As of September 30, 2017, the Company maintained a lease exit liability of approximately $0.4 million classified in other liabilities on its condensed consolidated balance sheets related to remaining operating leases that will no longer provide economic benefit to the Company, net of estimated sublease income. 

Lease exit liability at December 31, 2016	$	338,151
Additions		883,146
Settlements		(706,991	)
Net Accretion		(66,030	)
Lease exit liability at September 30, 2017	$	448,276

In the nine months ended September 30, 2017, the Company ceased use of eight clinic locations from its corporate clinics segment and recognized a liability for lease exit costs incurred based on the remaining lease rental due, reduced by estimated sublease rental income that could be reasonably obtained for the properties. The Company recognized the resulting expense of approximately $418,000 in loss on disposition or impairment in the accompanying condensed consolidated statement of operations.

Deferred Rent

The Company leases office space for its corporate offices and company-owned or managed clinics under operating leases, which may include rent holidays and rent escalation clauses.  It recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the term of the lease.  The Company records tenant improvement allowances as deferred rent and amortizes the allowance over the term of the lease, as a reduction to rent expense.

Revenue Recognition

The Company generates revenue through initial franchise fees, regional developer fees, royalties, advertising fund revenue, IT related income, and computer software fees, and from its company-owned and managed clinics.

Franchise Fees. The Company requires the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of ten years. Initial franchise fees are recognized as revenue when the Company has substantially completed its initial services under the franchise agreement, which typically occurs upon opening of the clinic.  The Company’s services under the franchise agreement include: training of franchisees and staff, site selection, construction/vendor management and ongoing operations support. The Company provides no financing to franchisees and offers no guarantees on their behalf. 

Regional Developer Fees. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee ranging from $7,250 to 25% of the then current franchise fee for each franchise they received the right to develop within the region. In 2017, the program was revised to grant exclusive geographical territory and establish a minimum development obligation within that defined territory. Regional developers receive fees ranging from $14,500 to $19,950 which are collected from franchisees upon the sale of franchises within their region and a royalty of 3% of sales generated by franchised clinics in their region. Regional developer fees paid to the Company are nonrefundable and are recognized as revenue when the Company has performed substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening of each franchised clinic. Accordingly, revenue is recognized on a pro-rata basis determined by the number of franchised clinics to be opened in the area covered by the regional developer agreement. Upon the execution of a regional developer agreement, the Company estimates the number of franchised clinics to be opened, which is typically consistent with the contracted minimum. The Company reassesses the number of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change to the original estimate becomes apparent, the amount of revenue to be recognized per clinic is revised on a prospective basis, and the unrecognized fees are allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region. The franchisor’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. Several of the regional developer agreements grant the Company the option to repurchase the regional developer’s license.

For the nine months ended September 30, 2017, the Company entered into eight regional developer agreements for which it received approximately $1.7 million, which was deferred as of the respective transaction dates and will be recognized on a pro-rata basis over the estimated number of franchised clinics to be opened in the respective regions. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.

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Revenues and Management Fees from Company Clinics.  The Company earns revenues from clinics that it owns and operates or manages throughout the United States.  In those states where the Company owns and operates the clinic, revenues are recognized when services are performed. The Company offers a variety of membership and wellness packages which feature discounted pricing as compared with its single-visit pricing.  Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service is performed.  In other states where state law requires the chiropractic practice to be owned by a licensed chiropractor, the Company enters into a management agreement with the doctor’s PC.  Under the management agreement, the Company provides administrative and business management services to the doctor’s PC in return for a monthly management fee.  When the collectability of the full management fee is uncertain, the Company recognizes management fee revenue only to the extent of fees expected to be collected from the PCs. 

Royalties. The Company collects royalties, as stipulated in the franchise agreement, equal to 7% of gross sales, and a marketing and advertising fee currently equal to 2% of gross sales. Certain franchisees with franchise agreements acquired during the formation of the Company pay a monthly flat fee. Royalties are recognized as revenue when earned. Royalties are collected bi-monthly two working days after each sales period has ended.

IT Related Income and Software Fees.  The Company collects a monthly fee for use of its proprietary chiropractic software, computer support, and internet services support. These fees are recognized on a monthly basis as services are provided. IT related revenue represents a flat fee to purchase a clinic’s computer equipment, operating software, preinstalled chiropractic system software, key card scanner (patient identification card), credit card scanner and credit card receipt printer. These fees are recognized as revenue upon receipt of equipment by the franchisee.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were $314,695 and $961,106 for the three and nine months ended September 30, 2017, respectively.  Advertising expenses were $600,804 and $1,770,699 for the three and nine months ended September 30, 2016, respectively.

Income Taxes

The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property and equipment, amortization of goodwill, accounting for leases, and treatment of revenue for franchise fees and regional developer fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 

The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

At September 30, 2017 and December 31, 2016, the Company maintained a liability for income taxes for uncertain tax positions of approximately $27,000 and $40,000, respectively, of which $26,000 and $27,000, respectively, represent penalties and interest and are recorded in the “other liabilities” section of the accompanying condensed consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include 2013 through the current period for state, and 2014 through the current period for federal reporting purposes.

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Loss per Common Share

Basic loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock and stock options.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(403,808	)	$	(2,626,894	)	$	(3,062,035	)	$	(9,413,407	)
Weighted average common shares outstanding - basic		13,262,032			12,730,624			13,144,764			12,657,435
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		13,262,032			12,730,624			13,144,764			12,657,435
Basic and diluted loss per share	$	(0.03	)	$	(0.21	)	$	(0.23	)	$	(0.74	)

The following table summarizes the potential shares of common stock that were excluded from diluted net loss per share, because the effect of including these potential shares was anti-dilutive:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Unvested restricted stock		63,700		92,415		63,700		92,415
Stock options		1,011,686		899,370		1,011,686		899,370
Warrants		90,000		90,000		90,000		90,000

Stock-Based Compensation

The Company accounts for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and deferred franchise costs, uncertain tax positions, realizability of deferred tax assets, impairment of goodwill and intangible assets and purchase price allocations.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard also calls for additional disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard becomes effective for the Company on January 1, 2018. The Company has performed a preliminary review of ASU 2014-09 and does not expect the adoption of ASU 2014-09 to have a material impact on its revenues and management fees from company clinics or franchise royalty revenues, which are based on a percent of sales. The Company expects the adoption of Topic 606 to impact its accounting for initial franchise fees and regional developer fees. Currently, the Company recognizes revenue from initial franchise fees and regional developer fees upon the opening of a franchised clinic when the Company has performed all of its material obligations and initial services under the respective agreements. Upon the adoption of Topic 606, the Company expects to recognize the revenue related to initial franchise fees and regional developer fees over the term of the related franchise agreement or regional developer agreement. The Company is in the process of implementing this standard and has drafted certain accounting policies. The Company will be finalizing accounting policies, selecting its transition method, quantifying the impact of adopting this standard, and designing internal controls during the fourth quarter of the year ending December 31, 2017. The Company is currently unable to estimate the impact on its consolidated financial statements.

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In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The ASU requires that substantially all operating leases be recognized as assets and liabilities on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases as off-balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations. The right to use the leased property is to be capitalized as an asset and the expected lease payments over the life of the lease will be accounted for as a liability. The effective date is for fiscal years beginning after December 31, 2018. While the Company has not yet quantified the impact that this standard will have on its financial statements, it will result in a significant increase in the assets and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially decrease the Company’s reported net income.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (a consensus of the FASB Emerging Issues Task Force), to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendments should be applied using a retrospective transition method, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments should be applied prospectively, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements. 

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In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This update simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. This update is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718.The amendments are effective for fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. Specifically, the guidance creates better alignment of hedge accounting with risk management activities, eliminates the separate measurement and recording of hedge ineffectiveness, simplifies effectiveness assessments, and improves presentation and disclosure. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently evaluating the impact of this amendment on its financial statements.

Note 2: Acquisitions

During the nine months ended September 30, 2016, the Company entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of six developed franchises and one undeveloped franchise throughout California and New Mexico for an aggregate purchase price of $1,025,000, subject to certain adjustments, consisting of cash of $839,000 and notes payable of $186,000. The Company is operating the six developed franchises as company-owned or managed clinics and has terminated the undeveloped clinic license. At the time these transactions were consummated, the Company carried a deferred revenue balance of $29,000, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $1,450, related to an undeveloped franchise.  The Company accounted for the franchise rights associated with the undeveloped franchise as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $997,450 was accounted for as consideration paid for the acquired franchises.

The Company incurred approximately $64,000 of transaction costs related to these acquisitions for the nine months ended September 30, 2016, which are included in general and administrative expenses in the accompanying statements of operations.

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Purchase Price Allocation

The following summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed during 2016 as of the acquisition date:

Property and equipment	$	293,014
Intangible assets		339,000
Favorable leases		140,728
Goodwill		269,780
Total assets acquired		1,042,522
Deferred membership revenue		(45,072	)
Net purchase price	$	997,450

Intangible assets in the table above consist of reacquired franchise rights of $181,000 and customer relationships of $158,000, and will be amortized over their estimated useful lives ranging from six to eight years and two years, respectively.

Goodwill recorded in connection with these acquisitions was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the three and nine months ended September 30, 2017 and 2016 as if the acquisitions in 2016 had been completed on January 1, 2016.

	Pro Forma for the Three Months Ended					Pro Forma for the Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
Revenues, net	$	-	$	5,503,590		$	-	$	14,723,514
Net loss	$	-	$	(2,614,518	)	$	-	$	(9,475,157	)

This selected unaudited pro forma condensed consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisitions had been completed on that date. Moreover, this information is not indicative of what the Company’s future operating results will be. The information for 2016 is included based on prior accounting records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisitions. For 2016, this information includes actual data recorded in the Company’s condensed consolidated financial statements for the period subsequent to the date of the acquisitions. The Company’s condensed consolidated statement of operations for the three months ended September 30, 2016 includes net revenue and net income of approximately $2.1 million and $0.1 million, respectively, attributable to the acquisitions. The Company’s condensed consolidated statement of operations for the nine months ended September 30, 2016 includes net revenue and net income of approximately $5.6 million and $0.5 million, respectively, attributable to the acquisitions.

The pro forma amounts included in the table above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2016, together with the consequential tax impacts.

Note 3: Notes Receivable

Effective July 2012, the Company sold a company-owned clinic, including the license agreement, equipment, and customer base, in exchange for a $90,000 unsecured promissory note. The note bore interest at 6% per annum for fifty-four months and required monthly principal and interest payments over forty-two months, beginning on August 2013. The note matured in January 2017 and was paid in full upon maturity. 

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Effective July 2015, the Company entered into two license transfer agreements, in exchange for $10,000 and $29,925 in separate unsecured promissory notes.  The non-interest-bearing notes require monthly principal payments over 24 months, beginning on September 1, 2015. The note was settled in full in 2017.

Effective May 2016, the Company entered into three license transfer agreements, in exchange for three separate $7,500 unsecured promissory notes.  The non-interest-bearing notes require monthly principal payments over six months, beginning on May 1, 2017. The note matured in October, 2017 and was paid in full upon maturity. 

Effective April 29, 2017, the Company entered into a regional developer agreement for certain territories in the state of Florida in exchange for $320,000, of which $187,000 was funded through a promissory note. The note bears interest at 10% per annum for 42 months and requires monthly principal and interest payments over 36 months, beginning November 1, 2017 and maturing on October 1, 2020. The note is secured by the regional developer rights in the respective territory.

Effective August 31, 2017, the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for $220,000, of which $117,475 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and interest payments over 36 months, beginning September 1, 2017 and maturing on August 1, 2020. The note is secured by the regional developer rights in the respective territory.

Effective September 22, 2017, the Company entered into a regional developer and asset purchase agreement for certain territories in Minnesota in exchange for $228,293, of which $119,147 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and interest payments over 36 months, beginning October 1, 2017 and maturing on September 1, 2020. The note is secured by the regional developer rights in the respective territory.

The net outstanding balances of the notes as of September 30, 2017 and December 31, 2016 were $424,560 and $40,826, respectively.

Note 4: Property and Equipment

Property and equipment consists of the following:

	September 30,			December 31,
	2017			2016
Office and computer equipment	$	1,126,758		$	1,083,039
Leasehold improvements		5,099,374			5,085,366
Software developed		1,048,697			891,192
		7,274,829			7,059,597
Accumulated depreciation		(3,664,357	)		(2,566,172	)
		3,610,472			4,493,425
Construction in progress		239,480			231,281
	$	3,849,952		$	4,724,706

Depreciation expense was $340,238 and $1,099,698 for the three and nine months ended September 30, 2017, respectively. Depreciation expense was $492,076 and $1,356,176 for the three and nine months ended September 30, 2016, respectively. 

In December 2016, the Company determined that 14 clinics from its Corporate Clinics segment met the criteria for classification as held for sale. Accordingly, in December 2016, the Company recognized a $2.4 million impairment charge to lower the carrying costs of the property and equipment to its estimated fair value less cost to sell which was recorded in the loss on disposition or impairment line of the 2016 consolidated statement of operations. The Company completed the sale of the property in the first quarter of 2017 for nominal consideration.

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Note 5: Fair Value Consideration

The Company’s financial instruments include cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of its financial instruments approximate their fair value due to their short maturities. 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of September 30, 2017, and December 31, 2016, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.

Note 6: Intangible Assets

Intangible assets consist of the following:

	As of September 30, 2017
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	596,129	$	1,076,871
Customer relationships		701,000		649,417		51,583
Reacquired development rights		1,162,000		401,847		760,153
	$	3,536,000	$	1,647,393	$	1,888,607

	As of December 31, 2016
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	410,688	$	1,262,312
Customer relationships		701,000		509,042		191,958
Reacquired development rights		1,162,000		277,348		884,652
	$	3,536,000	$	1,197,078	$	2,338,922

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Amortization expense was $128,562 and $450,315 for the three and nine months ended September 30, 2017, respectively. Amortization expense was $203,503 and $552,062 for the three and nine months ended September 30, 2016, respectively.

Estimated amortization expense for 2017 and subsequent years is as follows:

2017 (remaining)	$	128,564
2018		439,589
2019		413,256
2020		413,256
2021		348,034
Thereafter		145,908
Total	$	1,888,607

Note 7: Debt

Notes Payable

During 2015, the Company delivered 12 notes payable totaling $800,350 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates range from 1.5% to 5.25% with maturities through February 2017.

During 2016, the Company delivered two notes payable totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes are 4.25% with maturities through May 2017. The remaining note payable is expected to be settled in the quarter ended December 31, 2017.

Maturities of notes payable are as follows as of September 30, 2017:

2017 (remaining)	$	100,000
Thereafter		-
Total	$	100,000

Credit and Security Agreement

On January 3, 2017, the Company entered into a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender. Under the Credit Agreement, the Company is able to borrow up to an aggregate of $5,000,000 under revolving loans. Interest on the unpaid outstanding principal amount of any revolving loans is at a rate equal to 10% per annum, provided that the minimum amount of interest paid in the aggregate on all revolving loans granted over the term of the Credit Agreement is $200,000. Interest is due and payable on the last day of each fiscal quarter in an amount determined by the Company, but not less than $25,000. The lender’s lending commitments under the Credit Agreement terminate in December 2019, unless sooner terminated in accordance with the provisions of the Credit Agreement. The Credit Agreement is collateralized by the assets in the Company’s company-owned or managed clinics. The Company is using the credit facility for general working capital needs. As of September 30, 2017, the Company had drawn $1,000,000 of the $5,000,000 available under the Credit Agreement.

Note 8: Equity

Stock Options

In the nine months ended September 30, 2017, the Company granted 195,286 stock options to employees with exercise prices ranging from $2.65 - $3.88. 

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Upon the completion of the Company’s IPO in November 2014, its stock trading price became the basis of fair value of its common stock used in determining the value of share-based awards. To the extent the value of the Company’s share-based awards involves a measure of volatility, it will rely upon the volatilities from publicly traded companies with similar business models until its common stock has accumulated enough trading history for it to utilize its own historical volatility. The expected life of the options granted is based on the average of the vesting term and the contractual term of the option. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury 10-year yield curve in effect at the date of the grant. 

The Company has computed the fair value of all options granted during the nine months ended September 30, 2017 and 2016, using the following assumptions:

	Nine Months Ended September 30,
	2017			2016
Expected volatility		42%		43%	-	45%
Expected dividends		None			None
Expected term (years)	5.5	to	7		7
Risk-free rate	1.98%	to	2.14%	1.19%	to	1.68%
Forfeiture rate		20%			20%

The information below summarizes the stock options activity:

				Weighted		Weighted		Weighted
				Average		Average		Average
	Number of			Exercise		Fair		Remaining
	Shares			Price		Value		Contractual Life
Outstanding at December 31, 2016		953,075		$	3.66	$	1.86		6.9
Granted at market price		195,286			3.70
Exercised		(106,221	)		1.20
Cancelled		(30,454	)		5.21
Outstanding at September 30, 2017		1,011,686		$	3.87	$	1.76		7.4
Exercisable at September 30, 2017		370,634		$	4.67	$	2.17		5.6

The intrinsic value of the Company’s stock options outstanding was $1,405,592 at September 30, 2017.

For the three and nine months ended September 30, 2017, stock-based compensation expense for stock options was $125,588 and $261,471, respectively. For the three and nine months ended September 30, 2016, stock based compensation expense for stock options was $183,608, and $522,519, respectively. Unrecognized stock-based compensation expense for stock options as of September 30, 2017 was $716,667, which is expected to be recognized ratably over the next 2.2 years.

Restricted Stock

The information below summaries the restricted stock activity:

Restricted Stock Awards	Shares
Outstanding at December 31, 2016		92,415
Awards granted		59,700
Awards vested		(76,070	)
Awards forfeited		(12,345	)
Outstanding at September 30, 2017		63,700

For the three and nine months ended September 30, 2017, stock-based compensation expense for restricted stock was $59,804 and $151,041, respectively. For the three and nine months ended September 30, 2016, stock based compensation expense for restricted stock was $71,698, and $490,181, respectively. Unrecognized stock based compensation expense for restricted stock awards as of September 30, 2017 was $206,502 to be recognized ratably over the next year. 

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Treasury Stock

In December 2013, the Company exercised its right of first refusal under the terms of a Stockholders Agreement dated March 10, 2010 to repurchase 534,000 shares of the Company’s common stock. The shares were purchased for $0.45 per share or $240,000 in cash along with the issuance of an option to repurchase the 534,000 shares. The repurchased shares were recorded as treasury stock, at cost in the amount of $791,638. The option is classified in equity as it is considered indexed to the Company’s stock and meets the criteria for classification in equity.  The option was granted to the seller for a term of 8 years.  The option contained the following exercise prices:

Year 1	$	0.56
Year 2	$	0.68
Year 3	$	0.84
Year 4	$	1.03
Year 5	$	1.28
Year 6	$	1.59
Year 7	$	1.97
Year 8	$	2.45

Consideration given in the form of the option was valued using a Binomial Lattice-Based model resulting in a fair value of $1.03 per share option for a total fair value of $551,638. The option was valued using the Binomial Lattice-Based valuation methodology because that model embodies all of the relevant assumptions that address the features underlying the instrument.

During December 2016, the option holder partially exercised the call option and purchased 250,872 shares at a total repurchase price of $210,000. The Company reduced the cost of treasury shares by approximately $113,000 related to the transaction, reduced the value of the option by approximately $259,000, and reduced additional paid-in-capital by approximately $162,000.

During September 2017, the option holder exercised the remainder of the call option and purchased 283,128 shares at a total repurchase price of $292,671. The Company reduced the cost of treasury shares by approximately $127,000 related to the transaction, reduced the value of the option by approximately $292,000, and reduced additional paid-in-capital by approximately $127,000.

Note 9: Income Taxes

For the three and nine months ended September 30, 2017, the Company recorded income tax expense of approximately $36,000 and $79,000, respectively, with the difference due to state tax expense, the impact of certain permanent differences, and penalties related to state income tax filings pursuant to a voluntary disclosure agreement which was rejected by the tax authority.

For the three and nine months ended September 30, 2016, the Company recorded income tax expense of approximately $14,000 and $132,000, respectively, due to a revised estimate for the valuation allowance on the company’s deferred tax assets, as well as state tax expense as a result of current year state income taxes and a lower estimate of income tax refunds available through net operating loss (NOL) carrybacks.

Note 10: Related Party Transactions

The Company entered into consulting and legal agreements with certain common stockholders related to services performed for the operations and transaction related activities of the Company. Amounts paid to or for the benefit of these stockholders was approximately $56,000 and $169,000 for the three and nine months ended September 30, 2017, respectively. Amounts paid to or for the benefit of these stockholders was approximately $111,000 and $421,000 for the three and nine months ended September 30, 2016, respectively.

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Note 11: Commitments and Contingencies

Operating Leases

The Company leases its corporate office space and the space for each of the company-owned or managed clinics in the portfolio.

Total rent expense for the three and nine months ended September 30, 2017 was $688,031 and $2,114,118, respectively. Total rent expense for the three and nine months ended September 30, 2016 was $903,771 and $2,510,782, respectively.

Future minimum annual lease payments are as follows:

2017 (remaining)	$	599,401
2018		1,910,339
2019		1,591,678
2020		1,321,133
2021		1,180,012
2022		1,072,743
Thereafter		3,060,963
Total	$	10,736,269

Note 12: Segment Reporting

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”) to evaluate performance and make operating decisions. The Company has identified its CODM as the Chief Executive Officer.

The Company has two operating business segments. The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of September 30, 2017, the Company operated or managed 47 clinics under this segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit. As of September 30, 2017, the franchise system consisted of 342 clinics in operation. Corporate is a non-operating segment that develops and implements strategic initiatives and supports the Company’s two operating business segments by centralizing key administrative functions such as finance and treasury, information technology, insurance and risk management, legal and human resources. Corporate also provides the necessary administrative functions to support the Company as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the operating segments.  

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The tables below present financial information for the Company’s two operating business segments (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues:
Corporate clinics	$	2,930		$	2,341		$	8,106		$	6,137
Franchise operations		3,616			3,163			10,128			8,605
Total revenues	$	6,546		$	5,504		$	18,234		$	14,743
Segment operating (loss) income:
Corporate clinics	$	(196	)	$	(1,527	)	$	(1,233	)	$	(4,863	)
Franchise operations		1,671			1,195			4,479			3,197
Total segment operating (loss) income	$	1,475		$	(332	)	$	3,246		$	(1,666	)
Depreciation and amortization:
Corporate clinics	$	379		$	599		$	1,222		$	1,625
Franchise operations		-			-			-			-
Corporate administration		90			97			328			283
Total depreciation and amortization	$	469		$	696		$	1,550		$	1,908
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	1,475		$	(332	)	$	3,246		$	(1,666	)
Unallocated corporate		(1,853	)		(2,287	)		(6,195	)		(7,620	)
Consolidated loss from operations		(378	)		(2,619	)		(2,949	)		(9,286	)
Other (expense) income, net		10			6			(34	)		5
Loss before income tax expense	$	(368	)	$	(2,613	)	$	(2,983	)	$	(9,281	)

	September 30,		December 31,
	2017		2016
Segment assets:
Corporate clinics	$	9,250	$	10,481
Franchise operations		2,353		2,003
Total segment assets	$	11,603	$	12,484
Unallocated cash and cash equivalents and restricted cash	$	2,786	$	3,344
Unallocated property and equipment		655		781
Other unallocated assets		604		446
Total assets	$	15,648	$	17,055

“Unallocated cash and cash equivalents and restricted cash” relates primarily to corporate cash and cash equivalents and restricted cash (see Note 1), “unallocated property and equipment” relates primarily to corporate fixed assets, and “other unallocated assets” relates primarily to deposits, prepaid and other assets.

The Company reclassified approximately $545,000 of assets from Other unallocated assets to Corporate clinics segment assets for the year ended December 31, 2016 to align with current period presentation of segment assets.

Note 13: Subsequent Events

On October 10, 2017, the Company entered into a regional developer agreement for a number of counties in the state of Texas, one county in the state of Arkansas, and the entire state of Oklahoma. The party paid an initial development fee of $170,000. The development schedule requires the opening and operating of a minimum of 22 clinics over a ten-year period. A portion of the development fee will be funded through a promissory note. The note will bear interest at 10% per annum for 36 months and requires monthly principal and interest payments, beginning November 24, 2017 and maturing on October 24, 2020.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2016 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.

Forward-Looking Statements

The information in this discussion 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 Item 1A of our Form 10-K for the year ended December 31, 2016 and in Part II, Item 1A of this Form 10-Q for the quarter ended September 30, 2017. 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 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:

• 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, and we may not be able to duplicate the success of some of our franchisees, and in the case of certain company-owned or managed clinics that we have closed or may close, we were not able to duplicate the success of our most successful franchisees;

• we may not be able to continue to sell franchises to qualified franchisees;

• we may not be able to identify, recruit and train enough qualified chiropractors to staff our clinics;

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• new clinics may not be profitable, and we may not be able to maintain or improve revenues and franchise fees from existing franchised clinics;

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

• any acquisitions that we make could disrupt our business and harm our financial condition;

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

• recent administrative actions and rulings regarding the corporate practice of medicine and joint employer responsibility may jeopardize our business model;

• we may face 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;

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

• we face increased costs as a result of being a public company.

Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission. Any forward-looking statements in this report should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others.

Overview

Our principal business is to develop, own, operate, support and manage chiropractic clinics through franchising and the sale of regional developer rights, and through direct ownership and management arrangements 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 abroad.

We believe that we have an attractive business concept, benefiting 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 strong preference we have seen among chiropractic doctors to reject the insurance-based model, to produce a dynamic 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.

Key Performance Measures.  We receive both weekly and monthly performance reports from our clinics which include key performance indicators including gross clinic sales, total royalty income, and patient office visits. We believe these indicators provide us with useful data with which to measure our performance and to measure our franchisees’ and clinics’ performance.

Key Clinic Development Trends.   Our current growth strategy is to grow through the sale and development of additional franchises and regional developer territories and to foster the growth of acquired and developed clinics that are owned and managed by us. In the nine months ended September 30, 2017, we added a net of 33 franchised clinics and closed or sold 14 company-owned or managed clinics in the Chicago area and in Upstate New York as part of our plan to improve cash usage and progress toward profitability. This brought the total number of clinics to 389 as of September 30, 2017, up from 370 total clinics at December 31, 2016, and 354 at September 30, 2016. 

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We recognize the critical importance of preserving cash and strengthening clinics we have already developed. Therefore, we will not actively pursue the addition of company-owned or managed clinics during the 2017 fiscal year, but will address strategic opportunities as they present themselves. Scaling back the launch of company-owned or managed clinics will allow us to continue to focus on growing gross sales, streamlining operations across all company-owned or managed clinics and expanding franchise development. During the nine months ended September 30, 2017, our company-owned or managed clinics continued to demonstrate improved performance. As of September 30, 2017, we had 47 company-owned or managed clinics which represented 12% of the clinic portfolio, as compared to 61, or 17% of the clinic portfolio, at the same point of the previous year. 

Recent Developments

In January 2017, we entered into a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender. Under the Credit Agreement, we are able to borrow up to an aggregate of $5,000,000 under revolving loans. Interest on the unpaid outstanding principal amount of any revolving loans is at a rate equal to 10% per annum, provided, however, that the minimum amount of interest paid in the aggregate on all revolving loans granted over the term of the Credit Agreement is $200,000. Interest is due and payable on the last day of each fiscal quarter in an amount determined by us, but not less than $25,000. The lender’s lending commitments under the Credit Agreement terminate in December 2019, unless sooner terminated in accordance with the provisions of the Credit Agreement. We are using the credit facility for general working capital needs. We have drawn $1,000,000 of the $5,000,000 available under the Credit Agreement.

In January 2017, we sold the assets of six of our 11 clinics in the Chicago area for a nominal amount to a limited liability company that includes existing franchisees. The purchaser operates the clinics as franchised locations pursuant to a franchise agreement. Concurrently, we sold regional developer rights to the Chicago area to the purchaser of our six Chicago clinics for $300,000. Pursuant to the regional developer agreement, the developer has agreed to open a minimum of 30 Chicago area clinics over the next 10 years, with plans to open five to 10 clinics over the 18 months following January 2017. We have closed the remaining five Chicago-area clinics, as well as three Company-managed clinics in upstate New York. We recognized an additional lease exit liability in the first quarter of 2017 of $739,000 related to these closures. These assets were designated as held for sale as of December 31, 2016, and we recognized a loss on disposition or impairment of approximately $3.5 million. We made these tactical decisions in the 4^th quarter of 2016 to reduce our current cash usage, allowing us to focus on accelerating the point at which we believe we will achieve cash-flow breakeven.

In addition to the Chicago regional developer rights discussed above, during the first quarter of 2017, we sold regional developer territories for Philadelphia and Washington State for a total, including the Chicago area, of approximately $650,000. Their combined development schedule requires the opening and operating of a minimum of 70 clinics over a ten-year period. The revenues related to these sales will be recognized over the estimated number of franchised clinics to be opened in the respective territories.

During the three months ended June 30, 2017, we sold two regional developer territories for Central Florida and Ohio for a total of $620,000.  Their combined development schedule requires the opening and operating of a minimum of 68 new clinics (34 in each territory) over a ten-year period.

During the three months ended September 30, 2017, we sold three regional developer territories for New Jersey, Maryland/Washington DC and Minnesota for a total of approximately $440,000. Their combined development schedule requires the opening and operating of a minimum of 50 new clinics over a ten-year period, with respect to New Jersey and Maryland/Washington DC and a five-year period for the Minnesota territory.

During the nine months ended September 30, 2017, we terminated two franchise licenses that were in default. In conjunction with these terminations, during the nine months ended September 30, 2017, we recognized $62,915 of revenue and $16,800 of costs, which were previously deferred.

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Factors Affecting Our Performance

Our quarterly operating results may fluctuate significantly as a result of a variety of factors, including the timing of new clinic openings, markets in which we operate and related expenses, general economic conditions, consumer confidence in the economy, consumer preferences, and competitive factors.

Significant Accounting Polices and Estimates

There were no changes in our significant accounting policies and estimates during the nine months ended September 30, 2017 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2016.

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 September 30, 2017

Components of revenues for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, are as follows:

	Three Months Ended
	September 30,
	2017		2016		Change from Prior Year			Percent Change from Prior Year
Revenues:
Revenues and management fees from company clinics	$	2,929,850	$	2,341,471	$	588,379			25.1	%
Royalty fees		1,958,249		1,540,264		417,985			27.1	%
Franchise fees		229,715		602,400		(372,685	)		(61.9	)%
Advertising fund revenue		775,221		595,955		179,266			30.1	%
IT related income and software fees		290,250		235,925		54,325			23.0	%
Regional developer fees		259,230		123,921		135,309			109.2	%
Other revenues		103,336		63,654		39,682			62.3	%
Total revenues	$	6,545,851	$	5,503,590	$	1,042,261			18.9	%

The reasons for the significant changes in our components of total revenues are as follows:

Consolidated Results

• Total revenues increased by $1.0 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.

Corporate Clinics

• Revenues and management fees from company-owned or managed clinics increased due primarily to improved same-store sales growth.

Franchise Operations

• Royalty fees have 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 September 30, 2017, and 2016, there were 342 and 293 franchised clinics in operation, respectively.

• Franchise fees decreased due to the timing of franchise license terminations and fewer clinic openings. In the three months ended September 30, 2017 and 2016, we recognized revenue of $63,000 and $196,000, respectively, from terminated licenses. In the three months ended September 30, 2017 and 2016, 6 and 13 new franchised clinics opened, respectively.

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• Regional developer fees increased due to the timing of revenue recognition on the clinic openings on specific RD territories.

• IT related income and software fees and advertising fund revenue increased due to an increase in our franchise clinic base as described above.

Total Revenues – Nine Months Ended September 30, 2017

Components of revenues for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, are as follows:

	Nine Months Ended
	September 30,
	2017		2016		Change from Prior Year			Percent Change from Prior Year
Revenues:
Revenues and management fees from company clinics	$	8,106,121	$	6,137,277	$	1,968,844			32.1	%
Royalty fees		5,518,409		4,337,643		1,180,766			27.2	%
Franchise fees		1,036,815		1,641,409		(604,594	)		(36.8	)%
Advertising fund revenue		1,995,235		1,218,256		776,979			63.8	%
IT related income and software fees		839,788		686,459		153,329			22.3	%
Regional developer fees		455,859		496,538		(40,679	)		(8.2	)%
Other revenues		282,289		225,086		57,203			25.4	%
Total revenues	$	18,234,516	$	14,742,668	$	3,491,848			23.7	%

The reasons for the significant changes in our components of total revenues are as follows:

Consolidated Results

• Total revenues increased by $3.5 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.

Corporate Clinics

• Revenues and management fees from company-owned or managed clinics increased due primarily to improved same-store sales growth, which includes contributions from clinics acquired in the second quarter of 2016.

Franchise Operations

• Royalty fees have 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 September 30, 2017, and 2016, there were 342 and 293 franchised clinics in operation, respectively.

• Franchise fees decreased due to the timing of franchise license terminations. In the nine months ended September 30, 2017 and 2016, we recognized revenue of $63,000 and $477,000, respectively, from terminated licenses.

• IT related income and software fees and advertising fund revenue increased due to an increase in our franchise clinic base as described above.

Cost of Revenues

Cost of Revenues	2017		2016		Change from Prior Year		Percent Change from Prior Year
Three Months Ended September 30,	$	819,200	$	718,762	$	100,438		14.0	%
Nine Months Ended September 30,		2,331,522		2,186,464		145,058		6.6	%

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For the three months ended September 30, 2017, as compared with the same period last year, the total cost of revenues increased slightly due to an increase in regional developer royalties of $149,000 triggered by an increase of royalty revenues of approximately 27% as compared to the same quarter in the prior year, offset by a reduction of $69,000 in regional developer commissions recognized in conjunction with franchise openings. 

For the nine months ended September 30, 2017, as compared with the same period last year, the total cost of revenues increased slightly due to an increase in regional developer royalties of $330,000 triggered by an increase of royalty revenues of approximately 27% as compared to the same quarter in the prior year, offset by a reduction of $178,000 in regional developer commissions recognized in conjunction with franchise openings. 

Selling and Marketing Expenses

Selling and Marketing Expenses	2017		2016		Change from Prior Year			Percent Change from Prior Year
Three Months Ended September 30,	$	1,172,559	$	1,272,524	$	(99,965	)		(7.9	)%
Nine Months Ended September 30,		3,189,489		3,184,484		5,005			0.2	%

Selling and marketing expenses decreased for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, due to the sale or closure of 14 company-owned or managed clinics, offset by an increase in the overall size of the national marketing fund due to the larger franchise clinic base, and the timing of national marketing fund expenditures.

Selling and marketing expenses increased slightly for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, due to the increase in the overall size of the national marketing fund due to the larger franchise clinic base, offset by lower spending on company-owned or managed clinics advertising and promotion due to the sale or closure of 14 clinics and due to the timing of the national conference occurring in the fourth quarter of 2017 versus the third quarter of 2016.

Depreciation and Amortization Expenses

Depreciation and Amortization Expenses	2017		2016		Change from Prior Year			Percent Change from Prior Year
Three Months Ended September 30,	$	468,800	$	695,579	$	(226,779	)		(32.6	)%
Nine Months Ended September 30,		1,550,013		1,908,238		(358,225	)		(18.8	)%

Depreciation and amortization expenses decreased for the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, primarily due to the sale or closure of 14 company-owned or managed clinics.

General and Administrative Expenses

General and Administrative Expenses	2017		2016		Change from Prior Year			Percent Change from Prior Year
Three Months Ended September 30,	$	4,462,922	$	5,435,219	$	(972,297	)		(17.9	)%
Nine Months Ended September 30,		13,694,690		16,749,945		(3,055,255	)		(18.2	)%

General and administrative expenses decreased during the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to the following:

• A decrease of approximately $0.2 million in payroll related expenses;

• A decrease of approximately $0.3 million in utilities and facilities related expenses due to the closure of 14 company-owned or managed clinics; and  

• A decrease of approximately $0.3 million of other miscellaneous expenses as a result of certain legal settlements and expensing of real estate development expenses recognized in the three months ended September 30, 2016.

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General and administrative expenses decreased during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to the following:

• A decrease of approximately $1.0 million in payroll related expenses;

• A decrease of approximately $0.5 million in legal and accounting related expenses;  

• A decrease of approximately $0.5 million in utilities and facilities related expenses; and  

• A decrease of approximately $0.9 million of other miscellaneous expenses as a result of certain legal settlements and real estate development expenses recognized in the three months ended September 30, 2016.

Loss from Operations - Three Months Ended September 30, 2017

Profit (Loss) from Operations	2017			2016			Change from Prior Year		Percent Change from Prior Year
Three Months Ended September 30,	$	(377,630	)	$	(2,618,494	)	$	2,240,864		(85.6	)%

Consolidated Results

Consolidated loss from operations decreased by $2.2 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily driven by the $1.3 million decrease in operating loss in the corporate clinic segment discussed below, a decrease in corporate general and administrative expenses of $0.4 million, and increased net income from franchised operations of $0.5 million discussed below.

Corporate Clinics

Our corporate clinics segment (i.e., company-owned or managed clinics) had a loss from operations of $0.2 million for the three months ended September 30, 2017, a decrease of $1.3 million compared to a loss from operations of $1.5 million for the same period last year. This decrease was primarily due to:

• An increase in revenues of approximately $0.6 million from company-owned or managed clinics; and

• A decrease of approximately $0.3 million of utilities and facilities related expense, approximately $0.2 million in selling and marketing expenses, and approximately $0.2 million in depreciation and amortization related to the sale or closure of company-owned or managed clinics.

Franchise Operations

Our franchise operations segment had net income from operations of $1.7 million for the three months ended September 30, 2017, an increase of $0.5 million, compared to net income from operations of $1.2 million for the same period ended September 30, 2016. This increase was primarily due to:

• An increase of approximately $0.3 million in total revenues (net of national marketing fund contributions), due primarily to an approximately 27% increase in franchise royalty revenues; and

• A decrease of approximately $0.1 million in general and administrative expenses.

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Loss from Operations - Nine Months Ended September 30, 2017

Profit (Loss) from Operations	2017			2016			Change from Prior Year		Percent Change from Prior Year
Nine Months Ended September 30,		(2,949,169	)		(9,286,463	)		6,337,294		(68.2	)%

Consolidated Results

Consolidated loss from operations decreased by $6.3 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily driven by the $3.6 million decrease in operating loss in the corporate clinic segment, discussed below, a decrease in corporate general and administrative expenses of $1.4 million, and increased net income from franchised operations of $1.3 million discussed below.

Corporate Clinics

Our corporate clinics segment (i.e., company-owned or managed clinics) had a loss from operations of $1.2 million for the nine months ended September 30, 2017, a decrease of $3.6 million compared to a loss from operations of $4.8 million for the same period last year. This decrease was primarily due to:

• An increase in revenues of approximately $2.0 million from company-owned or managed clinics; and

• A decrease of approximately $0.6 million of utilities and facilities expense, approximately $0.5 million in selling and marketing expenses and approximately $0.4 million in depreciation and amortization related to the sale or closure of company-owned or managed clinics.

Franchise Operations

Our franchise operations segment had net income from operations of $4.5 million for the nine months ended September 30, 2017, an increase of $1.3 million, compared to net income from operations of $3.2 million for the same period ended September 30, 2016. This increase was primarily due to:

• An increase of approximately $0.7 million in total revenues (net of national marketing fund contributions), due primarily to an approximately 27% increase in franchise royalty revenues; and

• A decrease of approximately $0.6 million in general and administrative expenses.

Liquidity and Capital Resources

Sources of Liquidity

We used a significant amount of the net proceeds from our public offerings for the development of company-owned or managed clinics.  We accomplished this by developing new clinics and by repurchasing existing franchises. In addition, we have used proceeds from our offerings to repurchase existing regional developer licenses, to continue to expand our franchised clinic business and for general business purposes.  We are holding the remaining net proceeds in cash or short-term bank deposits.

As of September 30, 2017, we had cash and short-term bank deposits of approximately $2.6 million. To preserve cash, we will not proactively pursue the addition of any company-owned or managed clinics during the 2017 fiscal year. In addition, our tactical decisions made with respect to the clinics in Chicago and New York in January 2017, as well as the cash infusion from the sale of regional developer territories, has significantly reduced our estimated net cash usage for 2017 to approximately $2.0 million. Cash used in 2016 included expenditures for the acquisition or development of 14 company-owned or managed clinics and working capital losses in the Chicago and New York markets of approximately $2.8 million. As we have no current plan to acquire or develop company-owned or managed clinics during 2017, and have sold or closed 14 clinics in the Chicago and New York markets, our projected use of cash in 2017 is significantly lower than in 2016.

29

In January 2017, we executed a Credit and Security Agreement which provided a credit facility of up to $5.0 million. We have drawn $1.0 million under the credit facility. See Note 7 to our condensed consolidated financial statements for additional discussion of the credit facility.

Analysis of Cash Flows

Net cash used in operating activities decreased by $8,927,220 to $1,416,497 for the nine months ended September 30, 2017, compared to $10,343,717 for the nine months ended September 30, 2016. The decrease in cash used in operating activities was attributable primarily to decreased expenses caused by decreased operating losses and working capital requirements of our company-owned or managed clinics.

Net cash used in investing activities was $150,701 and $2,608,380 for the nine months ended September 30, 2017, and 2016, respectively.  For the nine months ended September 30, 2017, this included purchases of fixed assets of $0.2 million and payments received on notes receivable of $39,888.   For the nine months ended September 30, 2016, this includes acquisitions of franchises of $0.8 million, the reacquisition and termination of regional developer rights of $0.3 million, purchases of property and equipment of $1.5 million and payments received on notes receivable of $26,000. 

Net cash provided by (used in) financing activities was $1,185,982 and ($454,256) for the nine months ended September 30, 2017, and 2016, respectively. For the nine months ended September 30, 2017, this included borrowings of $1.0 million on our revolving line of credit, proceeds from sale of treasury stock of $0.3 million, proceeds from the exercise of stock options of $0.1 million, partially offset by purchases of treasury stock under employee stock plans of $2,655 and repayments on notes payable of $0.2 million. For the nine months ended September 30, 2016, this includes repayments on notes payable of $0.4 million, purchases of treasury stock under employee stock plans of $83,000 and offering costs adjustment of $1,000, partially offset by proceeds from exercise of stock options of $66,000.

Recent Accounting Pronouncements

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for information regarding recently issued accounting pronouncements that may impact our financial statements.

Off-Balance Sheet Arrangements

During the nine months ended September 30, 2017, 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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

30

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Company is party to litigation from time to time.

ITEM 1A. RISK FACTORS

We documented our risk factors in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2016. Other than the risk factor identified below, there have been no material changes to our risk factors since the filing of that report.

Our business model depends on proprietary and third party management information systems that we use to, among other things, track financial and operating performance of our clinics, and any failure to successfully design and maintain these systems or implement new systems could materially harm our operations.

We depend on integrated management information systems, some of which are provided by third parties, and standardized procedures for operational and financial information, as well as for patient records and our billing operations. We may experience unanticipated delays, complications, data breaches or expenses in implementing, integrating, and operating our systems. Our management information systems regularly require modifications, improvements or replacements that may require both substantial expenditures as well as interruptions in operations. Our ability to implement these systems is subject to the availability of skilled information technology specialists to assist us in creating, implementing and supporting these systems. Our failure to successfully design, implement and maintain all of our systems could have a material adverse effect on our business, financial condition and results of operations.

In the nine months ended September 30, 2017, we have experienced unanticipated delays in the performance of our proprietary management information system when migrating the platform to a fully redundant cloud environment. We have incurred additional costs to improve system performance and have allocated additional resources to stabilize and monitor the system on an ongoing basis. Our failure to stabilize the system could result in us incurring additional expenses and in interruptions to our and our franchisees’ business operations, and our initiatives to upgrade our proprietary management information system may not succeed or may result in greater than anticipated delays and expenditures, either of which could have a material adverse effect on our and our franchisees’ business operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Use of Proceeds from Registered Securities

None.

ITEM 6. EXHIBITS

The Exhibit Index immediately following the Signatures to this Form 10-Q is hereby incorporated by reference into this Form 10-Q.

31

THE JOINT CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE JOINT CORP.
Dated: November 13, 2017	By:	/s/ Peter D. Holt
		Peter D. Holt
		President and Chief Executive Officer
		(Principal Executive Officer )

Dated: November 13, 2017	By:	/s/ John P. Meloun
		John P. Meloun
		Chief Financial Officer
		(Principal Financial Officer)

32

EXHIBIT INDEX

Exhibit Number	Description of Document
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, (filed herewith).
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, (filed herewith).
32	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

33

EX-31.1

 Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14(a) AND 15a-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, Peter D. Holt, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 of The Joint Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2017

/s/ Peter D. Holt

Peter D. Holt

President and Chief Executive Officer

(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULES 13a-14(a) AND 15a-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, John P. Meloun, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 of The Joint Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2017

/s/ John P. Meloun

John P. Meloun

Chief Finanicial Officer

(Principal Financial Officer) 

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of The Joint Corp. (the “Company”), for the quarter ended September 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, in his or her capacity as an officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By:	/s/ Peter D. Holt
	Peter D. Holt
	President and Chief Executive Officer
	(Principal Executive Officer )
Dated November 13, 2017

By:	/s/ John P. Meloun
	John P. Meloun
	Chief Financial Officer
	(Principal Financial Officer)
Dated November 13, 2017

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 06, 2017
Document Information [Line Items]
Entity Registrant Name	JOINT Corp
Entity Central Index Key	0001612630
Trading Symbol	jynt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		13,518,146
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 2,628,648	$ 3,009,864
Restricted cash	157,470	334,394
Accounts receivable, net	1,277,862	1,021,733
Income taxes receivable	3,054	42,014
Notes receivable - current portion	128,781	40,826
Deferred franchise costs - current portion	617,131	748,300
Prepaid expenses and other current assets	604,777	499,525
Total current assets	5,417,723	5,696,656
Property and equipment, net	3,849,952	4,724,706
Notes receivable, net of current portion and reserve	295,779
Deferred franchise costs, net of current portion	811,350	836,350
Intangible assets, net	1,888,607	2,338,922
Goodwill	2,750,338	2,750,338
Deposits and other assets	634,257	707,889
Total assets	15,648,006	17,054,861
Current liabilities:
Accounts payable	718,412	1,054,946
Accrued expenses	131,665	299,997
Co-op funds liability	98,188	73,246
Payroll liabilities	533,881	750,421
Notes payable - current portion	100,000	331,500
Deferred rent - current portion	147,496	215,450
Deferred revenue - current portion	2,325,728	3,077,430
Other current liabilities	54,455	60,894
Total current liabilities	4,109,825	5,863,884
Notes payable, net of current portion	1,000,000
Deferred rent, net of current portion	840,163	1,400,790
Deferred revenue, net of current portion	4,233,334	2,231,712
Deferred tax liability	187,397	120,700
Other liabilities	583,915	512,362
Total liabilities	10,954,634	10,129,448
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of September 30, 2017, and December 31, 2016
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,499,684 shares issued and 13,485,600 shares outstanding as of September 30, 2017 and 13,317,393 shares issued and 13,020,889 outstanding as of December 31, 2016	13,499	13,317
Additional paid-in capital	36,811,327	36,398,588
Treasury stock 14,084 shares as of September 30, 2017 and 296,504 shares as of December 31, 2016, at cost	(86,045)	(503,118)
Accumulated deficit	(32,045,409)	(28,983,374)
Total stockholders' equity	4,693,372	6,925,413
Total liabilities and stockholders' equity	$ 15,648,006	$ 17,054,861

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
Series A preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Series A preferred stock, shares authorized (in shares)	50,000	50,000
Series A preferred stock, shares issued (in shares)	0	0
Series A preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	13,499,684	13,317,393
Common stock, shares outstanding (in shares)	13,485,600	13,020,889
Treasury stock, shares (in shares)	14,084	296,504

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues:
Revenues and management fees from company clinics	$ 2,929,850	$ 2,341,471	$ 8,106,121	$ 6,137,277
Royalty fees	1,958,249	1,540,264	5,518,409	4,337,643
Franchise fees	229,715	602,400	1,036,815	1,641,409
Advertising fund revenue	775,221	595,955	1,995,235	1,218,256
IT related income and software fees	290,250	235,925	839,788	686,459
Regional developer fees	259,230	123,921	455,859	496,538
Other revenues	103,336	63,654	282,289	225,086
Total revenues	6,545,851	5,503,590	18,234,516	14,742,668
Cost of revenues:
Franchise cost of revenues	715,610	660,126	2,103,619	2,023,712
IT cost of revenues	103,590	58,636	227,903	162,752
Total cost of revenues	819,200	718,762	2,331,522	2,186,464
Selling and marketing expenses	1,172,559	1,272,524	3,189,489	3,184,484
Depreciation and amortization	468,800	695,579	1,550,013	1,908,238
General and administrative expenses	4,462,922	5,435,219	13,694,690	16,749,945
Total selling, general and administrative expenses	6,104,281	7,403,322	18,434,192	21,842,667
Loss on disposition or impairment			417,971
Loss from operations	(377,630)	(2,618,494)	(2,949,169)	(9,286,463)
Other (expense) income, net	9,907	5,877	(33,589)	5,200
Loss before income tax expense	(367,723)	(2,612,617)	(2,982,758)	(9,281,263)
Income tax expense	(36,085)	(14,277)	(79,277)	(132,144)
Net loss and comprehensive loss	$ (403,808)	$ (2,626,894)	$ (3,062,035)	$ (9,413,407)
Loss per share:
Basic and diluted loss per share (in dollars per share)	$ (0.03)	$ (0.21)	$ (0.23)	$ (0.74)
Basic and diluted weighted average shares (in shares)	13,262,032	12,730,624	13,144,764	12,657,435

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net loss	$ (3,062,035)	$ (9,413,407)
Adjustments to reconcile net loss to net cash used in operating activities:
(Recovery) provision for bad debts		(10,830)
Regional developer fees recognized upon acquisition of development rights		(138,500)
Net franchise fees recognized upon termination of franchise agreements	(46,115)	(314,859)
Depreciation and amortization	1,550,013	1,908,238
Gain on sale of fixed assets	(34,355)
Loss on disposition or impairment	417,971
Deferred income taxes	66,697
Stock based compensation expense	412,512	1,012,700
Changes in operating assets and liabilities:
Restricted cash	176,924	(91,383)
Accounts receivable	(303,590)	(1,108,181)
Income taxes receivable	38,960	32,167
Prepaid expenses and other current assets	(105,252)	(525,905)
Deferred franchise costs	139,369	194,300
Deposits and other assets	73,632	49,649
Accounts payable	(336,534)	(1,183,328)
Accrued expenses	(168,332)	(119,990)
Co-op funds liability	24,942	(95,893)
Payroll liabilities	(216,540)	(1,079,085)
Other liabilities	(555,982)	33,837
Deferred rent	(377,995)	912,730
Deferred revenue	889,213	(405,977)
Net cash used in operating activities	(1,416,497)	(10,343,717)
Cash flows from investing activities:
Cash paid for acquisitions		(811,450)
Reacquisition and termination of regional developer rights		(325,000)
Purchase of property and equipment	(190,589)	(1,497,874)
Payments received on notes receivable	39,888	25,945
Net cash used in investing activities	(150,701)	(2,608,379)
Cash flows from financing activities:
Borrowings on revolving credit note payable	1,000,000
Issuance of common stock, offering costs adjustment		(1,042)
Purchases of treasury stock under employee stock plans	(2,655)	(83,391)
Proceeds from sale of treasury stock	292,671
Proceeds from exercise of stock options	127,466	66,527
Repayments on notes payable	(231,500)	(436,350)
Net cash provided by (used in) financing activities	1,185,982	(454,256)
Net decrease in cash	(381,216)	(13,406,352)
Cash at beginning of period	3,009,864	16,792,850
Cash at end of period	$ 2,628,648	$ 3,386,498

XML

Supplemental Disclosure of Non-cash Activity

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

During the

nine

months ended

September 30, 2017

and

2016,

cash paid for income taxes was

$22,838

and

$10,466,

respectively. During the

nine

months ended

September 30, 2017

and

2016,

cash paid for interest was

$81,993

and

$15,262,

respectively.

Supplemental disclosure of non-cash activity:

As of

September 30, 2016,

we had property and equipment purchases of

$7,105

which were included in accounts payable.

In connection with our acquisitions of franchises during the

nine

months ended

September 30, 2016,

we acquired

$293,014

of property and equipment, intangible assets of

$339,000,

goodwill of

$269,780

and assumed deferred revenue associated with membership packages paid in advance of

$45,072

in exchange for

$839,000

in cash and notes payable issued to the sellers for an aggregate amount of

$186,000.

Additionally, at the time of these transactions, we carried deferred revenue of

$29,000,

representing franchise fees collected upon the execution of franchise agreements, and deferred costs of

$1,450,

related to our acquisition of undeveloped franchises. We netted these amounts against the aggregate purchase price of the acquisitions (Note

2

).

In connection with our reacquisition and termination of regional developer rights during the

nine

months ended

September 30, 2016,

we had deferred revenue of

$224,750

representing license fees collected upon the execution of the regional developer agreements. In accordance with ASC-

952

-

605,

we netted these amounts against the aggregate purchase price of the acquisitions.

In connection with our sale of the regional developer territories in Central Florida, Maryland/Washington DC, and Minnesota we issued notes receivable in the amount of

$423,622

with revenue to be recognized over the anticipated number of clinics to be opened in the respective territories. We have recognized

$9,412

of revenue related to these notes in the

nine

months ended

September 30, 2017.

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

Note

1:

Nature of Operations and Summary of Significant Accounting Policies

Basis of Presentation

These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”) and its wholly owned subsidiary The Joint Corporate Unit

No.

1,

LLC (collectively, the “Company”). These unaudited condensed consolidated financial statements should be read in conjunction with The Joint Corp. and Subsidiary consolidated financial statements and the notes thereto as set forth in The Joint Corp.’s Form

10

-K, which included all disclosures required by generally accepted accounting principles. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position on a consolidated basis and the consolidated results of operations and cash flows for the interim periods presented. The results of operations for the periods ended

September 30, 2017

and

2016

are

not

necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended

September 30, 2017

and

2016

is unaudited.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of The Joint Corp. and its wholly owned subsidiary, The Joint Corporate Unit

No.

1,

LLC, which was dormant for all periods presented.

All significant intercompany accounts and transactions between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from general and administrative expenses to other (expense) income, net, as well as certain balances from other revenues to revenues and management fees from company clinics for the

three

and

nine

months ended

September 30, 2016

to conform to the current year presentation and align with the segment footnote presentation.

Comprehensive Loss

Net loss and comprehensive loss are the same for the

three

and

nine

months ended

September 30, 2017

and

2016.

Nature of Operations

The Joint, a Delaware corporation, was formed on

March 10, 2010

for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer rights and supporting the operations of franchised chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.  

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the

three

and

nine

months ended

September 30, 2017

and

2016:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Franchised clinics:	2017		2016		2017			2016
Clinics open at beginning of period		336		280		309			265
Opened or Purchased during the period		6		13		35			38
Acquired during the period		-		-		-			(6	)
Closed during the period		-		-		(2	)		(4	)
Clinics in operation at the end of the period		342		293		342			293

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Company-owned or managed clinics:	2017		2016		2017			2016
Clinics open at beginning of period		47		61		61			47
Opened during the period		-		-		-			8
Acquired during the period		-		-		-			6
Closed or Sold during the period		-		-		(14	)		-
Clinics in operation at the end of the period		47		61		47			61
Total clinics in operation at the end of the period		389		354		389			354
Clinics licenses sold but not yet developed		105		134		105			134
Executed letters of intent for future clinic licenses		5		-		5			-

Variable Interest Entities

An entity deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”) is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. Investments where the Company does

not

hold the controlling interest and is

not

the primary beneficiary are accounted for under the equity method.

Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized under state laws as professional corporations or PCs. Such PCs are VIEs. In these states, the Company has entered into management services agreements with such PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice.  The Company has analyzed its relationship with the PCs and has determined that the Company does

not

have the power to direct the activities of the PCs. As such, the activities of the PCs are

not

included in the Company’s condensed consolidated financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. The Company continually monitors its positions with, and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all its cash in short-term bank deposits. The Company had

no

cash equivalents as of

September 30, 2017

and

December 31, 2016.

Restricted Cash

Restricted cash relates to cash that franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising. 

Concentrations of Credit Risk

From time to time, the Company grants credit in the normal course of business to franchisees and PCs related to the collection of royalties and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of

September 30, 2017,

one

PC entity and

four

franchisees represented

19%

of outstanding accounts receivable, compared to

three

PC entities and

six

franchisees representing

24%

of outstanding accounts receivable as of

December 31, 2016.

The Company did

not

have any customers that represented greater than

10%

of its revenues during the

three

or

nine

months ended

September 30, 2017

and

2016.

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees and royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of

September 30, 2017,

and

December 31, 2016,

the Company had an allowance for doubtful accounts of

$0

and

$131,830,

respectively.

The Company writes off accounts receivable when it deems them uncollectible and records recoveries of accounts receivable previously written off when it receives them. In the

nine

months ended

September 30, 2017,

the Company determined that certain working capital advances from its PC entities in Illinois and New York were

no

longer collectible as a result of the sale or closure of the related clinics. Accordingly, the Company wrote-off approximately

$47,000

of accounts receivable to loss on disposition or impairment related to these entities during the

nine

months ended

September 30, 2017.

Deferred Franchise Costs

Deferred franchise costs represent commissions that are paid in conjunction with the sale of a franchise and are recognized as an expense when the respective revenue is recognized, which is generally upon the opening of a clinic.

Property and Equipment

Property and equipment are stated at cost or for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the straight-line method over estimated useful lives of

three

to

seven

years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the assets.

Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

Software Developed

The Company capitalizes certain software development costs. These capitalized costs are primarily related to proprietary software used by clinics for operations and by the Company for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally

five

years. 

Intangible Assets

Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships.  The Company amortizes the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which range from

six

to

eight

years. In the case of regional developer rights, the Company amortizes the acquired regional developer rights over

seven

years. The fair value of customer relationships is amortized over their estimated useful life of 

two

 years. 

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions completed in the years ended

December 31, 2014

through

December 31, 2016.  

Goodwill and intangible assets deemed to have indefinite lives are

not

amortized but are subject to annual impairment tests. As required, the Company performs an annual impairment test of goodwill as of the

first

day of the

fourth

quarter or more frequently if events or circumstances change that would more likely than

not

reduce the fair value of a reporting unit below its carrying value.

No

impairments of goodwill were recorded for the

nine

months ended

September 30, 2017

and

2016.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recovered. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or

not

long-lived assets have been impaired.

No

impairments of long-lived assets were recorded for the

nine

months ended

September 30, 2017

and

2016.

Advertising Fund

The Company has established an advertising fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is

2%

of clinic sales. The Company segregates the marketing funds collected which are included in restricted cash on its condensed consolidated balance sheets. As amounts are expended from the fund, the Company recognizes advertising fund revenue and a related expense.

Co-Op Marketing Funds

Some franchises have established regional Co-Ops for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included in restricted cash on the Company’s condensed consolidated balance sheets.

Accounting for Costs Associated with Exit or Disposal Activities

The Company recognizes a liability for the cost associated with an exit or disposal activity that is measured initially at its fair value in the period in which the liability is incurred.

Costs to terminate an operating lease or other contracts are (a) costs to terminate the contract before the end of its term or (b) costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is recognized at the cease-use date. In periods subsequent to initial measurement, changes to the liability are measured using the credit adjusted risk-free rate that was used to measure the fair value of the liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change.

As of

September 30, 2017,

the Company maintained a lease exit liability of approximately

$0.4

million classified in other liabilities on its condensed consolidated balance sheets related to remaining operating leases that will

no

longer provide economic benefit to the Company, net of estimated sublease income. 

Lease exit liability at December 31, 2016	$	338,151
Additions		883,146
Settlements		(706,991	)
Net Accretion		(66,030	)
Lease exit liability at September 30, 2017	$	448,276

In the

nine

months ended

September 30, 2017,

the Company ceased use of

eight

clinic locations from its corporate clinics segment and recognized a liability for lease exit costs incurred based on the remaining lease rental due, reduced by estimated sublease rental income that could be reasonably obtained for the properties. The Company recognized the resulting expense of approximately

$418,000

in loss on disposition or impairment in the accompanying condensed consolidated statement of operations.

Deferred Rent

The Company leases office space for its corporate offices and company-owned or managed clinics under operating leases, which

may

include rent holidays and rent escalation clauses.  It recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the term of the lease.  The Company records tenant improvement allowances as deferred rent and amortizes the allowance over the term of the lease, as a reduction to rent expense.

Revenue Recognition

The Company generates revenue through initial franchise fees, regional developer fees, royalties, advertising fund revenue, IT related income, and computer software fees, and from its company-owned and managed clinics.

Franchise Fees.

The Company requires the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of

ten

years. Initial franchise fees are recognized as revenue when the Company has substantially completed its initial services under the franchise agreement, which typically occurs upon opening of the clinic.  The Company’s services under the franchise agreement include: training of franchisees and staff, site selection, construction/vendor management and ongoing operations support. The Company provides

no

financing to franchisees and offers

no

guarantees on their behalf. 

Regional Developer Fees

. During

2011,

the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee ranging from

$7,250

to

25%

of the then current franchise fee for each franchise they received the right to develop within the region. In

2017,

the program was revised to grant exclusive geographical territory and establish a minimum development obligation within that defined territory. Regional developers receive fees ranging from

$14,500

to

$19,950

which are collected from franchisees upon the sale of franchises within their region and a royalty of

3%

of sales generated by franchised clinics in their region. Regional developer fees paid to the Company are nonrefundable and are recognized as revenue when the Company has performed substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening of each franchised clinic. Accordingly, revenue is recognized on a pro-rata basis determined by the number of franchised clinics to be opened in the area covered by the regional developer agreement. Upon the execution of a regional developer agreement, the Company estimates the number of franchised clinics to be opened, which is typically consistent with the contracted minimum. The Company reassesses the number of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change to the original estimate becomes apparent, the amount of revenue to be recognized per clinic is revised on a prospective basis, and the unrecognized fees are allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region. The franchisor’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. Several of the regional developer agreements grant the Company the option to repurchase the regional developer’s license.

For the

nine

months ended

September 30, 2017,

the Company entered into

eight

regional developer agreements for which it received approximately

$1.7

million, which was deferred as of the respective transaction dates and will be recognized on a pro-rata basis over the estimated number of franchised clinics to be opened in the respective regions. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.

Revenues and Management Fees from Company Clinics.  

The Company earns revenues from clinics that it owns and operates or manages throughout the United States.  In those states where the Company owns and operates the clinic, revenues are recognized when services are performed. The Company offers a variety of membership and wellness packages which feature discounted pricing as compared with its single-visit pricing.  Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service is performed.  In other states where state law requires the chiropractic practice to be owned by a licensed chiropractor, the Company enters into a management agreement with the doctor’s PC.  Under the management agreement, the Company provides administrative and business management services to the doctor’s PC in return for a monthly management fee.  When the collectability of the full management fee is uncertain, the Company recognizes management fee revenue only to the extent of fees expected to be collected from the PCs. 

Royalties.

The Company collects royalties, as stipulated in the franchise agreement, equal to

7%

of gross sales, and a marketing and advertising fee currently equal to

2%

of gross sales. Certain franchisees with franchise agreements acquired during the formation of the Company pay a monthly flat fee. Royalties are recognized as revenue when earned. Royalties are collected bi-monthly

two

working days after each sales period has ended.

IT Related Income and Software Fees.

  The Company collects a monthly fee for use of its proprietary chiropractic software, computer support, and internet services support. These fees are recognized on a monthly basis as services are provided. IT related revenue represents a flat fee to purchase a clinic’s computer equipment, operating software, preinstalled chiropractic system software, key card scanner (patient identification card), credit card scanner and credit card receipt printer. These fees are recognized as revenue upon receipt of equipment by the franchisee.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were

$314,695

and

$961,106

for the

three

and

nine

months ended

September 30, 2017,

respectively.  Advertising expenses were

$600,804

and

$1,770,699

for the

three

and

nine

months ended

September 30, 2016,

respectively.

Income Taxes

The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property and equipment, amortization of goodwill, accounting for leases, and treatment of revenue for franchise fees and regional developer fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 

The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than

not

that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate resolution.

At

September 30, 2017

and

December 31, 2016,

the Company maintained a liability for income taxes for uncertain tax positions of approximately

$27,000

and

$40,000,

respectively, of which

$26,000

and

$27,000,

respectively, represent penalties and interest and are recorded in the “other liabilities” section of the accompanying condensed consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include

2013

through the current period for state, and

2014

through the current period for federal reporting purposes.

Loss per Common Share

Basic loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock and stock options.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(403,808	)	$	(2,626,894	)	$	(3,062,035	)	$	(9,413,407	)
Weighted average common shares outstanding - basic		13,262,032			12,730,624			13,144,764			12,657,435
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		13,262,032			12,730,624			13,144,764			12,657,435
Basic and diluted loss per share	$	(0.03	)	$	(0.21	)	$	(0.23	)	$	(0.74	)

The following table summarizes the potential shares of common stock that were excluded from diluted net loss per share, because the effect of including these potential shares was anti-dilutive:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Unvested restricted stock		63,700		92,415		63,700		92,415
Stock options		1,011,686		899,370		1,011,686		899,370
Warrants		90,000		90,000		90,000		90,000

Stock-Based Compensation

The Company accounts for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and deferred franchise costs, uncertain tax positions, realizability of deferred tax assets, impairment of goodwill and intangible assets and purchase price allocations.

Recent Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

No.

2014

-

09,

“

Revenue from Contracts with Customers,

” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard also calls for additional disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard becomes effective for the Company on

January 1, 2018.

The Company has performed a preliminary review of ASU

2014

-

09

and does

not

expect the adoption of ASU

2014

-

09

to have a material impact on its revenues and management fees from company clinics or franchise royalty revenues, which are based on a percent of sales. The Company expects the adoption of Topic

606

to impact its accounting for initial franchise fees and regional developer fees. Currently, the Company recognizes revenue from initial franchise fees and regional developer fees upon the opening of a franchised clinic when the Company has performed all of its material obligations and initial services under the respective agreements. Upon the adoption of Topic

606,

the Company expects to recognize the revenue related to initial franchise fees and regional developer fees over the term of the related franchise agreement or regional developer agreement. The Company is in the process of implementing this standard and has drafted certain accounting policies. The Company will be finalizing accounting policies, selecting its transition method, quantifying the impact of adopting this standard, and designing internal controls during the

fourth

quarter of the year ending

December 31, 2017.

The Company is currently unable to estimate the impact on its consolidated financial statements.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“

Leases (Topic

842

).

” The ASU requires that substantially all operating leases be recognized as assets and liabilities on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases as off-balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations. The right to use the leased property is to be capitalized as an asset and the expected lease payments over the life of the lease will be accounted for as a liability. The effective date is for fiscal years beginning after

December 31, 2018.

While the Company has

not

yet quantified the impact that this standard will have on its financial statements, it will result in a significant increase in the assets and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially decrease the Company’s reported net income.

In

April 2016,

the FASB issued ASU

No.

2016

-

10,

“

Revenue from Contracts with Customers (Topic

606

): Identifying Performance Obligations and Licensing,

” to clarify the following

two

aspects of Topic

606:

1

) identifying performance obligations, and

2

) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU

2014

-

09.

The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In

May 2016,

the FASB issued ASU

No.

2016

-

12,

“

Revenue from Contracts with Customers (Topic

606

): Narrow-Scope Improvements and Practical Expedients,

” to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures

no

longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU

2014

-

09.

The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments.”

This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is effective for annual and interim reporting periods beginning after

December 15, 2017.

Early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In

November 2016,

the FASB issued ASU

No.

2016

-

18,

“

Statement of Cash Flows (Topic

230

): Restricted Cash”

 (a consensus of the FASB Emerging Issues Task Force), to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendments should be applied using a retrospective transition method, and are effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

“

Business Combinations (Topic

805

): Clarifying the Definition of a Business,”

to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments should be applied prospectively, and are effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements. 

In

January 2017,

the FASB issued ASU 

2017

-

04,

 “

Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment

.” This update simplifies the subsequent measurement of goodwill by eliminating “Step

2”

from the goodwill impairment test. This update is effective for annual and interim reporting periods beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.

In

May 2017,

the FASB issued ASU

No.

2017

-

09,

“Compensation—Stock Compensation (Topic

718

): Scope of Modification Accounting,”

to provide clarity and reduce both (

1

) diversity in practice and (

2

) cost and complexity when applying the guidance in Topic

718,

Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC

718.The

amendments are effective for fiscal years beginning after

December 15, 2017,

and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.

In

August 2017,

the FASB issued ASU

No.

2017

-

12,

“Derivatives and Hedging (Topic

815

): Targeted Improvements to Accounting for Hedging Activities,”

to (

1

) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (

2

) reduce the complexity of and simplify the application of hedge accounting by preparers. Specifically, the guidance creates better alignment of hedge accounting with risk management activities, eliminates the separate measurement and recording of hedge ineffectiveness, simplifies effectiveness assessments, and improves presentation and disclosure. The amendments are effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently evaluating the impact of this amendment on its financial statements.

XML

Note 2 - Acquisitions

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

2:

Acquisitions

During the

nine

months ended

September 30, 2016,

the Company entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of

six

developed franchises and

one

undeveloped franchise throughout California and New Mexico for an aggregate purchase price of

$1,025,000,

subject to certain adjustments, consisting of cash of

$839,000

and notes payable of

$186,000.

The Company is operating the

six

developed franchises as company-owned or managed clinics and has terminated the undeveloped clinic license. At the time these transactions were consummated, the Company carried 

a deferred revenue balance of

$29,000,

representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of

$1,450,

related to an undeveloped franchise.  The Company accounted for the franchise rights associated with the undeveloped franchise as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining

$997,450

was accounted for as consideration paid for the acquired franchises.

The Company incurred approximately

$64,000

of transaction costs related to these acquisitions for the

nine

months ended

September 30, 2016,

which are included in general and administrative expenses in the accompanying statements of operations.

Purchase Price Allocation

The following summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed during

2016

as of the acquisition date:

Property and equipment	$	293,014
Intangible assets		339,000
Favorable leases		140,728
Goodwill		269,780
Total assets acquired		1,042,522
Deferred membership revenue		(45,072	)
Net purchase price	$	997,450

Intangible assets in the table above consist of reacquired franchise rights of

$181,000

and customer relationships of

$158,000,

and will be amortized over their estimated useful lives ranging from

six

to

eight

years and

two

years, respectively.

Goodwill recorded in connection with these acquisitions was attributable to the workforce of the clinics and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is tax-deductible. 

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the

three

and

nine

months ended

September 30, 2017

and

2016

as if the acquisitions in

2016

had been completed on

January 1, 2016.

	Pro Forma for the Three Months Ended					Pro Forma for the Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
Revenues, net	$	-	$	5,503,590		$	-	$	14,723,514
Net loss	$	-	$	(2,614,518	)	$	-	$	(9,475,157	)

This selected unaudited pro forma condensed consolidated financial data is included only for the purpose of illustration and does

not

necessarily indicate what the operating results would have been if the acquisitions had been completed on that date. Moreover, this information is

not

indicative of what the Company’s future operating results will be. The information for

2016

is included based on prior accounting records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisitions. For

2016,

this information includes actual data recorded in the Company’s condensed consolidated financial statements for the period subsequent to the date of the acquisitions. The Company’s condensed consolidated statement of operations for the

three

months ended

September 

30,

2016

includes net revenue and net income of approximately

$2.1

million and

$0.1

million, respectively, attributable to the acquisitions. The Company’s condensed consolidated statement of operations for the

nine

months ended

September 30, 2016

includes net revenue and net income of approximately

$5.6

million and

$0.5

million, respectively, attributable to the acquisitions.

The pro forma amounts included in the table above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from

January 1, 2016,

together with the consequential tax impacts.

XML

Note 3 - Notes Receivable

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

3:

Notes Receivable

Effective

July 2012,

the Company sold a company-owned clinic, including the license agreement, equipment, and customer base, in exchange for a

$90,000

unsecured promissory note. The note bore interest at

6%

per annum for

fifty-four

months and required monthly principal and interest payments over

forty-two

months, beginning on

August 2013.

The note matured in

January 2017

and was paid in full upon maturity. 

Effective

July 2015,

the Company entered into

two

license transfer agreements, in exchange for

$10,000

and

$29,925

in separate unsecured promissory notes.  The non-interest-bearing notes require monthly principal payments over

24

months, beginning on

September 1, 2015.

The note was settled in full in

2017.

Effective

May 2016,

the Company entered into

three

license transfer agreements, in exchange for

three

separate

$7,500

unsecured promissory notes.  The non-interest-bearing notes require monthly principal payments over

six

months, beginning on

May 1, 2017.

The note matured in

October, 2017

and was paid in full upon maturity. 

Effective

April 29, 2017,

the Company entered into a regional developer agreement for certain territories in the state of Florida in exchange for

$320,000,

of which

$187,000

was funded through a promissory note. The note bears interest at

10%

per annum for

42

months and requires monthly principal and interest payments over

36

months, beginning

November 1, 2017

and maturing on

October 1, 2020. 

The note is secured by the regional developer rights in the respective territory.

Effective

August 31, 2017,

the Company entered into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for

$220,000,

of which

$117,475

was funded through a promissory note. The note bears interest at

10%

per annum for

36

months and requires monthly principal and interest payments over

36

months, beginning

September 1, 2017

and maturing on

August 1, 2020.

The note is secured by the regional developer rights in the respective territory.

Effective

September 22, 2017,

the Company entered into a regional developer and asset purchase agreement for certain territories in Minnesota in exchange for

$228,293,

of which

$119,147

was funded through a promissory note. The note bears interest at

10%

per annum for

36

months and requires monthly principal and interest payments over

36

months, beginning

October 1, 2017

and maturing on

September 1, 2020.

The note is secured by the regional developer rights in the respective territory.

The net outstanding balances of the notes as of

September 30, 2017

and

December 31, 2016

were

$424,560

and

$40,826,

respectively.

XML

Note 4 - Property and Equipment

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

Note

4:

Property and Equipment

Property and equipment consists of the following:

	September 30,			December 31,
	2017			2016
Office and computer equipment	$	1,126,758		$	1,083,039
Leasehold improvements		5,099,374			5,085,366
Software developed		1,048,697			891,192
		7,274,829			7,059,597
Accumulated depreciation		(3,664,357	)		(2,566,172	)
		3,610,472			4,493,425
Construction in progress		239,480			231,281
	$	3,849,952		$	4,724,706

Depreciation expense was

$340,238

and

$1,099,698

for the

three

and

nine

months ended

September 30, 2017,

respectively. Depreciation expense was

$492,076

and

$1,356,176

for the

three

and

nine

months ended

September 30, 2016,

respectively. 

In

December 2016,

the Company determined that

14

clinics from its Corporate Clinics segment met the criteria for classification as held for sale. Accordingly, in

December 2016,

the Company recognized a

$2.4

million impairment charge to lower the carrying costs of the property and equipment to its estimated fair value less cost to sell which was recorded in the loss on disposition or impairment line of the

2016

consolidated statement of operations. The Company completed the sale of the property in the

first

quarter of

2017

for nominal consideration.

XML

Note 5 - Fair Value Consideration

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

5:

Fair Value Consideration

The Company’s financial instruments include cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of its financial instruments approximate their fair value due to their short maturities. 

The Company does

not

use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into

three

levels based on reliability of the inputs as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of

September 30, 2017,

and

December 31, 2016,

the Company did

not

have any financial instruments that were measured on a recurring basis as Level

1,

2

or

3.

XML

Note 6 - Intangible Assets

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

Note

6:

Intangible Assets

Intangible assets consist of the following:

	As of September 30, 2017
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	596,129	$	1,076,871
Customer relationships		701,000		649,417		51,583
Reacquired development rights		1,162,000		401,847		760,153
	$	3,536,000	$	1,647,393	$	1,888,607

	As of December 31, 2016
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	410,688	$	1,262,312
Customer relationships		701,000		509,042		191,958
Reacquired development rights		1,162,000		277,348		884,652
	$	3,536,000	$	1,197,078	$	2,338,922

Amortization expense was

$128,562

and

$450,315

for the

three

and

nine

months ended

September 30, 2017,

respectively. Amortization expense was

$203,503

and

$552,062

for the

three

and

nine

months ended

September 30, 2016,

respectively.

Estimated amortization expense for

2017

and subsequent years is as follows:

2017 (remaining)	$	128,564
2018		439,589
2019		413,256
2020		413,256
2021		348,034
Thereafter		145,908
Total	$	1,888,607

XML

Note 7 - Debt

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

7:

Debt

Notes Payable

During

2015,

the Company delivered

12

notes payable totaling

$800,350

as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates range from

1.5%

to

5.25%

with maturities through

February 2017.

During

2016,

the Company delivered

two

notes payable totaling

$186,000

as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes are

4.25%

with maturities through

May 2017.

The remaining note payable is expected to be settled in the quarter ended

December 31, 2017.

Maturities of notes payable are as follows as of

September 30, 2017:

2017 (remaining)	$	100,000
Thereafter		-
Total	$	100,000

Credit and Security Agreement

On

January 3, 2017,

the Company entered into a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender. Under the Credit Agreement, the Company is able to borrow up to an aggregate of

$5,000,000

under revolving loans. Interest on the unpaid outstanding principal amount of any revolving loans is at a rate equal to

10%

per annum, provided that the minimum amount of interest paid in the aggregate on all revolving loans granted over the term of the Credit Agreement is

$200,000.

Interest is due and payable on the last day of each fiscal quarter in an amount determined by the Company, but

not

less than

$25,000.

The lender’s lending commitments under the Credit Agreement terminate in

December 2019,

unless sooner terminated in accordance with the provisions of the Credit Agreement. The Credit Agreement is collateralized by the assets in the Company’s company-owned or managed clinics. The Company is using the credit facility for general working capital needs. As of

September 30, 2017,

the Company had drawn

$1,000,000

of the

$5,000,000

available under the Credit Agreement.

XML

Note 8 - Equity

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

8:

Equity

Stock Options

In the

nine

months ended

September 30, 2017,

the Company granted

195,286

stock options to employees with exercise prices ranging from

$2.65

-

$3.88.

 

Upon the completion of the Company’s IPO in

November 2014,

its stock trading price became the basis of fair value of its common stock used in determining the value of share-based awards. To the extent the value of the Company’s share-based awards involves a measure of volatility, it will rely upon the volatilities from publicly traded companies with similar business models until its common stock has accumulated enough trading history for it to utilize its own historical volatility. The expected life of the options granted is based on the average of the vesting term and the contractual term of the option. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury

10

-year yield curve in effect at the date of the grant. 

The Company has computed the fair value of all options granted during the

nine

months ended

September 30, 2017

and

2016,

using the following assumptions:

	Nine Months Ended September 30,
	2017			2016
Expected volatility		42%		43%	-	45%
Expected dividends		None			None
Expected term (years)	5.5	to	7		7
Risk-free rate	1.98%	to	2.14%	1.19%	to	1.68%
Forfeiture rate		20%			20%

The information below summarizes the stock options activity:

				Weighted		Weighted		Weighted
				Average		Average		Average
	Number of			Exercise		Fair		Remaining
	Shares			Price		Value		Contractual Life
Outstanding at December 31, 2016		953,075		$	3.66	$	1.86		6.9
Granted at market price		195,286			3.70
Exercised		(106,221	)		1.20
Cancelled		(30,454	)		5.21
Outstanding at September 30, 2017		1,011,686		$	3.87	$	1.76		7.4
Exercisable at September 30, 2017		370,634		$	4.67	$	2.17		5.6

The intrinsic value of the Company’s stock options outstanding was

$1,405,592

at

September 30, 2017.

For the

three

and

nine

months ended

September 30, 2017,

stock-based compensation expense for stock options was

$125,588

and

$261,471,

respectively. For the

three

and

nine

months ended

September 30, 2016,

stock based compensation expense for stock options was

$183,608,

and

$522,519,

respectively. Unrecognized stock-based compensation expense for stock options as of

September 30, 2017

was

$716,667,

which is expected to be recognized ratably over the next

2.2

years.

Restricted Stock

The information below summaries the restricted stock activity:

Restricted Stock Awards	Shares
Outstanding at December 31, 2016		92,415
Awards granted		59,700
Awards vested		(76,070	)
Awards forfeited		(12,345	)
Outstanding at September 30, 2017		63,700

For the

three

and

nine

months ended

September 30, 2017,

stock-based compensation expense for restricted stock was

$59,804

and

$151,041,

respectively. For the

three

and

nine

months ended

September 30, 2016,

stock based compensation expense for restricted stock was

$71,698,

and

$490,181,

respectively. Unrecognized stock based compensation expense for restricted stock awards as of

September 30, 2017

was

$206,502

to be recognized ratably over the next year. 

Treasury Stock

In

December 2013,

the Company exercised its right of

first

refusal under the terms of a Stockholders Agreement dated

March 10, 2010

to repurchase

534,000

shares of the Company’s common stock. The shares were purchased for

$0.45

per share or

$240,000

in cash along with the issuance of an option to repurchase the

534,000

shares. The repurchased shares were recorded as treasury stock, at cost in the amount of

$791,638.

The option is classified in equity as it is considered indexed to the Company’s stock and meets the criteria for classification in equity.  The option was granted to the seller for a term of

8

years.  The option contained the following exercise prices:

Year 1	$	0.56
Year 2	$	0.68
Year 3	$	0.84
Year 4	$	1.03
Year 5	$	1.28
Year 6	$	1.59
Year 7	$	1.97
Year 8	$	2.45

Consideration given in the form of the option was valued using a Binomial Lattice-Based model resulting in a fair value of

$1.03

per share option for a total fair value of

$551,638.

The option was valued using the Binomial Lattice-Based valuation methodology because that model embodies all of the relevant assumptions that address the features underlying the instrument.

During

December 2016,

the option holder partially exercised the call option and purchased

250,872

shares at a total repurchase price of

$210,000.

The Company reduced the cost of treasury shares by approximately

$113,000

related to the transaction, reduced the value of the option by approximately

$259,000,

and reduced additional paid-in-capital by approximately

$162,000.

During

September 2017,

the option holder exercised the remainder of the call option and purchased

283,128

shares at a total repurchase price of

$292,671.

The Company reduced the cost of treasury shares by approximately

$127,000

related to the transaction, reduced the value of the option by approximately

$292,000,

and reduced additional paid-in-capital by approximately

$127,000.

XML

Note 9 - Income Taxes

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

9:

Income Taxes

For the

three

and

nine

months ended

September 30, 2017,

the Company recorded income tax expense of approximately

$36,000

and

$79,000,

respectively, with the difference due to state tax expense, the impact of certain permanent differences, and penalties related to state income tax filings pursuant to a voluntary disclosure agreement which was rejected by the tax authority.

For the

three

and

nine

months ended

September 30, 2016,

the Company recorded income tax expense of approximately

$14,000

and

$132,000,

respectively, due to a revised estimate for the valuation allowance on the company’s deferred tax assets, as well as state tax expense as a result of current year state income taxes and a lower estimate of income tax refunds available through net operating loss (NOL) carrybacks.

XML

Note 10 - Related Party Transactions

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note

10:

Related Party Transactions

The Company entered into consulting and legal agreements with certain common stockholders related to services performed for the operations and transaction related activities of the Company. Amounts paid to or for the benefit of these stockholders was approximately

$56,000

and

$169,000

for the

three

and

nine

months ended

September 30, 2017,

respectively. Amounts paid to or for the benefit of these stockholders was approximately

$111,000

and

$421,000

for the

three

and

nine

months ended

September 30, 2016,

respectively.

XML

Note 11 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

11:

Commitments and Contingencies

Operating Leases

The Company leases its corporate office space and the space for each of the company-owned or managed clinics in the portfolio.

Total rent expense for the

three

and

nine

months ended

September 30, 2017

was

$688,031

and

$2,114,118,

respectively. Total rent expense for the

three

and

nine

months ended

September 30, 2016

was

$903,771

and

$2,510,782,

respectively.

Future minimum annual lease payments are as follows:

2017 (remaining)	$	599,401
2018		1,910,339
2019		1,591,678
2020		1,321,133
2021		1,180,012
2022		1,072,743
Thereafter		3,060,963
Total	$	10,736,269

XML

Note 12 - Segment Reporting

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

12:

Segment Reporting

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”) to evaluate performance and make operating decisions. The Company has identified its CODM as the Chief Executive Officer.

The Company has

two

operating business segments. The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of

September 30, 2017,

the Company operated or managed

47

clinics under this segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit. As of

September 30, 2017,

the franchise system consisted of

342

clinics in operation. Corporate is a non-operating segment that develops and implements strategic initiatives and supports the Company’s

two

operating business segments by centralizing key administrative functions such as finance and treasury, information technology, insurance and risk management, legal and human resources. Corporate also provides the necessary administrative functions to support the Company as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the operating segments.  

The tables below present financial information for the Company’s

two

operating business segments (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues:
Corporate clinics	$	2,930		$	2,341		$	8,106		$	6,137
Franchise operations		3,616			3,163			10,128			8,605
Total revenues	$	6,546		$	5,504		$	18,234		$	14,743
Segment operating (loss) income:
Corporate clinics	$	(196	)	$	(1,527	)	$	(1,233	)	$	(4,863	)
Franchise operations		1,671			1,195			4,479			3,197
Total segment operating (loss) income	$	1,475		$	(332	)	$	3,246		$	(1,666	)
Depreciation and amortization:
Corporate clinics	$	379		$	599		$	1,222		$	1,625
Franchise operations		-			-			-			-
Corporate administration		90			97			328			283
Total depreciation and amortization	$	469		$	696		$	1,550		$	1,908
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	1,475		$	(332	)	$	3,246		$	(1,666	)
Unallocated corporate		(1,853	)		(2,287	)		(6,195	)		(7,620	)
Consolidated loss from operations		(378	)		(2,619	)		(2,949	)		(9,286	)
Other (expense) income, net		10			6			(34	)		5
Loss before income tax expense	$	(368	)	$	(2,613	)	$	(2,983	)	$	(9,281	)

	September 30,		December 31,
	2017		2016
Segment assets:
Corporate clinics	$	9,250	$	10,481
Franchise operations		2,353		2,003
Total segment assets	$	11,603	$	12,484
Unallocated cash and cash equivalents and restricted cash	$	2,786	$	3,344
Unallocated property and equipment		655		781
Other unallocated assets		604		446
Total assets	$	15,648	$	17,055

“Unallocated cash and cash equivalents and restricted cash” relates primarily to corporate cash and cash equivalents and restricted cash (see Note

1

), “unallocated property and equipment” relates primarily to corporate fixed assets, and “other unallocated assets” relates primarily to deposits, prepaid and other assets.

The Company reclassified approximately

$545,000

of assets from Other unallocated assets to Corporate clinics segment assets for the year ended

December 31, 2016

to align with current period presentation of segment assets.

XML

Note 13 - Subsequent Events

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

Note

13:

Subsequent Events

On

October 10, 2017,

the Company entered into a regional developer agreement for a number of counties in the state of Texas,

one

county in the state of Arkansas, and the entire state of Oklahoma. The party paid an initial development fee of

$170,000.

The development schedule requires the opening and operating of a minimum of

22

clinics over a

ten

-year period. A portion of the development fee will be funded through a promissory note. The note will bear interest at

10%

per annum for

36

months and requires monthly principal and interest payments, beginning

November 24, 2017

and maturing on

October 24, 2020.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of The Joint Corp. and its wholly owned subsidiary, The Joint Corporate Unit

No.

1,

LLC, which was dormant for all periods presented.

All significant intercompany accounts and transactions between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from general and administrative expenses to other (expense) income, net, as well as certain balances from other revenues to revenues and management fees from company clinics for the

three

and

nine

months ended

September 30, 2016

to conform to the current year presentation and align with the segment footnote presentation.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Loss

Net loss and comprehensive loss are the same for the

three

and

nine

months ended

September 30, 2017

and

2016.

Nature of Operations Policy [Policy Text Block]

Nature of Operations

The Joint, a Delaware corporation, was formed on

March 10, 2010

for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer rights and supporting the operations of franchised chiropractic clinics at locations throughout the United States of America. The franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.  

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the

three

and

nine

months ended

September 30, 2017

and

2016:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Franchised clinics:	2017		2016		2017			2016
Clinics open at beginning of period		336		280		309			265
Opened or Purchased during the period		6		13		35			38
Acquired during the period		-		-		-			(6	)
Closed during the period		-		-		(2	)		(4	)
Clinics in operation at the end of the period		342		293		342			293

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Company-owned or managed clinics:	2017		2016		2017			2016
Clinics open at beginning of period		47		61		61			47
Opened during the period		-		-		-			8
Acquired during the period		-		-		-			6
Closed or Sold during the period		-		-		(14	)		-
Clinics in operation at the end of the period		47		61		47			61
Total clinics in operation at the end of the period		389		354		389			354
Clinics licenses sold but not yet developed		105		134		105			134
Executed letters of intent for future clinic licenses		5		-		5			-

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities

An entity deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”) is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. Investments where the Company does

not

hold the controlling interest and is

not

the primary beneficiary are accounted for under the equity method.

Certain states in which the Company manages clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized under state laws as professional corporations or PCs. Such PCs are VIEs. In these states, the Company has entered into management services agreements with such PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic practice.  The Company has analyzed its relationship with the PCs and has determined that the Company does

not

have the power to direct the activities of the PCs. As such, the activities of the PCs are

not

included in the Company’s condensed consolidated financial statements.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. The Company continually monitors its positions with, and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has invested substantially all its cash in short-term bank deposits. The Company had

no

cash equivalents as of

September 30, 2017

and

December 31, 2016.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Restricted cash relates to cash that franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising. 

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentrations of Credit Risk

From time to time, the Company grants credit in the normal course of business to franchisees and PCs related to the collection of royalties and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of

September 30, 2017,

one

PC entity and

four

franchisees represented

19%

of outstanding accounts receivable, compared to

three

PC entities and

six

franchisees representing

24%

of outstanding accounts receivable as of

December 31, 2016.

The Company did

not

have any customers that represented greater than

10%

of its revenues during the

three

or

nine

months ended

September 30, 2017

and

2016.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees and royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of

September 30, 2017,

and

December 31, 2016,

the Company had an allowance for doubtful accounts of

$0

and

$131,830,

respectively.

The Company writes off accounts receivable when it deems them uncollectible and records recoveries of accounts receivable previously written off when it receives them. In the

nine

months ended

September 30, 2017,

the Company determined that certain working capital advances from its PC entities in Illinois and New York were

no

longer collectible as a result of the sale or closure of the related clinics. Accordingly, the Company wrote-off approximately

$47,000

of accounts receivable to loss on disposition or impairment related to these entities during the

nine

months ended

September 30, 2017.

Revenue Recognition, Services, Commissions [Policy Text Block]

Deferred Franchise Costs

Deferred franchise costs represent commissions that are paid in conjunction with the sale of a franchise and are recognized as an expense when the respective revenue is recognized, which is generally upon the opening of a clinic.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are stated at cost or for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the straight-line method over estimated useful lives of

three

to

seven

years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the assets.

Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

Internal Use Software, Policy [Policy Text Block]

Software Developed

The Company capitalizes certain software development costs. These capitalized costs are primarily related to proprietary software used by clinics for operations and by the Company for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally

five

years. 

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Intangible Assets

Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships.  The Company amortizes the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which range from

six

to

eight

years. In the case of regional developer rights, the Company amortizes the acquired regional developer rights over

seven

years. The fair value of customer relationships is amortized over their estimated useful life of 

two

 years. 

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions completed in the years ended

December 31, 2014

through

December 31, 2016.  

Goodwill and intangible assets deemed to have indefinite lives are

not

amortized but are subject to annual impairment tests. As required, the Company performs an annual impairment test of goodwill as of the

first

day of the

fourth

quarter or more frequently if events or circumstances change that would more likely than

not

reduce the fair value of a reporting unit below its carrying value.

No

impairments of goodwill were recorded for the

nine

months ended

September 30, 2017

and

2016.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recovered. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or

not

long-lived assets have been impaired.

No

impairments of long-lived assets were recorded for the

nine

months ended

September 30, 2017

and

2016.

Advertising Fund, Policy [Policy Text Block]

Advertising Fund

The Company has established an advertising fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is

2%

of clinic sales. The Company segregates the marketing funds collected which are included in restricted cash on its condensed consolidated balance sheets. As amounts are expended from the fund, the Company recognizes advertising fund revenue and a related expense.

Cooperative Advertising Policy [Policy Text Block]

Co-Op Marketing Funds

Some franchises have established regional Co-Ops for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included in restricted cash on the Company’s condensed consolidated balance sheets.

Costs Associated with Exit or Disposal Activities or Restructurings, Policy [Policy Text Block]

Accounting for Costs Associated with Exit or Disposal Activities

The Company recognizes a liability for the cost associated with an exit or disposal activity that is measured initially at its fair value in the period in which the liability is incurred.

Costs to terminate an operating lease or other contracts are (a) costs to terminate the contract before the end of its term or (b) costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is recognized at the cease-use date. In periods subsequent to initial measurement, changes to the liability are measured using the credit adjusted risk-free rate that was used to measure the fair value of the liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change.

As of

September 30, 2017,

the Company maintained a lease exit liability of approximately

$0.4

million classified in other liabilities on its condensed consolidated balance sheets related to remaining operating leases that will

no

longer provide economic benefit to the Company, net of estimated sublease income. 

Lease exit liability at December 31, 2016	$	338,151
Additions		883,146
Settlements		(706,991	)
Net Accretion		(66,030	)
Lease exit liability at September 30, 2017	$	448,276

In the

nine

months ended

September 30, 2017,

the Company ceased use of

eight

clinic locations from its corporate clinics segment and recognized a liability for lease exit costs incurred based on the remaining lease rental due, reduced by estimated sublease rental income that could be reasonably obtained for the properties. The Company recognized the resulting expense of approximately

$418,000

in loss on disposition or impairment in the accompanying condensed consolidated statement of operations.

Lessee, Leases [Policy Text Block]

Deferred Rent

The Company leases office space for its corporate offices and company-owned or managed clinics under operating leases, which

may

include rent holidays and rent escalation clauses.  It recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the term of the lease.  The Company records tenant improvement allowances as deferred rent and amortizes the allowance over the term of the lease, as a reduction to rent expense.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company generates revenue through initial franchise fees, regional developer fees, royalties, advertising fund revenue, IT related income, and computer software fees, and from its company-owned and managed clinics.

Revenue Recognition, Services, Franchise Fees [Policy Text Block]

Franchise Fees.

The Company requires the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of

ten

years. Initial franchise fees are recognized as revenue when the Company has substantially completed its initial services under the franchise agreement, which typically occurs upon opening of the clinic.  The Company’s services under the franchise agreement include: training of franchisees and staff, site selection, construction/vendor management and ongoing operations support. The Company provides

no

financing to franchisees and offers

no

guarantees on their behalf. 

Regional Developer Fees, Policy [Policy Text Block]

Regional Developer Fees

. During

2011,

the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under the historical program, regional developers paid a license fee ranging from

$7,250

to

25%

of the then current franchise fee for each franchise they received the right to develop within the region. In

2017,

the program was revised to grant exclusive geographical territory and establish a minimum development obligation within that defined territory. Regional developers receive fees ranging from

$14,500

to

$19,950

which are collected from franchisees upon the sale of franchises within their region and a royalty of

3%

of sales generated by franchised clinics in their region. Regional developer fees paid to the Company are nonrefundable and are recognized as revenue when the Company has performed substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening of each franchised clinic. Accordingly, revenue is recognized on a pro-rata basis determined by the number of franchised clinics to be opened in the area covered by the regional developer agreement. Upon the execution of a regional developer agreement, the Company estimates the number of franchised clinics to be opened, which is typically consistent with the contracted minimum. The Company reassesses the number of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change to the original estimate becomes apparent, the amount of revenue to be recognized per clinic is revised on a prospective basis, and the unrecognized fees are allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region. The franchisor’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. Several of the regional developer agreements grant the Company the option to repurchase the regional developer’s license.

For the

nine

months ended

September 30, 2017,

the Company entered into

eight

regional developer agreements for which it received approximately

$1.7

million, which was deferred as of the respective transaction dates and will be recognized on a pro-rata basis over the estimated number of franchised clinics to be opened in the respective regions. Certain of these regional developer agreements resulted in the regional developer acquiring the rights to existing royalty streams from clinics already open in the respective territory. In those instances, the revenue associated from the sale of the royalty stream is being recognized over the remaining life of the respective franchise agreements.

Revenues and Management Fees, Policy [Policy Text Block]

Revenues and Management Fees from Company Clinics.  

The Company earns revenues from clinics that it owns and operates or manages throughout the United States.  In those states where the Company owns and operates the clinic, revenues are recognized when services are performed. The Company offers a variety of membership and wellness packages which feature discounted pricing as compared with its single-visit pricing.  Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service is performed.  In other states where state law requires the chiropractic practice to be owned by a licensed chiropractor, the Company enters into a management agreement with the doctor’s PC.  Under the management agreement, the Company provides administrative and business management services to the doctor’s PC in return for a monthly management fee.  When the collectability of the full management fee is uncertain, the Company recognizes management fee revenue only to the extent of fees expected to be collected from the PCs. 

Royalties, Policy [Policy Text Block]

Royalties.

The Company collects royalties, as stipulated in the franchise agreement, equal to

7%

of gross sales, and a marketing and advertising fee currently equal to

2%

of gross sales. Certain franchisees with franchise agreements acquired during the formation of the Company pay a monthly flat fee. Royalties are recognized as revenue when earned. Royalties are collected bi-monthly

two

working days after each sales period has ended.

IT Related Income And Software Fees, Policy [Policy Text Block]

IT Related Income and Software Fees.

  The Company collects a monthly fee for use of its proprietary chiropractic software, computer support, and internet services support. These fees are recognized on a monthly basis as services are provided. IT related revenue represents a flat fee to purchase a clinic’s computer equipment, operating software, preinstalled chiropractic system software, key card scanner (patient identification card), credit card scanner and credit card receipt printer. These fees are recognized as revenue upon receipt of equipment by the franchisee.

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were

$314,695

and

$961,106

for the

three

and

nine

months ended

September 30, 2017,

respectively.  Advertising expenses were

$600,804

and

$1,770,699

for the

three

and

nine

months ended

September 30, 2016,

respectively.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property and equipment, amortization of goodwill, accounting for leases, and treatment of revenue for franchise fees and regional developer fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 

The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than

not

that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate resolution.

At

September 30, 2017

and

December 31, 2016,

the Company maintained a liability for income taxes for uncertain tax positions of approximately

$27,000

and

$40,000,

respectively, of which

$26,000

and

$27,000,

respectively, represent penalties and interest and are recorded in the “other liabilities” section of the accompanying condensed consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include

2013

through the current period for state, and

2014

through the current period for federal reporting purposes.

Earnings Per Share, Policy [Policy Text Block]

Loss per Common Share

Basic loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock and stock options.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(403,808	)	$	(2,626,894	)	$	(3,062,035	)	$	(9,413,407	)
Weighted average common shares outstanding - basic		13,262,032			12,730,624			13,144,764			12,657,435
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		13,262,032			12,730,624			13,144,764			12,657,435
Basic and diluted loss per share	$	(0.03	)	$	(0.21	)	$	(0.23	)	$	(0.74	)

The following table summarizes the potential shares of common stock that were excluded from diluted net loss per share, because the effect of including these potential shares was anti-dilutive:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Unvested restricted stock		63,700		92,415		63,700		92,415
Stock options		1,011,686		899,370		1,011,686		899,370
Warrants		90,000		90,000		90,000		90,000

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company accounts for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and deferred franchise costs, uncertain tax positions, realizability of deferred tax assets, impairment of goodwill and intangible assets and purchase price allocations.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

No.

2014

-

09,

“

Revenue from Contracts with Customers,

” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard also calls for additional disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard becomes effective for the Company on

January 1, 2018.

The Company has performed a preliminary review of ASU

2014

-

09

and does

not

expect the adoption of ASU

2014

-

09

to have a material impact on its revenues and management fees from company clinics or franchise royalty revenues, which are based on a percent of sales. The Company expects the adoption of Topic

606

to impact its accounting for initial franchise fees and regional developer fees. Currently, the Company recognizes revenue from initial franchise fees and regional developer fees upon the opening of a franchised clinic when the Company has performed all of its material obligations and initial services under the respective agreements. Upon the adoption of Topic

606,

the Company expects to recognize the revenue related to initial franchise fees and regional developer fees over the term of the related franchise agreement or regional developer agreement. The Company is in the process of implementing this standard and has drafted certain accounting policies. The Company will be finalizing accounting policies, selecting its transition method, quantifying the impact of adopting this standard, and designing internal controls during the

fourth

quarter of the year ending

December 31, 2017.

The Company is currently unable to estimate the impact on its consolidated financial statements.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“

Leases (Topic

842

).

” The ASU requires that substantially all operating leases be recognized as assets and liabilities on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases as off-balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations. The right to use the leased property is to be capitalized as an asset and the expected lease payments over the life of the lease will be accounted for as a liability. The effective date is for fiscal years beginning after

December 31, 2018.

While the Company has

not

yet quantified the impact that this standard will have on its financial statements, it will result in a significant increase in the assets and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially decrease the Company’s reported net income.

In

April 2016,

the FASB issued ASU

No.

2016

-

10,

“

Revenue from Contracts with Customers (Topic

606

): Identifying Performance Obligations and Licensing,

” to clarify the following

two

aspects of Topic

606:

1

) identifying performance obligations, and

2

) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU

2014

-

09.

The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In

May 2016,

the FASB issued ASU

No.

2016

-

12,

“

Revenue from Contracts with Customers (Topic

606

): Narrow-Scope Improvements and Practical Expedients,

” to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures

no

longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU

2014

-

09.

The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments.”

This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is effective for annual and interim reporting periods beginning after

December 15, 2017.

Early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

In

November 2016,

the FASB issued ASU

No.

2016

-

18,

“

Statement of Cash Flows (Topic

230

): Restricted Cash”

 (a consensus of the FASB Emerging Issues Task Force), to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendments should be applied using a retrospective transition method, and are effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

“

Business Combinations (Topic

805

): Clarifying the Definition of a Business,”

to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments should be applied prospectively, and are effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its consolidated financial statements. 

In

January 2017,

the FASB issued ASU 

2017

-

04,

 “

Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment

.” This update simplifies the subsequent measurement of goodwill by eliminating “Step

2”

from the goodwill impairment test. This update is effective for annual and interim reporting periods beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.

In

May 2017,

the FASB issued ASU

No.

2017

-

09,

“Compensation—Stock Compensation (Topic

718

): Scope of Modification Accounting,”

to provide clarity and reduce both (

1

) diversity in practice and (

2

) cost and complexity when applying the guidance in Topic

718,

Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC

718.The

amendments are effective for fiscal years beginning after

December 15, 2017,

and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements and related disclosures.

In

August 2017,

the FASB issued ASU

No.

2017

-

12,

“Derivatives and Hedging (Topic

815

): Targeted Improvements to Accounting for Hedging Activities,”

to (

1

) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (

2

) reduce the complexity of and simplify the application of hedge accounting by preparers. Specifically, the guidance creates better alignment of hedge accounting with risk management activities, eliminates the separate measurement and recording of hedge ineffectiveness, simplifies effectiveness assessments, and improves presentation and disclosure. The amendments are effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently evaluating the impact of this amendment on its financial statements.

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Franchisor Disclosure [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Franchised clinics:	2017		2016		2017			2016
Clinics open at beginning of period		336		280		309			265
Opened or Purchased during the period		6		13		35			38
Acquired during the period		-		-		-			(6	)
Closed during the period		-		-		(2	)		(4	)
Clinics in operation at the end of the period		342		293		342			293

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Company-owned or managed clinics:	2017		2016		2017			2016
Clinics open at beginning of period		47		61		61			47
Opened during the period		-		-		-			8
Acquired during the period		-		-		-			6
Closed or Sold during the period		-		-		(14	)		-
Clinics in operation at the end of the period		47		61		47			61
Total clinics in operation at the end of the period		389		354		389			354
Clinics licenses sold but not yet developed		105		134		105			134
Executed letters of intent for future clinic licenses		5		-		5			-

Lease Exit Liability [Table Text Block]

Lease exit liability at December 31, 2016	$	338,151
Additions		883,146
Settlements		(706,991	)
Net Accretion		(66,030	)
Lease exit liability at September 30, 2017	$	448,276

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(403,808	)	$	(2,626,894	)	$	(3,062,035	)	$	(9,413,407	)
Weighted average common shares outstanding - basic		13,262,032			12,730,624			13,144,764			12,657,435
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		13,262,032			12,730,624			13,144,764			12,657,435
Basic and diluted loss per share	$	(0.03	)	$	(0.21	)	$	(0.23	)	$	(0.74	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Unvested restricted stock		63,700		92,415		63,700		92,415
Stock options		1,011,686		899,370		1,011,686		899,370
Warrants		90,000		90,000		90,000		90,000

XML

Note 2 - Acquisitions (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Property and equipment	$	293,014
Intangible assets		339,000
Favorable leases		140,728
Goodwill		269,780
Total assets acquired		1,042,522
Deferred membership revenue		(45,072	)
Net purchase price	$	997,450

Business Acquisition, Pro Forma Information [Table Text Block]

	Pro Forma for the Three Months Ended					Pro Forma for the Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
Revenues, net	$	-	$	5,503,590		$	-	$	14,723,514
Net loss	$	-	$	(2,614,518	)	$	-	$	(9,475,157	)

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Note 4 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30,			December 31,
	2017			2016
Office and computer equipment	$	1,126,758		$	1,083,039
Leasehold improvements		5,099,374			5,085,366
Software developed		1,048,697			891,192
		7,274,829			7,059,597
Accumulated depreciation		(3,664,357	)		(2,566,172	)
		3,610,472			4,493,425
Construction in progress		239,480			231,281
	$	3,849,952		$	4,724,706

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Note 6 - Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

	As of September 30, 2017
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	596,129	$	1,076,871
Customer relationships		701,000		649,417		51,583
Reacquired development rights		1,162,000		401,847		760,153
	$	3,536,000	$	1,647,393	$	1,888,607

	As of December 31, 2016
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	410,688	$	1,262,312
Customer relationships		701,000		509,042		191,958
Reacquired development rights		1,162,000		277,348		884,652
	$	3,536,000	$	1,197,078	$	2,338,922

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2017 (remaining)	$	128,564
2018		439,589
2019		413,256
2020		413,256
2021		348,034
Thereafter		145,908
Total	$	1,888,607

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Note 7 - Debt (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Maturities of Long-term Debt [Table Text Block]

2017 (remaining)	$	100,000
Thereafter		-
Total	$	100,000

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Note 8 - Equity (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Nine Months Ended September 30,
	2017			2016
Expected volatility		42%		43%	-	45%
Expected dividends		None			None
Expected term (years)	5.5	to	7		7
Risk-free rate	1.98%	to	2.14%	1.19%	to	1.68%
Forfeiture rate		20%			20%

Share-based Compensation, Stock Options, Activity [Table Text Block]

				Weighted		Weighted		Weighted
				Average		Average		Average
	Number of			Exercise		Fair		Remaining
	Shares			Price		Value		Contractual Life
Outstanding at December 31, 2016		953,075		$	3.66	$	1.86		6.9
Granted at market price		195,286			3.70
Exercised		(106,221	)		1.20
Cancelled		(30,454	)		5.21
Outstanding at September 30, 2017		1,011,686		$	3.87	$	1.76		7.4
Exercisable at September 30, 2017		370,634		$	4.67	$	2.17		5.6

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

Restricted Stock Awards	Shares
Outstanding at December 31, 2016		92,415
Awards granted		59,700
Awards vested		(76,070	)
Awards forfeited		(12,345	)
Outstanding at September 30, 2017		63,700

Class of Treasury Stock [Table Text Block]

Year 1	$	0.56
Year 2	$	0.68
Year 3	$	0.84
Year 4	$	1.03
Year 5	$	1.28
Year 6	$	1.59
Year 7	$	1.97
Year 8	$	2.45

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Note 11 - Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

2017 (remaining)	$	599,401
2018		1,910,339
2019		1,591,678
2020		1,321,133
2021		1,180,012
2022		1,072,743
Thereafter		3,060,963
Total	$	10,736,269

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Note 12 - Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues:
Corporate clinics	$	2,930		$	2,341		$	8,106		$	6,137
Franchise operations		3,616			3,163			10,128			8,605
Total revenues	$	6,546		$	5,504		$	18,234		$	14,743
Segment operating (loss) income:
Corporate clinics	$	(196	)	$	(1,527	)	$	(1,233	)	$	(4,863	)
Franchise operations		1,671			1,195			4,479			3,197
Total segment operating (loss) income	$	1,475		$	(332	)	$	3,246		$	(1,666	)
Depreciation and amortization:
Corporate clinics	$	379		$	599		$	1,222		$	1,625
Franchise operations		-			-			-			-
Corporate administration		90			97			328			283
Total depreciation and amortization	$	469		$	696		$	1,550		$	1,908
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	1,475		$	(332	)	$	3,246		$	(1,666	)
Unallocated corporate		(1,853	)		(2,287	)		(6,195	)		(7,620	)
Consolidated loss from operations		(378	)		(2,619	)		(2,949	)		(9,286	)
Other (expense) income, net		10			6			(34	)		5
Loss before income tax expense	$	(368	)	$	(2,613	)	$	(2,983	)	$	(9,281	)

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

	September 30,		December 31,
	2017		2016
Segment assets:
Corporate clinics	$	9,250	$	10,481
Franchise operations		2,353		2,003
Total segment assets	$	11,603	$	12,484
Unallocated cash and cash equivalents and restricted cash	$	2,786	$	3,344
Unallocated property and equipment		655		781
Other unallocated assets		604		446
Total assets	$	15,648	$	17,055

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Supplemental Disclosure of Non-cash Activity (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Income Taxes Paid	$ 22,838	$ 10,466
Interest Paid	81,993	15,262
Payments to Acquire Businesses, Net of Cash Acquired		811,450
Deferred Revenue		224,750
Regional Developer Territories in Central Florida, Maryland/Washington DC, and Maryland [Member]
Noncash or Part Noncash Divestiture, Amount of Consideration Received	423,622
Deferred Revenue, Revenue Recognized	9,412
Franchise Fees [Member]
Payments to Acquire Businesses, Net of Cash Acquired		839,000
Business Combination, Consideration Transferred, Liabilities Incurred		186,000
Deferred Revenue		29,000
Deferred Franchise Costs Netted Against Aggregate Purchase Price		1,450
Accounts Payable [Member]
Capital Expenditures Incurred but Not yet Paid	$ 7,105
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment		293,014
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill		339,000
Goodwill, Acquired During Period		269,780
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Deferred Revenue		$ 45,072

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Cash Equivalents, at Carrying Value	$ 0		$ 0		$ 0
Allowance for Doubtful Accounts Receivable	0	$ 131,830	0	$ 131,830
Allowance for Doubtful Accounts Receivable, Write-offs			47,000
Goodwill, Impairment Loss			0	0
Impairment of Long-Lived Assets Held-for-use			$ 0	0
Franchise Monthly Marketing Fee Gross Sales Percentage			2.00%
Lease Exit Liability	448,276		$ 448,276		338,151
Gain (Loss) on Sale of Assets and Asset Impairment Charges			(417,971)
Regional Developers License Fee	7,250		$ 7,250
Regional Developers License Fee Current Franchise Fee Percentage			25.00%
Regional Developers Royalty Sales Generated by Franchises Percentage			3.00%
Deferred Revenue		224,750		224,750
Franchise Royalty Gross Sales Percentage			7.00%
Advertising Expense	314,695	$ 600,804	$ 961,106	$ 1,770,699
Liability for Uncertainty in Income Taxes, Current	27,000		27,000		40,000
Other Liabilities [Member]
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	26,000		26,000		$ 27,000
Regional Development Agreement [Member]
Deferred Revenue	1,700,000		$ 1,700,000
Computer Software, Intangible Asset [Member]
Finite-Lived Intangible Asset, Useful Life			5 years
Development Rights [Member]
Finite-Lived Intangible Asset, Useful Life			7 years
Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life			2 years
Minimum [Member]
Property, Plant and Equipment, Useful Life			3 years
Regional Developers, Franchise Fees Collected Upon Sale of Franchise	14,500		$ 14,500
Minimum [Member] | Franchise Rights [Member]
Finite-Lived Intangible Asset, Useful Life			6 years
Maximum [Member]
Property, Plant and Equipment, Useful Life			7 years
Regional Developers, Franchise Fees Collected Upon Sale of Franchise	$ 19,950		$ 19,950
Maximum [Member] | Franchise Rights [Member]
Finite-Lived Intangible Asset, Useful Life			8 years
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number of PC Entities	1		1		3
Number of Franchises	4		4		6
Concentration Risk, Percentage			19.00%		24.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Number of Major Customers	0	0	0	0

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Clinics in Operation Under Franchise Agreements or Company-owned or Managed (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Clinics in operation at the end of the period	389	354	389	354
Number of Stores	389	354	389	354	389	354
Clinics licenses sold but not yet developed					105	134
Executed letters of intent for future clinic licenses					5
Franchised Units [Member]
Clinics open at beginning of period	336	280	309	265
Opened or Purchased during the period	6	13	35	38
Acquired during the period				(6)
Closed during the period			(2)	(4)
Clinics in operation at the end of the period	342	293	342	293
Acquired during the period				6
Number of Stores	336	280	309	265	342	293
Entity Operated Units [Member]
Clinics open at beginning of period	47	61	61	47
Opened or Purchased during the period				8
Acquired during the period				(6)
Closed during the period			(14)
Clinics in operation at the end of the period	47	61	47	61
Acquired during the period				6
Number of Stores	47	61	61	47	47	61

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Lease Exit Liability (Details)	9 Months Ended
	Sep. 30, 2017 USD ($)
Lease exit liability at December 31, 2016	$ 338,151
Additions	883,146
Settlements	(706,991)
Net Accretion	(66,030)
Lease exit liability at September 30, 2017	$ 448,276

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Earnings (Loss) Per Common Share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net loss	$ (403,808)	$ (2,626,894)	$ (3,062,035)	$ (9,413,407)
Weighted average common shares outstanding - basic (in shares)	13,262,032	12,730,624	13,144,764	12,657,435
Effect of dilutive securities:
Stock options (in shares)
Weighted average common shares outstanding - diluted (in shares)	13,262,032	12,730,624	13,144,764	12,657,435
Basic and diluted loss per share (in dollars per share)	$ (0.03)	$ (0.21)	$ (0.23)	$ (0.74)

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Potential Shares of Common Stock Excluded from Diluted Net Loss Per Share (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Restricted Stock [Member]
Anti-dilutive Securities (in shares)	63,700	92,415	63,700	92,415
Employee Stock Option [Member]
Anti-dilutive Securities (in shares)	1,011,686	899,370	1,011,686	899,370
Warrant [Member]
Anti-dilutive Securities (in shares)	90,000	90,000	90,000	90,000

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Note 2 - Acquisitions (Details Textual)	3 Months Ended	9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2017	Sep. 30, 2016 USD ($)
Deferred Revenue	$ 224,750		$ 224,750
Franchise Rights [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life		6 years
Franchise Rights [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life		8 years
Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life		2 years
Reacquisitions of Franchises Throughout California and New Mexico [Member}
Number of Undeveloped Franchises Reacquired During the Period			1
Business Combination, Consideration Transferred			$ 1,025,000
Payments to Acquire Businesses, Gross			839,000
Business Combination, Consideration Transferred, Liabilities Incurred			$ 186,000
Number of Reacquired Developed Franchises Operated as Company-owned or Managed Clinics	6		6
Deferred Revenue	$ 29,000		$ 29,000
Deferred Franchise Costs	1,450		1,450
Business Combination, Consideration Transferred, Net of Deferred Revenue and Deferred Franchise Costs			997,450
Business Combination, Acquisition Related Costs			64,000
Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual	2,100,000		5,600,000
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual	$ 100,000		500,000
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Franchise Rights [Member]
Finite-lived Intangible Assets Acquired			$ 181,000
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Franchise Rights [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life			6 years
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Franchise Rights [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life			8 years
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Customer Relationships [Member]
Finite-lived Intangible Assets Acquired			$ 158,000
Finite-Lived Intangible Asset, Useful Life			2 years

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Note 2 - Acquisitions - Purchase Price Allocation (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2017	Dec. 31, 2016
Goodwill		$ 2,750,338	$ 2,750,338
Reacquisitions of Franchises Throughout California and New Mexico [Member}
Property and equipment	$ 293,014
Intangible assets	339,000
Favorable leases	140,728
Goodwill	269,780
Total assets acquired	1,042,522
Deferred membership revenue	(45,072)
Net purchase price	$ 997,450

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Note 2 - Acquisitions - Supplemental Pro Forma Information (Details) - The Joint RRC Corp [Member] - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues, net		$ 5,503,590		$ 14,723,514
Net loss		$ (2,614,518)		$ (9,475,157)

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Note 3 - Notes Receivable (Details Textual)		1 Months Ended
	Apr. 29, 2017 USD ($)	Sep. 22, 2017 USD ($)	Aug. 31, 2017 USD ($)	May 31, 2016 USD ($)	Jul. 31, 2015 USD ($)	Jul. 31, 2012 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Regional Developer Territory in Central Florida [Member]
Regional Development Agreement	$ 320,000
Regional Developer Territory in Maryland/Washington DC [Member]
Regional Development Agreement			$ 220,000
Regional Developer Territory in Minnesota [Member]
Regional Development Agreement		$ 228,293
Non-interest Bearing Unsecured Promissory Note 1 [Member]
Financing Receivable, Net					$ 10,000
Non-interest Bearing Unsecured Promissory Note 2 [Member]
Financing Receivable, Net					$ 29,925
Notes Receivable, Contractual Term					2 years
Non-interest Bearing Unsecured Promissory Note Maturing October 1, 2017 [Member]
Financing Receivable, Net				$ 7,500
Notes Receivable, Contractual Term				180 days
Number of License Transfer Agreements				3
Number of Unsecured Promissory Notes				3
10% Interest Bearing Promissory Note Maturing October 1, 2020 [Member] | Regional Developer Territory in Central Florida [Member]
Financing Receivable, Net	$ 187,000
Notes Receivable, Interest Rate	10.00%
Notes Receivable, Contractual Term	3 years 180 days
Notes Receivable, Principal and Interest, Term	3 years
10% Interest Bearing Promissory Note Maturing August 1, 2020 [Member] | Regional Developer Territory in Maryland/Washington DC [Member]
Financing Receivable, Net			$ 117,475
Notes Receivable, Interest Rate			10.00%
Notes Receivable, Contractual Term			3 years
Notes Receivable, Principal and Interest, Term			3 years
10% Interest Bearing Promissory Note Maturing September 1, 2020 [Member] | Regional Developer Territory in Minnesota [Member]
Financing Receivable, Net		$ 119,147
Notes Receivable, Interest Rate		10.00%
Notes Receivable, Contractual Term		3 years
Notes Receivable, Principal and Interest, Term		3 years
Company-owned Clinic [Member]
Financing Receivable, Net						$ 90,000	$ 424,560	$ 40,826
Notes Receivable, Interest Rate						6.00%
Notes Receivable, Contractual Term						4 years 180 days
Notes Receivable, Principal and Interest, Term						3 years 180 days
Number of License Transfer Agreements					2

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Note 4 - Property and Equipment (Details Textual)	1 Months Ended	3 Months Ended		9 Months Ended
	Dec. 31, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)
Depreciation		$ 340,238	$ 492,076	$ 1,099,698	$ 1,356,176
Loss on Disposition or Impairment [Member]
Impairment of Long-Lived Assets to be Disposed of	$ 2,400,000
Corporate Clinics [Member]
Number of Clinics Classified as Held for Sale	14

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Note 4 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Property and equipment, gross	$ 7,274,829	$ 7,059,597
Accumulated depreciation	(3,664,357)	(2,566,172)
Property and equipment, net	3,849,952	4,724,706
Construction in progress	239,480	231,281
Office Equipment [Member]
Property and equipment, gross	1,126,758	1,083,039
Leasehold Improvements [Member]
Property and equipment, gross	5,099,374	5,085,366
Software Development [Member]
Property and equipment, gross	1,048,697	891,192
Property Plant and Equipment, Excluding Construction in Progress [Member]
Property and equipment, net	$ 3,610,472	$ 4,493,425

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Note 5 - Fair Value Consideration (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Financial Instruments, Owned, at Fair Value	$ 0	$ 0

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Note 6 - Intangible Assets (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Amortization of Intangible Assets	$ 128,562	$ 203,503	$ 450,315	$ 552,062

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Note 6 - Intangible Assets - Intangible Assets Acquired (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Gross Carrying Amount	$ 3,536,000	$ 3,536,000
Accumulated Amortization	1,647,393	1,197,078
Net Carrying Value	1,888,607	2,338,922
Franchise Rights [Member]
Gross Carrying Amount	1,673,000	1,673,000
Accumulated Amortization	596,129	410,688
Net Carrying Value	1,076,871	1,262,312
Customer Relationships [Member]
Gross Carrying Amount	701,000	701,000
Accumulated Amortization	649,417	509,042
Net Carrying Value	51,583	191,958
Development Rights [Member]
Gross Carrying Amount	1,162,000	1,162,000
Accumulated Amortization	401,847	277,348
Net Carrying Value	$ 760,153	$ 884,652

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Note 6 - Intangible Assets - Estimated Amortization Expense (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
2017 (remaining)	$ 128,564
2018	439,589
2019	413,256
2020	413,256
2021	348,034
Thereafter	145,908
Total	$ 1,888,607	$ 2,338,922

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Note 7 - Debt (Details Textual)		12 Months Ended
	Jan. 03, 2017 USD ($)	Dec. 31, 2015 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Number of Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions		12
Revolving Credit Facility [Member]
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,000,000
Line of Credit Facility, Minimum Interest Payment Over Life of Credit Agreement	200,000
Line of Credit Facility, Periodic Payment, Interest	$ 25,000
Long-term Line of Credit			$ 1,000,000
Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions [Member]
Debt Instrument, Face Amount		$ 800,350		$ 186,000
Debt Instrument, Interest Rate, Stated Percentage				4.25%
Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage		1.50%
Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions [Member] | Maximum [Member]
Debt Instrument, Interest Rate, Stated Percentage		5.25%

XML

Note 7 - Debt - Maturities of Notes Payable (Details)	Sep. 30, 2017 USD ($)
2017 (remaining)	$ 100,000
Total	$ 100,000

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Note 8 - Equity (Details Textual) - USD ($)	1 Months Ended			3 Months Ended		9 Months Ended		21 Months Ended
	Sep. 30, 2017	Dec. 31, 2016	Dec. 31, 2013	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						195,286
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 1,405,592			$ 1,405,592		$ 1,405,592		$ 1,405,592
Stock Repurchased During Period, Shares			534,000
Share Price			$ 0.45
Stock Repurchased During Period, Value			$ 240,000
Treasury Stock, Retired, Cost Method, Amount			$ 791,638
Binomial Lattice-based Model, Fair Value, Share Price			$ 1.03
Binomial Lattice-based Model, Fair Value, Total			$ 551,638
Stock Issued During Period, Shares, Treasury Stock Reissued	283,128	250,872
Stock Issued During Period, Value, Treasury Stock Reissued	$ 292,671	$ 210,000
Treasury Stock [Member]
Stock Issued During Period, Value, Treasury Stock Reissued	127,000	113,000
Common Stock [Member]
Option to Repurchase Shares, Change in Fair Value	(292,000)	(259,000)
Additional Paid-in Capital [Member]
Stock Issued During Period, Value, Treasury Stock Reissued	127,000	$ 162,000
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						195,286
Allocated Share-based Compensation Expense				125,588	$ 183,608	$ 261,471	$ 522,519
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	716,667			716,667		716,667		$ 716,667
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition								2 years 73 days
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period			8 years
Restricted Stock [Member]
Allocated Share-based Compensation Expense				59,804	$ 71,698	151,041	$ 490,181
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 206,502			$ 206,502		$ 206,502		$ 206,502
Minimum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price						$ 2.65
Maximum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price						$ 3.88

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Note 8 - Equity - Fair Value Assumptions of Options Granted (Details) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Expected volatility	42.00%
Expected dividends	0.00%	0.00%
Expected term (years) (Year)		7 years
Forfeiture rate	20.00%	20.00%
Minimum [Member]
Expected volatility		43.00%
Expected term (years) (Year)	5 years 182 days
Risk-free rate	1.98%	1.19%
Maximum [Member]
Expected volatility		45.00%
Expected term (years) (Year)	7 years
Risk-free rate	2.14%	1.68%

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Note 8 - Equity - Stock Options Activity (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Granted at Market Price, Number of Shares (in shares)	195,286
Employee Stock Option [Member]
Outstanding, Number of Shares (in shares)	953,075
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 3.66
Outstanding, Weighted Average Fair Value (in dollars per share)	$ 1.76	$ 1.86
Outstanding, Weighted Average Remaining Contractual Life (Year)	7 years 146 days	6 years 328 days
Granted at Market Price, Number of Shares (in shares)	195,286
Granted at Market Price, Weighted Average Exercise Price (in dollars per share)	$ 3.70
Exercised, Number of Shares (in shares)	(106,221)
Exercised, Weighted Average Exercise Price (in dollars per share)	$ 1.20
Cancelled, Number of Shares (in shares)	(30,454)
Cancelled, Weighted Average Exercise Price (in dollars per share)	$ 5.21
Outstanding, Number of Shares (in shares)	1,011,686	953,075
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 3.87	$ 3.66
Exercisable, Number of Shares (in shares)	370,634
Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 4.67
Exercisable, Weighted Average Fair Value (in dollars per share)	$ 2.17
Exercisable, Weighted Average Remaining Contractual Life (Year)	5 years 219 days

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Note 8 - Equity - Restricted Stock Activity (Details) - Restricted Stock [Member]	9 Months Ended
	Sep. 30, 2017 shares
Unvested (in shares)	92,415
Awards granted (in shares)	59,700
Awards vested (in shares)	(76,070)
Awards forfeited (in shares)	(12,345)
Unvested (in shares)	63,700

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Note 8 - Equity - Stock Repurchase Option (Details)	Dec. 31, 2013 $ / shares
Year 1 (in dollars per share)	$ 0.56
Year 2 (in dollars per share)	0.68
Year 3 (in dollars per share)	0.84
Year 4 (in dollars per share)	1.03
Year 5 (in dollars per share)	1.28
Year 6 (in dollars per share)	1.59
Year 7 (in dollars per share)	1.97
Year 8 (in dollars per share)	$ 2.45

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Note 9 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Tax Expense (Benefit)	$ 36,085	$ 14,277	$ 79,277	$ 132,144

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Note 10 - Related Party Transactions (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Related Party Transaction, Amounts of Transaction	$ 56,000	$ 111,000	$ 169,000	$ 421,000

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Note 11 - Commitments and Contingencies (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Operating Leases, Rent Expense, Net	$ 688,031	$ 903,771	$ 2,114,118	$ 2,510,782

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Note 11 - Commitments and Contingencies - Summary of Future Minimum Rental Payments for Operating Leases (Details)	Sep. 30, 2017 USD ($)
2017 (remaining)	$ 599,401
2018	1,910,339
2019	1,591,678
2020	1,321,133
2021	1,180,012
2022	1,072,743
Thereafter	3,060,963
Total	$ 10,736,269

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Note 12 - Segment Reporting (Details Textual)	9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016
Number of Operating Segments	2
Number of Stores	389	354
The 12 Months Ended December 31, 2016 [Member] | Reclassified from Other Unallocated Assets to Corporate Clinics Segment Assets [Member]
Prior Period Reclassification Adjustment	$ 545,000
Corporate Clinics [Member]
Number of Stores	47
Franchise Operations [Member]
Number of Stores	342

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Note 12 - Segment Reporting - Segment Reporting Financial Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues	$ 6,545,851	$ 5,503,590	$ 18,234,516	$ 14,742,668
Operating income (loss)	(377,630)	(2,618,494)	(2,949,169)	(9,286,463)
Depreciation and amortization	468,800	695,579	1,550,013	1,908,238
Other (expense) income, net	9,907	5,877	(33,589)	5,200
Loss before income tax expense	(367,723)	(2,612,617)	(2,982,758)	(9,281,263)
Operating Segments [Member]
Operating income (loss)	1,475,000	(332,000)	3,246,000	(1,666,000)
Corporate, Non-Segment [Member]
Operating income (loss)	(1,853,000)	(2,287,000)	(6,195,000)	(7,620,000)
Corporate Clinics [Member]
Revenues	2,930,000	2,341,000	8,106,000	6,137,000
Operating income (loss)	(196,000)	(1,527,000)	(1,233,000)	(4,863,000)
Depreciation and amortization	379,000	599,000	1,222,000	1,625,000
Franchise Operations [Member]
Revenues	3,616,000	3,163,000	10,128,000	8,605,000
Operating income (loss)	1,671,000	1,195,000	4,479,000	3,197,000
Depreciation and amortization
Corporate Segment [Member]
Depreciation and amortization	$ 90,000	$ 97,000	$ 328,000	$ 283,000

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Note 12 - Segment Reporting - Segment Reporting Information, Assets (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Total assets	$ 15,648,006	$ 17,054,861
Unallocated cash and cash equivalents and restricted cash	2,628,648	3,009,864	$ 3,386,498	$ 16,792,850
Unallocated property and equipment	3,849,952	4,724,706
Operating Segments [Member]
Total assets	11,603,000	12,484,000
Unallocated cash and cash equivalents and restricted cash	2,786,000	3,344,000
Unallocated property and equipment	655,000	781,000
Other unallocated assets	604,000	446,000
Corporate Clinics [Member]
Total assets	9,250,000	10,481,000
Franchise Operations [Member]
Total assets	$ 2,353,000	$ 2,003,000

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Note 13 - Subsequent Events (Details Textual) - Subsequent Event [Member] - Promissory Note [Member] - Regional Developer Agreement with Texas, Arkansas, and Oklahoma [Member]	Oct. 10, 2017 USD ($)
Proceeds from Notes Payable	$ 170,000
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Debt Instrument, Term	3 years