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 March 31, 2018

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 May 4, 2018, the registrant had 13,593,754 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 March 31, 2018 (unaudited) and December 31, 2017	1
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)	2
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)	3
		Notes to Unaudited Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 4.	Controls and Procedures	23
Part I, Item 3 – Not applicable
PART II OTHER INFORMATION
	Item 1.	Legal Proceedings	24
	Item 1A.	Risk Factors	24
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
	Item 6.	Exhibits	24
	SIGNATURES		25
	EXHIBIT INDEX		26
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

	March 31, 2018			December 31, 2017
ASSETS	(unaudited)			(as adjusted)
Current assets:
Cash and cash equivalents	$	4,033,730		$	4,216,221
Restricted cash		134,189			103,819
Accounts receivable, net		1,047,540			1,138,380
Notes receivable - current portion		176,262			171,928
Deferred franchise costs - current portion		522,123			498,433
Prepaid expenses and other current assets		733,502			542,342
Total current assets		6,647,346			6,671,123
Property and equipment, net		3,719,459			3,800,466
Notes receivable, net of current portion and reserve		306,132			351,857
Deferred franchise costs, net of current portion		2,422,698			2,312,837
Intangible assets, net		1,636,978			1,760,042
Goodwill		2,916,426			2,916,426
Deposits and other assets		594,213			611,808
Total assets	$	18,243,252		$	18,424,559
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	935,658		$	1,068,668
Accrued expenses		197,812			86,959
Co-op funds liability		134,189			89,681
Payroll liabilities		846,919			867,430
Notes payable - current portion		100,000			100,000
Deferred rent - current portion		173,010			152,198
Deferred franchise revenue - current portion		1,986,524			1,994,182
Deferred revenue from company clinics		905,625			867,804
Other current liabilities		388,354			72,534
Total current liabilities		5,668,091			5,299,456
Notes payable, net of current portion		1,000,000			1,000,000
Deferred rent, net of current portion		750,010			802,492
Deferred franchise revenue, net of current portion		9,602,898			9,560,242
Deferred tax liability		57,191			136,434
Other liabilities		106,562			411,497
Total liabilities		17,184,752			17,210,121
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 shares issued and outstanding, as of March 31, 2018, and December 31, 2017		-			-
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,607,838 shares issued and 13,593,754 shares outstanding as of March 31, 2018 and 13,600,338 shares issued and 13,586,254 outstanding as of December 31, 2017		13,607			13,600
Additional paid-in capital		37,460,828			37,229,869
Treasury stock 14,084 shares as of March 31, 2018 and December 31, 2017, at cost		(86,045	)		(86,045	)
Accumulated deficit		(36,329,890	)		(35,942,986	)
Total stockholders' equity		1,058,500			1,214,438
Total liabilities and stockholders' equity	$	18,243,252		$	18,424,559

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 March 31,
	2018			2017
Revenues:					(as adjusted)
Revenues and management fees from company clinics	$	3,256,624		$	2,496,334
Royalty fees		2,273,988			1,706,073
Franchise fees		348,337			295,540
Advertising fund revenue		659,030			598,436
Software fees		307,475			267,013
Regional developer fees		135,011			64,146
Other revenues		117,450			79,605
Total revenues		7,097,915			5,507,147
Cost of revenues:
Franchise cost of revenues		872,768			634,855
IT cost of revenues		99,564			58,861
Total cost of revenues		972,332			693,716
Selling and marketing expenses		1,102,304			958,706
Depreciation and amortization		387,417			577,987
General and administrative expenses		5,074,927			4,564,078
Total selling, general and administrative expenses		6,564,648			6,100,771
Loss on disposition or impairment		-			417,971
Loss from operations		(439,065	)		(1,705,311	)
Other (expense) income, net		(11,194	)		(19,465	)
Loss before income tax benefit (expense)		(450,259	)		(1,724,776	)
Income tax benefit (expense)		63,355			(40,609	)
Net loss and comprehensive loss	$	(386,904	)	$	(1,765,385	)
Loss per share:
Basic and diluted loss per share	$	(0.03	)	$	(0.14	)
Basic and diluted weighted average shares		13,587,837			13,042,595

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)

	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:					(as adjusted)
Net loss	$	(386,904	)	$	(1,765,385	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		387,417			577,987
Loss on sale of property and equipment		388			-
Loss on disposition or impairment of assets		-			417,971
Deferred income taxes		(79,243	)		36,220
Stock based compensation expense		207,641			95,065
Changes in operating assets and liabilities:
Accounts receivable		90,840			(214,860	)
Income taxes receivable		-			38,960
Prepaid expenses and other current assets		(191,160	)		(393,995	)
Deferred franchise costs		(133,551	)		111,132
Deposits and other assets		17,595			40,868
Accounts payable		(133,010	)		34,228
Accrued expenses		110,853			(138,455	)
Co-op funds liability		44,508			21,761
Payroll liabilities		(20,511	)		(353,326	)
Other liabilities		10,885			101,014
Deferred rent		(31,670	)		(309,367	)
Deferred revenue		72,819			421,622
Net cash used in operating activities		(33,103	)		(1,278,560	)
Cash flows from investing activities:
Purchase of property and equipment		(183,734	)		(39,325	)
Payments received on notes receivable		41,391			10,008
Net cash used in investing activities		(142,343	)		(29,317	)
Cash flows from financing activities:
Borrowings on revolving credit note payable		-			1,000,000
Proceeds from exercise of stock options		23,325			116,277
Repayments on notes payable		-			(163,500	)
Net cash provided by financing activities		23,325			952,777
Decrease in cash		(152,121	)		(355,100	)
Cash and restricted cash, beginning of period		4,320,040			3,344,258
Cash and restricted cash, end of period	$	4,167,919		$	2,989,158

During the three months ended March 31, 2018 and 2017, cash paid for income taxes was $0 and $5,875, respectively. During the three months ended March 31, 2018 and 2017, cash paid for interest was $25,000 and $30,161, respectively.

Supplemental disclosure of non-cash activity:

As of March 31, 2018 and December 31, 2017, we had property and equipment purchases of $0 and $50,474, respectively, included in accounts payable. 

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

3

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 (“GAAP”). 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 March 31, 2018 and 2017 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 March 31, 2018 and 2017 is unaudited.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue under the new revenue standard, see Note 2, Revenue Disclosures. Certain balances were reclassified from general and administrative expenses to other expense, net, as well as certain balances from other revenues to revenues and management fees from company clinics for the period ended March 31, 2017 to conform to the current year presentation and align with the segment footnote presentation.

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.

Comprehensive Loss

Net loss and comprehensive loss are the same for the three months ended March 31, 2018 and 2017.

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.  

4

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three months ended March 31, 2018 and 2017:

	Three Months Ended  March 31,
Franchised clinics:	2018		2017
Clinics in operation at beginning of period		352		309
Opened or Purchased during the period		7		18
Acquired during the period		-		-
Closed during the period		-		(1	)
Clinics in operation at the end of the period		359		326

	Three Months Ended  March 31,
Company-owned or managed clinics:	2018		2017
Clinics in operation at beginning of period		47		61
Opened during the period		-		-
Acquired during the period		-		-
Closed or sold during the period		-		(14	)
Clinics in operation at the end of the period		47		47
Total clinics in operation at the end of the period		406		373
Clinics licenses sold but not yet developed		114		107
Executed letters of intent for future clinic licenses		8		-

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 March 31, 2018 and December 31, 2017.

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 March 31, 2018, one PC entity and one franchise represented 7% of outstanding accounts receivable. As of December 31, 2017, one PC entity and six franchisees represented 13% of outstanding accounts receivable. The Company did not have any customers that represented greater than 10% of its revenues during the three months ended March 31, 2018 and 2017.

5

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees and royalty fees. 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 March 31, 2018 and December 31, 2017, the Company had an allowance for doubtful accounts of $0.

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 over the term of the related franchise agreement.

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 three months ended March 31, 2018 and 2017.

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 three months ended March 31, 2018 and 2017.

6

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 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 shall be 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 liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows shall be recognized as an adjustment to the liability in the period of the change.

Lease exit liability at December 31, 2017	$	299,400
Additions		-
Settlements		-
Net accretion		(12,171	)
Lease exit liability at March 31, 2018	$	287,229

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 primarily through its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer software fees.

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.  Due to certain implicit variable consideration in these management agreement contracts, and based on past practices between the parties, the Company determined that it cannot meet the probable threshold if it includes all of the variable consideration in the transaction price. Therefore, the Company recognizes revenue under these contracts only when it has a high degree of confidence that revenue will not be reversed in a subsequent reporting period.

Royalties and Advertising Fund Revenue. 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. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchisee clinic level sales occur. Royalties are collected bi-monthly two working days after each sales period has ended.

7

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 ratably on a straight-line basis over the term of the franchise agreement.  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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

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 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 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 ratably on a straight-line basis over the term of the regional developer agreement, which is considered to be upon the execution of the agreement. 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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

 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 ratably on a straight-line basis over the term of the respective franchise agreement.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were $410,637 and $286,415 for the three months ended March 31, 2018 and 2017, 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.

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. The Company has not identified any material uncertain tax positions as of March 31, 2018 and December 31, 2017. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.

The Tax Cuts and Jobs Act of 2017 (the “2017 Tax”) Act was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The Company has not completed its determination of the accounting implications of the 2017 Tax Act on its accruals. However, it has reasonably estimated the effects of the 2017 Tax Act and recorded provisional amounts in its financial statements as of March 31, 2018. As the Company completes its analysis of the 2017 Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it may make adjustments to the provisional amounts.

8

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 March 31,
	2018			2017
				(as adjusted)
Net loss	$	(386,904	)	$	(1,765,385	)
Weighted average common shares outstanding - basic		13,587,837			13,042,595
Effect of dilutive securities:
Stock options		-			-
Weighted average common shares outstanding - diluted		13,587,837			13,042,595
Basic and diluted loss per share	$	(0.03	)	$	(0.14	)

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 March 31,
	2018		2017
Unvested restricted stock		63,700		80,070
Stock options		1,053,811		916,915
Warrants		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 GAAP 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

Accounting Standards Adopted Effective January 1, 2018

On January 1, 2018, the Company adopted the guidance of Accounting Standards Codification 606 - Revenue from Contracts with Customers (“ASC 606”). The Company adopted this change in accounting principles using the full retrospective method to all contracts at the date of initial application. Accordingly, previously reported financial information has been restated to reflect the application of ASC 606 to all comparative periods presented. The Company utilized all of the practical expedients for adoption allowed under the full retrospective method. The Company believes utilization of the practical expedients did not have a significant impact on the consolidated financial statements of the periods presented herein.

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Adoption of ASC 606 impacted our previously reported consolidated balance sheet as follows (in thousands):

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
	As of December 31, 2017			Adjustments due to ASC 606 adoption			As of December 31, 2017
ASSETS	(as reported)						(as adjusted)
Current assets:
Deferred franchise costs - current portion	$	484		$	14		$	498
Total current assets		6,657			14			6,671
Deferred franchise costs, net of current portion		813			1,500			2,313
Total assets	$	16,910		$	1,515		$	18,425
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred franchise revenue - current portion	$	1,686		$	308		$	1,994
Other current liabilities		49			24			73
Total current liabilities		4,967			332			5,299
Deferred revenue, net of current portion		4,693			4,867			9,560
Total liabilities		12,011			5,199			17,210
Stockholders' equity:
Accumulated deficit		(32,259	)		(3,684	)		(35,943	)
Total stockholders' equity		4,899			(3,684	)		1,215
Total liabilities and stockholders' equity	$	16,910		$	1,515		$	18,425

The revenue and deferred cost adjustments are due to the change in method of recognizing franchise and regional developer fees. See Note 2, Revenue Disclosures, for a description of these changes.

Adoption of ASC 606 impacted our previously reported condensed consolidated statement of operations for the three months ended March 31, 2017, as follows (in thousands, except per share data):

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended March 31, 2017			Adjustments due to ASC 606 adoption			Three Months Ended March 31, 2017
	(as reported)						(as adjusted)
Revenues:
Franchise fees	$	450		$	(154	)	$	296
Regional developer fees		77			(13	)		64
Total revenues		5,674			(167	)		5,507
Cost of revenues:
Franchise cost of revenues		683			(48	)		635
Total cost of revenues		742			(48	)		694
Loss from operations		(1,587	)		(118	)		(1,705	)
Loss before income tax expense		(1,606	)		(118	)		(1,725	)
Net loss and comprehensive loss	$	(1,647	)	$	(118	)	$	(1,765	)
Loss per share:
Basic and diluted loss per share	$	(0.13	)	$	(0.01	)	$	(0.14	)

The revenue and deferred cost adjustments are due to the change in method of recognizing franchise and regional developer fees. See Note 2, Revenue Disclosures, for a description of these changes.

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 Company retrospectively adopted the standard on January 1, 2018 and reclassified restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. Accordingly, we reclassified $21,843 of restricted cash into cash, cash equivalents, and restricted cash as of March 31, 2017, which resulted in an increase in net cash used in operating activities in the condensed consolidated statement of cash flows for the three months ended March 31, 2017. The adoption of the guidance also requires us to make disclosures about the nature of restricted cash balances. See previous discussion in Note 1. ‘Restricted Cash’ for these disclosures.

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Additional new accounting guidance became effective for the Company effective January 1, 2018 that the Company reviewed and concluded was either not applicable to the Company's operations or had no material effect on the Company's consolidated financial statements.

Newly Issued Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually all leases, other than leases with a term of 12 months or less, and to provide additional disclosures about leasing arrangements. Accounting by lessors is largely unchanged from existing accounting guidance. The Company will be required to adopt the new guidance on a modified retrospective basis beginning with its first fiscal quarter of 2019. Early adoption is permitted.

While the Company is still in the process of evaluating the impact of the new guidance on its consolidated financial statements and disclosures, the Company expects adoption of the new guidance will have a material impact on its Consolidated Balance Sheets due to recognition of the right-of-use asset and lease liability related to its operating leases. While the new guidance is also expected to impact the measurement and presentation of elements of expenses and cash flows related to leasing arrangements, the Company does not presently believe there will be a material impact on its Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. Recognition of a lease liability related to operating leases will not impact any covenants related to the Company's long-term debt because the debt agreements specify that covenant ratios be calculated using U.S. GAAP in effect at the time the debt agreements were entered into.

The Company reviewed other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements upon future adoption.

Note 2: Revenue Disclosures

Company-owned or Managed 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.  Due to certain implicit variable consideration in these management agreement contracts, and based on past practices between the parties, the Company determined that it cannot meet the probable threshold if it includes all of the variable consideration in the transaction price. Therefore, the Company recognizes revenue under these contracts only when it has a high degree of confidence that revenue will not be reversed in a subsequent reporting period.

Franchising Fees, Royalty Fees, Advertising Fund Revenue, and Software Fees

The Company currently franchises its concept across 29 states. The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise arrangement primarily consists of (a) initial franchise fees; (b) continuing franchise fees (royalties); (c) advertising fees; and (d) software fees. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required.

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The Company recognizes the primary components of the transaction price as follows:

• Franchise fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the execution of the franchise agreement. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;

• The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue is recognized when the franchisee's sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet.

• The Company is entitled to a monthly software fee, which is charged monthly. The Company recognizes revenue related to these software fees ratably on a straight-line basis over the term of the franchise agreement.

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgments as it is based on either the franchise term, or the reported sales of the franchisee, none of which require estimation. The Company believes its franchising arrangements do not contain a significant financing component.

Prior to the adoption of ASC 606, the Company generally recognized the entire franchise fee as revenue at the clinic opening date. The impact on the Company's previously reported financial statements of the change from that policy to the policy described above is presented in Note 1, Nature of Operations and Summary of Significant Accounting Policies.

Under ASC 606, the Company will record advertising fees received under franchise agreements as advertising fund revenue. Under previously issued accounting guidance for franchisors, advertising revenue and expense were recognized in the same amount in each period. That guidance was superseded by ASC 606 such that advertising expense may now be different than the advertising revenue recognized as described above. The impact of these changes with respect to advertising fees and advertising expenses on the Company's previously reported financial statements was not material.

Regional Developer Fees

The Company currently utilizes eighteen regional developers to assist in the development of the brand across certain geographic territories. The arrangement is documented in the form of a regional developer agreement. The arrangement between the Company and the regional developer requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the regional developer, but instead represent a single performance obligation, which is the transfer of the development rights to the defined geographic region. The intellectual property subject to the development rights is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the development rights is to provide the regional developer with access to the brand’s symbolic intellectual property over the term of the agreement. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation.

The transaction price in a standard regional developer arrangement primarily consists of the initial territory fees. The Company recognizes the regional developer fee as revenue ratably on a straight-line basis over the term of the regional developer agreement commencing with the execution of the regional developer agreement. As these fees are typically received in cash at or near the beginning of the term of the regional developer agreement, the cash received is initially recorded as a contract liability until recognized as revenue over time.

Disaggregation of Revenue

The Company believes that the captions contained on the condensed consolidated statements of operations appropriately reflect the disaggregation of its revenue by major type for the three months ended March 31, 2018 and 2017.

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Rollforward of Contract Liabilities and Contract Assets

Changes in the Company's contract liability for deferred franchise and regional development fees during the three months ended March 31, 2018 were as follows (in thousands):

	Deferred Revenue (short- and long- term)
Balance at December 31, 2017	$	11,554
Recognized as revenue during the three months ended March 31, 2018		(483	)
Fees received and deferred during the three months ended March 31, 2018		518
Balance at March 31, 2018	$	11,589

Changes in the Company's contract assets for deferred franchise costs during the three months ended March 31, 2018 are as follows (in thousands):

	Deferred Franchise Costs (short- and long- term)
Balance at December 31, 2017	$	2,811
Recognized as cost of revenue during the three months ended March 31, 2018		(126	)
Costs incurred and deferred during the three months ended March 31, 2018		260
Balance at March 31, 2018	$	2,945

The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2018 (in thousands):

Contract liabilities expected to be recognized in	Amount
2018 (remaining)	$	1,497
2019		1,987
2020		1,988
2021		1,863
2022		1,432
Thereafter		2,822
Total	$	11,589

Note 3. Restricted Cash

The table below reconciles the cash and cash equivalents balance and restricted cash balances from our condensed consolidated balance sheet to the amount of cash reported on the condensed consolidated statement of cash flows:

	March 31, 2018		March 31, 2017
Cash and cash equivalents	$	4,033,730	$	2,676,607
Restricted cash		134,189		312,551
Total cash, cash equivalents and restricted cash	$	4,167,919	$	2,989,158

Note 4: Notes Receivable

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.

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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.

Effective October 10, 2017, the Company entered into a regional developer agreement for certain territories in Texas, Oklahoma and Arkansas in exchange for $170,000, of which $135,688 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 24, 2017 and maturing on October 24, 2020. The note is secured by the regional developer rights in the respective territory.

The net outstanding balances of the notes as of March 31, 2018 and December 31, 2017 were $482,395 and $523,785, respectively.

Note 5: Property and Equipment

Property and equipment consists of the following:

	March 31, 2018			December 31, 2017
Office and computer equipment	$	1,170,334		$	1,137,970
Leasehold improvements		5,162,883			5,117,379
Software developed		1,147,594			1,066,454
		7,480,811			7,321,803
Accumulated depreciation		(4,192,702	)		(3,928,349	)
		3,288,109			3,393,454
Construction in progress		431,350			407,012
	$	3,719,459		$	3,800,466

Depreciation expense was $264,353 and $403,131 for the three months ended March 31, 2018 and 2017 respectively.

Note 6: 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 March 31, 2018 and December 31, 2017, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.

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Note 7: Intangible Assets

Intangible assets consist of the following:

	As of March 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	719,757	$	953,243
Customer relationships		701,000		694,417		6,583
Reacquired development rights		1,162,000		484,848		677,152
	$	3,536,000	$	1,899,022	$	1,636,978

	As of December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	657,943	$	1,015,057
Customer relationships		701,000		674,667		26,333
Reacquired development rights		1,162,000		443,348		718,652
	$	3,536,000	$	1,775,958	$	1,760,042

Amortization expense was $123,064 and $174,856 for the three months ended March 31, 2018 and 2017, respectively.

Estimated amortization expense for 2018 and subsequent years is as follows:

2018 (remainder)	$	316,525
2019		413,256
2020		413,256
2021		348,034
2022		133,693
Thereafter		12,214
Total	$	1,636,978

Note 8: Debt

Notes Payable 

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

During 2016, the Company issued 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 of 2017. There is one outstanding note which will be paid upon execution of a final settlement and release agreement between the parties.

Maturities of notes payable are as follows as of March 31, 2018:

2018 (remainder)	$	100,000
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 March 31, 2018, the Company had drawn $1,000,000 of the $5,000,000 available under the Credit Agreement.

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Note 9: Equity

Stock Options

In the three months ended March 31, 2018, the Company granted 60,000 stock options to employees with exercise prices ranging from $4.92 - $6.85. 

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 three months ended March 31, 2018 and 2017, using the following assumptions:

	Three Months Ended March 31,
	2018			2017
Expected volatility	42%	-	43%		42%
Expected dividends		None			None
Expected term (years)		7			7
Risk-free rate	2.53%	to	2.63%	2.10%	to	2.14%
Forfeiture rate		20	%		20%

The information below summarizes the stock options activity:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Fair  Value		Weighted Average Remaining Contractual Life
Outstanding at December 31, 2016		953,075		$	3.66	$	1.86		6.9
Granted at market price		295,286			4.31
Exercised		(206,875	)		1.76
Cancelled		(37,570	)		5.11
Outstanding at December 31, 2017		1,003,916		$	4.18	$	1.87		8.1
Granted at market price		60,000			5.89
Exercised		(7,500	)		3.11
Cancelled		(2,605	)		5.03
Outstanding at March 31, 2018		1,053,811		$	4.29	$	1.93		8.0
Exercisable at March 31, 2018		476,601		$	4.77	$	2.07		7.6

The intrinsic value of the Company’s stock options outstanding was $2,885,475 at March 31, 2018.

For the three months ended March 31, 2018 and 2017, stock-based compensation expense for stock options was $139,172 and $51,038, respectively.  Unrecognized stock-based compensation expense for stock options as of March 31, 2018 was $867,997, which is expected to be recognized ratably over the next 2.9 years.

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Restricted Stock

The information below summaries the restricted stock activity:

Restricted Stock Awards	Shares
Outstanding at December 31, 2017		63,700
Awards granted		-
Awards vested		-
Awards forfeited		-
Outstanding at March 31, 2018		63,700

For the three months ended March 31, 2018 and 2017, stock-based compensation expense for restricted stock was $68,469 and $44,027, respectively. Unrecognized stock-based compensation expense for restricted stock awards as of March 31, 2018 was $74,772, the majority of which will be recognized on June 1, 2018.  

Note 10: Income Taxes

During the three months ended March 31, 2018 and 2017, the Company recorded income tax (benefit) expense of approximately ($63,000) and $41,000, respectively. The Company’s effective tax rate differs from the federal statutory tax rate due to permanent differences in state taxes and changes in the valuation allowance.

Note 11: 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 $48,000 and $52,000 for the three months ended March 31, 2018 and 2017, respectively.

Note 12: 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 months ended March 31, 2018 and 2017 was $685,677 and $744,295, respectively.  

Future minimum annual lease payments are as follows:

2018 (remainder)	$	1,904,467
2019		2,354,982
2020		2,105,402
2021		1,991,650
2022		1,879,686
Thereafter		3,253,292
Total	$	13,489,479

Note 13: 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 March 31, 2018, 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 March 31, 2018, the franchise system consisted of 359 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 March 31,
	2018			2017
Revenues:				(as adjusted)
Corporate clinics	$	3,257		$	2,497
Franchise operations		3,841			3,010
Total revenues	$	7,098		$	5,507
Segment operating (loss) income:
Corporate clinics	$	111		$	(1,017	)
Franchise operations		1,815			1,233
Total segment operating (loss) income	$	1,926		$	216
Depreciation and amortization:
Corporate clinics	$	303		$	444
Franchise operations		-			-
Corporate administration		84			134
Total depreciation and amortization	$	387		$	578
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	1,926		$	216
Unallocated corporate		(2,365	)		(1,921	)
Consolidated loss from operations		(439	)		(1,705	)
Other (expense) income, net		(11	)		(19	)
Loss before income tax expense	$	(450	)	$	(1,725	)

	March 31, 2018		December 31, 2017
Segment assets:				(as adjusted)
Corporate clinics	$	8,695	$	8,998
Franchise operations		3,938		3,876
Total segment assets	$	12,633	$	12,874
Unallocated cash and cash equivalents and restricted cash	$	4,168	$	4,320
Unallocated property and equipment		777		765
Other unallocated assets		665		466
Total assets	$	18,243	$	18,425

“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.

Note 14: Subsequent Events

On April 6, 2018, the Company entered into an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller one operating franchise in San Diego, California and (ii) the parties agreed to mutually terminate a second franchise agreement for an operating franchise. The Company intends to operate the remaining franchise as a company-managed clinic. The total purchase price for the transaction was $100,000.

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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, 2017 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, 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 contained in Item 1A of our Form 10-K for the year ended December 31, 2017 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;

• 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;

• 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;

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

• the chiropractic industry is highly competitive, with many well-established competitors;

• 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 and 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.

19

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 strive to be the leading provider of chiropractic care in the markets we serve and to increase brand recognition in our industry through the expansion of chiropractic clinics in key markets throughout North America and abroad.

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.   As of March 31, 2018, we and our franchisees operated 406 clinics. Of the 47 company-owned or managed clinics, 16 were constructed and developed by us, and 31 were acquired from franchisees.

Our current strategy is to grow through the sale and development of additional franchises and to foster the growth of acquired and developed clinics that we own and manage. In addition, we believe that we can accelerate the development of, and revenue generation from, company-owned or managed clinics through the further selective acquisition of existing franchised clinics. We will seek to acquire existing franchised clinics that meet our criteria for demographics, site attractiveness, proximity to other clinics and additional suitability factors.

We believe that The Joint has a sound 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 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.

Significant Events and/or Recent Developments

We continue to deliver on our strategic initiatives and achieved our third consecutive quarter of positive Adjusted EBITDA. In 2018, we are well positioned to accelerate growth by implementing three key strategies: (1) continue to accelerate franchise sales; (2) continue to build upon our regional developer strategy; and (3) expand our corporate clinics portfolio within clustered locations. Following these strategic initiatives, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, we saw gross system-wide sales grow by 32%, system-wide comp sales – or “same store” retail sales of clinics that have been open for at least 13 full months – increase by 26%, and our revenue grow by 29%. These factors drove improvement in our bottom line, and we continue to drive toward sustainable profitability with our net loss decreasing by $1.4 million to $0.4 million for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. Further, cash and cash equivalents were relatively stable at $4.0 million dollars at March 31, 2018 compared to $4.2 million at December 31, 2017.

Factors Affecting Our Performance

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

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 replaced most existing revenue recognition guidance in U.S. GAAP. The Company adopted the new standard effective January 1, 2018. The Company expects the adoption of this standard to negatively impact 2018 consolidated franchise fee revenues by approximately $0.2 million, favorably impact regional developer fees revenue by approximately $0.2 million, and favorably decrease franchise cost of revenue by approximately $0.1 million as compared to forecasted amounts under previous GAAP.

Significant Accounting Polices and Estimates

There were no changes in our significant accounting policies and estimates during the three months ended March 31, 2018 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017, except as outlined in Note 1, Nature of Operations and Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this report as it relates to revenue recognition under ASC 606.

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. 

20

Total Revenues – Three Months Ended March 31, 2018

Components of revenues for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, are as follows:

	Three Months Ended March 31,
	2018		2017		Change from Prior Year		Percent Change from Prior Year
Revenues:
Revenues and management fees from company clinics	$	3,256,624	$	2,496,334	$	760,290		30.5	%
Royalty fees		2,273,988		1,706,073		567,915		33.3	%
Franchise fees		348,337		295,540		52,797		17.9	%
Advertising fund revenue		659,030		598,436		60,594		10.1	%
Software fees		307,475		267,013		40,462		15.2	%
Regional developer fees		135,011		64,146		70,865		110.5	%
Other revenues		117,450		79,605		37,845		47.5	%
Total revenues	$	7,097,915	$	5,507,147	$	1,590,768		28.9	%

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

Consolidated Results

• Total revenues increased by $1.6 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, primarily due 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 March 31, 2018, and 2017, there were 359 and 326 franchised clinics in operation, respectively.

• Franchise fees increased due to an increase in franchise agreements executed during the period.

• Regional developer fees increased due to the sale of seven additional regional developer territories.

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

Cost of Revenues

	Three Months Ended March 31,				Change from		Percent Change
	2018		2017		Prior Year		from Prior Year
Cost of Revenues	$	972,332	$	693,716	$	278,616		40.2	%

For the three months ended March 31, 2018, as compared with the three months ended March 31, 2017, the total cost of revenues increased due to an increase in regional developer royalties of $0.3 million triggered by an increase of royalty revenues of approximately 33%.

21

Selling and Marketing Expenses

	Three Months Ended March 31,				Change from		Percent Change
	2018		2017		Prior Year		from Prior Year
Selling and Marketing Expenses	$	1,102,304	$	958,706	$	143,598		15.0	%

Selling and marketing expenses increased for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017, driven by an increase in local marketing expenditures by the company-owned or managed clinics and higher franchise sales advertising expenditures. 

Depreciation and Amortization Expenses

	Three Months Ended March 31,				Change from			Percent Change
	2018		2017		Prior Year			from Prior Year
Depreciation and Amortization Expenses	$	387,417	$	577,987	$	(190,570	)		(33.0	)%

Depreciation and amortization expenses decreased for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017, primarily due to the sale or closure of 14 company-owned or managed clinics.

General and Administrative Expenses

	Three Months Ended March 31,				Change from		Percent Change
	2018		2017		Prior Year		from Prior Year
General and Administrative Expenses	$	5,074,927	$	4,564,078	$	510,849		11.2	%

General and administrative expenses increased during the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to an increase of approximately $0.5 million in payroll related expenses due to wage merit increases and accrued bonus for the 2018 period.  

Loss from Operations - Three Months Ended March 31, 2018

	Three Months Ended March 31,						Change from		Percent Change
	2018			2017			Prior Year		from Prior Year
Loss from Operations	$	(439,065	)	$	(1,705,311	)	$	1,266,246		(74.3	)%

Consolidated Results

Consolidated loss from operations decreased by $1.3 million for the period ended March 31, 2018 compared to the period ended March 31, 2017, primarily driven by the $1.1 million improvement in operating income (loss) in the corporate clinic segment discussed below, and an increase in net income from franchised operations of $0.7 million discussed below, offset by an increase in unallocated corporate overhead of $0.4 million.

Corporate Clinics

Our corporate clinics segment (i.e., company-owned or managed clinics) had income from operations of $0.1 million for the period ended March 31, 2018, an improvement of $1.1 million compared to a loss from operations of $1.0 million for the same period last year. This improvement was primarily due to:

• An increase in revenues of approximately $0.8 million from company-owned or managed clinics; and

• A decrease of approximately $0.4 million of loss from disposition or impairment due to lease exits in the three months ended March 31, 2017 that did not recur, offset by an increase of approximately $0.1 million in selling and marketing expenses related to increased local marketing expenditures by the company-owned or managed clinics.

Franchise Operations

Our franchise operations segment had net income from operations of $1.8 million for the three months ended March 31, 2018, an increase of $0.6 million, compared to net income from operations of $1.2 million for the same period ended March 31, 2017. This increase was primarily due to:

• An increase of approximately $0.8 million in total revenues (net of national marketing fund contributions), due primarily to an approximately 33% increase in franchise royalty revenues; offset by

• An increase of approximately $0.3 million in regional developer royalties.

22

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 March 31, 2018, we had cash and short-term bank deposits of approximately $4.0 million. We used approximately $33,000 of cash flow from operating activities in the three months ended March 31, 2018. We will continue to preserve cash, and while we plan to resume the acquisition and development of company-owned or managed clinics, we intend to progress at a measured pace and target geographic clusters where we are able to increase efficiencies through a consolidated real estate penetration strategy, leverage cooperative advertisement and marketing and attain general corporate and administrative operating efficiencies.

In January 2017, we executed a Credit and Security Agreement which provided a credit facility up to $5.0 million. We have drawn $1.0 million under the credit facility. See Note 8 to our condensed consolidated financial statements included in this report for additional discussion of the credit facility.

Analysis of Cash Flows

Net cash used in operating activities decreased by $1,245,457 to $33,103 for the three months ended March 31, 2018 compared to $1,278,560 for the three months ended March 31, 2017. 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 $142,343 and $29,317 for the three months ended March 31, 2018 and 2017, respectively.  For the three months ended March 31, 2018, this includes purchases of fixed assets of $183,734 and payments received on notes receivable of $41,391.  For the three months ended March 31, 2017, this includes purchases of fixed assets of $39,325 and payments received on notes receivable of $10,008.

Net cash provided by financing activities was $23,325 and $952,777 for the three months ended March 31, 2018 and 2017, respectively. For the three months ended March 31, 2018, this includes proceeds from exercise of stock options. For the three months ended March 31, 2017, this includes borrowings of $1,000,000 on our revolving line of credit, $116,277 from the exercise of stock options and $163,500 from repayments on notes payable.

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

During the three months ended March 31, 2018, 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 March 31, 2018. 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 March 31, 2018, 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. 

23

Changes in Internal Control over Financial Reporting

During the first quarter of 2018, we implemented new controls in connection with our adoption of the Accounting Standards Updates related to Topic 606, Revenue from Contracts with Customers. No other changes 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 March 31, 2018 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

As a smaller reporting company, we are not required to provide the information required by this item.

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. 

24

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: May 11, 2018	By:	/s/ Peter D. Holt
		Peter D. Holt
		President and Chief Executive Officer
		(Principal Executive Officer)

Dated: May 11, 2018	By:	/s/ John P. Meloun
		John P. Meloun
		Chief Financial Officer
		(Principal Financial Officer)

25

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.

26

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 March 31, 2018 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: May 11, 2018

/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 March 31, 2018 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: May 11, 2018

/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 March 31, 2018, 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 May 11, 2018

By:	/s/ John P. Meloun
	John P. Meloun
	Chief Financial Officer
	(Principal Financial Officer)
Dated May 11, 2018

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 04, 2018
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)		13,593,754
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 4,033,730	$ 4,216,221
Restricted cash	134,189	103,819
Accounts receivable, net	1,047,540	1,138,380
Notes receivable - current portion	176,262	171,928
Deferred franchise costs - current portion	522,123	498,433
Prepaid expenses and other current assets	733,502	542,342
Total current assets	6,647,346	6,671,123
Property and equipment, net	3,719,459	3,800,466
Notes receivable, net of current portion and reserve	306,132	351,857
Deferred franchise costs, net of current portion	2,422,698	2,312,837
Intangible assets, net	1,636,978	1,760,042
Goodwill	2,916,426	2,916,426
Deposits and other assets	594,213	611,808
Total assets	18,243,252	18,424,559
Current liabilities:
Accounts payable	935,658	1,068,668
Accrued expenses	197,812	86,959
Co-op funds liability	134,189	89,681
Payroll liabilities	846,919	867,430
Notes payable - current portion	100,000	100,000
Deferred rent - current portion	173,010	152,198
Deferred franchise revenue - current portion	1,986,524	1,994,182
Deferred revenue from company clinics	905,625	867,804
Other current liabilities	388,354	72,534
Total current liabilities	5,668,091	5,299,456
Notes payable, net of current portion	1,000,000	1,000,000
Deferred rent, net of current portion	750,010	802,492
Deferred franchise revenue, net of current portion	9,602,898	9,560,242
Deferred tax liability	57,191	136,434
Other liabilities	106,562	411,497
Total liabilities	17,184,752	17,210,121
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 shares issued and outstanding, as of March 31, 2018, and December 31, 2017
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,607,838 shares issued and 13,593,754 shares outstanding as of March 31, 2018 and 13,600,338 shares issued and 13,586,254 outstanding as of December 31, 2017	13,607	13,600
Additional paid-in capital	37,460,828	37,229,869
Treasury stock 14,084 shares as of March 31, 2018 and December 31, 2017, at cost	(86,045)	(86,045)
Accumulated deficit	(36,329,890)	(35,942,986)
Total stockholders' equity	1,058,500	1,214,438
Total liabilities and stockholders' equity	$ 18,243,252	$ 18,424,559

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
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)	13,607,838	13,600,338
Common stock, shares outstanding (in shares)	13,593,754	13,586,254
Treasury stock, shares (in shares)	14,084	14,084

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenues:
Revenue from Contract with Customer	$ 7,097,915	$ 5,507,147
Cost of revenues:
Total cost of revenues	972,332	693,716
Selling and marketing expenses	1,102,304	958,706
Depreciation and amortization	387,417	577,987
General and administrative expenses	5,074,927	4,564,078
Total selling, general and administrative expenses	6,564,648	6,100,771
Loss on disposition or impairment		417,971
Loss from operations	(439,065)	(1,705,311)
Other (expense) income, net	(11,194)	(19,465)
Loss before income tax benefit (expense)	(450,259)	(1,724,776)
Income tax benefit (expense)	63,355	(40,609)
Net loss and comprehensive loss	$ (386,904)	$ (1,765,385)
Loss per share:
Basic and diluted loss per share (in dollars per share)	$ (0.03)	$ (0.14)
Basic and diluted weighted average shares (in shares)	13,587,837	13,042,595
Revenues and Management Fees from Company Clinics [Member]
Revenues:
Revenue from Contract with Customer	$ 3,256,624	$ 2,496,334
Royalty [Member]
Revenues:
Revenue from Contract with Customer	2,273,988	1,706,073
Franchise [Member]
Revenues:
Revenue from Contract with Customer	348,337	295,540
Cost of revenues:
Cost of Goods and Services Sold	872,768	634,855
Advertising [Member]
Revenues:
Revenue from Contract with Customer	659,030	598,436
Technology Service [Member]
Revenues:
Revenue from Contract with Customer	307,475	267,013
Cost of revenues:
Cost of Goods and Services Sold	99,564	58,861
Regional Developer Fees [Member]
Revenues:
Revenue from Contract with Customer	135,011	64,146
Product and Service, Other [Member]
Revenues:
Revenue from Contract with Customer	$ 117,450	$ 79,605

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net loss	$ (386,904)	$ (1,765,385)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	387,417	577,987
Loss on sale of property and equipment	388
Loss on disposition or impairment of assets		417,971
Deferred income taxes	(79,243)	36,220
Stock based compensation expense	207,641	95,065
Changes in operating assets and liabilities:
Accounts receivable	90,840	(214,860)
Income taxes receivable		38,960
Prepaid expenses and other current assets	(191,160)	(393,995)
Deferred franchise costs	(133,551)	111,132
Deposits and other assets	17,595	40,868
Accounts payable	(133,010)	34,228
Accrued expenses	110,853	(138,455)
Co-op funds liability	44,508	21,761
Payroll liabilities	(20,511)	(353,326)
Other liabilities	10,885	101,014
Deferred rent	(31,670)	(309,367)
Deferred revenue	72,819	421,622
Net cash used in operating activities	(33,103)	(1,278,560)
Cash flows from investing activities:
Purchase of property and equipment	(183,734)	(39,325)
Payments received on notes receivable	41,391	10,008
Net cash used in investing activities	(142,343)	(29,317)
Cash flows from financing activities:
Borrowings on revolving credit note payable		1,000,000
Proceeds from exercise of stock options	23,325	116,277
Repayments on notes payable		(163,500)
Net cash provided by financing activities	23,325	952,777
Decrease in cash	(152,121)	(355,100)
Cash and restricted cash, beginning of period	4,320,040	3,344,258
Cash and restricted cash, end of period	$ 4,167,919	$ 2,989,158

XML

Supplemental Disclosure of Non-cash Activity

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

During the

three

months ended

March 31, 2018

and

2017,

cash paid for income taxes was

$0

and

$5,875,

respectively. During the

three

months ended

March 31, 2018

and

2017,

cash paid for interest was

$25,000

and

$30,161,

respectively.

Supplemental disclosure of non-cash activity:

As of

March 31, 2018

and

December 31, 2017,

we had property and equipment purchases of

$0

and

$50,474,

respectively, included in accounts payable. 

XML

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

3 Months Ended

Mar. 31, 2018

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 (“GAAP”). 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

March 31, 2018

and

2017

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

March 31, 2018

and

2017

is unaudited.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company

may

undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results

may

be different from these estimates. For a discussion of significant estimates and judgments made in recognizing revenue under the new revenue standard, see Note

2,

Revenue Disclosures

. Certain balances were reclassified from general and administrative expenses to other expense, net, as well as certain balances from other revenues to revenues and management fees from company clinics for the period ended

March 31, 2017

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

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.

Comprehensive Loss

Net loss and comprehensive loss are the same for the

three

months ended

March 31, 2018

and

2017.

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

months ended

March 31, 2018

and

2017:

	Three Months Ended  March 31,
Franchised clinics:	2018		2017
Clinics in operation at beginning of period		352		309
Opened or Purchased during the period		7		18
Acquired during the period		-		-
Closed during the period		-		(1	)
Clinics in operation at the end of the period		359		326

	Three Months Ended  March 31,
Company-owned or managed clinics:	2018		2017
Clinics in operation at beginning of period		47		61
Opened during the period		-		-
Acquired during the period		-		-
Closed or sold during the period		-		(14	)
Clinics in operation at the end of the period		47		47
Total clinics in operation at the end of the period		406		373
Clinics licenses sold but not yet developed		114		107
Executed letters of intent for future clinic licenses		8		-

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

March 31, 2018

and

December 31, 2017.

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

March 31, 2018,

one

PC entity and

one

franchise represented

7%

of outstanding accounts receivable. As of

December 31, 2017,

one

PC entity and

six

franchisees represented

13%

of outstanding accounts receivable. The Company did

not

have any customers that represented greater than

10%

of its revenues during the

three

months ended

March 31, 2018

and

2017.

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees and royalty fees. 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

March 31, 2018

and

December 31, 2017,

the Company had an allowance for doubtful accounts of

$0.

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 over the term of the related franchise agreement.

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

three

months ended

March 31, 2018

and

2017.

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

three

months ended

March 31, 2018

and

2017.

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 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 shall be 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 liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows shall be recognized as an adjustment to the liability in the period of the change.

Lease exit liability at December 31, 2017	$	299,400
Additions		-
Settlements		-
Net accretion		(12,171	)
Lease exit liability at March 31, 2018	$	287,229

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 primarily through its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer software fees.

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.  Due to certain implicit variable consideration in these management agreement contracts, and based on past practices between the parties, the Company determined that it cannot meet the probable threshold if it includes all of the variable consideration in the transaction price. Therefore, the Company recognizes revenue under these contracts only when it has a high degree of confidence that revenue will

not

be reversed in a subsequent reporting period.

Royalties and Advertising Fund Revenue.

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. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchisee clinic level sales occur. Royalties are collected bi-monthly

two

working days after each sales period has ended.

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 ratably on a straight-line basis over the term of the franchise agreement.  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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

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 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 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 ratably on a straight-line basis over the term of the regional developer agreement, which is considered to be upon the execution of the agreement. 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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

 

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 ratably on a straight-line basis over the term of the respective franchise agreement.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were

$410,637

and

$286,415

for the

three

months ended

March 31, 2018

and

2017,

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.

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. The Company has

not

identified any material uncertain tax positions as of

March 31, 2018

and

December 31, 2017.

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.

The Tax Cuts and Jobs Act of

2017

(the

“2017

Tax”) Act was signed into law on

December 22, 2017.

The

2017

Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from

35%

to

21%,

eliminating certain deductions, imposing a mandatory

one

-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The Company has

not

completed its determination of the accounting implications of the

2017

Tax Act on its accruals. However, it has reasonably estimated the effects of the

2017

Tax Act and recorded provisional amounts in its financial statements as of

March 31, 2018.

As the Company completes its analysis of the

2017

Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it

may

make adjustments to the provisional amounts.

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 March 31,
	2018			2017
				(as adjusted)
Net loss	$	(386,904	)	$	(1,765,385	)
Weighted average common shares outstanding - basic		13,587,837			13,042,595
Effect of dilutive securities:
Stock options		-			-
Weighted average common shares outstanding - diluted		13,587,837			13,042,595
Basic and diluted loss per share	$	(0.03	)	$	(0.14	)

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 March 31,
	2018		2017
Unvested restricted stock		63,700		80,070
Stock options		1,053,811		916,915
Warrants		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 GAAP 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

Accounting Standards Adopted Effective

January 1, 2018

On

January 1, 2018,

the Company adopted the guidance of Accounting Standards Codification

606

- Revenue from Contracts with Customers (“ASC

606”

). The Company adopted this change in accounting principles using the full retrospective method to all contracts at the date of initial application. Accordingly, previously reported financial information has been restated to reflect the application of ASC

606

to all comparative periods presented. The Company utilized all of the practical expedients for adoption allowed under the full retrospective method. The Company believes utilization of the practical expedients did

not

have a significant impact on the consolidated financial statements of the periods presented herein.

Adoption of ASC

606

impacted our previously reported consolidated balance sheet as follows (in thousands):

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
	As of December 31, 2017			Adjustments due to ASC 606 adoption			As of December 31, 2017
ASSETS	(as reported)						(as adjusted)
Current assets:
Deferred franchise costs - current portion	$	484		$	14		$	498
Total current assets		6,657			14			6,671
Deferred franchise costs, net of current portion		813			1,500			2,313
Total assets	$	16,910		$	1,515		$	18,425
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred franchise revenue - current portion	$	1,686		$	308		$	1,994
Other current liabilities		49			24			73
Total current liabilities		4,967			332			5,299
Deferred revenue, net of current portion		4,693			4,867			9,560
Total liabilities		12,011			5,199			17,210
Stockholders' equity:
Accumulated deficit		(32,259	)		(3,684	)		(35,943	)
Total stockholders' equity		4,899			(3,684	)		1,215
Total liabilities and stockholders' equity	$	16,910		$	1,515		$	18,425

The revenue and deferred cost adjustments are due to the change in method of recognizing franchise and regional developer fees. See Note

2,

Revenue Disclosures

, for a description of these changes.

Adoption of ASC

606

impacted our previously reported condensed consolidated statement of operations for the

three

months ended

March 31, 2017,

as follows (in thousands, except per share data):

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended March 31, 2017			Adjustments due to ASC 606 adoption			Three Months Ended March 31, 2017
	(as reported)						(as adjusted)
Revenues:
Franchise fees	$	450		$	(154	)	$	296
Regional developer fees		77			(13	)		64
Total revenues		5,674			(167	)		5,507
Cost of revenues:
Franchise cost of revenues		683			(48	)		635
Total cost of revenues		742			(48	)		694
Loss from operations		(1,587	)		(118	)		(1,705	)
Loss before income tax expense		(1,606	)		(118	)		(1,725	)
Net loss and comprehensive loss	$	(1,647	)	$	(118	)	$	(1,765	)
Loss per share:
Basic and diluted loss per share	$	(0.13	)	$	(0.01	)	$	(0.14	)

The revenue and deferred cost adjustments are due to the change in method of recognizing franchise and regional developer fees. See Note

2,

Revenue Disclosures

, for a description of these changes.

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 Company retrospectively adopted the standard on

January 1, 2018

and reclassified restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. Accordingly, we reclassified

$21,843

of restricted cash into cash, cash equivalents, and restricted cash as of

March 31, 2017,

which resulted in an increase in net cash used in operating activities in the condensed consolidated statement of cash flows for the

three

months ended

March 31, 2017.

The adoption of the guidance also requires us to make disclosures about the nature of restricted cash balances. See previous discussion in Note

1.

‘

Restricted Cash’

for these disclosures.

Additional new accounting guidance became effective for the Company effective

January 1, 2018

that the Company reviewed and concluded was either

not

applicable to the Company's operations or had

no

material effect on the Company's consolidated financial statements.

Newly Issued Accounting Standards

Not

Yet Adopted

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

Leases (Topic

842

).

The new guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually all leases, other than leases with a term of

12

months or less, and to provide additional disclosures about leasing arrangements. Accounting by lessors is largely unchanged from existing accounting guidance. The Company will be required to adopt the new guidance on a modified retrospective basis beginning with its

first

fiscal quarter of

2019.

Early adoption is permitted.

While the Company is still in the process of evaluating the impact of the new guidance on its consolidated financial statements and disclosures, the Company expects adoption of the new guidance will have a material impact on its Consolidated Balance Sheets due to recognition of the right-of-use asset and lease liability related to its operating leases. While the new guidance is also expected to impact the measurement and presentation of elements of expenses and cash flows related to leasing arrangements, the Company does

not

presently believe there will be a material impact on its Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. Recognition of a lease liability related to operating leases will

not

impact any covenants related to the Company's long-term debt because the debt agreements specify that covenant ratios be calculated using U.S. GAAP in effect at the time the debt agreements were entered into.

The Company reviewed other newly issued accounting pronouncements and concluded that they either are

not

applicable to the Company's operations or that

no

material effect is expected on the Company's financial statements upon future adoption.

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Note 2 - Revenue Disclosures

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note

2:

Revenue Disclosures

Company-owned or Managed 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.  Due to certain implicit variable consideration in these management agreement contracts, and based on past practices between the parties, the Company determined that it cannot meet the probable threshold if it includes all of the variable consideration in the transaction price. Therefore, the Company recognizes revenue under these contracts only when it has a high degree of confidence that revenue will

not

be reversed in a subsequent reporting period.

Franchising Fees, Royalty Fees, Advertising Fund Revenue, and Software Fees

The Company currently franchises its concept across

29

states. The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do

not

directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does

not

have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise arrangement primarily consists of (a) initial franchise fees; (b) continuing franchise fees (royalties); (c) advertising fees; and (d) software fees. Since the Company considers the licensing of the franchising right to be a single performance obligation,

no

allocation of the transaction price is required.

The Company recognizes the primary components of the transaction price as follows:

• Franchise fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the execution of the franchise agreement. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;

• The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue is recognized when the franchisee's sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet.

• The Company is entitled to a monthly software fee, which is charged monthly. The Company recognizes revenue related to these software fees ratably on a straight-line basis over the term of the franchise agreement.

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does

not

require significant judgments as it is based on either the franchise term, or the reported sales of the franchisee,

none

of which require estimation. The Company believes its franchising arrangements do

not

contain a significant financing component.

Prior to the adoption of ASC

606,

the Company generally recognized the entire franchise fee as revenue at the clinic opening date. The impact on the Company's previously reported financial statements of the change from that policy to the policy described above is presented in Note

1,

Nature of Operations and Summary of Significant Accounting Policies

.

Under ASC

606,

the Company will record advertising fees received under franchise agreements as advertising fund revenue. Under previously issued accounting guidance for franchisors, advertising revenue and expense were recognized in the same amount in each period. That guidance was superseded by ASC

606

such that advertising expense

may

now be different than the advertising revenue recognized as described above. The impact of these changes with respect to advertising fees and advertising expenses on the Company's previously reported financial statements was

not

material.

Regional Developer Fees

The Company currently utilizes

eighteen

regional developers to assist in the development of the brand across certain geographic territories. The arrangement is documented in the form of a regional developer agreement. The arrangement between the Company and the regional developer requires the Company to perform various activities to support the brand that do

not

directly transfer goods and services to the regional developer, but instead represent a single performance obligation, which is the transfer of the development rights to the defined geographic region. The intellectual property subject to the development rights is symbolic intellectual property as it does

not

have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the development rights is to provide the regional developer with access to the brand’s symbolic intellectual property over the term of the agreement. The services provided by the Company are highly interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such are considered to represent a single performance obligation.

The transaction price in a standard regional developer arrangement primarily consists of the initial territory fees. The Company recognizes the regional developer fee as revenue ratably on a straight-line basis over the term of the regional developer agreement commencing with the execution of the regional developer agreement. As these fees are typically received in cash at or near the beginning of the term of the regional developer agreement, the cash received is initially recorded as a contract liability until recognized as revenue over time.

Disaggregation of Revenue

The Company believes that the captions contained on the condensed consolidated statements of operations appropriately reflect the disaggregation of its revenue by major type for the

three

months ended

March 31, 2018

and

2017.

Rollforward of Contract Liabilities and Contract Assets

Changes in the Company's contract liability for deferred franchise and regional development fees during the

three

months ended

March 31, 2018

were as follows (in thousands):

	Deferred Revenue (short- and long- term)
Balance at December 31, 2017	$	11,554
Recognized as revenue during the three months ended March 31, 2018		(483	)
Fees received and deferred during the three months ended March 31, 2018		518
Balance at March 31, 2018	$	11,589

Changes in the Company's contract assets for deferred franchise costs during the

three

months ended

March 31, 2018

are as follows (in thousands):

	Deferred Franchise Costs (short- and long- term)
Balance at December 31, 2017	$	2,811
Recognized as cost of revenue during the three months ended March 31, 2018		(126	)
Costs incurred and deferred during the three months ended March 31, 2018		260
Balance at March 31, 2018	$	2,945

The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of

March 

31,

2018

(in thousands):

Contract liabilities expected to be recognized in	Amount
2018 (remaining)	$	1,497
2019		1,987
2020		1,988
2021		1,863
2022		1,432
Thereafter		2,822
Total	$	11,589

XML

Note 3 - Restricted Cash

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Restricted Cash [Text Block]

Note

3.

Restricted Cash

The table below reconciles the cash and cash equivalents balance and restricted cash balances from our condensed consolidated balance sheet to the amount of cash reported on the condensed consolidated statement of cash flows:

	March 31, 2018		March 31, 2017
Cash and cash equivalents	$	4,033,730	$	2,676,607
Restricted cash		134,189		312,551
Total cash, cash equivalents and restricted cash	$	4,167,919	$	2,989,158

XML

Note 4 - Notes Receivable

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

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

Note

4:

Notes Receivable

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.

Effective

October 10, 2017,

the Company entered into a regional developer agreement for certain territories in Texas, Oklahoma and Arkansas in exchange for

$170,000,

of which

$135,688

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 24, 2017

and maturing on

October 24, 2020.

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

The net outstanding balances of the notes as of

March 31, 2018

and

December 31, 2017

were

$482,395

and

$523,785,

respectively.

XML

Note 5 - Property and Equipment

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

Note

5:

Property and Equipment

Property and equipment consists of the following:

	March 31, 2018			December 31, 2017
Office and computer equipment	$	1,170,334		$	1,137,970
Leasehold improvements		5,162,883			5,117,379
Software developed		1,147,594			1,066,454
		7,480,811			7,321,803
Accumulated depreciation		(4,192,702	)		(3,928,349	)
		3,288,109			3,393,454
Construction in progress		431,350			407,012
	$	3,719,459		$	3,800,466

Depreciation expense was

$264,353

and

$403,131

for the

three

months ended

March 31, 2018

and

2017

respectively.

XML

Note 6 - Fair Value Consideration

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

6:

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

March 31, 2018

and

December 31, 2017,

the Company did

not

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

1,

2

or

3.

XML

Note 7 - Intangible Assets

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

Note

7:

Intangible Assets

Intangible assets consist of the following:

	As of March 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	719,757	$	953,243
Customer relationships		701,000		694,417		6,583
Reacquired development rights		1,162,000		484,848		677,152
	$	3,536,000	$	1,899,022	$	1,636,978

	As of December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	657,943	$	1,015,057
Customer relationships		701,000		674,667		26,333
Reacquired development rights		1,162,000		443,348		718,652
	$	3,536,000	$	1,775,958	$	1,760,042

Amortization expense was

$123,064

and

$174,856

for the

three

months ended

March 31, 2018

and

2017,

respectively.

Estimated amortization expense for

2018

and subsequent years is as follows:

2018 (remainder)	$	316,525
2019		413,256
2020		413,256
2021		348,034
2022		133,693
Thereafter		12,214
Total	$	1,636,978

XML

Note 8 - Debt

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

8:

Debt

Notes Payable

 

During

2015,

the Company issued

12

notes payable, which matured in

February 2017,

totaling

$800,350

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

1.5%

to

5.25%.

During

2016,

the Company issued

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

of

2017.

There is

one

outstanding note which will be paid upon execution of a final settlement and release agreement between the parties.

Maturities of notes payable are as follows as of

March 31, 2018:

2018 (remainder)	$	100,000
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

March 31, 2018,

the Company had drawn

$1,000,000

of the

$5,000,000

available under the Credit Agreement.

XML

Note 9 - Equity

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

9:

Equity

Stock Options

In the

three

months ended

March 31, 2018,

the Company granted

60,000

stock options to employees with exercise prices ranging from

$4.92

-

$6.85.

 

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

three

months ended

March 31, 2018

and

2017,

using the following assumptions:

	Three Months Ended March 31,
	2018			2017
Expected volatility	42%	-	43%		42%
Expected dividends		None			None
Expected term (years)		7			7
Risk-free rate	2.53%	to	2.63%	2.10%	to	2.14%
Forfeiture rate		20	%		20%

The information below summarizes the stock options activity:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Fair  Value		Weighted Average Remaining Contractual Life
Outstanding at December 31, 2016		953,075		$	3.66	$	1.86		6.9
Granted at market price		295,286			4.31
Exercised		(206,875	)		1.76
Cancelled		(37,570	)		5.11
Outstanding at December 31, 2017		1,003,916		$	4.18	$	1.87		8.1
Granted at market price		60,000			5.89
Exercised		(7,500	)		3.11
Cancelled		(2,605	)		5.03
Outstanding at March 31, 2018		1,053,811		$	4.29	$	1.93		8.0
Exercisable at March 31, 2018		476,601		$	4.77	$	2.07		7.6

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

$2,885,475

at

March 31, 2018.

For the

three

months ended

March 31, 2018

and

2017,

stock-based compensation expense for stock options was

$139,172

and

$51,038,

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

March 31, 2018

was

$867,997,

which is expected to be recognized ratably over the next

2.9

years.

Restricted Stock

The information below summaries the restricted stock activity:

Restricted Stock Awards	Shares
Outstanding at December 31, 2017		63,700
Awards granted		-
Awards vested		-
Awards forfeited		-
Outstanding at March 31, 2018		63,700

For the

three

months ended

March 31, 2018

and

2017,

stock-based compensation expense for restricted stock was

$68,469

and

$44,027,

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

March 31, 2018

was

$74,772,

the majority of which will be recognized on

June 1, 2018.  

XML

Note 10 - Income Taxes

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

10:

Income Taxes

During the

three

months ended

March 31, 2018

and

2017,

the Company recorded income tax (benefit) expense of approximately (

$63,000

) and

$41,000,

respectively. The Company’s effective tax rate differs from the federal statutory tax rate due to permanent differences in state taxes and changes in the valuation allowance.

XML

Note 11 - Related Party Transactions

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note

11:

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

$48,000

and

$52,000

for the

three

months ended

March 31, 2018

and

2017,

respectively.

XML

Note 12 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

12:

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

months ended

March 31, 2018

and

2017

was

$685,677

and

$744,295,

respectively.  

Future minimum annual lease payments are as follows:

2018 (remainder)	$	1,904,467
2019		2,354,982
2020		2,105,402
2021		1,991,650
2022		1,879,686
Thereafter		3,253,292
Total	$	13,489,479

XML

Note 13 - Segment Reporting

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

13:

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

March 31, 2018,

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

March 31, 2018,

the franchise system consisted of

359

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 March 31,
	2018			2017
Revenues:				(as adjusted)
Corporate clinics	$	3,257		$	2,497
Franchise operations		3,841			3,010
Total revenues	$	7,098		$	5,507
Segment operating (loss) income:
Corporate clinics	$	111		$	(1,017	)
Franchise operations		1,815			1,233
Total segment operating (loss) income	$	1,926		$	216
Depreciation and amortization:
Corporate clinics	$	303		$	444
Franchise operations		-			-
Corporate administration		84			134
Total depreciation and amortization	$	387		$	578
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	1,926		$	216
Unallocated corporate		(2,365	)		(1,921	)
Consolidated loss from operations		(439	)		(1,705	)
Other (expense) income, net		(11	)		(19	)
Loss before income tax expense	$	(450	)	$	(1,725	)

	March 31, 2018		December 31, 2017
Segment assets:				( as adjusted)
Corporate clinics	$	8,695	$	8,998
Franchise operations		3,938		3,876
Total segment assets	$	12,633	$	12,874
Unallocated cash and cash equivalents and restricted cash	$	4,168	$	4,320
Unallocated property and equipment		777		765
Other unallocated assets		665		466
Total assets	$	18,243	$	18,425

“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.

XML

Note 14 - Subsequent Events

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

Note

14:

Subsequent Events

On

April 6, 2018,

the Company entered into an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller

one

operating franchise in San Diego, California and (ii) the parties agreed to mutually terminate a

second

franchise agreement for an operating franchise. The Company intends to operate the remaining franchise as a company-managed clinic. The total purchase price for the transaction was

$100,000.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

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.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Loss

Net loss and comprehensive loss are the same for the

three

months ended

March 31, 2018

and

2017.

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

months ended

March 31, 2018

and

2017:

	Three Months Ended  March 31,
Franchised clinics:	2018		2017
Clinics in operation at beginning of period		352		309
Opened or Purchased during the period		7		18
Acquired during the period		-		-
Closed during the period		-		(1	)
Clinics in operation at the end of the period		359		326

	Three Months Ended  March 31,
Company-owned or managed clinics:	2018		2017
Clinics in operation at beginning of period		47		61
Opened during the period		-		-
Acquired during the period		-		-
Closed or sold during the period		-		(14	)
Clinics in operation at the end of the period		47		47
Total clinics in operation at the end of the period		406		373
Clinics licenses sold but not yet developed		114		107
Executed letters of intent for future clinic licenses		8		-

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

March 31, 2018

and

December 31, 2017.

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

March 31, 2018,

one

PC entity and

one

franchise represented

7%

of outstanding accounts receivable. As of

December 31, 2017,

one

PC entity and

six

franchisees represented

13%

of outstanding accounts receivable. The Company did

not

have any customers that represented greater than

10%

of its revenues during the

three

months ended

March 31, 2018

and

2017.

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. 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

March 31, 2018

and

December 31, 2017,

the Company had an allowance for doubtful accounts of

$0.

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 over the term of the related franchise agreement.

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

three

months ended

March 31, 2018

and

2017.

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

three

months ended

March 31, 2018

and

2017.

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 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 shall be 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 liability initially. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows shall be recognized as an adjustment to the liability in the period of the change.

Lease exit liability at December 31, 2017	$	299,400
Additions		-
Settlements		-
Net accretion		(12,171	)
Lease exit liability at March 31, 2018	$	287,229

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 primarily through its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer software fees.

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.  Due to certain implicit variable consideration in these management agreement contracts, and based on past practices between the parties, the Company determined that it cannot meet the probable threshold if it includes all of the variable consideration in the transaction price. Therefore, the Company recognizes revenue under these contracts only when it has a high degree of confidence that revenue will

not

be reversed in a subsequent reporting period.

Royalties, Policy [Policy Text Block]

Royalties and Advertising Fund Revenue.

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. Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of clinic sales over the term of the franchise agreement. The franchise agreement royalties, inclusive of advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchisee clinic level sales occur. Royalties are collected bi-monthly

two

working days after each sales period has ended.

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 ratably on a straight-line basis over the term of the franchise agreement.  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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

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 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 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 ratably on a straight-line basis over the term of the regional developer agreement, which is considered to be upon the execution of the agreement. 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. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

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

 

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 ratably on a straight-line basis over the term of the respective franchise agreement.

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were

$410,637

and

$286,415

for the

three

months ended

March 31, 2018

and

2017,

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.

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. The Company has

not

identified any material uncertain tax positions as of

March 31, 2018

and

December 31, 2017.

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.

The Tax Cuts and Jobs Act of

2017

(the

“2017

Tax”) Act was signed into law on

December 22, 2017.

The

2017

Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from

35%

to

21%,

eliminating certain deductions, imposing a mandatory

one

-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The Company has

not

completed its determination of the accounting implications of the

2017

Tax Act on its accruals. However, it has reasonably estimated the effects of the

2017

Tax Act and recorded provisional amounts in its financial statements as of

March 31, 2018.

As the Company completes its analysis of the

2017

Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it

may

make adjustments to the provisional amounts.

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 March 31,
	2018			2017
				(as adjusted)
Net loss	$	(386,904	)	$	(1,765,385	)
Weighted average common shares outstanding - basic		13,587,837			13,042,595
Effect of dilutive securities:
Stock options		-			-
Weighted average common shares outstanding - diluted		13,587,837			13,042,595
Basic and diluted loss per share	$	(0.03	)	$	(0.14	)

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 March 31,
	2018		2017
Unvested restricted stock		63,700		80,070
Stock options		1,053,811		916,915
Warrants		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 GAAP 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

Accounting Standards Adopted Effective

January 1, 2018

On

January 1, 2018,

the Company adopted the guidance of Accounting Standards Codification

606

- Revenue from Contracts with Customers (“ASC

606”

). The Company adopted this change in accounting principles using the full retrospective method to all contracts at the date of initial application. Accordingly, previously reported financial information has been restated to reflect the application of ASC

606

to all comparative periods presented. The Company utilized all of the practical expedients for adoption allowed under the full retrospective method. The Company believes utilization of the practical expedients did

not

have a significant impact on the consolidated financial statements of the periods presented herein.

Adoption of ASC

606

impacted our previously reported consolidated balance sheet as follows (in thousands):

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
	As of December 31, 2017			Adjustments due to ASC 606 adoption			As of December 31, 2017
ASSETS	(as reported)						(as adjusted)
Current assets:
Deferred franchise costs - current portion	$	484		$	14		$	498
Total current assets		6,657			14			6,671
Deferred franchise costs, net of current portion		813			1,500			2,313
Total assets	$	16,910		$	1,515		$	18,425
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred franchise revenue - current portion	$	1,686		$	308		$	1,994
Other current liabilities		49			24			73
Total current liabilities		4,967			332			5,299
Deferred revenue, net of current portion		4,693			4,867			9,560
Total liabilities		12,011			5,199			17,210
Stockholders' equity:
Accumulated deficit		(32,259	)		(3,684	)		(35,943	)
Total stockholders' equity		4,899			(3,684	)		1,215
Total liabilities and stockholders' equity	$	16,910		$	1,515		$	18,425

The revenue and deferred cost adjustments are due to the change in method of recognizing franchise and regional developer fees. See Note

2,

Revenue Disclosures

, for a description of these changes.

Adoption of ASC

606

impacted our previously reported condensed consolidated statement of operations for the

three

months ended

March 31, 2017,

as follows (in thousands, except per share data):

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended March 31, 2017			Adjustments due to ASC 606 adoption			Three Months Ended March 31, 2017
	(as reported)						(as adjusted)
Revenues:
Franchise fees	$	450		$	(154	)	$	296
Regional developer fees		77			(13	)		64
Total revenues		5,674			(167	)		5,507
Cost of revenues:
Franchise cost of revenues		683			(48	)		635
Total cost of revenues		742			(48	)		694
Loss from operations		(1,587	)		(118	)		(1,705	)
Loss before income tax expense		(1,606	)		(118	)		(1,725	)
Net loss and comprehensive loss	$	(1,647	)	$	(118	)	$	(1,765	)
Loss per share:
Basic and diluted loss per share	$	(0.13	)	$	(0.01	)	$	(0.14	)

The revenue and deferred cost adjustments are due to the change in method of recognizing franchise and regional developer fees. See Note

2,

Revenue Disclosures

, for a description of these changes.

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 Company retrospectively adopted the standard on

January 1, 2018

and reclassified restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. Accordingly, we reclassified

$21,843

of restricted cash into cash, cash equivalents, and restricted cash as of

March 31, 2017,

which resulted in an increase in net cash used in operating activities in the condensed consolidated statement of cash flows for the

three

months ended

March 31, 2017.

The adoption of the guidance also requires us to make disclosures about the nature of restricted cash balances. See previous discussion in Note

1.

‘

Restricted Cash’

for these disclosures.

Additional new accounting guidance became effective for the Company effective

January 1, 2018

that the Company reviewed and concluded was either

not

applicable to the Company's operations or had

no

material effect on the Company's consolidated financial statements.

Newly Issued Accounting Standards

Not

Yet Adopted

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

Leases (Topic

842

).

The new guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually all leases, other than leases with a term of

12

months or less, and to provide additional disclosures about leasing arrangements. Accounting by lessors is largely unchanged from existing accounting guidance. The Company will be required to adopt the new guidance on a modified retrospective basis beginning with its

first

fiscal quarter of

2019.

Early adoption is permitted.

While the Company is still in the process of evaluating the impact of the new guidance on its consolidated financial statements and disclosures, the Company expects adoption of the new guidance will have a material impact on its Consolidated Balance Sheets due to recognition of the right-of-use asset and lease liability related to its operating leases. While the new guidance is also expected to impact the measurement and presentation of elements of expenses and cash flows related to leasing arrangements, the Company does

not

presently believe there will be a material impact on its Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. Recognition of a lease liability related to operating leases will

not

impact any covenants related to the Company's long-term debt because the debt agreements specify that covenant ratios be calculated using U.S. GAAP in effect at the time the debt agreements were entered into.

The Company reviewed other newly issued accounting pronouncements and concluded that they either are

not

applicable to the Company's operations or that

no

material effect is expected on the Company's financial statements upon future adoption.

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

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Franchisor Disclosure [Table Text Block]

	Three Months Ended  March 31,
Franchised clinics:	2018		2017
Clinics in operation at beginning of period		352		309
Opened or Purchased during the period		7		18
Acquired during the period		-		-
Closed during the period		-		(1	)
Clinics in operation at the end of the period		359		326

	Three Months Ended  March 31,
Company-owned or managed clinics:	2018		2017
Clinics in operation at beginning of period		47		61
Opened during the period		-		-
Acquired during the period		-		-
Closed or sold during the period		-		(14	)
Clinics in operation at the end of the period		47		47
Total clinics in operation at the end of the period		406		373
Clinics licenses sold but not yet developed		114		107
Executed letters of intent for future clinic licenses		8		-

Lease Exit Liability [Table Text Block]

Lease exit liability at December 31, 2017	$	299,400
Additions		-
Settlements		-
Net accretion		(12,171	)
Lease exit liability at March 31, 2018	$	287,229

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

	Three Months Ended March 31,
	2018			2017
				(as adjusted)
Net loss	$	(386,904	)	$	(1,765,385	)
Weighted average common shares outstanding - basic		13,587,837			13,042,595
Effect of dilutive securities:
Stock options		-			-
Weighted average common shares outstanding - diluted		13,587,837			13,042,595
Basic and diluted loss per share	$	(0.03	)	$	(0.14	)

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

	Three Months Ended March 31,
	2018		2017
Unvested restricted stock		63,700		80,070
Stock options		1,053,811		916,915
Warrants		90,000		90,000

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
	As of December 31, 2017			Adjustments due to ASC 606 adoption			As of December 31, 2017
ASSETS	(as reported)						(as adjusted)
Current assets:
Deferred franchise costs - current portion	$	484		$	14		$	498
Total current assets		6,657			14			6,671
Deferred franchise costs, net of current portion		813			1,500			2,313
Total assets	$	16,910		$	1,515		$	18,425
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred franchise revenue - current portion	$	1,686		$	308		$	1,994
Other current liabilities		49			24			73
Total current liabilities		4,967			332			5,299
Deferred revenue, net of current portion		4,693			4,867			9,560
Total liabilities		12,011			5,199			17,210
Stockholders' equity:
Accumulated deficit		(32,259	)		(3,684	)		(35,943	)
Total stockholders' equity		4,899			(3,684	)		1,215
Total liabilities and stockholders' equity	$	16,910		$	1,515		$	18,425

THE JOINT CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended March 31, 2017			Adjustments due to ASC 606 adoption			Three Months Ended March 31, 2017
	(as reported)						(as adjusted)
Revenues:
Franchise fees	$	450		$	(154	)	$	296
Regional developer fees		77			(13	)		64
Total revenues		5,674			(167	)		5,507
Cost of revenues:
Franchise cost of revenues		683			(48	)		635
Total cost of revenues		742			(48	)		694
Loss from operations		(1,587	)		(118	)		(1,705	)
Loss before income tax expense		(1,606	)		(118	)		(1,725	)
Net loss and comprehensive loss	$	(1,647	)	$	(118	)	$	(1,765	)
Loss per share:
Basic and diluted loss per share	$	(0.13	)	$	(0.01	)	$	(0.14	)

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Note 2 - Revenue Disclosures (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Contract with Customer, Asset and Liability [Table Text Block]

	Deferred Revenue (short- and long- term)
Balance at December 31, 2017	$	11,554
Recognized as revenue during the three months ended March 31, 2018		(483	)
Fees received and deferred during the three months ended March 31, 2018		518
Balance at March 31, 2018	$	11,589

	Deferred Franchise Costs (short- and long- term)
Balance at December 31, 2017	$	2,811
Recognized as cost of revenue during the three months ended March 31, 2018		(126	)
Costs incurred and deferred during the three months ended March 31, 2018		260
Balance at March 31, 2018	$	2,945

Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Table Text Block]

Contract liabilities expected to be recognized in	Amount
2018 (remaining)	$	1,497
2019		1,987
2020		1,988
2021		1,863
2022		1,432
Thereafter		2,822
Total	$	11,589

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Note 3 - Restricted Cash (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Reconciliation of Cash, Cash Equivalents and Restricted Cash Balance [Table Text Block]

	March 31, 2018		March 31, 2017
Cash and cash equivalents	$	4,033,730	$	2,676,607
Restricted cash		134,189		312,551
Total cash, cash equivalents and restricted cash	$	4,167,919	$	2,989,158

XML

Note 5 - Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	March 31, 2018			December 31, 2017
Office and computer equipment	$	1,170,334		$	1,137,970
Leasehold improvements		5,162,883			5,117,379
Software developed		1,147,594			1,066,454
		7,480,811			7,321,803
Accumulated depreciation		(4,192,702	)		(3,928,349	)
		3,288,109			3,393,454
Construction in progress		431,350			407,012
	$	3,719,459		$	3,800,466

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Note 7 - Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

	As of March 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	719,757	$	953,243
Customer relationships		701,000		694,417		6,583
Reacquired development rights		1,162,000		484,848		677,152
	$	3,536,000	$	1,899,022	$	1,636,978

	As of December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,673,000	$	657,943	$	1,015,057
Customer relationships		701,000		674,667		26,333
Reacquired development rights		1,162,000		443,348		718,652
	$	3,536,000	$	1,775,958	$	1,760,042

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

2018 (remainder)	$	316,525
2019		413,256
2020		413,256
2021		348,034
2022		133,693
Thereafter		12,214
Total	$	1,636,978

XML

Note 8 - Debt (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

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

2018 (remainder)	$	100,000
Total	$	100,000

XML

Note 9 - Equity (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

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

	Three Months Ended March 31,
	2018			2017
Expected volatility	42%	-	43%		42%
Expected dividends		None			None
Expected term (years)		7			7
Risk-free rate	2.53%	to	2.63%	2.10%	to	2.14%
Forfeiture rate		20	%		20%

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

	Number of Shares			Weighted Average Exercise Price		Weighted Average Fair  Value		Weighted Average Remaining Contractual Life
Outstanding at December 31, 2016		953,075		$	3.66	$	1.86		6.9
Granted at market price		295,286			4.31
Exercised		(206,875	)		1.76
Cancelled		(37,570	)		5.11
Outstanding at December 31, 2017		1,003,916		$	4.18	$	1.87		8.1
Granted at market price		60,000			5.89
Exercised		(7,500	)		3.11
Cancelled		(2,605	)		5.03
Outstanding at March 31, 2018		1,053,811		$	4.29	$	1.93		8.0
Exercisable at March 31, 2018		476,601		$	4.77	$	2.07		7.6

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

Restricted Stock Awards	Shares
Outstanding at December 31, 2017		63,700
Awards granted		-
Awards vested		-
Awards forfeited		-
Outstanding at March 31, 2018		63,700

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Note 12 - Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

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

2018 (remainder)	$	1,904,467
2019		2,354,982
2020		2,105,402
2021		1,991,650
2022		1,879,686
Thereafter		3,253,292
Total	$	13,489,479

XML

Note 13 - Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

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

	Three Months Ended March 31,
	2018			2017
Revenues:				(as adjusted)
Corporate clinics	$	3,257		$	2,497
Franchise operations		3,841			3,010
Total revenues	$	7,098		$	5,507
Segment operating (loss) income:
Corporate clinics	$	111		$	(1,017	)
Franchise operations		1,815			1,233
Total segment operating (loss) income	$	1,926		$	216
Depreciation and amortization:
Corporate clinics	$	303		$	444
Franchise operations		-			-
Corporate administration		84			134
Total depreciation and amortization	$	387		$	578
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	1,926		$	216
Unallocated corporate		(2,365	)		(1,921	)
Consolidated loss from operations		(439	)		(1,705	)
Other (expense) income, net		(11	)		(19	)
Loss before income tax expense	$	(450	)	$	(1,725	)

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

	March 31, 2018		December 31, 2017
Segment assets:				( as adjusted)
Corporate clinics	$	8,695	$	8,998
Franchise operations		3,938		3,876
Total segment assets	$	12,633	$	12,874
Unallocated cash and cash equivalents and restricted cash	$	4,168	$	4,320
Unallocated property and equipment		777		765
Other unallocated assets		665		466
Total assets	$	18,243	$	18,425

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Supplemental Disclosure of Non-cash Activity (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Income Taxes Paid	$ 0	$ 5,875
Interest Paid, Excluding Capitalized Interest, Operating Activities	25,000	$ 30,161
Capital Expenditures Incurred but Not yet Paid	$ 0		$ 50,474

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Dec. 31, 2018	Dec. 31, 2017 USD ($)
Cash Equivalents, at Carrying Value, Total	$ 0			$ 0
Allowance for Doubtful Accounts Receivable, Ending Balance	0			$ 0
Impairment of Intangible Assets, Finite-lived	0
Goodwill, Impairment Loss	0	$ 0
Impairment of Long-Lived Assets Held-for-use	$ 0	0
Franchise Monthly Marketing Fee Gross Sales Percentage	2.00%
Franchise Royalty Gross Sales Percentage	7.00%
Regional Developers Royalty Sales Generated by Franchises Percentage	3.00%
Advertising Expense	$ 410,637	$ 286,415
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent				35.00%
The Three Months Ended March, 31 2017 [Member] | Reclassification of Restricted Cash in to Cash, Cash Equivalents and Restricted Cash [Member]
Prior Period Reclassification Adjustment	$ 21,843
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			21.00%
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
Minimum [Member] | Franchise Rights [Member]
Finite-Lived Intangible Asset, Useful Life	6 years
Maximum [Member]
Property, Plant and Equipment, Useful Life	7 years
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
Number of Franchises	1			6
Concentration Risk, Percentage				13.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Number of Major Customers	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
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Clinics in operation at beginning of period	47	61
Clinics in operation at the end of the period	406	373
Number of Stores	47	61	406	373
Clinics licenses sold but not yet developed			114	107
Executed letters of intent for future clinic licenses			8
Franchised Units [Member]
Clinics in operation at beginning of period	352	309
Opened or Purchased during the period	7	18
Acquired during the period
Closed during the period		(1)
Clinics in operation at the end of the period	359	326
Number of Stores	352	309	359	326
Entity Operated Units [Member]
Opened or Purchased during the period
Acquired during the period
Closed during the period		(14)
Clinics in operation at the end of the period	47	47
Number of Stores	47	47	47	47

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Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Lease Exit Liability (Details)	3 Months Ended
	Mar. 31, 2018 USD ($)
Lease exit liability at December 31, 2017	$ 299,400
Additions
Settlements
Net accretion	(12,171)
Lease exit liability at March 31, 2018	$ 287,229

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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
	Mar. 31, 2018	Mar. 31, 2017
Net loss	$ (386,904)	$ (1,765,385)
Weighted average common shares outstanding - basic (in shares)	13,587,837	13,042,595
Effect of dilutive securities:
Stock options (in shares)
Weighted average common shares outstanding - diluted (in shares)	13,587,837	13,042,595
Basic and diluted loss per share (in dollars per share)	$ (0.03)	$ (0.14)

XML

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
	Mar. 31, 2018	Mar. 31, 2017
Restricted Stock [Member]
Anti-dilutive Securities (in shares)	63,700	80,070
Employee Stock Option [Member]
Anti-dilutive Securities (in shares)	1,053,811	916,915
Warrant [Member]
Anti-dilutive Securities (in shares)	90,000	90,000

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Impact of New Standard on Previously Reported Balance Sheet and Income Statement (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Current assets:
Deferred franchise costs - current portion			$ 498,000
Total current assets	$ 6,647,346		6,671,123
Deferred franchise costs, net of current portion			2,313,000
Total assets	18,243,252		18,424,559
Current liabilities:
Deferred franchise revenue - current portion			1,994,000
Other current liabilities	388,354		72,534
Total current liabilities	5,668,091		5,299,456
Deferred revenue, net of current portion			9,560,000
Total liabilities	17,184,752		17,210,121
Stockholders' equity:
Accumulated deficit	(36,329,890)		(35,942,986)
Total stockholders' equity	1,058,500		1,214,438
Total liabilities and stockholders' equity	18,243,252		18,424,559
Revenues:
Revenue from Contract with Customer	7,097,915	$ 5,507,147
Cost of revenues:
Total cost of revenues	972,332	693,716
Operating income (loss)	(439,065)	(1,705,311)
Loss before income tax expense	(450,259)	(1,724,776)
Net loss	$ (386,904)	$ (1,765,385)
Loss per share:
Basic and diluted loss per share (in dollars per share)	$ (0.03)	$ (0.14)
Franchise [Member]
Revenues:
Revenue from Contract with Customer	$ 348,337	$ 295,540
Cost of revenues:
Franchise cost of revenues	872,768	634,855
Regional Developer Fees [Member]
Revenues:
Revenue from Contract with Customer	$ 135,011	64,146
Previously Reported [Member]
Current assets:
Deferred franchise costs - current portion			484,000
Total current assets			6,657,000
Deferred franchise costs, net of current portion			813,000
Total assets			16,910,000
Current liabilities:
Deferred franchise revenue - current portion			1,686,000
Other current liabilities			49,000
Total current liabilities			4,967,000
Deferred revenue, net of current portion			4,693,000
Total liabilities			12,011,000
Stockholders' equity:
Accumulated deficit			(32,259,000)
Total stockholders' equity			4,899,000
Total liabilities and stockholders' equity			16,910,000
Revenues:
Revenue from Contract with Customer		5,674,000
Cost of revenues:
Total cost of revenues		742,000
Operating income (loss)		(1,587,000)
Loss before income tax expense		(1,606,000)
Net loss		$ (1,647,000)
Loss per share:
Basic and diluted loss per share (in dollars per share)		$ (0.13)
Previously Reported [Member] | Franchise [Member]
Revenues:
Revenue from Contract with Customer		$ 450,000
Cost of revenues:
Franchise cost of revenues		683,000
Previously Reported [Member] | Regional Developer Fees [Member]
Revenues:
Revenue from Contract with Customer		77,000
Restatement Adjustment [Member] | Accounting Standards Update 2014-09 [Member]
Current assets:
Deferred franchise costs - current portion			14,000
Total current assets			14,000
Deferred franchise costs, net of current portion			1,500,000
Total assets			1,515,000
Current liabilities:
Deferred franchise revenue - current portion			308,000
Other current liabilities			24,000
Total current liabilities			332,000
Deferred revenue, net of current portion			4,867,000
Total liabilities			5,199,000
Stockholders' equity:
Accumulated deficit			(3,684,000)
Total stockholders' equity			(3,684,000)
Total liabilities and stockholders' equity			$ 1,515,000
Revenues:
Revenue from Contract with Customer		(167,000)
Cost of revenues:
Total cost of revenues		(48,000)
Operating income (loss)		(118,000)
Loss before income tax expense		(118,000)
Net loss		$ (118,000)
Loss per share:
Basic and diluted loss per share (in dollars per share)		$ (0.01)
Restatement Adjustment [Member] | Franchise [Member] | Accounting Standards Update 2014-09 [Member]
Revenues:
Revenue from Contract with Customer		$ (154,000)
Cost of revenues:
Franchise cost of revenues		(48,000)
Restatement Adjustment [Member] | Regional Developer Fees [Member] | Accounting Standards Update 2014-09 [Member]
Revenues:
Revenue from Contract with Customer		$ (13,000)

XML

Note 2 - Revenue Disclosures (Details Textual)	Mar. 31, 2018
Number of States in which Entity Franchises	29

XML

Note 2 - Revenue Disclosures - Changes in Contract Assets and Contract Liabilities (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Balance, contract liabilities	$ 11,554
Recognized as revenue during the three months ended March 31, 2018	(483)
Fees received and deferred during the three months ended March 31, 2018	518
Balance, contract liabilities	11,589
Balance, contract assets	2,811
Recognized as cost of revenue during the three months ended March 31, 2018	(126)
Costs incurred and deferred during the three months ended March 31, 2018	260
Balance, contract assets	$ 2,945

XML

Note 2 - Revenue Disclosures - Revenue Related to Performance Obligations (Details) $ in Thousands	Mar. 31, 2018 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-04-01
Revenue expected to be recognized	$ 1,497
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-01-01
Revenue expected to be recognized	1,987
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Revenue expected to be recognized	1,988
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue expected to be recognized	1,863
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Revenue expected to be recognized	1,432
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Revenue expected to be recognized	2,822
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: (nil)
Revenue expected to be recognized	$ 11,589

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Note 3 - Restricted Cash - Reconciliation of Cash, Cash Equivalents and Restricted Cash Balance (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Cash and cash equivalents	$ 4,033,730	$ 4,216,221	$ 2,676,607
Restricted cash	134,189	103,819	312,551
Total cash, cash equivalents and restricted cash	$ 4,167,919	$ 4,320,040	$ 2,989,158	$ 3,344,258

XML

Note 4 - Notes Receivable (Details Textual) - USD ($)			1 Months Ended
	Oct. 10, 2017	Apr. 29, 2017	Sep. 22, 2017	Aug. 31, 2017	Mar. 31, 2018	Dec. 31, 2017
Company-owned Clinic [Member]
Financing Receivable, Net, Total					$ 482,395	$ 523,785
Regional Developer Territory in Central Florida [Member]
Regional Development Agreement		$ 320,000
Regional Developer Territory in Central Florida [Member] | 10% Interest Bearing Promissory Note Maturing October 1, 2020 [Member]
Financing Receivable, Net, Total		$ 187,000
Notes Receivable, Interest Rate		10.00%
Notes Receivable, Contractual Term		3 years 180 days
Notes Receivable, Principal and Interest, Term		3 years
Regional Developer Territory in Maryland/Washington DC [Member]
Regional Development Agreement				$ 220,000
Regional Developer Territory in Maryland/Washington DC [Member] | 10% Interest Bearing Promissory Note Maturing August 1, 2020 [Member]
Financing Receivable, Net, Total				$ 117,475
Notes Receivable, Interest Rate				10.00%
Notes Receivable, Contractual Term				3 years
Notes Receivable, Principal and Interest, Term				3 years
Regional Developer Territory in Minnesota [Member]
Regional Development Agreement			$ 228,293
Regional Developer Territory in Minnesota [Member] | 10% Interest Bearing Promissory Note Maturing September 1, 2020 [Member]
Financing Receivable, Net, Total			$ 119,147
Notes Receivable, Interest Rate			10.00%
Notes Receivable, Contractual Term			3 years
Notes Receivable, Principal and Interest, Term			3 years
Regional Developer Territories with Texas, Arkansas, and Oklahoma [Member]
Regional Development Agreement	$ 170,000
Regional Developer Territories with Texas, Arkansas, and Oklahoma [Member] | 10% Interest Bearing Promissory Note Maturing October 24, 2020 [Member]
Financing Receivable, Net, Total	$ 135,688
Notes Receivable, Interest Rate	10.00%
Notes Receivable, Contractual Term	3 years
Notes Receivable, Principal and Interest, Term	3 years

XML

Note 5 - Property and Equipment (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Depreciation, Total	$ 264,353	$ 403,131

XML

Note 5 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Property and equipment, gross	$ 7,480,811	$ 7,321,803
Accumulated depreciation	(4,192,702)	(3,928,349)
Property and equipment, net	3,719,459	3,800,466
Construction in progress	431,350	407,012
Office Equipment [Member]
Property and equipment, gross	1,170,334	1,137,970
Leasehold Improvements [Member]
Property and equipment, gross	5,162,883	5,117,379
Software Development [Member]
Property and equipment, gross	1,147,594	1,066,454
Property Plant and Equipment, Excluding Construction in Progress [Member]
Property and equipment, net	$ 3,288,109	$ 3,393,454

XML

Note 6 - Fair Value Consideration (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Financial Instruments, Owned, at Fair Value, Total	$ 0	$ 0

XML

Note 7 - Intangible Assets (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Amortization of Intangible Assets, Total	$ 123,064	$ 174,856

XML

Note 7 - Intangible Assets - Intangible Assets Acquired (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Gross Carrying Amount	$ 3,536,000	$ 3,536,000
Accumulated Amortization	1,899,022	1,775,958
Net Carrying Value	1,636,978	1,760,042
Franchise Rights [Member]
Gross Carrying Amount	1,673,000	1,673,000
Accumulated Amortization	719,757	657,943
Net Carrying Value	953,243	1,015,057
Customer Relationships [Member]
Gross Carrying Amount	701,000	701,000
Accumulated Amortization	694,417	674,667
Net Carrying Value	6,583	26,333
Development Rights [Member]
Gross Carrying Amount	1,162,000	1,162,000
Accumulated Amortization	484,848	443,348
Net Carrying Value	$ 677,152	$ 718,652

XML

Note 7 - Intangible Assets - Estimated Amortization Expense (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
2018 (remainder)	$ 316,525
2019	413,256
2020	413,256
2021	348,034
2022	133,693
Thereafter	12,214
Total	$ 1,636,978	$ 1,760,042

XML

Note 8 - Debt (Details Textual)		12 Months Ended
	Jan. 03, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Mar. 31, 2018 USD ($)
Number of Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions		2	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, Total				$ 1,000,000
Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions [Member]
Debt Instrument, Face Amount		$ 186,000	$ 800,350
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 8 - Debt - Maturities of Notes Payable (Details)	Mar. 31, 2018 USD ($)
2018 (remainder)	$ 100,000
Total	$ 100,000

XML

Note 9 - Equity (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	60,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 2,885,475
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	60,000		295,286
Allocated Share-based Compensation Expense, Total	$ 139,172	$ 51,038
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 867,997
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years 328 days
Restricted Stock [Member]
Allocated Share-based Compensation Expense, Total	$ 68,469	$ 44,027
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 74,772
Minimum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price	$ 4.92
Maximum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price	$ 6.85

XML

Note 9 - Equity - Fair Value Assumptions of Options Granted (Details) - Employee Stock Option [Member]	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Expected volatility		42.00%
Expected dividends	0.00%	0.00%
Expected term (years) (Year)	7 years	7 years
Forfeiture rate	20.00%	20.00%
Minimum [Member]
Expected volatility	42.00%
Risk-free rate	2.53%	2.10%
Maximum [Member]
Expected volatility	43.00%
Risk-free rate	2.63%	2.14%

XML

Note 9 - Equity - Stock Options Activity (Details) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Granted at Market Price, Number of Shares (in shares)	60,000
Employee Stock Option [Member]
Outstanding, Number of Shares (in shares)	1,003,916	953,075
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 4.18	$ 3.66
Outstanding, Weighted Average Fair Value (in dollars per share)	$ 1.93	$ 1.87	$ 1.86
Outstanding, Weighted Average Remaining Contractual Life (Year)	8 years	8 years 36 days	6 years 328 days
Granted at Market Price, Number of Shares (in shares)	60,000	295,286
Granted at Market Price, Weighted Average Exercise Price (in dollars per share)	$ 5.89	$ 4.31
Exercised, Number of Shares (in shares)	(7,500)	(206,875)
Exercised, Weighted Average Exercise Price (in dollars per share)	$ 3.11	$ 1.76
Cancelled, Number of Shares (in shares)	(2,605)	(37,570)
Cancelled, Weighted Average Exercise Price (in dollars per share)	$ 5.03	$ 5.11
Outstanding, Number of Shares (in shares)	1,053,811	1,003,916	953,075
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 4.29	$ 4.18	$ 3.66
Exercisable, Number of Shares (in shares)	476,601
Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 4.77
Exercisable, Weighted Average Fair Value (in dollars per share)	$ 2.07
Exercisable, Weighted Average Remaining Contractual Life (Year)	7 years 219 days

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Note 9 - Equity - Restricted Stock Activity (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2018 shares
Unvested (in shares)	63,700
Awards granted (in shares)
Awards vested (in shares)
Awards forfeited (in shares)
Unvested (in shares)	63,700

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Note 10 - Income Taxes (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Tax Expense (Benefit), Total	$ (63,355)	$ 40,609

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Note 11 - Related Party Transactions (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Shareholder [Member]
Related Party Transaction, Amounts of Transaction	$ 48,000	$ 52,000

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Note 12 - Commitments and Contingencies (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating Leases, Rent Expense, Net, Total	$ 685,677	$ 744,295

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Note 12 - Commitments and Contingencies - Summary of Future Minimum Rental Payments for Operating Leases (Details)	Mar. 31, 2018 USD ($)
2018 (remainder)	$ 1,904,467
2019	2,354,982
2020	2,105,402
2021	1,991,650
2022	1,879,686
Thereafter	3,253,292
Total	$ 13,489,479

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Note 13 - Segment Reporting (Details Textual)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Number of Operating Segments	2
Number of Stores	406	47	373	61
Corporate Clinics [Member]
Number of Stores	47
Franchise Operations [Member]
Number of Stores	359

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Note 13 - Segment Reporting - Segment Reporting Financial Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenues	$ 7,098,000	$ 5,507,000
Operating income (loss)	(439,065)	(1,705,311)
Depreciation and amortization	387,417	577,987
Operating income (loss)	(439,065)	(1,705,311)
Other (expense) income, net	(11,194)	(19,465)
Loss before income tax expense	(450,259)	(1,724,776)
Operating Segments [Member]
Operating income (loss)	1,926,000	216,000
Operating income (loss)	1,926,000	216,000
Corporate, Non-Segment [Member]
Operating income (loss)	(2,365,000)	(1,921,000)
Operating income (loss)	(2,365,000)	(1,921,000)
Corporate Clinics [Member]
Revenues	3,257,000	2,497,000
Operating income (loss)	111,000	(1,017,000)
Depreciation and amortization	303,000	444,000
Operating income (loss)	111,000	(1,017,000)
Franchise Operations [Member]
Revenues	3,841,000	3,010,000
Operating income (loss)	1,815,000	1,233,000
Depreciation and amortization
Operating income (loss)	1,815,000	1,233,000
Corporate Segment [Member]
Depreciation and amortization	$ 84,000	$ 134,000

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Note 13 - Segment Reporting - Segment Reporting Information, Assets (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Total assets	$ 18,243,252	$ 18,424,559
Unallocated cash and cash equivalents and restricted cash	4,033,730	4,216,221	$ 2,676,607
Unallocated property and equipment	3,719,459	3,800,466
Operating Segments [Member]
Total assets	12,633,000	12,874,000
Unallocated cash and cash equivalents and restricted cash	4,168,000	4,320,000
Unallocated property and equipment	777,000	765,000
Other unallocated assets	665,000	466,000
Corporate Clinics [Member]
Total assets	8,695,000	8,998,000
Franchise Operations [Member]
Total assets	$ 3,938,000	$ 3,876,000

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Note 14 - Subsequent Events (Details Textual)	Apr. 06, 2018 USD ($)
Assets and Franchise Agreement [Member] | Subsequent Event [Member]
Business Combination, Consideration Transferred, Total	$ 100,000