10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

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 Website, if any, every Interactive Date 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 or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

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

As of November 4, 2016, the registrant had 12,720,399 shares of Common Stock ($0.001 par value) outstanding.

THE JOINT CORP.

FORM 10-Q

TABLE OF CONTENTS

			PAGE NO.
PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	1
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)	2
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)	3
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 4.	Controls and Procedures	30
Part I, Item 3 – Not applicable
PART II OTHER INFORMATION
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 6.	Exhibits	31
	SIGNATURES		31
	EXHIBIT INDEX		32
Part II, Items 3, 4, and 5 - Not applicable

PART I:  FINANCIAL INFORMATION

ITEM 1.      UNAUDITED FINANCIAL STATEMENT

THE JOINT CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2016			December 31, 2015
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	3,386,498		$	16,792,850
Restricted cash		476,665			385,282
Accounts receivable, net		1,862,250			743,239
Income taxes receivable		38,814			70,981
Notes receivable - current portion		47,035			60,908
Deferred franchise costs - current portion		709,950			605,850
Prepaid expenses and other current assets		891,938			366,033
Total current assets		7,413,150			19,025,143
Property and equipment, net		7,526,728			7,138,746
Notes receivable, net of current portion and reserve		3,750			15,823
Deferred franchise costs, net of current portion		1,074,050			1,534,700
Intangible assets, net		2,572,778			2,542,269
Goodwill		2,805,331			2,466,937
Deposits and other assets		729,789			638,710
Total assets	$	22,125,576		$	33,362,328
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	820,748		$	1,996,971
Accrued expenses		255,539			375,529
Co-op funds liability		105,185			201,078
Payroll liabilities		414,290			1,493,375
Notes payable - current portion		331,500			451,850
Deferred rent - current portion		239,018			334,560
Deferred revenue - current portion		3,118,867			2,579,423
Other current liabilities		61,660			54,596
Total current liabilities		5,346,807			7,487,382
Notes payable, net of current portion		-			130,000
Deferred rent, net of current portion		1,465,562			457,290
Deferred revenue, net of current portion		2,767,493			4,369,702
Other liabilities		285,021			238,648
Total liabilities		9,864,883			12,683,022
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of September 30, 2016, and  December 31, 2015		-			-
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,266,775 shares issued and 12,719,399 shares outstanding as of September 30, 2016 and 13,070,180 shares issued and 12,536,180 outstanding as of December 31, 2015		13,266			13,070
Additional paid-in capital		36,345,365			35,267,376
Treasury stock (547,376 shares as of September 30, 2016 and 534,000 as of December 31, 2015, at cost)		(875,029	)		(791,638	)
Accumulated deficit		(23,222,909	)		(13,809,502	)
Total stockholders' equity		12,260,693			20,679,306
Total liabilities and stockholders' equity	$	22,125,576		$	33,362,328

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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Revenues and management fees from company clinics	$	2,341,471		$	1,198,397		$	6,137,277		$	2,368,866
Royalty fees		1,540,264			1,150,574			4,337,643			3,264,278
Franchise fees		602,400			638,000			1,641,409			1,862,259
Advertising fund revenue		595,955			330,502			1,218,256			955,480
IT related income and software fees		235,925			197,569			686,459			598,758
Regional developer fees		123,921			531,350			496,538			799,600
Other revenues		63,654			91,623			225,086			223,419
Total revenues		5,503,590			4,138,015			14,742,668			10,072,660
Cost of revenues:
Franchise cost of revenues		660,126			697,170			2,023,712			1,948,328
IT cost of revenues		58,636			48,312			162,752			134,233
Total cost of revenues		718,762			745,482			2,186,464			2,082,561
Selling and marketing expenses		1,272,524			500,579			3,184,484			1,881,502
Depreciation and amortization		695,579			421,390			1,908,238			822,489
General and administrative expenses		5,431,243			4,521,463			16,754,645			11,098,291
Total selling, general and administrative expenses		7,399,346			5,443,432			21,847,367			13,802,282
Loss from operations		(2,614,518	)		(2,050,899	)		(9,291,163	)		(5,812,183	)
Other income (expense):
Bargain purchase gain		-			384,214			-			384,214
Other income (expense), net		1,901			16,111			9,900			17,800
Total other income (expense)		1,901			400,325			9,900			402,014
Loss before income tax expense		(2,612,617	)		(1,650,574	)		(9,281,263	)		(5,410,169	)
Income tax expense		(14,277	)		(6,148	)		(132,144	)		(6,148	)
Net loss and comprehensive loss	$	(2,626,894	)	$	(1,656,722	)	$	(9,413,407	)	$	(5,416,317	)
Loss per share:
Basic and diluted loss per share	$	(0.21	)	$	(0.17	)	$	(0.74	)	$	(0.55	)
Basic and diluted weighted average shares		12,730,624			9,844,964			12,657,435			9,777,119

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

2

THE JOINT CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(9,413,407	)	$	(5,416,317	)
Adjustments to reconcile net loss to net cash used in operating activities:
(Recovery) provision for bad debts		(10,830	)		4,344
Regional developer fees recognized upon acquisition of development rights		(138,500	)		(254,250	)
Net franchise fees recognized upon termination of franchise agreements		(314,859	)		(480,250	)
Notes receivable issued for payment of transfer fees		-			(49,850	)
Depreciation and amortization		1,908,238			822,489
Gain on sale of property and equipment		-			(11,500	)
Bargain purchase gain		-			(384,214	)
Deferred income taxes		-			147,800
Stock based compensation expense		1,012,700			646,077
Changes in operating assets and liabilities, net of effects from acquisitions:
Restricted cash		(91,383	)		36,145
Accounts receivable		(1,108,181	)		94,684
Income taxes receivable		32,167			(53,989	)
Prepaid expenses and other current assets		(525,905	)		224,131
Deferred franchise costs		194,300			(18,100	)
Deposits and other assets		49,649			(125,594	)
Accounts payable		(1,183,328	)		77,817
Accrued expenses		(119,990	)		87,128
Co-op funds liability		(95,893	)		(26,834	)
Payroll liabilities		(1,079,085	)		779,271
Other liabilities		33,837			(35,294	)
Deferred rent		912,730			62,549
Deferred revenue		(405,977	)		(134,925	)
Net cash used in operating activities		(10,343,717	)		(4,008,682	)
Cash flows from investing activities:
Cash paid for acquisitions		(811,450	)		(4,652,525	)
Reacquisition and termination of regional developer rights		(325,000	)		(1,075,500	)
Purchase of property and equipment		(1,497,874	)		(1,461,125	)
Proceeds received on sale of property and equipment		-			11,500
Payments received on notes receivable		25,945			21,562
Net cash used in investing activities		(2,608,379	)		(7,156,088	)
Cash flows from financing activities:
Issuance of common stock, offering costs adjustment		(1,042	)		-
Purchases of treasury stock under employee stock plans		(83,391	)		-
Proceeds from exercise of stock options		66,527			-
Repayments on notes payable		(436,350	)		(110,000	)
Net cash used in financing activities		(454,256	)		(110,000	)
Net decrease in cash		(13,406,352	)		(11,274,770	)
Cash at beginning of period		16,792,850			20,796,783
Cash at end of period	$	3,386,498		$	9,522,013

3

Supplemental disclosure of cash flow information:

During the nine months ended September 30, 2016 and 2015, cash paid for income taxes was $10,466 and $0, respectively. During the nine months ended September 30, 2016 and 2015, cash paid for interest was $15,262 and $1,445, respectively.

Supplemental disclosure of non-cash activity:

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

In connection with our reacquisition and termination of regional developer rights during the nine months ended September 30, 2016 and 2015, we had deferred revenue of $224,750 and $914,000, respectively, representing license fees collected upon the execution of the regional developer agreements.  In accordance with ASC-952-605, we netted these amounts against the aggregate purchase price of the acquisitions (Note 5).

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

In connection with our acquisitions of franchises during the nine months ended September 30, 2015, we acquired $1,539,321 of property and equipment, intangible assets of $1,531,041, goodwill of $2,312,259, favorable leases of $17,469 and assumed deferred revenue associated with membership packages paid in advance of $117,301 in exchange for $4,652,525 in cash and notes payable issued to the sellers for an aggregate amount of $744,350. Additionally, at the time of these transactions, we carried deferred revenue of $976,500, representing franchise fees collected upon the execution of franchise agreements, and deferred costs of $478,200, related to our acquisition of undeveloped franchises. We netted these amounts against the aggregate purchase price of the acquisitions (Note 2).

During the quarter ended September 30, 2016, the final valuation of a December 2015 acquisition was completed.  The purchase price allocation for this acquisition was adjusted accordingly:

Property and equipment	$	(53,836	)
Intangible assets	$	4,820
Favorable leases	$	6,250
Goodwill	$	68,616
Unfavorable leases	$	(25,850	)

As of December 31, 2014, we recorded a deposit of $507,500 for the reacquisition and termination of regional developer rights, which were paid in advance.  During the nine months ended September 30, 2015, upon the effective date of the reacquisition and termination agreement, we reclassified $507,500 from deposits to intangible assets.

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

4

THE JOINT CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Basis of Presentation

These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”), and its wholly owned subsidiary The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). These unaudited condensed consolidated financial statements should be read in conjunction with The Joint Corp. and Subsidiary consolidated financial statements and the notes thereto as set forth in The Joint Corp.’s Form 10-K, which included all disclosures required by generally accepted accounting principles. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position on a consolidated basis and the consolidated results of operations and cash flows for the interim periods presented. The results of operations for the periods ended September 30, 2016 and 2015 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended September 30, 2016 and 2015 is unaudited.

Principles of Consolidation

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

All significant intercompany accounts and transactions between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from selling and marketing expenses to general and administrative expenses for the three and nine months ended September 30, 2015 to conform to current year presentation.

Comprehensive Loss

Net loss and comprehensive loss are the same for the three and nine months ended September 30, 2016 and 2015.

Nature of Operations

The Joint, a Delaware corporation, was formed on March 10, 2010 for the principal purpose of franchising and developing 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.

5

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended  September 30,					Nine Months Ended  September 30,
Franchised clinics:	2016		2015			2016			2015
Clinics in operation at beginning of period		280		239			265			242
Opened during the period		13		13			38			36
Acquired during the period		-		(2	)		(6	)		(23	)
Closed during the period		-		(2	)		(4	)		(7	)
Clinics in operation at the end of the period		293		248			293			248

	Three Months Ended  September 30,				Nine Months Ended  September 30,
Company-owned or managed clinics:	2016		2015		2016		2015
Clinics in operation at beginning of period		61		23		47		4
Opened during the period		-		4		8		4
Acquired during the period		-		2		6		23
Closed during the period		-		-		-		(2	)
Clinics in operation at the end of the period		61		29		61		29
Total clinics in operation at the end of the period		354		277		354		277
Clinics licenses sold but not yet developed		134		180		134		180

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 are 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 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 activity of the PCs is 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 of its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2016 and December 31, 2015.

Restricted Cash

Restricted cash relates to cash franchisees and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash 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.

6

Concentrations of Credit Risk

From time to time, the Company grants credit in the normal course of business to franchisees and PCs related to the collection of royalties, and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of September 30, 2016 and December 31, 2015, three PC entities and six franchisees represented 52% and 31%, respectively, of outstanding accounts receivable. The Company did not have any customers that represented greater than 10% of its revenues during the three and nine months ended September 30, 2016 and 2015.

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees, royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2016 and December 31, 2015, the Company had an allowance for doubtful accounts of $131,830 and $142,660, respectively.

Deferred Franchise Costs

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

Property and Equipment

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

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

Software Developed

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

Intangible Assets

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

7

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions discussed in Note 2.  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 and nine months ended September 30, 2016 and 2015.

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 and nine months ended September 30, 2016 and 2015.

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 consolidated balance sheets. As amounts are expended from the fund, the Company recognizes advertising fund revenue and a related expense. Amounts collected in excess of marketing expenditures are included in restricted cash on the Company’s condensed consolidated balance sheets. 

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.

Deferred Rent

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

Revenue Recognition

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

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

8

Regional Developer Fees. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under this program, regional developers pay a license fee ranging from $7,250 to 25% of the then current franchise fee for each franchise they receive the right to develop within the region. Each regional developer agreement establishes a minimum number of franchises that the regional developer must develop. Regional developers receive fees ranging from $14,500 to $19,950, which are collected upon the sale of franchises within their region, and a royalty of 3% of sales generated by franchised clinics in their region. Regional developer license fees are non-refundable and are recognized as revenue when the Company has performed substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening of each franchised clinic. Upon the execution of a regional developer agreement, the Company estimates the number of franchised clinics to be opened, which is typically consistent with the contracted minimum. When the Company anticipates that the number of franchised clinics to be opened will exceed the contracted minimum, the license fee on a per-clinic basis is determined by dividing the total fee collected from the regional developer by the revised number of clinics expected to be opened within the region. Certain regional developer agreements provide that no additional fee is required for franchises developed by the regional developer above the contracted minimum, while other regional developer agreements require a supplemental payment. The Company reassesses the number of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change to the original estimate becomes apparent, the fee per clinic is revised on a prospective basis, and the unrecognized fees are allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region. The regional developer’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. Several of the regional developer agreements grant the Company the option to repurchase the regional developer’s license.

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

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

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

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were $600,804 and $1,770,699 for the three and nine months ended September 30, 2016, respectively. Advertising expenses were $377,122 and $853,110 for the three and nine months ended September 30, 2015, respectively.

Income Taxes

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

9

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

At September 30, 2016 and December 31, 2015, the Company maintained a liability for income taxes for uncertain tax positions of approximately $39,500 and $66,000, respectively, of which $26,000 and $33,000, respectively, represent penalties and interest and are recorded in the  “other liabilities” section of the accompanying condensed consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include 2011 through the current period for state and 2012 through the current period for federal reporting purposes.

Loss per Common Share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net loss	$	(2,626,894	)	$	(1,656,722	)	$	(9,413,407	)	$	(5,416,317	)
Weighted average common shares outstanding - basic		12,730,624			9,844,964			12,657,435			9,777,119
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		12,730,624			9,844,964			12,657,435			9,777,119
Basic and diluted loss per share	$	(0.21	)	$	(0.17	)	$	(0.74	)	$	(0.55	)

Anti-Dilutive shares:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Unvested restricted stock		92,415		116,818		92,415		453,846
Stock options		899,370		271,895		899,370		376,275
Warrants		90,000		90,000		90,000		90,000

Stock-Based Compensation

The Company accounts for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Prior to the Company’s initial public offering (“IPO”), the grant date fair value was determined by the Board of Directors. 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.

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Use of Estimates

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard becomes effective for the Company on January 1, 2018. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern: Disclosures about an Entity’s Ability to Continue as a Going Concern.” The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The new guidance is effective for the Company’s December 31, 2016 Form 10-K, and interim periods thereafter. The Company does not expect any changes to its consolidated financial position, results of operations and cash flows as a result of adoption of this standard, however, additional disclosures might be required in its financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10),” Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is not permitted. The Company is currently evaluating the effect of adoption of this standard, if any, on its consolidated financial position, results of operations and cash flows.

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

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for interim and annual reporting periods beginning January 1, 2017. Early adoption is permitted. The Company is currently evaluating the method of adoption and impact the update will have on its consolidated financial statements and related disclosures.

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

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

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

Note 2:      Acquisitions

Franchises acquired during 2016

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

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

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Purchase Price Allocation

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

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

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

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

Franchises acquired during 2015

During the year ended December 31, 2015, the Company entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of 24 developed and 35 undeveloped franchises throughout Arizona, California, and New York for an aggregate purchase price of $5,725,875, subject to certain adjustments, consisting of cash of $4,925,525 and notes payable of $800,350. Of the 24 developed franchises, the Company is operating 22 as company-owned or managed clinics and has closed the remaining two clinics. The 35 undeveloped franchises have been terminated and the Company may relocate them. At the time these transactions were consummated, the Company carried a deferred revenue balance of $1,005,500, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $493,500, related to undeveloped franchises.  The Company accounted for the franchise rights associated with the undeveloped franchises as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $5,213,875 was accounted for as consideration paid for the acquired franchises.

Additionally, in January 2015, in connection with the default by a franchisee under its franchise agreement, the Company assumed substantially all of the assets of a clinic in Tempe, Arizona in exchange for $25,000.  The Company has accounted for this as a business combination.  The Company completed its valuation of the fair value of the assets acquired, including intangible assets, in September 2015. Because the net assets acquired exceeded the consideration paid, the Company recognized a bargain purchase gain of $233,804 during the year ended December 31, 2015.

The Company also recognized a bargain purchase gain of $27,343 related to the acquisition of two developed franchises and seven undeveloped franchises in San Diego, California. Total bargain purchase gain for the year ended December 31, 2015 was $261,147.

The Company incurred $393,069 of transaction costs related to these acquisitions for the year ended December 31, 2015 which are included in general and administrative expenses in the accompanying statements of operations.

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Purchase Price Allocation

The purchase price allocations for these acquisitions are complete. The following summarizes the aggregate fair values of the assets acquired and liabilities assumed during 2015 as of the acquisition date:

Property and equipment	$	1,450,333
Intangible assets		1,947,000
Favorable leases		528,075
Goodwill		1,899,449
Total assets acquired		5,824,857
Unfavorable leases		(74,927	)
Deferred membership revenue		(106,908	)
Net assets acquired		5,643,022
Deferred tax liability		(168,000	)
Bargain purchase gain		(261,147	)
Net purchase price	$	5,213,875

Intangible assets in the table above consist of reacquired franchise rights of $1,449,000 and customer relationships of $498,000, and will be amortized over their estimated useful lives ranging from six to eight years and two years, respectively.

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

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the three and nine months ended September 30, 2016 and 2015 as if the acquisitions in 2016 had been completed on January 1, 2015.

	Pro Forma for the Three Months Ended						Pro Forma for the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Revenues, net		5,503,590			4,609,455			14,723,514			12,276,203
Net loss		(2,614,518	)		(2,172,039	)		(9,475,157	)		(6,431,788	)

This selected unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisitions had been completed on that date. Moreover, this information is not indicative of what the Company’s future operating results will be. The information for 2015 and 2016 prior to the acquisitions is included based on prior accounting records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisitions. For 2016, this information includes actual data recorded in the Company’s financial statements for the period subsequent to the date of the acquisitions. The Company’s consolidated statement of operations for the three months ended September 30, 2016 includes net revenue and net income of approximately $2.1 million and $0.1 million, respectively, attributable to the acquisitions. The Company’s consolidated statement of operations for the nine months ended September 30, 2016 includes net revenue and net income of approximately $5.6 million and $0.5 million, respectively, attributable to the acquisitions.

The pro forma amounts included in the table above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2015, together with the consequential tax impacts.

Note 3:      Notes Receivable

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

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

Effective July 2015, the Company entered into a license transfer agreement, in exchange for $29,925 in an unsecured promissory note.  The note bears interest at 4.0% per annum, and requires monthly principal payments over 12 months, beginning on August 1, 2015 and matured on July 1, 2016.

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

The net outstanding balance of the notes as of September 30, 2016 and December 31, 2015 were $50,785 and $76,731, respectively.

Note 4:     Property and Equipment

Property and equipment consists of the following:

	September 30, 2016			December 31, 2015
Office and computer equipment	$	1,308,655		$	963,299
Leasehold improvements		7,608,510			4,672,582
Software developed		860,646			691,827
		9,777,811			6,327,708
Accumulated depreciation		(2,454,614	)		(1,098,438	)
		7,323,197			5,229,270
Construction in progress		203,531			1,909,476
	$	7,526,728		$	7,138,746

Depreciation expense was $492,076 and $1,356,176 for the three and nine months ended September 30, 2016, respectively. Depreciation expense was $257,197 and $532,682 for the three and nine months ended September 30, 2015, respectively.

Note 5:      Intangible Assets

On January 1, 2016, the Company entered into an agreement under which it repurchased the regional development rights to develop franchises in San Bernardino and Riverside Counties in California. The total consideration for the transaction was $275,000, paid in cash. The Company carried a deferred revenue balance associated with these transactions of $36,250, representing license fees collected upon the execution of the regional developer agreements.  The Company accounted for the development rights associated with the unsold or undeveloped franchises as a cancellation, and the respective deferred revenue was netted against the aggregate purchase price or recognized as revenue to the extent deferred revenue was in excess of the cash consideration paid.  

On June 1, 2016, the Company entered into an agreement under which it repurchased the regional development rights to develop franchises in Virginia. The total consideration for the transaction was $50,000, paid in cash. The Company carried a deferred revenue balance associated with these transactions of $188,500, representing license fees collected upon the execution of the regional developer agreements.  The Company accounted for the development rights associated with the unsold or undeveloped franchises as a cancellation, and the respective deferred revenue was netted against the aggregate purchase price or recognized as revenue to the extent deferred revenue was in excess of the cash consideration paid.  

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Intangible assets consist of the following:

	As of September 30, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,711,001	$	380,788	$	1,330,213
Customer relationships		728,000		437,167		290,833
Reacquired development rights		1,162,000		210,268		951,732
	$	3,601,001	$	1,028,223	$	2,572,778

Amortization expense was $203,503 and $552,062 for the three and nine months ended September 30, 2016, respectively. Amortization expense was $164,193 and $289,807 for the three and nine months ended September 30, 2015, respectively.

Estimated amortization expense for 2016 and subsequent years is as follows:

2016 (remaining)	$	195,671
2017		592,185
2018		445,018
2019		418,685
2020		418,685
Thereafter		502,534
Total	$	2,572,778

Note 6:     Notes Payable

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

During 2016, the Company delivered two notes payable totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes are 4.25% with maturities through May of 2017.

Maturities of notes payable are as follows as of September 30, 2016:

2016 (remaining)	$	65,500
2017		266,000
Total	$	331,500

Note 7:     Equity

Stock Options

In the nine months ended September 30, 2016, the Company granted 590,000 stock options to employees with exercise prices ranging from $2.23 - $4.11. 

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.

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The Company has computed the fair value of all options granted during the nine months ended September 30, 2016 and 2015, using the following assumptions:

	Nine Months Ended September 30,
	2016			2015
Expected volatility	43%	-	45%	45%	-	50%
Expected dividends		None			None
Expected term (years)		7		5.5	-	7
Risk-free rate	1.19%	to	1.68%	1.66%	-	1.92%
Forfeiture rate		20%			20%

The information below summarizes the stock options activity:

	Number of Shares			Weighted Average Exercise Price		Weighted Fair Value		Weighted Average Remaining Contractual Life
Outstanding at December 31, 2015		477,459		$	4.30	$	2.01		8.7
Granted at market price		590,000			3.31
Exercised		(34,154	)		1.95
Cancelled		(133,935	)		4.08
Outstanding at September 30, 2016		899,370		$	3.77	$	1.94		8.4
Exercisable at September 30, 2016		353,692		$	4.08	$	2.38		7.9

The intrinsic value of the Company’s stock options outstanding was $209,994 at September 30, 2016.

For the three and nine months ended September 30, 2016, stock based compensation expense for stock options was $183,608, and $522,519, respectively. For the three and nine months ended September 30, 2015, stock based compensation expense for stock options was $129,704, and $204,701, respectively. Unrecognized stock-based compensation expense for stock options as of September 30, 2016 was $727,979, which is expected to be recognized ratably over the next 3.42 years.

Restricted Stock

The information below summaries the restricted stock activity:

Restricted Stock Awards	Shares
Granted at December 31, 2015		670,375
Awards vested		(331,087	)
Unvested at December 31, 2015		339,288
Awards granted		86,415
Awards vested		(162,440	)
Awards forfeited		(170,848	)
Unvested at September 30, 2016		92,415

For the three and nine months ended September 30, 2016, stock based compensation expense for restricted stock was $71,698, and $490,181, respectively. For the three and nine months ended September 30, 2015, stock based compensation expense for restricted stock was $226,875, and $405,376, respectively. Unrecognized stock based compensation expense for restricted stock awards as of September 30, 2016 was $227,710 to be recognized ratably over the next 1.12 years.

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Modifications

During the nine months ended September 30, 2016, the Company accelerated the vesting of all unvested stock options and restricted stock awards granted to the Company’s former chief development officer in relation to his separation from the Company. In addition, the Company modified the post-employment exercise period of the stock options previously granted, extending the exercise period to December 31, 2017.

During the nine months ended September 30, 2016, the Company modified the post-employment exercise period of stock options previously granted to the Company’s former chief executive officer in relation to his separation from the Company. The modification extended the exercise period to May 13, 2020. In addition, the Company accelerated the vesting of 9,733 shares of the previously granted restricted stock awards that were scheduled to vest in July 2016. The remaining unvested restricted stock awards were forfeited upon separation.

These modifications resulted in an approximately $412,000 increase in stock-based compensation for the nine months ended September 30, 2016.

Treasury Stock

During the nine months ended September 30, 2016, the Company acquired approximately 13,376 shares of treasury stock to satisfy minimum tax withholding related to vesting of restricted stock awards. These shares were acquired at a total cost of $83,391.

Note 8:      Income Taxes

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

Note 9:      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 $111,000 and $421,000 for the three and nine months ended September 30, 2016, respectively. Amounts paid to or for the benefit of these stockholders was approximately $100,000 and $471,000 for the three and nine months ended September 30, 2015, respectively.

Note 10:      Commitments and Contingencies

Operating Leases

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

Total rent expense for the three and nine months ended September 30, 2016 was $903,771 and $2,510,782, respectively. Total rent expense for the three and nine months ended September 30, 2015 was $402,061 and $756,678, respectively.

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Future minimum annual lease payments are as follows:

2016 (remaining)	$	843,053
2017		3,342,862
2018		2,753,063
2019		2,416,784
2020		2,154,008
Thereafter		10,112,360
Total	$	21,622,130

Litigation

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

On July 7, 2015, a group of six franchisees, who formerly owned a total of 13 franchise licenses that were terminated by the Company due to defaults in performance, commenced a collective arbitration proceeding before the American Arbitration Association in San Diego, California. The claimants’ demand for arbitration asserts claims for breach of contract, promissory fraud, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, wrongful termination of franchise agreements and “wrongful competition” pursuant to unspecified state business practices, unfair competition and franchise statutes. In April 2016, one of the franchisee’s claims was voluntarily dismissed, thereby leaving a total of five claimants with a collective total of 12 former licenses remaining as part of the arbitration proceeding. On August 8, 2016, the claimants filed a Second Amended Addendum to Demand in which they seek, among other things, rescission of all franchise investment- related fees and alleged losses on behalf of all remaining claimants. Based on a written discovery response served on October 7, 2016, certain of the claimants disclosed that they are alternatively seeking to recover lost profits, plus punitive damages and attorneys' fees.  There is an evidentiary hearing presently set to commence on January 16, 2017. The Company is vigorously defending the arbitration proceeding, and does not believe a loss contingency is probable or estimable as of September 30, 2016.

Note 11:      Segment Reporting

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

The Company has two operating business segments. The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of September 30, 2016, the Company operated or managed 61 clinics under this segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit. As of September 30, 2016, the franchise system consisted of 293 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, litigation 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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Corporate clinics	$	2,341		$	1,198		$	6,137		$	2,209
Franchise operations		3,163			2,940			8,606			7,864
Total revenues	$	5,504		$	4,138		$	14,743		$	10,073
Segment operating (loss) income:
Corporate clinics	$	(1,523	)	$	(941	)	$	(4,857	)	$	(1,526	)
Franchise operations		1,194			1,271			3,274			3,063
Total segment operating (loss) income	$	(329	)	$	330		$	(1,583	)	$	1,537
Depreciation and amortization:
Corporate clinics	$	599		$	353		$	1,625		$	611
Franchise operations		-			-			-			-
Corporate administration		97			68			283			211
Total depreciation and amortization	$	696		$	421		$	1,908		$	822
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	(329	)	$	330		$	(1,583	)	$	1,537
Unallocated corporate		(2,286	)		(2,381	)		(7,708	)		(7,350	)
Consolidated loss from operations		(2,615	)		(2,051	)		(9,291	)		(5,812	)
Bargain purchase gain		-			384			-			384
Other income, net		2			16			10			18
Loss before income tax expense	$	(2,613	)	$	(1,651	)	$	(9,281	)	$	(5,410	)

	September 30, 2016		December 31, 2015
Segment assets:
Corporate clinics	$	14,266	$	12,426
Franchise operations		2,266		2,580
Total segment assets	$	16,532	$	15,006
Unallocated cash and cash equivalents and restricted cash	$	3,863	$	17,178
Unallocated property and equipment		896		802
Other unallocated assets		835		376
Total assets	$	22,126	$	33,362

“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.

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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, 2015 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, 2015. 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 risk and uncertainties and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following:

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

• we have limited experience operating company-owned or managed clinics, and we may not be able to duplicate the success of some of our franchisees;

• 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;

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

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

• we have identified material weaknesses in our internal control over financial reporting, and our business and stock price may be adversely affected if we do not adequately address those weaknesses.

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

Overview

The principal business of The Joint Corp., a Delaware corporation, is to develop, own, operate, support and manage chiropractic clinics through direct ownership, management arrangements, franchising and the sale of regional developer rights throughout the United States.

As used in this Form 10-Q:

· “we,” “us,” and “our” refer to The Joint Corp.

· a “clinic” refers to a chiropractic clinic operating under our “Joint” brand, which may be (i) owned by a franchisee, (ii) owned by a professional corporation or limited liability company and managed by a franchisee; (iii) owned directly by us; or (iv) owned by a professional corporation or limited liability company and managed by us.

· when we identify an “operator” of a clinic, a party that is “operating” a clinic, or a party by whom a clinic is “operated,” we are referring to the party that operates all aspects of the clinic in certain jurisdictions, and to the party that manages all aspects of the clinic other than the practice of chiropractic in certain other jurisdictions.

· when we describe our acquisition or our opening of a clinic, we are referring to our acquisition or opening of the entity that operates all aspects of the clinic in certain jurisdictions, and to our acquisition or opening of the entity that manages aspects of the clinic other than the practice of chiropractic in certain other jurisdictions.

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

Key Performance Measures.  We receive both weekly and monthly performance reports from our company-owned or managed and our franchised clinics which include key performance indicators including gross clinic revenues, total royalty income, number of open clinics 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.

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Key Clinic Development Trends.   As of September 30, 2016, we or our franchisees operated 354 clinics. Of the 354 clinics in operation, we operated 61 as company-owned or managed clinics. Of the 61 company-owned or managed clinics, 29 were constructed and developed by us, and 32 were acquired from franchisees.

Our future growth strategy will be to continue to foster the growth of our acquired and developed clinics that are owned and managed by us, and to grow through the sale and development of additional franchises.

We recognize the critical importance of preserving cash and strengthening clinics we have already developed. Therefore, we do not plan to add additional company-owned or managed clinics for the remainder of 2016. The scaling back of launching company-owned or managed clinics allows us to continue to focus on growing gross sales, streamlining operations across all 61 company-owned or managed clinics and expanding franchise development.

We believe that The Joint has a remarkably 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 dynamic combination that benefits the consumer and the service provider alike. We believe that these forces create an important opportunity to accelerate the growth of our network through new franchise development.

Recent Developments

During the nine months ended September 30, 2016, we opened eight company-owned or managed clinic and terminated the regional developer rights in one territory. In addition, we acquired six developed franchises and one undeveloped franchise in California and New Mexico. We are operating the six developed franchises as company-owned or managed clinics and have terminated the undeveloped clinic license.

We will continue to foster the growth of our 61 company-owned or managed clinics. However, our Chicago-area clinics, while growing as a group, continue to underperform relative to or compared to our expectations. While we are working to improve the operating performance of the Chicago area clinics, we are also exploring strategic alternatives for those clinics that are in the best interest of our shareholders.

During the three and nine months ended September 30, 2016, we terminated six and fifteen franchise licenses, respectively, that were in default of various obligations under their respective franchise agreements. In conjunction with these terminations, during the three and nine months ended September 30, 2016, we recognized $195,800 and $477,109 of revenue and $65,100 and $162,250 of costs, respectively, which were previously deferred.

Factors Affecting Our Performance

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

Significant Accounting Polices and Estimates

There were no additional changes in our significant accounting policies and estimates during the three and nine months ended September 30, 2016 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2015.

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.

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Total Revenues – Three Months Ended September 30, 2016

Components of revenues for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015, are as follows:

	Three Months Ended September 30,
	2016		2015		Change from Prior Year			Percent Change from Prior Year
Revenues:
Revenues and management fees from company clinics	$	2,341,471	$	1,198,397	$	1,143,074			95.4	%
Royalty fees		1,540,264		1,150,574		389,690			33.9	%
Franchise fees		602,400		638,000		(35,600	)		(5.6	)%
Advertising fund revenue		595,955		330,502		265,453			80.3	%
IT related income and software fees		235,925		197,569		38,356			19.4	%
Regional developer fees		123,921		531,350		(407,429	)		(76.7	)%
Other revenues		63,654		91,623		(27,969	)		(30.5	)%
Total revenues	$	5,503,590	$	4,138,015	$	1,365,575			33.0	%

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

Consolidated Results

· Total revenues increased by $1.4 million primarily due to the addition of 32 company-owned or managed clinics, and continued expansion and revenue growth of our franchise base.

Corporate Clinics

· Revenues and management fees from company-owned or managed clinics increased due to the number of company-owned or managed clinics in operation during the current quarter compared to the same quarter last year.  As of September 30, 2016 and 2015, there were 61 and 29 company-owned or managed clinics in operation, respectively.

Franchise Operations

· Royalty fees have increased due to an increase in the number of franchised clinics in operation during the current quarter along with continued sales growth in existing franchised clinics.  As of September 30, 2016 and 2015, there were 293 and 248 franchised clinics in operation, respectively.  

· Franchise fees decreased due to the timing of franchise license terminations. In the three months ended September 30, 2016 and 2015, we recognized revenue from terminations of $196,000 and $290,000, respectively; offset by an increase in franchise openings in the quarter. For the three months ended September 2016 and 2015, 16 and 13 new franchise clinics opened, respectively.

· Regional developer fees decreased due to revenue recognition on the reacquisition of regional developer rights of $138,250 and $377,000 during the three months ended September 30, 2016 and 2015, respectively.

· IT related income and software fee and other revenues increased due to an increase in our franchise clinic base as described above.

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Total Revenues – Nine Months Ended September 30, 2016

Components of revenues for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015, and the reasons for significant changes in the components of our total revenues are as follows:

	Nine Months Ended
	September 30,
	2016		2015		Change from Prior Year			Percent Change from Prior Year
Revenues:
Revenues and management fees from company clinics	$	6,137,277	$	2,368,866	$	3,768,411			159.1	%
Royalty fees		4,337,643		3,264,278		1,073,365			32.9	%
Franchise fees		1,641,409		1,862,259		(220,850	)		(11.9	)%
Advertising fund revenue		1,218,256		955,480		262,776			27.5	%
IT related income and software fees		686,459		598,758		87,701			14.6	%
Regional developer fees		496,538		799,600		(303,062	)		(37.9	)%
Other revenues		225,086		223,419		1,667			0.7	%
Total revenues	$	14,742,668	$	10,072,660	$	4,670,008			46.4	%

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

Consolidated Results

· Total revenues increased by $4.7 million primarily due to the addition of 32 company-owned or managed clinics, and continued expansion and revenue growth of our franchise base.

Corporate Clinics

· Revenue and management fees from company-owned or managed clinics increased due to the number of company-owned or managed clinics in operation during the current period compared to the same quarter last  year.  As of September 30, 2016 and 2015, there were 61 and 29 company-owned or managed clinics in operation, respectively.

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 clinics.  As of September 30, 2016 and 2015, there were 293 and 248 franchised clinics in operation, respectively.  

· Franchise fees decreased due to the timing of franchise license terminations. In the nine months ended September 30, 2016 and 2015, we recognized revenue from terminations of $477,000 and $870,000, respectively, offset by year to date openings.

· Regional developer fees decreased due to the timing of regional developer license acquisitions and terminations. We recognized revenue in relation to regional developer acquisitions or terminations of $139,000 and $537,000 during the nine months ended September 30, 2016 and 2015, respectively.

· IT related income and software fee and other revenues increased due to an increase in our franchise clinic base as described above.

Cost of Revenues

Cost of Revenues	2016		2015		Change from Prior Year			Percent Change from Prior Year
Three Months Ended September 30,	$	718,762	$	745,482	$	(26,720	)		(3.6	)%
Nine Months Ended September 30,	$	2,186,464	$	2,082,561	$	103,903			5.0	%

For the three months ended September 30, 2016, as compared with the same period last year, the total cost of revenues decreased due to fewer regional developer commissions recognized in conjunction with franchise license terminations or openings in the period as compared to prior year, offset by an increase in regional developer royalties of $75,000 triggered by an increase of royalty revenues of approximately 34% as compared to the prior quarter.

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For the nine months ended September 30, 2016, as compared with the same period last year, the total cost of revenues increased due to increased regional developer royalties of $238,000 triggered by an increase of royalty revenues of approximately 33% as compared to the prior year, offset by a decrease of $138,000 due to fewer regional developer commissions recognized in conjunction with franchise license terminations or openings in the period as compared to prior year.

Selling and Marketing Expenses

Selling and Marketing Expenses	2016		2015		Change from Prior Year		Percent Change from Prior Year
Three Months Ended September 30,	$	1,272,524	$	500,579	$	771,945		154.2	%
Nine Months Ended September 30,	$	3,184,484	$	1,881,502	$	1,302,982		69.3	%

Selling and marketing expenses increased for the three and nine months ended September 30, 2016, as compared to the three and nine months ended September 30, 2015, due to the increased marketing efforts at company-owned or managed clinics.

Depreciation and Amortization Expenses

Depreciation and Amortization Expenses	2016		2015		Change from Prior Year		Percent Change from Prior Year
Three Months Ended September 30,	$	695,579	$	421,390	$	274,189		65.1	%
Nine Months Ended September 30,	$	1,908,238	$	822,489	$	1,085,749		132.0	%

Depreciation and amortization expenses increased for the three and nine months ended September 30, 2016 as compared to the three and nine months ended September 30, 2015, primarily due to property and equipment additions related to the acquisition of franchise clinics and development of company-owned or managed clinics since September 30, 2015 and intangible asset additions relating to our acquisitions of franchises and regional developer rights.

General and Administrative Expenses

General and Administrative Expenses	2016		2015		Change from Prior Year		Percent Change from Prior Year
Three Months Ended September 30,	$	5,431,243	$	4,521,463	$	909,780		20.1	%
Nine Months Ended September 30,	$	16,754,645	$	11,098,291	$	5,656,354		51.0	%

General and administrative expenses increased during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, primarily due to the following:

· An increase of approximately $0.8 million in occupancy costs due to the acquisition and development of additional company-owned or managed clinics.

· An increase of approximately $0.1 million of payroll related expense as a result of additional headcount from 32 additional company-owned or managed clinics.

General and administrative expenses increased during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily due to the following:

· An increase of approximately $2.6 million in occupancy costs due to the acquisition and development of additional company-owned or managed clinics

· An increase of approximately $2.3 million of payroll related expense of which $2.1 million relates to additional headcount from 32 additional company-owned or managed clinics.

· An increase of approximately $0.6 million in other miscellaneous unallocated expenses.

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Loss from Operations - Three Months Ended September 30, 2016

Loss from Operations	2016			2015			Change from Prior Year			Percent Change from Prior Year
Three Months Ended September 30,	$	(2,614,518	)	$	(2,050,899	)	$	(563,619	)		27.5	%

Consolidated Results

Consolidated loss from operations increased by $0.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily driven by the $0.6 million increase in operating loss in the corporate clinic segment discussed below.

Franchise Operations

Our franchise operations segment had net income from operations of $1.2 million for the three months ended September 30, 2016, a decrease of $0.1 million, compared to net income from operations of $1.3 million for the same period ended September 30, 2015. This decrease was primarily driven by:

· An increase in $0.4 million in total revenues due primarily to an approximately 34% increase in franchise royalty revenues, more than offset by

· A decrease of $0.5 million in regional developer revenue due to timing of RD acquisitions and terminations.

Corporate Clinics

Our corporate clinics segment had a loss from operations of $1.5 million for the three months ended September 30, 2016, an increase of $0.6 million compared to loss from operations of $0.9 million for the same period ended September 30, 2015. This increase was primarily driven by:

· An increase of approximately $0.4 million of payroll related expense due to increased headcount from 32 additional company-owned or managed clinics.

· An increase of approximately $0.8 million in occupancy costs due to the acquisition and development of additional company-owned or managed clinics.

· An increase of approximately $0.2 million in selling and marketing expenses due to the acquisition and development of 32 additional company-owned or managed clinics.

· An increase of approximately $0.3 million in depreciation and amortization related to the acquisition and development of 32 additional company-owned or managed clinics.

· An increase in revenues of approximately $1.1 million from company-owned or managed clinics, which offset the above costs.

Loss from Operations – Nine Months Ended September 30, 2016

Loss from Operations	2016			2015			Change from Prior Year			Percent Change from Prior Year
Nine Months Ended September 30,	$	(9,291,163	)	$	(5,812,183	)	$	(3,478,980	)		59.9	%

Consolidated Results

Consolidated loss from operations increased by $3.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 primarily driven by the $3.3 million increase in operating loss in the corporate clinic segment period over period, discussed below.

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Franchise Operations

Our franchise operations segment had net income from operations of $3.3 million for the nine months ended September 30, 2016, an increase of $0.2 million, compared to net income from operations of $3.1 million for the same period ended September 30, 2015. This increase was primarily driven by:

· An increase of approximately $1.1 million in total revenues, due primarily to an approximately 33% increase in franchise royalty revenues, partially offset by

· A decrease of $0.5 million regional developer revenue due to timing of RD acquisitions and terminations, and an increase of $0.2 million in support expense attributable to increased headcount to manage our national expansion.

 Corporate Clinics

Our corporate clinics segment had loss from operations of $4.8 million for the nine months ended September 30, 2016, an increase of $3.3 million compared to a loss from operations of $1.5 million for the same period ended September 30, 2015. This increase was primarily driven by:

· An increase of approximately $2.1 million of payroll related expense due to increased headcount from 38 additional company-owned or managed clinics.

· An increase of approximately $2.7 million in occupancy costs due to the acquisition and development of 38 additional company-owned or managed clinics.

· An increase of approximately $1.0 million in selling and marketing expenses due to the acquisition and development of 38 additional company-owned or managed clinics.

· An increase of approximately $1.0 million in depreciation and amortization related to the acquisition and development of 38 additional company-owned or managed clinics.

· An increase in revenues of approximately $3.9 million from company-owned or managed clinics, which offset the above costs.

Income Tax Expense

Income Tax (Expense) Benefit	2016			2015			Change from Prior Year			Percent Change from Prior Year
Three Months Ended September 30,	$	(14,277	)	$	(6,148	)	$	(8,129	)		132.2	%
Nine Months Ended September 30,	$	(132,144	)	$	(6,148	)	$	(125,996	)		2049.4	%

Changes in our income tax expense related primarily to changes in the valuation allowance on our deferred tax assets, revisions to our uncertain tax positions, state income taxes, and a revised estimate on federal income tax refunds. For the three and nine months ended September 30, 2016, and 2015 the effective rate was -1.15% and 0%, respectively. The difference is due to an increased valuation allowance against our net deferred tax assets, in addition to state income taxes relating to Voluntary Disclosure Agreements (“VDAs”) with various taxing jurisdictions and an adjustment to expected federal income tax refunds.

Liquidity and Capital Resources

Sources of Liquidity

Since 2012, until the initial public offering of our common stock (“IPO”) in 2014, we financed our business primarily through existing cash on hand and cash flows from operations.

On November 14, 2014, we completed our IPO of 3,000,000 shares of common stock at a price to the public of $6.50 per share. As a result of the IPO, we received aggregate net proceeds, after deducting underwriting discounts, commissions and other offering expenses, of approximately $17,065,000.  On November 18, 2014, our underwriters exercised their option to purchase 450,000 additional shares of common stock to cover over-allotments, pursuant to which we received aggregate net proceeds of approximately $2,710,000.

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On November 25, 2015 we completed our follow-on public offering of 2,272,727 shares of our common stock at a price to the public of $5.50 per share. On December 30, 2015 our underwriters exercised their over-allotment option to purchase an additional 340,909 shares of common stock to cover over-allotments pursuant to which we received aggregate net proceeds of approximately $13.0 million.

We have 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, by repurchasing existing franchises or by acquiring existing chiropractic practices. In addition, we have used proceeds from our offerings to repurchase existing regional developer licenses and to continue to expand our franchised clinic business.  Other than to pursue this growth strategy, we have not allocated a specific amount of our net proceeds from our public offerings to any particular purpose. The net proceeds we actually expend for the development of company-owned or managed clinics and the acquisition of additional franchises or regional developer licenses, and the growth of our franchised clinic business may vary significantly depending on a number of factors, including the timing of our identification and leasing of suitable sites for company-owned or managed clinics and, in respect of the acquisition of franchises or regional developer licenses, our ability to enter into a binding acquisition agreement on favorable terms and the negotiated purchase price. In addition, the net proceeds we actually expend for general corporate purposes may vary significantly depending on a number of factors, including future revenue growth and our cash flows. As a result, we will retain broad discretion over the allocation of the net proceeds from our public offerings. Pending use of the net proceeds from our public offerings, we are holding the net proceeds in cash or short-term bank deposits.

As of September 30, 2016, we had cash and short-term bank deposits of $3,386,498. To preserve cash, we will not be adding any company-owned or managed clinics for the remainder of 2016. In addition, we are currently considering non-dilutive financing options to strengthen our financial position.

Analysis of Cash Flows

Net cash used in operating activities increased by approximately $6.3 million to $10.3 million for the nine months ended September 30, 2016, compared to $4.0 million for the nine months ended September 30, 2015.  The increase in cash used in operating activities was attributable primarily to increased expenses caused by increased operating losses and working capital requirements of our 61 company-owned or managed clinics and the addition of senior level and support staff in the latter part of 2015.

Net cash used in investing activities was approximately $2.6 million and $7.1 million during the nine months ended September 30, 2016, and 2015, respectively.  For the nine months ended September 30, 2016, this includes acquisitions of franchises of $0.8 million, the reacquisition and termination of regional developer rights of $.3 million, purchases of property and equipment of $1.5 million and payments received on notes receivable of $26,000.   For the nine months ended September 30, 2015, this includes acquisitions of franchises of $4.6, reacquisition and termination of regional developer rights of $1.1 million, purchases of property and equipment of $1.5 million, proceeds received on sale of property and equipment of $12,000, and payments received on notes receivable of $22,000.

Net cash used in financing activities was approximately $0.4 million and $0.1 million for the nine months ended September 30, 2016, and 2015, respectively. For the nine months ended September 30, 2016, this includes repayments on notes payable of $0.4 million, purchases of treasury stock under employee stock plans of $83,000 and offering costs adjustment of $1,000, partially offset by proceeds from exercise of stock options of $66,000. For the nine months ended September 30, 2015, this includes repayments on notes payable of $110,000.

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

During the nine months ended September 30, 2016, 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.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2016, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective.

We have implemented certain controls over the Company’s financial reporting and remediated certain significant deficiencies from the prior year. Our remediation plan includes additional resources to oversee financial reporting, the enhancement of segregation of duties, and the engagement of third party consultants to aid in designing and implementing processes and procedures to compile, reconcile and review accounts in a timely manner. However, even with these improvements one or more material weaknesses or significant deficiencies could be present and result in errors in our financial statements.

Changes in Internal Control over Financial Reporting

We are currently in the process of finalizing our remediation of the control weaknesses described above which include additional resources to oversee financial reporting, the enhancement of segregation of duties, and the engagement of third party consultants to aid in designing and implementing processes and procedures to compile, reconcile and review accounts in a timely manner. We believe that these, and other internal control changes that we will implement in the fourth quarter of 2016, will remediate our remaining deficiencies.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

On July 7, 2015, a group of six franchisees, who formerly owned a total of 13 franchise licenses that were terminated by the Company due to defaults in performance, commenced a collective arbitration proceeding before the American Arbitration Association in San Diego, California. The claimants’ demand for arbitration asserts claims for breach of contract, promissory fraud, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, wrongful termination of franchise agreements and “wrongful competition” pursuant to unspecified state business practices, unfair competition and franchise statutes. The claimants sought, but later abandoned, “a preliminary and permanent injunction prohibiting the Company from seeking to operate corporate clinics within 25 miles of any franchise clinic.” Although commenced in California, the arbitration proceeding was moved to Phoenix, Arizona, pursuant to the franchise agreements in dispute, which include clauses that make it mandatory for any arbitration proceeding to be conducted in this locale. The Company has also asserted counterclaims against each of the claimants for unpaid termination fees due to the premature termination of their licenses. In April 2016, one of the franchisee’s claims was voluntarily dismissed, thereby leaving a total of five claimants with a collective total of 12 former licenses remaining as part of the arbitration proceeding. On August 8, 2016, the claimants filed a Second Amended Addendum to Demand in which they seek, among other things, rescission of all franchise investment- related fees and alleged losses on behalf of all remaining claimants. Based on a written discovery response served on October 7, 2016, certain of the claimants disclosed that they are alternatively seeking to recover lost profits, plus punitive damages and attorneys' fees.  There is an evidentiary hearing presently set to commence on January 16, 2017. The Company is vigorously defending the arbitration proceeding.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in Item 1A of our Form 10-K for the year ended December 31, 2015.

30

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.

THE JOINT CORP.

SIGNATURES

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

	THE JOINT CORP.
Dated: November 14, 2016	By:	/s/ Peter D. Holt
		Peter D. Holt
		Chief Executive Officer
		(Principal Executive Officer )

Dated: November 14, 2016	By:	/s/ John P. Meloun
		John P. Meloun
		Chief Financial Officer
		(Principal Financial Officer)

31

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.

32

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

I, Peter D. Holt, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 of The Joint Corp.;

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2016

/s/ Peter D. Holt

Peter D. Holt

Chief Executive Officer

(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

I, John P. Meloun, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 of The Joint Corp.;

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2016

/s/ John P. Meloun

John P. Meloun

Chief Finanicial Officer

(Principal Financial Officer) 

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of The Joint Corp. (the “Company”), for the quarter ended September 30, 2016, 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
	Chief Executive Officer
	(Principal Executive Officer )
Dated November 14, 2016

By:	/s/ John P. Meloun
	John P. Meloun
	Chief Financial Officer
	(Principal Financial Officer)
Dated November 14, 2016

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 04, 2016
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)		12,720,399
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 3,386,498	$ 16,792,850
Restricted cash	476,665	385,282
Accounts receivable, net	1,862,250	743,239
Income taxes receivable	38,814	70,981
Notes receivable - current portion	47,035	60,908
Deferred franchise costs - current portion	709,950	605,850
Prepaid expenses and other current assets	891,938	366,033
Total current assets	7,413,150	19,025,143
Property and equipment, net	7,526,728	7,138,746
Notes receivable, net of current portion and reserve	3,750	15,823
Deferred franchise costs, net of current portion	1,074,050	1,534,700
Intangible assets, net	2,572,778	2,542,269
Goodwill	2,805,331	2,466,937
Deposits and other assets	729,789	638,710
Total assets	22,125,576	33,362,328
Current liabilities:
Accounts payable	820,748	1,996,971
Accrued expenses	255,539	375,529
Co-op funds liability	105,185	201,078
Payroll liabilities	414,290	1,493,375
Notes payable - current portion	331,500	451,850
Deferred rent - current portion	239,018	334,560
Deferred revenue - current portion	3,118,867	2,579,423
Other current liabilities	61,660	54,596
Total current liabilities	5,346,807	7,487,382
Notes payable, net of current portion		130,000
Deferred rent, net of current portion	1,465,562	457,290
Deferred revenue, net of current portion	2,767,493	4,369,702
Other liabilities	285,021	238,648
Total liabilities	9,864,883	12,683,022
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 50,000 shares authorized, 0 issued and outstanding, as of September 30, 2016, and December 31, 2015
Common stock, $0.001 par value; 20,000,000 shares authorized, 13,266,775 shares issued and 12,719,399 shares outstanding as of September 30, 2016 and 13,070,180 shares issued and 12,536,180 outstanding as of December 31, 2015	13,266	13,070
Additional paid-in capital	36,345,365	35,267,376
Treasury stock (547,376 shares as of September 30, 2016 and 534,000 as of December 31, 2015, at cost)	(875,029)	(791,638)
Accumulated deficit	(23,222,909)	(13,809,502)
Total stockholders' equity	12,260,693	20,679,306
Total liabilities and stockholders' equity	$ 22,125,576	$ 33,362,328

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
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)	13,266,775	13,070,180
Common stock, shares outstanding (in shares)	12,719,399	12,536,180
Treasury stock, shares (in shares)	547,376	534,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Revenues and management fees from company clinics	$ 2,341,471	$ 1,198,397	$ 6,137,277	$ 2,368,866
Royalty fees	1,540,264	1,150,574	4,337,643	3,264,278
Franchise fees	602,400	638,000	1,641,409	1,862,259
Advertising fund revenue	595,955	330,502	1,218,256	955,480
IT related income and software fees	235,925	197,569	686,459	598,758
Regional developer fees	123,921	531,350	496,538	799,600
Other revenues	63,654	91,623	225,086	223,419
Total revenues	5,503,590	4,138,015	14,742,668	10,072,660
Cost of revenues:
Franchise cost of revenues	660,126	697,170	2,023,712	1,948,328
IT cost of revenues	58,636	48,312	162,752	134,233
Total cost of revenues	718,762	745,482	2,186,464	2,082,561
Selling and marketing expenses	1,272,524	500,579	3,184,484	1,881,502
Depreciation and amortization	695,579	421,390	1,908,238	822,489
General and administrative expenses	5,431,243	4,521,463	16,754,645	11,098,291
Total selling, general and administrative expenses	7,399,346	5,443,432	21,847,367	13,802,282
Loss from operations	(2,614,518)	(2,050,899)	(9,291,163)	(5,812,183)
Other income (expense):
Bargain purchase gain		384,214		384,214
Other income (expense), net	1,901	16,111	9,900	17,800
Total other income (expense)	1,901	400,325	9,900	402,014
Loss before income tax expense	(2,612,617)	(1,650,574)	(9,281,263)	(5,410,169)
Income tax expense	(14,277)	(6,148)	(132,144)	(6,148)
Net loss and comprehensive loss	$ (2,626,894)	$ (1,656,722)	$ (9,413,407)	$ (5,416,317)
Loss per share:
Basic and diluted loss per share (in dollars per share)	$ (0.21)	$ (0.17)	$ (0.74)	$ (0.55)
Basic and diluted weighted average shares (in shares)	12,730,624	9,844,964	12,657,435	9,777,119

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net loss	$ (9,413,407)	$ (5,416,317)
Adjustments to reconcile net loss to net cash used in operating activities:
(Recovery) provision for bad debts	(10,830)	4,344
Regional developer fees recognized upon acquisition of development rights	(138,500)	(254,250)
Net franchise fees recognized upon termination of franchise agreements	(314,859)	(480,250)
Notes receivable issued for payment of transfer fees		(49,850)
Depreciation and amortization	1,908,238	822,489
Gain on sale of property and equipment		(11,500)
Bargain purchase gain		(384,214)
Deferred income taxes		147,800
Stock based compensation expense	1,012,700	646,077
Changes in operating assets and liabilities, net of effects from acquisitions:
Restricted cash	(91,383)	36,145
Accounts receivable	(1,108,181)	94,684
Income taxes receivable	32,167	(53,989)
Prepaid expenses and other current assets	(525,905)	224,131
Deferred franchise costs	194,300	(18,100)
Deposits and other assets	49,649	(125,594)
Accounts payable	(1,183,328)	77,817
Accrued expenses	(119,990)	87,128
Co-op funds liability	(95,893)	(26,834)
Payroll liabilities	(1,079,085)	779,271
Other liabilities	33,837	(35,294)
Deferred rent	912,730	62,549
Deferred revenue	(405,977)	(134,925)
Net cash used in operating activities	(10,343,717)	(4,008,682)
Cash flows from investing activities:
Cash paid for acquisitions	(811,450)	(4,652,525)
Reacquisition and termination of regional developer rights	(325,000)	(1,075,500)
Purchase of property and equipment	(1,497,874)	(1,461,125)
Proceeds received on sale of property and equipment		11,500
Payments received on notes receivable	25,945	21,562
Net cash used in investing activities	(2,608,379)	(7,156,088)
Cash flows from financing activities:
Issuance of common stock, offering costs adjustment	(1,042)
Purchases of treasury stock under employee stock plans	(83,391)
Proceeds from exercise of stock options	66,527
Repayments on notes payable	(436,350)	(110,000)
Net cash used in financing activities	(454,256)	(110,000)
Net decrease in cash	(13,406,352)	(11,274,770)
Cash at beginning of period	16,792,850	20,796,783
Cash at end of period	$ 3,386,498	$ 9,522,013

XML

Supplemental Disclosure of Non-cash Information

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

Supplemental disclosure of cash flow information:

During the nine months ended September 30, 2016 and 2015, cash paid for income taxes was $10,466 and $0, respectively. During the nine months ended September 30, 2016 and 2015, cash paid for interest was $15,262 and $1,445, respectively.

Supplemental disclosure of non-cash activity:

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

In connection with our reacquisition and termination of regional developer rights during the nine months ended September 30, 2016 and 2015, we had deferred revenue of $224,750 and $914,000, respectively, representing license fees collected upon the execution of the regional developer agreements.  In accordance with ASC-952-605, we netted these amounts against the aggregate purchase price of the acquisitions (Note 5).

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

In connection with our acquisitions of franchises during the nine months ended September 30, 2015, we acquired $1,539,321 of property and equipment, intangible assets of $1,531,041, goodwill of $2,312,259, favorable leases of $17,469 and assumed deferred revenue associated with membership packages paid in advance of $117,301 in exchange for $4,652,525 in cash and notes payable issued to the sellers for an aggregate amount of $744,350. Additionally, at the time of these transactions, we carried deferred revenue of $976,500, representing franchise fees collected upon the execution of franchise agreements, and deferred costs of $478,200, related to our acquisition of undeveloped franchises. We netted these amounts against the aggregate purchase price of the acquisitions (Note 2).

During the quarter ended September 30, 2016, the final valuation of a December 2015 acquisition was completed.  The purchase price allocation for this acquisition was adjusted accordingly:

Property and equipment	$	(53,836	)
Intangible assets	$	4,820
Favorable leases	$	6,250
Goodwill	$	68,616
Unfavorable leases	$	(25,850	)

As of December 31, 2014, we recorded a deposit of $507,500 for the reacquisition and termination of regional developer rights, which were paid in advance.  During the nine months ended September 30, 2015, upon the effective date of the reacquisition and termination agreement, we reclassified $507,500 from deposits to intangible assets.

XML

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

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

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

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

Basis of Presentation

These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”), and its wholly owned subsidiary The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). These unaudited condensed consolidated financial statements should be read in conjunction with The Joint Corp. and Subsidiary consolidated financial statements and the notes thereto as set forth in The Joint Corp.’s Form 10-K, which included all disclosures required by generally accepted accounting principles. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position on a consolidated basis and the consolidated results of operations and cash flows for the interim periods presented. The results of operations for the periods ended September 30, 2016 and 2015 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended September 30, 2016 and 2015 is unaudited.

Principles of Consolidation

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

All significant intercompany accounts and transactions between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from selling and marketing expenses to general and administrative expenses for the three and nine months ended September 30, 2015 to conform to current year presentation.

Comprehensive Loss

Net loss and comprehensive loss are the same for the three and nine months ended September 30, 2016 and 2015.

Nature of Operations

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

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended  September 30,					Nine Months Ended  September 30,
Franchised clinics:	2016		2015			2016			2015
Clinics in operation at beginning of period		280		239			265			242
Opened during the period		13		13			38			36
Acquired during the period		-		(2	)		(6	)		(23	)
Closed during the period		-		(2	)		(4	)		(7	)
Clinics in operation at the end of the period		293		248			293			248

	Three Months Ended  September 30,				Nine Months Ended  September 30,
Company-owned or managed clinics:	2016		2015		2016		2015
Clinics in operation at beginning of period		61		23		47		4
Opened during the period		-		4		8		4
Acquired during the period		-		2		6		23
Closed during the period		-		-		-		(2	)
Clinics in operation at the end of the period		61		29		61		29
Total clinics in operation at the end of the period		354		277		354		277
Clinics licenses sold but not yet developed		134		180		134		180

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 are 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 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 activity of the PCs is 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 of its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2016 and December 31, 2015.

Restricted Cash

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

Concentrations of Credit Risk

From time to time, the Company grants credit in the normal course of business to franchisees and PCs related to the collection of royalties, and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of September 30, 2016 and December 31, 2015, three PC entities and six franchisees represented 52% and 31%, respectively, of outstanding accounts receivable. The Company did not have any customers that represented greater than 10% of its revenues during the three and nine months ended September 30, 2016 and 2015.

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees, royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2016 and December 31, 2015, the Company had an allowance for doubtful accounts of $131,830 and $142,660, respectively.

Deferred Franchise Costs

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

Property and Equipment

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

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

Software Developed

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

Intangible Assets

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

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions discussed in Note 2.  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 and nine months ended September 30, 2016 and 2015.

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 and nine months ended September 30, 2016 and 2015.

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 consolidated balance sheets. As amounts are expended from the fund, the Company recognizes advertising fund revenue and a related expense. Amounts collected in excess of marketing expenditures are included in restricted cash on the Company’s condensed consolidated balance sheets. 

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.

Deferred Rent

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

Revenue Recognition

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

Franchise Fees.

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

Regional Developer Fees

. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under this program, regional developers pay a license fee ranging from $7,250 to 25% of the then current franchise fee for each franchise they receive the right to develop within the region. Each regional developer agreement establishes a minimum number of franchises that the regional developer must develop. Regional developers receive fees ranging from $14,500 to $19,950, which are collected upon the sale of franchises within their region, and a royalty of 3% of sales generated by franchised clinics in their region. Regional developer license fees are non-refundable and are recognized as revenue when the Company has performed substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening of each franchised clinic. Upon the execution of a regional developer agreement, the Company estimates the number of franchised clinics to be opened, which is typically consistent with the contracted minimum. When the Company anticipates that the number of franchised clinics to be opened will exceed the contracted minimum, the license fee on a per-clinic basis is determined by dividing the total fee collected from the regional developer by the revised number of clinics expected to be opened within the region. Certain regional developer agreements provide that no additional fee is required for franchises developed by the regional developer above the contracted minimum, while other regional developer agreements require a supplemental payment. The Company reassesses the number of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change to the original estimate becomes apparent, the fee per clinic is revised on a prospective basis, and the unrecognized fees are allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region. The regional developer’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. Several of the regional developer agreements grant the Company the option to repurchase the regional developer’s license.

Revenues and Management Fees from Company Clinics.  

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

Royalties.

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

IT Related Income and Software Fees.

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

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were $600,804 and $1,770,699 for the three and nine months ended September 30, 2016, respectively. Advertising expenses were $377,122 and $853,110 for the three and nine months ended September 30, 2015, respectively.

Income Taxes

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

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

At September 30, 2016 and December 31, 2015, the Company maintained a liability for income taxes for uncertain tax positions of approximately $39,500 and $66,000, respectively, of which $26,000 and $33,000, respectively, represent penalties and interest and are recorded in the  “other liabilities” section of the accompanying condensed consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include 2011 through the current period for state and 2012 through the current period for federal reporting purposes.

Loss per Common Share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net loss	$	(2,626,894	)	$	(1,656,722	)	$	(9,413,407	)	$	(5,416,317	)
Weighted average common shares outstanding - basic		12,730,624			9,844,964			12,657,435			9,777,119
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		12,730,624			9,844,964			12,657,435			9,777,119
Basic and diluted loss per share	$	(0.21	)	$	(0.17	)	$	(0.74	)	$	(0.55	)

Anti-Dilutive shares:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Unvested restricted stock		92,415		116,818		92,415		453,846
Stock options		899,370		271,895		899,370		376,275
Warrants		90,000		90,000		90,000		90,000

Stock-Based Compensation

The Company accounts for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Prior to the Company’s initial public offering (“IPO”), the grant date fair value was determined by the Board of Directors. 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 consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and deferred franchise costs, uncertain tax positions, realizability of deferred tax assets, impairment of goodwill and intangible assets and purchase price allocations.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “

Revenue from Contracts with Customers

”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard becomes effective for the Company on January 1, 2018. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued ASU No. 2014-15, “

Presentation of Financial Statements - Going Concern: Disclosures about an Entity’s Ability to Continue as a Going Concern.

” The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The new guidance is effective for the Company’s December 31, 2016 Form 10-K, and interim periods thereafter. The Company does not expect any changes to its consolidated financial position, results of operations and cash flows as a result of adoption of this standard, however, additional disclosures might be required in its financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “

Financial Instruments - Overall (Subtopic 825-10)

,” Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is not permitted. The Company is currently evaluating the effect of adoption of this standard, if any, on its consolidated financial position, results of operations and cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “

Leases (Topic 842).

” The ASU requires that substantially all operating leases be recognized as assets and liabilities on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases as off balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations. The right to use the leased property is to be capitalized as an asset and the expected lease payments over the life of the lease will be accounted for as a liability. The effective date is for fiscal years beginning after December 31, 2018. While the Company has not yet quantified the impact this standard will have on its financial statements, it will result in a significant increase in the asset and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially decrease the Company’s reported net income.

In March 2016, the FASB issued ASU 2016-09, “

Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting

” (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for interim and annual reporting periods beginning January 1, 2017. Early adoption is permitted. The Company is currently evaluating the method of adoption and impact the update will have on its consolidated financial statements and related disclosures.

In April 2016, the FASB issued ASU No. 2016-10, “

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

”, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “

Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

”, to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15,

“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”.

This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this amendment on its financial statements.

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Note 2 - Acquisitions

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note 2:      Acquisitions

Franchises acquired during 2016

During the nine months ended September 30, 2016, the Company continued to execute its growth strategy and entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of six developed franchises and one undeveloped franchise throughout California and New Mexico for an aggregate purchase price of $1,025,000, subject to certain adjustments, consisting of cash of $839,000 and notes payable of $186,000. The Company is operating the six developed franchises as company-owned or managed clinics and has terminated the undeveloped clinic license. At the time these transactions were consummated, the Company carried

a deferred revenue balance of $29,000, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $1,450, related to an undeveloped franchise.  The Company accounted for the franchise rights associated with the undeveloped franchise as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $997,450 was accounted for as consideration paid for the acquired franchises.

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

Purchase Price Allocation

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

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

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

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

Franchises acquired during 2015

During the year ended December 31, 2015, the Company entered into a series of unrelated transactions with existing franchisees to re-acquire an aggregate of 24 developed and 35 undeveloped franchises throughout Arizona, California, and New York for an aggregate purchase price of $5,725,875, subject to certain adjustments, consisting of cash of $4,925,525 and notes payable of $800,350. Of the 24 developed franchises, the Company is operating 22 as company-owned or managed clinics and has closed the remaining two clinics. The 35 undeveloped franchises have been terminated and the Company may relocate them. At the time these transactions were consummated, the Company carried

a deferred revenue balance of $1,005,500, representing franchise fees collected upon the execution of the franchise agreements, and deferred franchise costs of $493,500, related to undeveloped franchises.  The Company accounted for the franchise rights associated with the undeveloped franchises as a cancellation, and the respective deferred revenue and deferred franchise costs were netted against the aggregate purchase price.  The remaining $5,213,875 was accounted for as consideration paid for the acquired franchises.

Additionally, in January 2015, in connection with the default by a franchisee under its franchise agreement, the Company assumed substantially all of the assets of a clinic in Tempe, Arizona in exchange for $25,000.  The Company has accounted for this as a business combination.  The Company completed its valuation of the fair value of the assets acquired, including intangible assets, in September 2015. Because the net assets acquired exceeded the consideration paid, the Company recognized a bargain purchase gain of $233,804 during the year ended December 31, 2015.

The Company also recognized a bargain purchase gain of $27,343 related to the acquisition of two developed franchises and seven undeveloped franchises in San Diego, California. Total bargain purchase gain for the year ended December 31, 2015 was $261,147.

The Company incurred $393,069 of transaction costs related to these acquisitions for the year ended December 31, 2015 which are included in general and administrative expenses in the accompanying statements of operations.

Purchase Price Allocation

The purchase price allocations for these acquisitions are complete. The following summarizes the aggregate fair values of the assets acquired and liabilities assumed during 2015 as of the acquisition date:

Property and equipment	$	1,450,333
Intangible assets		1,947,000
Favorable leases		528,075
Goodwill		1,899,449
Total assets acquired		5,824,857
Unfavorable leases		(74,927	)
Deferred membership revenue		(106,908	)
Net assets acquired		5,643,022
Deferred tax liability		(168,000	)
Bargain purchase gain		(261,147	)
Net purchase price	$	5,213,875

Intangible assets in the table above consist of reacquired franchise rights of $1,449,000 and customer relationships of $498,000, and will be amortized over their estimated useful lives ranging from six to eight years and two years, respectively.

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

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma condensed consolidated statements of operations data for the three and nine months ended September 30, 2016 and 2015 as if the acquisitions in 2016 had been completed on January 1, 2015.

	Pro Forma for the Three Months Ended						Pro Forma for the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Revenues, net		5,503,590			4,609,455			14,723,514			12,276,203
Net loss		(2,614,518	)		(2,172,039	)		(9,475,157	)		(6,431,788	)

This selected unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisitions had been completed on that date. Moreover, this information is not indicative of what the Company’s future operating results will be. The information for 2015 and 2016 prior to the acquisitions is included based on prior accounting records maintained by the acquired companies. In some cases, accounting policies differed materially from accounting policies adopted by the Company following the acquisitions. For 2016, this information includes actual data recorded in the Company’s financial statements for the period subsequent to the date of the acquisitions. The Company’s consolidated statement of operations for the three months ended September 30, 2016 includes net revenue and net income of approximately $2.1 million and $0.1 million, respectively, attributable to the acquisitions. The Company’s consolidated statement of operations for the nine months ended September 30, 2016 includes net revenue and net income of approximately $5.6 million and $0.5 million, respectively, attributable to the acquisitions.

The pro forma amounts included in the table above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2015, together with the consequential tax impacts.

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Note 3 - Notes Receivable

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

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

Note 3:      Notes Receivable

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

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

Effective July 2015, the Company entered into a license transfer agreement, in exchange for $29,925 in an unsecured promissory note.  The note bears interest at 4.0% per annum, and requires monthly principal payments over 12 months, beginning on August 1, 2015 and matured on July 1, 2016.

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

The net outstanding balance of the notes as of September 30, 2016 and December 31, 2015 were $50,785 and $76,731, respectively.

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Note 4 - Property and Equipment

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

Note 4:     Property and Equipment

Property and equipment consists of the following:

	September 30, 2016			December 31, 2015
Office and computer equipment	$	1,308,655		$	963,299
Leasehold improvements		7,608,510			4,672,582
Software developed		860,646			691,827
		9,777,811			6,327,708
Accumulated depreciation		(2,454,614	)		(1,098,438	)
		7,323,197			5,229,270
Construction in progress		203,531			1,909,476
	$	7,526,728		$	7,138,746

Depreciation expense was $492,076 and $1,356,176 for the three and nine months ended September 30, 2016, respectively. Depreciation expense was $257,197 and $532,682 for the three and nine months ended September 30, 2015, respectively.

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Note 5 - Intangible Assets

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

Note 5:      Intangible Assets

On January 1, 2016, the Company entered into an agreement under which it repurchased the regional development rights to develop franchises in San Bernardino and Riverside Counties in California. The total consideration for the transaction was $275,000, paid in cash.

The Company carried a deferred revenue balance associated with these transactions of $36,250, representing license fees collected upon the execution of the regional developer agreements.  The Company accounted for the development rights associated with the unsold or undeveloped franchises as a cancellation, and the respective deferred revenue was netted against the aggregate purchase price or recognized as revenue to the extent deferred revenue was in excess of the cash consideration paid.  

On June 1, 2016, the Company entered into an agreement under which it repurchased the regional development rights to develop franchises in Virginia. The total consideration for the transaction was $50,000, paid in cash.

The Company carried a deferred revenue balance associated with these transactions of $188,500, representing license fees collected upon the execution of the regional developer agreements.  The Company accounted for the development rights associated with the unsold or undeveloped franchises as a cancellation, and the respective deferred revenue was netted against the aggregate purchase price or recognized as revenue to the extent deferred revenue was in excess of the cash consideration paid.  

Intangible assets consist of the following:

	As of September 30, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,711,001	$	380,788	$	1,330,213
Customer relationships		728,000		437,167		290,833
Reacquired development rights		1,162,000		210,268		951,732
	$	3,601,001	$	1,028,223	$	2,572,778

Amortization expense was $203,503 and $552,062 for the three and nine months ended September 30, 2016, respectively. Amortization expense was $164,193 and $289,807 for the three and nine months ended September 30, 2015, respectively.

Estimated amortization expense for 2016 and subsequent years is as follows:

2016 (remaining)	$	195,671
2017		592,185
2018		445,018
2019		418,685
2020		418,685
Thereafter		502,534
Total	$	2,572,778

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Note 6 - Notes Payable

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 6:     Notes Payable

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

During 2016, the Company delivered two notes payable totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest rates for both notes are 4.25% with maturities through May of 2017.

Maturities of notes payable are as follows as of September 30, 2016:

2016 (remaining)	$	65,500
2017		266,000
Total	$	331,500

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Note 7 - Equity

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note 7:     Equity

Stock Options

In the nine months ended September 30, 2016, the Company granted 590,000 stock options to employees with exercise prices ranging from $2.23 - $4.11. 

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

The Company has computed the fair value of all options granted during the nine months ended September 30, 2016 and 2015, using the following assumptions:

	Nine Months Ended September 30,
	2016			2015
Expected volatility	43%	-	45%	45%	-	50%
Expected dividends		None			None
Expected term (years)		7		5.5	-	7
Risk-free rate	1.19%	to	1.68%	1.66%	-	1.92%
Forfeiture rate		20%			20%

The information below summarizes the stock options activity:

	Number of Shares			Weighted Average Exercise Price		Weighted Fair Value		Weighted Average Remaining Contractual Life
Outstanding at December 31, 2015		477,459		$	4.30	$	2.01		8.7
Granted at market price		590,000			3.31
Exercised		(34,154	)		1.95
Cancelled		(133,935	)		4.08
Outstanding at September 30, 2016		899,370		$	3.77	$	1.94		8.4
Exercisable at September 30, 2016		353,692		$	4.08	$	2.38		7.9

The intrinsic value of the Company’s stock options outstanding was $209,994 at September 30, 2016.

For the three and nine months ended September 30, 2016, stock based compensation expense for stock options was $183,608, and $522,519, respectively. For the three and nine months ended September 30, 2015, stock based compensation expense for stock options was $129,704, and $204,701, respectively. Unrecognized stock-based compensation expense for stock options as of September 30, 2016 was $727,979, which is expected to be recognized ratably over the next 3.42 years.

Restricted Stock

The information below summaries the restricted stock activity:

Restricted Stock Awards	Shares
Granted at December 31, 2015		670,375
Awards vested		(331,087	)
Unvested at December 31, 2015		339,288
Awards granted		86,415
Awards vested		(162,440	)
Awards forfeited		(170,848	)
Unvested at September 30, 2016		92,415

For the three and nine months ended September 30, 2016, stock based compensation expense for restricted stock was $71,698, and $490,181, respectively. For the three and nine months ended September 30, 2015, stock based compensation expense for restricted stock was $226,875, and $405,376, respectively. Unrecognized stock based compensation expense for restricted stock awards as of September 30, 2016 was $227,710 to be recognized ratably over the next 1.12 years.

Modifications

During the nine months ended September 30, 2016, the Company accelerated the vesting of all unvested stock options and restricted stock awards granted to the Company’s former chief development officer in relation to his separation from the Company. In addition, the Company modified the post-employment exercise period of the stock options previously granted, extending the exercise period to December 31, 2017.

During the nine months ended September 30, 2016, the Company modified the post-employment exercise period of stock options previously granted to the Company’s former chief executive officer in relation to his separation from the Company. The modification extended the exercise period to May 13, 2020. In addition, the Company accelerated the vesting of 9,733 shares of the previously granted restricted stock awards that were scheduled to vest in July 2016. The remaining unvested restricted stock awards were forfeited upon separation.

These modifications resulted in an approximately $412,000 increase in stock-based compensation for the nine months ended September 30, 2016.

Treasury Stock

During the nine months ended September 30, 2016, the Company acquired approximately 13,376 shares of treasury stock to satisfy minimum tax withholding related to vesting of restricted stock awards. These shares were acquired at a total cost of $83,391.

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Note 8 - Income Taxes

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 8:      Income Taxes

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

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Note 9 - Related Party Transactions

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note 9:      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 $111,000 and $421,000 for the three and nine months ended September 30, 2016, respectively. Amounts paid to or for the benefit of these stockholders was approximately $100,000 and $471,000 for the three and nine months ended September 30, 2015, respectively.

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Note 10 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 10:      Commitments and Contingencies

Operating Leases

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

Total rent expense for the three and nine months ended September 30, 2016 was $903,771 and $2,510,782, respectively. Total rent expense for the three and nine months ended September 30, 2015 was $402,061 and $756,678, respectively.

Future minimum annual lease payments are as follows:

2016 (remaining)	$	843,053
2017		3,342,862
2018		2,753,063
2019		2,416,784
2020		2,154,008
Thereafter		10,112,360
Total	$	21,622,130

Litigation

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

On July 7, 2015, a group of six franchisees, who formerly owned a total of 13 franchise licenses that were terminated by the Company due to defaults in performance, commenced a collective arbitration proceeding before the American Arbitration Association in San Diego, California. The claimants’ demand for arbitration asserts claims for breach of contract, promissory fraud, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, wrongful termination of franchise agreements and “wrongful competition” pursuant to unspecified state business practices, unfair competition and franchise statutes. In April 2016, one of the franchisee’s claims was voluntarily dismissed, thereby leaving a total of five claimants with a collective total of 12 former licenses remaining as part of the arbitration proceeding. On August 8, 2016, the claimants filed a Second Amended Addendum to Demand in which they seek, among other things, rescission of all franchise investment- related fees and alleged losses on behalf of all remaining claimants. Based on a written discovery response served on October 7, 2016, certain of the claimants disclosed that they are alternatively seeking to recover lost profits, plus punitive damages and attorneys' fees.  There is an evidentiary hearing presently set to commence on January 16, 2017. The Company is vigorously defending the arbitration proceeding, and does not believe a loss contingency is probable or estimable as of September 30, 2016.

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Note 11 - Segment Reporting

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 11:      Segment Reporting

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

The Company has two operating business segments. The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of September 30, 2016, the Company operated or managed 61 clinics under this segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit. As of September 30, 2016, the franchise system consisted of 293 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, litigation 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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Corporate clinics	$	2,341		$	1,198		$	6,137		$	2,209
Franchise operations		3,163			2,940			8,606			7,864
Total revenues	$	5,504		$	4,138		$	14,743		$	10,073
Segment operating (loss) income:
Corporate clinics	$	(1,523	)	$	(941	)	$	(4,857	)	$	(1,526	)
Franchise operations		1,194			1,271			3,274			3,063
Total segment operating (loss) income	$	(329	)	$	330		$	(1,583	)	$	1,537
Depreciation and amortization:
Corporate clinics	$	599		$	353		$	1,625		$	611
Franchise operations		-			-			-			-
Corporate administration		97			68			283			211
Total depreciation and amortization	$	696		$	421		$	1,908		$	822
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	(329	)	$	330		$	(1,583	)	$	1,537
Unallocated corporate		(2,286	)		(2,381	)		(7,708	)		(7,350	)
Consolidated loss from operations		(2,615	)		(2,051	)		(9,291	)		(5,812	)
Bargain purchase gain		-			384			-			384
Other income, net		2			16			10			18
Loss before income tax expense	$	(2,613	)	$	(1,651	)	$	(9,281	)	$	(5,410	)

	September 30, 2016		December 31, 2015
Segment assets:
Corporate clinics	$	14,266	$	12,426
Franchise operations		2,266		2,580
Total segment assets	$	16,532	$	15,006
Unallocated cash and cash equivalents and restricted cash	$	3,863	$	17,178
Unallocated property and equipment		896		802
Other unallocated assets		835		376
Total assets	$	22,126	$	33,362

“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.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

These unaudited financial statements represent the condensed consolidated financial statements of The Joint Corp. (“The Joint”), and its wholly owned subsidiary The Joint Corporate Unit No. 1, LLC (collectively, the “Company”). These unaudited condensed consolidated financial statements should be read in conjunction with The Joint Corp. and Subsidiary consolidated financial statements and the notes thereto as set forth in The Joint Corp.’s Form 10-K, which included all disclosures required by generally accepted accounting principles. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position on a consolidated basis and the consolidated results of operations and cash flows for the interim periods presented. The results of operations for the periods ended September 30, 2016 and 2015 are not necessarily indicative of expected operating results for the full year. The information presented throughout the document as of and for the periods ended September 30, 2016 and 2015 is unaudited.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

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

All significant intercompany accounts and transactions between The Joint Corp. and its subsidiary have been eliminated in consolidation. Certain balances were reclassified from selling and marketing expenses to general and administrative expenses for the three and nine months ended September 30, 2015 to conform to current year presentation.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Loss

Net loss and comprehensive loss are the same for the three and nine months ended September 30, 2016 and 2015.

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

The following table summarizes the number of clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended  September 30,					Nine Months Ended  September 30,
Franchised clinics:	2016		2015			2016			2015
Clinics in operation at beginning of period		280		239			265			242
Opened during the period		13		13			38			36
Acquired during the period		-		(2	)		(6	)		(23	)
Closed during the period		-		(2	)		(4	)		(7	)
Clinics in operation at the end of the period		293		248			293			248

	Three Months Ended  September 30,				Nine Months Ended  September 30,
Company-owned or managed clinics:	2016		2015		2016		2015
Clinics in operation at beginning of period		61		23		47		4
Opened during the period		-		4		8		4
Acquired during the period		-		2		6		23
Closed during the period		-		-		-		(2	)
Clinics in operation at the end of the period		61		29		61		29
Total clinics in operation at the end of the period		354		277		354		277
Clinics licenses sold but not yet developed		134		180		134		180

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 are 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 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 activity of the PCs is 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 of its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2016 and December 31, 2015.

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

Restricted Cash

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

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

Concentrations of Credit Risk

From time to time, the Company grants credit in the normal course of business to franchisees and PCs related to the collection of royalties, and other operating revenues. The Company periodically performs credit analysis and monitors the financial condition of the franchisees and PCs to reduce credit risk. As of September 30, 2016 and December 31, 2015, three PC entities and six franchisees represented 52% and 31%, respectively, of outstanding accounts receivable. The Company did not have any customers that represented greater than 10% of its revenues during the three and nine months ended September 30, 2016 and 2015.

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

Accounts Receivable

Accounts receivable represent amounts due from franchisees for initial franchise fees, royalty fees, working capital advances due from PCs, and tenant improvement allowances due from landlords. The Company considers a reserve for doubtful accounts based on the creditworthiness of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2016 and December 31, 2015, the Company had an allowance for doubtful accounts of $131,830 and $142,660, respectively.

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 expensed when the respective revenue is recognized, which is generally upon the opening of a clinic.

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

Property and Equipment

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

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

Internal Use Software, Policy [Policy Text Block]

Software Developed

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

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

Intangible Assets

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

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

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions discussed in Note 2.  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 and nine months ended September 30, 2016 and 2015.

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 and nine months ended September 30, 2016 and 2015.

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 consolidated balance sheets. As amounts are expended from the fund, the Company recognizes advertising fund revenue and a related expense. Amounts collected in excess of marketing expenditures are included in restricted cash on the Company’s condensed consolidated balance sheets. 

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.

Lease, Policy [Policy Text Block]

Deferred Rent

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

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

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

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

Franchise Fees.

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

Regional Developer Fees, Policy [Policy Text Block]

Regional Developer Fees

. During 2011, the Company established a regional developer program to engage independent contractors to assist in developing specified geographical regions. Under this program, regional developers pay a license fee ranging from $7,250 to 25% of the then current franchise fee for each franchise they receive the right to develop within the region. Each regional developer agreement establishes a minimum number of franchises that the regional developer must develop. Regional developers receive fees ranging from $14,500 to $19,950, which are collected upon the sale of franchises within their region, and a royalty of 3% of sales generated by franchised clinics in their region. Regional developer license fees are non-refundable and are recognized as revenue when the Company has performed substantially all initial services required by the regional developer agreement, which generally is considered to be upon the opening of each franchised clinic. Upon the execution of a regional developer agreement, the Company estimates the number of franchised clinics to be opened, which is typically consistent with the contracted minimum. When the Company anticipates that the number of franchised clinics to be opened will exceed the contracted minimum, the license fee on a per-clinic basis is determined by dividing the total fee collected from the regional developer by the revised number of clinics expected to be opened within the region. Certain regional developer agreements provide that no additional fee is required for franchises developed by the regional developer above the contracted minimum, while other regional developer agreements require a supplemental payment. The Company reassesses the number of clinics expected to be opened as the regional developer performs under its regional developer agreement. When a material change to the original estimate becomes apparent, the fee per clinic is revised on a prospective basis, and the unrecognized fees are allocated among, and recognized as revenue upon the opening of, the expected remaining unopened franchised clinics within the region. The regional developer’s services under regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. Several of the regional developer agreements grant the Company the option to repurchase the regional developer’s license.

Revenues and Management Fees, Policy [Policy Text Block]

Revenues and Management Fees from Company Clinics.  

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

Royalties, Policy [Policy Text Block]

Royalties.

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

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

IT Related Income and Software Fees.

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

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were $600,804 and $1,770,699 for the three and nine months ended September 30, 2016, respectively. Advertising expenses were $377,122 and $853,110 for the three and nine months ended September 30, 2015, respectively.

Income Tax, Policy [Policy Text Block]

Income Taxes

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

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

At September 30, 2016 and December 31, 2015, the Company maintained a liability for income taxes for uncertain tax positions of approximately $39,500 and $66,000, respectively, of which $26,000 and $33,000, respectively, represent penalties and interest and are recorded in the  “other liabilities” section of the accompanying condensed consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company’s tax returns for tax years subject to examination by tax authorities include 2011 through the current period for state and 2012 through the current period for federal reporting purposes.

Earnings Per Share, Policy [Policy Text Block]

Loss per Common Share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net loss	$	(2,626,894	)	$	(1,656,722	)	$	(9,413,407	)	$	(5,416,317	)
Weighted average common shares outstanding - basic		12,730,624			9,844,964			12,657,435			9,777,119
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		12,730,624			9,844,964			12,657,435			9,777,119
Basic and diluted loss per share	$	(0.21	)	$	(0.17	)	$	(0.74	)	$	(0.55	)

Anti-Dilutive shares:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Unvested restricted stock		92,415		116,818		92,415		453,846
Stock options		899,370		271,895		899,370		376,275
Warrants		90,000		90,000		90,000		90,000

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

Stock-Based Compensation

The Company accounts for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Prior to the Company’s initial public offering (“IPO”), the grant date fair value was determined by the Board of Directors. 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 consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements, fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and deferred franchise costs, uncertain tax positions, realizability of deferred tax assets, impairment of goodwill and intangible assets and purchase price allocations.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “

Revenue from Contracts with Customers

”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard becomes effective for the Company on January 1, 2018. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued ASU No. 2014-15, “

Presentation of Financial Statements - Going Concern: Disclosures about an Entity’s Ability to Continue as a Going Concern.

” The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The new guidance is effective for the Company’s December 31, 2016 Form 10-K, and interim periods thereafter. The Company does not expect any changes to its consolidated financial position, results of operations and cash flows as a result of adoption of this standard, however, additional disclosures might be required in its financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “

Financial Instruments - Overall (Subtopic 825-10)

,” Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is not permitted. The Company is currently evaluating the effect of adoption of this standard, if any, on its consolidated financial position, results of operations and cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “

Leases (Topic 842).

” The ASU requires that substantially all operating leases be recognized as assets and liabilities on the Company’s balance sheet, which is a significant departure from the current standard, which classifies operating leases as off balance sheet transactions and accounts for only the current year operating lease expense in the statement of operations. The right to use the leased property is to be capitalized as an asset and the expected lease payments over the life of the lease will be accounted for as a liability. The effective date is for fiscal years beginning after December 31, 2018. While the Company has not yet quantified the impact this standard will have on its financial statements, it will result in a significant increase in the asset and liabilities reflected on the Company’s balance sheet and in the interest expense and depreciation and amortization expense reflected in its statement of operations, while reducing the amount of rent expense. This could potentially decrease the Company’s reported net income.

In March 2016, the FASB issued ASU 2016-09, “

Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting

” (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for interim and annual reporting periods beginning January 1, 2017. Early adoption is permitted. The Company is currently evaluating the method of adoption and impact the update will have on its consolidated financial statements and related disclosures.

In April 2016, the FASB issued ASU No. 2016-10, “

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

”, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “

Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

”, to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the impact of this amendment on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15,

“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”.

This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this amendment on its financial statements.

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Supplemental Disclosure of Non-cash Information (Tables)

9 Months Ended

Sep. 30, 2016

Reacquisitions of Franchises Throughout Arizona, California and New York [Member]

Notes Tables

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

Property and equipment	$	(53,836	)
Intangible assets	$	4,820
Favorable leases	$	6,250
Goodwill	$	68,616
Unfavorable leases	$	(25,850	)

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

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

Property and equipment	$	1,450,333
Intangible assets		1,947,000
Favorable leases		528,075
Goodwill		1,899,449
Total assets acquired		5,824,857
Unfavorable leases		(74,927	)
Deferred membership revenue		(106,908	)
Net assets acquired		5,643,022
Deferred tax liability		(168,000	)
Bargain purchase gain		(261,147	)
Net purchase price	$	5,213,875

XML

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

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Franchisor Disclosure [Table Text Block]

	Three Months Ended  September 30,					Nine Months Ended  September 30,
Franchised clinics:	2016		2015			2016			2015
Clinics in operation at beginning of period		280		239			265			242
Opened during the period		13		13			38			36
Acquired during the period		-		(2	)		(6	)		(23	)
Closed during the period		-		(2	)		(4	)		(7	)
Clinics in operation at the end of the period		293		248			293			248

	Three Months Ended  September 30,				Nine Months Ended  September 30,
Company-owned or managed clinics:	2016		2015		2016		2015
Clinics in operation at beginning of period		61		23		47		4
Opened during the period		-		4		8		4
Acquired during the period		-		2		6		23
Closed during the period		-		-		-		(2	)
Clinics in operation at the end of the period		61		29		61		29
Total clinics in operation at the end of the period		354		277		354		277
Clinics licenses sold but not yet developed		134		180		134		180

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net loss	$	(2,626,894	)	$	(1,656,722	)	$	(9,413,407	)	$	(5,416,317	)
Weighted average common shares outstanding - basic		12,730,624			9,844,964			12,657,435			9,777,119
Effect of dilutive securities:
Stock options		-			-			-			-
Weighted average common shares outstanding - diluted		12,730,624			9,844,964			12,657,435			9,777,119
Basic and diluted loss per share	$	(0.21	)	$	(0.17	)	$	(0.74	)	$	(0.55	)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Unvested restricted stock		92,415		116,818		92,415		453,846
Stock options		899,370		271,895		899,370		376,275
Warrants		90,000		90,000		90,000		90,000

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Note 2 - Acquisitions (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

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

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

Property and equipment	$	1,450,333
Intangible assets		1,947,000
Favorable leases		528,075
Goodwill		1,899,449
Total assets acquired		5,824,857
Unfavorable leases		(74,927	)
Deferred membership revenue		(106,908	)
Net assets acquired		5,643,022
Deferred tax liability		(168,000	)
Bargain purchase gain		(261,147	)
Net purchase price	$	5,213,875

Business Acquisition, Pro Forma Information [Table Text Block]

	Pro Forma for the Three Months Ended						Pro Forma for the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Revenues, net		5,503,590			4,609,455			14,723,514			12,276,203
Net loss		(2,614,518	)		(2,172,039	)		(9,475,157	)		(6,431,788	)

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Note 4 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30, 2016			December 31, 2015
Office and computer equipment	$	1,308,655		$	963,299
Leasehold improvements		7,608,510			4,672,582
Software developed		860,646			691,827
		9,777,811			6,327,708
Accumulated depreciation		(2,454,614	)		(1,098,438	)
		7,323,197			5,229,270
Construction in progress		203,531			1,909,476
	$	7,526,728		$	7,138,746

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Note 5 - Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

	As of September 30, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Reacquired franchise rights	$	1,711,001	$	380,788	$	1,330,213
Customer relationships		728,000		437,167		290,833
Reacquired development rights		1,162,000		210,268		951,732
	$	3,601,001	$	1,028,223	$	2,572,778

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

2016 (remaining)	$	195,671
2017		592,185
2018		445,018
2019		418,685
2020		418,685
Thereafter		502,534
Total	$	2,572,778

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Note 6 - Notes Payable (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

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

2016 (remaining)	$	65,500
2017		266,000
Total	$	331,500

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Note 7 - Equity (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

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

	Nine Months Ended September 30,
	2016			2015
Expected volatility	43%	-	45%	45%	-	50%
Expected dividends		None			None
Expected term (years)		7		5.5	-	7
Risk-free rate	1.19%	to	1.68%	1.66%	-	1.92%
Forfeiture rate		20%			20%

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

	Number of Shares			Weighted Average Exercise Price		Weighted Fair Value		Weighted Average Remaining Contractual Life
Outstanding at December 31, 2015		477,459		$	4.30	$	2.01		8.7
Granted at market price		590,000			3.31
Exercised		(34,154	)		1.95
Cancelled		(133,935	)		4.08
Outstanding at September 30, 2016		899,370		$	3.77	$	1.94		8.4
Exercisable at September 30, 2016		353,692		$	4.08	$	2.38		7.9

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

Restricted Stock Awards	Shares
Granted at December 31, 2015		670,375
Awards vested		(331,087	)
Unvested at December 31, 2015		339,288
Awards granted		86,415
Awards vested		(162,440	)
Awards forfeited		(170,848	)
Unvested at September 30, 2016		92,415

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Note 10 - Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

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

2016 (remaining)	$	843,053
2017		3,342,862
2018		2,753,063
2019		2,416,784
2020		2,154,008
Thereafter		10,112,360
Total	$	21,622,130

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Note 11 - Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Corporate clinics	$	2,341		$	1,198		$	6,137		$	2,209
Franchise operations		3,163			2,940			8,606			7,864
Total revenues	$	5,504		$	4,138		$	14,743		$	10,073
Segment operating (loss) income:
Corporate clinics	$	(1,523	)	$	(941	)	$	(4,857	)	$	(1,526	)
Franchise operations		1,194			1,271			3,274			3,063
Total segment operating (loss) income	$	(329	)	$	330		$	(1,583	)	$	1,537
Depreciation and amortization:
Corporate clinics	$	599		$	353		$	1,625		$	611
Franchise operations		-			-			-			-
Corporate administration		97			68			283			211
Total depreciation and amortization	$	696		$	421		$	1,908		$	822
Reconciliation of total segment operating income (loss) to consolidated earnings (loss) before income taxes (in thousands):
Total segment operating (loss) income	$	(329	)	$	330		$	(1,583	)	$	1,537
Unallocated corporate		(2,286	)		(2,381	)		(7,708	)		(7,350	)
Consolidated loss from operations		(2,615	)		(2,051	)		(9,291	)		(5,812	)
Bargain purchase gain		-			384			-			384
Other income, net		2			16			10			18
Loss before income tax expense	$	(2,613	)	$	(1,651	)	$	(9,281	)	$	(5,410	)

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

	September 30, 2016		December 31, 2015
Segment assets:
Corporate clinics	$	14,266	$	12,426
Franchise operations		2,266		2,580
Total segment assets	$	16,532	$	15,006
Unallocated cash and cash equivalents and restricted cash	$	3,863	$	17,178
Unallocated property and equipment		896		802
Other unallocated assets		835		376
Total assets	$	22,126	$	33,362

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Supplemental Disclosure of Non-cash Information (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2014
Accounts Payable [Member]
Capital Expenditures Incurred but Not yet Paid	$ 7,105
Franchise Fees [Member]
Deferred Revenue	29,000	$ 976,500
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment	293,014	1,539,321
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	339,000	1,531,041
Goodwill, Acquired During Period	269,780	2,312,259
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Deferred Revenue	45,072	117,301
Payments to Acquire Businesses, Net of Cash Acquired	839,000	4,652,525
Business Combination, Consideration Transferred, Liabilities Incurred	186,000	744,350
Deferred Franchise Costs Netted Against Aggregate Purchase Price	1,450	478,200
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Favorable Leases		17,469
Income Taxes Paid	10,466	0
Interest Paid	15,262	1,445
Deferred Revenue	224,750	914,000
Payments to Acquire Businesses, Net of Cash Acquired	$ 811,450	4,652,525
Deposit Assets			$ 507,500
Intangible Assets Reclassified from Deposits		$ 507,500

XML

Supplemental Cash Flow Information - Value of Assets Acquired and Liabilities Assumed (Details) - Reacquisitions of Franchises Throughout Arizona, California and New York [Member]	3 Months Ended
	Sep. 30, 2016 USD ($)
Property and equipment	$ (53,836)
Intangible assets	4,820
Favorable leases	6,250
Goodwill	68,616
Unfavorable leases	$ (25,850)

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Three PC Entities [Member]
Number of PC Entities	3		3
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Six Franchisees [Member]
Number of Franchises					6
Concentration Risk, Percentage			52.00%		31.00%
Minimum [Member] | Franchise Rights [Member]
Finite-Lived Intangible Asset, Useful Life			6 years
Minimum [Member]
Property, Plant and Equipment, Useful Life			3 years
Regional Developers, Franchise Fees Collected Upon Sale of Franchise	$ 14,500		$ 14,500
Maximum [Member] | Franchise Rights [Member]
Finite-Lived Intangible Asset, Useful Life			8 years
Maximum [Member]
Property, Plant and Equipment, Useful Life			7 years
Regional Developers, Franchise Fees Collected Upon Sale of Franchise	19,950		$ 19,950
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
Other Liabilities [Member]
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	26,000		$ 26,000		$ 33,000
Allowance for Doubtful Accounts Receivable	131,830		131,830		142,660
Cash Equivalents, at Carrying Value	0		0		0
Impairment of Long-Lived Assets Held-for-use	0	$ 0	0	$ 0
Goodwill, Impairment Loss	0	0	$ 0	0
Franchise Monthly Marketing Fee Gross Sales Percentage			2.00%
Regional Developers License Fee	7,250		$ 7,250
Regional Developers License Fee Current Franchise Fee Percentage			25.00%
Regional Developers Royalty Sales Generated by Franchises Percentage			3.00%
Franchise Royalty Gross Sales Percentage			7.00%
Advertising Expense	600,804	$ 377,122	$ 1,770,699	$ 853,110
Liability for Uncertainty in Income Taxes, Current	$ 39,500		$ 39,500		$ 66,000

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Clinics in Operation Under Franchise Agreements or Company-owned or Managed (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Franchised Units [Member]
Clinics in operation at beginning of period	280	239	265	242
Opened during the period	13	13	38	36
Acquired during the period		(2)	(6)	(23)
Closed during the period		(2)	(4)	(7)
Clinics in operation at the end of the period	293	248	293	248
Acquired during the period		2	6	23
Number of Stores	280	239	265	242	293	248
Entity Operated Units [Member]
Clinics in operation at beginning of period	61	23	47	4
Opened during the period		4	8	4
Acquired during the period		(2)	(6)	(23)
Closed during the period				(2)
Clinics in operation at the end of the period	61	29	61	29
Acquired during the period		2	6	23
Number of Stores	61	23	47	4	61	29
Clinics in operation at the end of the period	354	277	354	277
Number of Stores	354	277	354	277	354	277
Clinics licenses sold but not yet developed					134	180

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Earnings (Loss) Per Common Share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net loss	$ (2,626,894)	$ (1,656,722)	$ (9,413,407)	$ (5,416,317)
Weighted average common shares outstanding - basic (in shares)	12,730,624	9,844,964	12,657,435	9,777,119
Stock options (in shares)
Weighted average common shares outstanding - diluted (in shares)	12,730,624	9,844,964	12,657,435	9,777,119
Basic and diluted loss per share (in dollars per share)	$ (0.21)	$ (0.17)	$ (0.74)	$ (0.55)

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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Restricted Stock [Member]
Anti-dilutive Securities (in shares)	92,415	116,818	92,415	453,846
Employee Stock Option [Member]
Anti-dilutive Securities (in shares)	899,370	271,895	899,370	376,275
Warrant [Member]
Anti-dilutive Securities (in shares)	90,000	90,000	90,000	90,000

XML

Note 2 - Acquisitions (Details Textual)	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jan. 31, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Reacquisitions of Franchises Throughout California and New Mexico [Member} | General and Administrative Expense [Member]
Business Combination, Acquisition Related Costs				$ 64,000
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Franchise Rights [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life				6 years
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Franchise Rights [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life				8 years
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Franchise Rights [Member]
Finite-lived Intangible Assets Acquired				$ 181,000
Reacquisitions of Franchises Throughout California and New Mexico [Member} | Customer Relationships [Member]
Finite-lived Intangible Assets Acquired				$ 158,000
Finite-Lived Intangible Asset, Useful Life				2 years
Reacquisitions of Franchises Throughout California and New Mexico [Member}
Number of Developed Franchises Reacquired During Period				6
Number of Undeveloped Franchises Reacquired During the Period				1
Business Combination, Consideration Transferred				$ 1,025,000
Payments to Acquire Businesses, Gross				839,000
Business Combination, Consideration Transferred, Liabilities Incurred				$ 186,000
Number of Reacquired Developed Franchises Operated as Company-owned or Managed Clinics		6		6
Deferred Revenue		$ 29,000		$ 29,000
Deferred Franchise Costs		1,450		1,450
Business Combination, Consideration Transferred, Net of Deferred Revenue and Deferred Franchise Costs				997,450
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | General and Administrative Expense [Member]
Business Combination, Acquisition Related Costs						$ 393,069
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | Franchise Rights [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life						6 years
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | Franchise Rights [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life						8 years
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | Franchise Rights [Member]
Finite-lived Intangible Assets Acquired						$ 1,449,000
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | Customer Relationships [Member]
Finite-lived Intangible Assets Acquired						$ 498,000
Finite-Lived Intangible Asset, Useful Life						2 years
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | Tempe, AZ [Member]
Business Combination, Consideration Transferred	$ 25,000
Business Combination, Bargain Purchase, Gain Recognized, Amount						$ 233,804
Reacquisitions of Franchises Throughout Arizona, California and New York [Member] | San Diego, CA [Member]
Number of Developed Franchises Reacquired During Period						2
Number of Undeveloped Franchises Reacquired During the Period						7
Business Combination, Bargain Purchase, Gain Recognized, Amount	$ 27,343
Reacquisitions of Franchises Throughout Arizona, California and New York [Member]
Number of Developed Franchises Reacquired During Period						24
Number of Undeveloped Franchises Reacquired During the Period						35
Business Combination, Consideration Transferred						$ 5,725,875
Payments to Acquire Businesses, Gross						4,925,525
Business Combination, Consideration Transferred, Liabilities Incurred						$ 800,350
Number of Reacquired Developed Franchises Operated as Company-owned or Managed Clinics						22
Deferred Revenue						$ 1,005,500
Deferred Franchise Costs						493,500
Business Combination, Consideration Transferred, Net of Deferred Revenue and Deferred Franchise Costs						$ 5,213,875
Number of Franchises Closed						2
Number of Reacquired Undeveloped Franchises that Have Been Terminated and May Be Relocated						35
Business Combination, Bargain Purchase, Gain Recognized, Amount						$ 261,147
Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual		2,100,000		5,600,000
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual		100,000		$ 500,000
Franchise Rights [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life				6 years
Franchise Rights [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life				8 years
Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life				2 years
Deferred Revenue		224,750	$ 914,000	$ 224,750	$ 914,000
Business Combination, Bargain Purchase, Gain Recognized, Amount			$ 384,214		$ 384,214

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Note 2 - Acquisitions - Assets Acquired and Liabilities Assumed (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Reacquisitions of Franchises Throughout California and New Mexico [Member}
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment	$ 293,014		$ 293,014
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	339,000		339,000
Favorable leases	140,728		140,728
Goodwill	269,780		269,780
Total assets acquired	1,042,522		1,042,522
Deferred membership revenue	(45,072)		(45,072)
Net purchase price			997,450
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Favorable Leases	140,728		140,728
Reacquisitions of Franchises Throughout Arizona, California and New York [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment					$ 1,450,333
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill					1,947,000
Favorable leases					528,075
Goodwill					1,899,449
Total assets acquired					5,824,857
Deferred membership revenue					(106,908)
Net purchase price					5,213,875
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Favorable Leases					528,075
Unfavorable leases					(74,927)
Net assets acquired					5,643,022
Deferred tax liability					(168,000)
Bargain purchase gain					(261,147)
Goodwill	2,805,331		2,805,331		$ 2,466,937
Bargain purchase gain		$ (384,214)		$ (384,214)

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Note 2 - Acquisitions - Supplemental Pro Forma Information (Details) - The Joint RRC Corp [Member] - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues, net	$ 5,503,590	$ 4,609,455	$ 14,723,514	$ 12,276,203
Net loss	$ (2,614,518)	$ (2,172,039)	$ (9,475,157)	$ (6,431,788)

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Note 3 - Notes Receivable (Details Textual)	1 Months Ended
	May 31, 2016 USD ($)	Jul. 31, 2015 USD ($)	Jul. 31, 2012 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Company-owned Clinic [Member]
Financing Receivable, Net			$ 90,000	$ 50,785	$ 76,731
Notes Receivable, Interest Rate			6.00%
Notes Receivable, Contractual Term			4 years 180 days
Notes Receivable, Principal and Interest, Term			3 years 180 days
Number of License Transfer Agreements		2
Non-interest Bearing Unsecured Promissory Note 1 [Member]
Financing Receivable, Net		$ 10,000
Non-interest Bearing Unsecured Promissory Note 2 [Member]
Financing Receivable, Net		$ 29,925
Notes Receivable, Contractual Term		2 years
Interest Bearing Unsecured Promissory Note [Member]
Financing Receivable, Net		$ 29,925
Notes Receivable, Interest Rate		4.00%
Notes Receivable, Contractual Term		1 year
Non-interest Bearing Unsecured Promissory Note Maturing October 1, 2017 [Member]
Financing Receivable, Net	$ 7,500
Notes Receivable, Contractual Term	180 days
Number of License Transfer Agreements	3
Number of Unsecured Promissory Notes	3

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Note 4 - Property and Equipment (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Depreciation	$ 492,076	$ 257,197	$ 1,356,176	$ 532,682

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Note 4 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Office Equipment [Member]
Property and Equipment, Gross	$ 1,308,655	$ 963,299
Leasehold Improvements [Member]
Property and Equipment, Gross	7,608,510	4,672,582
Software Development [Member]
Property and Equipment, Gross	860,646	691,827
Property Plant and Equipment, Excluding Construction in Progress [Member]
Property and Equipment, Net	7,323,197	5,229,270
Property and Equipment, Gross	9,777,811	6,327,708
Accumulated depreciation	(2,454,614)	(1,098,438)
Property and Equipment, Net	7,526,728	7,138,746
Construction in progress	$ 203,531	$ 1,909,476

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Note 5 - Intangible Assets (Details Textual) - USD ($)			3 Months Ended		9 Months Ended
	Jun. 01, 2016	Jan. 01, 2016	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Regional Developer Rights in Los Angeles County, San Diego, and New Jersey [Member] | Franchises [Member]
Deferred Revenue		$ 36,250
Regional Developer Rights in Los Angeles County, San Diego, and New Jersey [Member]
Repurchase Right to Develop Franchises, Consideration		$ 275,000
Regional Developer Rights in Virginia [Member] | Franchises [Member]
Deferred Revenue	$ 188,500
Regional Developer Rights in Virginia [Member]
Repurchase Right to Develop Franchises, Consideration	$ 50,000
Deferred Revenue			$ 224,750	$ 914,000	$ 224,750	$ 914,000
Amortization of Intangible Assets			$ 203,503	$ 164,193	$ 552,062	$ 289,807

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Note 5 - Intangible Assets - Intangible Assets Acquired (Details)	Sep. 30, 2016 USD ($)
Franchise Rights [Member]
Gross Carrying Amount	$ 1,711,001
Accumulated Amortization	380,788
Net Carrying Value	1,330,213
Customer Relationships [Member]
Gross Carrying Amount	728,000
Accumulated Amortization	437,167
Net Carrying Value	290,833
Development Rights [Member]
Gross Carrying Amount	1,162,000
Accumulated Amortization	210,268
Net Carrying Value	951,732
Gross Carrying Amount	3,601,001
Accumulated Amortization	1,028,223
Net Carrying Value	$ 2,572,778

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Note 5 - Intangible Assets - Estimated Amortization Expense (Details)	Sep. 30, 2016 USD ($)
2016 (remaining)	$ 195,671
2017	592,185
2018	445,018
2019	418,685
2020	418,685
Thereafter	502,534
Total	$ 2,572,778

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Note 6 - Notes Payable (Details Textual)	9 Months Ended	12 Months Ended
	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
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%
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%
Number of Notes Payable Delivered as a Portion of the Consideration Paid in Connection With Acquisitions	2	12

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Note 6 - Notes Payable - Maturities of Notes Payable (Details)	Sep. 30, 2016 USD ($)
2016 (remaining)	$ 65,500
2017	266,000
Total	$ 331,500

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Note 7 - Equity (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Minimum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price			$ 2.23
Maximum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Exercise Price			$ 4.11
Employee Stock Option [Member]
Allocated Share-based Compensation Expense	$ 183,608	$ 129,704	$ 522,519	$ 204,701
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			3 years 153 days
Restricted Stock [Member] | Former Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Accelerated Vesting, Number			9,733
Restricted Stock [Member]
Allocated Share-based Compensation Expense	71,698	$ 226,875	$ 490,181	$ 405,376
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			1 year 43 days
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	227,710		$ 227,710
Share-based Compensation Arrangement by Share-based Payment Award Accelerated Compensation Cost			$ 412,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			590,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	209,994		$ 209,994
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 727,979		$ 727,979
Treasury Stock, Shares, Acquired			13,376
Treasury Stock, Value, Acquired, Cost Method			$ 83,391

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Note 7 - Equity - Fair Value Assumptions of Options Granted (Details) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Minimum [Member]
Expected volatility	43.00%	45.00%
Expected term (years)		5 years 182 days
Risk-free rate	1.19%	1.66%
Maximum [Member]
Expected volatility	45.00%	50.00%
Expected term (years)		7 years
Risk-free rate	1.68%	1.92%
Expected volatility
Expected dividends	0.00%	0.00%
Expected term (years)	7 years
Forfeiture rate	20.00%	20.00%

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Note 7 - Equity - Stock Options Activity (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Outstanding, Number of Shares (in shares)	477,459
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 4.30
Outstanding, Weighted Average Fair Value (in dollars per share)	$ 1.94	$ 2.01
Outstanding, Weighted Average Remaining Contractual Life	8 years 146 days	8 years 255 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	590,000
Granted at Market Price, Weighted Average Exercise Price (in dollars per share)	$ 3.31
Exercised, Number of Shares (in shares)	(34,154)
Exercised, Weighted Average Exercise Price (in dollars per share)	$ 1.95
Cancelled, Number of Shares (in shares)	(133,935)
Cancelled, Weighted Average Exercise Price (in dollars per share)	$ 4.08
Outstanding, Number of Shares (in shares)	899,370	477,459
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 3.77	$ 4.30
Exercisable, Number of Shares (in shares)	353,692
Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 4.08
Exercisable, Weighted Average Fair Value (in dollars per share)	$ 2.38
Exercisable, Weighted Average Remaining Contractual Life	7 years 328 days

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Note 7 - Equity - Restricted Stock Activity (Details) - shares	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Restricted Stock [Member]
Awards granted (in shares)	86,415	670,375
Awards vested (in shares)	(162,440)	(331,087)
Unvested at December 31, 2015 (in shares)		339,288
Unvested at December 31, 2015 (in shares)	92,415
Awards forfeited (in shares)	(170,848)

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Note 8 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Expense (Benefit)	$ 14,277	$ 6,148	$ 132,144	$ 6,148

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Note 9 - Related Party Transactions (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Related Party Transaction, Amounts of Transaction	$ 111,000	$ 100,000	$ 421,000	$ 471,000

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Note 10 - Commitments and Contingencies (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Operating Leases, Rent Expense	$ 903,771	$ 402,061	$ 2,510,782	$ 756,678

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Note 10 - Commitments and Contingencies - Summary of Future Minimum Rental Payments for Operating Leases (Details)	Sep. 30, 2016 USD ($)
2016 (remaining)	$ 843,053
2017	3,342,862
2018	2,753,063
2019	2,416,784
2020	2,154,008
Thereafter	10,112,360
Total	$ 21,622,130

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Note 11 - Segment Reporting (Details Textual)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Corporate Clinics [Member]
Number of Stores	61
Franchise Operations [Member]
Number of Stores	293
Number of Operating Segments	2
Number of Stores	354	277
Number of Reportable Segments	2

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Note 11 - Segment Reporting - Segment Reporting Financial Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Corporate Clinics [Member]
Revenues	$ 2,341,000	$ 1,198,000	$ 6,137,000	$ 2,209,000
Operating income (loss)	(1,523,000)	(941,000)	(4,857,000)	(1,526,000)
Depreciation and amortization	599,000	353,000	1,625,000	611,000
Franchise Operations [Member]
Revenues	3,163,000	2,940,000	8,606,000	7,864,000
Operating income (loss)	1,194,000	1,271,000	3,274,000	3,063,000
Depreciation and amortization
Corporate Segment [Member]
Depreciation and amortization	97,000	68,000	283,000	211,000
Operating Segments [Member]
Operating income (loss)	(329,000)	330,000	(1,583,000)	1,537,000
Corporate, Non-Segment [Member]
Operating income (loss)	(2,286,000)	(2,381,000)	(7,708,000)	(7,350,000)
Revenues	5,503,590	4,138,015	14,742,668	10,072,660
Operating income (loss)	(2,614,518)	(2,050,899)	(9,291,163)	(5,812,183)
Depreciation and amortization	695,579	421,390	1,908,238	822,489
Business Combination, Bargain Purchase, Gain Recognized, Amount		384,214		384,214
Other income (expense), net	1,901	16,111	9,900	17,800
Loss before income tax expense	$ (2,612,617)	$ (1,650,574)	$ (9,281,263)	$ (5,410,169)

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Note 11 - Segment Reporting - Segment Reporting Information, Assets (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Corporate Clinics [Member]
Total assets	$ 14,266,000	$ 12,426,000
Franchise Operations [Member]
Total assets	2,266,000	2,580,000
Operating Segments [Member]
Total assets	16,532,000	15,006,000
Unallocated cash and cash equivalents and restricted cash	3,863,000	17,178,000
Property and Equipment, Net	896,000	802,000
Other unallocated assets	835,000	376,000
Total assets	22,125,576	33,362,328
Unallocated cash and cash equivalents and restricted cash	3,386,498	16,792,850	$ 9,522,013	$ 20,796,783
Property and Equipment, Net	$ 7,526,728	$ 7,138,746