NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 – Description of Business
IMAC
Holdings, Inc. and its affiliates (collectively, the “Company”) provide orthopedic therapies through its chain of
IMAC Regeneration Centers. Through its consolidated and equity owned entities, its outpatient medical clinics provide conservative,
non-invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other
related soft tissue conditions. The Company has opened two (2) medical clinics located in Tennessee and opened or acquired through
management service agreements twelve (12) medical clinics located in Kentucky, Missouri and Illinois at September 30, 2019. The
Company has partnered with several well-known sports stars such as Ozzie Smith, Tony Delk, Mike Ditka and David Price in opening
its medical clinics, with a focus around treating sports injuries.
Effective
June 1, 2018, the Company converted from IMAC Holdings, LLC a Kentucky limited liability company to IMAC Holdings, Inc. a Delaware
Corporation, followed by a reverse stock split in February 2019. These accounting changes have been given retrospective treatment
in the condensed consolidated financial statements.
During
February 2019, the Company completed an initial public offering (“IPO”) of securities. See Note 12 – Stockholders’
Equity.
Note
2 – Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting
Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations
of the U.S. Securities and Exchange Commission (“SEC”). In our opinion, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Interim
results are not necessarily indicative of results for a full year. Therefore, the interim unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report
on Form 10-K.
The
accompanying condensed consolidated financial statements include the accounts of IMAC Holdings, Inc. (“IMAC Holdings”)
and the following entities which are consolidated due to direct ownership of a controlling voting interest or other rights granted
to us as the sole general partner or managing member of the entity: IMAC Management Services, LLC (“IMAC Management”),
IMAC Regeneration Management, LLC (“IMAC Texas”) IMAC Regeneration Management of Nashville, LLC (“IMAC Nashville”)
and IMAC Management of Illinois, LLC (“IMAC Illinois”); the following entity which is consolidated with IMAC Regeneration
Management of Nashville, LLC due to control by contract: IMAC Regeneration Center of Nashville, PC (“IMAC Nashville PC”);
and the following which prior to June 1, 2018 was held as a minority interest, IMAC Regeneration Center of St. Louis, LLC (“IMAC
St. Louis”).
In
June 2018, the Company consummated certain transactions resulting in the acquisition of the outstanding equity interests in IMAC
St. Louis and Clinic Management Associates of KY, LLC (“CMA of KY”), an entity which consolidates Integrated Medical
and Chiropractic Regeneration Center, PSC (“IMAC Kentucky”) due to control by contract. These entities are included
in the condensed consolidated financial statements from the date of acquisition.
In
August 2018, the Company acquired 100% of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC (“Advantage Therapy”)
and 70% of BioFirma LLC (“BioFirma”). Both companies are consolidated due to direct ownership of a controlling voting
interest or other rights granted to us as the sole general partner or managing member of the entity.
In
April 2019, the Company consummated certain transactions resulting in the acquisition of the outstanding equity interests in ISDI
Holdings II, Inc., an Illinois corporation (“ISDI Holdings II”), and PHR Holdings, Inc., an Illinois corporation (“PHR
Holdings”), entities which consolidate the results of Progressive Health and Rehabilitation, Ltd (“Progressive”)
and Illinois Spine and Disc Institute, Ltd (“ISDI”) due to control by contract. These entities are included in the
condensed consolidated financial statements from the date of acquisition.
All
significant intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the consolidated
financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance
adjustments and provisions for doubtful accounts. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.
Revenue
Recognition
The
Company’s patient service revenue is derived from non-surgical procedures performed at our outpatient medical clinics and
patient visits to physicians. The fees for such services are billed either to the patient or a third-party payer, including Medicare.
We recognize patient service revenue, net of contractual allowances, which we estimate based on the historical trend of our cash
collections and contractual write-offs.
Other
management service fees are derived from management services where the Company provides billings and collections support to the
clinics and where management services are provided based on state specific regulations known as the corporate practice of medicine
(“CPM”). Under the CPM, a business corporation is precluded from practicing medicine or employing a physician to provide
professional medical services. In these circumstances, the Company provides all administrative support to the physician-owned
PC through an LLC. The PC is consolidated due to control by contract (an “MSA” – Management Services Agreement).
The fees we derive from these management arrangements are either based on a predetermined percentage of the revenue of each clinic
or a percentage mark up on the costs of the LLC. We recognize other management service revenue in the period in which services
are rendered. These revenues are earned by IMAC Nashville, IMAC Management and IMAC Illinois and are eliminated in consolidation
to the extent owned.
Patient
Deposits
Patient
deposits are derived from patient payments in advance of services delivered. Our service lines include traditional and regenerative
medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, the Company typically requires up-front
payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance
carrier. For some patients, credit is provided through an outside vendor. In this case, the Company is paid from the credit card
company and the risk is transferred to the credit card company for collection from the patient. These funds are accounted for
as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.
Fair
Value of Financial Instruments
The
carrying amount of accounts receivable, accounts payable and acquisition liabilities approximate their respective fair values
due to the short-term nature. The carrying amount of the line of credit and note payable approximates fair values due to their
market interest rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally
of cash and cash equivalents and accounts receivable.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company
had no cash equivalents.
Accounts
Receivable
Accounts
receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients
and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding
receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s
consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection
risks are (i) the risk of overestimation of net revenues at the time of billing that may result in the Company receiving less
than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims,
(iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network
claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of
billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances
(including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured
patients.
The
Company’s accounts receivable from third-party payers are recorded net of estimated contractual adjustments and allowances
from third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections
and contractual write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics.
While changes in estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes
would be minimal and, therefore, would not have a material effect on the Company’s financial condition or results of operations.
The Company’s collection policies and procedures are based on the type of payor, size of claim and estimated collection
percentage for each patient account. The operating systems used to manage the Company’s patient accounts provide for an
aging schedule in 30-day increments, by payer, physician and patient. The Company analyzes accounts receivable at each of the
facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection
efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written
correspondence.
Allowance
for Doubtful Accounts, Contractual and Other Discounts
Management
estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship
with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation
that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts
is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current
economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after
the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are
written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are
made.
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized
at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over
the shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the
related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in other income
(expense) for the year. Expenditures for maintenance and repairs are charged to expense as incurred.
Intangible
Assets
The
Company capitalizes the fair value of intangible assets acquired in business combinations. Intangible assets are amortized on
a straight-line basis over its estimated economic useful lives, generally the contract term. The Company performs valuations of
assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase
price of each acquired business to its respective net tangible and intangible assets. Acquired intangible assets include trade
names, non-compete agreements, customer relationships and contractual agreements.
Goodwill
The
Company tests goodwill for impairment on an annual basis, or when events or circumstances indicate the fair value of a reporting
unit is below its carrying value.
Our
goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business combinations.
The goodwill generated from the business combinations is primarily related to the value placed on the employee workforce and expected
synergies. Judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred.
Such changes may include, among others, a significant decline in expected future cash flows, a significant adverse change in the
business climate, and unforeseen competition. There was no goodwill impairment for the periods presented.
Long-Lived
Assets
Long-lived
assets such as property and equipment and intangible assets are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. There were no impairments of long-lived assets for the periods presented.
Advertising
and Marketing
The
Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred. Advertising
and marketing expense was $1,014,144 and $470,199 for the nine months ended September 30, 2019 and 2018, respectively and was
$317,800 and $291,688 for the three months ended September 30, 2019 and 2018, respectively.
Net
Loss Per Share
Basic
net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average of common
shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of the conversion
option embedded in convertible debt. The weighted-average number of common shares outstanding excludes common stock equivalents
because their inclusion would have an anti-dilutive effect.
Income
Taxes
IMAC
Management, IMAC Texas, and IMAC Nashville are limited liability companies and are taxed as partnerships. IMAC Holdings was taxed
as a partnership through May 31, 2018. As a result, income tax liabilities are passed through to the individual members. Accordingly,
no provision for income taxes were reflected in the consolidated financial statements for periods prior to May 31, 2018 at which
time the Company converted from a limited liability company to a Delaware corporation. Subsequent to the Company converting to
a Delaware corporation, IMAC Nashville, IMAC Texas, IMAC St. Louis, and IMAC Illinois continued as single-member limited liability
companies that are disregarded entities for tax purposes and do not file separate tax returns. Their activity is included as part
of IMAC Holdings Inc. BioFirma is a limited liability company and is taxed as a partnership. IMAC Management is a C-corporation
and is included in the consolidated return of IMAC Holdings as a subsidiary.
The
Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be
reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income
tax expense. For the nine months ended September 30, 2019 and 2018, the Company had no liabilities for uncertain tax positions.
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative
rulings. Currently, the tax years subsequent to 2016 are open and subject to examination by the taxing authorities.
Recently
Issued Accounting Pronouncements
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04 “Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment”. This update simplifies the subsequent measurement of goodwill
by eliminating Step 2 from the goodwill impairment test. Under this updated standard, an entity should recognize an impairment
charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should
not exceed the total amount of goodwill allocated to that reporting unit. An entity also should consider income tax effects from
any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if any.
This guidance is effective prospectively and is effective for interim and annual periods beginning after December 15, 2019 with
early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial
statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a
right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet.
The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over
the lease term, on a generally straight-line basis. We adopted ASU 2016-02 on January 1, 2019. We recognized a right of use asset
and a related obligation on our condensed consolidated financial statements.
Note
3 – Capital Requirements, Liquidity and Going Concern Considerations
The
Company’s condensed consolidated financial statements are prepared in accordance with GAAP including the assumption of a
going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
However, as shown in the accompanying condensed consolidated financial statements, the Company has sustained substantial losses
from operations since inception and has a deficiency in working capital of approximately $3.8 million and $13.2 million at September
30, 2019 and December 31, 2018, respectively. The Company had a net loss of approximately $5.0 million and $2.1 million at September
30, 2019 and 2018, respectively, and used cash of $2.8 million and $1.6 million for the nine month periods ended September 30,
2019 and 2018, respectively, in its operations. The Company expects to continue to incur significant expenditures to develop and
expand its owned and managed outpatient medical clinics.
Management
recognizes that the Company must obtain additional resources to successfully integrate its acquired and managed clinics and implement
its business plans. Through December 31, 2018, the Company has received funding in the form of indebtedness. Subsequent to December
31, 2018, the Company completed an initial public offering of 850,000 units, in which the Company received aggregate gross proceeds
of approximately $4.3 million and extinguished liabilities of approximately $7.2 million. Management plans to continue to raise
funds and/or refinance our indebtedness to support our operations in 2019 and beyond. However, no assurances can be given that
we will be successful. If management is not able to timely and successfully raise additional capital and/or refinance indebtedness,
the implementation of the Company’s business plan, financial condition and results of operations will be materially affected.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note
4 – Concentration of Credit Risks
Cash
The
Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits of $250,000.
As of September 30, 2019, the Company had no cash in excess of federally insured limits.
Revenue
and Accounts Receivable
The
Company had the following revenue and accounts receivable concentrations:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
% of Revenue
|
|
|
% of Accounts Receivable
|
|
|
% of Revenue
|
|
|
% of Accounts Receivable
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Patient payment
|
|
|
49
|
%
|
|
|
49
|
%
|
|
|
62
|
%
|
|
|
62
|
%
|
|
Medicare payment
|
|
|
26
|
%
|
|
|
26
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
|
Insurance payment
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Note
5 – Accounts Receivable
Accounts
receivable consisted of the following at September 30, 2019 and December 31, 2018:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
(Unaudited)
|
|
|
Gross accounts receivable
|
|
$
|
1,008,906
|
|
|
$
|
314,185
|
|
|
Less: allowance for doubtful accounts and contractual adjustments
|
|
|
(231,181
|
)
|
|
|
(10,555
|
)
|
|
Accounts receivable, net
|
|
$
|
777,725
|
|
|
$
|
303,630
|
|
Note
6 – Business Acquisitions
During
June 2018, the Company acquired CMA of Kentucky and IMAC St. Louis for aggregate consideration of approximately $6.1 million,
which was paid in equity of the Company. The operating results of these two companies have been included in the Company’s
consolidated financial statements from their dates of acquisition. The Company accounted for the transactions as business combinations
and has allocated the purchase consideration to the net assets acquired based on estimated fair values.
In
addition, during June 2018, the Company acquired the non-controlling interest held in its majority-owned subsidiary for $300,000,
which was paid in equity of the Company.
During
August 2018, the Company acquired Advantage Therapy and BioFirma for aggregate consideration of approximately $900,000, which
was paid in cash and equity of the Company. The operating results of these two companies have been included in the Company’s
consolidated financial statements from their dates of acquisition. The Company accounted for the transactions as business combinations
and has allocated the purchase consideration to the net assets acquired based on estimated fair values.
During
April 2019, the Company acquired ISDI Holdings II and PHR Holdings for aggregate consideration of approximately $4.1 million,
which was paid in equity of the Company. The operating results of these companies have been included in the Company’s consolidated
financial statements from their dates of acquisition. The Company accounted for the transactions as business combinations and
has allocated the purchase consideration to the net assets acquired based on estimated fair values.
IMAC
Kentucky
On
June 29, 2018, IMAC Management completed a merger of CMA of KY, which was merged into IMAC Management. Pursuant to this merger,
IMAC Management has a long-term MSA to provide exclusive comprehensive management and related administrative services to IMAC
Kentucky, an entity engaged in the practice of medicine through physicians and nurse practitioners. Under the IMAC Kentucky MSA,
the Company receives service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary
annual bonus.
The
Company has included the consolidated financial results of IMAC Kentucky in the consolidated financial statements from the date
of acquisition.
IMAC
St. Louis
On
June 1, 2018 the Company acquired the remaining 64% membership interest in IMAC St. Louis not already owned by it pursuant
to a Unit Purchase Agreement, increasing the Company’s ownership to 100%. IMAC St. Louis operates two (2) Ozzie Smith
Centers in Missouri. Pursuant to the terms of the Unit Purchase Agreement, the Company agreed to pay the current owners, upon
the closing of the Company’s initial public offering, an amount equal to 1.05 times the total collections from payments
at the IMAC St. Louis centers on account of regeneration-related services and associated products from the period from June
1, 2017 to May 31, 2018, or $1,490,632. The purchase consideration was paid in the form of shares of our common stock based
on the price per share of the Company’s common stock in the Company’s initial public offering. See Note 12 –
Stockholders’ Equity.
The
Company has included the financial results of IMAC St. Louis in the consolidated financial statements from June 1, 2018, the date
of acquisition.
IMAC
Nashville
Also,
on June 1, 2018 the Company acquired the remaining 25% of the outstanding units of the limited liability company membership interests
not already owned by the Company in IMAC Nashville for $300,000 and was paid in the form of shares of our common stock based on
the price per share in the IPO. See Note 12 – Stockholders’ Equity.
Advantage
Therapy
On
August 1, 2018, the Company entered into an agreement to purchase all outstanding membership units of Advantage Therapy. The purchase
price for the interests was equal to the dollar amount represented by 0.7 times the total collections from payments for service
in the Company account from June 1, 2017 to May 31, 2018, or approximately $892,000, of which $870,000 and $22,000 and was paid
in equity and cash, respectively. See Note 12 – Stockholders’ Equity.
The
Company has included the financial results of Advantage Therapy in the consolidated financial statements from August 1, 2018,
the date of acquisition.
BioFirma
On
August 1, 2018, the Company entered into an agreement to purchase 70% of all outstanding membership units of BioFirma LLC. The
purchase price for the interests was $1,000 paid in cash. BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear
cell product following FDA cGMP regulations.
The
Company has included the financial results of BioFirma in the consolidated financial statements from August 1, 2018, the date
of acquisition.
See
Note 16 - Subsequent Events.
IMAC
Illinois
On
April 1, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) for the acquisition
of a practice management group that manages three clinics in the Chicago, Illinois area.
The
Merger was completed on April 19, 2019. Pursuant to the Merger Agreement, the Company issued 1,002,306 restricted shares of the
Company’s common stock (the “Merger Consideration”). The Company has included the financial results of IMAC
Illinois from April 19, 2019, the date of acquisition.
The
following table summarizes the fair value of consideration paid and the allocation of purchase price to the fair value of net
assets acquired for the business acquisitions:
|
|
|
IMAC Kentucky
|
|
|
IMAC
St. Louis
|
|
|
Advantage Therapy
|
|
|
BioFirma
|
|
|
IMAC
Illinois
|
|
|
Property & equipment
|
|
$
|
607,257
|
|
|
$
|
-
|
|
|
$
|
18,647
|
|
|
$
|
-
|
|
|
$
|
55,693
|
|
|
Intangible assets
|
|
|
4,224,113
|
|
|
|
264,000
|
|
|
|
37,000
|
|
|
|
1,429
|
|
|
|
3,756,285
|
|
|
Goodwill
|
|
|
-
|
|
|
|
1,327,507
|
|
|
|
713,189
|
|
|
|
-
|
|
|
|
-
|
|
|
Other assets
|
|
|
5,521
|
|
|
|
-
|
|
|
|
255,018
|
|
|
|
-
|
|
|
|
757,388
|
|
|
Current liabilities
|
|
|
(119,902
|
)
|
|
|
-
|
|
|
|
(50,948
|
)
|
|
|
-
|
|
|
|
(369,796
|
)
|
|
Noncurrent liabilities
|
|
|
(118,413
|
)
|
|
|
-
|
|
|
|
(79,975
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(429
|
)
|
|
|
-
|
|
|
|
|
$
|
4,598,576
|
|
|
$
|
1,591,507
|
|
|
$
|
892,931
|
|
|
$
|
1,000
|
|
|
$
|
4,199,570
|
|
Note
7 – Property and Equipment
The
Company’s property and equipment consisted of the following:
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful Life in Years
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Building
|
|
40
|
|
$
|
1,175,000
|
|
|
$
|
1,175,000
|
|
|
Leasehold improvements
|
|
Shorter of asset or lease term
|
|
|
2,232,733
|
|
|
|
1,427,828
|
|
|
Equipment
|
|
1.5 - 7
|
|
|
2,084,025
|
|
|
|
1,180,093
|
|
|
Total property and equipment
|
|
|
|
|
5,491,758
|
|
|
|
3,782,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(1,498,449
|
)
|
|
|
(449,283
|
)
|
|
|
|
|
|
|
3,993,309
|
|
|
|
3,333,638
|
|
|
Construction in progress
|
|
|
|
|
12,000
|
|
|
|
-
|
|
|
Total property and equipment, net
|
|
|
|
$
|
4,005,309
|
|
|
$
|
3,333,638
|
|
In
March 2018, the Company purchased real estate in Lexington, Kentucky for the development of an IMAC facility for approximately
$1.2 million. The Company funded the purchase with a note payable. See Note 11 – Notes Payable.
Depreciation
was $527,089 and $220,628 for the nine months ended September 30, 2019 and 2018, respectively and $198,813 and $100,124 for the
three months ended September 30, 2019 and 2018, respectively.
Note
8 – Intangibles Assets and Goodwill
Intangible
assets that were acquired in connection with the acquisition transactions (Note 6) during 2019 and 2018:
|
|
|
|
|
December 31, 2018
|
|
|
|
|
Estimated
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management service agreements
|
|
10 years
|
|
$
|
4,224,113
|
|
|
$
|
(211,206
|
)
|
|
$
|
4,012,907
|
|
|
Non-compete agreements
|
|
3 years
|
|
|
301,000
|
|
|
|
(56,473
|
)
|
|
|
244,527
|
|
|
Definite lived assets
|
|
|
|
|
4,525,113
|
|
|
|
(267,679
|
)
|
|
|
4,257,434
|
|
|
Goodwill
|
|
|
|
|
2,042,125
|
|
|
|
-
|
|
|
|
2,042,125
|
|
|
Total intangible assets and goodwill
|
|
|
|
$
|
6,567,238
|
|
|
$
|
(267,679
|
)
|
|
$
|
6,299,559
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
Estimated
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management service agreements
|
|
10 years
|
|
$
|
7,980,398
|
|
|
$
|
(713,829
|
)
|
|
$
|
7,266,569
|
|
|
Non-compete agreements
|
|
3 years
|
|
|
301,000
|
|
|
|
(131,723
|
)
|
|
|
169,277
|
|
|
Definite lived assets
|
|
|
|
|
8,281,398
|
|
|
|
(845,552
|
)
|
|
|
7,435,846
|
|
|
Goodwill
|
|
|
|
|
2,042,125
|
|
|
|
-
|
|
|
|
2,042,125
|
|
|
Total intangible assets and goodwill
|
|
|
|
$
|
10,323,523
|
|
|
$
|
(845,552
|
)
|
|
$
|
9,477,971
|
|
Amortization
was $577,873 and $324,192 for the nine months ended September 30, 2019 and 2018, respectively and $223,593 and $279,983 for the
three months ended September 30, 2019 and 2018, respectively.
The
Company’s estimated future amortization of intangible assets was as follows:
|
Years Ending December 31,
|
|
|
|
|
|
|
|
|
|
2019 (three months)
|
|
$
|
224,593
|
|
|
2020
|
|
|
898,373
|
|
|
2021
|
|
|
841,901
|
|
|
2022
|
|
|
798,040
|
|
|
2023
|
|
|
798,040
|
|
|
Thereafter
|
|
|
3,874,899
|
|
|
|
|
$
|
7,435,846
|
|
Note
9 – Operating Leases
On
January 1, 2019, the Company adopted ASC 842 using the modified retrospective method applied to leases that were in place as of
January 1, 2019. Results for operating periods beginning after January 1, 2019 are presented under ASC 842, while prior period
amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840. The Company’s
leases consists of operating leases that relate to real estate rental agreements. All of the value of the Company’s lease
portfolio relates to real estate lease agreements that were entered into starting March 2017.
Discount
Rate Applied to Operating Leases
To
determine the present value of minimum future lease payments for operating leases at January 1, 2019, the Company was required
to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal
to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).
The
Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing
options and certain lease-specific circumstances. For the reference rate, the Company used the ten year mortgage interest rate.
Right
of Use Assets
Right
of use assets are included in the condensed consolidated Balance Sheet as follows:
|
Non-current assets
|
|
|
|
|
|
Right of use assets, net of amortization
|
|
$
|
4,296,613
|
|
Total
operating lease cost
Individual
components of the total lease cost incurred by the Company is as follows:
|
|
|
Nine Months Ended
September 30, 2019
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
751,175
|
|
Minimum
rental payments under operating leases are recognized on a straight light basis over the term of the lease.
Maturity
of operating leases
The
amount of future minimum lease payments under operating are as follows:
|
|
|
Operating Leases
|
|
|
|
|
|
|
|
Undiscounted future minimum lease payments:
|
|
|
|
|
|
2019 (remainder of year)
|
|
$
|
285,864
|
|
|
2020
|
|
|
1,080,400
|
|
|
2021
|
|
|
911,793
|
|
|
2022
|
|
|
913,608
|
|
|
2023
|
|
|
854,451
|
|
|
Thereafter
|
|
|
1,137,601
|
|
|
Total
|
|
|
5,183,717
|
|
|
Amount representing imputed interest
|
|
|
(376,656
|
)
|
|
Total operating lease liability
|
|
|
4,807,061
|
|
|
Current portion of operating lease liability
|
|
|
(1,015,753
|
)
|
|
Operating lease liability, non-current
|
|
$
|
3,791,308
|
|
Note
10 – Lines of Credit
IMAC
Nashville has a $150,000 line of credit with a financial institution that matured on October 15, 2018. The line bore interest
at 6.50% per annum. The line was secured by substantially all of the Company’s assets and personally guaranteed by the members.
The line had a $150,000 balance at December 31, 2018 and was repaid in February 2019.
IMAC
Kentucky has a $150,000 line of credit with a financial institution that matured on August 1, 2018. The line accrued interest
at 4.25% per annum. The line was secured by substantially all of the IMAC Kentucky’s assets and personally guaranteed by
the members. The line had a $150,000 balance at December 31, 2018 and was repaid in July 2019.
Advantage
Therapy has a $100,000 line of credit with a financial institution that matures on November 20, 2020. The line bears interest
at a variable rate which is currently 6.0% per annum. The line is secured by substantially all of IMAC Holding’s assets.
The line had a $79,975 balance at December 31, 2018 and $79,961 at September 30, 2019.
Progressive
had a $750,000 line of credit with a financial institution that matured August 2019. The line had a balance of $140,000 when it
was converted to a note payable on September 19, 2019.
Note
11-Notes Payable
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Note payable to The Edward S. Bredniak Trust in the amount of up to $2,000,000. An existing note payable with this entity in the amount of $379,676 has been combined into the new note payable which carries an interest rate of 10% per annum. The Note was amended in June 2019 and all outstanding balances are due January 5, 2021.
|
|
$
|
1,750,000
|
|
|
$
|
1,584,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to a financial institution in the amount of $200,000 dated November 15, 2017. The note requires 66 consecutive monthly installments of $2,652 including principal and interest at 5%, with a balloon payment of $60,000 which was paid on June 15, 2018. The note matures on May 15, 2023, and is secured by the personal guarantees of certain Company executives.
|
|
|
106,268
|
|
|
|
125,670
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes interest accrued at 4%, and converted to common stock upon the closing of the Initial Public Offering. The notes may be converted to equity at or prior to maturity at a 20% discount to the per share price of a sale of equity securities. At the time of issuance of the convertible notes, the Company was unable to calculate the amount of a beneficial conversion (“BCF”) and related discount to be recorded until the occurrence of a Qualified Financing by the Company. The Qualified Financing occurred during the first quarter of 2019, at which time the Company recorded the BCF liability and related interest charge of approximately $639,000 associated with the discount. The BCF liability was reclassified to paid-in-capital upon conversion of the convertible notes.
|
|
|
-
|
|
|
|
1,540,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.2 million mortgage loan with a financial institution. The loan agreement was for 6-months and carries an interest rate 3.35%. The loan matured in 2019. It is due on demand, with interest currently being paid monthly.
|
|
|
1,232,500
|
|
|
|
1,232,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to a financial institution in the amount of $131,400 dated August 1, 2016. The note requires 120 monthly installments of $1,394 including principal and interest at 5%. The note matures on July 1, 2026, and is secured by a letter of credit.
|
|
|
96,637
|
|
|
|
105,374
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to a financial institution in the amount of $200,000 dated May 4, 2016. The note requires 60 monthly installments of $3,881 including principal and interest at 4.25%. The note matures on May 4, 2021, and is secured by the equipment and personal guarantees of certain Company executives.
|
|
|
74,801
|
|
|
|
106,778
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an employee in the amount of $101,906 dated March 8, 2017. The note requires 5 annual installments of $23,350 including principal and interest at 5%. The note matures on December 31, 2021, and is unsecured.
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to a financial institution in the amount of $133,555 dated September 17, 2014. The note requires 60 monthly installments of $2,475 including principal and interest at 4.25%. The note was repaid in September 2019.
|
|
|
-
|
|
|
|
21,845
|
|
|
|
|
|
|
|
|
|
|
|
|
$112,800 payable to a landlord of Advantage Therapy, LLC pursuant to a lease dated March 1, 2019. The debt is payable in 60 monthly installments of $2,129, including principal and interest at 5%. The debt matures on June 1, 2024.
|
|
|
107,803
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to a financial institution in the amount of $140,000, dated September 25, 2019. The note requires 36 consecutive monthly installments of $4,225 including principal and interest at 5.39%. The note matures on September 19, 2022 and is secured by a personal guarantee of the Vice President of Business Development of the Company.
|
|
|
140,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,568,009
|
|
|
|
4,776,593
|
|
|
Less: current portion:
|
|
|
(1,405,719
|
)
|
|
|
(4,459,302
|
)
|
|
|
|
$
|
2,162,290
|
|
|
$
|
317,291
|
|
Principal
maturities of the Company’s notes payable are as follows:
|
Years Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2019 (three months)
|
|
$
|
1,288,890
|
|
|
2020
|
|
|
170,054
|
|
|
2021
|
|
|
1,900,181
|
|
|
2022
|
|
|
104,187
|
|
|
2023
|
|
|
51,657
|
|
|
Thereafter
|
|
|
53,040
|
|
|
Total
|
|
$
|
3,568,009
|
|
Note
12 – Stockholders’ Equity
Prior
to the Company’s conversion to a corporation, the Company had 400 member units authorized with 365 units issued and outstanding.
On
June 1, 2018, the Company converted its 365 outstanding member units into 6,582,737 shares of common stock with a $0.001 par value
pursuant to the Company’s conversion from a limited liability company to a corporation. The conversion has been given retrospective
treatment.
On
February 12, 2019, the Company reverse split its 6,582,737 shares of common stock to 4,533,623 shares of common stock outstanding
pursuant to an amendment of the Company’s certificate of incorporation. The reverse split has been given retrospective treatment.
During
February 2019, the Company completed an initial public offering of securities and issued 850,000 shares of its common stock, along
with 1,700,000 warrants to purchase common stock and an option to purchase 34,000 shares of common stock for gross proceeds of
$4,356,815. The Company also issued 449,217 shares of common stock for the conversion of its 4% convertible notes and 1,410,183
shares to satisfy deferred acquisition consideration payable in connection with its 2018 business acquisitions.
On
April 19, 2019, the Company consummated the transactions contemplated by the Merger Agreement and issued 1,002,306 shares of its
common stock as Merger Consideration.
On
July 15, 2019, the Company signed a $10 million share purchase agreement (the “Purchase Agreement”) with Lincoln Park
Capital Fund, LLC (“Lincoln Park”), an Illinois limited liability company. In consideration for entering into the
$10 million agreement, the Company issued to Lincoln Park 60,006 shares of Company common stock as a commitment fee. The Purchase
Agreement limits our sales of shares of common stock to Lincoln Park to 1,669,359 shares of common stock, representing 19.99%
of the shares of common stock outstanding on the date of the Purchase Agreement unless (a) stockholder approval is obtained to
issue more than such amount or (b) the average price of all applicable sales of our common stock to Lincoln Park under the Purchase
Agreement equals or exceeds the lower of (i) the closing price of our common stock on the Nasdaq Capital Market immediately preceding
July 15, 2019 or (ii) the average of the closing price of our common stock on the Nasdaq Capital Market for the five business
days immediately preceding July 15, 2019.
2018
Incentive Compensation Plan
The
Company’s board of directors and holders of a majority of outstanding shares approved and adopted the Company’s 2018
Incentive Compensation Plan (“2018 Plan”) in May 2018, reserving the issuance of up to 1,000,000 shares of common
stock (subject to certain adjustments) upon exercise of stock options and grants of other equity awards. The 2018 Plan provides
for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted
stock awards, restricted stock unit awards, performance-based stock awards, other forms of equity compensation and performance
cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to the
Company’s non-employee directors and consultants, and affiliates.
Stock
Options
At
December 31, 2018, the Company had no outstanding stock options to purchase its common stock. As of September 30, 2019, the Company
had outstanding stock options to purchase 316,518 shares of its common stock which were granted during the second and third quarter
of 2019 as non-qualified stock options to various employees of the Company. These options vest over a period of four years, with
25% vesting in May 2020 and the remaining 75% vesting in equal monthly installments over the following 36 months, are exercisable
for a period of ten years, and enable the holders to purchase shares of the Company’s common stock at the exercise price
of $4.04. The per-share fair values of these options are $1.87, based on Black-Scholes-Merton pricing model with the following
assumptions: a volatility rate of 32.2%, risk free rate of 2.4% and the expected term of 10 years.
Restricted
Stock Units
On
May 21, 2019, the Company granted an aggregate of 277,500 Restricted Stock Units (“RSUs”) to certain employees, executives
and Board members, the terms of which vest over various periods between the date of grant and four years following the date of
grant. On August 13, 2019, 30,000 shares of common stock were issued pursuant to granted RSUs which had vested as of such date.
Note
13 – Retirement Plan
The
Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees.
Additionally, the Company is required to make matching contributions of 50% of up to 6 % of total compensation for those employees
making salary deferrals. The Company made contributions of $40,804 and $15,580 during the nine months ended September 30, 2019
and 2018, respectively and $20,042 and $15,580 during the three months ended September 30, 2019 and 2018, respectively.
Note
14 – Income Taxes
The
Company’s provision for income taxes differs from the amount computed by applying the statutory federal income tax rate
to income before provision for income taxes. The sources and tax effects of the differences are as follows:
|
Deferred
tax benefit at the federal statutory rate
|
|
|
21
|
%
|
|
Valuation
allowance
|
|
|
-21
|
%
|
|
|
|
|
0
|
%
|
At
September 30, 2019, the Company has a net operating loss carryforward of approximately $3.7 million for federal and state income
tax purposes. This loss will be available to offset future taxable income. If not used, this carryforward will begin to expire
in 2029. The deferred tax asset relating to the operating loss carryforward has been fully reserved at September 30, 2019. The
principal differences between the operating loss for income tax purposes and reporting purposes are shares issued for services
and share-based compensation and a temporary difference in depreciation expense.
Note
15 – Commitments and Contingencies
The
Company is subject to extensive regulation, including health insurance regulations directed at ascertaining the appropriateness
of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement. To ensure compliance, various insurance providers
often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of
services rendered to customers. In the event that an audit results in discrepancies in the records provided, insurance providers
may be entitled to extrapolate the results of the audit to make overpayment demands based on a wider population of claims than
those examined in the audit.
From
time to time the Company may become subject to threatened and/or asserted claims arising in the ordinary course of our business.
Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material
impact on the Company’s financial condition, results of operations or liquidity.
Note
16 - Subsequent Events
In
February 2019, the Company was made aware of a lawsuit involving a contract dispute with our subsidiary BioFirma. The lawsuit
was resolved in October 2019 for $17,500.
On October 1, 2019, Dr. Ian White and the
Company entered into in an Assignment and Assumption of Interests of BioFirma LLC, pursuant to which Dr. White assigned to the
Company the 30% of BioFirma’s membership interests which were not previously held by the Company, resulting in the Company
owning 100% of the membership interests of BioFirma.
On
October 18, 2019, the Company and BioFirma entered into an asset purchase agreement with Self Care Regeneration LLC (the “Buyer”)
for the sale of substantially all of BioFirma’s assets (the “Sale”) to the Buyer for a purchase price of $320,800,
plus the assumption of certain of BioFirma’s liabilities. The Sale is subject to certain closing conditions and is expected
to be completed in the fourth quarter of 2019.
Between October 1, 2019 and November 7, 2019, pursuant to the Purchase Agreement, the Company sold an
aggregate 101,646 shares of common stock of the Company to Lincoln Park for aggregate proceeds to the Company of $274,485.
Effective
November 1, 2019, the Company and Integrative RehabMedicine, S.C. entered into a one year management services agreement with an
automatic renewal option. The Company will provide administrative, managerial, billing and collection services to Integrative
RehabMedicine, S.C. for a management service fee based on net revenues.