ITEM
1. FINANCIAL STATEMENTS
IMAC
HOLDINGS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
15,607,712
|
|
|
$
|
2,623,952
|
|
Accounts receivable, net
|
|
|
1,846,154
|
|
|
|
1,513,683
|
|
Deferred compensation, current portion
|
|
|
330,364
|
|
|
|
309,375
|
|
Other assets
|
|
|
514,772
|
|
|
|
310,359
|
|
Total current assets
|
|
|
18,299,002
|
|
|
|
4,757,369
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,830,693
|
|
|
|
1,777,042
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,040,696
|
|
|
|
2,040,696
|
|
Intangible assets, net
|
|
|
6,821,940
|
|
|
|
6,611,551
|
|
Deferred compensation, net of current portion
|
|
|
287,562
|
|
|
|
354,906
|
|
Security deposits
|
|
|
391,456
|
|
|
|
388,407
|
|
Right of use asset
|
|
|
3,956,697
|
|
|
|
3,816,035
|
|
Total other assets
|
|
|
13,498,351
|
|
|
|
13,211,595
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
33,628,046
|
|
|
$
|
19,746,006
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,018,883
|
|
|
$
|
1,692,283
|
|
Patient deposits
|
|
|
413,854
|
|
|
|
295,071
|
|
Notes payable, current portion, net of deferred loan costs
|
|
|
2,595,498
|
|
|
|
2,527,324
|
|
Finance lease obligation, current portion
|
|
|
25,661
|
|
|
|
18,242
|
|
Liability to issue common stock, current portion
|
|
|
364,575
|
|
|
|
339,375
|
|
Operating lease liability, current portion
|
|
|
1,182,383
|
|
|
|
1,078,107
|
|
Total current liabilities
|
|
|
6,600,854
|
|
|
|
5,950,402
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion
|
|
|
180,212
|
|
|
|
1,958,883
|
|
Finance lease obligation, net of current portion
|
|
|
43,637
|
|
|
|
48,323
|
|
Liability to issue common stock, net of current portion
|
|
|
468,760
|
|
|
|
468,760
|
|
Operating lease liability, net of current portion
|
|
|
3,501,876
|
|
|
|
3,506,484
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,795,339
|
|
|
|
11,932,852
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock - $0.001 par value, 5,000,000 authorized, nil issued and outstanding at March 31, 2021 and December 31, 2020, respectively.
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.001 par value, 30,000,000 authorized; 24,664,973 and 12,839,972
shares issued at March 31, 2021 and December 31, 2020, respectively; and 24,006,731 and 12,747,055 outstanding at March 31, 2021
and December 31, 2020, respectively.
|
|
|
24,007
|
|
|
|
12,747
|
|
Additional paid-in capital
|
|
|
42,702,810
|
|
|
|
25,465,094
|
|
Accumulated deficit
|
|
|
(17,035,818
|
)
|
|
|
(15,045,783
|
)
|
Non-controlling interest
|
|
|
(2,858,292
|
)
|
|
|
(2,618,904
|
)
|
Total stockholders’ equity
|
|
|
22,832,707
|
|
|
|
7,813,154
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
33,628,046
|
|
|
$
|
19,746,006
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
IMAC
HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Patient revenues, net
|
|
$
|
3,024,808
|
|
|
$
|
3,309,069
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
3,377
|
|
|
|
-
|
|
Management fees
|
|
|
36,068
|
|
|
|
12,487
|
|
Total revenue
|
|
|
3,064,253
|
|
|
|
3,321,556
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Patient expenses
|
|
|
341,412
|
|
|
|
379,817
|
|
Salaries and benefits
|
|
|
2,754,248
|
|
|
|
2,926,150
|
|
Share-based compensation
|
|
|
110,607
|
|
|
|
81,084
|
|
Advertising and marketing
|
|
|
265,548
|
|
|
|
241,817
|
|
General and administrative
|
|
|
1,219,338
|
|
|
|
1,236,138
|
|
Depreciation and amortization
|
|
|
422,201
|
|
|
|
450,495
|
|
Total operating expenses
|
|
|
5,113,354
|
|
|
|
5,315,501
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,049,101
|
)
|
|
|
(1,993,945
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
Gain/loss on disposition of assets
|
|
|
(4,043
|
)
|
|
|
-
|
|
Interest expense
|
|
|
(176,279
|
)
|
|
|
(76,204
|
)
|
Total other expenses
|
|
|
(180,322
|
)
|
|
|
(76,204
|
)
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(2,229,423
|
)
|
|
|
(2,070,149
|
)
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,229,423
|
)
|
|
|
(2,070,149
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the non-controlling interest
|
|
|
239,388
|
|
|
|
336,604
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to IMAC Holdings, Inc.
|
|
$
|
(1,990,035
|
)
|
|
$
|
(1,733,545
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
13,448,567
|
|
|
|
9,611,252
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
IMAC
HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Common Stock
|
|
|
Additional
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Par
|
|
|
Paid-In-
Capital
|
|
|
Controlling
Interest
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
8,913,258
|
|
|
$
|
8,907
|
|
|
$
|
20,050,634
|
|
|
$
|
(2,080,199
|
)
|
|
$
|
(10,042,050
|
)
|
|
$
|
7,937,292
|
|
Issuance of common stock
|
|
|
1,095,840
|
|
|
|
1,096
|
|
|
|
1,376,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,377,218
|
|
Issuance of employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
38,359
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,359
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(336,604
|
)
|
|
|
(1,733,545
|
)
|
|
|
(2,070,149
|
)
|
Balance, March 31, 2020
|
|
|
10,009,098
|
|
|
$
|
10,003
|
|
|
$
|
21,465,115
|
|
|
$
|
(2,416,803
|
)
|
|
$
|
(11,775,595
|
)
|
|
$
|
7,282,720
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Par
|
|
|
Paid-In-
Capital
|
|
|
Controlling
Interest
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
12,747,055
|
|
|
$
|
12,747
|
|
|
$
|
25,465,094
|
|
|
$
|
(2,618,904
|
)
|
|
$
|
(15,045,783
|
)
|
|
$
|
7,813,154
|
|
Issuance of common stock
|
|
|
11,259,676
|
|
|
|
11,260
|
|
|
|
17,198,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,209,924
|
|
Issuance of employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
39,052
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,052
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(239,388
|
)
|
|
|
(1,990,035
|
)
|
|
|
(2,229,423
|
)
|
Balance, March 31, 2021
|
|
|
24,006,731
|
|
|
$
|
24,007
|
|
|
$
|
42,702,810
|
|
|
$
|
(2,858,292
|
)
|
|
$
|
(17,035,818
|
)
|
|
$
|
22,832,707
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
IMAC
HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,229,423
|
)
|
|
$
|
(2,070,149
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
422,201
|
|
|
|
450,495
|
|
Share based compensation
|
|
|
110,607
|
|
|
|
81,084
|
|
Loss on disposition of assets
|
|
|
4,043
|
|
|
|
-
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(332,471
|
)
|
|
|
(141,966
|
)
|
Other assets
|
|
|
(167,193
|
)
|
|
|
64,120
|
|
Security deposits
|
|
|
(3,049
|
)
|
|
|
(51,796
|
)
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
326,600
|
|
|
|
408,221
|
|
Patient deposits
|
|
|
118,783
|
|
|
|
102,784
|
|
Net cash used in operating activities
|
|
|
(1,749,902
|
)
|
|
|
(1,157,207
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(65,769
|
)
|
|
|
(7,243
|
)
|
Brand development
|
|
|
(55,045
|
)
|
|
|
-
|
|
Acquisitions in Florida (Note 6)
|
|
|
(563,500
|
)
|
|
|
(200,000
|
)
|
Proceeds from sale of fixed assets
|
|
|
1,250
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(683,064
|
)
|
|
|
(207,243
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
17,209,924
|
|
|
|
1,403,837
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
1,200,000
|
|
Payments on notes payable
|
|
|
(1,788,711
|
)
|
|
|
(256,838
|
)
|
Payments of debt issuance costs
|
|
|
-
|
|
|
|
(70,000
|
)
|
Payments on finance lease obligation
|
|
|
(4,487
|
)
|
|
|
(4,298
|
)
|
Net cash provided by financing activities
|
|
|
15,416,726
|
|
|
|
2,272,701
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
12,983,760
|
|
|
|
908,251
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
2,623,952
|
|
|
|
373,689
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
15,607,712
|
|
|
$
|
1,281,940
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
63,359
|
|
|
$
|
27,412
|
|
Non cash financing and investing:
|
|
|
|
|
|
|
|
|
Debt discount notes payable
|
|
$
|
-
|
|
|
$
|
115,000
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
IMAC
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 – Description of Business
IMAC Holdings, Inc. is a holding company for IMAC
Regeneration Centers, The Back Space retail store and our Investigational New Drug division. IMAC Holdings, Inc. and its affiliates (collectively,
the “Company”) provide movement, orthopedic and neurological 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 or acquired through management service agreements sixteen (16) medical clinics located in Florida, Illinois, Kentucky,
Missouri and Tennessee at March 31, 2021. The Company has partnered with several well-known sports stars such as Ozzie Smith, David Price,
Tony Delk and Mike Ditka in opening its medical clinics, with a focus on delivering sports medicine treatments without opioids.
The Back Space operates a healthcare center specializing in chiropractic and spinal care services inside our Fortune 500 partner’s
retail locations. The Company’s Investigational New Drug division is conducting a clinical trial for its investigational
compound utilizing umbilical cord-derived allogenic mesenchymal stem cells for the treatment of bradykinesia due to Parkinson’s
disease.
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.
Note
2 – Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying 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” or the “Commission”). The information contained in these condensed consolidated
financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the
fiscal year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2021.
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 Regeneration Center of St. Louis, LLC (“IMAC St. Louis”),
IMAC Management Services, LLC (“IMAC Management”), IMAC Regeneration Management, LLC (“IMAC Texas”), IMAC Regeneration
Management of Nashville, LLC (“IMAC Nashville”), IMAC Management of Illinois, LLC (“IMAC Illinois”), Advantage
Hand Therapy and Orthopedic Rehabilitation, LLC (“Advantage Therapy”), IMAC Management of Florida, LLC (“IMAC Florida”),
Chiropractic Health of Southwest Florida, Inc. (“SW Florida”) and The Back Space LLC (“Back Space”); 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”); the following entities which are consolidated with IMAC Management of Illinois, LLC
due to control by contract: Progressive Health and Rehabilitation, Ltd, Illinois Spine and Disc Institute, Ltd and Ricardo Knight, P.C.;
the following entity which is consolidated with IMAC Management Services, LLC due to control by contract: Integrated Medicine and Chiropractic
Regeneration Center PSC (“Kentucky PC”); the following entities which are consolidated with IMAC Management of Florida, LLC
due to control by contract: Willmitch Chiropractic, P.A. and IMAC Medical of Florida, PA (“Florida Medical”) and the
following entity which is consolidated with The Back Space LLC due to control by contract: The Back Space.
In
January 2020, the Company consummated an agreement for the acquisition of Chiropractic Health of Southwest Florida, Inc. (“CHSF”)
in Bonita Springs, Florida. This entity is included in the condensed consolidated financial statements from the date of acquisition.
In
February 2021, the Company completed the asset purchase of and signed a Management Services Agreement with Willmitch Chiropractic, P.A.
in Tampa, Florida. This entity is included in the condensed consolidated financial statements from the date of acquisition.
In
March 2021, the Company completed the asset purchase of NHC Chiropractic, PLLC dba Synergy Healthcare in Orlando, Florida. The assets
acquired 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 condensed 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.
COVID-19
Pandemic
On
January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating
in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond
the point of origin. On March 20, 2020 the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure
globally.
The
full impact of the COVID-19 outbreak continues to evolve as of the date of these condensed consolidated financial statements. As such,
it is uncertain as to the full magnitude that the pandemic will have on the Company’s combined financial condition, liquidity and
future results of operations. Management is actively monitoring the impact of the global situation on its consolidated financial condition,
liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses
to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial
condition, or liquidity for fiscal year 2020 beyond the results presented in these condensed consolidated financial statements and this
quarterly report.
Revenue
Recognition
The
Company’s patient service revenue is derived from non-surgical procedures performed at our outpatient medical clinics. The fees
for such services are billed either to the patient or a third-party payer, including Medicare.
The
Company recognizes service revenues based upon the estimated amounts the Company expects to be entitled to receive from patients and
third-party payers. Estimates of contractual adjustments are based upon the payment terms specified in the related contractual agreements.
The Company also records estimated implicit price concessions (based primarily on historical collection experience) related to uninsured
accounts to record these revenues at the estimated amounts expected to be collected.
Starting
in January 2020, the Company implemented wellness maintenance programs on a subscription basis. There are three membership plans offered
with different levels of service for each plan. The Company recognizes membership revenue on a pro-rated monthly basis. Enrollment in
the wellness maintenance program can occur at any time during the month and can be dis-enrolled at any time.
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. The company 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.
The
Company’s net patient revenue consisted of the following for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Patient revenue, net
|
|
$
|
3,024,808
|
|
|
$
|
3,309,069
|
|
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 rarely 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 and accounts payable 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 at March 31, 2021 and December 31, 2020.
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
condensed 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 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 their 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
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 years presented.
The
Company tests goodwill for impairment on an annual basis, and when events or circumstances indicate the fair value of a reporting unit
may be below its carrying value.
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 years 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 $265,548 and $241,817 for the three months ended March 31, 2021 and 2020, 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
Holdings was taxed as a partnership through May 31, 2018. As a result, income tax liabilities were 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 continued as single-member limited liability companies that are
disregarded entities for tax purposes and do not file separate returns. Their activity is included as part of IMAC Holdings Inc. Advantage
Therapy, IMAC Illinois, IMAC Florida, Back Space and BioFirma are also disregarded entities for tax purposes. IMAC Management is a C-corporation
and is included in the consolidated return of IMAC Holdings as a subsidiary.
Any
future benefit arising from losses have been offset by a valuation allowance. Accordingly, no provision for income taxes is reflected
in the condensed consolidated financial statements. 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. At March 31, 2021 and December 31, 2020, 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 2017 are open and subject to examination by the taxing authorities.
Note
3 – Capital Requirements, Liquidity and Going Concern Considerations
The
Company had working capital of approximately $11.7 million and a deficiency in working capital of $1.2 million at March 31, 2021 and
December 31, 2020, respectively. The Company had a net loss of approximately $2.0 million for the three months ended March 31,
2021, and used cash in operations of approximately $1.7 million at March 31, 2021. 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. Prior to the Company’s March 2021 public offering, the Company funded its business
plan through debt and equity securities. Management expects to continue to incur net losses and have significant cash
outflows for at least the next 12 months. During the quarter ended March 31, 2021, the Company completed a public
offering and received proceeds of approximately $17 million. Subsequent to March 31, 2021, the Company sold an additional
1,193,750 shares for proceeds of $1.9 million. These events served to mitigate the conditions that
historically raised substantial doubt about the Company’s ability to continue as a going concern.
Based
on this analysis, the Company has the ability to continue as a going concern for at least the next 12 months and meet its
financial obligations as they become due.
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.
Revenue
and Accounts Receivable
As
of March 31, 2021 and December 31, 2020, the Company had the following revenue and accounts receivable concentrations:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
% of Revenue
|
|
|
% of
Accounts Receivable
|
|
|
% of Revenue
|
|
|
% of
Accounts Receivable
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Patient payment
|
|
|
37
|
%
|
|
|
33
|
%
|
|
|
35
|
%
|
|
|
38
|
%
|
Medicare payment
|
|
|
40
|
%
|
|
|
15
|
%
|
|
|
40
|
%
|
|
|
16
|
%
|
Insurance payment
|
|
|
23
|
%
|
|
|
52
|
%
|
|
|
25
|
%
|
|
|
46
|
%
|
Note
5 – Accounts Receivable
As
of March 31, 2021 and December 31, 2020, the Company’s accounts receivable consisted of the following:
|
|
March 31,
2021
|
|
|
December 31, 2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Gross accounts receivable
|
|
$
|
1,875,136
|
|
|
$
|
1,542,665
|
|
Less: allowance for doubtful accounts
|
|
|
(28,982
|
)
|
|
|
(28,982
|
)
|
Accounts receivable, net
|
|
$
|
1,846,154
|
|
|
$
|
1,513,683
|
|
Note
6 – Business Acquisitions
IMAC
Florida
In
February 2021, the Company completed the asset purchase of and signed Management Services Agreement with Willmitch Chiropractic, P.A.
in Tampa, Florida. The transaction was completed as an asset purchase for $421,000. Willmitch Chiropractic’s founder, Martin Willmitch,
will remain with the Company and serve as Vice President of Managed Care of IMAC.
In
March 2021, the Company completed the asset purchase of NHC Chiropractic, PLLC dba Synergy Healthcare in Orlando, Florida. The transaction
was completed as an asset purchase for $142,500.
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 acquisition of the IMAC Florida businesses:
|
|
Orlando
|
|
|
Tampa
|
|
Property & equipment
|
|
$
|
149,720
|
|
|
$
|
7,400
|
|
Customer lists
|
|
|
-
|
|
|
|
413,600
|
|
Current liabilities
|
|
|
(7,220
|
)
|
|
|
-
|
|
|
|
$
|
142,500
|
|
|
$
|
421,000
|
|
Note
7 – Property and Equipment
The
Company’s property and equipment consisted of the following at March 31, 2021 and December 31, 2020:
|
|
Estimated
Useful Life in Years
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
Shorter of asset or lease term
|
|
$
|
2,070,041
|
|
|
$
|
2,064,669
|
|
Equipment
|
|
1.5 - 7
|
|
|
2,190,266
|
|
|
|
2,012,276
|
|
Total property and equipment
|
|
|
|
|
4,260,307
|
|
|
|
4,076,945
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(2,454,187
|
)
|
|
|
(2,302,273
|
)
|
|
|
|
|
|
1,806,120
|
|
|
|
1,774,672
|
|
Construction in progress
|
|
|
|
|
24,573
|
|
|
|
2,370
|
|
Total property and equipment, net
|
|
|
|
$
|
1,830,693
|
|
|
$
|
1,777,042
|
|
Depreciation
was $163,945 and $218,843 for the three months ended March 31, 2021 and 2020, respectively.
Note
8 – Intangibles Assets and Goodwill
The
Company’s intangible assets and goodwill consisted of the following at March 31, 2021 and December 31, 2020:
|
|
|
|
March 31, 2021
|
|
|
|
Estimated
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management service agreements
|
|
10 years
|
|
$
|
7,940,398
|
|
|
$
|
(1,904,888
|
)
|
|
$
|
6,035,510
|
|
Non-compete agreements
|
|
3 years
|
|
|
301,000
|
|
|
|
(282,223
|
)
|
|
|
18,777
|
|
Customer lists
|
|
3 years
|
|
|
548,482
|
|
|
|
(79,179
|
)
|
|
|
469,303
|
|
Brand development
|
|
10 years
|
|
|
55,045
|
|
|
|
(445
|
)
|
|
|
54,600
|
|
Definite lived assets
|
|
|
|
|
8,844,925
|
|
|
|
(2,266,735
|
)
|
|
|
6,578,190
|
|
Research and development
|
|
|
|
|
243,750
|
|
|
|
-
|
|
|
|
243,750
|
|
Goodwill
|
|
|
|
|
2,040,696
|
|
|
|
-
|
|
|
|
2,040,696
|
|
Total intangible assets and goodwill
|
|
|
|
$
|
11,129,371
|
|
|
$
|
(2,266,735
|
)
|
|
$
|
8,862,636
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Estimated
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management service agreements
|
|
10 years
|
|
$
|
7,940,398
|
|
|
$
|
(1,706,379
|
)
|
|
$
|
6,234,019
|
|
Non-compete agreements
|
|
3 years
|
|
|
301,000
|
|
|
|
(257,139
|
)
|
|
|
43,861
|
|
Customer lists
|
|
3 years
|
|
|
134,882
|
|
|
|
(44,961
|
)
|
|
|
89,921
|
|
Definite lived assets
|
|
|
|
|
8,376,280
|
|
|
|
(2,008,479
|
)
|
|
|
6,367,801
|
|
Research and development
|
|
|
|
|
243,750
|
|
|
|
-
|
|
|
|
243,750
|
|
Goodwill
|
|
|
|
|
2,040,696
|
|
|
|
-
|
|
|
|
2,040,696
|
|
Total intangible assets and goodwill
|
|
|
|
$
|
10,660,726
|
|
|
$
|
(2,008,479
|
)
|
|
$
|
8,652,247
|
|
Amortization
was $258,256 and $231,652 for the three months ended March 31, 2021 and 2020, respectively.
The
Company’s estimated future amortization of intangible assets was as follows:
Years Ending December 31,
|
|
|
|
|
|
|
|
2021 (nine months)
|
|
$
|
754,180
|
|
2022
|
|
|
980,537
|
|
2023
|
|
|
935,576
|
|
2024
|
|
|
809,198
|
|
2025
|
|
|
797,709
|
|
Thereafter
|
|
|
2,300,990
|
|
|
|
$
|
6,578,190
|
|
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 at 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 consist of
operating leases that mostly relate to real estate rental agreements. Most 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 included in the Company’s condensed consolidated balance sheet were as follows:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Right of use assets, net of amortization
|
|
$
|
3,956,697
|
|
|
$
|
3,816,035
|
|
Total
operating lease cost
Individual
components of the total lease cost incurred by the Company were as follows:
|
|
Three Months
Ended
March 31, 2021
|
|
|
Three Months
Ended
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
293,793
|
|
|
$
|
306,632
|
|
Minimum
rental payments under operating leases are recognized on a straight light basis over the term of the lease.
Maturity
of operating leases
The
Company’s amount of future minimum lease payments under operating leases are as follows:
|
|
Operating
Leases
|
|
|
|
|
|
Undiscounted future minimum lease payments:
|
|
|
|
|
2021 (nine months)
|
|
$
|
967,531
|
|
2022
|
|
|
1,290,317
|
|
2023
|
|
|
1,184,577
|
|
2024
|
|
|
784,988
|
|
2025
|
|
|
430,482
|
|
Thereafter
|
|
|
303,790
|
|
Total
|
|
|
4,961,685
|
|
Amount representing imputed interest
|
|
|
(277,426
|
)
|
Total operating lease liability
|
|
|
4,684,259
|
|
Current portion of operating lease liability
|
|
|
(1,182,383
|
)
|
Operating lease liability, non-current
|
|
$
|
3,501,876
|
|
Note
10 – Notes Payable
Set
forth below is a summary of the Company’s outstanding debt as of March 31, 2021 and December 31, 2020:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Note payable to Edward S. Bredniak 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. This note was amended in September 2020 and all outstanding balances are due January 5, 2022.
|
|
$
|
-
|
|
|
$
|
1,750,000
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
65,157
|
|
|
|
72,238
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
78,152
|
|
|
|
81,330
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
7,711
|
|
|
|
19,191
|
|
|
|
|
|
|
|
|
|
|
Note payable to an employee in the amount of $101,906 dated March 8, 2017. The note requires payments in five annual installments of $23,350, including principal and interest at 5%. The note matures on December 31, 2021, and is unsecured.
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
$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.
|
|
|
76,478
|
|
|
|
81,862
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
72,855
|
|
|
|
84,444
|
|
|
|
|
|
|
|
|
|
|
Note payable in the amount of $2,690,000, dated October 29, 2020. The note is payable on or before April 29, 2022. The interest on the note accrues at a rate of 7% per annum and is payable on the maturity date or otherwise in accordance with the note.
|
|
|
2,690,000
|
|
|
|
2,690,000
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt issuance costs
|
|
|
(234,643
|
)
|
|
|
(312,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,775,710
|
|
|
|
4,486,207
|
|
Less: current portion:
|
|
|
(2,595,498
|
)
|
|
|
(2,527,324
|
)
|
|
|
$
|
180,212
|
|
|
$
|
1,958,883
|
|
Principal
maturities of the Company’s notes payable are as follows:
Years Ending December 31,
|
|
Amount
|
|
|
|
|
|
2021 (nine months)
|
|
$
|
2,566,827
|
|
2022
|
|
|
104,186
|
|
2023
|
|
|
51,657
|
|
2024
|
|
|
27,631
|
|
2025
|
|
|
15,813
|
|
Thereafter
|
|
|
9,596
|
|
Total
|
|
$
|
2,775,710
|
|
Note
11 – Stockholders’ Equity
On
June 18, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with institutional
accredited investors (the “Purchasers”) pursuant to which the Company offered for sale to the Purchasers an aggregate of
1,764,000 shares (the “Shares”) of its common stock, in a registered direct offering (the “Registered Direct Offering”).
The Shares were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-237455) originally filed
with the SEC on March 27, 2020 (as amended, the “Registration Statement”), which was declared effective on April 3, 2020.
The purchase price for one Share in the Registered Direct Offering was $1.50, and closing of the Registered Direct Offering occurred
on June 22, 2020. The Company received $2.644 million in gross proceeds from the Registered Direct Offering. The Company used approximately
$0.5 million of the gross proceeds for the repayment of certain indebtedness, and the remaining proceeds to the Company will be used
to finance the costs of developing and acquiring additional outpatient medical clinics as part of the Company’s growth and expansion
strategy and for working capital.
On October 5,
2020, the Company launched an at-the-market offering of up to $5,000,000 worth of shares of the Company’s common stock pursuant
to an At-The-Market Issuance Sales Agreement, dated October 5, 2020, by and between the Company and Ascendiant Capital Markets,
LLC. Since the launch and as of March 31, 2021, pursuant to the Agreement, the Company had sold 1,541,758 shares
of common stock through Ascendiant Capital Markets for aggregate proceeds to the Company of $2.9 million.
During
March 2021, the Company completed a public offering by issuing 10,625,000 shares of common stock for gross
proceeds of $17 million. The Company used approximately $1.8 million for the repayment of certain indebtedness and is
using the remaining proceeds for the repayment of certain other indebtedness, to finance the costs of developing and
acquiring additional outpatient medical clinics and healthcare centers as part of the Company’s growth and expansion
strategy and for working capital.
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
As
of March 31, 2021, the Company had issued stock options to purchase 435,518 shares of its common stock as non-qualified stock options
to various employees of the Company. These options vest over a period of four years, with 25% vesting after one year and the remaining
75% vesting in equal monthly installments over the following 36 months and are exercisable for a period of ten years. Stock based compensation
for stock options is estimated at the grant date based on the fair value calculated using the Black-Scholes method. The per-share fair
values of these options is calculated based on the 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 directors of the Company, the terms of which vest over various periods between the date of grant and May 21, 2023. On August 13,
2019, 30,000 shares of common stock were issued pursuant to previously granted RSUs which had vested as of such date.
On
May 21, 2020, the Company granted 10,000 RSUs to a Board member that vested immediately.
On
October 20, 2020, the Company granted an aggregate of 300,000 RSUs to Board members with these RSUs vesting in eight equal quarterly
installments commencing on February 1, 2021, provided the Board members remain directors of the Company.
On
January 30, 2021, the Company granted an aggregate of 15,000 RSUs to non-executive staff and contractors with these RSUs vesting after
one year.
Note
12 – 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 $34,074 and $19,690 during the three months ended March 31, 2021 and 2020, respectively.
Note
13 – Income Taxes
The
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
March 31, 2021, the Company had a net operating loss carryforward of approximately $11.4 million for federal and state purposes. This
loss will be available to offset future taxable income. There is no expiration of this carryforward as it was generated after December
31, 2017. The deferred tax asset relating to the operating loss carryforward has been fully reserved. 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
14 – 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
15 - Subsequent Events
On
April 7, 2021 the Company closed on the sale of an additional 1,193,750 shares of common stock at the recent public offering price
of $1.60 per share, pursuant to the 15% over-allotment option exercised in full by the underwriters in connection with its public offering
that closed March 26, 2021. These proceeds will be used to fund working capital and general corporate purposes.
The
Company accrues a liability and charges operations for the estimated costs of contingent liabilities, including adjudication or settlement
of various asserted and unasserted claims existing as of the balance sheet date, where there is a reasonable possibility that a loss
has been incurred and the loss (or range of probable loss) is estimable. The Company currently is party to certain actions, described
below arising from the normal course of business:
On
April 15, 2021, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”)
contractor, that they are recommending to CMS that the Company was overpaid in the amount of $2,921,868. This amount
represents a statistical extrapolation of $11,530 of charges from a sample of 40 claims for the periods February 2017 to
November 2020. As of the filing date, the Company has not received a request for payment from CMS. The Company has begun its own
internal audit process and disagrees with the interpretation of the medical records and the extrapolation techniques used to derive
this balance. The Company is prepared to follow the appropriate appeals process or use the judicial system.
The
Company is unable to predict the timing and ultimate outcome of this matter and therefore is unable to estimate the range of possible
loss. Any potential loss may be classified as errors and omissions for which insurance coverage was in place during a majority
of the years being evaluated.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those set forth previously under
the caption “Risk Factors.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report.
The
results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.
References
in this MD&A to “we,” “us,” “our,” “our company,” “our business” and
“IMAC Holdings” are to IMAC Holdings, Inc., a Delaware corporation and prior to the Corporate Conversion (defined below),
IMAC Holdings, LLC, a Kentucky limited liability company, 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 Regeneration
Center of St. Louis, LLC (“IMAC St. Louis”), IMAC Management Services, LLC (“IMAC Management”), IMAC Regeneration
Management, LLC (“IMAC Texas”) IMAC Regeneration Management of Nashville, LLC (“IMAC Nashville”) IMAC Management
of Illinois, LLC (“IMAC Illinois”), Advantage Hand and Orthopedic Rehabilitation, LLC (“Advantage Therapy”),
IMAC Management of Florida, LLC (“IMAC Florida”), Chiropractic Health of Southwest Florida, Inc. (“SW Florida”)
and The Back Space LLC (“Back Space”); 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”); the following entities which
are consolidated with IMAC Management of Illinois, LLC due to control by contract: Progressive Health and Rehabilitation, Ltd, Illinois
Spine and Disc Institute, Ltd and Ricardo Knight, P.C.; the following entity which is consolidated with IMAC Management Services, LLC
due to control by contract: Integrated Medicine and Chiropractic Regeneration Center PSC (“Kentucky PC”); the following
entities which are consolidated with IMAC Management of Florida, LLC due to control by contract: Willmitch Chiropractic, P.A. and IMAC
Medical of Florida, PA (“Florida Medical”) and the following entity which is consolidated with The Back Space LLC
due to control by contract: The Back Space.
Overview
We
are a provider of movement and orthopedic therapies and minimally invasive procedures performed through our regenerative and rehabilitative
medical treatments to improve the physical health of our patients at our fast-growing chain of IMAC Regeneration Centers which we own
or manage. Our outpatient medical clinics provide conservative, minimally invasive medical treatments to help patients with back pain,
knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. Our licensed healthcare professionals evaluate
each patient and provide a custom treatment plan that integrates traditional medical procedures and innovative regenerative medicine
procedures in combination with physical medicine. We do not use or offer opioid-based prescriptions as part of our treatment options
in order to help our patients avoid the dangers of opioid abuse and addiction. The original IMAC Regeneration Center opened in Kentucky
in August 2000 and remains the flagship location of our current business, which was formally organized in March 2015. To date, we have
opened six, acquired nine and manage two outpatient medical clinics in Kentucky, Missouri, Tennessee, Illinois and Florida, and plan
to further expand the reach of our facilities to other strategic locations throughout the United States. We have partnered with several
active and former professional athletes, including Ozzie Smith, David Price, Tony Delk and Mike Ditka, in the branding of our IMAC Regeneration
Centers. Our outpatient medical clinics emphasize our focus around treating sports and orthopedic injuries as an alternative to traditional
surgeries for repair or joint replacement.
We
own our medical clinics directly or have entered into long-term management services agreements to operate and control certain of our
medical clinics by contract. Our preference is to own the clinics; however, some state laws restrict the corporate practice of medicine
and require a licensed medical practitioner to own the clinic. Accordingly, our managed clinics are owned exclusively by a medical professional
within a professional service corporation (formed as a limited liability company or corporation) and are under common control with us
in order to comply with state laws regulating the ownership of medical practices. We are compensated under management services agreements
through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary annual bonus
determined in the sole discretion of each professional service corporation.
Significant
financial metrics
Significant
financial metrics of the Company for the first quarter of 2021 are set forth in the bullets below.
|
●
|
Working
capital is $11.7 million as of March 31, 2021 compared to a working capital deficiency of $1.2 million as of December 31, 2020.
|
|
●
|
Adjusted
EBITDA1 of ($1.3 million) in the first quarter of 2021 compared to ($1.1 million) in the first quarter of 2020.
|
|
●
|
Received
$17.0 million of gross proceeds from the issuance of common stock.
|
|
●
|
Paid
$1.8 million balance of bridge loan in quarter ending March 31, 2021.
|
|
(1)
|
Adjusted
EBITDA is a non-GAAP financial measure most closely comparable to the GAAP measure of net loss. See “Reconciliation of Non-GAAP
Financial Matters” below for a full reconciliation of the GAAP and non-GAAP measures.
|
Impacts
of and Response to COVID-19 Outbreak
In
March 2020, federal, state and local government authorities issued orders and guidance in order to combat the spread of the COVID-19
outbreak. These actions have required or encouraged our patients to remain at home except for essential activities and may reduce patient
visits to our clinics. For example, the governor of Kentucky ordered all chiropractic facilities in the state of Kentucky to close effective
March 20, 2020, which caused us to close our Kentucky chiropractic facilities until such order was lifted on May 4, 2020. The full extent
and duration of such actions and their impacts over the longer term remain uncertain and dependent on future developments that cannot
be accurately predicted at this time, such as the severity and transmission rate of the COVID-19 outbreak and the extent and effectiveness
of containment actions taken.
Our
response plan has multiple facets and continues to evolve as the pandemic unfolds. As a precautionary measure, we have taken steps to
enhance our operational and financial flexibility to react to the risks the COVID-19 outbreak presents to our business, including the
following:
|
●
|
Launched
telemedicine communications for remote patient engagement;
|
|
●
|
Suspended
operations in three Kentucky clinics to comply with government orders until we were allowed to resume operations on May 4, 2020;
and
|
|
●
|
Suspended
operations at one clinic in Cook County, Illinois to comply with government orders until such order is lifted. The lease for this
clinic expired June 30, 2020 and was not renewed.
|
The
COVID-19 outbreak appears likely to cause significant economic harm across the United States, and the negative economic conditions that
may result in reduced patient demand in our industry. We may experience a material loss of patients, revenue and market share as a result
of the suspension of any operations. Initiatives to implement telehealth engagement with patients may not be adopted by existing and
new patients. Patient habits may also be altered in the medium to long term. Negative economic conditions, a decrease in our revenue
and consequent longer term trends harmful to our business may all exert pressure on our company during the pendency of emergency restrictions
on our operations and beyond. Due to such conditions, beginning in the month of March 2020 we began to terminate or furlough employees
to reduce costs associated with non-essential personnel, which resulted in a 27% reduction in workforce. As of March 31, 2021, 98% of
the full and part-time workforce had returned from furlough.
We
cannot predict with certainty when public health and economic conditions will return to normal. A decline in patient visits and/or the
possible suspension of operations mandated in response to the COVID-19 outbreak, and the consequent loss of revenue and cash flow during
this period may make it difficult for us to obtain capital necessary to fund our operations.
Matters
that May or Are Currently Affecting Our Business
We
believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors,
including the following:
|
●
|
Our
ability to identify, contract with, install equipment and operate a large number of outpatient medical clinics and attract new patients
to them;
|
|
|
|
|
●
|
Our
need to hire additional healthcare professionals in order to operate the large number of clinics we intend to open;
|
|
|
|
|
●
|
Our
ability to enhance revenue at each facility on an ongoing basis through additional patient volume and new services;
|
|
|
|
|
●
|
Our
ability to obtain additional financing for the projected costs associated with the acquisition, management and development of new
clinics, and the personnel involved, if and when needed;
|
|
|
|
|
●
|
Our
ability to attract competent, skilled medical and sales personnel for our operations at acceptable prices to manage our overhead;
and
|
|
|
|
|
●
|
Our
ability to control our operating expenses as we expand our organization into neighboring states.
|
Critical
Accounting Policies and Estimates
The
preparation of our 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 condensed consolidated
financial statements are prepared. On an ongoing basis, we evaluate our estimates, including those related to insurance adjustments and
provisions for doubtful accounts. We base our 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.
We
believe that, of the significant accounting policies discussed in our Notes to the Condensed Consolidated Financial Statements (Unaudited),
the following accounting policies require our most difficult, subjective or complex judgments in the preparation of our financial statements.
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 their 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
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 years presented.
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. No impairments of goodwill were recorded for the three months ended March 31, 2021.
Revenue
Recognition
Our
patient service revenue is derived from minimally invasive 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. Starting in January
2020, we implemented wellness maintenance programs on a subscription basis. There are three membership plans offered with different levels
of service for each plan. We recognize patient service revenue, net of contractual adjustments, which we estimate based on the historical
trend of our cash collections and contractual write-offs in the period in which services are performed. Contractual adjustments represent
discounts offered for patients serviced within a negotiated third-party payer contract.
Other
management service fees are derived from management services where we provide 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, we provide all administrative support to the physician-owned professional corporation (“PC”)
through a limited liability company. The PC is consolidated due to control by contract (an “SMA” or Service Management Agreement).
The fees we derive from these management arrangements are based on 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 eliminated in consolidation.
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, we typically require 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, we are paid from the outsourced credit vendor and the risk is transferred to the
credit vendor 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.
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. Our ability to collect outstanding receivables is
critical to our results of operations and cash flows. Accordingly, accounts receivable reported in our consolidated financial statements
are recorded at the net amount expected to be received. Our primary collection risks are (i) the risk of overestimation of net revenues
at the time of billing that may result in our 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 us when
the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may
prevent us from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay us 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.
Our
accounts receivables 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 our 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, we expect that any such changes would be minimal and, therefore, would not have a material effect on our
financial condition or results of operations. Our 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 our patient accounts provide for an aging
schedule in 30-day increments, by payer, physician and patient. We analyze 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.
Income
Taxes
IMAC
Holdings was taxed as a partnership through May 31, 2018. As a result, income tax liabilities were 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 continued as single-member limited liability companies that are
disregarded entities for tax purposes and do not file separate returns. Their activity is included as part of IMAC Holdings Inc. Advantage
Therapy, IMAC Illinois and IMAC Florida are also disregarded entities for tax purposes. IMAC Management is a C-corporation and is included
in the consolidated return of IMAC Holdings as a subsidiary.
Any
future benefit arising from losses have been offset by a valuation allowance. Accordingly, no provision for income taxes is reflected
in the consolidated financial statements. 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. At March 31, 2021 and December 31, 2020, 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 2018 are open and subject to examination by the taxing authorities.
Results
of Operations for the Three Months Ended March 31, 2021 Compared to the Three Ended March 31, 2020
We
own our medical clinics directly or have entered into long-term management services agreements to operate and control these medical clinics
by contract. Our preference is to own the clinics; however, some state laws restrict the corporate practice of medicine and require a
licensed medical practitioner to own the clinic. Accordingly, our managed clinics are owned exclusively by a medical professional within
a professional service corporation (formed as a limited liability company or corporation) under common control with us or eligible members
of our company in order to comply with state laws regulating the ownership of medical practices. We are compensated under management
services agreements through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary
annual bonus determined in the sole discretion of each professional service corporation.
Revenues
Our
revenue mix is diversified between medical treatments and physiological treatments. Our medical treatments are further segmented into
traditional medical and regenerative medicine practices. We are an in-network provider for traditional physical medical treatments, such
as physical therapy, chiropractic services and medical evaluations, with most private health insurance carriers. Regenerative medical
treatments are typically not covered by insurance, but paid by the patient. For more information on our revenue recognition policies,
see “Critical Accounting Policies and Estimates - Revenue Recognition.”
Revenues
for the three months ended March 31, 2021 and 2020 were as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands, unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Outpatient facility services
|
|
$
|
2,880
|
|
|
$
|
3,199
|
|
Memberships
|
|
|
145
|
|
|
|
110
|
|
Total revenues
|
|
$
|
3,025
|
|
|
$
|
3,309
|
|
See
the table below for more information regarding our revenue breakdown by service type.
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Medical treatments
|
|
|
65
|
%
|
|
|
66
|
%
|
Physical therapy
|
|
|
31
|
%
|
|
|
30
|
%
|
Chiropractic care
|
|
|
2
|
%
|
|
|
2
|
%
|
Memberships
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Patient
service revenues decreased 9% to $3.0 million for the three months ended March 31, 2021, compared to $3.3 million for the three
months ended March 31, 2020. Visits to our clinics are an indication of business activity. Visits increased 21% for the three
months ended March 31, 2021 compared to the three months ended March 31, 2020. Visits increased from 31,603 in the three months
ended March 31, 2020 to 38,381 in the three months ended March 31, 2021. This increase was driven by membership visits and chiropractic
clinic acquisition in Florida. A membership program was implemented in January 2020. This wellness membership program has
different plan levels that include services for chiropractic care and medical treatments on a monthly subscription basis. Therefore,
memberships could have multiple visits in one month, however only one payment is received for these visits. Active memberships
increased from 487 as of March 31, 2020 to 1,048 as of March 31, 2021, which is reflected in the 21% visit increase as of March
31, 2021.
Operating
Expenses
Operating
expenses consist of patient expenses, salaries and benefits, share based compensation, advertising and marketing, general and administrative
expenses and depreciation expenses.
Patient
expenses consist of medical supplies for services rendered.
Patient Expenses
|
|
2021
|
|
|
2020
|
|
|
Change from Prior Year
|
|
|
Percent Change from Prior Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
$
|
341,000
|
|
|
$
|
380,000
|
|
|
$
|
(39,000
|
)
|
|
|
(10
|
)%
|
Cost
of revenues (patient expense) decreased for the three months ended March 31, 2021 as compared to March 31, 2020. The decrease in the
three months ended March 31, 2021 is consistent with the 9% decrease in net patient revenues.
Salaries
and benefits consist of payroll, benefits and related party contracts.
Salaries and Benefits
|
|
2021
|
|
2020
|
|
Change from Prior Year
|
|
Percent
Change from
Prior Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
$
|
2,754,000
|
|
|
$
|
2,926,000
|
|
|
$
|
(172,000
|
)
|
|
|
(6
|
)%
|
Salaries
and benefits expenses for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, decreased due
to the reduction in workforce as a result of the COVID-19 outbreak subsequent to the quarter ending March 31, 2020.
Share-based
compensation consists of the value of equity incentive grants issued to employees, directors and board members which have vested during
the period.
Share-based Compensation
|
|
2021
|
|
|
2020
|
|
|
Change from Prior Year
|
|
|
Percent Change from Prior Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
$
|
111,000
|
|
|
$
|
81,000
|
|
|
$
|
30,000
|
|
|
|
37
|
%
|
Share-based
compensation increased 28% for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020 due to additional
options and Restricted Stock Units (RSUs) awarded subsequent to March 31, 2020.
Advertising
and marketing consist of marketing, business promotion and brand recognition.
Advertising and Marketing
|
|
2021
|
|
|
2020
|
|
|
Change from Prior Year
|
|
|
Percent Change from Prior Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
$
|
266,000
|
|
|
$
|
242,000
|
|
|
$
|
24,000
|
|
|
|
10
|
%
|
Advertising and marketing expenses
increased $24,000 for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. The increase was attributable
to the initiation of marketing programs in newly expanded Florida markets starting with the Tampa and Orlando acquisitions
in February and March 2021, respectively.
General
and administrative expense (“G&A”) consist of all other costs than advertising and marketing, salaries and benefits,
patient expenses and depreciation.
General and Administrative
|
|
2021
|
|
|
2020
|
|
|
Change from Prior Year
|
|
|
Percent Change from Prior Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
$
|
1,219,000
|
|
|
$
|
1,236,000
|
|
|
$
|
(17,000
|
)
|
|
|
1
|
%
|
G&A
decreased in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. There was a $51,000 increase
in rent expense from the first quarter of 2020 compared to the first quarter of 2021 due to the new Florida locations as well as the
sale leaseback in Lexington, Kentucky. The company had a decrease of $27,000 in travel expenses in the first quarter of 2021 compared
to the first quarter of 2020 due to COVID-19. Other operating expenses had a decrease of $53,000 in the first quarter of 2021 compared
to the first quarter of 2020, despite an increase in G&A spending directly related to the implementation of our clinical trial.
FDA
Clinical Trial
In
August 2020, the United States Food and Drug Administration (the “FDA”) approved the Company’s investigational new
drug application. The Company has begun Phase 1 of the clinical trial, which will be conducted over a 12-month period. The Company incurred
$140,000 in expenses related to consultants, supplies, software and travel for the clinic trial during the three months
ended March 31, 2021 compared to no expenses in the three months ended March 31, 2020. These expenses are included in the G&A
totals above.
Depreciation
is related to our property and equipment purchases to use in the course of our business activities. Amortization is related to our business
acquisitions.
Depreciation and Amortization
|
|
2021
|
|
|
2020
|
|
|
Change from Prior Year
|
|
|
Percent Change from Prior Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
$
|
422,000
|
|
|
$
|
450,000
|
|
|
$
|
(28,000
|
)
|
|
|
(6
|
)%
|
Depreciation
and amortization decreased for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease
is attributable to the July 2020 sale of the building located in Lexington, Kentucky.
Net
loss attributable to the non-controlling interest. Net loss attributable to the non-controlling interest is the amount of net income
(loss) for the period allocated to non-controlling partners of IMAC Holdings, Inc. that is included in the entity’s consolidated
financial statements.
Analysis
of Cash Flows
The
primary source of our operating cash flow is the collection of accounts receivable from patients, private insurance companies, government
programs, self-insured employers and other payers.
During
the three months ended March 31, 2021, net cash used in operations increased to $1.7 million compared to $1.2 million for the three months
ended March 31, 2020. This difference was primarily attributable to the change in other assets during the three months ended March 31,
2021.
Net
cash used in investing activities during the three months ended March 31, 2021 and 2020 was $683,000 and $207,000, respectively. This
was primarily driven by the acquisitions made during the quarter ending March 31, 2021 totaling $564,000.
Net
cash provided by financing activities during the three months ended March 31, 2021 was $15.4 million, including $17.0 million from the
gross proceeds from issuance of common stock and $1.8 million paid towards notes payable.
Reconciliation
of Non-GAAP Financial Measures
This
report contains certain non-GAAP financial measures, including non-GAAP net income and adjusted EBITDA, which are used by management
in analyzing our financial results and ongoing operational performance.
In
order to better assess the Company’s financial results, management believes that net income before interest, income taxes, stock
based compensation, and depreciation and amortization (“adjusted EBITDA”) is a useful measure for evaluating the operating
performance of the Company because adjusted EBITDA reflects net income adjusted for certain non-cash and/or non-operating items. We also
believe that adjusted EBITDA is useful to many investors to assess the Company’s ongoing results from current operations. Adjusted
EBITDA is a non-GAAP financial measure and should not be considered a measure of financial performance under GAAP. Because adjusted EBITDA
is not a measurement determined in accordance with GAAP, such non-GAAP financial measures are susceptible to varying calculations. Accordingly,
adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.
This
non-GAAP financial measure should not be considered as a substitute for, or superior to, measures of financial performance which are
prepared in accordance with US GAAP and may be different from non-GAAP financial measures used by other companies and have limitations
as analytical tools.
A
reconciliation of adjusted EBITDA to the most directly comparable GAAP measure is set forth below.
|
|
Three Months Ended
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
GAAP loss attributable to IMAC Holdings, Inc.
|
|
$
|
(1,990,035
|
)
|
|
$
|
(1,733,545
|
)
|
Interest expense
|
|
|
176,278
|
|
|
|
76,204
|
|
Share-based compensation expense
|
|
|
110,607
|
|
|
|
81,084
|
|
Depreciation and amortization
|
|
|
422,201
|
|
|
|
450,495
|
|
Loss on disposition of assets
|
|
|
4,043
|
|
|
|
-
|
|
Adjusted EBITDA
|
|
$
|
(1,276,905
|
)
|
|
$
|
(1,125,762
|
)
|
Liquidity
and Capital Resources
As
of March 31, 2021, we had $16 million in cash and working capital of $11.7 million. As of December 31, 2020, we had cash of $3 million
and deficiency in working capital of $1.2 million. The increase in working capital was primarily due to the proceeds from the March 2021
public offering.
We
believe our cash at March 31, 2021 will be sufficient to meet our cash, operational and liquidity requirements for at least 12 months.
As
of March 31, 2021, we had approximately $6.5 million in current liabilities. The Iliad note represents $2.7 million of our current liabilities.
Of our remaining current liabilities as of March 31, 2021, approximately $1.1 million in current liabilities outstanding to our vendors,
which we have historically paid down in the normal course of our business. Lastly, accrued wages, taxes, 401k contributions and paid
time off represent approximately $891,000 of the remaining current liabilities.
On
June 18, 2020, the Company entered into the Securities Purchase Agreement with institutional accredited investors pursuant to which the
Company offered for sale to the Purchasers an aggregate of 1,764,000 shares of its common stock in a registered direct offering. The
Shares were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-237455) originally filed with
the SEC on March 27, 2020 and declared effective on April 3, 2020. The purchase price for one Share in the Registered Direct Offering
was $1.50, and closing of the Registered Direct Offering occurred on June 22, 2020. The Company received $2.644 million in gross proceeds
from the Registered Direct Offering. The Company used approximately $0.5 million of the gross proceeds for the repayment of certain indebtedness,
and the remaining proceeds to the Company will be used to finance the costs of developing and acquiring additional outpatient medical
clinics as part of the Company’s growth and expansion strategy and for working capital.
On
October 29, 2020, the Company entered into the October Purchase Agreement with Iliad Research & Trading, L.P., pursuant to which
the Company agreed to issue and sell to the Holder a secured promissory note in an initial principal amount of $2,690,000, which is payable
on or before April 29, 2022. The October Principal Amount includes an original discount of $175,000 and $15,000 that the Company agreed
to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence and other transaction costs. In exchange
for the October Note, the Holder paid a purchase price of $2,500,000. The October Purchase Agreement also provides for indemnification
of the Holder and its affiliates in the event that they incur loss or damage related to, amount other things, breach by the Company of
any of its representations, warranties or covenants under the October Purchase Agreement. In connection with the October Purchase Agreement
and the October Note, the Company entered into a Security Agreement with the Holder, pursuant to which the obligations of the Company
is secured by all of the assets of the Company, excluding the Company’s accounts receivable and intellectual property. Upon an
event of default under the October Note, the October Security Agreement entitles the Holder to take possession of such collateral; provided
that the Holder’s security interest and remedies with respect to the collateral are junior in priority to the security interest
previously granted by the Company to the Holder in connection with a separate financing entered into by them on March 25, 2020, for which
the Holder holds a senior, first-priority security interest in the same collateral.
On
March 26, 2021, the Company completed a public offering by issuing 10,625,000 shares of common stock for gross proceeds of $17
million. The Company used approximately $1.8 million for the repayment of certain indebtedness and is using the remaining proceeds
for the repayment of certain other indebtedness, to finance the costs of developing and acquiring additional outpatient medical
clinics and healthcare centers as part of the Company’s growth and expansion strategy and for working capital.
These events served to mitigate the conditions that historically raised
substantial doubt about the Company’s ability to continue as a going concern.
Contractual
Obligations
The
following table summarizes our contractual obligations by period as of March 31, 2021:
|
|
Payments Due by Period
|
|
|
|
|
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
More Than 5 Years
|
|
Short-term obligations
|
|
$
|
3,045,471
|
|
|
$
|
3,045,471
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Long-term obligations, including interest
|
|
|
223,624
|
|
|
|
-
|
|
|
|
197,144
|
|
|
|
26,480
|
|
|
|
-
|
|
Finance lease obligations, including interest
|
|
|
77,188
|
|
|
|
23,574
|
|
|
|
53,614
|
|
|
|
-
|
|
|
|
-
|
|
Operating lease obligations
|
|
|
4,961,685
|
|
|
|
967,531
|
|
|
|
3,259,882
|
|
|
|
659,164
|
|
|
|
75,108
|
|
|
|
$
|
8,307,968
|
|
|
$
|
4,036,576
|
|
|
$
|
3,510,640
|
|
|
$
|
685,644
|
|
|
$
|
75,108
|
|
Off-Balance
Sheet Arrangements
As
of March 31, 2021, the Company did not have any off-balance sheet arrangements.
Impact
of Inflation
We
believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2021. We cannot
assure you that future inflation will not have an adverse impact on our operating results and financial condition.