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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  FOR THE TRANSITION PERIOD FROM               TO              

 

Commission file number: 001-38797

 

IMAC Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   83-0784691

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1605 Westgate Circle, Brentwood, Tennessee   37027
(Address of Principal Executive Offices)   (Zip Code)

 

(844) 266-4622

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001 per share   IMAC   NASDAQ Capital Market
Warrants to Purchase Common Stock   IMACW   NASDAQ Capital Market

 

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

 

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

 

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

 

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

 

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

 

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

 

As of November 10, 2021, the registrant had 26,208,167 shares of common stock (par value $0.001 per share) outstanding.

 

 

 

 

 

 

IMAC HOLDINGS, INC.

TABLE OF CONTENTS

 

  Page
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS 3
   
PART I. FINANCIAL INFORMATION 4
Item 1. Financial Statements (Unaudited) 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
Item 4. Controls and Procedures 33
   
PART II. OTHER INFORMATION 34
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 35
Item 6. Exhibits 35

 

2

 

 

Important Information Regarding Forward-Looking Statements

 

Portions of this Quarterly Report on Form 10-Q (including information incorporated by reference) include “forward-looking statements” based on our current beliefs, expectations, and projections regarding our business strategies, market potential, future financial performance, industry, and other matters. This includes, in particular, “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, as well as other portions of this Quarterly Report on Form 10-Q. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those projected, anticipated, or implied in the forward-looking statements. The most significant of these risks, uncertainties, and other factors are described in “Item 1A — Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission on March 4, 2021. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

3

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

IMAC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

September 30,

2021

   

December 31,

2020

 
ASSETS                
Current assets:                
Cash   $ 11,194,322     $ 2,623,952  
Accounts receivable, net     1,155,425       1,513,683  
Deferred compensation, current portion     237,729       309,375  
Other assets     958,816       310,359  
Total current assets     13,546,292       4,757,369  
                 
Property and equipment, net     1,777,263       1,777,042  
                 
Other assets:                
Goodwill     2,040,696       2,040,696  
Intangible assets, net     6,462,287       6,611,551  
Deferred compensation, net of current portion     122,875       354,906  
Security deposits     357,050       388,407  
Right of use asset     4,857,388       3,816,035  
Total other assets     13,840,296       13,211,595  
                 
Total assets   $ 29,163,851     $ 19,746,006  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 1,807,046     $ 1,692,283  
Patient deposits     549,767       295,071  
Notes payable, current portion, net of deferred loan costs     1,078,384       2,527,324  
Finance lease obligation, current portion     18,844       18,242  
Liability to issue common stock, current portion     394,575       339,375  
Operating lease liability, current portion     1,517,485       1,078,107  
Total current liabilities     5,366,101       5,950,402  
                 
Long-term liabilities:                
Notes payable, net of current portion     121,766       1,958,883  
Finance lease obligation, net of current portion     34,113       48,323  
Liability to issue common stock, net of current portion     189,385       468,760  
Operating lease liability, net of current portion     3,927,739       3,506,484  
                 
Total liabilities     9,639,104       11,932,852  
                 
Commitments and Contingencies – Note 14     -          
                 
Stockholders’ equity:                
Preferred stock - $0.001 par value, 5,000,000 authorized, none issued and outstanding at September 30, 2021 and December 31, 2020, respectively.     -       -  
Common stock - $0.001 par value, 30,000,000 authorized; 25,980,598 and 12,839,972 shares issued at September 30, 2021 and December 31, 2020, respectively; and 25,322,356 and 12,747,055 outstanding at September 30, 2021 and December 31, 2020, respectively.     25,323       12,747  
Additional paid-in capital     44,824,906       25,465,094  
Accumulated deficit     (20,752,598 )     (15,045,783 )
Non-controlling interest     (4,572,884 )     (2,618,904 )
Total stockholders’ equity     19,524,747       7,813,154  
                 
Total liabilities and stockholders’ equity   $ 29,163,851     $ 19,746,006  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

 

IMAC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    2021     2020     2021     2020  
    Three Months Ended
September 30, 		    Nine Months Ended
September 30, 		 
    2021     2020     2021     2020  
                         
Patient revenues, net   $ 3,487,482     $ 3,477,841     $ 9,975,104     $ 9,359,490  
Other income     14       -       6,092       -  
Management fees     -       -       36,068       12,487  
Total revenue     3,487,496       3,477,841       10,017,264       9,371,977  
                                 
Operating expenses:                                
Patient expenses     361,141       428,615       1,042,504       1,213,799  
Salaries and benefits     3,377,070       2,622,266       9,127,992       7,882,665  
Share-based compensation     188,490       108,377       422,266       311,406  
Advertising and marketing     294,046       234,694       875,123       650,861  
Grant funds     -       -       -       (415,978 )
General and administrative     1,603,056       961,521       4,483,587       3,406,116  
Depreciation and amortization     450,579       430,121       1,314,584       1,334,267  
Total operating expenses     6,274,382       4,785,594       17,266,056       14,383,136  
                                 
Operating loss     (2,786,886 )     (1,307,753 )     (7,248,792 )     (5,011,159 )
                                 
Other income (expense):                                
Interest income     1,754       6,028       1,754       6,067  
Other income     -       6       135       6  
Gain (loss) on extinguishment of debt     -       9,783       108       (99,761 )
Gain on lease modification     57,086       -       57,086       -  
Loss on disposal of assets     (56,270 )     (39,047 )     (60,264 )     (60,272 )
Interest expense     (108,315 )     (141,416 )     (410,822 )     (352,541 )
Total other expenses     (105,745 )     (164,646 )     (412,003 )     (506,501 )
                                 
Net loss before income taxes     (2,892,631 )     (1,472,399 )     (7,660,795 )     (5,517,660 )
                                 
Income taxes     -       -       -       -  
                                 
Net loss     (2,892,631 )     (1,472,399 )     (7,660,795 )     (5,517,660 )
                                 
Net loss attributable to the non-controlling interest     1,171,895       42,741       1,953,980       323,769  
                                 
Net loss attributable to IMAC Holdings, Inc.   $ (1,720,736 )   $ (1,429,658 )   $ (5,706,815 )   $ (5,193,891 )
                                 
Net loss per share attributable to common stockholders                                
Basic and diluted   $ (0.07 )   $ (0.12 )   $ (0.27 )   $ (0.49 )
                                 
Weighted average common shares outstanding                                
Basic and diluted     25,322,356       11,839,972       21,446,726       10,549,899  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5

 

 

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, January 1, 2020     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  
Issuance of common stock     1,830,875       1,831       2,576,820       -       -       2,578,651  
Issuance of employee stock options     -       -       37,569       -       -       37,569  
Net income (loss)     -       -       -       55,576       (2,030,688 )     (1,975,112 )
Balance, June 30, 2020     11,839,973       11,834       24,079,504       (2,361,227 )     (13,806,283 )     7,923,828  
Issuance of employee stock options     -       -       40,385       -       -       40,385  
Net loss     -       -       -       (42,741 )     (1,429,658 )     (1,472,399 )
Balance, September 30, 2020     11,839,973     $ 11,834     $ 24,119,889     $ (2,403,968 )   $ (15,235,941 )   $ 6,491,814  

 

    Common Stock     Additional     Non-              
   

Number of

Shares

    Par    

Paid-In-

Capital

   

Controlling

Interest

    Accumulated Deficit     Total  
                                     
Balance, January 1, 2021     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  
Issuance of common stock     1,315,625       1,316       2,043,459       -       -       2,044,775  
Issuance of employee stock options     -       -       39,542       -       -       39,542  
Net loss     -       -       -       (542,697 )     (1,996,044 )     (2,538,741 )
Balance, June 30, 2021     25,322,356       25,323       44,785,811       (3,400,989 )     (19,031,862 )     22,378,283  
Issuance of employee stock options     -       -       39,095       -       -       39,095  
Net loss     -       -       -       (1,171,895 )     (1,720,736 )     (2,892,631 )
Balance, September 30, 2021     25,322,356     $ 25,323     $ 44,824,906     $ (4,572,884 )   $ (20,752,598 )   $ 19,524,747  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 

 

IMAC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    2021     2020  
   

Nine Months Ended

September 30,

 
    2021     2020  
Cash flows from operating activities:                
Net loss   $ (7,660,795 )   $ (5,517,660 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     1,314,584       1,334,267  
Share based compensation     422,266       311,406  
Loss on disposition of assets     60,264       1,959  
(Increase) decrease in operating assets:                
Accounts receivable, net     358,258       (154,292 )
Other assets     (674,539 )     251,976  
Security deposits     36,357       86,081  
Increase (decrease) in operating liabilities:                
Accounts payable and accrued expenses     147,815       (518,074 )
Patient deposits     254,696       183,987  
Net cash used in operating activities     (5,741,094 )     (4,020,350 )
                 
Cash flows from investing activities:                
Purchase of property and equipment     (371,882 )     (52,626 )
Purchase of license fee     -       (243,750 )
Brand development     (66,495 )     -  
Acquisitions (Note 6)     (731,909 )     (200,000 )
Proceeds from sale of fixed assets     14,450       -  
Net cash used in investing activities     (1,155,836 )     (496,376 )
                 
Cash flows from financing activities:                
Proceeds from issuance of common stock     19,005,323       3,736,613  
Proceeds from notes payable     -       2,891,520  
Payments on notes payable     (3,517,195 )     (737,758 )
Payments of debt issuance costs     -       (70,000 )
Payments on finance lease obligation     (20,828 )     (13,034 )
Net cash provided by financing activities     15,467,300       5,807,341  
                 
Net increase in cash     8,570,370       1,290,615  
                 
Cash, beginning of period     2,623,952       373,689  
                 
Cash, end of period   $ 11,194,322     $ 1,664,304  
                 
Supplemental cash flow information:                
Interest paid   $ 219,573     $ 63,152  
Non cash financing and investing:                
Debt discount notes payable   $ -     $ 115,000  
Debt payment by sale of property and equipment   $ -     $ 1,232,500  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7

 

 

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 seventeen (17) medical clinics located in Florida, Illinois, Kentucky, Missouri and Tennessee as of September 30, 2021. The Company has a joint venture with an outpatient medical clinic in Kentucky. 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 Walmart retail locations. As of September 30, 2021, the Back Space has opened one retail clinic location in Tennessee. 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.

 

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.

 

8

 

 

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.

 

In June 2021, the Company completed the asset purchase of Fort Pierce Chiropractic in Fort Pierce, Florida and Active Medical Center in Naperville, Illinois. These acquisitions 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 2021 beyond the results presented in these condensed consolidated financial statements and this quarterly report.

 

Due to the impacts of COVID-19 we have seen an increase in recruiting and labor costs as well as delays in supply chain.

 

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 five membership plans offered with different levels of service for each plan. The Company recognizes membership revenue on a monthly basis. Enrollment in the wellness maintenance program can occur at any time during the month and can be cancelled 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 recognizes other management service revenue in the period in which services are rendered. These revenues are earned by IMAC Nashville, IMAC Management, IMAC Illinois and IMAC Florida and are eliminated in consolidation to the extent owned.

 

Starting in June 2021, the Company began offering outpatient chiropractic and spinal care services as well as memberships services in a Walmart retail location as part of Back Space. The fees for such services are paid and recognized as incurred.

 

9

 

 

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 September 30, 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.

 

10

 

 

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 $294,000 and $235,000 for three months ended September 30, 2021 and 2020, respectively and was $875,000 and $651,000 for the nine months ended September 30, 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.

 

11

 

 

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 September 30, 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 positive working capital of approximately $8.2 million at September 30, 2021 and a deficiency in working capital of $1.2 million at December 31, 2020. The Company had a net loss of approximately $5.7 million for the nine months ended September 30, 2021, and used cash in operations of approximately $5.7 million at September 30, 2021. The Company expects to continue to incur significant expenditures to develop and expand its owned and managed outpatient medical clinics.

 

Prior to the Company’s March 2021 public offering, the Company funded its business plan through debt and equity securities. During the quarter ended March 31, 2021, the Company completed a public offering and received proceeds of approximately $17 million. During the quarter ended June 30, 2021, the Company sold an additional 1,193,750 shares for proceeds of approximately $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 the proceeds received, 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.

 

12

 

 

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 September 30, 2021 and December 31, 2020, the Company had the following revenue and accounts receivable concentrations:

 

    September 30, 2021     December 31, 2020  
    % of Revenue    

% of

Accounts Receivable

    % of Revenue    

% of

Accounts Receivable

 
    (Unaudited)              
Patient payment     41 %     34 %     35 %     38 %
Medicare payment     37 %     20 %     40 %     16 %
Insurance payment     18 %     29 %     22 %     37 %
Injury payment     4 %     17 %     3 %     9 %

 

Note 5 – Accounts Receivable

 

As of September 30, 2021 and December 31, 2020, the Company’s accounts receivable consisted of the following:

 

   

September 30,

2021

    December 31, 2020  
    (Unaudited)        
Gross accounts receivable   $ 1,184,407     $ 1,542,665  
Less: allowance for doubtful accounts     (28,982 )     (28,982 )
Accounts receivable, net   $ 1,155,425     $ 1,513,683  

 

13

 

 

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 Holdings.

 

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.

 

In June 2021, the Company completed an asset purchase of Fort Pierce Chiropractic in Fort Pierce, Florida. The transaction was completed as an asset purchase for $50,000.

 

IMAC Chicago

 

In June 2021, the Company also completed an asset purchase of Active Medical Center in Naperville, Illinois. The transaction was completed as an asset purchase for $205,000.

 

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 acquisitions:

 

    Orlando     Tampa     Fort
Pierce 		    Naperville  
Property & equipment   $ 149,720     $ 7,400     $ 45,000     $ 49,000  
Intangible assets     -       413,600       5,000       151,000  
Other assets     -       -       -       5,000  
Current liabilities     (7,220 )     -       -       -  
Net Assets Acquired   $ 142,500     $ 421,000     $ 50,000     $ 205,000  

 

Note 7 – Property and Equipment

 

The Company’s property and equipment consisted of the following at September 30, 2021 and December 31, 2020:

 

   

Estimated

Useful Life in Years

 

September 30,

2021

   

December 31,

2020

 
                 
Leasehold improvements   Shorter of asset or lease term   $ 2,109,268     $ 2,064,669  
Equipment   1.5 - 7     2,366,176       2,012,276  
Total property and equipment         4,475,444       4,076,945  
                     
Less: accumulated depreciation         (2,803,326 )     (2,302,273 )
Property and equipment         1,672,118       1,774,672  
Construction in progress         105,145       2,370  
Total property and equipment, net       $ 1,777,263     $ 1,777,042  

 

Depreciation expense was $194,000 and $195,000 for the three months ended September 30, 2021 and 2020, respectively and $529,000 and $633,000 for the nine months ended September 30, 2021 and 2020, respectively.

 

Note 8 – Intangibles Assets and Goodwill

 

The Company’s intangible assets and goodwill consisted of the following at September 30, 2021 and December 31, 2020:

 

        September 30, 2021  
    Estimated         Accumulated        
    Useful Life   Cost     Amortization     Net  
                       
Intangible assets:                            
Management service agreements   10 years   $ 7,940,398     $ (2,301,908 )   $ 5,638,490  
Non-compete agreements   3 years     306,000       (301,834 )     4,166  
Customer lists   3 years     699,482       (187,370 )     512,112  
Brand development   10 years     66,495       (2,726 )     63,769  
Definite lived assets         9,012,375       (2,793,838 )     6,218,537  
Research and development         243,750       -       243,750  
Goodwill         2,040,696       -       2,040,696  
Total intangible assets and goodwill       $ 11,296,821     $ (2,793,838 )   $ 8,502,983  

 

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        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 $257,000 and $235,000 for the three months ended September 30, 2021 and 2020, respectively and $785,000 and $701,000 for the nine months ended September 30, 2021 and 2020, respectively.

 

The Company’s estimated future amortization of intangible assets was as follows:

 

Years Ending December 31,      
       
2021 (three months)   $ 258,532  
2022     1,034,133  
2023     987,715  
2024     830,934  
2025     798,473  
Thereafter     2,308,750  
Total   $ 6,218,537  

 

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:

  

    September 30, 2021     December 31, 2020  
             
Non-current assets                
Right of use assets, net of amortization   $ 4,857,388     $ 3,816,035  

 

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Total operating lease cost

 

Individual components of the total lease cost incurred by the Company were as follows:

 

   

Nine Months

Ended

September 30, 2021

   

Nine Months

Ended

September 30, 2020

 
                 
Operating lease expense   $ 917,819     $ 942,351  

 

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 (three months)   $ 425,344  
2022     1,598,488  
2023     1,442,234  
2024     1,073,318  
2025     699,279  
Thereafter     539,442  
Total     5,778,105  
Amount representing imputed interest     (332,881 )
Total operating lease liability     5,445,224  
Current portion of operating lease liability     (1,517,485 )
Operating lease liability, non-current   $ 3,927,739  

 

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Note 10 – Notes Payable

 

Set forth below is a summary of the Company’s outstanding debt as of September 30, 2021 and December 31, 2020:

 

    September 30,     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. This note was paid in full on March 29, 2021.   $ -     $ 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.     50,758       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.     71,677       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 is secured by the equipment and personal guarantees of certain Company executives. This note was paid in full on May 4, 2021.     -       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. This note was paid in full on June 8, 2021.     -       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.     65,503       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.     53,218       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.     1,037,208       2,690,000  
                 
Unamortized debt issuance costs     (78,214 )     (312,858 )
                 
Notes payable     1,200,150       4,486,207  
Less: current portion:     (1,078,384 )     (2,527,324 )
Notes payable, net of current portion   $ 121,766     $ 1,958,883  

 

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Principal maturities of the Company’s notes payable are as follows:

 

Years Ending December 31,   Amount  
       
2021 (three months)   $ 991,267  
2022     104,186  
2023     51,657  
2024     27,631  
2025     15,813  
Thereafter     9,596  
Total   $ 1,200,150  

 

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 September 30, 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.

 

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 2021.

 

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.

 

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Stock Options

 

As of September 30, 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. As of September 30, 2021, 143,750 shares of common stock were issued pursuant to previously granted RSUs which had vested as of such date. 40,000 shares were cancelled in 2020 due to board member departures.

 

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. In April 2021 the Compensation Committee amended the vesting schedule to a one-year vesting period. As of September 30, 2021, 112,500 RSUs had vested and 75,000 were issued to Board members.

 

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 100% of up to 3% and 50% of 5% of total compensation for those employees making salary deferrals. The Company made contributions of $39,000 and $32,000 during the three months ended September 30, 2021 and 2020, respectively, and $108,000 and $72,000 during the nine months ended September 30, 2021 and 2020, respectively.

 

Note 13 – Income Taxes

 

As of September 30, 2021, the Company had an effective tax rate of approximately 25.8%. The Company has federal net operating loss carryforwards of approximately $18.2 million and state net operating losses of approximately $19.5 million. There is no expiration of the federal loss carryforwards as all federal net operating loss carryforwards were generated after December 31, 2017. The state operating loss carryforwards are subject to expiration beginning on December 31, 2031. The deferred tax asset relating to the net operating loss carryforwards is offset by a full valuation allowance. The principal differences between the operating loss for income tax purposes and financial 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 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.

 

From time to time the Company may become subject to threatened and/or asserted claims arising in the ordinary course of our business. Other than the matter described below, 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.

 

Third Party Audit

 

From time to time, in the ordinary course of business, we are subject to audits under various governmental programs in which third party firms engaged by the Center for Medicare & Medicaid Services (“CMS”) conduct extensive reviews of claims data to identify potential improper payments. We cannot predict the ultimate outcome of any regulatory reviews or other governmental audits and investigations.

 

On April 15, 2021, the Company received notification from Covent Bridge Group, a CMS contractor, that they are recommending to CMS that the Company was overpaid in the amount of $2,921,868. This amount represented a statistical extrapolation of $11,530 of charges from a sample of 40 claims for the periods February 2017 to November 2020. On June 3, 2021, the Company received a request for payment from CMS in the amount of $2,918,472. 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 has initiated the appropriate appeals.

 

The Company received a notification dated September 30, 2021, from CMS that they “found the request to be favorable by reversing the extrapolation to actual”. The Company received a separate notification stating “the extrapolated overpayment was reduced to the actual overpayment amount for the sampled denied claims $5,327.73,” which had been paid as of September 30, 2021. The Company has continued the appeals process to the second level appeal related to the error rate and are anticipating a third appeal.

 

At this stage of the appeals process, based on the information currently available to the Company, 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.

 

As of September 30, 2021, the Company has not recorded a provision for this claim, as management does not believe that an estimate of a possible loss or range of loss can reasonably be made at this time.

 

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Note 15 - Subsequent Events

 

On October 1, 2021 the Company acquired Louisiana Orthopaedic & Sports Rehab Institute (LOSI) in Baton Rouge, Louisiana. LOSI was acquired for $1.6 million, consisting of $1.2 million in shares of the Company’s common stock issued at closing and $400,000 in cash, payable in four quarterly installments during the 12 months following closing.

  

On October 1, 2021 the Company completed an Asset Purchase Agreement for substantially all of the professional assets of F. Allen Johnston MD, PC, a Louisiana Professional Corporation, and assumed certain liabilities for $800,000 in cash.

 

The Company received notification dated October 21, 2021, 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 $2,716,056.33. This amount represents a statistical extrapolation of $6,791.33 of charges from a sample of 38 claims for the periods July 2017 to November 2020 for Progressive Health & Rehabilitation, Ltd (“Progressive Health”). The Company entered into a management agreement with Progressive Health in April 2019 and therefore liable for only a portion of the sampled claims. There were a total of 38 claims reviewed, 25 of these claims were from the period prior to the management agreement with the Company and the remaining 13 claims were related to the period that Progressive Health was managed by the Company. 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.

 

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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 and acquired eleven medical clinics and entered into a joint venture with one outpatient medical clinic in Florida, Illinois, Kentucky, Missouri and Tennessee, 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.

 

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Significant financial metrics

 

Significant financial metrics of the Company for the third quarter of 2021 are set forth in the bullets below.

 

  ● Working capital is $8.2 million as of September 30, 2021 compared to a working capital deficiency of $1.2 million as of December 31, 2020.
  ● Adjusted EBITDA1 of ($919,000) in the third quarter of 2021 compared to ($727,000) in the third quarter of 2020.
  ● The Company had one-time expenses of $226,000 in the third quarter of 2021, consisting of: $28,000 in legal, $108,000 in earnout post-acquisition and $90,000 in share based compensation due to change in vesting schedule.
  ● The Company incurred $155,000 in FDA related expenses during the third quarter of 2021.
  ● The Company paid $900,000 of principal and interest during the third quarter of 2021 towards the Iliad note payable.
  (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 September 30, 2021, 98% of the full and part-time workforce had returned from furlough.

 

22

 

 

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. Due to the impacts of COVID-19 we have seen an increase in recruiting and labor costs as well as delays in supply chain.

 

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.

 

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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 nine months ended September 30, 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.

 

Starting in June 2021, the Company began offering outpatient chiropractic and spinal care services as well as memberships services in a Walmart retail location as part of Back Space. The fees for such services are paid and recognized as incurred.

 

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.

 

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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 September 30, 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 and Nine Months Ended September 30, 2021 Compared to the Three and Nine Months Ended September 30, 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.

 

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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 September 30, 2021 and 2020 were as follows:

 

   

Three Months Ended

September 30,

 
    2021     2020  
    (in thousands, unaudited)  
Revenues:            
Outpatient facility services   $ 3,327     $ 3,356  
Memberships     150       122  
Retail clinics     10       -  
Total revenues   $ 3,487     $ 3,478  

 

Revenues for the nine months ended September 30, 2021 and 2020 were as follows:

 

   

Nine Months Ended

September 30,

 
    2021     2020  
    (in thousands, unaudited)  
Revenues:            
Outpatient facility services   $ 9,464     $ 9,057  
Memberships     497       302  
Retail clinics     14       -  
Total revenues   $ 9,975     $ 9,359  

 

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See the table below for more information regarding our revenue breakdown by service type.

 

   

Nine Months Ended

September 30,

 
    2021     2020  
       
Revenues:                
Medical treatments     65 %     66 %
Physical therapy     30 %     31 %
Chiropractic care     3 %     2 %
Memberships     2 %     1 %
      100 %     100 %

 

Visits to our clinics are an indication of business activity. Total visits increased 10% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Visits increased from 39,345 in the three months ended September 30, 2020 to the 43,451 in the three months ended September 30, 2021.

 

Visits increased 30% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Visits increased from 97,283 in the nine months ended September 30, 2020 to 126,610 in the nine months ended September 30, 2021.

 

Outpatient Facility Services

 

Outpatient facility service revenue was relatively flat from $3.3 million for the three months ended September 30, 2021, compared to $3.4 million for the three months ended September 30, 2020. Billable visits decreased 2% from 28,045 in the three months ended September 30, 2020 to 27,502 in the three months ended September 30, 2021. The Company experienced a decrease in visits in markets impacted by the Delta Variant of COVID-19. For example, our most mature market in western Kentucky experienced a decline of 2,052 billable visits primarily due to reduced staff service days as a result of COVID-19.  Revenue per visit has increased as anticipated for the third quarter, primarily influenced by an increase in higher charge visits from adding medical procedures to recently acquired facilities. Billable visits increased 16% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Billable visits increased from 70,725 for the nine months ended September 30, 2020 to 81,747 for the nine months ended September 30, 2021.

 

Memberships

 

A membership program was implemented in January 2020 and this wellness 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.

 

Membership revenue increased $28,000 to $150,000 for the three months ended September 30, 2021, compared to $122,000 for the three months ended September 30, 2020. Active memberships increased 33% from 762 active memberships as of September 30, 2020 to 1,016 active memberships as of September 30, 2021, which is reflected in the increase in membership revenue for the quarter ending September 30, 2021.

 

Membership visits increased 41% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Visits increased from 9,871 in the three months ended September 30, 2020 to 13,871 for the three months ended September 30, 2021. Visits increased 69% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Visits increased from 22,945 in the nine months ended September 30, 2020 to 38,828 for the nine months ended September 20, 2021.

 

Retail clinics

 

The first retail clinic opened in Walmart in June 2021 with additional locations scheduled to open during fourth quarter of 2021. The retail clinic provides outpatient chiropractic and spinal care services. For the three months ended September 30, 2021, the Back Space had 394 visits. For the nine months ended September 30, 2021, the Back Space had 588 visits. As of September 30, 2021, 70% of the Back Space revenue was related to memberships.

 

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 September 30   $ 361,000     $ 429,000     $ (68,000 )     (16 )%
Nine Months Ended September 30     1,043,000       1,214,000       (171,000 )     (14 )%

 

Cost of revenues (patient expense) decreased for the three months ended September 30, 2021 by $68,000 as compared to September 30, 2021. The decrease is attributable to implementation of centralized purchasing. Centralized purchasing has increased our efficiency of ordering and distributing supplies across all of our locations reducing our expense.

 

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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 September 30   $ 3,377,000     $ 2,622,000     $ 775,000       29 %
Nine Months Ended September 30     9,128,000       7,883,000       1,245,000       16 %

 

Salaries and benefits expenses for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, increased due to the addition of new employees in 2021 as compared to the reduction in workforce as a result of the COVID-19 outbreak in 2020. The Company has noted the addition of Back Space employees and an increase in costs due to employee retention as well as higher salaries for replacement and expansion positions in all locations.

 

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 September 30   $ 188,000     $ 108,000     $ 80,000       74 %
Nine Months Ended September 30     422,000       311,000       111,000       36 %

 

Share-based compensation increased 36% for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, due to the increase in RSU’s (Restricted Stock Units) awarded to the current board of directors compared to the same period in 2020 as well as the vesting period changing from two years to one year.

 

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 September 30   $ 294,000     $ 235,000     $ 59,000       25 %
Nine Months Ended September 30     875,000       651,000       224,000       34 %

 

Advertising and marketing expenses increased $59,000 for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. $26,000 of the total increase is in online and website advertising. Subsequent to the COVID-19 outbreak during 2020, advertising was reduced in 2020 however has been reimplemented in 2021 along with new locations. There was a similar increase in online and website advertising for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Advertising and marketing expenses increased $224,000 for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. $150,000 of the total increase was attributed to online and website advertising. During the first nine months of 2021 we have seen an increase in patient visits that coincides with our increase in marketing in all of our locations as well as adding advertising for new locations.

 

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 September 30   $ 1,603,000     $ 962,000     $ 641,000       67 %
Nine Months Ended September 30     4,484,000       3,406,000       1,078,000       32 %

 

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G&A increased 67% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. There was a $41,000 increase in billing expenses from the third quarter of 2020 compared to the third quarter of 2021 due to the increase in collections. Rent and utilities expenses increased $79,000 due to the addition of 5 locations that were added subsequent to the third quarter of 2020. Malpractice insurance increased $39,000 also due to the increase in new providers. Legal expenses increased $125,000 and accounting services increased $70,000 as the Company has had more business transactions in 2021 compared to 2020. The FDA clinical trial is included in G&A with $155,000 in the three months ending September 30, 2021 compared to none in the three months ending September 30, 2020. See FDA Clinical Trial described below.

 

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 $155,000 in expenses related to consultants, supplies, software and travel for the clinical trial during the three months ended September 30, 2021 compared to no expenses in the three months ended September 30, 2020. The Company incurred $422,000 during the nine months ended September 30, 2021 compared to no expenses in the nine months ended September 30, 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 September 30   $ 451,000     $ 430,000     $ 21,000       5 %
Nine Months Ended September 30     1,315,000       1,334,000       (19,000 )     (1 )%

 

Depreciation and amortization increased for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase is due to the amortization expense related to the intangibles from the Florida and Illinois 2021 acquisitions as well as amortization from brand development.

 

Depreciation and amortization decreased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This decrease is due to the sale of the Lexington, Kentucky office building in July 2020 and the leasehold improvements becoming fully depreciated for the Paducah, Kentucky lease.

 

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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, public offering, self-insured employers and other payers.

 

During the nine months ended September 30, 2021, net cash used in operations increased to $5.7 million compared to $4.0 million for the nine months ended September 20, 2020. This difference was primarily attributable to the change in other assets during the nine months ended September 30, 2021. $370,000 of the other asset balance as of September 30, 2021 is related to the receivable from the withholdings from Medicare related to the April 2021 CMS letter.

 

Net cash used in investing activities during the nine months ended September 30, 2021 and 2020 was $1.2 million and $496,000, respectively. This was primarily driven by the four acquisitions made during 2021 totaling $732,000.

 

Net cash provided by financing activities during the nine months ended September 30, 2021 was $15.5 million, including $19.0 million from the gross proceeds from issuance of common stock and $3.5 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     Nine Months Ended  
    September
30, 2021 		    September
30, 2020 		    September
30, 2021 		    September
30, 2020 		 
GAAP loss attributable to IMAC Holdings, Inc.   $ (1,720,736 )   $ (1,429,658 )   $ (5,706,815 )   $ (5,193,891 )
Interest income     (1,754 )     (6,028 )     (1,754 )     (6,067 )
Interest expense     108,315       141,416       410,882       352,541  
Share-based compensation expense     188,490       108,377       422,266       311,406  
Depreciation and amortization     450,579       430,121       1,314,584       1,334,267  
(Gain) loss on extinguishment of debt     -       (9,783 )     (108 )     99,761  
Loss on sale of assets     56,270       39,047       60,264       60,272  
Adjusted EBITDA   $ (918,836 )   $ (726,508 )   $ (3,500,741 )   $ (3,041,711 )

 

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Liquidity and Capital Resources

 

As of September 30, 2021, we had $11 million in cash and working capital of $8.2 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 September 30, 2021 will be sufficient to meet our cash, operational and liquidity requirements for at least 12 months.

 

As of September 30, 2021, we had approximately $5.4 million in current liabilities. The Iliad note represents $1.0 million of our current liabilities. Of our remaining current liabilities as of September 30, 2021, approximately $893,000 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 $912,000 of the remaining current liabilities.

 

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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.

 

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 2021.

 

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 September 30, 2021:

 

    Payments Due by Period        
    Total     Less Than 1 Year     1-3 Years     4-5 Years     More Than 5 Years  
Short-term obligations   $ 1,111,500     $ 1,111,500     $ -     $ -     $ -  
Long-term obligations, including interest     223,619       -       197,144       26,475       -  
Finance lease obligations, including interest     59,065       5,451       53,614       -       -  
Operating lease obligations     5,785,164       461,123       4,114,040       1,054,487       155,514  
    $ 7,179,348     $ 1,578,074     $ 4,365,798     $ 1,080,962     $ 155,514  

 

Off-Balance Sheet Arrangements

 

As of September 30, 2021, the Company did not have any off-balance sheet arrangements.

 

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Impact of Inflation

 

We believe that inflation has not had a material impact on our results of operations for the nine months ended September 30, 2021. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that, because of certain material weaknesses in our internal control over financial reporting our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of September 30, 2021. The material weaknesses relate to the absence of in-house accounting personnel with the ability to properly account for complex transactions and a lack of separation of duties between accounting and other functions.

 

We hired a consulting firm to advise on technical issues related to U.S. GAAP as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that, because of certain material weaknesses in our internal control over financial reporting our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of September 30, 2021.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of our business, as described below. Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any legal proceedings or claims that we believe would or could have, individually or in the aggregate, a material adverse effect on us. Regardless of final outcomes, however, any such proceedings or claims may nonetheless impose a significant burden on management and employees and may come with costly defense costs or unfavorable preliminary interim rulings.

 

ITEM 1A. RISK FACTORS

 

Investors should carefully review and consider the information regarding certain factors which could materially affect our business, operating results, cash flows, and financial condition set forth under Item 1A, Risk Factors, in our fiscal 2020 Annual Report on Form 10-K filed with the SEC on March 4, 2021. There have been no material changes to such risk factors, except as set forth below. The risk factors set forth below supplement, and should be read together with, that section for disclosures regarding what we believe are the more significant risks and uncertainties related to our businesses. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

Possible repayment of claimed CMS overpayment.

 

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.

 

On June 3, 2021, the Company received a request for payment from CMS for $2,918,472. As of September 30, 2021, CMS had withheld $370,707 towards the overpayment balance. Based on the request for payment letter, simple interest will be accrued at a rate of 9.50% of the unpaid balance of the overpayment beginning on the 31st day. Interest is calculated in 30 day periods and is assessed for each full 30 day period that payment is not made on time. 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 received a notification dated September 30, 2021, from CMS that they “found the request to be favorable by reversing the extrapolation to actual”. The Company received a separate notification stating “the extrapolated overpayment was reduced to the actual overpayment amount for the sampled denied claims $5,327.73,” which had been paid as of September 30, 2021. The Company has continued the appeals process to the second level appeal related to the error rate and are anticipating a third appeal.

 

The Company is unable to predict the timing and ultimate outcome of this matter. 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. As of September 30, 2021, the Company has recorded no liability for this claim as we do not believe that an estimate of a reasonably possible loss or range of loss can be made at this time.

 

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 other 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.

 

Any of these factors could cause or contribute to the risks and uncertainties identified in our Annual Report on Form 10-K for the year ended December 31, 2020 and could materially adversely affect our business, financial condition and results of operations.

 

34

 

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit Number   Description
     
31.1*   Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended.
     
31.2*   Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended.
     
32.1**   Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*   Inline XBRL Instance Document
     
101.SCH*   Inline XBRL Taxonomy Extension Schema
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase
     
101.LAB*   Inline XBRL Taxonomy Extension Labels Linkbase
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

* Filed herewith.
   
** This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of IMAC Holdings, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

35

 

 

SIGNATURES

 

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

 

  IMAC HOLDINGS, INC.
     
Date: November 10, 2021 By: /s/ Jeffrey S. Ervin
    Jeffrey S. Ervin
   

Chief Executive Officer

(Principal Executive Officer)

     
Date: November 10, 2021 By: /s/ Sheri Gardzina
    Sheri Gardzina
   

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

36

 

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