UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
☒ QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ________ to ________
Commission File Number:
333-271198
Inspire
Veterinary Partners, Inc.
(Exact name of registrant as specified in its
charter)
Nevada | | 85-4359258 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
780 Lynnhaven Parkway Suite 400 Virginia Beach, Virginia | | 23452 |
(Address of principal executive offices) | | (Zip Code) |
(757) 734-5464
(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 |
Class A Common Stock, par value $0.0001 per share | | IVP | | The Nasdaq Stock Market LLC |
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 August 13, 2024, the registrant had 3,583,995
shares of Class A common stock issued and outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q of Inspire
Veterinary Partners, Inc. (the “Company”) for the quarter ended June 30, 2024, originally filed on August 13, 2024 (the “Original
Filing”) is being filed solely to add in the inline eXtensible Business Reporting Language “XBRL” tagging that is required
by the Securities and Exchange Commission for quarterly reports.
Except as described above, no other changes have been made to the Original
Filing and this Form 10-Q/A does not modify or update, in any way, any of the financial or other information contained in the Original
Filing. This Form 10-Q/A does not reflect events that may have occurred subsequent to the filing date of the Original Filing date. Accordingly,
this Amendment No. 1 should be read together with the Original filing and the Company’s other filings with the Securities and Exchange
Commission.
INSPIRE VETERINARY PARTNERS, INC.
QUARTERLY REPORT ON FORM 10-Q
June 30, 2024
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited interim financial statements
of Inspire Veterinary Partners, Inc. (referred to herein as the “Company,” “we,” “us” or “our”)
are included in this Quarterly Report on Form 10-Q (the “Quarterly Report”).
The accompanying unaudited financial statements
have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and
Exchange Commission (the “SEC”), In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
INSPIRE VETERINARY PARTNERS, INC.
Financial Statements
Index to the Consolidated Financial Statements
Inspire Veterinary Partners, Inc. and Subsidiaries
Unaudited Condensed Consolidated
Balance Sheets
| |
June 30, | | |
December 31, | |
| |
2024 | | |
2023 | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 7,658 | | |
$ | 178,961 | |
Accounts receivable, net | |
| 39,720 | | |
| 28,573 | |
Due from former owners | |
| - | | |
| 32,519 | |
Inventory | |
| 574,593 | | |
| 571,512 | |
Refundable income tax | |
| - | | |
| 151,796 | |
Prepaid expenses and other current assets | |
| 1,580,239 | | |
| 388,759 | |
Total current assets | |
| 2,202,210 | | |
| 1,352,120 | |
| |
| | | |
| | |
Restricted cash - non-current | |
| 200,000 | | |
| 200,000 | |
Property and equipment, net | |
| 7,849,271 | | |
| 7,949,144 | |
Right-of-use assets | |
| 1,349,394 | | |
| 1,616,198 | |
Other intangibles, net | |
| 2,105,229 | | |
| 2,513,028 | |
Goodwill | |
| 8,147,590 | | |
| 8,147,590 | |
Other assets | |
| 73,989 | | |
| 12,895 | |
Total assets | |
$ | 21,927,683 | | |
$ | 21,790,975 | |
| |
| | | |
| | |
Liabilities and Stockholder’s Deficit | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 3,717,966 | | |
$ | 3,206,594 | |
Accrued expenses | |
| 941,076 | | |
| 858,334 | |
Cumulative Series A preferred stock dividends payable | |
| - | | |
| 92,322 | |
Operating lease liabilities | |
| 124,580 | | |
| 141,691 | |
Loans payable, net of discount | |
| 3,313,925 | | |
| 1,713,831 | |
Convertible notes payable | |
| 1,000,000 | | |
| - | |
Convertible debentures, net of issuance costs | |
| - | | |
| 100,000 | |
Notes payable, net of discount | |
| 3,316,147 | | |
| 1,469,043 | |
Total current liabilities | |
| 12,413,694 | | |
| 7,581,815 | |
| |
| | | |
| | |
Operating lease liabilities, non-current | |
| 1,450,332 | | |
| 1,514,044 | |
Convertible debentures, net of issuance costs | |
| - | | |
| - | |
Notes payable – noncurrent | |
| 11,177,975 | | |
| 13,483,375 | |
Total liabilities | |
| 25,042,001 | | |
| 22,579,234 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES (Note 13) | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDER’S EQUITY (DEFICIT) | |
| | | |
| | |
Common stock - Class A, $0.0001 par value, 100 million shares authorized, 1,044,055 and 70,421 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively. | |
| 104 | | |
| 7 | |
Common stock - Class B, $0.0001 par value, 20 million shares authorized, 3,891,500 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively. | |
| 389 | | |
| 389 | |
Convertible series A preferred stock, $0.0001 par value, 1 million shares authorized, 27,229 and 403,640 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively. | |
| 3 | | |
| 40 | |
Additional paid in capital | |
| 25,129,506 | | |
| 20,426,562 | |
Accumulated deficit | |
| (28,244,320 | ) | |
| (21,215,257 | ) |
Total stockholder’s equity (deficit) | |
| (3,114,318 | ) | |
| (788,259 | ) |
Total liabilities and stockholder’s equity (deficit) | |
$ | 21,927,683 | | |
$ | 21,790,975 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
Inspire Veterinary Partners, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements
of Operations
| |
For the Three Months Ended
June 30, | | |
For the Six Months Ended
June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Service revenue | |
$ | 3,220,238 | | |
$ | 3,200,694 | | |
$ | 6,765,837 | | |
$ | 6,273,579 | |
Product revenue | |
| 1,170,143 | | |
| 1,288,732 | | |
| 2,456,111 | | |
| 2,498,362 | |
Total revenue | |
| 4,390,381 | | |
| 4,489,426 | | |
| 9,221,948 | | |
| 8,771,941 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Cost of service revenue (exclusive of depreciation and amortization, shown separately below) | |
| 2,428,740 | | |
| 2,333,844 | | |
| 5,137,887 | | |
| 4,641,747 | |
Cost of product revenue (exclusive of depreciation and amortization, shown separately below) | |
| 935,997 | | |
| 898,730 | | |
| 1,952,104 | | |
| 1,778,130 | |
General and administrative expenses | |
| 2,218,734 | | |
| 1,885,801 | | |
| 5,092,077 | | |
| 3,687,460 | |
Debt extinguishment loss | |
| 859,584 | | |
| - | | |
| 1,587,862 | | |
| - | |
Depreciation and amortization | |
| 340,926 | | |
| 304,016 | | |
| 708,123 | | |
| 602,508 | |
Total operating expenses | |
| 6,783,981 | | |
| 5,422,391 | | |
| 14,478,053 | | |
| 10,709,845 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (2,393,600 | ) | |
| (932,965 | ) | |
| (5,256,105 | ) | |
| (1,937,904 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses): | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| - | | |
| 5 | | |
| 2 | | |
| 6 | |
Interest expense | |
| (988,053 | ) | |
| (285,376 | ) | |
| (1,547,342 | ) | |
| (830,811 | ) |
Other expenses | |
| (4,768 | ) | |
| (9,458 | ) | |
| (4,768 | ) | |
| 1,966 | |
Total other expenses | |
| (992,821 | ) | |
| (294,829 | ) | |
| (1,552,108 | ) | |
| (828,839 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (3,386,421 | ) | |
| (1,227,794 | ) | |
| (6,808,213 | ) | |
| (2,766,743 | ) |
| |
| | | |
| | | |
| | | |
| | |
Benefit for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (3,386,421 | ) | |
| (1,227,794 | ) | |
| (6,808,213 | ) | |
| (2,766,743 | ) |
Dividend on convertible series A preferred stock | |
| (6,330 | ) | |
| - | | |
| (220,850 | ) | |
| - | |
Net loss attributable to class A and B common stockholders | |
| (3,392,751 | ) | |
| (1,227,794 | ) | |
$ | (7,029,063 | ) | |
$ | (2,766,743 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per Class A and B common shares: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.70 | ) | |
$ | (0.28 | ) | |
$ | (1.56 | ) | |
$ | (0.64 | ) |
Weighted average shares outstanding per Class A and B common shares: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 4,821,424 | | |
| 4,309,705 | | |
| 4,508,452 | | |
| 4,309,705 | |
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Inspire Veterinary Partners, Inc.
and Subsidiaries
Unaudited Condensed Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
| |
Convertible
Series A
Preferred Stock | | |
Class
A
Common Stock | | |
Class
B
Common Stock | | |
Additional | | |
Accumulated | | |
Stockholders’ | |
| |
No.
of
Shares | | |
Amount | | |
No.
of
Shares | | |
Amount | | |
No.
of
Shares | | |
Amount | | |
Paid-in
Capital | | |
Deficit
(As Restated) | | |
Deficit
(As Restated) | |
Balance
as of December 31, 2022 | |
| - | | |
$ | - | | |
| 9,705 | | |
$ | 1 | | |
| 4,300,000 | | |
$ | 430 | | |
$ | 1,107,536 | | |
$ | (6,243,448 | ) | |
$ | (5,135,481 | ) |
Issuance
of warrants to CEO | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,701 | | |
| - | | |
| 2,701 | |
Net
loss | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,538,949 | ) | |
| (1,538,949 | ) |
Balance
as of March 31, 2023 | |
| - | | |
$ | - | | |
| 9,705 | | |
$ | 1 | | |
| 4,300,000 | | |
$ | 430 | | |
$ | 1,110,237 | | |
$ | (7,782,397 | ) | |
$ | (6,671,729 | ) |
Issuance
of convertible series A preferred stock in exchange for bridge note (contingent upon a qualified offering as of or before September
1, 2023 (See note 8)) | |
| 442,458 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,227,794 | ) | |
| (1,227,794 | ) |
Balance
as of June 30, 2023 | |
| 442,458 | | |
| - | | |
| 9,705 | | |
| 1 | | |
| 4,300,000 | | |
| 430 | | |
| 1,110,237 | | |
| (9,010,191 | ) | |
| (7,899,523 | ) |
| |
Convertible
Series A
Preferred Stock | | |
Class
A
Common Stock | | |
Class
B
Common Stock | | |
Additional | | |
| | |
| |
| |
No.
of
Shares | | |
Amount | | |
No.
of
Shares | | |
Amount | | |
No.
of
Shares | | |
Amount | | |
Paid-in
Capital | | |
Accumulated
Deficit | | |
Stockholders’
Deficit | |
Balance
as of December 31, 2023 | |
| 403,640 | | |
$ | 40 | | |
| 70,421 | | |
$ | 7 | | |
| 3,891,500 | | |
$ | 389 | | |
$ | 20,426,562 | | |
$ | (21,215,257 | ) | |
$ | (788,259 | ) |
Issuance
of class A common stock and pre-funded warrants, net of issuance costs | |
| - | | |
| - | | |
| 28,599 | | |
| 3 | | |
| - | | |
| - | | |
| 3,375,455 | | |
| - | | |
| 3,375,458 | |
Exercise
of pre-funded warrants | |
| - | | |
| - | | |
| 441,989 | | |
| 44 | | |
| - | | |
| - | | |
| (44 | ) | |
| - | | |
| - | |
Issuance
of Class A common stock and pre-funded warrants in connection with commitment shares | |
| - | | |
| - | | |
| 12,143 | | |
| 1 | | |
| - | | |
| - | | |
| 599,999 | | |
| - | | |
| 600,000 | |
Issuance
of convertible series A preferred stock | |
| 20,000 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 199,998 | | |
| - | | |
| 200,000 | |
Issuance
of class A common stock for services | |
| - | | |
| - | | |
| 39,051 | | |
| 4 | | |
| - | | |
| - | | |
| 286,692 | | |
| - | | |
| 286,696 | |
Issuance
of class A common stock in connection with gernal release agreement | |
| - | | |
| - | | |
| 2,460 | | |
| - | | |
| - | | |
| - | | |
| 20,000 | | |
| - | | |
| 20,000 | |
Conversion
of convertible series A preferred stock into class A common stock | |
| (363,725 | ) | |
| (36 | ) | |
| 147,900 | | |
| 15 | | |
| - | | |
| - | | |
| 21 | | |
| - | | |
| - | |
Convertible
series A preferred stock cumulative dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,250 | ) | |
| - | | |
| (2,250 | ) |
Convertible
series A preferred stock dividend | |
| 21,227 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 212,268 | | |
| (212,270 | ) | |
| - | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,421,792 | ) | |
| (3,421,792 | ) |
Balance
as of March 31, 2024 | |
| 81,142 | | |
| 8 | | |
| 742,563 | | |
$ | 74 | | |
| 3,891,500 | | |
$ | 389 | | |
$ | 25,118,701 | | |
$ | (24,849,319 | ) | |
$ | 269,853 | |
Exercise
of pre-funded warrants | |
| - | | |
| - | | |
| 102,500 | | |
| 10 | | |
| - | | |
| - | | |
| (10 | ) | |
| - | | |
| - | |
Conversion
of convertible series A preferred stock into class A common stock | |
| (54,771 | ) | |
| (5 | ) | |
| 198,992 | | |
| 20 | | |
| - | | |
| - | | |
| (15 | ) | |
| - | | |
| - | |
Convertible
series A preferred stock dividend | |
| 858 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10,830 | | |
| (8,580 | ) | |
| 2,250 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,386,421 | ) | |
| (3,386,421 | ) |
Balance
as of June 30, 2024 | |
| 27,229 | | |
| 3 | | |
| 1,044,055 | | |
| 104 | | |
| 3,891,500 | | |
| 389 | | |
| 25,129,506 | | |
| (28,244,320 | ) | |
| (3,114,318 | ) |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Inspire Veterinary Partners, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements
of Cash Flows
| |
Six Months Ended
June 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (6,808,213 | ) | |
$ | (2,766,743 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 688,308 | | |
| 602,508 | |
Amortization of debt issuance costs | |
| 15,825 | | |
| 85,347 | |
Amortization of debt discount | |
| 984,924 | | |
| 488,896 | |
Amortization of operating right of use assets | |
| 266,804 | | |
| 87,911 | |
Issuance of warrants to CEO | |
| - | | |
| 2,701 | |
Issuance of class A common stock for services | |
| 286,696 | | |
| - | |
Loss on debt modification | |
| 1,587,862 | | |
| - | |
Issuance of class A common stock in connection with general release agreement | |
| 20,000 | | |
| - | |
Issuance of Class A common stock and pre-funded warrants in connection with commitment shares | |
| 600,000 | | |
| - | |
Changes in operating assets and liabilities, net of effect of acquisitions: | |
| | | |
| | |
Accounts receivable | |
| (11,147 | ) | |
| (99,217 | ) |
Due from former owners | |
| 32,519 | | |
| 210,804 | |
Inventory | |
| (3,081 | ) | |
| (119,856 | ) |
Refundable income tax | |
| 151,796 | | |
| - | |
Prepaid expenses and other current assets | |
| (1,191,480 | ) | |
| 117,872 | |
Other assets | |
| (61,094 | ) | |
| (94,224 | ) |
Accounts payable | |
| 511,372 | | |
| 1,078,457 | |
Accrued expenses | |
| 82,742 | | |
| (27,291 | ) |
Cumulative Series A preferred stock dividends payable | |
| (92,322 | ) | |
| - | |
Operating lease liabilities | |
| (80,823 | ) | |
| (74,125 | ) |
Net cash used in operating activities | |
| (3,019,312 | ) | |
| (506,960 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| (180,636 | ) | |
| (119,532 | ) |
Purchase of intangible assets | |
| - | | |
| (4,016 | ) |
Net cash used in investing activities | |
| (180,636 | ) | |
| (123,548 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of class A common stock and pre-funded warrants, net of issuance costs | |
| 3,375,458 | | |
| - | |
Net proceeds from loans payable | |
| 1,467,935 | | |
| 1,000,000 | |
Payments on loans payable | |
| (2,440,627 | ) | |
| (229,384 | ) |
Proceeds from issuance of convertible series A preferred stock | |
| 200,000 | | |
| - | |
Proceeds from convertible note payable | |
| 1,000,000 | | |
| - | |
Repayment of note payable | |
| (474,121 | ) | |
| (371,183 | ) |
Proceeds from issuance of convertible debentures | |
| - | | |
| 650,000 | |
Repayment of convertible debentures | |
| (100,000 | ) | |
| - | |
Net cash provided by financing activities | |
| 3,028,645 | | |
| 1,049,433 | |
| |
| | | |
| | |
Net increase (decrease) in Cash, cash equivalents and restricted cash | |
| (171,303 | ) | |
| 418,925 | |
Cash, cash equivalents and restricted cash, beginning of period | |
| 378,961 | | |
| 444,253 | |
Cash, cash equivalents and restricted cash, end of period | |
$ | 207,658 | | |
$ | 863,178 | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow Information | |
| | | |
| | |
Interest payments during the year | |
$ | 1,552,313 | | |
$ | 188,952 | |
Income tax refund | |
$ | 151,796 | | |
$ | - | |
| |
| | | |
| | |
Noncash investing and financing activity | |
| | | |
| | |
Series A Preferred Stock Dividend | |
$ | 220,850 | | |
$ | - | |
The accompanying notes are an integral
part of these consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2024
| 1. | Description
of Business |
Business Description
Inspire Veterinary Partners, Inc. (the
“Company” or “Inspire”) is a C-corporation which incorporated in the state of Delaware on December 2, 2020. On
June 29, 2022, the Company converted into a Nevada C-corporation (“Conversion”). The Conversion did not result in any change
in the corporate name, business, management fiscal year, accounting, location of the principal executive officer, capitalization structure,
or assets or liabilities of the Company. The Company owns and operates veterinary hospitals throughout the United States. The Company
specializes in small animal general practice hospitals which serve all manner of companion pets, emphasizing canine and feline breeds.
As the Company expands, additional
modalities are becoming a part of the offerings at its hospital, including equine care. With 14 clinics located in 10 states as of the
date of this filing, Inspire purchases existing hospitals which have the financial track record, marketplace advantages and future growth
potential to make them worthy acquisition targets. Because the company leverages a leadership and support structure which is distributed
throughout the United States, acquisitions are not centralized to one geographic area. The Company operates its business as one operating
and one reportable segment.
Services provided at owned hospitals
include preventive care for companion animals consisting of annual health exams which include: parasite control; dental health; nutrition
and body condition counseling; neurological examinations; radiology; bloodwork; skin and coat health and many breed specific preventive
care services. Surgical offerings include all soft tissue procedures such as spays and neuters, mass removals, splenectomies and can
also include gastropexies, orthopedic procedures and other types of surgical offerings based on a doctor’s training. In many locations
additional means of care and alternative procedures are also offered such as acupuncture, chiropractic and various other health and wellness
offerings.
The Company is the managing member
of IVP Practice Holdings Co., LLC (“Holdco”), a Delaware limited liability company, which is the managing member of IVP CO
Holding, LLC (“CO Holdco”), a Delaware limited liability company, IVP FL Holding Co., LLC (“FL Holdco”), a Delaware
limited liability company, IVP Texas Holding Company, LLC (“TX Holdco”), a Delaware limited liability company, KVC Holding
Company, LLC (“KVC Holdco”), a Hawaii limited liability company, and IVP CA Holding Co., LLC (“CA Holdco”), a
Delaware limited liability company, IVP MD Holding Company, LLC (“MD Holdco”), a Delaware limited liability company, IVP
OH Holding (“OH Holdco”), Co, LLC, a Delaware limited liability company, IVP IN Holding Co., LLC (“IN Holdco”),
a Delaware limited liability company, IVP MA Managing Co., LLC, a Delaware limited liability company (“MA Holdco”), and IVP
PA Holding Company, LLC, a Delaware limited liability company (“PA Holdco”). The Company through Holdco, operates and controls
all business and affairs of CO Holdco, FL Holdco, TX Holdco, KVC Holdco, CA Holdco, MD Holdco. Holdco, OH Holdco, IN Holdco, MA Holdco
and PA Holdco is used to acquire hospitals in various states and jurisdictions.
The Company is the managing member
of IVP Real Estate Holding Co., LLC (“IVP RE”), a Delaware limited liability company, which is the managing member of IVP
CO Properties, LLC (“CO RE”), a Delaware limited liability company, IVP FL Properties, LLC (“FL RE”), a Delaware
limited liability company, IVP TX Properties, LLC (“TX RE”), a Delaware limited liability company, KVC Properties, LLC, (“KVC
RE”), a Hawaii limited liability company, IVP CA Properties, LLC (“CA RE”), a Delaware limited liability company, IVP
MD Properties, LLC (“MD RE”), a Delaware limited liability company, IVP OH Properties, LLC (“OH RE”), a Delaware
limited liability company, IVP IN Properties, LLC (“IN RE”), a Delaware limited liability company, and IVP PA Properties,
LLC (“PA RE”), a Delaware limited liability company. The Company through IVP RE operates and controls all business and affairs
of CO RE, FL RE, TX RE, KVC RE, CA RE, MD RE, OH RE, IN RE and PA RE. IVP RE is used to acquire real property in various states and jurisdictions.
Initial Public Offering
On August 31, 2023, we closed our IPO
of 16,000 shares of class A common stock, at a public price of $400.00 per share. The total net proceeds we received in the IPO were
approximately $5.4 million after deducting underwriting discounts and commissions of $512,000 and offering expenses of $448,429. The
Company’s class A common shares are traded on the Nasdaq Capital Market (“NASDAQ”) under the symbol IVP.
| 2. | RETROSPECTIVE
ADJUSTMENTS |
On May 8, 2024, the Company effected
a 100-for-1 reverse stock split (“Reverse Split”) of the Company’s authorized and outstanding shares of Class A common
stock. All information included in these financial statements have been adjusted, on a retrospective basis for all periods presented
to reflect the Reverse Split, unless otherwise stated.
| 3. | Significant
Accounting Policies and Basis of Presentation |
Basis of Presentation
The accompanying unaudited interim
condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the
related notes thereto for the year ended December 31, 2023, which are included with the Company’s Annual Report on Form 10-K and
related amendments filed with the United States Securities Exchange Commission (“SEC”). Furthermore, the Company’s
significant accounting policies are disclosed in the audited consolidated financial statements for the years ended December 31, 2023
and 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC. Since the date of those audited consolidated
financial statements, there have been no changes to the Company’s significant accounting policies, except as noted below.
The accompanying unaudited interim
condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United
States of America (“GAAP”) for interim financial information. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP have been condensed or omitted. Any reference in these notes to applicable
guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended
by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying
unaudited interim condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal
recurring adjustments, necessary to fairly present the Company’s financial position, results of operations, and cash flows. The
December 31, 2023, condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP
disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results
for the full year.
Going Concern
These financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred recurring losses and as of June 30, 2024, had an accumulated deficit of $28,244,320. For the three
and six months ending June 30, 2024, the Company sustained a net loss of $3,386,421 and $6,808,213, respectively. These factors, among
others, raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the
date these financial statements were issued. These financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company
be unable to continue as a going concern. The Company’s continuation as a going concern is contingent upon its ability to obtain
additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. The Company will continue to seek
to raise additional funding through debt or equity financing during the next twelve months from the date of issuance of these financial
statements. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company
to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.
Principles of Consolidation
The accompanying unaudited condensed
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the
reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable and Allowance
for Expected Credit Losses
Accounts receivable consist of amounts
due from veterinary customers. The Company records an allowance for current expected credit losses for estimated losses inherent in its
trade accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted for current
market conditions, the financial condition of the customer, the amount of receivables in dispute, and the current receivables aging and
payment patterns. The Company does not have any off-balance sheet credit exposure related to its customers. The allowance for current
expected credit losses was $200,247 and $123,513 as of June 30, 2024 and December 31, 2023.
Basic and Diluted
Net Loss Per Share
Basic net loss per common share is
computed by dividing net loss by the weighted-average number of common shares outstanding during each period. Diluted net loss per share
of common shares includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, share
options and warrants, which would result in the issuance of incremental shares of common shares. For diluted net loss per share, the
weighted-average number of common shares is the same for basic net loss per share due to the fact that when a net loss exists, dilutive
securities are not included in the calculation as the impact is anti-dilutive. For all periods presented, basic and diluted net loss
per share are the same, as any additional share equivalents would be anti-dilutive. As the Company has reported a net loss for all periods
presented, diluted net loss per common share is the same as basic net loss per common share.
The following outstanding potentially
dilutive Common Shares equivalents were excluded from the computation of diluted net loss per share for the periods presented because
including them would have been antidilutive:
| |
June 30, | |
| |
2024 | | |
2023 | |
Warrants | |
| 28,540 | | |
| 8,916 | |
Convertible Series A Preferred Shares | |
| 172,335 | | |
| - | |
Total | |
| 200,875 | | |
| 8,916 | |
Emerging Growth Company Status
The Company is an Emerging Growth Company,
as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS
Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to
the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended
transition period for complying with new or revised accounting standards that have different effective dates for public and private companies
until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the
extended transition period provided in the JOBS Act. As a result, these unaudited condensed consolidated financial statements may not
be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
As of June 30, 2024, and
December 31, 2023, property and equipment, net, consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2024 | | |
2023 | |
Land | |
$ | 1,983,810 | | |
$ | 1,983,810 | |
Buildings | |
| 4,607,874 | | |
| 4,607,874 | |
Computers and equipment | |
| 1,449,465 | | |
| 1,425,774 | |
Furniture and fixtures | |
| 143,874 | | |
| 143,874 | |
Automobile | |
| 101,269 | | |
| 101,269 | |
Leasehold improvements | |
| 656,255 | | |
| 499,310 | |
Total PP&E | |
| 8,942,547 | | |
| 8,761,911 | |
Less - accumulated depreciation | |
| (1,093,276 | ) | |
| (812,767 | ) |
Property and Equipment, net | |
$ | 7,849,271 | | |
$ | 7,949,144 | |
Depreciation expense for three months
ended June 30, 2024 and 2023 were $141,141 and $121,330, respectively. Depreciation expense for six months ended June 30, 2024 and
2023 were $280,509 and $240,726, respectively.
| 5. | Goodwill
and Intangible Assets |
The following summarizes the Company’s
intangibles assets as of June 30, 2024 and December 31, 2023:
| |
June 30, | | |
December 31, | |
| |
2024 | | |
2023 | |
Client List | |
$ | 2,071,000 | | |
$ | 2,071,000 | |
Noncompete Agreement | |
| 398,300 | | |
| 398,300 | |
Trademark | |
| 1,117,200 | | |
| 1,117,200 | |
Other Intangible Assets | |
| 45,836 | | |
| 45,836 | |
Accumulated amortization | |
| (1,527,107 | ) | |
| (1,119,308 | ) |
| |
$ | 2,105,229 | | |
$ | 2,513,028 | |
Amortization expense was $199,785 and
$183,211 for the three months ended June 30, 2024 and 2023, respectively, and $407,799 and $363,812 for the six months ended June 30,
2024 and 2023, respectively.
Expected future amortization expense
of intangible assets as of June 30, 2024, is as follows:
Remainder of 2024 | |
$ | 378,977 | |
2025 | |
| 664,166 | |
2026 | |
| 600,139 | |
2027 | |
| 379,382 | |
2028 | |
| 82,565 | |
| |
$ | 2,105,229 | |
Valley Veterinary Service
On November 8, 2023, the Company acquired
the animal hospital and related assets of Valley Veterinary Service, Inc., a Pennsylvania corporation (“Valley Vet Practice”)
by entering into an Asset Purchase Agreement (“Valley Vet APA”) with Michelle Bartus, VMD and Peter Nelson, VMD (“Valley
Vet”) in exchange for the payment of $800,000 in cash, issuance of restricted shares of the Company’s Class A common stock
equal to the quotient obtained by dividing $400,000 by the official closing price of one share of Class A common stock as reported by
the Nasdaq Capital Market on the trading date immediately prior to the closing and a holdback agreement for $200,000 in cash that may
be paid out at the end of the two year period following the acquisition based on continued employment by the two former owners and revenue
targets for year 1 and year 2 following the effective date of the acquisition, which is not included in the consideration transferred
through the Company’s wholly owned subsidiary IVP PA Holding Company, LLC. Simultaneously, the real estate operations (land and
building) utilized by the Valley Vet animal hospital were purchased through a Real Estate Purchase Agreement in exchange for $590,000
from Valley Vet through the Company’s wholly owned subsidiary, IVP PA Properties, LLC.
The total consideration paid for the
combined acquisitions from the Valley Vet animal hospital in the amount of $1,790,000 was accounted for as single business combinations,
in accordance with ASC Topic 805. The Company will record the assets acquired and liabilities assumed at their respective fair values
as of the acquisition date. Due to the timing of the acquisition, the Company’s purchase accounting related to the valuation of
the inventory, fixed assets, intangible assets, goodwill and liabilities assumed is not yet complete and subject to revision.
Consideration: | | | |
Cash paid prior to the time of closing | | $ | 1,390,000 | |
Convertible Note Payable | | | 400,000 | |
Acquisition costs included in general and administrative | | | 39,535 | |
| | | | |
Recognized amounts of identifiable assets acquired | | | | |
Inventory | | | 74,405 | |
Building | | | 445,786 | |
Land | | | 144,214 | |
Furniture, fixtures & equipment | | | 64,058 | |
Trademark (5-year life) | | | 264,500 | |
Non-compete agreement (2-year life) | | | 44,000 | |
Client list (5-year life) | | | 220,000 | |
Total identifiable net assets assumed | | | 1,256,963 | |
Goodwill | | | 533,037 | |
Total | | $ | 1,790,000 | |
Pro-Forma Financial Information
(Unaudited)
The following unaudited pro forma information
presents the consolidated results of Valley Vet Practice included in the Company’s consolidated statement of operations for the
three and six months ended June 30, 2023, as if the acquisitions were made on January 1, 2023. The unaudited pro forma information is
presented for illustrative purposes only. It is not necessarily indicative of the results of operations of future periods, or the results
of operations that actually would have been realized had the entities been a single company during the periods presented or the results
that the combined company will experience after the acquisition. The unaudited pro forma information does not give effect to the potential
impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that
may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs or remaining
future transaction costs that the companies may incur related to the acquisition as part of combining the operations of the companies.
As a result of the adjustment, $4,954 and $9,908 of amortization expense for the acquired intangible assets was applied in calculating
the Net Loss, for the three and six months ended June 30, 2023.
The unaudited pro forma consolidated
results of operations, assuming the acquisitions had occurred on January 1, 2023, are as follows:
| |
For the
Three months
ended | | |
For the
Six months
ended | |
| |
June 30,
2023 | | |
June 30,
2023 | |
Revenue | |
$ | 4,390,219 | | |
$ | 9,653,527 | |
Net income (loss) | |
| (1,176,956 | ) | |
| (2,665,068 | ) |
Master Lending and Credit
Facility
On June 25, 2021, the Company entered
into a master line of credit loan agreement (“MLOCA”) with Wealth South a division of Farmers National Bank of Danville,
Kentucky (“FNBD”). The MLOCA provides for a $2,000,000 revolving secured credit facility (“Revolving Line”) to
be drawn for the initial purchase of veterinary clinical practices (“Practices”) and a $8,000,000 closed end line of credit
(“Closed End Line”) to be disbursed as individual loans (Term Loans) to paydown draws on the Revolving Line and to provide
longer term financing of the purchase of Practices. Each draw on the Revolving Line shall be repaid with a Term Loan out of the Closed
End Line within one hundred and twenty (120) days of the draw on the Revolving Line. Each draw on the Revolving Line and the Closed End
Line shall not exceed eighty-five (85%) percent of the purchase price of the Practice. The Company shall contribute and maintain equity
of a minimum of fifteen (15%) percent of the initial purchase price of a Practice as long as any draw on the Revolving Line or a Term
Loan remains unpaid with FNBD. The Revolving Line has an interest rate equal to the New York Prime Rate plus 0.50% that shall never be
less than 3.57%. Each Term Loan issued under the Closed End Line shall have a fixed interest rate of 3.98% for the first five years of
the loan. Immediately following the fixed rate period, the rate of interest rate will equal to the New York Prime Rate plus 0.65% that
shall never be less than 3.57%. Each Practice to be acquired must have a minimum projected debt-service coverage ratio (“DSCR”)
of 1.0x, defined as earnings before interest depreciation and amortization (“EBIDA”)/Annual Debt Service Requirement. The
MLOCA terminates and the Revolving Line matures on June 25, 2023.
Under the MLOCA the Term Loans to acquire
a Practice shall not exceed 10 years. The first twelve months of the Term Loan may be interest only. Thereafter, the Loan will convert
to an amortizing loan with monthly principal and interest payments. For Practice only Term Loans (“Practice Term Loans”),
after the initial twelve-month interest only period, the balance will amortize over 9 years. For Loans made to purchase real property
(“RE Term Loans”), after the initial twelve-month interest only period, the balance will amortize over a 19-year period.
There is no prepayment penalty on payments
on the Revolving Line. The Term Loans are subject to a refinance fee of 2% of the then outstanding principal balance of the Term Loan
if paid within two years of entering into the Term Loan and 1% of the then outstanding principal balance of the Term Loan if paid within
three to five years of entering into the Term Loan. The refinance fee is due only if the Term Loan is paid off by refinancing. Borrowing
under the MLOCA are guaranteed by Kimball Carr, CEO & President of the Company.
On August 18, 2022 the MLOCA was amended
and restated to terminate the revolving feature on the Revolving Line and convert the line of credit to a closed end draw note (“Closed
End Draw Note”) that mature on August 18, 2024. Each draw on the Closed End Draw Note shall not exceed eighty-five (85%) percent
of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen (15%) percent of the
initial purchase price of a Practice as long as any draw on the Closed End Draw Note or a Term Loan remains unpaid with FNBD. The interest
rate charge on all sums advance under the amended and restated MLOCA shall be 5.25% for the first five years of the loan. Immediately
following the fixed rate period, the rate of interest will be equal to the New York Prime Rate plus 0.65% that shall never be less than
4.75%. Each Practice to be acquired must have a minimum projected DSCR of 1.0x, defined as EBIDA/Annual Debt Service Requirement. The
MLOCA terminates and the Closed End Draw Note matures on August 18, 2024.
Notes payable to FNBD as of June 30,
2024 and December 31, 2023 consisted of the following:
Original Principal | | | Acquisition | | Entered | | Maturity | | Interest | | | June 30, 2024 | | | December 31, 2023 | | | Issuance Cost | |
$ | 237,272 | | | CAH | | 12/27/21 | | 12/27/41 | | | 3.98 | % | | $ | 224,425 | | | $ | 228,785 | | | $ | 6,108 | |
| 231,987 | | | CAH | | 12/27/21 | | 12/27/31 | | | 3.98 | % | | | 198,925 | | | | 210,161 | | | | 6,108 | |
| 216,750 | | | P&F | | 12/27/21 | | 12/27/41 | | | 3.98 | % | | | 205,014 | | | | 208,997 | | | | 5,370 | |
| 318,750 | | | P&F | | 12/27/21 | | 12/27/31 | | | 3.98 | % | | | 273,324 | | | | 288,761 | | | | 5,370 | |
| 817,135 | | | Pasco | | 1/14/22 | | 1/14/32 | | | 3.98 | % | | | 707,294 | | | | 746,733 | | | | 3,085 | |
| 478,098 | | | Lytle | | 3/15/22 | | 3/15/32 | | | 3.98 | % | | | 421,668 | | | | 444,593 | | | | 1,898 | |
| 663,000 | | | Lytle | | 3/15/22 | | 3/15/42 | | | 3.98 | % | | | 633,329 | | | | 645,392 | | | | 11,875 | |
| 425,000 | | | Kern | | 3/22/22 | | 3/22/42 | | | 3.98 | % | | | 405,980 | | | | 413,713 | | | | 7,855 | |
| 1,275,000 | | | Kern | | 3/22/22 | | 3/22/32 | | | 3.98 | % | | | 1,124,511 | | | | 1,185,648 | | | | 4,688 | |
| 246,500 | | | Bartow | | 5/18/22 | | 5/18/42 | | | 3.98 | % | | | 236,974 | | | | 241,429 | | | | 5,072 | |
| 722,500 | | | Bartow | | 5/18/22 | | 5/18/32 | | | 3.98 | % | | | 648,851 | | | | 683,262 | | | | 2,754 | |
| 382,500 | | | Dietz | | 6/15/22 | | 6/15/32 | | | 3.98 | % | | | 346,552 | | | | 364,708 | | | | 1,564 | |
| 445,981 | | | Aberdeen | | 7/19/22 | | 7/29/32 | | | 3.98 | % | | | 407,649 | | | | 428,747 | | | | 1,786 | |
| 1,020,000 | | | All Breed | | 8/12/22 | | 8/12/42 | | | 3.98 | % | | | 989,792 | | | | 1,008,039 | | | | 8,702 | |
| 519,527 | | | All Breed | | 8/12/22 | | 8/12/32 | | | 3.98 | % | | | 478,978 | | | | 503,471 | | | | 3,159 | |
| 225,923 | | | All Breed | | 8/12/22 | | 8/12/32 | | | 5.25 | % | | | 209,262 | | | | 219,347 | | | | 3,159 | |
| 637,500 | | | Williamsburg | | 12/8/22 | | 12/8/32 | | | 5.25 | % | | | 609,544 | | | | 637,500 | | | | 2,556 | |
| 850,000 | | | Valley Vet | | 11/8/23 | | 11/8/33 | | | 5.25 | % | | | 850,000 | | | | 850,000 | | | | 3,315 | |
$ | 9,713,423 | | | | | | | | | | | | | $ | 8,972,072 | | | $ | 9,309,286 | | | $ | 84,424 | |
The Company amortized $1,543 and $2,069
of issuance cost in the aggregate during the three months ending June 30, 2024 and 2023, respectively. The Company amortized $3,086 and
$4,151 of issuance cost in the aggregate during the six months ending June 30, 2024 and 2023, respectively, for the FNBD notes payable.
FSB Commercial Loans
The Company entered into three separate
commercial loans with First Southern National Bank (“FSB”) as part of the acquisition. The first commercial loan in the amount
of $1,105,000 has a fixed interest rate of 4.35% and a maturity date of January 25, 2024. The fixed rate loan has monthly payments of
$6,903 and a full payoff of the remaining principal balance at maturity. The commercial loan had issuance costs of $13,264 that was capitalized
and is being amortized straight line over the life of the loan. The Company entered into a Forbearance Agreement that extended the maturity
date to August 31, 2024 and required the lender to make monthly payments of $9,016 and increased the interest rate to 8.15% per annum.
The second commercial loan with FSB
entered into on January 11, 2021 in the amount of $1,278,400 has a fixed interest rate of 4.35% and a maturity date of January 25, 2024.
The fixed rate loan has monthly payments of $13,157 and a full payoff of the remaining principal balance at maturity. The commercial
loan had issuance costs of $10,085 that was capitalized and is being amortized straight line over the life of the loan. The Company entered
into a Forbearance Agreement that extended the maturity date to August 31, 2024 and required the lender to make monthly payments of $14,898
and increased the interest rate to 8.15% per annum.
The third commercial loan with FSB
entered into on January 11, 2021 in the amount of $450,000 has a fixed interest rate of 5.05% and a maturity date of September 11, 2021.
The commercial loan was modified on August 25, 2021 to extend the maturity date to February 25, 2023 and increase the principal amount
to $469,914. The fixed rate loan had monthly payments of $27,164 and was fully paid off on the maturity date. The commercial loan had
issuance costs of $753 that was capitalized and is being amortized straight line over the life of the loan.
On October 31, 2022 the Company entered
into three separate commercial loans with FSB as part of the Pony Express Practice acquisition. The first loan with FSB that was entered
into on October 31, 2022, was in the amount of $2,086,921. The loan has a fixed interest rate of 5.97% and a maturity date of October
31, 2025. The fixed rate loan has monthly payments of $23,138 except for a final monthly payment of $1,608,530. The commercial loan had
issuance costs of $25,575 that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered
into on October 31, 2022, was in the amount of $400,000. The loan has a fixed interest rate of 5.97% and a maturity date of October 31,
2042. The fixed rate loan has monthly payments of $2,859. The commercial loan had issuance costs of $3,277 that was capitalized and is
being amortized straight line over the life of the loan.
The third loan with FSB that was entered
into on October 31, 2022, was in the amount of $700,000. The loan has a fixed interest rate of 6.75% and a maturity date of April 1,
2023. The fixed rate loan has monthly payments of $6,903 except for a final monthly payment of $423,278. The commercial loan did not
have any issuance costs that were capitalized.
On December 16, 2022, the Company entered
into two separate commercial loans with FSB as part of the Old 41 Practice acquisition. The first loan with FSB that was entered into
on December 16, 2022, was in the amount of $568,000. The loan has a fixed interest rate of 6.50% and a maturity date of December 16,
2025. The fixed rate loan has monthly payments of $4,772 and a full payoff of the remaining principal balance at maturity. The loan had
issuance costs of $4,531 for the year ended December 31, 2022, that was capitalized and is being amortized straight line over the life
of the loan.
The second loan with FSB that was entered
into December 16, 2022, was in the amount of $640,000. The loan has a fixed interest rate of 6.50% and a maturity date of December 16,
2025. The fixed rate loan has twelve monthly payments of approximately $2,830, followed by monthly payments of $7,443. and the interest
rate is 6.50%. The loan had issuance costs of $5,077 that was capitalized and is being amortized straight line over the life of the loan.
The FSB commercial loans are guaranteed
by Kimball Carr, Chief Executive Officer and President and Charles Stith Keiser, our Vice Chairman and Chief Operating Officer.
Notes payable to FSB as of June 30,
2024 and December 31, 2023 consisted of the following:
Original Principal | | | Acquisition | | Entered | | Maturity | | Interest | | | June 30, 2024 | | | December 31, 2023 | | | Issuance Cost | |
$ | 1,105,000 | | | KVC | | 1/25/21 | | 8/31/24 | | | 4.35 | % | | $ | 993,791 | | | $ | 997,010 | | | $ | 13,264 | |
| 1,278,400 | | | KVC | | 1/25/21 | | 8/31/24 | | | 4.35 | % | | | 951,242 | | | | 960,849 | | | | 10,085 | |
| 469,914 | | | KVC | | 1/25/21 | | 2/25/23 | | | 5.05 | % | | | - | | | | - | | | | 753 | |
| 2,086,921 | | | Pony Express | | 10/31/22 | | 10/31/25 | | | 5.97 | % | | | 1,819,385 | | | | 1,902,452 | | | | 25,575 | |
| 400,000 | | | Pony Express | | 10/31/22 | | 10/31/42 | | | 5.97 | % | | | 381,774 | | | | 387,433 | | | | 3,277 | |
| 568,000 | | | Old 41 | | 12/16/22 | | 12/16/25 | | | 6.5 | % | | | 495,871 | | | | 520,697 | | | | 4,531 | |
| 640,000 | | | Old 41 | | 12/16/22 | | 12/16/25 | | | 6.5 | % | | | 615,390 | | | | 623,861 | | | | 5,077 | |
| 375,000 | | | Valley Vet | | 11/8/2023 | | 11/8/2024 | | | 8.5 | % | | | 375,000 | | | | 375,000 | | | | 6,877 | |
$ | 7,623,235 | | | | | | | | | | | | | $ | 5,632,774 | | | $ | 5,767,302 | | | $ | 69,439 | |
The Company amortized $5,090 and $3,380
of issuance cost in the aggregate during the three months ending June 30, 2024 and 2023, respectively. The Company amortized $10,180
and $6,781 of issuance cost in the aggregate during the six months ending June 30, 2024 and 2023, respectively, for the FSB notes payable.
Notes payable as of June 30, 2024 and
December 31, 2023 consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2024 | | |
2023 | |
FNBD Notes Payable | |
$ | 8,972,072 | | |
$ | 9,309,286 | |
FSB Notes Payable | |
| 5,632,453 | | |
| 5,767,302 | |
Total notes payable | |
| 14,604,525 | | |
| 15,076,588 | |
Unamortized debt issuance costs | |
| (110,403 | ) | |
| (124,170 | ) |
Notes payable, net of issuance cost | |
| 14,494,122 | | |
| 14,952,418 | |
Less current portion | |
| (3,316,147 | ) | |
| (1,469,043 | ) |
Long-term portion | |
$ | 11,177,975 | | |
$ | 13,483,375 | |
Notes payable repayment requirements
as of June 30, 2024, in the succeeding years are summarized as follows:
Remainder of 2024 | |
$ | 2,796,379 | |
2025 | |
| 3,610,465 | |
2026 | |
| 835,031 | |
2027 | |
| 872,072 | |
2028 | |
| 909,759 | |
Thereafter | |
$ | 5,580,819 | |
Total | |
$ | 14,604,525 | |
Bridge Note
In December 2021, the Company entered
into two bridge loans in the aggregate amount of $2,500,000 with Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund as
short term secured convertible notes (“Bridge Note”). The Bridge Note is convertible into the Company’s common stock,
at the time of a successful initial public offering (“IPO”) at the noteholder’s option, at a 35% discount to the IPO
price. The Bridge Note has a face value of $2,500,000 with an original issue discount (“OID”) of 12% and has a maturity date
of January 24, 2023. The OID of $300,000 is being amortized over the life of the loan. If the Company has not issued the Company’s
common stock in an initial public offering pursuant to a registration statement filed with and declared effective by the Securities and
Exchange Commission (“SEC”) and the listing of the common stock on a “national securities exchange” as defined
in Section 6 of the Securities Exchange Act of 1934, as amended (“Qualified financing”) by January 24, 2023 the conversion
price will be set at a 40% discount to the IPO price. The Bridge Note was funded in two installments of net proceeds of $1,100,000 in
December 2021 and the second installment January 2022. The bridge loans had issuance costs of $70,500 for the first installment and $54,000
for the second installment that is amortized straight line over the life of the loan. The Company amortized $0 and $62,758 of issuance
cost during the three months ended June 30, 2024 and 2023, respectively. The Company amortized $0 and $62,758 of issuance cost during
the six months ended June 30, 2024 and 2023.
In conjunction with the Bridge Note
the Company issued warrants on January 24, 2022 to Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund (collectively the
“Bridge Lenders”). The warrants entitled the Bridge Lenders to purchase the Company’s Class A common stock, at a purchase
price equal to the per share price in an IPO. The quantity of the Company’s common stock of subject to purchase upon exercise of
the warrants is equal to 50% of the face value of the Bridge Note, divided by the per-share price in the Qualified Financing, unless
a Qualified Financing has not been completed by January 24, 2023 in which case the quantity of Class A common stock subject to purchase
upon exercise of the warrants will be an amount equal to 75% of the face value of the Bridge Note divided by the per-share price in the
Qualified Financing. If a Qualified Financing has not consummated or the Bridge Note has not been repaid in full on or before January
24, 2027, then the quantity of common stock subject to purchase upon exercise of the warrants will be an amount equal to 100% of the
face value divided by the per-share price equal to the fair market value of one share of Class A common stock as mutually agreed by the
Holder and the Company. The warrants are exercisable through the fifth anniversary of the issuance date. The warrants may be redeemed
at the option of the Company at any time following a Qualified Financing if the Company’s common stock trade on a national securities
exchange at a price equal to the purchase price of the Company’s common stock in the Qualified Financing multiplied by 2 for a
period of ten consecutive trading days.
On November 18, 2022, the Company entered
into an Original Issue Discount Secured Convertible Note loan with Target Capital 1, LLC for $1,136,364. The note is issued at an original
issue discount of 12% with an maturity date on the earlier of March 31, 2023 (“Initial Maturity Date”) or the Company’s
sale of its common stock in an initial public offering pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission and the listing of the common stock on a “national securities exchange” as defined in
Section 6 of the Securities Exchange Act of 1934, as amended (“Qualified Financing” or the “Maturity Date”).
If the Company has filed its Form S-1 Registration Statement with the SEC on or prior to the Initial Maturity Date but the Qualified
Financing has not closed by such date (“Automatic Extension”) then all principal and accrued interest under this Note shall
become due and payable in cash on September 30, 2023 (the “Final Maturity Date”) or such earlier date as this note is required
be repaid. The note bears an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic
Extension, this note shall commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of
the Automatic Extension until the note is converted or is paid in full. The Company may pay the full principal amount of this note, and
all accrued but unpaid interest at any time prior to the Maturity Date without the prior written consent of the holder in the principal
amount of $1,136,364, plus all accrued but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required
to pay this note in cash at the on or after the Initial Maturity Date due to, upon the closing date of a Qualified Financing, the Company
shall pay to the holder $1,136,364, plus all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation
of an Event of Default (as defined in the note), until the Event of Default is cured, or the note is repaid in full, Company will pay
20% of its total gross revenues (including that of all its subsidiaries) monthly, which shall be applied to payment of principal and
interest under this this note. The conversion price (the “Conversion Price”) shall be equal to the price paid by the public
in the Company’s Qualified Financing multiplied by 0.65 (or 0.60, from and after any Automatic Extension).
In conjunction with the Original Issue
Discount Secured Convertible Note with Target Capital 1, LLC the company issued the holder 412 shares of Class A common stock and equity
classified warrants that entitle the holder to purchase the Company’s common stock at a purchase price equal to the per share price
in an IPO. The quantity of the Company’s common stock of subject to purchase upon exercise of the warrants is equal to 50% of the
face value of the Bridge Note, divided by the per-share price in the Qualified Financing, unless a Qualified Financing has not been completed
by March 31, 2023 in which case the quantity of Class A common stock subject to purchase upon exercise of the warrants will be an amount
equal to 75% of the face value of the Bridge Note divided by the per-share price in the Qualified Financing.
On November 18, 2022, the Company entered
into an Original Issue Discount Secured Convertible Note with 622 Capital LLC for $568,182. The note is issued at an original issue discount
of 12% with an maturity date on the earlier of January 24, 2023 (the “622 Initial Maturity Date”) or the Company’s
sale of its common stock in an initial public offering pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission and the listing of the common stock on a “national securities exchange” as defined in
Section 6 of the Securities Exchange Act of 1934, as amended (“Qualified Financing” or the “622 Maturity Date”).
If the Company has filed its Form S-1 Registration Statement with the SEC on or prior to the 622 Initial Maturity Date but the Qualified
Financing has not closed by such date (“Automatic Extension”) then all principal and accrued interest under this note shall
become due and payable in cash on July 24, 2023 (the “622 Final Maturity Date”) or such earlier date as this note is required
be repaid. The note bears an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic
Extension, this note shall commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of
the Automatic Extension until the note is converted or is paid in full. The Company may pay the full principal amount of this note and
all accrued but unpaid interest at any time prior to the 622 Maturity Date without the prior written consent of the holder in the principal
amount of $568,182, plus all accrued but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required
to pay this note in cash at the on or after the 622 Initial Maturity Date due to, upon the closing date of Qualified Financing, the Company
shall pay to the holder $568,182, plus all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation
of an Event of Default (as defined in the note), until the Event of Default is cured or the note is repaid in full, Company will pay
20% of its total gross revenues (including that of all its subsidiaries) monthly, which shall be applied to payment of principal and
interest under this this note. The conversion price (the “Conversion Price”) shall be equal to the price paid by the public
in the Company’s Qualified Financing multiplied by 0.65 (or 0.60, from and after any Automatic Extension).
In conjunction with the Original Issue
Discount Secured Convertible Note with 662 Capital LLC the company issued the holder equity classified warrants that entitle the holder
to purchase the Company’s common stock at a purchase price equal to the per share price in an IPO. The quantity of the Company’s
common stock of subject to purchase upon exercise of the warrants is equal to 50% of the face value of the Bridge Note, divided by the
per-share price in the Qualified Financing, unless a Qualified Financing has not been completed by March 31, 2023 in which case the quantity
of Class A common stock subject to purchase upon exercise of the warrants will be an amount equal to 75% of the face value of the Bridge
Note divided by the per-share price in the Qualified Financing.
The warrants were deemed legally detachable
from the Bridge Note and were fair valued using the Black Scholes Method to determine the relative fair values of the Bridge Note and
the detachable warrants. The significant inputs for the Black Scholes calculation included the exercise price and common share price
of $0.44, volatility rate of 27% and risk-free rate of 1.53% with a 5 year term. The proceeds received for the Bridge Note were allocated
to the detached warrants based on the relative fair values. Pursuant to ASC 470 the relative fair value of the warrants attributable
to a discount on debt is $429,284; this is amortized to interest expense on a straight-line basis over the term of the loan.
A roll forward of the bridge note for
the six months ended June 30, 2023 is below:
Bridge notes, December 31, 2022 | |
| 3,899,156 | |
Amortization of original issue discount | |
| 116,656 | |
Amortization of warrant discount | |
| 125,975 | |
Amortization of debt issuance costs | |
| 62,758 | |
Bridge notes, March 31, 2023 | |
| 4,204,545 | |
Extinguishment of bridge notes in exchange for Series A Preferred Stock | |
| (4,204,545 | ) |
Bridge notes, June 30, 2023 | |
| - | |
On June 30, 2023, the Company entered
into exchange agreements (the “Exchange Agreements”) with each of the Company’s Bridge Note lenders, pursuant to which
the lenders exchanged their existing Bridge Notes for 29,896 shares, 352,771 shares, and 59,792 shares, respectively, of Convertible
Series A preferred stock (442,458 shares of Convertible Series A Preferred stock in total) (the “Exchange”). The Exchange
Agreements would have been rescinded, and the former Bridge Notes reinstated if the Company didn’t complete the initial public
offering by September 1, 2023. Upon the IPO completing on August 31, 2023, the Company recognized the extinguishment of the Bridge Notes
pursuant to ASC 470 and recognized a debt extinguishment loss of $16,105. The Company recognized a beneficial conversion feature of $2,567,866
for the issuance of the Series A preferred stock on the date of the IPO due to the $4 (Pre-Reverse Split) offering price related to the
IPO being known as of that date.
Convertible Debenture
Between March 18 and December 28, 2021,
the Company issued $2,102,500 in aggregate principal amount of 6.00% subordinated convertible promissory note (“Convertible Debenture”).
During the year ending December 31, 2022 the Company issued $1,612,000 in aggregated principal amount of the 6.00% Convertible Debenture.
In March 2023 the Company issued an additional $650,000 in aggregate principal amount of 6.00% Convertible Debenture to five (5) separate
holders. The Convertible Debenture is convertible into the Company’s Class A common stock upon the Company’s offering for
sale its shares in a public offering (“IPO”). At the holder’s election, the accrued interest and principal may be paid
in cash or Class A common stock (such number of shares reflecting a twenty-five percent (25%) discount of the opening price per share
of Class A common stock). The Convertible Debenture mature 5 years from the date of issuance to each holder. Prior to the maturity date,
the holder is entitled to convert the Convertible Debenture into Class A common stock upon the Company’s IPO. Upon an IPO the accrued
and unpaid interest is due and payable in cash on the first business day of the following month of March for any balance not elected
to be converted into the Class A common stock. The Convertible Debenture incurred issuance cost of $40,000 that was amortized straight
line over the life of the Convertible Debenture. The Company amortized $1,993 and $1,993 of issuance cost during the three months ended
June 30, 2024 and 2023, respectively. The Company amortized $3,987 and $3,965 for the six months ending June 30, 2024 and 2023, respectively.
Upon the Company’s IPO closing
on August 31, 2023, the majority of Convertible Debenture holders elected to convert an aggregate of $4,014,500 of principal and $399,818
of accrued interest into 14,953 shares of Class A common stock at a conversion price of $30.00 per share. The Company recorded a beneficial
conversion feature as of the date of the conversion of $1,569,395 based on the IPO price of $40 per share minus the principal and accrued
interest of the Convertible Debenture balance converted into common stock. Four holders of the Convertible Debenture with an aggregate
principal balance of $250,000 elected to be paid back in cash and one investor with a principal balance of $100,000 elected to be paid
on February 28, 2024 including accrued interest through the date of payment at 6%.
Loans Payable
On May 30, 2023, the Company entered
into a Merchant Cash Advance Agreement for gross proceeds of $1,050,000 with an unrelated third-party financial institution. Under the
terms of the agreement, the Company must pay $57,346 each week for 26 weeks with the first payment being due June 6, 2023. The financing
arrangement has an effective interest rate of 49%. The financing arrangement includes an original issuance discount (“OID”)
of $441,000 and issuance costs of $50,000. The OID and issuance cost associated with the financing arrangement are presented in the balance
sheets as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest method.
On August 10, 2023, the Company amended
the financing arrangement to borrow an additional $507,460 resulting in the weekly repayments increasing to $76,071 to be paid over 28
weeks. This amendment decreased the effective interest rate to 41%. The refinancing resulted in a loss on debt modification of $441,618.
On November 28, 2023, the Company amended
the financing arrangement to borrow an additional $531,071 resulting in the weekly payments to decrease to $56,800 to be paid over 40
weeks. This amendment increased the effective rate to 49%. The refinancing resulted in a loss on debt modification of $485,436.
On January 18, 2024, the Company amended
the financing arrangement to borrow an additional $549,185 resulting in the weekly payments to increase to $86,214 to be paid over 43
weeks. This amendment increased the effective interest rate to 52%. The refinancing resulted in a loss on debt modification of $728,278.
On May 7, 2024, the Company amended
the financing arrangement to borrow an additional $518,750 resulting in the weekly payments to increase to $90,229 to be paid over 48
weeks. This amendment decreased the effective interest rate to 49%. The refinancing resulted in a loss on debt modification of $859,584.
On April 4, 2024, the Company entered
into a new financing agreement for gross proceeds of $420,000 with a different unrelated third-party financial institution. Under the
terms of the agreement, the Company must pay $21,600 each week for 28 weeks with the first payment being due April 8, 2024. The financing
arrangement has an effective interest rate of 51%. The financing arrangement includes an original issuance discount (“OID”)
of $184,800 and issuance costs of $20,000. The OID and issuance cost associated with the financing arrangement are presented in the balance
sheets as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest method.
During the three and six months ended
June 30, 2024, the Company amortized $605,611 and $984,924 of OID and issuance cost, respectively. The amounts are included in interest
expense on the statement of operations. During the three and six months ended June 30, 2024, the Company made $1,148,887 and $2,181,427
in payments on the loan payable. The outstanding balance of the loan payable as of June 30, 2024 and December 31, 2023, were $3,313,925
and $2,809,820. The financing arrangement is secured by an interest in virtually all assets of the Company with a first security interest
in accounts receivable. The financing arrangements are guaranteed by the Company’s CEO.
Convertible Notes Payable
On March 26, 2024, Inspire entered
into a securities purchase agreement (the “Purchase Agreement”) with a certain investor. Pursuant to the Purchase Agreement,
Inspire issued to investors Increasing OID Senior Note (“Convertible Note Payable”) for $500,000. The Convertible Note Payable
has a maturity date of the earlier of December 26, 2024 or the consummation of a capital raise (the “Maturity Date”).
On June 11, 2024, Inspire entered into
a securities purchase agreement (the “Purchase Agreement”) with two investors. Pursuant to the Purchase Agreement, Inspire
issued to investors Increasing OID Senior Note (“Convertible Note Payable”) for $250,000 each. The Convertible Note Payable
has a maturity date of the earlier of February 11, 2025 or the consummation of a capital raise (the “Maturity Date”).
The Convertible Notes Payable contain
an original issued discount (“OID”) which shall be: (i) fifteen percent (15%) if the Convertible Notes Payable is satisfied
and paid in full on or before the forty-fifth (45th) day after the Original Issue Date (as such term is defined in the Notes), (ii) twenty
percent (20%) if the Convertible Notes Payable is satisfied and paid in full after such 45th day but on or before the ninetieth (90th)
day after the Original Issue Date, and (iii) thirty percent (30%) after such 90th day. The Convertible Notes Payable can be prepaid at
any time prior to the Maturity Date without any penalties.
The Convertible Notes Payable must
be repaid in full from any future capital raises (debt, equity or any other form of capital raise) of Inspire. All of the funds raised
must be used to repay the Convertible Notes Payable until the Convertible Notes Payable are repaid in full
The Convertible Notes Payable are convertible
into shares of common stock of Inspire, in full or in part, at any time after issuance at the discretion of the noteholder at a fixed
conversion price of $0.03 per share (the “Fixed Conversion Price”).
If the Convertible Notes Payable is
not repaid by the Maturity Date the default provisions are as follow: (i) The Face Value (as such term is defined in the Convertible
Notes Payable) of the Convertible Notes Payable will increase by 20% (to a 50% OID -- $1,000,000 Face Value); (ii) the
conversion price of the Convertible Notes Payable will become convertible at the lower of (a) the Fixed Conversion Price or (b) 20%
discount to a 3-Day volume-weighted average price (the “Default Conversion Price”).
| 8. | Related
Party Transactions |
Blue Heron
The Company entered into a consulting
agreement with Blue Heron Consulting (“BHC”) on June 24, 2021, pursuant to which BHC will consult with the Company on an
on-going basis in connection with the Company’s acquisition of veterinary practices throughout the United States and will serve
as the Company’s business and financial advisor with respect to its acquisition strategy and in connection with specific acquisition
targets. The Company’s director and Chief Operating Officer Charles Stith Keiser is the Chief Operating Officer of BHC, and the
Company’s director Dr. Charles “Chuck” Keiser is the Chief Visionary Officer of BHC. During the fourth quarter of 2023
management terminated the service agreement with Blue Heron, however, still uses Blue Heron on an ad-hoc basis for services and has incurred
$15,141 and $312,533 in expenses for the three months ended June 30, 2024 and 2023, respectively. The Company has incurred $83,168 and
$542,147 in expenses for the six months ended June 30, 2024 and 2023, respectively. These expenses are recorded as a component of “General
and administrative expenses” in the accompanying condensed consolidated statement of operations.
Under the Consulting Agreement, BHC
is entitled to a monthly fee for on-going services including:
|
● |
the preparation of valuation
packages of potential acquisitions (including the gathering of pertinent information, financial and background data, completion of
deal packets and financial projection worksheets used by the Company to calculate practice values); |
|
● |
the institution of turnover
protocols and procedures of hospitals immediately post-purchase; systems reporting; the formulation of individual hospital goals
and targets; |
|
● |
on-going monthly support
of hospital units (including medical and operational coaching, business growth projections, establishment of financial targets and
margin improvements, growth milestones) and recruiting support. |
Upon termination, all accrued, but
not yet paid fees and expenses, whether invoiced or not, must be paid to BHC.
Star Circle Advisory
The Company entered into a consulting
agreement with Star Circle Advisory Group, LLC (“Star Circle”) on August 2, 2022 to serve as financial consultant, on a non-exclusive
basis, to assist with arranging bridge financing and the initial public offering of the Company. Star Circle is owned and controlled
by Kimball Carr, Chairman, Chief Executive Officer and President, Peter Lau, Interim Chief Financial Officer and Director, James Coleman,
Director, and Richard Marten, Director. Star Circle is entitled to a monthly fee of $33,000, payable monthly. Each party is responsible
for its own ordinary office and personnel expenses; however, Star Circle is entitled, with prior written consent from the Company, for
reimbursement for required extraordinary expenses including air travel, lodging, and Company filing fees. The consulting agreement will
terminate on August 1, 2024, unless terminated earlier by mutual agreement of the parties or by either party upon 30 days written notice.
During the fourth quarter of 2023, management terminated service agreements with Star Circle Advisory and has incurred $0 and $99,000
in expenses for the three months ended June 30, 2024 and 2023, respectively. The Company has incurred $0 and $198,000 in expenses for
the six months ended June 30, 2024 and 2023, respectively. These expenses are recorded as a component of “General and administrative
expenses” in the accompanying condensed consolidated statement of operations.
CEO Warrant
On January 1, 2023, the board of directors
issued 500 shares of Class A common stock issuable upon cashless exercise of a warrant granted to Kimball Carr, Chief Executive Officer
(“CEO”) and Chairman of the board of directors, in consideration for his personal guaranty of the Company loans. The warrant
expires on January 1, 2028. The Warrant is fully paid and nonassessable shares of Class A common stock at a purchase price per share
equal to the price per share of the common stock sold through an initial public offering pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission on a national securities exchange. The warrants were measured at fair
value using the Black Scholes Method to determine the fair value of warrants issued to the CEO. The significant inputs for the Black
Scholes calculation included the exercise price and common share price of $1.73, volatility rate of 27.13% and risk-free rate of 3.94%
with a 5-year term. The warrants were valued at $2,701 at the time of issuance and the entire amount was recorded as an expense in General
and administrative expenses in the accompanying unaudited condensed consolidated statement of operations for the six months ended June
30, 2023.
The Company is authorized to issue
is 170,000,000 shares, of which 100,000,000 shares are designated as Class A common stock, with a par value of $0.0001 per share, 20.000,000
shares are designated as Class B common stock, with a par value of $0.0001 per share, and 50,000,000 shares are designated as preferred
stock, with a par value of $0.0001 per share (the “Preferred Stock”).
Each outstanding share of Class A common
stock is entitled to vote on each matter on which the stockholders of the Company is entitled to vote, and each holder of Class A common
stock is entitled to one (1) vote for each share of Class A common stock held by such holder.
Each outstanding share of Class B common
stock is entitled to vote on each matter on which the stockholders of the Company is entitled to vote, and each holder of Class B common
stock is entitled to twenty-five (25) votes for each share of Class B common stock held by such holder. Each Class B common stock is
convertible to 1/100th of 1 share of Class A common stock.
All shares of Class A common stock
and Class B common stock (collectively “common stock”) will be identical and will entitle the holders thereof to the same
rights and privileges, except as otherwise provided above.
On November 15, 2022, the companies
amended the consulting agreement with Alchemy Advisory, LLC until June 30, 2023. The contract amendment stipulates an additional fee
of $40,000 as well as 833 restricted shares of the Company’s Class A common stock. The Company recorded the $144,168 fair value
of the common stock with $36,042 and $72,084 expensed during the three and six months ended June 30, 2023, respectively. The Company
will amortize the cost of the common stock issued over the life of the agreement.
On November 15, 2022, the Company entered
into a consulting agreement with 662 Capital LLC until June 30, 2023. The contract stipulates the Company will issue 417 restricted shares
of the Company’s Class A common stock for services rendered. The Company recorded the $72,084 fair value of the common stock with
$18,021 and $36,042 expensed during the six months ended June 30, 2024 and 2023, respectively. The Company will amortize the cost of
the common stock issued over the life of the agreement.
Convertible Series A Preferred Stock
On June 30, 2023, the Company amended
its articles of incorporation by the filing of a certificate of designation for the Series A Preferred Stock. One million shares of the
Series A Preferred Stock are authorized under the Series A Certificate of Designation, with each having a stated value of $10.00 per
share, with a par value of $0.0001. The Series A Preferred Stock earns a dividend rate equal to 12% of the stated rate per annum, which
such dividend may be payable either in cash or in-kind at the sole option of the Company.
Holders of shares of the Series A Preferred
Stock are entitled to a liquidation preference in the event of any dissolution, liquidation or winding up of the Company equal to the
stated value plus any accrued and unpaid dividends on such stock. Holders of shares of Series A Preferred Stock are also entitled to
convert such shares at any time and from time, at the option of such holder, into a number of shares of Class A common stock equal to
the stated value divided by a conversion price. The conversion price is equal to 60% of the dollar volume-weighted average price for
shares for the Company’s Class A common stock for the three trading days immediately preceding the date of the conversion. However,
the conversion price can never be less than 50% of the per-share price for shares of Class A common stock during the Company’s
initial public offering. For any conversion during the Company’s initial three days of market trading, the conversion price will
be equal to 60% of the price for the Company’s underwritten initial public offering.
On November 7, 2023, the Company amended
its article of incorporation to increase the total authorized preferred stock by 2,000,000 shares.
The conversion price of the convertible
series A preferred stock to be no less than $1.00 per share, as adjusted for any stock dividend, stock split, stock combination, reclassification
or similar transaction conducted after the date of the series A preferred stock amendment.
The holders of the Series A Preferred
Stock have the right to vote on all matters submitted to a vote of shareholders on an as-if-converted basis together with the holders
of shares of the Company’s Class A and Class B common stock, voting together as a single class.
On June 30, 2023, the Company issued
442 shares of Series A Preferred Stock to the holders of the Bridge Notes in exchange for the Bridge Notes (the “Exchange”).
In connection with the Exchange, the
Company also issued warrants (the “New Warrants”) to purchase additional shares of Class A common stock. The New Warrants
were issued in exchange for the existing warrants held by the former Bridge Note holders. The exercise price of the shares to be issued
pursuant to the New Warrants is the price of the shares of Class A common stock to be issued in this offering. The number of shares to
be issued upon exercise of the New Warrants is equal to the quotient of 75% of the outstanding Series A Preferred Stock value divided
by the exercise price. Also, in connection with the Exchange, the Company entered into new registration rights agreements (the “New
Registration Rights Agreements”) with each of holders, pursuant to which the Company has agreed to register the public resale of
the shares of Class A common stock issuable upon conversion of the Series A Preferred Stock and upon exercise of the under the New Warrants.
The New Registration Rights Agreements supersede in their entirety the prior registration rights agreements with the former senior secured
lenders. If Company did not close the initial public offering on or before September 1, 2023, the Exchange Agreements would have been
deemed rescinded, and the former Bridge Notes would have been deemed reinstated. As the offering was outside the control of the Company
the Company did not recognize the full extinguishment of the Bridge Notes until the IPO was completed on August 31, 2023. The Company
recognized a beneficial conversion feature of $2,567,866 for the issuance of the Series A Preferred Stock on the date of the IPO due
to the $4 (pre-Reverse Split) offering price related to the IPO being known as of that date.
During the year ending December 31,
2022, the Company implemented a qualified 401(K) retirement plan. The Company offers eligible domestic full-time employees participation
in certain 401K plans. The plans provide for a discretionary annual company contribution. In addition, employees may contribute a portion
of their salary to the plans, which certain of the 401K plans, is partially matched by the Company. The plans may be amended or terminated
at any time. The Company contributed and expensed $41,389 and $4,785 during the three months ending June 30, 2024 and 2023, respectively.
The Company contributed and expensed $81,653 and $9,780 during the six months ending June 30, 2024 and 2023, respectively.
The Company has incurred losses since
inception, which have generated net operating loss (“NOL”) carryforwards. As of June 30, 2024 and December 31, 2023, no tax
benefit was reported with respect to these NOL carry-forwards in the accompanying financial statements because the Company believes the
realization of the Company’s net deferred tax assets for the NOL for combined federal and state jurisdictions was considered more
likely than not that it will not be realized and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset
by a full valuation allowance. The Company’s effective tax rate is different than the federal statutory tax rate because the Company
has established a full valuation allowance against its net deferred income tax asset.
Accounting for Leases
as Lessee
The Company determines if an arrangement
is a lease at inception. Operating leases are included in right-of-use assets (“ROU”), operating lease liabilities, and operating
lease liabilities, non-current. Lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at commencement date. None of the leases entered into have an implicit rate, the Company uses its incremental borrowing
rate based on the information available at lease commencement date in determining the present value of future payments. Incremental borrowing
rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments
where the leased asset is located. The ROU assets also include any prepaid lease payments made and initial direct costs incurred and
excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease, which is recognized
when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a
straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company has operating leases for
real estate. The Company has certain intercompany leases between its subsidiaries, and these transactions and balances have been eliminated
in consolidation and are not reflected in the tables and information presented below.
The components of lease expense included
on the Company’s unaudited condensed statements of operations were as follows:
| |
| |
For
the Three Months Ended
June 30, | | |
For
the Six Months Ended
June 30, | |
| |
Expense
Classification | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Operating lease expense: | |
| |
| | | |
| | | |
| | | |
| | |
Amortization of ROU asset | |
General and administrative | |
$ | 49,715 | | |
$ | 28,875 | | |
$ | 103,547 | | |
$ | 57,750 | |
Accretion of Operating lease liability | |
General and administrative | |
| 14,452 | | |
| 7,385 | | |
| 24,993 | | |
| 13,829 | |
Total operating lease expense | |
| |
$ | 64,167 | | |
$ | 36,260 | | |
$ | 128,540 | | |
$ | 71,579 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Other lease expense | |
General and administrative | |
| 5,082 | | |
| 15,331 | | |
| 2,234 | | |
| 21,331 | |
Total | |
| |
$ | 69,249 | | |
$ | 51,591 | | |
$ | 130,774 | | |
$ | 92,910 | |
Other information related to leases
is as follows:
| | As of June 30, | | | As of December 31, | |
| | 2024 | | | 2023 | |
Remaining lease term: | | | | | | |
Operating leases (in years) | | | 8.92 | | | | 9.29 | |
Discount rate: | | | | | | | | |
Operating leases | | | 6.92 | % | | | 7.03 | % |
Amounts relating to leases were presented
on the unaudited condensed Balance Sheets as of June 30, 2024 and December 31, 2023 in the following line items:
| |
| |
As
of
June 30, | | |
As
of
December 31, | |
| |
Balance
Sheet Classification | |
2024 | | |
2023 | |
Assets: | |
| |
| | |
| |
Operating lease
assets | |
Right-of-use assets | |
$ | 1,349,394 | | |
$ | 1,616,198 | |
| |
| |
| | | |
| | |
Liabilities: | |
| |
| | | |
| | |
Operating lease liabilities | |
Operating lease liabilities | |
| 124,580 | | |
| 141,691 | |
Operating
lease liabilities | |
Operating
lease liabilities, non-current | |
| 1,450,332 | | |
| 1,514,044 | |
Total
lease liabilities | |
| |
$ | 1,574,912 | | |
$ | 1,655,735 | |
The future minimum lease
payments required under leases as of June 30, 2024, were as follows:
Fiscal Year | |
Operating
Leases | |
Remainder of 2024 | |
$ | 113,814 | |
2025 | |
| 230,198 | |
2026 | |
| 231,959 | |
2027 | |
| 233,619 | |
2028 | |
| 238,078 | |
Thereafter | |
| 1,100,287 | |
Undiscounted cash flows | |
| 2,147,955 | |
Less: imputed interest | |
| (573,043 | ) |
Lease liability | |
$ | 1,574,912 | |
| 13. | Commitments
and Contingencies |
As of June 30, 2024, substantially
all of the Company’s assets were pledged as collateral for the Company’s credit facilities.
On November 30, 2023, the Company entered
into a common stock purchase agreement with a 3rd party investor (the “Investor”), to which the investor
committed to purchase up to $30 million of the Company’s Class A common stock.
Under the terms and subject to the
conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to the Investor, and the Investor is
obligated to purchase, shares of Class A common stock in an amount up to $30 million. Such sales of Class A common stock by the
Company, if any, will be subject to certain limitations, and may occur from time-to-time in the Company’s sole discretion, over
the period commencing once certain customary conditions are satisfied, including the filing and effectiveness of a resale registration
statement with the U.S. Securities and Exchange Commission (the “Commission”) with respect to the shares to be sold to the
Investor under the Purchase Agreement and ending on the first day of the month following the 24-month anniversary of the date on which
the resale registration statement is declared effective by the Commission. The Investor has no right to require the Company to sell any
shares of Class A common stock to the Investor, but the Investor is obligated to purchase shares of Class A common stock pursuant to
a valid purchase notice delivered by the Company, subject to certain conditions and limitations.
Purchase Price
The shares of Class A common stock
to be issued by the Company and purchased by the Investor will be sold at a purchase price equal to 95% of the lowest daily volume-weighted
average price of the Class A common stock on the Nasdaq Capital Market (or any eligible substitute exchange) during the three consecutive
trading days immediately following the trading date on which a valid purchase notice is delivered to the Investor by the Company. Such
purchase price will be adjusted for reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar
transaction by the Company with respect to its Class A common stock.
Actual sales of shares of Class A common
stock to the Investor will depend on a variety of factors to be determined by the Company from time-to-time, including, among other things,
market conditions, the trading price of the Company’s Class A common stock, and the working capital needs, if any, of the Company.
The net proceeds from sales, if any,
under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of Class A common
stock to the Investor. the Company expects that any proceeds received by the Company from such sales to the Investor will be used for
working capital and general corporate purposes.
Purchase Limits
Pursuant to the Purchase Agreement, the
Company may not require the Investor to purchase, and the Investor will have no obligation to purchase, shares of Class A common stock
in excess of a number equal to the lowest of (i) 100% of the average daily trading volume of the Class A common stock on the Nasdaq Capital
Market (or any other eligible national stock exchange, as applicable) for the five consecutive trading days immediately prior to the
trading date on which a valid purchase notice is delivered to the Investor, (ii) a 30% discount to the daily trading volume in the Class
A common stock on the Nasdaq Capital Market (or any other eligible national stock exchange, as applicable), and (iii) $2 million divided
by the volume-weighted average price for the Class A common stock on the trading day immediately prior to the trading date on which a
valid purchase notice is delivered to the Investor.
Consistent with certain applicable
Nasdaq rules, the Company may not issue to the Investor more than 12,143 shares of its Class A common stock (the “Exchange
Cap”) under the Purchase Agreement, which number of shares is equal to 19.99% of the shares of the Company’s Class A
common stock issued and outstanding immediately prior to the execution of the Purchase Agreement, unless the Company obtains stockholder
approval to issue shares of its Class A common stock in excess of such limit in accordance with applicable rules of Nasdaq or any other
applicable national stock exchange.
Fees
As consideration for the Investor’s
irrevocable commitment to purchase shares of Class A Common Stock, upon execution of the Purchase Agreement, the Company became obligated
to issue to the Investor a number of shares of Class A Common Stock equal to $600,000 divided by the average daily volume-weighted
average price for the Class A Common Stock on the Nasdaq Capital Market during the five consecutive trading days ending on the trading
date immediately prior to the Company’s filing of an initial registration statement pursuant to the Registration Rights Agreement
described below. In certain circumstances, the Company may become obligated to pay to the Investor a cash fee equal to $600,000 in
lieu of issuing such shares of Class A Common Stock, under the terms and subject to the conditions described more fully in the Purchase
Agreement.
Certain Representations, Warranties
and Covenants
The Purchase Agreement contains customary
representations, warranties, conditions, and indemnification obligations of each of the Company and the Investor. Pursuant to the Purchase
Agreement, the Investor has agreed not to enter into or effect, in any manner whatsoever, directly or indirectly, any short sales of
the Company’s Class A Common Stock or hedging transaction which establishes a net short position with respect to the Class A Common
Stock. In addition, the Company has covenanted, among other things, through the 24-month anniversary of the signing of the Purchase Agreement,
to not effect or enter into any agreement to issue any shares of Class A Common Stock or securities convertible into or exercisable or
exchangeable into shares of Class A Common Stock except in limited circumstances.
The Company has the right to terminate
the Purchase Agreement at any time following the satisfaction of certain conditions precedent relating to the initial sale of shares
to the Investor, subject to the Company paying all documented fees and amounts to the Investor’s legal counsel and, if the agreement
is terminated prior to effectiveness of the resale registration statement, the Company paying the $600,000 cash commitment fee to
the Investor or, if the agreement is terminated after such effectiveness, the Company issuing all commitment shares of Class A Common
Stock to the Investor.
The Purchase Agreement will automatically
terminate on (i) the 24-month anniversary of the effective date of the initial resale registration statement filed with the Commission,
(ii) the date when the Investor purchases the Total Commitment, (iii) the date when the shares of Class A Common Stock are no longer
listed on the Nasdaq Capital Market or another eligible national stock exchange, or (iv) when the Company is subject to a voluntary or
involuntary bankruptcy or insolvency proceeding.
In addition, the Investor may terminate
the Purchase Agreement upon (i) the occurrence of an event constituting a material adverse effect (as defined in the Purchase Agreement),
(ii) the occurrence of a change of control transaction of the Company, (iii) the failure by the Company to file a registration statement
by the applicable deadline set forth in the Registration Rights Agreement, (iv) the lapse of the effectiveness, or unavailability of,
a registration statement filed by the Company pursuant to the Registration Rights Agreement in certain other circumstances set forth
in the Purchase Agreement, (v) the suspension of trading of the Class A Common Stock for a period of three (3) consecutive trading days,
or (vi) the material breach of the Purchase Agreement by the Company, which breach is not cured within the 10 trading days after receipt
of notice of such breach.
On December 28, 2023, the Company amended
the agreement to provide that, if the number of commitment shares required to be issued by the Company to the Investor and its affiliates
(as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 promulgated thereunder) pursuant
to the Purchase Agreement would result in the beneficial ownership by the Investor of more than 4.99% of the outstanding shares
of Class A common stock of the Company, then the Company shall be obligated to deliver to the Investor: (i) the number of shares of Class
A common stock that, after giving effect to the issuance thereof to the Investor, would result in the Investor and its affiliates beneficially
owning one (1) share less than 4.99% of the outstanding shares of Class A common stock of the Company, and (ii) a warrant to purchase
shares of Class A common stock (such warrant, the “Warrant” and the shares issuable upon exercise thereof, the “Warrant
Shares”), granting the Investor the right to purchase, at an exercise price of $0.01 per Warrant Share, up to that number
of Warrant Shares equal to the difference between (x) the number of shares that would be required to be issued to the Investor as commitment
shares but-for the 4.99% ownership limitation, and (y) the number of shares of Class A common stock to be issued to the Investor
as commitment shares.
The amendment further provided that,
if the issuance of the total number of commitment shares of Class A common stock and Warrant Shares by the Company to the Investor would
cause the beneficial ownership of the Investor and its affiliates to exceed 19.99% of the outstanding shares of Class A common stock
of the Company.
On February 14, 2024, the Company issued
12,143 shares of Class A Common stock, per share to an Investor. In addition, the Company, on February 13, 2024, issued a prefunded warrant
to purchase up to 16,549 shares of Class A common stock of the Company to the Investor. The Company issued the shares and the warrant
in fulfilment to its obligation to issue “commitment shares” to the Investor upon its entry into the purchase agreement.
The Company issued the shares and warrant to the Investor exempt from registration pursuant to Rule 506(b) of Regulation D under the
Securities Act of 1933. The Company did not receive any proceeds with respect to the issuance of the Commitment Shares or the Warrant
and does not expect to receive any material proceeds from the Investor’s exercise, if any, of Warrant for the purchase of Warrant
shares.
Holdback Agreement
As part of the Valley Veterinary Services,
Inc. acquisition in November 2023, a portion of the purchase price in the amount of $200,000 is classified as restricted cash in
the accompanying unaudited condensed consolidated balance sheet. The Holdback Agreement dictates that $80,000 is contingent upon
both former owners (now employees of the Company) still being employed by the Company as of November 8, 2025 and the Valley Vet Practice’s
gross revenue exceeding 105% of the target gross revenue. The remaining $120,000 is contingent upon both former owners (now
employees of the Company) still being employed by the Company as of November 8, 2025 and the Valley Vet Practice’s gross revenue
exceeding 110% of the target gross revenue.
As the contingent consideration arrangement
in which the Holdback amounts are automatically forfeited if the employment of the former owners (now employees of the Company) terminates
is accounted for as compensation for post combination services. The Company will recognize the contingent consideration from the Holdback
Agreement when probable.
The Company follows the guidance in
FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements
were issued and determined the Company had the following subsequent events:
July 2024 Offering of Class A Common
Stock
On July 12, 2024, the Company closed
a public offering for the sale by the Company of an aggregate of 6,000,000 units (the “Units”), at an offering price of $1.00
per Unit. Each unit consists of either one share of the Company’s Class A common stock, $0.001 par value per share, or one pre-funded
warrant to purchase one share of the Company’s Class A common stock (“Pre-Funded Warrant”) and one warrant to purchase one
share of the Company’s Class A common stock (“Warrant”).
The
Units have no stand-alone rights and will not be certificated or issued as stand-alone securities and the components of the Units
will be immediately separable and will be issued separately in the offering.
The
Warrants have an exercise price of $1.00 and are exercisable for a period of six months commencing upon issuance. The Pre-Funded
Warrants are issuable to purchasers in lieu of shares of Class A common stock that would otherwise result in such purchaser’s
beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of the Company’s outstanding Class A common
stock, if any such purchaser so chooses. Each Pre-Funded Warrant is exercisable at any time to purchase one share of Class A common
stock at an exercise price of $0.0001 per share.
The
shares of Class A common stock, Warrants and Pre-Funded Warrants under the offering were sold pursuant to a securities purchase
agreement with certain investors. Spartan Capital Securities, LLC,(“Spartan”) acted as the sole placement agent for the
offering and received a fee of 8% of the gross proceeds and reimbursement of $60,000 in non-accountable expenses and $125,000 of
legal fees and out-of-pocket expenses, pursuant to a letter of engagement between the Company and Spartan.
Gross
proceeds from the offering, before deducting the placement agent’s fees and other offering expenses, were approximately $6.0
million.
INSPIRE VETERINARY PARTNERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking Information
You should read the following discussion and
analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying
notes thereto included elsewhere in this quarterly report on Form 10-Q.
This quarterly report on Form 10-Q contains
forward-looking statements. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future
developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following
words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,”
“plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,”
“project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other
comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information
may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements
to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.
We cannot predict all of the risks and uncertainties.
Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or
that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these
forward-looking statements. These forward-looking statements include information concerning possible or assumed future results of our
operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans;
plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business
plans and future financial results, and any other statements that are not historical facts.
Except to the extent required by law, we undertake
no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in
events, conditions, circumstances or assumptions underlying such statements, or otherwise.
Overview
Inspire Veterinary Partners, Inc. is a corporation
incorporated in the state of Delaware in 2020. On June 29, 2022, the Company converted into a Nevada corporation. The Company’s
class A common shares are traded on the Nasdaq Capital Market (“NASDAQ”) under the symbol IVP. The Company owns and operates
veterinary hospitals throughout the United States. The Company specializes in small animal general practice hospitals which serve all
manner of companion pets, emphasizing canine and feline breeds. As the Company expands, additional modalities are expected to become
a part of the offerings at its hospitals. With the acquisition of The Pony Express Veterinary Hospital, Inc. including equine care and
emergency and specialty services and intends to continue to expand such services.
With fourteen clinics located in ten states as
of the date of this filing, Inspire purchases existing hospitals which have the financial track record, marketplace advantages and future
growth potential which make them worthy acquisition targets. Because the Company leverages a leadership and support structure which is
distributed throughout the United States, acquisitions are not centralized to one geographic area. The Company operates it business as
one operating and one reportable segment.
The Company is the managing member of IVP Practice
Holdings Co., LLC (“Holdco”), a Delaware limited liability company, which is the managing member of IVP CO Holding, LLC (“CO
Holdco”), a Delaware limited liability company, IVP FL Holding Co., LLC (“FL Holdco”), a Delaware limited liability
company, IVP Texas Holding Company, LLC (“TX Holdco”), a Delaware limited liability company, KVC Holding Company, LLC (“KVC
Holdco”), a Hawaii limited liability company, and IVP CA Holding Co., LLC (“CA Holdco”), a Delaware limited liability
company, IVP MD Holding Company, LLC (“MD Holdco”), a Delaware limited liability company, IVP OH Holding (“OH Holdco”),
Co, LLC, a Delaware limited liability company, IVP IN Holding Co., LLC (“IN Holdco”), a Delaware limited liability company,
IVP MA Managing Co., LLC, a Delaware limited liability company (“MA Holdco”), and IVP PA Holding Company, LLC, a Delaware
limited liability company (“PA Holdco”). The Company through Holdco, operates and controls all business and affairs of CO
Holdco, FL Holdco, TX Holdco, KVC Holdco, CA Holdco, MD Holdco. Holdco, OH Holdco, IN Holdco, MA Holdco and PA Holdco is used to acquire
hospitals in various states and jurisdictions.
The Company is the managing member of IVP Real
Estate Holding Co., LLC (“IVP RE”), a Delaware limited liability company, which is the managing member of IVP CO Properties,
LLC (“CO RE”), a Delaware limited liability company, IVP FL Properties, LLC (“FL RE”), a Delaware limited liability
company, IVP TX Properties, LLC (“TX RE”), a Delaware limited liability company, KVC Properties, LLC, (“KVC RE”),
a Hawaii limited liability company, IVP CA Properties, LLC (“CA RE”), a Delaware limited liability company, IVP MD Properties,
LLC (“MD RE”), a Delaware limited liability company, IVP OH Properties, LLC (“OH RE”), a Delaware limited liability
company, IVP IN Properties, LLC (“IN RE”), a Delaware limited liability company, and IVP PA Properties, LLC (“PA RE”),
a Delaware limited liability company. The Company through IVP RE operates and controls all business and affairs of CO RE, FL RE, TX RE,
KVC RE, CA RE, MD RE, OH RE, IN RE and PA RE. IVP RE is used to acquire real property in various states and jurisdictions.
COVID-19
Impacts resulting from the COVID-19 pandemic
have resulted in a widespread health crisis that has already adversely affected the economies and financial markets of many countries
around the world. The international response to the spread of COVID-19 has led to significant restrictions on travel; temporary business
closures; quarantines; global stock market and financial market volatility; a general reduction in consumer activity; operating, supply
chain and project development delays and disruptions; and declining trade and market sentiment; all of which have and could further affect
the world economy.
The extent to which the novel coronavirus may
impact the Company’s business, will depend on future developments which are highly uncertain and cannot be predicted with confidence,
such as the duration of the outbreak, travel restrictions and social distancing in the United States, business closures or business disruptions
and the effectiveness of actions taken by governments around the globe to contain and treat the disease. We are unable to predict with
certainty the effects of the COVID-19 pandemic on our customers, suppliers and vendors and its impact on the Company’s business.
Our Business Model
Services provided at owned hospitals include
preventive care for companion animals consisting of annual health exams which include: parasite control; dental health; nutrition and
body condition counseling; neurological examinations; radiology; bloodwork; skin and coat health and many breed specific preventive care
services. Surgical offerings include all soft tissue procedures such as spays and neuters, mass removals, splenectomies and can also
include gastropexies, orthopedic procedures and other types of surgical offerings based on a doctor’s training. In many locations
additional means of care and alternative procedures are also offered such as acupuncture, chiropractic and various other health and wellness
offerings.
With acquisitions serving as one key driver of
growth, the Company has developed metrics and processes for assessing, valuing, acquiring and integrating new hospitals into its network.
With a focus in its early years on general practice, small companion animal hospitals, the Company selects hospitals in markets with
large addressable pet populations, but not necessarily in city/urban centers. The Company recently entered the equine care, or the care
of horses, sector with the addition of the Pony Express Veterinary Hospital into the Company’s small-animal-only mix of locations.
Growth strategies and expansion plans call for
the Company to enter emergency care and mixed animal (such as bovine and additional equine care) in future years of growth. Staffing,
ownership transition plans, demographics, quality of medicine, financial performance and quality of exiting leadership are some of the
many factors that are analyzed before a pending acquisition is offered a letter of intent. The Company uses a field support structure
that is nationally distributed and therefore the targets for acquisition can be in most states within the United States, taking special
care with more complex states which have very specific veterinary practice ownership and operations guidelines.
Risks to the ability to swiftly acquire and integrate
new hospitals include: (i) national staffing shortages of veterinarians and technicians which pre-existed the current market conditions
which make finding credentialed talent even more difficult; (ii) costs and time associated with finding suitable targets and performing
due diligence; and (iii) difficulties in achieving growth targets post purchase which ensure hospitals grow revenue and earnings in the
years post purchase.
Post purchase pressures include rising talent
acquisition and staffing costs in addition to challenges in achieving productivity and average patient charges necessary to achieve growth
and profitability.
Results of Operations
Acquisition and Growth Strategy
With an emphasis on general practice hospitals
in its first seven to eight quarters, the Company expanded into purchase of mixed animal hospitals in late 2022, adding equine care to
its mix. Further, in the second quarter of 2024 and beyond, the Company intends to continue to the due diligence toward acquisition toward
strategically acquiring existing general practice, specialty hospitals and/or expand existing locations to include emergency care and
more complex surgeries, holistic care and comprehensive diagnostics which allow it to offer more complex surgeries and internal medicine
work ups.
During its third calendar year, the Company has
plans to seek multi-unit practices with regional presence to facilitate growth for the Company and also to move more swiftly into being
a prime provider in select markets. While purchases of individual clinics will remain a focus for the Company, these opportunities to
acquire hospitals in clusters of 2 to 6 will significantly increase our pace of growth and provide numerous internal benefits such as
internal case referrals and career pathing for clinicians and leadership.
We account for acquisitions under the acquisition
method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing
date. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair
value of the acquired assets and assumed liabilities. Below is a summary of the acquisitions that closed from the inception of the Company
through June 30, 2024, and the related transaction price.
Name | |
Closing Date | |
Transaction Value1 | |
Kauai Veterinary Clinic3 | |
January 2021 | |
$ | 1,505,000 | |
Chiefland Animal Hospital2 | |
August 2021 | |
$ | 564,500 | |
Pets & Friends Animal Hospital2 | |
October 2021 | |
$ | 630,000 | |
Advanced Veterinary Care of Pasco3 | |
January 2022 | |
$ | 1,014,000 | |
Lytle Veterinary Clinic2 | |
March 2022 | |
$ | 1,442,469 | |
Southern Kern Veterinary Clinic2 | |
March 2022 | |
$ | 2,000,000 | |
Bartow Animal Clinic3,4 | |
May 2022 | |
$ | 1,405,000 | |
Dietz Family Pet Hospital2 | |
June 2022 | |
$ | 500,000 | |
Aberdeen Veterinary Clinic3 | |
July 2022 | |
$ | 574,683 | |
All Breed Pet Care Veterinary Clinic2 | |
August 2022 | |
$ | 2,152,000 | |
Pony Express Veterinary Hospital, Inc.2 | |
October 2022 | |
$ | 3,108,652 | |
Williamsburg Animal Clinic3 | |
December 2022 | |
$ | 850,000 | |
The Old 41 Animal Hospital2 | |
December 2022 | |
$ | 1,465,000 | |
Valley Veterinary Services3.5 | |
November 2023 | |
$ | 1,790,000 | |
| 1. | The
transaction value is the amount of cash consideration paid for the acquisition of the veterinary practice (and as denoted the real estate
operations) that was accounted for as a single business combination, in accordance with ASC Topic 805. |
| 2. | Acquisition
includes both the veterinary practice and related assets and the real estate operations in the transaction value. |
| 3. | Acquisition
was for the veterinary practice and related assets only. |
| 4. | Acquisition
includes the purchase of personal goodwill of $105,000 that was included in the purchase price of the veterinary practice and related
assets. The total transaction value is made up of $955,000 for the veterinary practice and related assets and $350,000 for the real estate
operations. |
| 5. | The
transaction value excludes $200,000 for the Holdback Agreement associated with the acquisition. |
Kauai Veterinary Clinic Acquisition
On January 25, 2021, the Company acquired Kauai
Veterinary Clinic, Inc., located in Lihue, Hawaii on the island of Kauai providing regional and local veterinary services for $1,505,000
dollars through the Company’s wholly-owned subsidiary, IVP Practice Holding Company, LLC. Simultaneously to the closing of KVC,
the Company acquired the underlying real estate from a third party in exchange for $1,300,000 through the Company’s wholly-owned
subsidiary, IVP Real Estate Holding Co., LLC. These acquisitions were financed with threes loans provided by First Southern National
Bank for a total of $2,383,400.
Chiefland Animal Hospital Acquisition
On August 20, 2021, the Company acquired the
veterinary practice and related assets of Chiefland Animal Hospital from Polycontec, Inc. for $285,000 through the Company’s wholly-owned
subsidiary, IVP Practice Holding Company, LLC. Simultaneously, the Company the real estate operations, consisting of land and buildings,
utilized by the Chiefland practice for $279,500 through the Company’s wholly-owned subsidiary, IVP Real Estate Holding Co., LLC.
These acquisitions were financed with two loans provided by WealthSouth, a division of Farmers National Bank of Danville, Kentucky (“WealthSouth”)
for a total of $469,259.
Pets & Friends Animal Hospital Acquisition
On October 7, 2021, the Company acquired the
veterinary practice and related assets of the Pets & Friends Animal Hospital from Pets & Friends Animal Hospital, LLC for $375,000
through the Company’s wholly-owned subsidiary, IVP Practice Holding Company, LLC. Simultaneously, the Company the real estate operations,
consisting of land and buildings, utilized by the Pets & Friends practice for $255,000 through the Company’s wholly-owned subsidiary,
IVP Real Estate Holding Co., LLC. These acquisitions were financed with two loans provided by WealthSouth for a total of $535,500.
Advanced Veterinary Care of Pasco
On January 14, 2022, the Company acquired the
veterinary practice and related assets of Advanced Veterinary Care of Pasco in Hudson, Florida from Advanced Veterinary Care of Pasco,
LLC for $1,014,000 through the Company’s wholly-owned subsidiary, IVP FL Holding Company, LLC. This acquisition was financed by
a loan provided by WealthSouth for a total of $817,135.
Lytle Veterinary Clinic
On March 15, 2022, the Company acquired the veterinary
practice and related assets of Lytle Veterinary Clinic in Texas from Lytle Veterinary Clinic, Inc. for $662,469 through the Company’s
wholly-owned subsidiary IVP Texas Holding Company, LLC and its wholly-owned subsidiary, IVP Texas Managing Co., LLC. Simultaneously,
the Company acquired the real estate operations, consisting of land and buildings, utilized by the Lytle practice for $780,000 from the
Lytle practice through the Company’s wholly-owned subsidiary, IVP Texas Properties, LLC. This acquisition was financed by two loans
provided by WealthSouth for a total of $1,141,098.
Southern Kern Veterinary Clinic
On March 22, 2022, the Company acquired the veterinary
practice and related assets of Southern Kern Veterinary Clinic in California from Southern Kern Veterinary Clinic, Inc. for $1,500,000
through the Company’s wholly-owned subsidiary IVP CA Holding Co., LLC and its wholly-owned subsidiary, IVP Texas Managing Co.,
LLC. Simultaneously, the real estate operations, consisting of land and buildings,) utilized by the Kern practice was purchased for $500,000
through the Company’s wholly-owned subsidiary, IVP CA Properties, LLC. This acquisition was financed by two loans provided by WealthSouth
for a total of $1,700,000.
Bartow Animal Clinic
On May 18, 2022, the Company acquired the veterinary
practice and related assets of Bartow Animal Clinic in Bartow, Florida from Winter Park Veterinary Clinic, Inc. for $1,055,000 through
the Company’s wholly-owned subsidiary IVP FL Holding Company LLC. Simultaneously, the real estate operations, consisting of land
and buildings, utilized by the Bartow practice was purchased for $350,000 through the Company’s wholly-owned subsidiary, IVP CA
Properties, LLC. This acquisition was financed by two loans provided by WealthSouth for a total of $969,000.
Dietz Family Pet Hospital
On June 15, 2022, the Company acquired the veterinary
practice and related assets of Dietz Family Pet Hospital in Richmond, Texas from Dietz Family Pet Hospital, P.A. for $500,000 through
the Company’s wholly-owned subsidiary IVP Texas Holding Company LLC and its wholly-owned subsidiary, IVP Texas Managing Co. LLC.
This acquisition was financed by a loan provided by WealthSouth for a total of $382,500.
Aberdeen Veterinary Clinic
On July 29, 2022, the Company acquired the veterinary
practice and related assets of Aberdeen Veterinary Clinic in Aberdeen, Maryland from Fritz Enterprises, Inc. for $574,683 through the
Company’s wholly-owned subsidiary IVP MD Holding Company LLC. This acquisition was financed by a loan provided by WealthSouth for
a total of $445,981.
All Breed Pet Care Veterinary Clinic
On August 12, 2022, the Company acquired the
veterinary practice and related assets of All Breed Pet Care veterinary clinic in Newburgh, Indiana from Tejal Rege for $952,000 through
the Company’s wholly-owned subsidiary IVP IN Holding Company LLC. Simultaneously, the real estate operations, consisting of land
and buildings, utilized by the All Breed practice was purchased for $1,200,000 through the Company’s wholly-owned subsidiary, IVP
IN Properties, LLC. This acquisition was financed by three loans provided by WealthSouth for a total of $1,945,450.
Pony Express Veterinary Hospital
On October 31, 2022, the Company acquired the
veterinary practice and related assets of the Pony Express Veterinary Hospital, Inc. in Xenia, Ohio from Pony Express Veterinary Hospital,
Inc. for $2,608,652 through the Company’s wholly-owned subsidiary IVP OH Holding Company, LLC. Simultaneously, the real estate
operations, consisting of land and buildings, utilized by the Pony Express Veterinary Hospital practice was purchased for $500,000 through
the Company’s wholly-owned subsidiary, IVP OH Properties, LLC. This acquisition was financed by three loans provided by First Southern
National Bank for a total of $2,853,314.
Williamsburg Animal Clinic
On December 9, 2022, the Company acquired the
veterinary practice and related assets of Williamsburg Veterinary Clinic in Williamsburg, MA from Williamsburg Animal Clinic, LLC for
$850,000 through the Company’s wholly owned subsidiary, IVP MA Holding Company, LLC. This acquisition was financed by a loan provided
by WealthSouth for a total of $637,500.
The Old 41 Animal Hospital
On December 16, 2022, the Company acquired the
veterinary practice and related assets of The Old 41 Veterinary Clinic in Bonita Springs, FL from The Old 41 Animal Hospital, LLC for
$665,000 through the Company’s wholly owned subsidiary, IVP FL Holding Company, LLC. Simultaneously, the real estate operations
consisting of land and building utilized by the Old 41 practice for $800,000 from Scott A. Gregory DVM, LLC through the Company’s
wholly owned subsidiary, IVP FL Properties, LLC. This acquisition was financed by two loans provided by First Southern National Bank
for a total of $1,208,000.
Valley Veterinary Service Acquisition
On November 8, 2023, the Company acquired the
animal hospital and related assets of Valley Veterinary Service, Inc in Rostraver Township, Pennsylvania for $800,000 in cash, a holdback
agreement for $200,000 in cash that may be paid out at the end of the two year period following the acquisition based on continued employment
by the two former owners and revenue targets for year 1 and year 2 following the effective date of the acquisition, which is not included
in the consideration transferred, and issuance of restricted shares of the Company’s Class A common stock equal to $400,000 through
the Company’s wholly owned subsidiary IVP PA Holding Company, LLC. Simultaneously, the real estate operations consisting of land
and building utilized by Valley Veterinary Services, Inc animal hospital for $590,000 from the owners of Valley Veterinary Services,
Inc through the Company’s wholly owned subsidiary, IVP PA Properties, LLC. This acquisition was financed by one loan provided by
First Southern National Bank for $375,000 and one loan provided by Farmers National Bank of Danville for $850,000.
Comparability of Our Results of Operations
Results of Operations for the six months ended
June 30, 2024 compared to the six months ended June 30, 2023:
Summary of Results of Operations
| |
For the Six Months Ended
June 30, | |
| |
2024 | | |
2023 | |
Service revenue | |
$ | 6,765,837 | | |
$ | 6,273,579 | |
Product revenue | |
| 2,456,111 | | |
| 2,498,362 | |
Total revenue | |
| 9,221,948 | | |
| 8,771,941 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Cost of service revenue (exclusive of depreciation and amortization, shown separately below) | |
| 5,137,887 | | |
| 4,641,747 | |
Cost of product revenue (exclusive of depreciation and amortization, shown separately below) | |
| 1,952,104 | | |
| 1,778,130 | |
General and administrative expenses | |
| 5,092,077 | | |
| 3,687,460 | |
Debt extinguishment loss | |
| 1,587,862 | | |
| - | |
Depreciation and amortization | |
| 708,123 | | |
| 602,508 | |
Total operating expenses | |
| 14,478,053 | | |
| 10,709,845 | |
| |
| | | |
| | |
Loss from operations | |
| (5,256,105 | ) | |
| (1,937,904 | ) |
| |
| | | |
| | |
Other income (expenses): | |
| | | |
| | |
Interest income | |
| 2 | | |
| 6 | |
Interest expense | |
| (1,547,342 | ) | |
| (830,811 | ) |
Other expenses | |
| (4,768 | ) | |
| 1,966 | |
Total other expenses | |
| (1,552,108 | ) | |
| (828,839 | ) |
| |
| | | |
| | |
Loss before income taxes | |
| (6,808,213 | ) | |
| (2,766,743 | ) |
| |
| | | |
| | |
Benefit for income taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Net loss | |
| (6,808,213 | ) | |
| (2,766,743 | ) |
Dividend on convertible series A preferred stock | |
| (220,850 | ) | |
| - | |
Net loss attributable to class A and B common stockholders | |
$ | (7,029,063 | ) | |
$ | (2,766,743 | ) |
| |
| | | |
| | |
Net loss per Class A and B common shares: | |
| | | |
| | |
Basic and diluted | |
$ | (1.56 | ) | |
$ | (0.64 | ) |
Weighted average shares outstanding per Class A and B common shares: | |
| | | |
| | |
Basic and diluted | |
| 4,508,452 | | |
| 4,309,705 | |
Revenue
The following table presents the breakdown of
revenue between products and services:
| |
For the Six Month Ended | | |
June 30, 2024 vs.
June 30, 2023 | |
| |
June 30,
2024 | | |
June 30,
2023 | | |
$
Change | | |
%
Change | |
Revenue: | |
| | |
| | |
| | |
| |
Service Revenue | |
$ | 6,765,837 | | |
$ | 6,273,579 | | |
$ | 492,258 | | |
| 8 | % |
Percentage of revenue | |
| 73 | % | |
| 72 | % | |
| | | |
| | |
Product Revenue | |
| 2,456,111 | | |
| 2,498,362 | | |
| (42,251 | ) | |
| -2 | % |
Percentage of revenue | |
| 27 | % | |
| 28 | % | |
| | | |
| | |
Total | |
$ | 9,221,948 | | |
$ | 8,771,941 | | |
$ | 450,007 | | |
| 5 | % |
| |
Average Daily Service Revenue
for the
Year Ended | | |
June 30, 2024 vs.
June 30, 2023 | |
Animal Hospital & Clinics | |
June 30,
2024 | | |
June 30,
2023 | | |
$
Change | | |
%
Change | |
Kauai Veterinary Clinic | |
$ | 3,952 | | |
$ | 4,673 | | |
$ | (721 | ) | |
| -15 | % |
Chiefland Animal Hospital | |
| 1,748 | | |
| 1,874 | | |
| (126 | ) | |
| -7 | % |
Pets & Friends Animal Hospital | |
| 4,168 | | |
| 2,537 | | |
| 1,631 | | |
| 64 | % |
Advanced Veterinary Care of Pasco | |
| 2,091 | | |
| 2,594 | | |
| (503 | ) | |
| -19 | % |
Lytle Veterinary Clinic | |
| 1,953 | | |
| 2,130 | | |
| (177 | ) | |
| -8 | % |
Southern Kern Veterinary Clinic | |
| 3,886 | | |
| 2,610 | | |
| 1,276 | | |
| 49 | % |
Bartow Animal Clinic | |
| 2,028 | | |
| 2,892 | | |
| (864 | ) | |
| -30 | % |
Dietz Family Pet Hospital | |
| 1,551 | | |
| 2,196 | | |
| (646 | ) | |
| -29 | % |
Aberdeen Veterinary Clinic | |
| 1,398 | | |
| 1,791 | | |
| (394 | ) | |
| -22 | % |
All Breed Pet Care Veterinary Clinic | |
| 2,849 | | |
| 2,660 | | |
| 189 | | |
| 7 | % |
Pony Express Veterinary Hospital | |
| 3,877 | | |
| 3,625 | | |
| 252 | | |
| 7 | % |
Williamsburg Animal Clinic | |
| 2,424 | | |
| 2,350 | | |
| 74 | | |
| 3 | % |
Old 41 Animal Hospital | |
| 1,701 | | |
| 2,594 | | |
| (894 | ) | |
| -34 | % |
Valley Veterinary Services Animal Hospital | |
| 3,550 | | |
| - | | |
| 3,550 | | |
| 100 | % |
Total Daily Service Revenue | |
$ | 37,175 | | |
$ | 34,527 | | |
$ | 2,648 | | |
| | |
| |
Average Daily Product Revenue
for the Year Ended | | |
June 30, 2024 vs.
June 30, 2023 | |
Animal Hospital & Clinics | |
June 30,
2024 | | |
June 30,
2023 | | |
$
Change | | |
%
Change | |
Kauai Veterinary Clinic | |
$ | 1,437 | | |
$ | 1,833 | | |
$ | (396 | ) | |
| -22 | % |
Chiefland Animal Hospital | |
| 1,104 | | |
| 1,234 | | |
| (130 | ) | |
| -11 | % |
Pets & Friends Animal Hospital | |
| 1,209 | | |
| 785 | | |
| 425 | | |
| 54 | % |
Advanced Veterinary Care of Pasco | |
| 563 | | |
| 843 | | |
| (280 | ) | |
| -33 | % |
Lytle Veterinary Clinic | |
| 1,007 | | |
| 1,017 | | |
| (10 | ) | |
| -1 | % |
Southern Kern Veterinary Clinic | |
| 767 | | |
| 634 | | |
| 133 | | |
| 21 | % |
Bartow Animal Clinic | |
| 1,065 | | |
| 1,235 | | |
| (170 | ) | |
| -14 | % |
Dietz Family Pet Hospital | |
| 667 | | |
| 820 | | |
| (153 | ) | |
| -19 | % |
Aberdeen Veterinary Clinic | |
| 574 | | |
| 547 | | |
| 27 | | |
| 5 | % |
All Breed Pet Care Veterinary Clinic | |
| 826 | | |
| 1,580 | | |
| (754 | ) | |
| -48 | % |
Pony Express Veterinary Hospital | |
| 1,438 | | |
| 1,665 | | |
| (226 | ) | |
| -14 | % |
Williamsburg Animal Clinic | |
| 743 | | |
| 685 | | |
| 58 | | |
| 8 | % |
Old 41 Animal Hospital | |
| 560 | | |
| 714 | | |
| (155 | ) | |
| -22 | % |
Valley Veterinary Services Animal Hospital | |
| 1,533 | | |
| - | | |
| 1,533 | | |
| 100 | % |
Total Daily Product Revenue | |
$ | 13,495 | | |
$ | 13,591 | | |
$ | (96 | ) | |
| | |
Revenue in General: The Company believes
the breakdown of gross revenue into service revenue and product revenue categories produces meaningful measures to Company management
and the Company’s investors in light of the Company’s objective to protect the service channel and derive the majority of
its revenue from services and expertise which are not capable of disruption from other channels. To achieve this objective, the Company
seeks to match the industry target metric of 70% to 80% of gross revenue being derived from services: examination fees, diagnostics fees,
laboratory work, surgery and others veterinary services. The Company believes these service revenue sources require veterinary professionals
to preside over care delivery and, unlike some veterinary care products, cannot be replaced or sold by other non-veterinary hospital
channels such as retail (including over-the-counter and online). Accordingly, the Company views products such as parasite controls, veterinary
nutrition products and additives as important, but the Company does not rely on product revenue to account for more than 20% to 30% of
gross revenue. Medications and therapeutics which only a licensed veterinary doctor or licensed technician can administer, while still
making up part of the 20% to 30% of gross revenue, are less easily diverted to non-veterinary hospital channels as they require licensed
professionals to prescribe or utilize them.
The Company uses these percentages in concert
with metrics such as Revenue Per Patient Per day (“RPP”) and Average Patient Charge (“APC”) to analyze the comprehensive
nature of diagnostics and services provided by each veterinary hospital. Sometimes referred to “quality medicine” metrics
within the veterinary service industry, the Company uses RPP and APC to determine how a doctor’s time is being utilized (inclusive
of all diagnostics and therapies). RPP and APC metrics are consolidated into the presentation of average daily service revenue and average
daily product revenue. The Company believes these analyses helps the Company ensure that its caseload is revenue positive to avoid clinicians
spending time on patient work which underutilizes their time and erodes labor profitability. The Company also believes these metrics
are useful to investors and potential investors to compare the Company’s service-to-product revenue mix against generally accepted
industry targets and specific veterinary care service provider competitors.
The services revenue and product revenue metrics
are measured in dollars as calculated by the practice management software we provide to each of our clinics to track medical notes, treatment
plans, services and products prescribed and provided, as well as to manage invoicing related to all of the above. Reports are generated
which allow Company management to view each of these as line-items as well as measure the ratio of service revenue versus product revenue
within our revenue mix.
The Company believes the ratio metric is useful
for the management and its investors for several reasons:
|
● |
The Company and its medical
leadership teach and enable its medical staff to provide comprehensive medical care which is appropriate for each animal patient.
For example, charges to a client which skew too heavily toward products and do not include necessary services may be indicator that
medical cases are not being fully diagnosed using an appropriate standard of available and appropriate diagnostics and care. This
broad analysis can indicate more questions should be asked about how cases are managed by certain providers, particularly if patterns
emerge; |
|
● |
Comprehensive care for
pets means physical exams, dental care, blood work and many other service related line-items. An overreliance on product revenue
alone (which products may be available over-the-counter outside of the veterinary channel) leaves veterinary clinics susceptible
to sales transfer to other channels. In addition, appropriate veterinary care (as defined by market practice and some state licensing
boards) does not include prescribing products without the delivery of diagnostic and care services. |
|
● |
Advancements in veterinary
care within the last decade such as anesthetic protocols, pain management, fear free medicine and other services have shown great
efficacy for the betterment of patients and their recovery from illness or surgeries. The absence of certain services and procedures
within, for instance, a surgery package for a patient, would indicate an opportunity to improve outcomes for a patient and extend
life expectancy. These are positive outcomes for clients and, therefore, of interest and value to the Company and our investors. |
Service Revenues: The Company recognizes
service revenue from health exams, pet grooming, veterinary care, and certain other services performed at our animal hospitals or clinics
and is recognized once the service is completed, as this is when the customer has the ability to direct the use of and obtain the benefits
of the services. Payment terms are at the point of sale but may also occur upon completion of the service. Service revenue increased
$492,258 or 8%, to $6,765,837 for the six months ended June 30, 2024 as compared to $6,273,579 for the six months ended June 30, 2023.
The increase was driven by an increase in revenue for five animal hospitals and clinics of $531,207 and one new animal hospital acquired
in Q4 2023 resulting in $646,078 increase offset by the decrease of $685,027 by the remaining thirteen (13) animal hospitals and clinics
already in operations.
Product Revenues: Product revenue is recognized
when control passes, which occurs at a point in time when the customer completes a transaction at our animal hospitals or clinics and
receives the product. Product revenue decreased $42,251, or 2%, to $2,456,111 for the six months ended June 30, 2024 as compared to $2,498,362
for the six months ended June 30, 2023. The decrease was driven by a decrease in revenue for seven animal hospitals and clinics of $423,334
offset by one new animal hospital acquired in Q4 2023 resulting in $279,059 increase and the increase of $102,024 in the remaining thirteen
(13) animal hospitals and clinics in operations. The overall decrease was a result of customers purchasing less products per visit.
Cost of service revenue (exclusive of depreciation
and amortization): Cost of service revenue consists of cost directly related to the animal services provided at the Company’s
veterinary clinics and animal hospitals, which primarily includes personnel-related compensation costs of the employees at the Company’s
veterinary clinics or animal hospitals, laboratory costs, pet supply costs, third-party veterinarian contractors, office rent, utilities,
supplies, and other cost arising as a result of the services being performed, excluding depreciation and amortization. Cost of service
revenue increased $496,140, or 11%, to $5,137,887 for the six months ended June 30, 2024 as compared to $4,641,747 for the six months
ended June 30, 2023. The increase in cost of service revenue sold excluding depreciation and amortization was driven primarily by acquisition
of Valley Veterinary animal hospital and increase to payroll costs.
Cost of product revenue (exclusive of depreciation
and amortization): Cost of product revenue consists of cost directly related to the product sales at the Company’s veterinary
clinics and animal hospitals, which primarily includes personnel-related compensation costs of the employees at the Company’s veterinary
clinics or animal hospitals, purchase price of the medication we dispense, and purchase price of product sold, excluding depreciation
and amortization. Cost of product revenue increased $173,974, or 10%, to $1,952,104 for the six months ended June 30, 2024 as compared
to $1,778,130 for the six months ended June 30, 2023. The increase in was driven primarily by the acquisition of Valley Veterinary animal
hospital, an increase to payroll costs and increase in product cost.
General and Administrative Expense: General
and administrative expenses include personnel-related compensation costs for corporate employees, such as management, accounting, legal,
acquisition related and non-recurring expenses, insurance and other expenses used to operate the business. General and administrative
expenses increased $1,404,617, or 38% to $5,092,077 for the six months ended June 30, 2024 as compared to $3,687,460 for the six months
ended June 30, 2023. The increase was primarily due to the expenses generated by the Company’s animal hospitals and clinics acquired,
the IR agency contracts, marketing agreements and consulting contracts the Company entered into during the first quarter of 2024.
Depreciation and Amortization Expense: Depreciation
and amortization expenses mainly relate to the assets used in generating revenue. Depreciation and amortization increased $105,615, or
18%, to $708,123 for the six months ended June 30, 2024 as compared to $602,508 for the six months ended June 30, 2023. The increase
was primarily due to the acquisition of depreciable or amortizable assets as part of the acquisitions of animal hospitals and clinics.
Other Expense: Other expense are
composed primarily of interest expenses and small denomination bank fee charges. Other expense increased $723,269, or 87%, to $1,552,108 for
the six months ended June 30, 2024 as compared to $828,839 for the six months ended June 30, 2023. The increase was primarily due to
the financing arrangements to fund working capital at a very high effective interest rate as compared to the Company’s term loans.
Net Loss: Net Loss increased $4,041,470,
or 154%, to $6,808,213 for the six months ended June 30, 2024 as compared to $2,766,743 for the six months ended June 30, 2023. The net
loss is primarily attributable to the operating expenses associated with the Company’s animal hospitals and clinics, the cost associated
with the public raise during the quarter, the IR Agency Consulting Agreement and other 3rd party consulting arrangements entered
into to increase customer outreach and improve operations.
Comparability of Our Results of Operations
Results of Operations for the three months
ended June 30, 2024 compared to the six months ended June 30, 2023:
Summary of Results of Operations
| |
For the Three Months Ended
June 30, | |
| |
2024 | | |
2023 | |
Service revenue | |
$ | 3,220,238 | | |
$ | 3,200,694 | |
Product revenue | |
| 1,170,143 | | |
| 1,288,732 | |
Total revenue | |
| 4,390,381 | | |
| 4,489,426 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Cost of service revenue (exclusive of depreciation and amortization, shown separately below) | |
| 2,428,740 | | |
| 2,333,844 | |
Cost of product revenue (exclusive of depreciation and amortization, shown separately below) | |
| 935,997 | | |
| 898,730 | |
General and administrative expenses | |
| 2,218,734 | | |
| 1,885,801 | |
Debt extinguishment loss | |
| 859,584 | | |
| - | |
Depreciation and amortization | |
| 340,926 | | |
| 304,016 | |
Total operating expenses | |
| 6,783,981 | | |
| 5,422,391 | |
| |
| | | |
| | |
Loss from operations | |
| (2,393,600 | ) | |
| (932,965 | ) |
| |
| | | |
| | |
Other income (expenses): | |
| | | |
| | |
Interest income | |
| - | | |
| 5 | |
Interest expense | |
| (988,053 | ) | |
| (285,376 | ) |
Other expenses | |
| (4,768 | ) | |
| (9,458 | ) |
Total other expenses | |
| (992,821 | ) | |
| (294,829 | ) |
| |
| | | |
| | |
Loss before income taxes | |
| (3,386,421 | ) | |
| (1,227,794 | ) |
| |
| | | |
| | |
Benefit for income taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Net loss | |
| (3,386,421 | ) | |
| (1,227,794 | ) |
Dividend on convertible series A preferred stock | |
| (6,330 | ) | |
| - | |
Net loss attributable to class A and B common stockholders | |
| (3,392,751 | ) | |
| (1,227,794 | ) |
| |
| | | |
| | |
Net loss per Class A and B common shares: | |
| | | |
| | |
Basic and diluted | |
$ | (0.70 | ) | |
$ | (0.28 | ) |
Weighted average shares outstanding per Class A and B common shares: | |
| | | |
| | |
Basic and diluted | |
| 4,821,424 | | |
| 4,309,705 | |
Revenue
The following table presents the breakdown of
revenue between products and services:
| |
For the Three Month Ended | | |
June 30, 2024 vs.
June 30, 2023 | |
| |
June 30,
2024 | | |
June 30,
2023 | | |
$
Change | | |
%
Change | |
Revenue: | |
| | |
| | |
| | |
| |
Service Revenue | |
| 3,220,238 | | |
| 3,200,694 | | |
| 19,544 | | |
| 1 | % |
Percentage of revenue | |
| 73 | % | |
| 71 | % | |
| | | |
| | |
Product Revenue | |
| 1,170,143 | | |
| 1,288,732 | | |
| (118,589 | ) | |
| -9 | % |
Percentage of revenue | |
| 27 | % | |
| 29 | % | |
| | | |
| | |
Total | |
$ | 4,390,381 | | |
$ | 4,489,426 | | |
$ | (99,045 | ) | |
| -2 | % |
| |
Average Daily Service Revenue
for the Year Ended | | |
June 30, 2024 vs.
June 30, 2023 | |
Animal Hospital & Clinics | |
June 30,
2024 | | |
June 30,
2023 | | |
$
Change | | |
%
Change | |
Kauai Veterinary Clinic | |
| 3,584 | | |
| 4,468 | | |
| (884 | ) | |
| -20 | % |
Chiefland Animal Hospital | |
| 1,689 | | |
| 2,001 | | |
| (313 | ) | |
| -16 | % |
Pets & Friends Animal Hospital | |
| 4,229 | | |
| 2,665 | | |
| 1,564 | | |
| 59 | % |
Advanced Veterinary Care of Pasco | |
| 1,925 | | |
| 2,070 | | |
| (145 | ) | |
| -7 | % |
Lytle Veterinary Clinic | |
| 1,817 | | |
| 1,777 | | |
| 40 | | |
| 2 | % |
Southern Kern Veterinary Clinic | |
| 3,568 | | |
| 3,063 | | |
| 505 | | |
| 16 | % |
Bartow Animal Clinic | |
| 1,752 | | |
| 2,670 | | |
| (918 | ) | |
| -34 | % |
Dietz Family Pet Hospital | |
| 1,580 | | |
| 2,075 | | |
| (495 | ) | |
| -24 | % |
Aberdeen Veterinary Clinic | |
| 1,147 | | |
| 1,643 | | |
| (495 | ) | |
| -30 | % |
All Breed Pet Care Veterinary Clinic | |
| 2,783 | | |
| 3,338 | | |
| (555 | ) | |
| -17 | % |
Pony Express Veterinary Hospital | |
| 3,675 | | |
| 4,090 | | |
| (415 | ) | |
| -10 | % |
Williamsburg Animal Clinic | |
| 2,219 | | |
| 2,453 | | |
| (233 | ) | |
| -10 | % |
Old 41 Animal Hospital | |
| 1,445 | | |
| 2,859 | | |
| (1,414 | ) | |
| -49 | % |
Valley Veterinary Services Animal Hospital | |
| 3,973 | | |
| - | | |
| 3,973 | | |
| 100 | % |
Total Daily Service Revenue | |
$ | 35,387 | | |
$ | 35,172 | | |
$ | 215 | | |
| | |
| |
Average Daily Product
Revenue for the
Year Ended | | |
June 30, 2024 vs.
June 30, 2023 | |
Animal Hospital & Clinics | |
June 30,
2024 | | |
June 30,
2023 | | |
$
Change | | |
%
Change | |
Kauai Veterinary Clinic | |
| 1,261 | | |
| 1,973 | | |
| (712 | ) | |
| -36 | % |
Chiefland Animal Hospital | |
| 1,082 | | |
| 946 | | |
| 136 | | |
| 14 | % |
Pets & Friends Animal Hospital | |
| 1,282 | | |
| 1,131 | | |
| 151 | | |
| 13 | % |
Advanced Veterinary Care of Pasco | |
| 473 | | |
| 1,143 | | |
| (670 | ) | |
| -59 | % |
Lytle Veterinary Clinic | |
| 928 | | |
| 1,012 | | |
| (84 | ) | |
| -8 | % |
Southern Kern Veterinary Clinic | |
| 767 | | |
| 468 | | |
| 299 | | |
| 64 | % |
Bartow Animal Clinic | |
| 965 | | |
| 848 | | |
| 118 | | |
| 14 | % |
Dietz Family Pet Hospital | |
| 595 | | |
| 878 | | |
| (283 | ) | |
| -32 | % |
Aberdeen Veterinary Clinic | |
| 521 | | |
| 597 | | |
| (76 | ) | |
| -13 | % |
All Breed Pet Care Veterinary Clinic | |
| 833 | | |
| 1,702 | | |
| (870 | ) | |
| -51 | % |
Pony Express Veterinary Hospital | |
| 1,587 | | |
| 1,844 | | |
| (256 | ) | |
| -14 | % |
Williamsburg Animal Clinic | |
| 767 | | |
| 901 | | |
| (134 | ) | |
| -15 | % |
Old 41 Animal Hospital | |
| 513 | | |
| 719 | | |
| (206 | ) | |
| -29 | % |
Valley Veterinary Services Animal Hospital | |
| 1,283 | | |
| - | | |
| 1,283 | | |
| 100 | % |
Total Daily Product Revenue | |
$ | 12,859 | | |
$ | 14,162 | | |
$ | (1,303 | ) | |
| | |
Service Revenues: The Company
recognizes service revenue from health exams, pet grooming, veterinary care, and certain other services performed at our animal hospitals
or clinics and is recognized once the service is completed, as this is when the customer has the ability to direct the use of and obtain
the benefits of the services. Payment terms are at the point of sale but may also occur upon completion of the service. Service revenue
increased $19,544 or 1%, to $3,220,238 for the three months ended June 30, 2024 as compared to $3,200,694 for the three months ended
June 30, 2023. The increase was driven by an increase in revenue for three animal hospitals and clinics of $191,913 and one new animal
hospital acquired in Q4 2023 resulting in $361,523 increase offset by the decrease of $533,892 by the seven animal hospitals and clinics
already in operations.
Product Revenues: Product revenue is recognized
when control passes, which occurs at a point in time when the customer completes a transaction at our animal hospitals or clinics and
receives the product. Product revenue decreased $118,590, or 9%, to $1,170,143 for the three months ended June 30, 2024 as compared to
$1,288,732 for the three months ended June 30, 2023. The decrease was driven by a decrease in revenue for nine animal hospitals and clinics
of $299,492 offset by one new animal hospital acquired in Q4 2023 resulting in an increase of $116,792 and increase of $64,110 in the
remaining four animal hospitals and clinics in operations for the three months ended June 30, 2024.
Cost of service revenue (exclusive of depreciation
and amortization): Cost of service revenue consists of cost directly related to the animal services provided at the Company’s
veterinary clinics and animal hospitals, which primarily includes personnel-related compensation costs of the employees at the Company’s
veterinary clinics or animal hospitals, laboratory costs, pet supply costs, third-party veterinarian contractors, office rent, utilities,
supplies, and other cost arising as a result of the services being performed, excluding depreciation and amortization. Cost of service
revenue increased $94,896, or 4%, to $2,428,740 for the three months ended June 30, 2024 as compared to $2,333,844 for the three months
ended June 30, 2023. The increase in cost of service revenue sold excluding depreciation and amortization was driven primarily by acquisition
of Valley Veterinary animal hospital and increase to payroll costs.
Cost of product revenue (exclusive of depreciation
and amortization): Cost of product revenue consists of cost directly related to the product sales at the Company’s veterinary
clinics and animal hospitals, which primarily includes personnel-related compensation costs of the employees at the Company’s veterinary
clinics or animal hospitals, purchase price of the medication we dispense, and purchase price of product sold, excluding depreciation
and amortization. Cost of product revenue increased $37,267, or 4%, to $935,997 for the three months ended June 30, 2024 as compared
to $898,730 for the three months ended June 30, 2023. The increase in was driven primarily by the acquisition of Valley Veterinary animal
hospital, an increase to payroll costs and increase in product cost.
General and Administrative Expense: General
and administrative expenses include personnel-related compensation costs for corporate employees, such as management, accounting, legal,
acquisition related and non-recurring expenses, insurance and other expenses used to operate the business. General and administrative
expenses increased $332,933, or 18% to $2,218,734 for the three months ended June 30, 2024 as compared to $1,885,801 for the three months
ended June 30, 2023. The increase was primarily due to the expenses generated by the Company’s animal hospitals and clinics acquired
and the IR agency contracts and consulting contracts the Company entered into during the first quarter of 2024.
Depreciation and Amortization Expense: Depreciation
and amortization expenses mainly relate to the assets used in generating revenue. Depreciation and amortization increased $36,910, or
12%, to $340,926 for the three months ended June 30, 2024 as compared to $304,016 for the three months ended June 30, 2023. The increase
was primarily due to the acquisition of depreciable or amortizable assets as part of the acquisitions of animal hospitals and clinics.
Other Expense: Other expense are
composed primarily of interest expenses and small denomination bank fee charges. Other expense increased $697,992, or 237%, to $922,821 for
the three months ended June 30, 2024 as compared to $294,829 for the three months ended June 30, 2023. The increase was primarily due
to the financing arrangements to fund working capital at a very high effective interest rate as compared to the Company’s term
loans.
Net Loss: Net Loss increased $2,158,627,
or 176%, to $3,386,421 for the three months ended June 30, 2024 as compared to $1,227,794 for the three months ended June 30, 2023. The
net loss is primarily attributable to the operating expenses associated with the Company’s animal hospitals and clinics, the cost
associated with the public raise during the quarter, the IR Agency Consulting Agreement and other 3rd party consulting arrangements
entered into to increase customer outreach and improve operations.
Liquidity and Capital Resources
Since inception, we have financed our operations
from a combination of:
|
● |
issuances and sales of
senior convertible notes; |
|
● |
issuance of convertible
debentures; |
|
● |
borrowings under other
debt consisting of: (i) a principal lending relationship with Farmers National Bank of Danville; (ii)a principal lending relationship
with First Southern National Bank; (iii) short term financing arrangements under merchant cash advance agreement; |
|
● |
common stock purchase agreement
with Tumim Stone Capital LLC, |
|
● |
proceeds from issuance
of equity; and |
|
● |
cash generated from operations. |
The Company has experienced operating losses
since its inception and had a total accumulated deficit of $28,244,320 as of June 30, 2024. The Company expects to incur additional costs
and require additional capital as the Company continues to acquire additional veterinary hospitals, clinics and practices. During the
six months ended June 30, 2024 the Company’s cash used in operations was $3,019,312.
The Company’s primary short-term cash requirements
are to fund working capital, lease obligations and short-term debt, including current maturities of long-term debt. Working capital requirements
can vary significantly from period to period, particularly as a result of additional business acquisitions. The Company’s medium-term
to long-term cash requirements are to service and repay debt, to expand through acquisitions, and to invest in facilities and equipment
for growth initiatives.
The Company’s ability to fund its cash
needs will depend, in part, on its ability to generate cash in the future, which depends on future financial results. The Company’s
future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our
control. The Company’s future access to, and the availability of credit on acceptable terms and conditions, is impacted by many
factors, including capital market liquidity and overall economic conditions.
These financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred recurring losses and as of June 30, 2024, had an accumulated deficit of $28,244,320. For the three and six months
ended June 30, 2024, the Company sustained a net loss of $3,386,421 and $6,808,213. These factors, among others, raise substantial doubt
about the Company’s ability to continue as a going concern for the next twelve months from the date these financial statements
were issued. These financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going
concern. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate
revenue and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through
debt or equity financing during the next twelve months. Management believes that actions presently being taken to obtain additional funding
provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving
these objectives.
We cannot be sure that future funding will be
available to us on acceptable terms, or at all. Due to often volatile nature of the financial markets, equity and debt financing may
be difficult to obtain.
We may seek to raise any necessary additional
capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing
arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and
distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish
valuable rights or future revenue streams on terms that may not be favorable to us. If we raise additional capital through private or
public equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing,
we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends.
As of the date of this filing, the Company was
in compliance with all covenants and restrictions associated with our debt agreements. The Company is not aware of any instances of breaches
or non-compliance with its covenants and commitments under its debt agreements.
Master Lending and Credit Facility
On June 25, 2021, the Company entered into a
master line of credit loan agreement (“MLOCA”) with Wealth South a division of Farmers National Bank of Danville, Kentucky
(“FNBD”). The MLOCA provides for a $2,000,000 revolving secured credit facility (“Revolving Line”) to be drawn
for the initial purchase of veterinary clinical practices (“Practices”) and a $8,000,000 closed end line of credit (“Closed
End Line”) to be disbursed as individual loans (Term Loans) to paydown draws on the Revolving Line and to provide longer term financing
of the purchase of Practices. Each draw on the Revolving Line shall be repaid with a Term Loan out of the Closed End Line within one
hundred and twenty (120) days of the draw on the Revolving Line. Each draw on the Revolving Line and the Closed End Line shall not exceed
eighty-five (85%) percent of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen
(15%) percent of the initial purchase price of a Practice as long as any draw on the Revolving Line or a Term Loan remains unpaid with
FNBD. The Revolving Line has an interest rate equal to the New York Prime Rate plus 0.50% that shall never be less than 3.57%. Each Term
Loan issued under the Closed End Line shall have a fixed interest rate of 3.98% for the first five years of the loan. Immediately following
the fixed rate period, the rate of interest rate will equal to the New York Prime Rate plus 0.65% that shall never be less than 3.57%.
Each Practice to be acquired must have a minimum projected debt-service coverage ratio (“DSCR”) of 1.0x, defined as earnings
before interest depreciation and amortization (“EBIDA”)/Annual Debt Service Requirement. The MLOCA terminates and the Revolving
Line matures on June 25, 2023.
Under the MLOCA the Term Loans to acquire a Practice
shall not exceed 10 years. The first twelve months of the Term Loan may be interest only. Thereafter, the Loan will convert to an amortizing
loan with monthly principal and interest payments. For Practice only Term Loans (“Practice Term Loans”), after the initial
twelve-month interest only period, the balance will amortize over 9 years. For Loans made to purchase real property (“RE Term Loans”),
after the initial twelve-month interest only period, the balance will amortize over a 19-year period.
There is no prepayment penalty on payments on
the Revolving Line. The Term Loans are subject to a refinance fee of 2% of the then outstanding principal balance of the Term Loan if
paid within two years of entering into the Term Loan and 1% of the then outstanding principal balance of the Term Loan if paid within
three to five years of entering into the Term Loan. The refinance fee is due only if the Term Loan is paid off by refinancing. Borrowing
under the MLOCA are guaranteed by Kimball Carr, CEO & President of the Company.
On August 18, 2022 the MLOCA was amended and
restated to terminate the revolving feature on the Revolving Line and convert the line of credit to a closed end draw note (“Closed
End Draw Note”) that mature on August 18, 2024. Each draw on the Closed End Draw Note shall not exceed eighty-five (85%) percent
of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen (15%) percent of the
initial purchase price of a Practice as long as any draw on the Closed End Draw Note or a Term Loan remains unpaid with FNBD. The interest
rate charge on all sums advance under the amended and restated MLOCA shall be 5.25% for the first five years of the loan. Immediately
following the fixed rate period, the rate of interest will be equal to the New York Prime Rate plus 0.65% that shall never be less than
4.75%. Each Practice to be acquired must have a minimum projected DSCR of 1.0x, defined as EBIDA/Annual Debt Service Requirement. The
MLOCA terminates and the Closed End Draw Note matures on August 18, 2024.
Notes payable to FNBD as of June 30, 2024 and
December 31, 2023 consisted of the following:
Original Principal | | |
Acquisition | |
Entered | |
Maturity | |
Interest | | |
June 30, 2024 | | |
December 31, 2023 | | |
Issuance Cost | |
$ | 237,272 | | |
CAH | |
12/27/21 | |
12/27/41 | |
| 3.98 | % | |
$ | 224,425 | | |
$ | 228,785 | | |
$ | 6,108 | |
| 231,987 | | |
CAH | |
12/27/21 | |
12/27/31 | |
| 3.98 | % | |
| 198,925 | | |
| 210,161 | | |
| 6,108 | |
| 216,750 | | |
P&F | |
12/27/21 | |
12/27/41 | |
| 3.98 | % | |
| 205,014 | | |
| 208,997 | | |
| 5,370 | |
| 318,750 | | |
P&F | |
12/27/21 | |
12/27/31 | |
| 3.98 | % | |
| 273,324 | | |
| 288,761 | | |
| 5,370 | |
| 817,135 | | |
Pasco | |
1/14/22 | |
1/14/32 | |
| 3.98 | % | |
| 707,294 | | |
| 746,733 | | |
| 3,085 | |
| 478,098 | | |
Lytle | |
3/15/22 | |
3/15/32 | |
| 3.98 | % | |
| 421,668 | | |
| 444,593 | | |
| 1,898 | |
| 663,000 | | |
Lytle | |
3/15/22 | |
3/15/42 | |
| 3.98 | % | |
| 633,329 | | |
| 645,392 | | |
| 11,875 | |
| 425,000 | | |
Kern | |
3/22/22 | |
3/22/42 | |
| 3.98 | % | |
| 405,980 | | |
| 413,713 | | |
| 7,855 | |
| 1,275,000 | | |
Kern | |
3/22/22 | |
3/22/32 | |
| 3.98 | % | |
| 1,124,511 | | |
| 1,185,648 | | |
| 4,688 | |
| 246,500 | | |
Bartow | |
5/18/22 | |
5/18/42 | |
| 3.98 | % | |
| 236,974 | | |
| 241,429 | | |
| 5,072 | |
| 722,500 | | |
Bartow | |
5/18/22 | |
5/18/32 | |
| 3.98 | % | |
| 648,851 | | |
| 683,262 | | |
| 2,754 | |
| 382,500 | | |
Dietz | |
6/15/22 | |
6/15/32 | |
| 3.98 | % | |
| 346,552 | | |
| 364,708 | | |
| 1,564 | |
| 445,981 | | |
Aberdeen | |
7/19/22 | |
7/29/32 | |
| 3.98 | % | |
| 407,649 | | |
| 428,747 | | |
| 1,786 | |
| 1,020,000 | | |
All Breed | |
8/12/22 | |
8/12/42 | |
| 3.98 | % | |
| 989,792 | | |
| 1,008,039 | | |
| 8,702 | |
| 519,527 | | |
All Breed | |
8/12/22 | |
8/12/32 | |
| 3.98 | % | |
| 478,978 | | |
| 503,471 | | |
| 3,159 | |
| 225,923 | | |
All Breed | |
8/12/22 | |
8/12/32 | |
| 5.25 | % | |
| 209,262 | | |
| 219,347 | | |
| 3,159 | |
| 637,500 | | |
Williamsburg | |
12/8/22 | |
12/8/32 | |
| 5.25 | % | |
| 609,544 | | |
| 637,500 | | |
| 2,556 | |
| 850,000 | | |
Valley Vet | |
11/8/23 | |
11/8/33 | |
| 5.25 | % | |
| 850,000 | | |
| 850,000 | | |
| 3,315 | |
$ | 9,713,423 | | |
| |
| |
| |
| | | |
$ | 8,972,072 | | |
$ | 9,309,286 | | |
$ | 84,424 | |
The Company amortized $1,543 and $2,069 of issuance
cost in the aggregate during the three months ending June 30, 2024 and 2023, respectively. The Company amortized $3,086 and $4,151 of
issuance cost in the aggregate during the six months ending June 30, 2024 and 2023, respectively, for the FNBD notes payable.
FSB Commercial Loans
The Company entered into three separate commercial
loans with First Southern National Bank (“FSB”) as part of the acquisition. The first commercial loan in the amount of $1,105,000
has a fixed interest rate of 4.35% and a maturity date of January 25, 2024. The fixed rate loan has monthly payments of $6,903 and a
full payoff of the remaining principal balance at maturity. The commercial loan had issuance costs of $13,264 that was capitalized and
is being amortized straight line over the life of the loan. The Company entered into a Forbearance Agreement that extended the maturity
date to August 31, 2024 and required the lender to make monthly payments of $9,016 and increased the interest rate to 8.15% per annum.
The second commercial loan with FSB entered into
on January 11, 2021 in the amount of $1,278,400 has a fixed interest rate of 4.35% and a maturity date of January 25, 2024. The fixed
rate loan has monthly payments of $13,157 and a full payoff of the remaining principal balance at maturity. The commercial loan had issuance
costs of $10,085 that was capitalized and is being amortized straight line over the life of the loan. The Company entered into a Forbearance
Agreement that extended the maturity date to August 31, 2024 and required the lender to make monthly payments of $14,898 and increased
the interest rate to 8.15% per annum.
The third commercial loan with FSB entered into
on January 11, 2021 in the amount of $450,000 has a fixed interest rate of 5.05% and a maturity date of September 11, 2021. The commercial
loan was modified on August 25, 2021 to extend the maturity date to February 25, 2023 and increase the principal amount to $469,914.
The fixed rate loan had monthly payments of $27,164 and was fully paid off on the maturity date. The commercial loan had issuance costs
of $753 that was capitalized and is being amortized straight line over the life of the loan.
On October 31, 2022 the Company entered into
three separate commercial loans with FSB as part of the Pony Express Practice acquisition. The first loan with FSB that was entered into
on October 31, 2022, was in the amount of $2,086,921. The loan has a fixed interest rate of 5.97% and a maturity date of October 31,
2025. The fixed rate loan has monthly payments of $23,138 except for a final monthly payment of $1,608,530. The commercial loan had issuance
costs of $25,575 that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered into
on October 31, 2022, was in the amount of $400,000. The loan has a fixed interest rate of 5.97% and a maturity date of October 31, 2042.
The fixed rate loan has monthly payments of $2,859. The commercial loan had issuance costs of $3,277 that was capitalized and is being
amortized straight line over the life of the loan.
The third loan with FSB that was entered into
on October 31, 2022, was in the amount of $700,000. The loan has a fixed interest rate of 6.75% and a maturity date of April 1, 2023.
The fixed rate loan has monthly payments of $6,903 except for a final monthly payment of $423,278. The commercial loan did not have any
issuance costs that were capitalized.
On December 16, 2022, the Company entered into
two separate commercial loans with FSB as part of the Old 41 Practice acquisition. The first loan with FSB that was entered into on December
16, 2022, was in the amount of $568,000. The loan has a fixed interest rate of 6.50% and a maturity date of December 16, 2025. The fixed
rate loan has monthly payments of $4,772 and a full payoff of the remaining principal balance at maturity. The loan had issuance costs
of $4,531 for the year ended December 31, 2022, that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered into
December 16, 2022, was in the amount of $640,000. The loan has a fixed interest rate of 6.50% and a maturity date of December 16, 2025.
The fixed rate loan has twelve monthly payments of approximately $2,830, followed by monthly payments of $7,443. and the interest rate
is 6.50%. The loan had issuance costs of $5,077 that was capitalized and is being amortized straight line over the life of the loan.
On November 8, 2023, the Company entered into
a commercial loan with FSB as part of the Valley Vet practice acquisition. The loan with FSB was entered into on November 8, 2022 for
$375,000. The loan has a fixed interest rate of 8.5%. The loan had issuance costs of $5,077 that was capitalized and is being amortized
straight line over the life of the loan.
The FSB commercial loans are guaranteed by Kimball
Carr, Chief Executive Officer and President and Charles Stith Keiser, our Vice Chairman and Chief Operating Officer.
Notes payable to FSB as of June 30, 2024 and
December 31, 2023 consisted of the following:
Original Principal | | |
Acquisition | |
Entered | |
Maturity | |
Interest | | |
June 30, 2024 | | |
December 31, 2023 | | |
Issuance Cost | |
$ | 1,105,000 | | |
KVC | |
1/25/21 | |
8/31/24 | |
| 4.35 | % | |
$ | 993,791 | | |
$ | 997,010 | | |
$ | 13,264 | |
| 1,278,400 | | |
KVC | |
1/25/21 | |
8/31/24 | |
| 4.35 | % | |
| 951,242 | | |
| 960,849 | | |
| 10,085 | |
| 469,914 | | |
KVC | |
1/25/21 | |
2/25/23 | |
| 5.05 | % | |
| - | | |
| - | | |
| 753 | |
| 2,086,921 | | |
Pony Express | |
10/31/22 | |
10/31/25 | |
| 5.97 | % | |
| 1,819,385 | | |
| 1,902,452 | | |
| 25,575 | |
| 400,000 | | |
Pony Express | |
10/31/22 | |
10/31/42 | |
| 5.97 | % | |
| 381,774 | | |
| 387,433 | | |
| 3,277 | |
| 568,000 | | |
Old 41 | |
12/16/22 | |
12/16/25 | |
| 6.5 | % | |
| - | | |
| 520,697 | | |
| 4,531 | |
| 640,000 | | |
Old 41 | |
12/16/22 | |
12/16/25 | |
| 6.5 | % | |
| 495,871 | | |
| 623,861 | | |
| 5,077 | |
| 375,000 | | |
Valley Vet | |
11/8/2023 | |
11/8/2024 | |
| 8.5 | % | |
| 615,390 | | |
| 375,000 | | |
| 6,877 | |
$ | 7,623,235 | | |
| |
| |
| |
| | | |
$ | 5,632,453 | | |
$ | 5,767,302 | | |
$ | 69,439 | |
The Company amortized $5,090 and $3,380 of issuance
cost in the aggregate during the three months ending June 30, 2024 and 2023, respectively. The Company amortized $10,180 and $6,781 of
issuance cost in the aggregate during the six months ending June 30, 2024 and 2023, respectively, for the FSB notes payable.
Notes payable as of June 30, 2024 and December
31, 2023 consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2024 | | |
2023 | |
FNBD Notes Payable | |
$ | 8,972,072 | | |
$ | 9,309,286 | |
FSB Notes Payable | |
| 5,632,453 | | |
| 5,767,302 | |
Total notes payable | |
| 14,604,525 | | |
| 15,076,588 | |
Unamortized debt issuance costs | |
| (110,403 | ) | |
| (124,170 | ) |
Notes payable, net of issuance cost | |
| 14,494,122 | | |
| 14,952,418 | |
Less current portion | |
| (3,316,147 | ) | |
| (1,469,043 | ) |
Long-term portion | |
$ | 11,177,975 | | |
$ | 13,483,375 | |
Notes payable repayment requirements as of June
30, 2024, in the succeeding years are summarized as follows:
Remainder of 2024 | |
$ | 2,796,379 | |
2025 | |
| 3,610,465 | |
2026 | |
| 835,031 | |
2027 | |
| 872,072 | |
2028 | |
| 909,759 | |
Thereafter | |
| 5,580,819 | |
Total | |
$ | 14,604,525 | |
Bridge Note
In December 2021, the Company entered into two
bridge loans in the aggregate amount of $2,500,000 with Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund as short term
secured convertible notes (“Bridge Note”). The Bridge Note is convertible into the Company’s common stock, at the time
of a successful initial public offering (“IPO”) at the noteholder’s option, at a 35% discount to the IPO price. The
Bridge Note has a face value of $2,500,000 with an original issue discount (“OID”) of 12% and has a maturity date of January
24, 2023. The OID of $300,000 is being amortized over the life of the loan. If the Company has not issued the Company’s common
stock in an initial public offering pursuant to a registration statement filed with and declared effective by the Securities and Exchange
Commission (“SEC”) and the listing of the common stock on a “national securities exchange” as defined in Section
6 of the Securities Exchange Act of 1934, as amended (“Qualified financing”) by January 24, 2023 the conversion price will
be set at a 40% discount to the IPO price. The Bridge Note was funded in two installments of net proceeds of $1,100,000 in December 2021
and the second installment January 2022. The bridge loans had issuance costs of $70,500 for the first installment and $54,000 for the
second installment that is amortized straight line over the life of the loan. The Company amortized $0 and $62,758 of issuance cost during
the three months ended June 30, 2024 and 2023, respectively. The Company amortized $0 and $62,758 of issuance cost during the six months
ended June 30, 2024 and 2023.
In conjunction with the Bridge Note the Company
issued warrants on January 24, 2022 to Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund (collectively the “Bridge
Lenders”). The warrants entitled the Bridge Lenders to purchase the Company’s Class A common stock, at a purchase price equal
to the per share price in an IPO. The quantity of the Company’s common stock of subject to purchase upon exercise of the warrants
is equal to 50% of the face value of the Bridge Note, divided by the per-share price in the Qualified Financing, unless a Qualified Financing
has not been completed by January 24, 2023 in which case the quantity of Class A common stock subject to purchase upon exercise of the
warrants will be an amount equal to 75% of the face value of the Bridge Note divided by the per-share price in the Qualified Financing.
If a Qualified Financing has not consummated or the Bridge Note has not been repaid in full on or before January 24, 2027, then the quantity
of common stock subject to purchase upon exercise of the warrants will be an amount equal to 100% of the face value divided by the per-share
price equal to the fair market value of one share of Class A common stock as mutually agreed by the Holder and the Company. The warrants
are exercisable through the fifth anniversary of the issuance date. The warrants may be redeemed at the option of the Company at any
time following a Qualified Financing if the Company’s common stock trade on a national securities exchange at a price equal to
the purchase price of the Company’s common stock in the Qualified Financing multiplied by 2 for a period of ten consecutive trading
days.
On November 18, 2022, the Company entered into
an Original Issue Discount Secured Convertible Note loan with Target Capital 1, LLC for $1,136,364. The note is issued at an original
issue discount of 12% with an maturity date on the earlier of March 31, 2023 (“Initial Maturity Date”) or the Company’s
sale of its common stock in an initial public offering pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission and the listing of the common stock on a “national securities exchange” as defined in
Section 6 of the Securities Exchange Act of 1934, as amended (“Qualified Financing” or the “Maturity Date”).
If the Company has filed its Form S-1 Registration Statement with the SEC on or prior to the Initial Maturity Date but the Qualified
Financing has not closed by such date (“Automatic Extension”) then all principal and accrued interest under this Note shall
become due and payable in cash on September 30, 2023 (the “Final Maturity Date”) or such earlier date as this note is required
be repaid. The note bears an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic
Extension, this note shall commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of
the Automatic Extension until the note is converted or is paid in full. The Company may pay the full principal amount of this note, and
all accrued but unpaid interest at any time prior to the Maturity Date without the prior written consent of the holder in the principal
amount of $1,136,364, plus all accrued but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required
to pay this note in cash at the on or after the Initial Maturity Date due to, upon the closing date of a Qualified Financing, the Company
shall pay to the holder $1,136,364, plus all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation
of an Event of Default (as defined in the note), until the Event of Default is cured, or the note is repaid in full, Company will pay
20% of its total gross revenues (including that of all its subsidiaries) monthly, which shall be applied to payment of principal and
interest under this this note. The conversion price (the “Conversion Price”) shall be equal to the price paid by the public
in the Company’s Qualified Financing multiplied by 0.65 (or 0.60, from and after any Automatic Extension).
In conjunction with the Original Issue Discount
Secured Convertible Note with Target Capital 1, LLC the company issued the holder 412 shares of Class A common stock and equity classified
warrants that entitle the holder to purchase the Company’s common stock at a purchase price equal to the per share price in an
IPO. The quantity of the Company’s common stock of subject to purchase upon exercise of the warrants is equal to 50% of the face
value of the Bridge Note, divided by the per-share price in the Qualified Financing, unless a Qualified Financing has not been completed
by March 31, 2023 in which case the quantity of Class A common stock subject to purchase upon exercise of the warrants will be an amount
equal to 75% of the face value of the Bridge Note divided by the per-share price in the Qualified Financing.
On November 18, 2022, the Company entered into
an Original Issue Discount Secured Convertible Note with 622 Capital LLC for $568,182. The note is issued at an original issue discount
of 12% with an maturity date on the earlier of January 24, 2023 (the “622 Initial Maturity Date”) or the Company’s
sale of its common stock in an initial public offering pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission and the listing of the common stock on a “national securities exchange” as defined in
Section 6 of the Securities Exchange Act of 1934, as amended (“Qualified Financing” or the “622 Maturity Date”).
If the Company has filed its Form S-1 Registration Statement with the SEC on or prior to the 622 Initial Maturity Date but the Qualified
Financing has not closed by such date (“Automatic Extension”) then all principal and accrued interest under this note shall
become due and payable in cash on July 24, 2023 (the “622 Final Maturity Date”) or such earlier date as this note is required
be repaid. The note bears an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic
Extension, this note shall commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of
the Automatic Extension until the note is converted or is paid in full. The Company may pay the full principal amount of this note and
all accrued but unpaid interest at any time prior to the 622 Maturity Date without the prior written consent of the holder in the principal
amount of $568,182, plus all accrued but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required
to pay this note in cash at the on or after the 622 Initial Maturity Date due to, upon the closing date of Qualified Financing, the Company
shall pay to the holder $568,182, plus all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation
of an Event of Default (as defined in the note), until the Event of Default is cured or the note is repaid in full, Company will pay
20% of its total gross revenues (including that of all its subsidiaries) monthly, which shall be applied to payment of principal and
interest under this this note. The conversion price (the “Conversion Price”) shall be equal to the price paid by the public
in the Company’s Qualified Financing multiplied by 0.65 (or 0.60, from and after any Automatic Extension).
In conjunction with the Original Issue Discount
Secured Convertible Note with 662 Capital LLC the company issued the holder equity classified warrants that entitle the holder to purchase
the Company’s common stock at a purchase price equal to the per share price in an IPO. The quantity of the Company’s common
stock of subject to purchase upon exercise of the warrants is equal to 50% of the face value of the Bridge Note, divided by the per-share
price in the Qualified Financing, unless a Qualified Financing has not been completed by March 31, 2023 in which case the quantity of
Class A common stock subject to purchase upon exercise of the warrants will be an amount equal to 75% of the face value of the Bridge
Note divided by the per-share price in the Qualified Financing.
The warrants were deemed legally detachable from
the Bridge Note and were fair valued using the Black Scholes Method to determine the relative fair values of the Bridge Note and the
detachable warrants. The significant inputs for the Black Scholes calculation included the exercise price and common share price of $0.44,
volatility rate of 27% and risk-free rate of 1.53% with a 5 year term. The proceeds received for the Bridge Note were allocated to the
detached warrants based on the relative fair values. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount
on debt is $429,284; this is amortized to interest expense on a straight-line basis over the term of the loan.
A roll forward of the bridge
note for the six months ended June 30, 2023 is below:
Bridge notes, December 31, 2022 | |
| 3,899,156 | |
Amortization of original issue discount | |
| 116,656 | |
Amortization of warrant discount | |
| 125,975 | |
Amortization of debt issuance costs | |
| 62,758 | |
Bridge notes, March 31, 2023 | |
| 4,204,545 | |
Extinguishment of bridge notes in exchange for Series A Preferred Stock | |
| (4,204,545 | ) |
Bridge notes, June 30, 2023 | |
| - | |
On June 30, 2023, the Company entered into exchange
agreements (the “Exchange Agreements”) with each of the Company’s Bridge Note lenders, pursuant to which the lenders
exchanged their existing Bridge Notes for 29,896 shares, 352,771 shares, and 59,792 shares, respectively, of Convertible Series A preferred
stock (442,458 shares of Convertible Series A Preferred stock in total) (the “Exchange”). The Exchange Agreements would have
been rescinded, and the former Bridge Notes reinstated if the Company didn’t complete the initial public offering by September
1, 2023. Upon the IPO completing on August 31, 2023, the Company recognized the extinguishment of the Bridge Notes pursuant to ASC 470
and recognized a debt extinguishment loss of $16,105. The Company recognized a beneficial conversion feature of $2,567,866 for the
issuance of the Series A preferred stock on the date of the IPO due to the $4 (Pre-Reverse Split) offering price related to the IPO being
known as of that date.
Convertible Debenture
Between March 18 and December 28, 2021, the Company
issued $2,102,500 in aggregate principal amount of 6.00% subordinated convertible promissory note (“Convertible Debenture”).
During the year ending December 31, 2022 the Company issued $1,612,000 in aggregated principal amount of the 6.00% Convertible Debenture.
In March 2023 the Company issued an additional $650,000 in aggregate principal amount of 6.00% Convertible Debenture to five (5) separate
holders. The Convertible Debenture is convertible into the Company’s Class A common stock upon the Company’s offering for
sale its shares in a public offering (“IPO”). At the holder’s election, the accrued interest and principal may be paid
in cash or Class A common stock (such number of shares reflecting a twenty-five percent (25%) discount of the opening price per share
of Class A common stock). The Convertible Debenture mature 5 years from the date of issuance to each holder. Prior to the maturity date,
the holder is entitled to convert the Convertible Debenture into Class A common stock upon the Company’s IPO. Upon an IPO the accrued
and unpaid interest is due and payable in cash on the first business day of the following month of March for any balance not elected
to be converted into the Class A common stock. The Convertible Debenture incurred issuance cost of $40,000 that was amortized straight
line over the life of the Convertible Debenture. The Company amortized $1,993 and $1,993 of issuance cost during the three months ended
June 30, 2024 and 2023, respectively. The Company amortized $3,987 and $3,965 for the six months ending June 30, 2024 and 2023, respectively.
Upon the Company’s IPO closing on August
31, 2023, the majority of Convertible Debenture holders elected to convert an aggregate of $4,014,500 of principal and $399,818 of accrued
interest into 14,953 shares of Class A common stock at a conversion price of $30.00 per share. The Company recorded a beneficial conversion
feature as of the date of the conversion of $1,569,395 based on the IPO price of $40 per share minus the principal and accrued interest
of the Convertible Debenture balance converted into common stock. Four holders of the Convertible Debenture with an aggregate principal
balance of $250,000 elected to be paid back in cash and one investor with a principal balance of $100,000 elected to be paid on February
28, 2024 including accrued interest through the date of payment at 6%.
Loans Payable
On May 30, 2023, the Company entered into a Merchant
Cash Advance Agreement for gross proceeds of $1,050,000 with an unrelated third-party financial institution. Under the terms of the agreement,
the Company must pay $57,346 each week for 26 weeks with the first payment being due June 6, 2023. The financing arrangement has an effective
interest rate of 49%. The financing arrangement includes an original issuance discount (“OID”) of $441,000 and issuance costs
of $50,000. The OID and issuance cost associated with the financing arrangement are presented in the balance sheets as a direct deduction
from the carrying amount of the financing arrangement and is amortized using the effective interest method.
On August 10, 2023, the Company amended the financing
arrangement to borrow an additional $507,460 resulting in the weekly repayments increasing to $76,071 to be paid over 28 weeks. This
amendment decreased the effective interest rate to 41%. The refinancing resulted in a loss on debt modification of $441,618.
On November 28, 2023, the Company amended the
financing arrangement to borrow an additional $531,071 resulting in the weekly payments to decrease to $56,800 to be paid over 40 weeks.
This amendment increased the effective rate to 49%. The refinancing resulted in a loss on debt modification of $485,436.
On January 18, 2024, the Company amended the
financing arrangement to borrow an additional $549,185 resulting in the weekly payments to increase to $86,214 to be paid over 43 weeks.
This amendment increased the effective interest rate to 52%. The refinancing resulted in a loss on debt modification of $728,278.
On May 7, 2024, the Company amended the financing
arrangement to borrow an additional $518,750 resulting in the weekly payments to increase to $90,229 to be paid over 48 weeks. This amendment
decreased the effective interest rate to 49%. The refinancing resulted in a loss on debt modification of $859,584.
On April 4, 2024, the Company entered into a
new financing agreement for gross proceeds of $420,000 with a different unrelated third-party financial institution. Under the terms
of the agreement, the Company must pay $21,600 each week for 28 weeks with the first payment being due April 8, 2024. The financing arrangement
has an effective interest rate of 51%. The financing arrangement includes an original issuance discount (“OID”) of $184,800
and issuance costs of $20,000. The OID and issuance cost associated with the financing arrangement are presented in the balance sheets
as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest method.
During the three and six months ended June 30,
2024, the Company amortized $605,611 and $984,924 of OID and issuance cost, respectively. The amounts are included in interest expense
on the statement of operations. During the three and six months ended June 30, 2024, the Company made $1,148,887 and $2,181,427 in payments
on the loan payable. The outstanding balance of the loan payable as of June 30, 2024 and December 31, 2023, were $3,313,925 and $2,809,820.
The financing arrangement is secured by an interest in virtually all assets of the Company with a first security interest in accounts
receivable. The financing arrangements are guaranteed by the Company’s CEO.
Convertible Notes Payable
On March 26, 2024, Inspire entered into a securities
purchase agreement (the “Purchase Agreement”) with a certain investor. Pursuant to the Purchase Agreement, Inspire issued
to investors Increasing OID Senior Note (“Convertible Note Payable”) for $500,000. The Convertible Note Payable has a maturity
date of the earlier of December 26, 2024 or the consummation of a capital raise (the “Maturity Date”).
On June 11, 2024, Inspire entered into a securities
purchase agreement (the “Purchase Agreement”) with two investors. Pursuant to the Purchase Agreement, Inspire issued to investors
Increasing OID Senior Note (“Convertible Note Payable”) for $250,000 each. The Convertible Note Payable has a maturity date
of the earlier of February 11, 2025 or the consummation of a capital raise (the “Maturity Date”).
The Convertible Notes Payable contain an original
issued discount (“OID”) which shall be: (i) fifteen percent (15%) if the Convertible Notes Payable is satisfied and paid
in full on or before the forty-fifth (45th) day after the Original Issue Date (as such term is defined in the Notes), (ii) twenty percent
(20%) if the Convertible Notes Payable is satisfied and paid in full after such 45th day but on or before the ninetieth (90th) day after
the Original Issue Date, and (iii) thirty percent (30%) after such 90th day. The Convertible Notes Payable can be prepaid at any time
prior to the Maturity Date without any penalties.
The Convertible Notes Payable must be repaid
in full from any future capital raises (debt, equity or any other form of capital raise) of Inspire. All of the funds raised must be
used to repay the Convertible Notes Payable until the Convertible Notes Payable are repaid in full
The Convertible Notes Payable are convertible
into shares of common stock of Inspire, in full or in part, at any time after issuance at the discretion of the noteholder at a fixed
conversion price of $0.03 per share (the “Fixed Conversion Price”).
If the Convertible Notes Payable is not repaid
by the Maturity Date the default provisions are as follow: (i) The Face Value (as such term is defined in the Convertible Notes Payable)
of the Convertible Notes Payable will increase by 20% (to a 50% OID -- $1,000,000 Face Value); (ii) the conversion price
of the Convertible Notes Payable will become convertible at the lower of (a) the Fixed Conversion Price or (b) 20% discount to a
3-Day volume-weighted average price (the “Default Conversion Price”).
Cash Flows for the Six Months Ended June 30, 2024 and 2023
The following table provides detailed information
about our net cash flows for the periods indicated:
| |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
Net cash used in operating activities | |
$ | (3,019,312 | ) | |
$ | (506,960 | ) |
Net cash used in investing activities | |
| (180,636 | ) | |
| (123,548 | ) |
Net cash provided by financing activities | |
| 3,028,645 | | |
| 1,049,433 | |
Net increase (decrease) in Cash, cash equivalents and restricted cash | |
$ | (171,303 | ) | |
$ | 418,925 | |
Operating Activities
For the six months ended June 30, 2024, operating
activities used $3,019,312 of cash compared to $506,960 net cash used for the six months ended June 30, 2023. The cash used was primarily
due to the Company’s net loss of $6,814,369 offset by non-cash expense of $4,450,419, which consisted of $688,308 of depreciation
and amortization, $15,825 of amortization of issuance costs, $984,924 of amortization of debt discount, $266,804 of amortization of operating
rights of use assets, $286,696 for issuance of class A common stock for services, $1,587,862 for loss on debt modification, $20,000 for
issuance of class A common stock for general release agreement, $600,000 for issuance of Class A common stock and pre-funded warrants
in connection with commitment shares and positive working capital of $661,518, including increase in accounts receivables of $11,147,
$3,081 increase in inventory, $61,094 increase in other assets, $92,322 increase in cumulative series A preferred stock dividends payable,
$1,191,480 increase in prepaid expenses and other current assets, and $80,823 increase in operating lease liabilities. These increases
were offset by decreases of $151,796 decrease in refundable income tax, $82,742 decrease in accrued expenses, $32,519 due from former
owners, and $511,372 decrease in accounts payable.
For the six months ended June 30, 2023, the cash
used was primarily due to the Company’s net loss of $2,766,743 offset by non-cash expense of $1,267,363, which consisted of $602,508
of depreciation and amortization, $85,347 of amortization of issuance costs, $ 488,896 of amortization of debt discount, $87,911 of amortization
of operating rights of use assets, $2,701 for issuance of warrants to the CEO, and negative working capital of $992,420, including decrease
of $210,804 in due from former owners, $117,872 decrease in prepaid expenses and other current assets, and $1,078,457 decrease in accounts
payable, and offset by an increase of $99,217 increase in accounts receivable, $119,856 increase in inventory, $94,224 increase in other
assets, $27,291 increase in accrued expenses, and $74,125 increase in operating lease liabilities.
Investing Activities
For the six months ended June 30, 2024, the cash
used was attributable to the purchase of property and equipment of $180,636.
For the six months ended June 30, 2023, the cash
used was attributable to the purchase of property and equipment of 119,532 and purchase of intangible assets of 4,016.
Financing Activities
For the six months ended June 30, 2024, the cash
provided was due to the $3,375,458 proceeds from issuance of class A common stock and pre-funded warrants, net of issuance costs, $1,467,935
net proceeds from loans payable, $200,000 proceeds for issuance of convertible series A preferred stock, $1,000,000 proceeds from convertible
note payable offset by $2,440,627 payments on loan payable, $474,121 repayment on note payable and $100,000 repayment on convertible
debentures.
For the six months ended June 30, 2023, the cash
provided was due to the $650,000 of proceeds from issuance of convertible debentures and 1,000,000 net proceeds from loans payable, offset
by $371,183 repayment of note payable and 229,384 payments on loans payable.
Critical Accounting Policies and Significant
Judgments and Estimates
A summary of our significant accounting policies
is included in Note 2 of our audited consolidated annual financial statements included in Form 10-K filed with the SEC on April 8, 2024.
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Our estimates and assumptions are based on historical experiences and
changes in the business environment. However, actual results may differ from estimates under different conditions, sometimes materially.
Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition
and results of operations and require management judgment. Our critical accounting policies and estimates are described below.
Acquisitions
The Company enters into acquisitions primarily
with existing veterinary hospitals throughout the United States. When we acquire a business or assets that are determined to meet the
definition of a business, we allocate the purchase consideration paid to acquire the business to the assets and liabilities acquired
based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets
acquired recorded as goodwill. If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive
additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown
to us, we make the appropriate adjustments to the purchase price allocation in the reporting period that the amounts are determined.
Goodwill
Goodwill represents the excess of the cost of
an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment at a reporting
unit level on an annual basis or when an event occurs, or circumstances change that would more likely than not reduce the fair value
of a reporting unit below its carrying amount. Events or changes in circumstances that may trigger interim impairment reviews include
significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that the carrying
amount may not be recoverable, among other factors.
The Company may first assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing
the totality of events and circumstances, the Company determines it is more likely than not that the fair value of the reporting unit
is greater than it’s carrying amount, an impairment test is unnecessary. If an impairment test is necessary, the Company will estimate
the fair value of its related reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that
reporting unit is determined to be impaired, and the Company will proceed with recording an impairment charge equal to the excess of
the carrying value over the related fair value.
Intangible Assets
Intangible assets consist of client list, trademark
and non-compete intangibles that result from the acquisition of veterinary hospital or practices. Client list intangible represent the
value of the long-term client relationship from the veterinary hospitals and practices. Trademark intangible assets represent the value
associated with the brand names in place at the date of the acquisition. Non-compete intangible assets represent the value associated
with non-compete agreements for former employees and owners in place at the date of the acquisition. The client lists and trademark are
included in intangible asset reported in the balance sheet which are being amortized over a 5-year term based on the estimated economic
useful life of the client list and trademark. The amortization of the intangible asset is computed using the straight-line method. The
intangibles are evaluated for impairment on an annual basis or more frequently whenever events or circumstances occur indicating that
the carrying amount may not be recoverable.
The Company uses the Multi-Period Excess Earnings
Method (“MPEEM”), a form of the income approach to determine the fair market value of the client list (customer relationship)
intangible assets acquired as part of the acquisitions of veterinary hospitals or practices. The principle behind the MPEEM is that the
value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible
asset after deducting contributory asset charges (“CAC”).
The principle behind a contributory asset charge is that an intangible
asset “rents” or “leases” from a hypothetical third party all the assets it requires to produce the cash flows
resulting from its development, that each project rents only those assets it needs (including elements of goodwill) and not the ones
that it does not, and that each project pays the owner of the assets a fair return on (and of, when appropriate) the fair value of the
rented assets. Thus, any net cash flows remaining after such charges are attributable to the subject intangible asset being valued. The
incremental after–tax cash flows attributable to the subject intangible asset are then discounted to their present value. CACs
generally reflect an estimate of the amount a typical market participant would have to pay to use these contributory assets to generate
income with the intangible asset.
The most significant assumptions used in our
application of the MPEEM and in the valuation analysis of acquired client lists are:
| — | A
useful life of 15 years where after 10 years the remaining customer base results in small positive cash flows and no terminal value was
calculated. |
|
— |
A discount rate of 19.6%
was selected to calculate the present value of the prospective after–tax cash flows associated with the customer base and business
development relationships. |
|
— |
We utilized an annual Company
sales retention rate of 74.0% (Veterinary Services indus |