IMAC Holdings(BACK) - 2019 Q1 - Quarterly Report

Important Information Regarding Forward-Looking Statements This section highlights forward-looking statements are subject to risks, with actual results potentially differing from projections - The report contains forward-looking statements, particularly in 'Item 2 – Management's Discussion and Analysis,' which are based on current beliefs and projections but are subject to risks and uncertainties[5] - Actual results may differ materially from those projected due to factors described in 'Item 1A — Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[5] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents unaudited condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, for the reported periods Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2019 | December 31, 2018 | | :----- | :------------- | :---------------- | | Total Assets | $17,990,245 | $11,074,787 | | Total Liabilities | $10,903,860 | $15,006,947 | | Total Stockholders' Equity (Deficit) | $7,086,385 | $(3,932,160) | Condensed Consolidated Statements of Operations This section presents the company's financial performance, including revenue, operating loss, and net loss, for the reported periods Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----- | :-------------------------------- | :-------------------------------- | | Total Revenue | $2,769,828 | $267,853 | | Operating Loss | $(1,344,626) | $(583,964) | | Net Loss | $(2,030,410) | $(689,855) | | Net Loss Attributable to IMAC Holdings, Inc. | $(1,599,187) | $(404,664) | | Basic and Diluted Net Loss Per Share | $(0.27) | $(0.09) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) This section details changes in the company's stockholders' equity, including common stock, paid-in capital, and accumulated deficit Changes in Stockholders' Equity (Deficit) | Metric | December 31, 2018 | March 31, 2019 | | :----- | :---------------- | :------------- | | Common Stock (shares) | 4,533,623 | 7,252,923 | | Common Stock (par value) | $4,534 | $7,253 | | Additional Paid-In Capital | $1,233,966 | $14,280,204 | | Accumulated Deficit | $(3,544,820) | $(5,144,007) | | Total Stockholders' Equity (Deficit) | $(3,932,160) | $7,086,387 | - Common stock issued for initial public offering proceeds, net of related fees, amounted to $3,504,164[9] - Issuance of common stock in connection with convertible notes and acquisitions contributed $2,246,085 and $7,249,208, respectively, to equity[9] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash flows from operating, investing, and financing activities for the reported periods Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(894,149) | $(576,541) | | Net Cash Used in Investing Activities | $(42,426) | $(1,315,726) | | Net Cash Provided by Financing Activities | $3,807,811 | $2,314,988 | | Net Increase in Cash | $2,871,237 | $422,721 | | Cash, End of Period | $3,065,553 | $550,509 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, operations, acquisitions, and financial condition, including going concern issues - IMAC Holdings, Inc. provides orthopedic therapies through its IMAC Regeneration Centers, offering conservative, non-invasive medical treatments for various soft tissue conditions, with 11 clinics in Tennessee, Kentucky, and Missouri as of March 31, 2019[13] - The company completed an initial public offering (IPO) in February 2019 and converted from an LLC to a Delaware corporation in June 2018, with retrospective accounting treatment[14][78][80] - The company has sustained substantial losses and has a working capital deficit, raising substantial doubt about its ability to continue as a going concern, necessitating additional funding or refinancing[40][41] Revenue and Accounts Receivable Concentrations by Payer (March 31, 2019) | Payer Type | % of Revenue | % of Accounts Receivable | | :--------- | :----------- | :----------------------- | | Patient payment | 54% | 54% | | Medicare payment | 22% | 22% | | Insurance payment | 24% | 24% | - In 2018, the company acquired CMA of Kentucky, IMAC St. Louis, Advantage Therapy, and BioFirma for aggregate consideration of approximately $7 million in equity and cash, significantly expanding its operations[46][48] - Subsequent to March 31, 2019, the company completed the acquisition of a practice management group managing three clinics in the Chicago area, issuing 1,002,306 restricted shares of common stock as consideration[88][89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section details Q1 2019 financial performance, covering revenue, expenses, net loss, liquidity, and going concern challenges Overview This section provides an overview of IMAC Holdings' business, including orthopedic therapies, clinic operations, and revenue mix - IMAC Holdings is a provider of movement and orthopedic therapies and minimally invasive procedures through its IMAC Regeneration Centers, focusing on non-opioid treatments for back, knee, joint, ligament, and tendon damage[94] - The company operates seven owned and seven acquired outpatient medical clinics across Kentucky, Missouri, Tennessee, and Illinois, with plans for further expansion[94] - Revenue mix includes traditional medical treatments (33%), regenerative medicine (31%), physical therapy (33%), and chiropractic care (3%), with regenerative treatments typically patient-paid[95] Revenues This section analyzes revenue growth, patient billings, net patient revenues, and outpatient facility revenue by payer Revenue Growth (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change (%) | | :----- | :-------------------------------- | :-------------------------------- | :--------- | | Total Revenue | $2,769,828 | $267,853 | 934.1% | | Patient Billings | $7,289,022 | $532,872 | 1268.1% | | Net Patient Revenues | $2,769,828 | $234,253 | 1082.4% | Outpatient Facility Revenue by Payer (Q1 2019 vs Q1 2018) | Payer Type | 2019 | 2018 | | :--------- | :--- | :--- | | Private insurance payors | 24% | 23% | | Government payors | 22% | 13% | | Patient payor | 54% | 64% | - Procedures increased by 1,383.5% (from 5,011 to 74,340) and clinic visits increased by 1,715.3% (from 1,698 to 30,824) for Q1 2019 compared to Q1 2018[98] Corporate Conversion This section describes the company's reorganization from an LLC to a Delaware corporation, effective June 1, 2018 - Effective June 1, 2018, the company converted from IMAC Holdings, LLC (Kentucky limited liability company) to IMAC Holdings, Inc. (Delaware corporation) to reorganize its corporate structure[99][100] Initial Public Offering This section details the company's initial public offering in February 2019, including units, gross proceeds, and use of net proceeds - On February 15, 2019, the company completed its initial public offering of 850,000 units, each consisting of one common stock share and two warrants, at $5.125 per unit[101] - The IPO generated aggregate gross proceeds of $4,356,250, with net proceeds used for leasing, developing, and acquiring new clinics, funding R&D, and for working capital[102] Matters that May or Are Currently Affecting Our Business This section outlines key factors influencing the company's business, such as clinic expansion, personnel, revenue, financing, and cost control - Key business factors include the ability to identify and operate new clinics, hire additional healthcare professionals, enhance revenue per facility, obtain additional financing, attract skilled personnel, and control operating expenses during expansion[105] Critical Accounting Policies and Estimates This section details the company's critical accounting policies for revenue recognition, patient deposits, accounts receivable, and income taxes - Revenue recognition for patient services is net of contractual allowances, estimated based on historical cash collections and write-offs. Management service fees are based on a percentage markup on costs[108][109] - Patient deposits are upfront payments for regenerative medicine procedures not covered by insurance, recognized as revenue upon service delivery[110] - Accounts receivable are recorded net of allowances for doubtful accounts and contractual discounts, with collection risks including overestimation of revenues, claim denials, and patient non-payment[111][112] - No provision for income taxes is reflected in condensed consolidated financial statements for periods prior to June 1, 2018, as the company was taxed as a partnership; post-conversion corporate losses are offset by a valuation allowance[113] Results of Operations for the Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018 This section provides a comparative analysis of financial performance, including revenue, expenses, and net loss for Q1 2019 vs Q1 2018 Summary of Statements of Operations (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----- | :-------------------------------- | :-------------------------------- | | Total Revenue | $2,769,828 | $267,853 | | Total Operating Expenses | $4,114,454 | $851,817 | | Operating Loss | $(1,344,626) | $(583,964) | | Total Other (Expenses) | $(685,785) | $(20,240) | | Net Loss Attributable to IMAC Holdings, Inc. | $(1,599,187) | $(404,664) | - Revenues increased by 934.1% to $2.77 million, primarily due to 2018 acquisitions (IMAC of Kentucky, IMAC of Missouri, Advantage Health), while other service revenues decreased[117][118] - Operating expenses surged due to 2018 acquisitions and IPO-related costs: patient expenses rose to $0.44 million, salaries and benefits to $2.06 million, advertising to $0.35 million, and general & administrative to $0.98 million[120][121][125][127] - Other losses increased significantly to $0.69 million, primarily driven by $0.64 million in beneficial conversion interest expense related to convertible notes[131] - Net loss attributable to IMAC Holdings, Inc. increased by $1.20 million, mainly due to IPO preparation costs, ongoing public company expenses, and restructuring of facility-level resources to the corporate level[137] Liquidity and Capital Resources This section assesses liquidity, working capital, cash flow, and contractual obligations, highlighting the need for additional capital Liquidity and Working Capital | Metric | March 31, 2019 | December 31, 2018 | | :----- | :------------- | :---------------- | | Cash | $3,065,553 | $194,316 | | Working Capital | $(2,370,554) | $(13,163,064) | - The increase in working capital was primarily due to approximately $3.8 million in net proceeds from the initial public offering completed in February 2019[138][139] - The company's financial condition raises substantial doubt about its ability to continue as a going concern, requiring additional capital to fund future operations[140] Cash Flow Data (Q1 2019 vs Q1 2018) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(894,149) | $(576,541) | | Net cash used in investing activities | $(42,426) | $(1,315,726) | | Net cash provided by financing activities | $3,807,811 | $2,314,988 | | Net increase in cash | $2,871,236 | $422,721 | Contractual Obligations as of March 31, 2019 | Obligation Type | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | More Than 5 Years | | :---------------------- | :---------- | :--------------- | :-------- | :-------- | :---------------- | | Short-term debt | $3,146,888 | $3,146,888 | $0 | $0 | $0 | | Long-term debt (incl. interest) | $438,380 | $109,539 | $255,658 | $46,708 | $26,475 | | Capital lease (incl. interest) | $113,579 | $16,354 | $65,417 | $31,809 | $0 | | Operating lease | $4,368,072 | $637,733 | $2,079,129 | $1,062,963 | $588,247 | | Total | $8,066,920 | $3,910,514 | $2,400,204 | $1,141,479 | $614,722 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that no quantitative and qualitative disclosures about market risk are applicable to the company for the reported period - This item is not applicable to the company for the reported period[148] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective as of March 31, 2019, due to material weaknesses in accounting and separation of duties - Disclosure controls and procedures were not effective as of March 31, 2019, due to material weaknesses in internal control over financial reporting[150][152] - Material weaknesses include the absence of in-house accounting personnel capable of properly accounting for complex transactions and a lack of separation of duties between accounting and other functions[150] - Management plans to expand accounting functions with dedicated staff and improve internal accounting procedures and separation of duties when additional capital resources become available[151] PART II. OTHER INFORMATION This part provides disclosures on legal proceedings, risk factors, equity sales, defaults, other information, and exhibits Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, including a BioFirma lawsuit, with no expected material adverse effect - The company is subject to various lawsuits and legal proceedings that arise in the ordinary course of business[155] - A lawsuit involving BioFirma, LLC (70% owned by the company) is pending, contesting $30,000, but management does not believe it will have a material adverse effect[86][156] Item 1A. Risk Factors Investors should review risk factors from the fiscal 2018 Annual Report on Form 10-K; no new material changes are identified - Investors should carefully review and consider the risk factors set forth in 'Item 1A, Risk Factors' in the fiscal 2018 Annual Report on Form 10-K[157] - No other material additions or changes to the previously disclosed risk factors have been identified in this quarterly report[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[158] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None to report[159] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[159] Item 5. Other Information D. Anthony Bond ceased as CFO on April 29, 2019; Sheri Gardzina appointed interim CFO and Corporate Secretary - D. Anthony Bond ceased serving as Chief Financial Officer and other positions with the company as of April 29, 2019[160] - Sheri Gardzina was appointed interim Chief Financial Officer and Corporate Secretary, effective April 30, 2019, bringing over 20 years of public accounting and financial consulting experience in the healthcare industry[161] Item 6. Exhibits This section lists all exhibits filed as part of this Form 10-Q, including agreements, corporate documents, and certifications - The exhibits include merger agreements (e.g., for the acquisition of a practice management group in Illinois), corporate organizational documents (Certificate of Incorporation, Bylaws), common stock and warrant certificates, and various certifications (e.g., SOX certifications)[163][164]