IMAC Holdings(BACK) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, show total assets of $21.1 million and total liabilities of $13.8 million, with a net loss of $2.1 million and cash used in operating activities of $1.2 million Condensed Consolidated Balance Sheets As of March 31, 2020, total assets increased to $21.1 million, total liabilities rose to $13.8 million, and stockholders' equity decreased to $7.3 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items | March 31, 2020 ($) | December 31, 2019 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | 1,281,940 | 373,689 | | Total current assets | 3,541,307 | 2,577,575 | | Total assets | 21,103,552 | 20,418,078 | | Liabilities & Equity | | | | Total current liabilities | 9,284,967 | 6,065,636 | | Total liabilities | 13,820,832 | 12,480,786 | | Total stockholders' equity | 7,282,720 | 7,937,292 | Condensed Consolidated Statements of Operations For Q1 2020, total revenue grew to $3.32 million, but operating expenses increased to $5.32 million, resulting in an operating loss of $2.0 million and a net loss of $1.73 million Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | | :--- | :--- | :--- | | Total revenue | 3,321,556 | 2,769,828 | | Total operating expenses | 5,315,501 | 4,114,453 | | Operating loss | (1,993,945) | (1,344,625) | | Net loss | (2,070,149) | (2,030,410) | | Net loss attributable to IMAC Holdings, Inc. | (1,733,545) | (1,599,187) | | Net loss per share (Basic and diluted) | (0.18) | (0.27) | Condensed Consolidated Statements of Cash Flows For Q1 2020, net cash used in operating activities was $1.16 million, net cash provided by financing activities was $2.27 million, and the period ended with a cash balance of $1.28 million Condensed Consolidated Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (1,157,207) | (894,149) | | Net cash used in investing activities | (207,243) | (42,426) | | Net cash provided by financing activities | 2,272,701 | 3,807,811 | | Net increase in cash | 908,251 | 2,871,237 | | Cash, end of period | 1,281,940 | 3,065,553 | Notes to Condensed Consolidated Financial Statements The notes detail business operations, accounting policies, and recent events, including acquisitions, a going concern warning due to a $5.7 million working capital deficiency, COVID-19 impacts, and a $1.69 million PPP loan received post-quarter - The company operates 16 medical clinics across Kentucky, Missouri, Illinois, Tennessee, and Florida, focusing on non-invasive orthopedic therapies[11][92] - The company has sustained substantial losses and had a working capital deficiency of approximately $5.7 million at March 31, 2020, raising substantial doubt about its ability to continue as a going concern[40] - In January 2020, the company acquired Chiropractic Health of Southwest Florida, Inc. (CHSF) for $200,000[19][53] - Subsequent to the quarter end, in April 2020, the company received a $1.69 million loan under the Paycheck Protection Program (PPP) and approximately $400,000 from the CARES Act Provider Relief Fund[85][86] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business overview, COVID-19 impacts, and Q1 2020 financial performance, noting a 19% revenue increase to $3.3 million, a widened operating loss of $2.0 million, and liquidity challenges with a $5.7 million working capital deficiency Impacts of and Response to COVID-19 Outbreak The COVID-19 pandemic led to clinic closures and a 19% staff reduction, with the company launching telemedicine and anticipating negative Q2 2020 revenue impacts - The company suspended operations at three Kentucky clinics and one Illinois clinic to comply with government orders related to COVID-19[101] - Cost-saving measures included terminating 11% of employees, additional furloughs resulting in a 19% total staff reduction, and company-wide salary reductions of approximately 10%[102] Results of Operations Q1 2020 patient service revenues increased 19% to $3.3 million due to acquisitions, but operating expenses, including a $0.9 million rise in salaries, led to an operating loss of $2.0 million and a net loss of $1.7 million - Patient service revenues increased 19% to $3.3 million for Q1 2020, primarily due to the 2019 acquisitions of ISDI Holdings II and PHR Holdings[123] Revenue Breakdown by Service Type | Service Type | Q1 2020 (%) | Q1 2019 (%) | | :--- | :--- | :--- | | Medical treatments | 67% | 64% | | Physical therapy | 30% | 33% | | Chiropractic care | 3% | 3% | - Salaries and benefits expenses increased by $0.9 million to $2.9 million, mainly attributable to acquisitions in the Chicago and Rockford, Illinois areas[127] Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | March 31, 2020 ($) | March 31, 2019 ($) | | :--- | :--- | :--- | | GAAP loss attributable to IMAC Holdings, Inc. | (1,733,545) | (1,599,187) | | Interest expense | 76,204 | 30,671 | | Beneficial conversion interest expense | - | 639,159 | | Share-based compensation expense | 81,084 | 3,749 | | Depreciation and amortization | 450,495 | 285,567 | | Adjusted EBITDA | (1,125,762) | (640,041) | Liquidity and Capital Resources As of March 31, 2020, the company had $1.3 million in cash and a $5.7 million working capital deficiency, raising going concern doubts, and relies on external financing, including a $10 million share purchase agreement and a $1.0 million note purchase agreement - The company had $1.3 million in cash and a working capital deficiency of $5.7 million as of March 31, 2020[140] - In March 2020, the company entered into a note purchase agreement with Iliad Research & Trading, L.P., receiving $1.0 million in proceeds from a secured promissory note with an initial principal amount of $1,115,000[152] - As of March 31, 2020, the company had sold 1,602,294 shares to Lincoln Park Capital under a purchase agreement for aggregate proceeds of $2,424,053[151] Quantitative and Qualitative Disclosures about Market Risk This section is not applicable for the company - The company states that this section is not applicable[157] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2020, due to material weaknesses in internal control over financial reporting, including a lack of in-house accounting expertise and insufficient separation of duties - The CEO and interim CFO concluded that disclosure controls and procedures were not effective as of March 31, 2020[159] - Material weaknesses identified include a lack of in-house accounting personnel for complex transactions and insufficient separation of duties[159] - To remediate, the company has engaged a consulting firm and intends to hire dedicated accounting staff in the future[160] PART II. OTHER INFORMATION Legal Proceedings The company is not currently aware of any legal proceedings or claims that would have a material adverse effect on its business, financial condition, or operations - The company reports no material legal proceedings that would have a significant adverse effect[163] Risk Factors The company directs investors to its 2019 Annual Report on Form 10-K for risk factors, with the primary new addition being risks related to the COVID-19 outbreak and its potential material adverse impact - A new risk factor has been added regarding the material adverse impact of the COVID-19 outbreak on the company's business and financial results[165] - Key uncertainties related to COVID-19 include the duration of the pandemic, government and business responses, and the impact on patient demand and ability to pay[165] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - The company reported no unregistered sales of equity securities for the quarter[166] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - The company reported no defaults upon senior securities[168] Other Information There is no other information to report for the period - The company reported no other information[169] Exhibits This section lists the exhibits filed with the Form 10-Q, including merger agreements, corporate governance documents, financing agreements, and officer certifications - Exhibits filed include the Note Purchase Agreement, Promissory Note, and Security Agreement dated March 25, 2020[171][172] - Certifications from the Principal Executive Officer and Principal Financial Officer are included as exhibits[173]