IMAC Holdings(BACK) - 2024 Q2 - Quarterly Report

FORM 10-Q Filing Information Registrant Information IMAC Holdings, Inc. filed its Form 10-Q, identifying as a non-accelerated, smaller reporting, and emerging growth company - IMAC Holdings, Inc. is a non-accelerated filer, smaller reporting company, and emerging growth company[2][4] - As of December 18, 2024, the registrant had 2,013,199 shares of common stock outstanding[5] Important Information Regarding Forward-Looking Statements Forward-Looking Statements Disclosure The Form 10-Q contains forward-looking statements subject to risks and uncertainties detailed in the Annual Report on Form 10-K/A - The report contains forward-looking statements, identified by words like 'believe,' 'expect,' 'anticipate,' 'project,' 'could,' 'would,' and similar expressions[8] - Actual results may differ materially due to risks and uncertainties described in 'Item 1A — Risk Factors' of the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023[8] - The company undertakes no obligation to update or revise any forward-looking statements, except as required by applicable law[8] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Selected Data) | ASSETS / LIABILITIES AND STOCKHOLDERS' (DEFICIT) | June 30, 2024 | December 31, 2023 | | :----------------------------------------------- | :------------ | :---------------- | | Cash | $890,610 | $221,511 | | Total current assets | $1,214,417 | $1,144,119 | | Total assets | $2,223,483 | $1,144,119 | | Total current liabilities | $4,518,282 | $1,896,766 | | Total stockholders' deficit | $(2,294,799) | $(752,647) | | Total liabilities and stockholders' deficit | $2,223,483 | $1,144,119 | - Cash increased significantly from $221,511 at December 31, 2023, to $890,610 at June 30, 2024[14] - Total current liabilities more than doubled from $1,896,766 to $4,518,282, primarily due to an increase in accounts payable and accrued expenses, dividends payable, and a new note payable[11] - Stockholders' deficit worsened from $(752,647) to $(2,294,799)[15] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Selected Data) | Metric (Continuing Operations) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues, net | $15,750 | $- | $15,750 | $- | | Gross profit | $(56,252) | $- | $(56,252) | $- | | Operating loss | $(1,401,944) | $(1,137,682) | $(1,810,574) | $(2,433,700) | | Net loss from continuing operations | $(1,413,106) | $(1,158,898) | $(1,862,005) | $(2,455,760) | | Net income (loss) from discontinued operations | $29,702 | $(244,409) | $71,382 | $(2,646,200) | | Net loss | $(1,383,404) | $(1,403,307) | $(1,790,623) | $(5,101,960) | | Preferred dividends | $(648,116) | $- | $(727,481) | $- | | Net loss available to common stockholders | $(2,031,520) | $(1,403,307) | $(2,518,104) | $(5,101,960) | | Net loss per share – Basic and diluted | $(1.72) | $(1.28) | $(2.16) | $(4.63) | - The company generated $15,750 in revenue from continuing operations for both the three and six months ended June 30, 2024, compared to no revenue in the prior year periods[17] - Net loss from continuing operations for the six months ended June 30, 2024, improved to $(1,862,005) from $(2,455,760) in the prior year[17] - Net income from discontinued operations was $71,382 for the six months ended June 30, 2024, a significant improvement from a loss of $(2,646,200) in the prior year[17] Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Changes in Stockholders' Equity (Deficit) (Six Months Ended June 30) | Metric | June 30, 2024 | June 30, 2023 | | :------------------------- | :------------ | :------------ | | Balance, January 1 | $(752,647) | $4,651,256 | | Issuance of preferred stock, net of issuance costs | $975,952 | $- | | Dividends declared | $(727,481) | $- | | Net loss | $(1,790,623) | $(5,101,960) | | Balance, June 30 | $(2,294,799) | $(358,970) | - The total stockholders' deficit increased from $(752,647) at January 1, 2024, to $(2,294,799) at June 30, 2024, primarily due to net loss and preferred dividends declared, despite proceeds from preferred stock issuance[21] - Preferred stock issuance generated $975,952 in net proceeds during the six months ended June 30, 2024[21] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2024 | 2023 | | :----------------- | :------------ | :------------ | | Operating activities | $(930,128) | $(1,670,284) | | Investing activities | $(375,000) | $1,130,000 | | Financing activities | $1,974,227 | $24,075 | | Net increase (decrease) in cash | $669,099 | $(516,209) | | Cash, end of period | $890,610 | $247,002 | - Net cash used in operating activities decreased to approximately $0.9 million in 2024 from $1.7 million in the prior year, primarily due to a lower net loss and discontinuance of operations[94] - Net cash used in investing activities was $(0.4) million in 2024, compared to $1.1 million provided in 2023, which was attributed to the sale of Louisiana Orthopedic operations[95] - Net cash provided by financing activities significantly increased to $2.0 million in 2024 from $0.02 million in 2023, driven by the issuance of notes payable and preferred stock[95] - The company experienced a net increase in cash of $669,099, ending the period with $890,610 in cash, compared to a decrease of $(516,209) and $247,002 cash at the end of the period in 2023[24] Notes to Condensed Consolidated Financial Statements Note 1 – Description of Business - The company's continuing operations focus on precision medicine in cancer treatment, utilizing activated protein analysis for clinical testing of breast cancer patients and collaborations with biopharmaceutical companies[28] - Discontinued operations include IMAC Regeneration Centers, The BackSpace retail stores, and the Investigational New Drug division, with all patient care locations sold or discontinued as of June 30, 2024[29] Note 2 – Summary of Significant Accounting Policies - Interim financial statements are unaudited and prepared in accordance with SEC rules, with adjustments consisting of normal and recurring items[29] - Continuing revenues are derived from individual patient protein analysis (billed to patient/third-party payor) and biopharmaceutical collaborations (billed directly to company)[31] - The company is evaluating the impact of recently issued accounting standards, ASU 2023-09 (Income Taxes) effective January 1, 2025, and ASU 2023-07 (Segment Reporting) effective December 31, 2024[32][33][34] Note 3 – Liquidity and Going Concern Considerations - The company expects to incur operating losses and cash outflows, leading to substantial doubt about its ability to continue as a going concern for the next twelve months[36] Note 4 – Property and Equipment Property and Equipment, Net | Category | June 30, 2024 | December 31, 2023 | | :------- | :------------ | :---------------- | | Equipment | $1,044,000 | $762 | | Accumulated depreciation | $(35,000) | $- | | Total property and equipment, net | $1,009,000 | $762 | - Net property and equipment significantly increased to $1,009,000 at June 30, 2024, from $762 at December 31, 2023, primarily due to equipment acquisition[38] Note 5 – Settlement and Release Agreement - Theralink - The company acquired certain assets from Theralink Technologies, Inc. during the six months ended June 30, 2024, resulting in $1.1 million in long-lived assets and settlement of $1.1 million in note receivables[39] - As part of the Theralink settlement, the company issued 24,172 shares of Series E preferred stock[39] Note 6 – Note Payable Notes Payable | Note Type | Interest Rate | Due Date | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :------------ | :------------ | :---------------- | | 40% OID promissory note | OID only | June 18, 2025 | $1,400,000 | $- | | Less: unamortized debt discounts | | | $(386,000) | $- | | Notes payable | | | $1,014,000 | $- | - The company issued promissory notes totaling $1,400,000 (with a purchase price of $1,000,000) during the quarter, due June 18, 2025[40] Note 7 – Preferred Stock - During the six months ended June 30, 2024, the company sold various series of preferred stock (C-2, D, E, F) for gross proceeds of $1.35 million[41] - In connection with preferred stock sales, the company issued common stock purchase warrants for 2.8 million shares with a weighted average exercise price of $2.60, valued at $8.4 million[42] Preferred Stock Liquidation Preference | Series | Total Value | | :--------- | :------------ | | Series C & F | $6,269,000 | | Series D & E | $46,209,000 | | Total | $52,478,000 | Note 8 – Common stock purchase warrants Common Stock Purchase Warrants Activity | Metric | Number of Warrants | Weighted Average Exercise Price Per Share | | :---------------------- | :----------------- | :---------------------------------------- | | January 1, 2024 | 2,474,284 | $8.80 | | Granted | 2,756,084 | $2.60 | | Expired | (2,302,137) | $8.62 | | June 30, 2024 | 2,928,231 | $4.12 | - The number of outstanding common stock purchase warrants increased from 2,474,284 at January 1, 2024, to 2,928,231 at June 30, 2024, with a significant number of new warrants granted at a lower exercise price[44][45] Note 9 – Net Loss Per Share - Basic and diluted net loss per common share are computed by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding[46] - Common stock equivalents (warrants, preferred shares, stock options) are excluded from diluted EPS calculation due to their anti-dilutive effect[46] Anti-Dilutive Common Stock Equivalents | Item | June 30, 2024 | June 30, 2023 | | :------------------------ | :------------ | :------------ | | Common Stock Purchase Warrants | 2,928,231 | 398,582 | | Preferred shares (C-1, C-2, D, E, F) | 13,237,229 | - | | Stock options | 1,312 | 4,368 | | Total | 16,166,773 | 402,950 | Note 10 – Discontinued operations Net Assets and Liabilities from Discontinued Operations | Category | June 30, 2024 | December 31, 2023 | | :-------- | :------------ | :---------------- | | Net assets | $95,041 | $96,830 | | Net liabilities | $1,318,806 | $1,312,711 | Income (Loss) from Discontinued Operations | Metric | June 30, 2024 | June 30, 2023 | | :------------------------ | :------------ | :------------ | | Patient revenues, net | $- | $3,437,338 | | Operating expenses (recovery) | $(83,412) | $4,687,372 | | Other expenses | $12,030 | $1,396,166 | | Income (loss) from discontinued operations, net of income taxes | $71,382 | $(2,646,200) | - Discontinued operations generated no patient revenues in 2024, compared to $3.4 million in 2023, reflecting the closure of all patient care locations[46] - Discontinued operations shifted from a net loss of $(2,646,200) in 2023 to a net income of $71,382 in 2024, primarily due to operating expense recovery[46] Note 11 – Commitments and Contingencies - The company is subject to ongoing third-party audits by CMS contractors, including significant overpayment recommendations for Progressive Health ($2.7 million) and Advantage Therapy ($0.5 million), which are currently under appeal[51][52][54] - A payment suspension for IMAC Regeneration Center of Kentucky resulted in approximately $90,000 of Medicare accounts receivable being fully reserved as of December 31, 2023[55] - Management is unable to predict the timing or ultimate outcomes of these matters or estimate the range of possible loss, and no provision has been recorded[57][58] Note 12 – Subsequent Events - Between September 12 and October 30, 2024, the company issued unsecured promissory notes totaling $840,000 (for $600,000 purchase price), maturing by June 18, 2025[59] - On November 12, 2024, the company completed a PIPE Financing, issuing 4,676 shares of Series G convertible preferred stock and warrants for $3,740,000, with $2,240,000 used to repay outstanding promissory notes[60] - On November 22, 2024, The Ozzie Smith Center received notification of an estimated $1,096,346.51 overpayment from CMS, which the company plans to appeal[61] - The company is in default on a lease for a former clinic in Tampa, Florida, and is in discussions with the landlord regarding outstanding amounts, with the likelihood and amount of loss currently inestimable[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, covering the shift to precision medicine, key metrics, and cash flows Special Note Regarding Forward-Looking Information - The discussion contains forward-looking statements subject to uncertainties, risks, and other influences, many beyond the company's control, which could materially affect actual results[64][65] - Factors affecting results include risks and uncertainties detailed in Item 1A. Risk Factors of the Annual Report on Form 10-K/A[64] Overview - The company's continuing operations are focused on precision medicine in cancer treatment, leveraging acquired laboratory capabilities and intellectual property licenses from Theralink Technologies, Inc.[67] - The company previously provided movement and orthopedic therapies but decided to close underperforming locations and sell remaining practices in 2023 due to its financial position[68] Significant financial metrics - Working capital deficit increased to $(3.3) million as of June 30, 2024, from $(0.8) million as of December 31, 2023[70] - Revenues from biopharmaceutical collaborations were $15,000 for the second quarter of 2024[71] Matters that May or Are Currently Affecting Our Business - Key factors for future success include obtaining additional financing, attracting skilled laboratory and sales personnel, and controlling operating expenses while proving the benefit of the Theralink asset acquisition[72] - The company acquired most assets of Theralink via a Settlement and Release Agreement on May 1, 2024, forgiving outstanding debt and issuing Series E Convertible Preferred Stock[73] - The merger agreement with Theralink was terminated on May 6, 2024, following the asset acquisition[74] Critical Accounting Policies and Estimates - Financial statements are prepared under GAAP, requiring management estimates that affect reported amounts of assets, liabilities, and disclosures[76] - Critical accounting estimates involve highly uncertain assumptions and could materially impact financial condition or results of operations if changes occur[77] Results of Operations for the Three and Six Months Ended June 30, 2024 Compared to the Three and Six Months Ended June 30, 2023 - In 2023, the company discontinued business activities related to its underperforming clinic locations and BackSpace retail stores, with all locations closed and assets sold by December 31, 2023[79] Revenues – Continuing Operations - Revenues from continuing operations for the three and six months ended June 30, 2024, were $15,750, solely from biopharmaceutical collaborations[82] - The continuing business focuses on precision medicine in cancer treatment, including clinical testing of breast cancer patients and collaborations with biopharmaceutical companies[81] Revenues – Discontinued Operations - Prior revenue mix from discontinued operations included medical treatments (traditional and regenerative), with traditional treatments covered by insurance and regenerative treatments typically patient-paid[83] Operating Expenses – Continuing Operations - Laboratory supplies expense was approximately $37,000 for the three and six months ended June 30, 2024, due to the acquisition of the laboratory[85] - Salaries and benefits remained flat for the three months ended June 30, 2024 (YoY) but decreased for the six-month period due to lower staff count in early 2024[87] - General and administrative (G&A) expense increased by $510,000 for the three months ended June 30, 2024 (YoY) due to laboratory acquisition costs, but decreased by $378,000 for the six-month period (YoY) due to clinic closures[89] - Depreciation and amortization decreased for the six months ended June 30, 2024 (YoY) due to asset sales and impairment, while remaining consistent for the three-month period[90] Analysis of Cash Flows - Net cash used in operations decreased to approximately $0.9 million for the six months ended June 30, 2024, from $1.7 million in the prior year, primarily due to a lower net loss and discontinuance of operations[94] - Net cash used in investing activities was $(0.4) million in 2024, compared to $1.1 million provided in 2023, which was attributed to the sale of Louisiana Orthopedic operations[95] - Net cash provided by financing activities significantly increased to $2.0 million in 2024 from $0.02 million in 2023, driven by the issuance of notes payable and preferred stock[95] Liquidity and Capital Resources - As of June 30, 2024, the company had $0.9 million in cash and a negative working capital of $3.3 million, worsening from a $0.8 million deficit at December 31, 2023[96] - Current liabilities totaled approximately $4.5 million, with $1.1 million owed to vendors[97] - The company has an accumulated deficit of $57.7 million and anticipates needing additional capital, raising substantial doubt about its ability to continue as a going concern[98] Private Offering - During the six months ended June 30, 2024, the company sold various series of preferred stock (C-2, D, E, F) for gross proceeds of $1.35 million[99] - Common stock purchase warrants for 2.7 million shares were issued in connection with preferred stock sales, with a weighted average exercise price of $2.74[99] Contractual Obligations Contractual Obligations as of June 30, 2024 | Period | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | | :------------ | :---------- | :--------------- | :---------- | :---------- | | Operating lease obligations | $506,547 | $117,758 | $307,098 | $81,691 | Impact of Inflation - Inflation had a material impact on operating results for the six months ended June 30, 2024 and 2023, particularly affecting staffing and supply costs related to patient care[102] Item 3. Quantitative and Qualitative Disclosures about Market Risk No applicable quantitative and qualitative disclosures about market risk are reported for the company - The company has no applicable quantitative and qualitative disclosures about market risk[104] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal control, including insufficient accounting resources - Disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses in internal control over financial reporting[106][108] - Material weaknesses include insufficient resources in the accounting department, restricting the ability to gather, analyze, and review financial reporting information, and a lack of segregation of duties[106] - The company plans to expand accounting functions and improve internal procedures when additional capital resources are available[107] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[109] PART II. OTHER INFORMATION Item 1. Legal Proceedings No legal proceedings are currently expected to have a material adverse effect on financial condition or operations - The company is not currently aware of any legal proceedings or claims that are reasonably likely to have a material adverse effect on its financial condition, results of operations, or liquidity[112] - Litigation, even if successfully defended, can impose a significant burden on management and employees and incur costly defense costs[112] Item 1A. Risk Factors Outlines updated risk factors materially affecting business, financial condition, and stock price, including operational and securities risks Risks Related to our Business - Failure to successfully integrate the recently acquired Theralink assets, obtain necessary credentials for reimbursement, or secure additional funding could adversely affect financial results and growth strategy[114][115][119] - The company expects substantial resource expenditure for technology development and commercialization, requiring additional funding that may dilute existing stockholders or restrict operations[116] - Risks include potential goodwill/intangible asset impairment charges, susceptibility to audits by CMS/health insurance providers/IRS, and liabilities from discontinued operations[121][123][124] - Commercial success depends on market acceptance, adequate coverage/reimbursement, and ability to compete against less expensive or more effective alternatives in the intense cancer information field[126][127][129] - Failure to retain key scientific, clinical, and regulatory personnel, or reliance on third-party suppliers, could impede technology development and commercialization[132][136] - Regulatory changes, such as proposed government regulation of Laboratory Developed Tests (LDTs), could require additional clinical trials, increase costs, or delay approvals[140][141] - Inability to safeguard against security breaches, potential product liability claims, and complex legal matters regarding licensed patents pose significant risks to business operations and profitability[146][148][150][155] Risks Related to Our Securities - The company's stock price is volatile, with a 52-week range from $1.2176 to $7.75, influenced by operational results, market expectations, and general economic factors[163] - The Board of Directors can issue 'blank check' preferred stock, which could adversely affect common stockholders by diluting voting power or having preference in dividends/liquidation[167] - As an 'emerging growth company' and 'smaller reporting company,' the company utilizes reduced reporting requirements, which may make its financial statements less comparable and securities less attractive to some investors[167][171][172] - While the company regained Nasdaq compliance on July 17, 2024, it remains under a one-year 'Panel Monitor,' and failure to maintain listing criteria could harm its ability to raise capital and adversely impact stock price[175][176] - Concerns related to product efficacy, safety, slow adoption, or failure to obtain foreign regulatory approvals could seriously harm revenues and future prospects[178][180][182] - The company faces competition from other technologies and products, and regulatory changes could impact its ability to obtain or maintain approvals[187][188] - Operations involve hazardous materials, requiring compliance with environmental laws and regulations, which can be expensive and carry risks of accidental contamination or injury[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - There were no unregistered sales of equity securities and use of proceeds to report[192] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - There were no defaults upon senior securities[193] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[194] Item 5. Other Information No other information is reported for the period - There is no other information to report[195] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including warrants, promissory notes, and various agreements - Exhibits include various forms of warrants (Exchange, PIPE, Placement Agent, general), a Promissory Note dated June 18, 2024, and several agreements[191][196][197] - Key agreements filed include the Exchange Agreement, Securities Purchase Agreements, Registration Rights Agreements, Settlement and Release Agreement with Theralink, Credit Agreement, and Security and Pledge Agreement[197][198][199][200][201][202][203] - A Consulting Agreement dated May 24, 2024, with Jeffrey S. Ervin is also included as an exhibit[204] SIGNATURES Report Signatures The report was signed by Sheri Gardzina, CFO (Principal Financial and Accounting Officer), on December 18, 2024 - The report was signed by Sheri Gardzina, Chief Financial Officer (Principal Financial and Accounting Officer), on December 18, 2024[212]