UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
Form
10-K
(Mark
One)
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[X] |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
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For
the fiscal year ended December 31, 2019 |
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or |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
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For
the transition period
from to |
Commission
file number: 001-38797
IMAC
Holdings, Inc.
(Exact
Name of Registrant as Specified in its Charter)
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Delaware |
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83-0784691 |
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(State
or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S.
Employer
Identification
No.)
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1605
Westgate Circle, Brentwood, Tennessee |
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37027 |
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(Address
of Principal Executive Offices) |
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(Zip
Code) |
(844)
266-4622
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class |
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Name
of Each Exchange on Which Registered |
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Common
Stock, par value $0.001 per share |
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NASDAQ
Capital Market |
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Warrants
to Purchase Common Stock |
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NASDAQ
Capital Market |
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
[ ] No [X]
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 [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted posted
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 [X] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a 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.
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Large
accelerated filer |
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Accelerated
filer |
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Non-accelerated
filer |
[X] |
Smaller
reporting company |
[X] |
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Emerging
growth company |
[X] |
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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
[X]
The
aggregate market value of the registrant’s voting common stock held
by non-affiliates based on the closing stock price on June 30,
2019, was approximately $23.5 million. For purposes of this
computation only, all executive officers and directors have been
deemed affiliates.
The
number of outstanding shares of the registrant’s common stock, par
value $0.001 per share, as of March 23, 2020 was
9,835,960.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
IMAC
HOLDINGS, INC.
FORM
10-K—ANNUAL REPORT
For
the Fiscal Year Ended December 31, 2019
Table
of Contents
PART I
Cautionary
Statement Regarding Forward-Looking Statements
Portions
of this Annual Report on Form 10-K (including information
incorporated by reference) include “forward-looking statements”
based on our current beliefs, expectations, and projections
regarding our business strategies, market potential, future
financial performance, industry, and other matters. This includes,
in particular, “Item 7 — Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Annual
Report on Form 10-K, as well as other portions of this Annual
Report on Form 10-K. The words “believe,” “expect,” “anticipate,”
“project,” “could,” “would,” and similar expressions, among others,
generally identify “forward-looking statements,” which speak only
as of the date the statements were made. The matters discussed in
these forward-looking statements are subject to risks,
uncertainties, and other factors that could cause our actual
results to differ materially from those projected, anticipated, or
implied in the forward-looking statements. The most significant of
these risks, uncertainties, and other factors are described in
“Item 1A — Risk Factors” of this Annual Report on Form 10-K. Except
to the limited extent required by applicable law, we undertake no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.
Unless
the context requires otherwise, references herein to “we,” “us,”
“our,” “our company,” “our business” or “IMAC Holdings” are to IMAC
Holdings, Inc., a Delaware corporation, and prior to the Corporate
Conversion discussed herein, IMAC Holdings, LLC, a Kentucky limited
liability company, and in each case, their consolidated
subsidiaries.
Overview
We
are a growing chain of Innovative Medical Advancements and Care
(IMAC) Regeneration Centers, combining life science advancements
with traditional medical care for movement-restricting diseases and
conditions. Our mix of medical and physical procedures is designed
to improve patient experiences and outcomes and reduce healthcare
costs as compared to other available treatment options. We own six
and manage nine outpatient clinics that provide regenerative,
orthopedic and minimally invasive procedures and therapies. Our
treatments are performed by licensed medical practitioners through
our regenerative rehabilitation protocols designed to improve the
physical health, to advance the quality of life and to lessen the
pain of our patients. We do not prescribe opioids, but instead
offer an alternative to conventional surgery or joint replacement
surgery by delivering minimally invasive medical treatments to help
patients with sports injuries, back pain, knee pain, joint pain,
ligament and tendon damage, and other related soft tissue
conditions. Our employees focus on providing exceptional customer
service to give our patients a memorable and caring experience. We
believe that we have priced our treatments to be affordable by 95%
of the population and are well positioned in the expanding
regenerative medical sector.
Our
licensed healthcare professionals provide each patient a custom
treatment plan that integrates innovative regenerative medicine
protocols (representing 20% of our revenue) with traditional,
minimally invasive (minimizing skin punctures) medical procedures
(representing 40% of our revenue) in combination with physical
therapies (representing 35% of our revenue from physical therapy,
and remaining 5% of our revenue from chiropractic). We do not use
or offer opioid-based prescriptions as part of our treatment
options in order to help our patients avoid the dangers of opioid
abuse and addiction. We have successfully treated patients that
were previously addicted to opioids because of joint or soft tissue
related pain. Further, our procedures comply with all professional
athletic league drug restriction policies, including the NFL, NBA,
NHL and MLB.
Dr.
Matthew Wallis, DC, our Chief Operating Officer, opened the first
IMAC Regeneration Center in Paducah, Kentucky in August 2000, which
remains the flagship location of our current business. Dr. Jason
Brame, DC joined Dr. Wallis in 2008. In 2015, Drs. Wallis and Brame
hired Jeffrey S. Ervin as our Chief Executive Officer to
collectively create and implement their growth strategy. The result
was the formal creation of IMAC Holdings, LLC to expand IMAC
clinics outside of western Kentucky, with such facilities to remain
owned or operated under the group using the IMAC Regeneration
Center name and services. In June 2018, we completed a corporate
conversion in which IMAC Holdings, LLC was converted to IMAC
Holdings, Inc. to consolidate ownership of existing clinics and
implement our growth strategy.
Since
May 2016, IMAC has opened six outpatient medical clinics, acquired
seven physical therapy practices and managed one outpatient medical
clinic for a total of 15 clinics in Kentucky, Missouri, Tennessee
and Illinois. We intend to further expand the reach of our
facilities to other strategic locations throughout the United
States. In order to enhance our brand, we have partnered with
several active and former professional athletes, opening two Ozzie
Smith IMAC Regeneration Centers, two David Price IMAC Regeneration
Centers, one Tony Delk IMAC Regeneration Center and one Mike Ditka
IMAC Regeneration Center. We have also signed former NBA player
George Gervin to be a brand ambassador for future clinics in Texas.
Our brand ambassadors help deliver awareness to our non-opioid
services, emphasizing our ability to treat sports and orthopedic
injuries as an alternative to traditional surgeries for joint
repair or replacement.
We
are focused on providing natural, non-opioid solutions to pain as
consumers increasingly demand conservative treatments for an aging
population. The demand for our services continues to grow fueled by
consumer preferences for organic healthcare solutions over
traditionally invasive orthopedic practices. We believe that our
regenerative rehabilitation treatments are provided to patients at
a much lower price than our primary competitors, including
orthopedic surgeons, pain management clinics and hospital systems
targeting invasive joint reconstruction. Surgical joint
replacements cost several times more than our therapies initially
treating the same condition. The U.S. government has recently
adopted strict surgery pre-approval initiatives to reduce the cost
for CMS and limit the proliferation of opioids since they accompany
substantially all joint replacement surgeries.
We
believe patient satisfaction will be driven by our following five
fundamental beliefs:
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We
believe that the body has the ability to heal itself, and better
results occur with our solutions to unlock the body’s natural
healing process; |
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We
believe in the power of doctors, from many different
specializations, working together for the best patient care
possible; |
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We
believe that employees should know patients by their face, not by a
chart number; |
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We
believe consumers have a choice regardless of physician referral or
insurance coverage; and |
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We
believe a medical setting should be comforting. |
We
are led by senior executive officers who together have more than 70
years of combined experience in the healthcare services industry.
Jeffrey S. Ervin, our Chief Executive Officer, joined us in March
2015. Mr. Ervin has a history of sourcing private equity
investments and managing private equity operations in the
healthcare and other growth industries. Before joining us, he was
the senior financial officer at Medx Publishing, LLC, an online
healthcare marketing and technology firm and parent company of
Medicare.com, where he was responsible for the successful sale and
divestiture of Medicare.com to eHealth Insurance and sale of
Medicaid.com to United Healthcare. Mr. Ervin earned an M.B.A.
degree from Vanderbilt University. The founder of our company,
Matthew C. Wallis, DC, a licensed chiropractor, is our Chief
Operating Officer. Dr. Wallis has implemented strategies in the
company to create consistent operating efficiencies for our sales,
marketing and service delivery operations.
Our
Market Opportunity
IBIS
World estimated that outpatient rehabilitation in the U.S. is an
approximately $30 billion industry, with approximately 90% of that
revenue generated from physical rehabilitation services, including
orthopedic, sports, geriatric and other forms of physical medicine.
Outpatient rehabilitation is anticipated to grow at a rate of 2% to
7% in the coming years, according to these industry research
companies, due to the aging baby boomer generation, sustained high
rates of obesity and healthcare reform. As healthcare insurance
providers seek to reduce medical costs and government regulation
restricts access to opioid pain prescriptions, physical therapy and
outpatient services are poised to capture a larger share of
healthcare spending. As the workforce continues to grow,
employer-based insurance expenditures will increase. In addition,
government spending on Medicare will continue to be
significant.
Outpatient
Rehabilitation Spending by Segment
According
to the Centers for Medicare & Medicaid Services’ National
Health Expenditure Projections 2017-2026, national healthcare
expenditures continue to rise and are projected to grow from an
estimated $3.5 trillion in 2017 to $5.7 trillion by 2026,
representing an average annual rate of growth of 5.5%, reaching a
projected 19.7% of U.S. gross domestic product in 2026, as shown
below.
Demand
for minimally invasive movement corrections and non-opioid pain
management has surged with the growth of the baby boomer
generation. The U.S. Census estimates that the U.S. population over
65 years of age is projected to more than double from 47.8 million
to nearly 98.2 million persons and the 85 and older population is
expected to more than triple, from 6.3 million to 19.7 million
persons, between 2015 and 2060. Additionally, according to the U.S.
Census Bureau, the number of older Americans is increasing as a
percentage of the total U.S. population with the number of persons
older than 65 estimated to comprise 14.9% of the total U.S.
population in 2015 and projected to grow to 23.6% by
2060.
Source:
U.S. Census Bureau
This
significant demographic shift is changing healthcare consumption
patterns. At the same time, individuals who are not eligible for
Medicare have faced a significant rise in health insurance
premiums. As consumers assume the burden of greater healthcare
costs, they are price shopping and considering second opinions from
conservative treatment providers like our company.
Despite
ongoing consolidation in the outpatient rehabilitation services
industry, the industry remains highly fragmented, which has allowed
many competitors to enter the market. In such an environment,
reputable and successful outpatient clinics will be able to grow
through organic expansion and combining services with other
providers. While there is significant competition in the industry,
we believe no single participant currently captures more than 10%
of the market, which may allow existing market participants to
distinguish themselves from their competitors as they grow. The
attractiveness of outpatient facilities to reduce medical costs has
also been seen in other medical areas. Insurer UnitedHealth Group
recently purchased surgical care centers and medical practices,
with an apparent aim to reduce hospital spending.
Our
Operations
We
currently operate 15 outpatient medical clinics in four states. Our
original clinic opened in August 2000 and remains the flagship
location of our current business, which was formally organized in
March 2015 with the mission of expanding the reach of our
facilities to other strategic locations throughout the United
States. Our flagship medical clinic has been operated during the
last 19 years by Matthew C. Wallis, DC and Jason Brame, DC, two of
our co-founders, and, since March 2015, together with Jeffrey S.
Ervin, our third co-founder and the current Chief Executive Officer
of our company. This management team continues today throughout the
organization incorporating the same strategies used to build and
operate the company’s flagship location. During 2016 and 2017, we
opened five medical clinics and expanded into two new states,
Missouri and Tennessee. In 2018, we opened one medical clinic and
acquired four physical therapy clinics. In 2019, we acquired a
management company that manages three clinics and entered into a
management agreement to manage a fourth clinic in Illinois. During
the second half of 2019, we began the implementation of an updated
medical and financial platform in our clinics. We expect to
complete the full integration of this platform and realize its
improved value during 2020.
Below
is a list of our outpatient medical clinics and information about
how we own or control these medical clinics:
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Clinic Name |
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Location
of Clinic |
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Date
Opened or
Acquired
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Form and
Date of
Control |
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Primary Services Performed |
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| IMAC Regeneration Center |
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Paducah, Kentucky |
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August 2000 |
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Managed since June 28, 2018 |
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Regenerative medicine, medical
evaluations with x-ray, fluoroscopic spine, joint and appendage
injections, and physical medicine |
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| Ozzie Smith Center |
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Chesterfield, Missouri |
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May 2016 |
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Full ownership effective June 1, 2018,
when remaining 64% interest was acquired |
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Regenerative medicine, medical
evaluations with x-ray, fluoroscopic spine, joint and appendage
injections, and physical medicine |
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| IMAC Regeneration Center |
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Murray, Kentucky |
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February 2017 |
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Managed since June 28, 2018 |
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Medical evaluations with x-rays,
fluoroscopic joint and appendage injections, and physical
medicine |
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| David Price Center |
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Brentwood, Tennessee |
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May 2017 |
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Managed since November 1, 2016 |
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Regenerative medicine, medical
evaluations with x-ray, fluoroscopic spine, joint and appendage
injections, and physical medicine |
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| Ozzie Smith Center |
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St. Peters, Missouri |
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August 2017 |
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Full ownership effective June 1, 2018,
when remaining 64% interest was acquired |
|
Medical evaluations with x-ray,
fluoroscopic joint and appendage injections, and physical
medicine |
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| David Price Center |
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Murfreesboro, Tennessee |
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November 2017 |
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Managed since November 2017 |
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Medical evaluations with x-ray,
fluoroscopic joint and appendage injections, and physical
medicine |
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| Tony Delk Center |
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Lexington, Kentucky |
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July 2018 |
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Managed since July 2, 2018 |
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Medical evaluations with x-ray,
fluoroscopic joint and appendage injections, and physical
medicine |
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| Advantage Therapy |
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South Springfield, Missouri |
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August 2018 (originally opened August 2004) |
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Full ownership effective August 1,
2018, when 100% interest was acquired |
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Occupational and physical therapy |
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| Advantage Therapy |
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North Springfield, Missouri |
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August 2018 (originally opened March 2013) |
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Full ownership effective August 1,
2018, when 100% interest was acquired |
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Occupational and physical therapy |
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| Advantage Therapy |
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Monett, Missouri |
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August 2018 (originally opened May 2015) |
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Full ownership effective August 1,
2018, when 100% interest was acquired |
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Occupational and physical therapy |
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| Advantage Therapy |
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Ozark, Missouri |
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August 2018 (originally opened November 2015) |
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Full ownership effective August 1,
2018, when 100% interest was acquired |
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Occupational and physical therapy |
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| Mike Ditka Center |
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Arlington Heights, Illinois |
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April 2019 |
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Managed since April 19, 2019 |
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Regenerative medicine, medical
evaluations with x-ray, fluoroscopic spine, joint and appendage
injections, and physical medicine |
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| IMAC Regeneration Center |
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Buffalo Grove, Illinois |
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April 2019 |
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Managed since April 19, 2019 |
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Medical evaluations with x-ray, joint
and appendage injections, and physical medicine |
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| IMAC Regeneration Center |
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Elgin, Illinois |
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April 2019 |
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Managed since April 19, 2019 |
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Medical evaluations with x-ray, joint
and appendage injections, and physical medicine |
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| IMAC Regeneration Center |
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Rockford, Illinois |
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November 2019 |
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Managed since November 7, 2019 |
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Regenerative medicine, joint and
appendage injections, and physical medicine |
Below
is a description of each of our outpatient medical
clinics:
Integrated Medicine and Chiropractic Regeneration Center
PSC. In November 2015, we relocated our Paducah,
Kentucky operations into a 10,200 square foot build-to-suit
facility. This facility serves as an anchor clinic for the western
Kentucky market of roughly 50,000 residents. The clinic performs
medical evaluations with x-ray, fluoroscopic spine, joint and
appendage injections, regenerative medicine and physical medicine.
The lease term ends in December 2020.
We
opened a 4,700 square foot facility in Murray, Kentucky, a town of
nearly 15,000 residents near the Tennessee border. This facility
provides medical evaluations, fluoroscopic joint and appendage
injections, and physical medicine and refers patients to Paducah
for regenerative PRP medical procedures. The lease is scheduled to
expire in December 2023.
IMAC of St. Louis, LLC. In January 2016, IMAC of St. Louis,
LLC, doing business as the Ozzie Smith Center, executed a lease for
a 13,300 square foot facility in Chesterfield, Missouri, a suburb
18 miles west of downtown St. Louis. The Ozzie Smith Center opened
in May 2016. The lease agreement runs until August 2026. Dr. Devin
Bell, D.O. is the medical director. The clinic performs medical
evaluations with x-ray, fluoroscopic spine, joint and appendage
injections, regenerative PRP medicine and physical medicine.
Namesake Ozzie Smith was inducted into the Major League Baseball
Hall of Fame in 2002 and replicas of his 13 gold glove trophies are
in the lobby of the clinic.
The
Ozzie Smith Center opened a satellite facility in St. Peters,
Missouri to assist with demand from suburbs west of the Missouri
River. The St. Peters clinic opened for business in July 2017. The
lease expires in August 2022. The facility operates under the
direction of Dr. Bell and offers patient medical evaluations with
x-ray, fluoroscopic joint and appendage injections, and physical
medicine.
IMAC Regeneration Center of Nashville, PC. The David Price
Center opened in Brentwood, Tennessee in May 2017. Dr. Rachel Rome,
M.D. is an anesthesiologist and interventional pain management
specialist and serves as its medical director. The 7,500 square
foot clinic is leased through July 2024. The clinic performs
medical evaluations with x-ray, fluoroscopic spine, joint and
appendage injections, regenerative PRP medicine and physical
medicine.
In
November 2017, we opened a 5,500 square foot facility in
Murfreesboro, Tennessee, a southeastern suburb of Nashville with
more than 100,000 residents and hometown to David Price. Mr. Price,
who was born and raised in middle Tennessee, was the first pick of
the 2007 Major League draft from Vanderbilt University. This
facility performs patient medical evaluations with x-ray,
fluoroscopic joint and appendage injections, and physical medicine.
We occupy 10% of the building and the lease expires in October
2022.
Tony Delk Center. In March 2018, we purchased a medical
practice building in Lexington, Kentucky, for $1.2 million. The
Lexington, Kentucky clinic was our seventh IMAC outpatient medical
clinic, which we named the Tony Delk Center, and opened on July 2,
2018.
Advantage Therapy. In August 2018, we acquired the physical
and occupational therapy provider, Advantage Therapy, which
operates four locations in the Springfield, Missouri metropolitan
area. The South Springfield location originally occupied 5,000
square feet, until it was relocated in September 2019 to a 7,520
square feet location which has a lease that expires in August 2024.
The North Springfield, Monett and Ozark locations function as
satellite locations. The North Springfield location functions
within 2,400 square feet with a lease that expires in May 2020. The
Monett location occupies 2,200 square feet pursuant to a lease that
expires in February 2021. The Ozark location operated in
approximately 1,000 square feet, until it was relocated in 2019 to
a 2,740 square foot location with a lease that expires in May 2024.
Advantage Therapy is an established business with more than ten
years of operations in the Springfield, Missouri market. We believe
there is potential to grow the existing practice that provides over
1,000 therapy visits each month with the addition of medical
services to offer our comprehensive IMAC service line.
Progressive Health and ISDI. In April 2019, we acquired the
non-medical assets of, and management agreements for, a
regenerative medicine and physical medicine practice operating in
three locations in the Chicago, Illinois metropolitan area. The
Arlington Heights location occupies 3,390 square feet and has a
lease which expires in July 2023. The Buffalo Grove location
occupies 2,850 square feet and has a lease which expires in July
2020. The Elgin location occupies 3,880 square feet and has a lease
which expires in October 2020.
Integrative RehabMedicine, SC. In November 2019, we entered
into a management agreement for an occupational and physical
therapy practice in Rockford, Illinois. This location occupies
3,056 square feet and has a lease that expires in July
2023.
Our
Services
The
licensed healthcare professionals at our clinics work with each
patient to create a protocol customized for each patient by
utilizing a combination of the following traditional and innovative
treatments:
Medical
Treatments. Our specialized team of doctors work together to
provide the latest minimally invasive, prescription-free treatments
for movement challenges or pain related to orthopedic conditions.
The treatments are customized to treat the underlying condition
instead of addressing the challenge with prescriptions or
surgeries.
Regenerative Medicine. Regenerative therapy at IMAC
Regeneration Centers utilizes undifferentiated cellular tissue to
regenerate damaged tissue. The majority of our procedures utilize
cells from the patient, harvested under minimal manipulation, and
applied during the same visit to the clinic. These autologous cells
help to heal degenerative soft tissue conditions, which cause pain
or compromise the patient’s quality of life. Platelet therapies
comprise the greatest percentage of regenerative procedures.
Independent studies in this area, including a recent safety and
feasibility study published by Dr. Peter B. Fodor, “Adipose Derived
Stromal Cell Injections for Pain Management of Osteoarthritis in
the Human Knee Joint” (Aesthetic Surgery Journal, February 2016),
have supported claims that autologous cell treatments using adipose
and bone marrow lead to improved function and decreased pain within
joints, muscles and connective tissue and can help alleviate
osteoarthritis and degenerative disease. We believe that we have
followed the increasingly accepted protocols described in this and
other similar studies in connection with our regenerative
therapies.
Physical
Medicine. Our team of sports medicine practitioners start by
collaboratively building a personalized physical medicine treatment
plan designed to help patients get back to living the life they
deserve.
Physical Therapy. With a combination of biomechanical
loading and tissue mobilization, our licensed physical
rehabilitation therapists work with each patient to help the body
restore skill within the joint or soft tissue.
Spinal Decompression. During this treatment, the spine is
stretched and relaxed intermittently in a controlled manner,
creating a negative pressure in the disc area that can pull
herniated or bulging tissue back into the disc. Whether caused by
trauma or degeneration, we realize the impact a spinal injury can
have on the quality of one’s life and are committed to providing
the most innovative, minimally invasive medical technology and care
to relieve back pain and restore function.
Chiropractic Manipulation. Common for spine conditions,
manual manipulation is used to increase range of motion, reduce
nerve irritability and improve function.
In
November 2017, we engaged a medical consulting group to advise us
on current regenerative medicine therapy protocols and to organize
a clinical trial towards an investigational new drug application
(IND) with the FDA, while pursuing a voluntary Regenerative
Medicine Advanced Therapy (RMAT) designation. This process is
defined under Section 3033 of the 21st Century Cures
Act. We intend to pursue a trial utilizing regenerative
advancements to alleviate symptoms of debilitating neurological
conditions and diseases.
The
medical consulting group has assisted us in conducting research,
establishing patient engagement tools and developing clinical
strategies to achieve the IND and RMAT. We have executed a
technology transfer agreement with a research university to license
an FDA Phase I approved mesenchymal stem cell product. We
anticipate filing an IND application with the FDA using this
licensed product during the second quarter of 2020 Following the
IND submission, the FDA Office of Tissues and Advanced Therapies
typically takes no longer than 30 days after submission to notify
filers of the IND application result.
No
assurance can be given that the FDA will find that our trial meets
the criteria for IND approval or RMAT designation. We believe that
either designation may be helpful in differentiating our services
and gaining a broader collaborative connection with the FDA. The
failure to earn the IND or RMAT designation will result in
unfulfilled research expenses but should not negatively affect our
operations. With necessary approvals, an independent consultant
estimated the cost to conduct a 15 patient trial will be between
$400,000 and $700,000 and take up to 60 months, with initial
enrolled patient data expected less than eight months after IND
application acceptance. IMAC physicians will be trained to
administer treatments within IMAC facilities if approvals are
granted for the trial.
Our
Growth and Expansion Strategy
We
have developed a comprehensive approach and well-defined model for
new clinic openings ranging from site selection to staffing. Our
original clinic in Paducah, Kentucky, which opened in August 2000,
has shown consistent growth in patient visits, and is profitable.
We will continue to apply this extensive experience and knowledge
to new clinic openings as well as acquisitions. Our six recently
opened clinics, combined with our August 2018 acquisition of four
physical therapy clinics and our 2019 acquisition of three
regenerative medicine and physical therapy clinics and one
management services agreement with an occupational and physical
therapy clinic, are expected to provide us with significant revenue
growth as these sites mature. In 2019 and 2018, we also made
investments in our corporate infrastructure and life science
product development, which we believe will position us well to
support our planned expansion.
We
have plans to open additional IMAC Regeneration Centers in the
states in which we currently operate, as well as in other strategic
locations throughout the United States, building on our familiarity
with the demographic market and our reputation in the area to
attract new patients and endorsements. Our strategic partnerships
with regional and national sports celebrities have enabled us to
increase our visibility in our markets and become known for
providing innovative regenerative-based therapies. We continue to
seek opportunities to work with more athletes to draw awareness to
our services. In addition, we have enlisted a wide range of medical
and alternative medicine professionals to continue providing
innovative outpatient treatments to our patients without major
surgery or prescription pain medication.
The
key elements of our strategy that we believe will continue to
propel our growth and expansion are:
Open New Outpatient Locations and Facilities. We are in the
process of identifying strategic new locations at which to lease
and develop new IMAC Regeneration Centers. We anticipate expansion
in the midwest and southern United States, including in Florida and
Texas within the next 12 months. By branching into states with
significant demand and underserved populations, we anticipate
broader brand recognition and early adoption by patients. We
anticipate small expansions within a two hour drive of existing
markets will allow us to capitalize on our regional market
familiarity and to leverage locally established administrative
infrastructure.
Expand Our Service Offerings to Employers, Government Programs, and
Self-Insured Health Plans. We launched a corporate accounts
division in March 2019 to target employers researching conservative
treatment options for their employees. The program is in place to
focus on minimizing employee time away from work due to injuries or
occupational hazards and limit use of aggressive orthopedic
treatments and the threat of opioid abuse for employees enrolled in
an employer health plan. Since creation, we have not only obtained
contracts directly with employers, but also achieved designations
with federal programs expanding medical access and service
offerings for enrollees. In November 2019, we were accepted as a
Veterans Affairs Community Care Network provider making IMAC a
certified medical center for the 20 million enrollees in a Veterans
Affairs administered benefit plan.
Continue to Obtain Endorsements from Well-Known Sports
Celebrities. We continue to attract celebrity sports
endorsers for each market in which we operate and plan to expand.
By collaborating and co-branding with well-known sports figures,
patients become more familiar with our brand and associate our
company with physical fitness and well-being. Working with sports
celebrities that are well-known in our markets and personally
recommend our treatments helps establish credibility with patients
in those markets.
Accelerate Research and Development of New Regenerative
Products. We have licensed an FDA Phase I approved stem
cell product from a research university to file an investigational
new drug application with the FDA for the purpose of researching
and developing regenerative medicine products for neurological
diseases that restrict movement. We intend to conduct a low-cost
trial with the goal of identifying innovative treatments to deliver
within IMAC Regeneration Centers.
Expand Our Advertising and Marketing. We intend to increase
our advertising and marketing efforts and reach throughout our
primary service areas in order to grow patient volume at our
existing facilities and spur interest in newer locations. Our
current marketing efforts include a combination of local
television, digital and event advertising. We have introduced
employer marketing initiatives with help from our celebrity
endorsers. While we welcome patients that are referred to us by
other healthcare providers, we believe that direct marketing will
generate more new patients for our outpatient clinics than relying
solely on antiquated medical referral practices.
Offer State-of-the-Art Orthopedic Treatments. Our
regenerative rehabilitation techniques are used to prevent
arthritis, treat meniscus tears, defeat muscle deterioration and
address other damaged tissue conditions. We will continue offering
innovative therapies and recently approved medical technologies,
including alternative medicine treatments, and will adapt our
treatment offerings as new treatments are developed and come to
market. By bringing together a diverse array of medical
specialists, we are able to treat more health conditions and
attract a larger base of patients.
Advertising
and Marketing
Our
corporate advertising and marketing efforts focus on increasing our
brand awareness and communicating our commitment to “success
without major surgery,” along with the many other competitive
advantages our company offers. Our marketing strategy is to offer
an innovative and recently approved medical technologies for
movement and orthopedic therapies that appeal to a wide range of
potential patients, continually elevate awareness of our brand and
generate demand for our outpatient medical services. We rely on a
number of channels in this area, including digital advertising,
email marketing, social media and affiliate marketing, as well as
through strategic partnerships with well-known sports celebrities
to build our endorsements and draw patients to our IMAC
Regeneration Centers. Our celebrity endorsers appear in our press
marketing and social media marketing efforts and help generate
interest in our brand and services. We maintain our website at
www.imacregeneration.com. We intend to hire additional sales and
marketing personnel and increase our spending on sales, marketing
and promotion in connection with the continued expansion of our
outpatient locations. Advertising and marketing expense was
$1,238,352 and $859,191 for the years ended December 31, 2019 and
2018, respectively.
Our
sales and marketing strategy focuses on active individuals who seek
to maintain, restore and maximize their health and wellness. A
majority of our customers are located within 25 miles of one of our
outpatient medical clinics. During the years ended December 31,
2019 and 2018, no single customer accounted for more than 10% of
our consolidated revenue, respectively.
Competition
and Our Competitive Advantages
The
outpatient physical therapy industry is highly competitive, with
thousands of clinics across the country. While some of our
competitors offer regenerative medical treatments as an effective
treatment for degenerative health conditions, we believe that few
companies have the multi-disciplinary approach of combining
physical therapy and medical professionals working together to
generate optimal regenerative health outcomes. One of our major
competitive advantages is the ability to deliver medical treatments
alongside complementary physical medicine and provide broadly
affordable regenerative treatments.
Competitive
factors affecting our business include quality of care, cost,
treatment outcomes, convenience of location, and relationships
with, and ability to meet the needs of, referral and insurance
payor sources. Our clinics compete, directly or indirectly, with
many types of healthcare providers including the physical therapy
departments of hospitals, private therapy clinics, physician-owned
therapy clinics, and chiropractors. We may face more intense
competition if consolidation of the therapy industry
continues.
We
believe that we differentiate ourselves from our competition and
have been able to grow our business as a result of the following
competitive strengths:
Our Minimally Invasive Approach to Traditional Orthopedic
Care. We pay particular attention to rehabilitating our
patients’ musculoskeletal system to reduce pain and enhance
mobility without major surgery or anesthesia. By combining physical
therapy and regenerative medicine, we are able to treat a variety
of physical conditions by using a patient’s own body to help heal
itself.
Strong Regional Presence. We own six and manage nine
clinics in four states, providing us significant leverage for
implementation of our marketing strategies and utilization of our
staff. We believe we offer a broader platform of regenerative
therapies than our regional competitors.
We Do Not Prescribe Addictive Opioids. We do not use or
offer opioid-based prescriptions as part of our treatment options
in order to help our patients avoid the dangers of opioid abuse and
addiction. We focus on preventing the potential for addiction
through our regenerative-based therapies that help alleviate
chronic pain.
Utilizing Diverse Medical Specialists for Customized Care.
Our treatment protocols are customized by a team of medical
doctors, nurse practitioners, chiropractors and physical therapists
and are designed to heal damaged tissue without major surgery or
prescription pain medication. This team approach delivers
comprehensive service while avoiding the higher costs of major
reconstructive surgery by medical specialists.
Protection
of Proprietary Information
We
own various U.S. federal trademark registrations and applications,
and unregistered trademarks, including the registered mark “IMAC
Regeneration Center.” We rely on trademark laws in the United
States, as well as confidentiality procedures and contractual
provisions, to protect our proprietary information and brand. We
cannot assure you that existing trademark laws or contractual
rights will be adequate for protecting our intellectual property
and proprietary information. Protection of confidential
information, trade secrets and other intellectual property rights
in the markets in which we operate and compete is highly uncertain
and may involve complex legal questions. We cannot completely
prevent the unauthorized use or infringement of our confidential
information or intellectual property rights as such prevention is
inherently difficult. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our confidential
information and intellectual property protection.
We
are not aware of any claims of infringement or other challenges to
our rights in our trademarks. We do not expect to need any
additional intellectual property rights to carry out our growth and
expansion strategy.
For
years ended December 31, 2019 and 2018, we did not incur any
material time or labor for the development of the technology we use
in our operations.
Government
Regulation
Numerous
federal, state and local regulations regulate healthcare services
and those who provide them. Some states into which we may expand
have laws requiring facilities employing health professionals and
providing health-related services to be licensed and, in some
cases, to obtain a certificate of need (that is, demonstrating to a
state regulatory authority the need for, and financial feasibility
of, new facilities or the commencement of new healthcare services).
None of the states in which we currently operate require a
certificate of need for the operation of our physical therapy
business functions. Our healthcare professionals and/or medical
clinics, however, are required to be licensed, as determined by the
state in which they provide services. Failure to obtain or maintain
any required certificates, approvals or licenses could have a
material adverse effect on our business, financial condition and
results of operations.
Regulations Controlling Fraud and Abuse. Various federal
and state laws regulate financial relationships involving providers
of healthcare services. These laws include Section 1128B(b) of the
Social Security Act (42 U.S. C. § 1320a-7b(b)) (the “Fraud and
Abuse Law”), under which civil and criminal penalties can be
imposed upon persons who, among other things, offer, solicit, pay
or receive remuneration in return for (i) the referral of patients
for the rendering of any item or service for which payment may be
made, in whole or in part, by a Federal health care program
(including Medicare and Medicaid); or (ii) purchasing, leasing,
ordering, or arranging for or recommending purchasing, leasing,
ordering any good, facility, service, or item for which payment may
be made, in whole or in part, by a Federal health care program
(including Medicare and Medicaid). We believe that our business
procedures and business arrangements are in compliance with these
provisions. However, the provisions are broadly written and the
full extent of their specific application to specific facts and
arrangements to which we are a party is uncertain and difficult to
predict. In addition, several states have enacted state laws
similar to the Fraud and Abuse Law, which may be more restrictive
than the federal Fraud and Abuse Law.
Stark Law. Provisions of the Omnibus Budget Reconciliation
Act of 1993 (42 U.S.C. §1395nn) (the “Stark Law”) prohibit
referrals by a physician of “designated health services” which are
payable, in whole or in part, by Medicare or Medicaid, to an entity
in which the physician or the physician’s immediate family member
has an investment interest or other financial relationship, subject
to several exceptions. Unlike the Fraud and Abuse Law, the Stark
Law is a strict liability statute. Proof of intent to violate the
Stark Law is not required. Physical therapy services are among the
“designated health services.” Further, the Stark Law has
application to our management contracts with individual physicians
and physician groups, as well as, any other financial relationship
between us and referring physicians, including medical advisor
arrangements and any financial transaction resulting from a clinic
acquisition. The Stark Law also prohibits billing for services
rendered pursuant to a prohibited referral. Several states have
enacted laws similar to the Stark Law. These state laws may cover
all (not just Medicare and Medicaid) patients. As with the Fraud
and Abuse Law, we consider the Stark Law in planning our outpatient
clinics, establishing contractual and other arrangements with
physicians, marketing and other activities, and believe that our
operations are in substantial compliance with the Stark Law. If we
violate the Stark Law or any similar state laws, our financial
results and operations could be adversely affected. Penalties for
violations include denial of payment for the services, significant
civil monetary penalties, and exclusion from the Medicare and
Medicaid programs.
HIPAA. In an effort to further combat healthcare fraud and
protect patient confidentially, Congress included several
anti-fraud measures in the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”). HIPAA created a source of
funding for fraud control to coordinate federal, state and local
healthcare law enforcement programs, conduct investigations,
provide guidance to the healthcare industry concerning fraudulent
healthcare practices, and establish a national data bank to receive
and report final adverse actions. HIPAA also criminalized certain
forms of health fraud against all public and private payers.
Additionally, HIPAA mandates the adoption of standards regarding
the exchange of healthcare information in an effort to ensure the
privacy and electronic security of patient information and
standards relating to the privacy of health information. Sanctions
for failing to comply with HIPAA include criminal penalties and
civil sanctions. In February of 2009, the American Recovery and
Reinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII
of ARRA, the Health Information Technology for Economic and
Clinical Health Act (“HITECH”), provided for substantial Medicare
and Medicaid incentives for providers to adopt electronic health
records (“EHRs”) and grants for the development of health
information exchange (“HIE”). Recognizing that HIE and EHR systems
will not be implemented unless the public can be assured that the
privacy and security of patient information in such systems is
protected, HITECH also significantly expanded the scope of the
privacy and security requirements under HIPAA. Most notable are the
mandatory breach notification requirements and a heightened
enforcement scheme that includes increased penalties, and which now
apply to business associates as well as to covered entities. In
addition to HIPAA, a number of states have adopted laws and/or
regulations applicable in the use and disclosure of individually
identifiable health information that can be more stringent than
comparable provisions under HIPAA.
We
believe that our operations comply with applicable standards for
privacy and security of protected healthcare information. We cannot
predict what negative effect, if any, HIPAA/HITECH or any
applicable state law or regulation will have on our
business.
Cybersecurity. We are a medical provider and comply with
HIPAA and data sensitivity requirements as regulated by local and
federal authorities. Our patient data is hosted, managed and
secured with an approved Electronic Medical Record vendor.
Cybersecurity is of paramount importance and our executive officers
have implemented routine cyber breach insurance policies to protect
our company from potential predatory initiatives to access patient
and company data. See “Risk Factors – Our reputation and
relationships with patients would be harmed if our patients’ data,
particularly personally identifying data, were to be subject to a
cyber-attack or otherwise by unauthorized persons.”
FDA Drug Approval Process
In
the United States, pharmaceutical products are subject to extensive
regulation by the Food and Drug Administration (the “FDA”). The
Federal Food, Drug, and Cosmetic Act (“FDC Act”) and other federal
and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage,
recordkeeping, approval, labeling, promotion and marketing,
distribution, post-approval monitoring and reporting, sampling and
import and export of pharmaceutical products. Failure to comply
with applicable U.S. requirements may subject a company to a
variety of administrative or judicial sanctions, such as FDA
refusal to approve pending new drug applications (“NDAs”), warning
or untitled letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions,
fines, civil penalties and criminal prosecution. As a result of
these regulations, pharmaceutical product development and approval
are very expensive and time consuming.
Pharmaceutical
product development for a new product or certain changes to an
approved product in the United States typically involves
preclinical laboratory and animal tests, the submission to the FDA
of an investigational new drug (“IND”), which must become effective
before clinical testing may commence, and adequate and
well-controlled clinical trials to establish the safety and
effectiveness of the drug for each indication for which FDA
approval is sought. Satisfaction of FDA pre-market approval
requirements typically takes many years and the actual time
required may vary substantially based upon the type, complexity and
novelty of the product or disease.
Clinical
trials to support NDAs for marketing approval are typically
conducted in three sequential phases, but the phases may overlap.
In Phase 1, the initial introduction of the drug into healthy human
subjects or patients, the drug is tested to assess pharmacological
actions, side effects associated with increasing doses and, if
possible, early evidence on effectiveness. For dermatology
products, Phase 2 usually involves trials in a limited patient
population to determine metabolism, pharmacokinetics, the
effectiveness of the drug for a particular indication, dosage
tolerance and optimum dosage, and to identify common adverse
effects and safety risks. If a compound demonstrates evidence of
effectiveness and an acceptable safety profile in Phase 2
evaluations, Phase 3 clinical trials are undertaken to obtain the
additional information about clinical efficacy and safety in a
larger number of patients, typically at geographically dispersed
clinical trial sites, to permit the FDA to evaluate the overall
benefit-risk relationship of the drug and to provide adequate
information for the labeling of the drug. In most cases the FDA
requires two adequate and well-controlled Phase 3 clinical trials
with statistically significant results to demonstrate the efficacy
of the drug. A single Phase 3 clinical trial with other
confirmatory evidence may be sufficient in rare instances where the
study is a large multicenter trial demonstrating internal
consistency and a statistically very persuasive finding of an
effect on mortality, irreversible morbidity or prevention of a
disease with a potentially serious outcome and confirmation of the
result in a second trial would be practically or ethically
impossible.
After
completion of the required activities, including clinical testing,
a NDA is prepared and submitted to the FDA. FDA approval of the NDA
is required before marketing of the product may begin in the United
States.
The
FDA also may refer applications for novel drug products, or drug
products that present difficult questions of safety or efficacy, to
an advisory committee, typically a panel that includes clinicians
and other experts, for review, evaluation and a recommendation as
to whether the application should be approved. The FDA is not bound
by the recommendation of an advisory committee, but it generally
follows such recommendations. Before approving an NDA, the FDA will
typically inspect one or more clinical sites to assure compliance
with the FDA’s good clinical practice requirements. Additionally,
the FDA typically inspects the facility or the facilities at which
the drug is manufactured and may inspect the sponsor company and
investigator sites that participated in the clinical trials. The
FDA will not approve the product unless compliance with current
good manufacturing practice (“cGMP”) is satisfactory and the NDA
contains data that provide substantial evidence that the drug is
safe and effective for the stated indication.
After
the FDA evaluates the NDA and the manufacturing facilities, it
issues either an approval letter or a complete response letter. A
complete response letter generally outlines the deficiencies in the
submission and may require substantial additional testing, or
information, in order for the FDA to reconsider the application.
If, or when, those deficiencies have been addressed to the FDA’s
satisfaction following FDA review of a resubmission of the NDA, the
FDA will issue an approval letter.
An
approval letter authorizes commercial marketing of the drug with
specific prescribing information for specific indications. As a
condition of NDA approval, the FDA may require a risk evaluation
and mitigation strategy (“REMS”), to help ensure that the benefits
of the drug outweigh the potential risks. REMS can include
medication guides, communication plans for healthcare professionals
and elements to assure safe use (“ETASU”). ETASU can include, but
are not limited to, special training or certification for
prescribing or dispensing, dispensing only under certain
circumstances, special monitoring and the use of patient
registries. The requirement for a REMS can materially affect the
potential market and profitability of the drug. Moreover, product
approval may require substantial post-approval testing and
surveillance to monitor the drug’s safety or efficacy. Once
granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems are identified
following initial marketing.
Changes
to some of the conditions established in an approved application,
including changes in indications, labeling, or manufacturing
processes or facilities, require submission and FDA approval of a
new NDA or NDA supplement before the change can be implemented. An
NDA supplement for a new indication typically requires clinical
data similar to that in the original application, and the FDA
generally uses the same procedures and actions in reviewing NDA
supplements as it does in reviewing NDAs.
Section
505(b)(2) New Drug Applications
Most
drug products obtain FDA marketing approval pursuant to an NDA
filed under section 505(b)(1) of the FDC Act. An alternative is a
special type of NDA, commonly referred to as a Section 505(b)(2)
NDA (“505(b)(2) NDA”), which enables the applicant to rely, in
part, on the FDA’s previous approval of a similar product, or
published literature, in support of its application.
505(b)(2)
NDAs often provide an alternate path to FDA approval for new or
improved formulations or new uses of previously approved products.
Section 505(b)(2) permits the filing of an NDA where at least some
of the information required for approval comes from studies not
conducted by, or for, the applicant and for which the applicant has
not obtained a right of reference. If the 505(b)(2) NDA applicant
can establish that reliance on the FDA’s previous approval is
scientifically appropriate, it may eliminate the need to conduct
certain preclinical or clinical studies of the new product. The FDA
may also require companies to perform additional studies or
measurements to support the change from the approved product. The
FDA may then approve the new product candidate for all, or some, of
the label indications for which the referenced product has been
approved, as well as for any new indication sought by the Section
505(b)(2) NDA applicant.
Biologics
Biological
products used for the prevention, treatment or cure of a disease or
condition of a human being are subject to regulation under the FDC
Act, except the section of the FDC Act which governs the approval
of NDAs. Biological products are approved for marketing under
provisions of the Public Health Service Act (“PHSA”), via a
Biologics License Application (“BLA”). However, the application
process and requirements for approval of BLAs and BLA supplements,
including review timelines, are very similar to those for NDAs and
NDA supplements, and biologics are associated with similar approval
risks and costs as other drugs.
Post-Approval
Requirements
Once
a NDA is approved, a product will be subject to certain
post-approval requirements. For instance, the FDA closely regulates
the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising,
off-label promotion, industry-sponsored scientific and educational
activities and promotional activities involving the internet. Drugs
may be marketed only for the approved indications and in accordance
with the provisions of the approved labeling.
Adverse
event reporting and submission of periodic safety reports is
required following FDA approval of a NDA. The FDA also may require
post-marketing testing, known as Phase 4 testing, REMS and
surveillance to monitor the effects of an approved product, or the
FDA may place conditions on an approval that could restrict the
distribution or use of the product. In addition, quality-control,
drug manufacture, packaging and labeling procedures must continue
to conform to cGMPs after approval. Drug manufacturers and certain
of their subcontractors are required to register their
establishments with the FDA and certain state agencies.
Registration with the FDA subjects entities to periodic unannounced
inspections by the FDA, during which the agency inspects
manufacturing facilities to assess compliance with cGMPs.
Accordingly, manufacturers must continue to expend time, money and
effort in the areas of production and quality-control to maintain
compliance with cGMPs. Regulatory authorities may withdraw product
approvals or request product recalls if a company fails to comply
with regulatory standards, if it encounters problems following
initial marketing, or if previously unrecognized problems are
subsequently discovered.
Pediatric
Information
Under
the Pediatric Research Equity Act, NDAs or supplements to NDAs must
contain data to assess the safety and effectiveness of the drug for
the claimed indications in all relevant pediatric subpopulations
and to support dosing and administration for each pediatric
subpopulation for which the drug is safe and effective. The FDA may
grant full or partial waivers, or deferrals, for submission of
data.
The
Best Pharmaceuticals for Children Act (“BPCA”) provides NDA holders
a six-month extension of any exclusivity, patent or non-patent, for
a drug if certain conditions are met. Conditions for exclusivity
include the FDA’s determination that information relating to the
use of a new drug in the pediatric population may produce health
benefits in that population, the FDA making a written request for
pediatric studies and the applicant agreeing to perform, and
reporting on, the requested studies within the statutory timeframe.
Applications under the BPCA are treated as priority applications,
with all of the benefits that designation confers.
Disclosure
of Clinical Trial Information
Sponsors
of clinical trials of FDA-regulated products, including drugs, are
required to register and disclose certain clinical trial
information. Information related to the product, patient
population, phase of investigation, study sites and investigators
and other aspects of the clinical trial is then made public as part
of the registration. Sponsors are also obligated to disclose the
results of their clinical trials after completion. Competitors may
use this publicly available information to gain knowledge regarding
the progress of our programs.
Regenerative
Medicine Advanced Therapies (RMAT) Designation
The
FDA has established a Regenerative Medicine Advanced Therapy
(“RMAT”) designation as part of its implementation of the 21st
Century Cures Act, or Cures Act. The RMAT designation program is
intended to fulfill the Cures Act requirement that the FDA
facilitate an efficient development program for, and expedite
review of, any drug that meets the following criteria: (1) it
qualifies as a RMAT, which is defined as a cell therapy,
therapeutic tissue engineering product, human cell and tissue
product, or any combination product using such therapies or
products, with limited exceptions; (2) it is intended to treat,
modify, reverse, or cure a serious or life-threatening disease or
condition; and (3) preliminary clinical evidence indicates that the
drug has the potential to address unmet medical needs for such a
disease or condition. Like breakthrough therapy designation, RMAT
designation provides potential benefits that include more frequent
meetings with FDA to discuss the development plan for the product
candidate, and eligibility for rolling review and priority review.
Products granted RMAT designation may also be eligible for
accelerated approval on the basis of a surrogate or intermediate
endpoint reasonably likely to predict long-term clinical benefit,
or reliance upon data obtained from a meaningful number of sites,
including through expansion to additional sites. RMAT-designated
products that receive accelerated approval may, as appropriate,
fulfill their post-approval requirements through the submission of
clinical evidence, clinical studies, patient registries, or other
sources of real world evidence (such as electronic health records);
through the collection of larger confirmatory data sets; or via
post-approval monitoring of all patients treated with such therapy
prior to approval of the therapy.
Other Regulatory Factors. Political, economic and
regulatory influences are fundamentally changing the healthcare
industry in the United States. Congress, state legislatures and the
private sector continue to review and assess alternative healthcare
delivery and payment systems. Potential alternative approaches
could include mandated basic healthcare benefits, controls on
healthcare spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, the
creation of large insurance purchasing groups, and price controls.
Legislative debate is expected to continue in the future and market
forces are expected to demand only modest increases or reduced
costs. For instance, managed care entities are demanding lower
reimbursement rates from healthcare providers and, in some cases,
are requiring or encouraging providers to accept capitated payments
that may not allow providers to cover their full costs or realize
traditional levels of profitability. We cannot reasonably predict
what impact the adoption of federal or state healthcare reform
measures or future private sector reform may have on our
business.
In
recent years, federal and state governments have launched several
initiatives aimed at uncovering behavior that violates the federal
civil and criminal laws regarding false claims and fraudulent
billing and coding practices. Such laws require providers to adhere
to complex reimbursement requirements regarding proper billing and
coding in order to be compensated for their services by government
payers. Our compliance program requires adherence to applicable law
and promotes reimbursement education and training; however, a
determination that our clinics’ billing and coding practices are
false or fraudulent could have a material adverse effect on
us.
As a
result of our participation in the Medicare and Medicaid programs,
we are subject to various governmental inspections, reviews, audits
and investigations to verify our compliance with these programs and
applicable laws and regulations. Managed care payers may also
reserve the right to conduct audits. An adverse inspection, review,
audit or investigation could result in refunding amounts we have
been paid; fines penalties and/or revocation of billing privileges
for the affected clinics; exclusion from participation in the
Medicare or Medicaid programs or one or more managed care payer
network; or damage to our reputation.
We
and our outpatient medical clinics are subject to federal and state
laws prohibiting entities and individuals from knowingly and
willfully making claims to Medicare, Medicaid and other
governmental programs and third-party payers that contain false or
fraudulent information. The federal False Claims Act encourages
private individuals to file suits on behalf of the government
against healthcare providers such as us. As such suits are
generally filed under seal with a court to allow the government
adequate time to investigate and determine whether it will
intervene in the action, the implicated healthcare providers often
are unaware of the suit until the government has made its
determination and the seal is lifted. Violations or alleged
violations of such laws, and any related lawsuits, could result in
(i) exclusion from participation in Medicare, Medicaid and other
federal healthcare programs, or (ii) significant financial or
criminal sanctions, resulting in the possibility of substantial
financial penalties for small billing errors that are replicated in
a large number of claims, as each individual claim could be deemed
a separate violation. In addition, many states also have enacted
similar statutes, which may include criminal penalties, substantial
fines, and treble damages.
Employees
As of
March 22, 2020, we employed 132 individuals, of which 108 were
full-time employees. The total employed individual count is after a
reduction of staff enforced on March 20, 2020. In anticipation of
reduced patient visits related to the coronavirus pandemic, we
eliminated nine positions and furloughed eight employees for a
total reduction of 17 employees. As of March 22, 2020, none of our
employees were governed by collective bargaining agreements or were
members of a union. We consider our relations with our employees to
be very good.
In
the states in which our current outpatient clinics are located,
persons performing designated medical or physical therapy services
are required to be licensed by the state. Based on standard
employee screening systems in place, all persons currently employed
by us who are required to be licensed are licensed. We are not
aware of any federal licensing requirements applicable to our
employees.
Medical
Advisory Board
We
have a Medical Advisory Board comprised of all IMAC medical
physicians. The Advisory Board meets quarterly to discuss matters
relating to our therapies, range of medical treatments and
strategic direction and periodically presents to executive
management. On March 20, 2020, the Advisory Board met to complete a
COVID-19 preparedness plan. Members of the Advisory board will be
reimbursed by us for out-of-pocket expenses incurred in serving on
the Advisory Board.
Business
Transactions
In
June 2018, we completed the following transactions with Clinic
Management Associates, LLC (which merged into IMAC Management
Services, LLC), IMAC of St. Louis, LLC and IMAC Regeneration
Management of Nashville, LLC (the “June Transactions”). In August
2018, we completed transactions with Advantage Therapy, LLC and
BioFirma, LLC (the “August Transactions” and, with the June
Transactions, the “Transactions”). Information concerning our
recent transactions is set forth below.
Integrated Medicine and Chiropractic Regeneration Center
PSC. Our wholly-owned subsidiary, IMAC Management Services,
LLC, holds a long-term Management Services Agreement with
Integrated Medicine and Chiropractic Regeneration Center PSC, a
professional service corporation controlled by our co-founders
Matthew C. Wallis, DC and Jason Brame, DC, which operates two IMAC
Regeneration Centers in Kentucky. The Management Services Agreement
is exclusive, extends through June 2048 and will automatically
renew annually each year thereafter unless written notice is given
within 180 days prior to the completion of the extended term. On
June 29, 2018, Clinic Management Associates, LLC, controlled by
Drs. Wallis and Brame, merged with and into our subsidiary IMAC
Management Services, LLC. IMAC Management Services, LLC provides
exclusive comprehensive management and related administrative
services to the IMAC Regeneration Centers under the Management
Services Agreement. Pursuant to the merger agreement with Clinic
Management Associates, LLC, we agreed to pay cash or issue shares
of our common stock having a value of $4,598,576 to its former
owners. In August 2018, Drs. Wallis and Brame agreed to accept
shares of our common stock upon the closing of our initial public
offering, which was completed in February 2019, in lieu of any
further payments for remaining consideration to be paid under the
merger agreement. Under the Management Services Agreement, we will
receive service fees based on the cost of the services we provide,
plus a specified markup percentage, and a discretionary annual
bonus.
IMAC of St. Louis, LLC. We entered into a Unit Purchase
Agreement with the equity owners of IMAC of St. Louis, LLC to
acquire the remaining 64% of the outstanding units of the limited
liability company membership interests we did not already own. This
entity, doing business as the Ozzie Smith Center, operates two
locations in Missouri. Pursuant to the terms of the Unit Purchase
Agreement, we agreed to pay IMAC of St. Louis, LLC’s former owners
upon the closing our initial public offering, which was completed
in February 2019, $1,000,000 in cash and the remainder in shares of
common stock for aggregate consideration of $1,490,632. The former
owners of IMAC of St. Louis, LLC received shares of our common
stock upon the closing of our initial public offering in lieu of
any further payments for remaining consideration to be paid under
the Unit Purchase Agreement. The effective date of the transaction
was June 1, 2018.
IMAC Regeneration Management of Nashville, LLC. We entered
into a Unit Purchase Agreement with the equity owners of IMAC
Regeneration Management of Nashville, LLC to acquire the remaining
24% of the outstanding units of the limited liability company
membership interests we did not already own for $110,000 payable in
shares of our common stock upon the closing our initial public
offering, which was completed in February 2019, and $190,000
principal amount of 4% convertible notes (on the same terms as in
our 2018 private placement described below). The effective date of
this transaction was June 1, 2018. IMAC Regeneration Management of
Nashville, LLC, now our 100%-owned subsidiary, and IMAC
Regeneration Center of Nashville, P.C. previously agreed to a
long-term, exclusive management services agreement on November 1,
2016.
Integrated
Medicine and Chiropractic Regeneration Center PSC, IMAC Management
Services, LLC, IMAC of St. Louis, LLC and IMAC Regeneration
Management of Nashville, LLC are related companies having common
ownership with us and our controlling stockholders and have been
operating together with us as a single group since 2015.
Advantage Hand Therapy and Orthopedic Rehabilitation, LLC.
In August 2018, we purchased 100% of the outstanding units of
Advantage Hand Therapy and Orthopedic Rehabilitation, LLC, a
physical and occupational therapy business with four clinics
serving the Springfield, Missouri metropolitan area. The purchase
price was $22,930 in cash (which was paid at the closing of the
Unit Purchase Agreement) and $870,000 payable in shares of our
common stock upon the closing our initial public offering, which
was completed in February 2019.
BioFirma, LLC. On August 20, 2018, we acquired a 70%
ownership position in BioFirma, LLC for $1,000 in cash. On October
1, 2019, the minority interest holder in BioFirma assigned the
remaining 30% ownership interest to us in exchange for the
assumption of the liabilities associated with such interest. On
December 31, 2019, we completed the sale of substantially all of
the assets of BioFirma to Self Care Regeneration LLC for proceeds
of $320,800, plus reimbursement of certain expenses, all of which
are due to be paid to us no later than June 29, 2020. The
acquisition and disposition of this entity was not considered
significant as measured under specific financial tests of the
SEC.
Progressive Health and ISDI. In April 2019, we acquired the
non-medical assets of, and management agreements for, a
regenerative medicine and physical medicine practice operating in
three locations in the Chicago, Illinois metropolitan area The
purchase price was $4,159,570 paid in 1,002,306 shares of our
common stock.. The Arlington Heights location occupies 3,390 square
feet and has a lease which expires in July 2023. The Buffalo Grove
location occupies 2,850 square feet and has a lease which expires
in July 2020. The Elgin location occupies 3,880 square feet and has
a lease which expires in October 2020.
Integrative RehabMedicine, SC. In November 2019, we entered
into a management agreement for one year terms that auto-renew for
an occupational and physical therapy practice in Rockford,
Illinois. This location occupies 3,056 square feet and has a lease
that expires in July 2023.
2018
Private Placement
In
the first six months of 2018, we received gross proceeds of
$1,530,000 from a private placement of our 4% convertible
promissory notes. The $1,530,000 and an additional $200,000 in
existing equity and payments to investors (plus accrued interest)
is convertible into 445,559 shares of our common stock, pursuant to
the terms of a Securities Purchase Agreement with 23 accredited
investors. The principal amount of the promissory notes was
convertible into shares of common stock automatically upon the
closing our initial public offering, which was completed in
February 2019. The conversion price of the promissory notes was an
amount reflecting a 20% discount to the initial public offering
price of $5.00 per share.
On June 1, 2018, we entered into a note payable to the Edward S.
Bredniak Revocable Trust in the amount of up to $2,000,000. An
existing note payable with this entity with an outstanding balance
of $379,675.60 was combined into the new note payable. The note
carries an interest rate of 10% per annum and all outstanding
balances are due and payable 13 months after the closing
our
initial public offering, which was completed in February
2019. This note was amended
effective June 28, 2019 to, among other things, reduce the
outstanding principal amount to $1,750,000 and extend the maturity
of this note to January 5, 2021. The proceeds of this note are
being used to satisfy ongoing working capital needs, expenses
related to the preparation for our initial public offering,
equipment and construction costs related to new clinic locations
and potential business combination and transaction
expenses.
Initial
Public Offering
On
February 15, 2019, we completed our initial public offering of
850,000 units, with each unit consisting one share of our common
stock and two warrants each to purchase one share of our common
stock, at a combined initial public offering price of $5.125 per
unit. The exercise price of the warrants is $5.00 per warrant. The
units immediately and automatically separated upon issuance, and
the common stock and warrants trade on The NASDAQ Capital Market
under the ticker symbols “IMAC” and “IMACW,”
respectively.
We
received aggregate gross proceeds of $4,356,250 from our initial
public offering, before deducting underwriting discounts,
commissions and other related expenses. Proceeds from the offering
have been used for financing the costs of leasing, developing and
acquiring new clinic locations, funding research and new product
development activities, and for working capital and general
corporate purposes.
In
addition, upon the closing of our initial public offering, we
issued unit purchase options to Dawson James Securities, Inc., as
representative of the several underwriters, and its affiliates
entitling them to purchase a number of our securities equal to 4%
of the securities sold in the initial public offering. The unit
purchase options have an exercise price equal to 120% of the public
offering price of the units (or $6.15 per share and two warrants)
and may be exercised on a cashless basis. The unit purchase options
are not redeemable by us.
Corporate
Information and Incorporation
The
first IMAC Regeneration Center was organized in August 2000 as a
Kentucky professional service corporation. That center was the
forerunner to our current business and remains our flagship
location. Matthew C. Wallis, DC and Jason Brame, DC, together with
Jeffrey S. Ervin, became the founding members of IMAC Holdings,
LLC, a Kentucky limited liability company organized in March 2015,
to expand our management team to support our clinical expansion
while meeting the requirements of state healthcare practice
guidelines and ownership laws.
The
following chart reflects the corporate structure of our key
operating units:
Percentages
above refer to our ownership of subsidiaries’ limited liability
company membership interests as of December 31, 2019.
|
(1) |
As
required by applicable state law, our medical clinics in Kentucky
and Tennessee are held in professional service corporations owned
entirely by licensed medical practitioners because the clinics are
engaged in the practice of medicine through physicians and nurse
practitioners. We are able to manage these medical clinics through
limited liability companies that enter into management services
agreements with the professional service corporations that own the
clinics. Under these agreements, we provide exclusive comprehensive
management and related administrative services to the professional
service corporation and receive management fees. Due to this
financial and operational control by contract, our financial
statements consolidate the financial results of the professional
service corporations. See “Business – Our Operations.” |
| |
|
| (2) |
Our
medical clinics in Kentucky are held in Integrated Medicine and
Chiropractic Regeneration Center PSC, a professional service
corporation owned by Matthew C. Wallis, DC and Jason Brame, DC.
IMAC Management Services LLC, our 100%-owned subsidiary, and
Integrated Medicine and Chiropractic Regeneration Center PSC agreed
to a long-term, exclusive management services agreement on June 28,
2018. See “Business – Business Transactions.” |
| |
|
| (3) |
We
previously owned 36% of the outstanding limited liability company
membership interests of IMAC of St. Louis, LLC, and acquired the
remaining 64% of the outstanding units on June 1, 2018. See
“Business – Business Transactions.” |
| |
|
| (4) |
We
acquired 100% of the outstanding units of Advantage Hand Therapy
and Orthopedic Rehabilitation, LLC in August 2018. See “Business –
Business Transactions.” |
| |
|
| (5) |
We
previously owned 76% of the outstanding limited liability company
membership interests of IMAC Regeneration Management of Nashville,
LLC, and acquired the remaining 24% of the outstanding units on
June 1, 2018. Our medical clinics in Tennessee are held in IMAC
Regeneration Center of Nashville, P.C., a professional service
corporation headed by Rachel Rome, M.D., the centers’ medical
director. IMAC Regeneration Management of Nashville, LLC, now our
100%-owned subsidiary, and IMAC Regeneration Center of Nashville,
P.C. agreed to a long-term, exclusive management services agreement
on November 1, 2016. See “Business – Business
Transactions.” |
| |
|
| (6) |
On
August 20, 2018, we acquired a 70% ownership position in BioFirma,
LLC for $1,000 in cash. On October 1, 2019, the minority interest
holder in BioFirma assigned the remaining 30% ownership interest to
us in exchange for the assumption of the liabilities associated
with such interest. On December 31, 2019, we completed the sale of
substantially all of the assets of BioFirma to Self Care
Regeneration LLC, and BioFirma is no longer an active entity. See
“Business – Business Transactions.” |
| |
|
| (7) |
On
April 19, 2019, ISDI Holdings II and PHR Holdings merged with and
into our wholly owned subsidiary IMAC Management of Illinois, LLC.
In November 2019, IMAC Management of Illinois, LLC entered into a
management agreement for an occupational and physical therapy
practice in Rockford, Illinois. See “Business – Business
Transactions.” |
Our
consolidated financial statements include the accounts of IMAC
Holdings, Inc. and the following entities which are consolidated
due to direct ownership of a controlling voting interest or other
rights granted to us as the sole general partner or managing member
of the entity: IMAC Management Services, LLC, IMAC Regeneration
Management of Nashville, LLC and IMAC Management of Illinois, LLC;
the following entity which is consolidated with IMAC Regeneration
Management of Nashville, LLC due to control by contract: IMAC
Regeneration Center of Nashville, PC; the following entities which
are consolidated with IMAC Management of Illinois, LLC due to
control by contract: Progressive Health and Rehabilitation, Ltd.,
Illinois Spine and Disc Institute, Ltd. and Ricardo Knight, P.C.
and the following entities which were held as a minority interest
prior to June 1, 2018: IMAC of St. Louis, LLC and due to control by
contract, as of June 29, 2018, Integrated Medicine and Chiropractic
Regeneration Center PSC. Additionally, our consolidated financial
statements include the financial results of our acquisition of
Advantage Therapy and Orthopedic Rehabilitation LLC and BioFirma,
LLC as of August 2018.
Effective
June 1, 2018, IMAC Holdings converted into a Delaware corporation
and we changed our name to IMAC Holdings, Inc., which is referred
to herein as the Corporate Conversion. In conjunction with the
conversion, all of our outstanding membership interests were
exchanged on a proportional basis into shares of common stock. As a
result of the Corporate Conversion, we are now a federal corporate
taxpayer as opposed to a pass-through entity for tax
purposes.
Our
principal executive offices are located at 1605 Westgate Circle,
Brentwood, Tennessee 37027 and our telephone number is (844)
266-IMAC (4622). We maintain a corporate website at
http://www.imacregeneration.com.
Available
Information
We
file electronically with the Securities and Exchange Commission
(the “SEC”), our annual reports on Form 10-K, quarterly reports on
Form 10-Q, and current reports on Form 8-K pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange
Act”). The public may read and copy any materials filed by us with
the SEC at the SEC’s Public Reference Room at 100 F Street, NW,
Washington, D.C. 20549. The public may obtain information on the
operation of the SEC’s Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site
(www.sec.gov), which contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC.
The
Company’s annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those
reports are available free of charge on our website at
https://imacregeneration.com as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC. Such reports will remain available on our
website for at least 12 months and are also available free of
charge by written request or by contacting the Company at
844-266-4622.
The
contents of our website or any other website are not incorporated
by reference into this Annual Report on Form 10-K.
In
addition to the information set forth at the beginning of this Form
10-K entitled “Cautionary Statement Regarding Forward-Looking
Statements,” you should consider that there are numerous and varied
risks, known and unknown, that may prevent us from achieving our
goals. If any of these risks actually occur, our business,
financial condition or results of operation may be materially and
adversely affected. In such case, the trading price of our
securities could decline and investors could lose all or part of
their investment. These risk factors may not identify all risks
that we face and our operations could also be affected by factors
that are not presently known to us or that we currently consider to
be immaterial to our operations.
Risks
Relating to Our Company Business and Industry
We recorded a net loss for the twelve months ended December 31,
2019 and December 31, 2018 and there can be no assurance that our
future operations will result in net income.
For
the twelve months ended December 31, 2019, and December 31, 2018,
we had net revenue of $15,126,026 and $6,701,071, respectively, and
we had net loss of $6,497,230 and $3,053,743, respectively. At
December 31, 2019, we had stockholders’ equity of approximately
$7,937,292 and an accumulated deficit of approximately $10,042,050.
At December 31, 2018, we had stockholders’ deficit of approximately
$(3,932,160) and an accumulated deficit of approximately
$(3,544,820). There can be no assurance that our future operations
will result in net income. Our failure to increase our revenues or
improve our gross margins will harm our business. We may not be
able to sustain or increase profitability on a quarterly or annual
basis in the future. If our revenues grow more slowly than we
anticipate, our gross margins fail to improve or our operating
expenses exceed our expectations, our operating results will
suffer. The fee we charge for our management services may decrease,
which would reduce our revenues and harm our business. If we are
unable to sell our services at acceptable prices relative to our
costs, or if we fail to develop and introduce new services on a
timely basis and services from which we can derive additional
revenues, our financial results will suffer.
We are in an early stage of development and have a limited
operating history upon which to base an estimate of our future
performance.
Our
current business was formally organized in March 2015 and we
currently have open 15 outpatient clinics. Accordingly, we have a
limited operating history on which to base an estimate of our
future performance. Because we lack a long operating history, you
do not have either the type or amount of information that would be
available to a purchaser of securities of a company with a more
substantial operating history. Our growth and expansion strategy is
in the early stages of implementation and there can be no assurance
that we will be able to implement our strategy or that we will be
commercially successful. Our ability to continue as a growing
concern is contingent upon our ability to:
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raise
sufficient capital through debt and equity raises; |
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● |
hire
and retain a number of highly skilled employees, including medical
and chiropractic doctors, physical therapists and other
practitioners; |
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● |
lease
and develop acceptable premises for our IMAC Regeneration
Centers; |
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● |
build
a consistent patient base within the areas of our medical
clinics; |
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● |
secure
and maintain arrangements with third-party payers, sports celebrity
endorsers and other service providers, all on terms favorable or
acceptable to our company; |
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implement
the other numerous necessary portions of our growth and expansion
strategy; and |
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attain
profitable operations. |
There
can be no assurance that we will be able to accomplish any of the
above objectives.
Further,
because of our small size and limited operating history, our
company is particularly susceptible to adverse effects from changes
in the law, economic conditions, consumer tastes, competition and
other contingencies or events beyond our control. It may be more
difficult for us to prepare for and respond to these types of risks
than it would be for a company with an established business and
operating cash flow. Due to changing circumstances or an inability
to implement any portion of our growth and expansion strategy, we
may be forced to change dramatically our planned
operations.
We have suffered a disruption of the operation of our business as a
result of the outbreak of coronavirus in the United States.
Closures due to government orders or guidance and other related
effects of the coronavirus pandemic may cause a material adverse
effect on our business.
In
March 2020, federal, state and local government authorities issued
orders and guidance in order to combat the spread of the
coronavirus pandemic. These actions have required or encouraged our
patients to remain at home except for essential activities and may
reduce patient visits to our clinics. For example, the governor of
Kentucky ordered all chiropractic facilities in the state of
Kentucky to close effective March 20, 2020, which caused us to
close our Kentucky chiropractic facilities until such order is
lifted. The full extent and duration of such actions and their
impacts over the longer term remain uncertain and dependent on
future developments that cannot be accurately predicted at this
time, such as the severity and transmission rate of the coronavirus
and the extent and effectiveness of containment actions
taken.
The
coronavirus pandemic appears likely to cause significant economic
harm across the United States, and the negative economic conditions
that may result in reduced patient demand in our industry. We may
experience a material loss of patients and revenue as a result of
the suspension of any operations. Initiatives to implement
telehealth engagement with patients may not be adopted by existing
and new patients. Patient habits may also be altered in the medium
to long term. Negative economic conditions, a decrease in our
revenue and consequent longer term trends harmful to our business
may all exert pressure on our company during the pendency of
emergency restrictions on our operations and beyond. Due to such
conditions, we terminated the employment of 11% of our employees on
March 20, 2020, to reduce costs associated with non-essential
personnel.
We
cannot predict with certainty when public health and economic
conditions will return to normal. A decline in patient visits
and/or the possible suspension of operations mandated in response
to the coronavirus, and the consequent loss of revenue and cash
flow during this period may make it difficult for us to obtain
capital necessary to fund our operations.
We may fail completely to implement key elements of our growth and
expansion strategy, which could adversely affect our operations and
financial performance.
If we
cannot implement one or more key elements of our growth and
expansion strategy, including raising sufficient capital, hiring
and retaining qualified staff, leasing and developing acceptable
premises for our medical clinics, securing necessary service
contracts on favorable or adequate terms, generating sufficient
revenue and achieving numerous other objectives, our projected
financial performance may be materially adversely affected. Even if
all of the key elements of our growth and expansion strategy are
successfully implemented, we may not achieve the favorable results,
operations and financial performance that we anticipate.
The development and operation of our medical clinics will require
additional capital, and we may not be able to obtain additional
capital on favorable or even acceptable terms. We may also have to
incur additional debt, which may adversely affect our liquidity and
operating performance.
Our
ability to successfully grow our business and implement our growth
and expansion strategy depends in large part on the availability of
adequate capital to finance operations. We can give no assurance
that we will continue to have sufficient capital to support the
continued operations of our company. Changes in our growth and
expansion strategy, lower than anticipated revenue for the medical
clinics, unanticipated and/or uncontrollable events in the credit
or equity markets, changes to our liquidity, increased expenses,
and other events may cause us to seek additional debt or equity
financing. Financing may not be available on favorable or
acceptable terms, or at all, and our failure to raise capital could
adversely affect our operations and financial condition.
Additional
equity financing may result in a dilution of the pro rata ownership
stake of our stockholders. Further, we may be required to offer
subsequent investors investment terms, such as preferred
distributions and voting rights, that are superior to the rights of
existing stockholders, which could have an adverse effect on the
value of the investment of our existing stockholders.
Additional
debt financing, if available, may involve significant cash payment
obligations, covenants and financial ratios that restrict our
ability to operate and grow our business, and would cause us to
incur additional interest expense and financing costs. As a
consequence, our operating performance may be materially adversely
affected.
We have a holding company ownership structure and will depend on
distributions from our operating subsidiaries to meet our
obligations. Contractual or legal restrictions applicable to our
subsidiaries or controlled companies could limit payments or
distributions from them.
We
are a holding company and derive all of our operating income from,
and hold substantially all of our assets through, our subsidiaries.
The effect of this structure is that we will depend on the earnings
of our subsidiaries, and the payment or other distributions to us
of these earnings, to meet our obligations. Provisions of law, like
those requiring that dividends be paid only out of surplus, and
provisions of any future indebtedness, may limit the ability of our
subsidiaries to make payments or other distributions to us. Our
subsidiaries also control and manage the non-professional aspects
of certain other professional service corporations under management
services agreements, which could (although they do not currently)
contain contractual restrictions on a professional service
corporation’s ability to pay service fees to us. The assets of
these professional service corporations are not included in our
consolidated balance sheets. Additionally, in the event of the
liquidation, dissolution or winding up of any of our subsidiaries,
creditors of that subsidiary (including trade creditors) will
generally be entitled to payment from the assets of that subsidiary
before those assets can be distributed to us.
We will incur substantial start-up expenses and do not expect to
make a profit at any medical clinic until at least six months after
opening each medical clinic.
We
will incur substantial expenses to implement our growth and
expansion strategy, including costs for leasing and developing the
premises for each medical clinic, purchasing medical and office
equipment, purchasing medical supplies and inventory, marketing and
advertising, recruiting and hiring staff, and other expenses. We
estimate that it will take at least $700,000 to open each clinic,
with an additional $300,000 of operating capital and $200,000
credit line needed to purchase equipment and fund operating losses
during the first six months of operation. These start-up costs may
increase if there are any delays, problems or other events not
currently anticipated. Although we expect each medical clinic to
become profitable approximately six months after opening based on
our experience with opening the Ozzie Smith Centers in
Chesterfield, Missouri in May 2016 and in St. Peters, Missouri in
August 2017, and the IMAC Regeneration Center in Murray, Kentucky
in February 2017, no guarantee can be made that any of the clinics
or our company overall will operate profitably. By way of example,
the David Price Center in Brentwood, Tennessee, which opened in May
2017, initially experienced unforeseen delays in staffing,
construction and marketing launch. If we do not reach profitability
and recover our start-up expenses and other accumulated operating
losses, stockholders will likely suffer a significant decline in
the value of their investment.
We may be unable to obtain financing on acceptable terms, or at
all, which could materially adversely affect our operations and
ability to successfully implement our growth and expansion
strategy.
Our
growth and expansion strategy relies on obtaining sufficient
financing, including one or more equipment lines to purchase
medical and office equipment and one or more lines of credit for
operating and related expenses. We may not be able to obtain
financing on acceptable terms or in the amount anticipated by our
growth and expansion strategy. If unable to secure the amount of
financing anticipated by our growth and expansion strategy, we may
be unable to implement one or more portions of our growth and
expansion strategy. If we accept less favorable terms for our
financing than anticipated, we may incur additional expenses and
restrictions on operations and may be less liquid and less
profitable than expected. Should either of these events occur, we
could suffer material adverse effects to our ability to implement
our growth and expansion strategy and operate
successfully.
We
may seek additional funding through a combination of equity
offerings, debt financing, government or third-party funding,
commercialization, marketing and distribution arrangements and
other collaborations, strategic alliances and licensing
arrangements. Additional funding may not be available to us on
acceptable terms or at all. In addition, the terms of any financing
may adversely affect the holdings or rights of the stockholders.
Any new equity securities we issue could have rights, preferences,
and privileges superior to those of holders of our existing capital
stock. In addition, the issuance of additional shares by us, or the
possibility of such issuance, may cause the market price of our
shares to decline. Any debt financing secured by us in the future
could involve restrictive covenants relating to our capital-raising
activities and other financial and operational matter, which may
make it more difficult for us to obtain additional capital and the
pursue business opportunities.
If we
are unable to obtain funding on a timely basis, we may be required
to significantly curtail one or more of our efforts, our ability to
support our business growth and to respond to business challenges
could be significantly limited, and we could be forced to halt
operations. Accordingly, our business may fail, in which case you
would lose the entire amount of your investment in our common
stock.
Our independent registered public accounting firm has indicated
that our financial condition raises substantial doubt as to our
ability to continue as a going concern.
Our
financial statements have been prepared assuming that we will
continue to operate as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. However, our independent registered
public accounting firm has included in its audit opinion for the
year ended December 31, 2019 a statement that there is substantial
doubt as to our ability to continue as a going concern as a result
of losses and financial condition on December 31, 2019, unless we
are able to obtain additional financing, enter into strategic
alliances or sell assets. The reaction of investors to the
inclusion of a going concern statement by our auditors, our current
lack of cash resources and our potential inability to continue as a
going concern may adversely affect our share price and our ability
to raise new capital or enter into strategic alliances. If we
become unable to obtain additional capital and to continue as a
going concern, we may have to liquidate our assets and the values
we receive for our assets in liquidation or dissolution could be
significantly lower than the values reflected in our financial
statements.
We plan to incur indebtedness to implement our growth and expansion
strategy and, as a consequence, may be unprofitable and
unsuccessful in achieving our financial and operating
goals.
We
plan to finance some of our start-up and operating costs through
debt leveraging, including one or more equipment lines and one or
more lines of credit. This debt could adversely affect our
financial performance and ability to:
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implement
our growth and expansion strategy; |
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recoup
start-up costs; |
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operate
profitably; |
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maintain
acceptable levels of liquidity; |
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obtain
additional financing in the future for working capital, capital
expenditures, development and other general business
purposes; |
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obtain
additional financing on favorable terms; and |
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compete
effectively or operate successfully under adverse economic
conditions. |
We will manage, but will not own, certain of the medical clinics or
employ the medical service providers who will treat patients at the
clinics.
Several
of our medical clinics will be owned exclusively by a professional
service corporation in order to comply with state laws regulating
the ownership of medical practices. We will, in turn, through a
contractual arrangement, provide long-term, exclusive management
services to those professional service corporations and their
medical professionals. All employees who provide direct medical
services to patients will be employed by the professional service
corporation. These management services agreements protect us from
certain liability and provide a structured engagement to deliver
non-medical, comprehensive management and administrative services
to help the medical professionals operate the business. The
management services agreements authorize us to act on behalf of the
professional service corporation, but do not authorize the
professional service corporations to act on our behalf or enter
into contracts with third parties on our behalf. We will employ the
non-medical provider staff for the clinics and provide
comprehensive management and administrative services to help the
professional service corporation operate the clinics. We may also
loan money to the professional service corporation for certain
payroll and development costs, although we have no obligation to do
so. This arrangement makes our financial and operational success
highly dependent on the professional service corporation. Under our
management service agreements, we provide exclusive comprehensive
management and related administrative services to the professional
service corporation and receive management fees. Due to this
financial and operational control by contract, our financial
statements consolidate the financial results of the professional
service corporations. However, we will have little, if any,
tangible assets as to those operations. These characteristics
increase the risk associated with an investment in our
company.
Our management services agreements may be
terminated.
The
management services agreements we have with several of our clinics
may be terminated by mutual agreement of us and the applicable
clinic, by a non-breaching party after 30 days following an uncured
breach by the other party, upon a bankruptcy of either party or by
us upon 90 days’ prior written notice to the clinic. The
termination of a management services agreement would result in the
termination of payment of management fees from the applicable
clinic, which could have an adverse effect on our operating results
and financial condition.
We do not control the delivery of medical care at any of our
facilities.
We
have no direct control over the medical care in any of our
facilities. State medical boards govern the licensing and delivery
of medical care within a state. For this reason, the medical
practitioners are solely responsible for making medical decisions
with their abilities and experience. We run the risk of being
associated with a medical practitioner that performs poorly or does
not comply with medical board legislation. When we are responsible
for the recruitment or staffing of medical professionals, we may
hire a professional that delivers care outside of medical
protocols. Our inability to exercise control over the medical care
and managed centers increases the risks associated with an
investment in our company.
State medical boards may amend licensing requirements for medical
service providers, service delivery oversight for midlevel
practitioners, and ownership or location requirements for the
delivery of medical treatments.
We
have no direct control over the medical care in any of our
facilities. State medical boards govern the licensing and delivery
of medical care within a state. Each state medical board controls
the level of licensing required for each medical practitioner and
the requirements to obtain such a license to deliver medical care.
Furthermore, the state medical board typically determines the
required practitioner oversight for medical practitioners based on
their license achieved, earned degrees and continuing education.
The current requirements for these practitioners may change in the
future and we run the risk of additional expenses necessary to meet
the state medical board requirements. The state medical board may
also determine the location in which services are delivered. We
risk the loss of revenue or retrofitting expense if the state
medical board amends location requirements for the delivery of
certain treatments. Similarly, state medical boards may amend
ownership or management requirements for the operation of medical
clinics within their respective state. The board may also
investigate or dispute the legal establishment of owned or managed
medical clinics. We risk a material loss of ownership of or
management control and subsequent fee from medical clinics that are
in our possession or control.
Adverse medical outcomes are possible with conservative and
minimally invasive treatments.
Medical
practitioners performing services at our IMAC facilities run the
risk of delivering treatments for which the patient may experience
a poor outcome. This is possible with non-invasive and minimally
invasive services alike, including the use of autologous treatments
in which a patient’s own cells are used to regenerate damaged
tissues. At our IMAC Regeneration Centers, a minimally invasive
treatment involves puncturing the skin with a needle or a minor
incision which could lead to infection, bleeding, pain, nausea, or
other similar results. Non-invasive and conservative physical
medicine treatments may possibly cause soft tissue tears,
contusions, heart conditions, stroke, and other physically
straining conditions. The treatments or potential clinical research
studies may yield further patient risks. An adverse outcome may
include but not be limited to a loss of feeling, chronic pain,
long-term disability, or death. We have obtained medical
malpractice coverage in the event an adverse outcome occurs.
However, the insurance limits may be exceeded or liability outside
of the coverage may adversely impact the financial performance of
the business, including any potential negative media coverage on
patient volume.
Potential conflicts of interest exist with respect to the
management services agreement that we have entered into concerning
our clinics in Kentucky, and it is possible our interests and the
affiliated owners of those clinics may diverge.
Our
medical clinics in Kentucky are held by a professional service
corporation that is owned by Matthew C. Wallis, DC, our Chief
Operating Officer, a director and co-founder of our company, and
Jason Brame, DC, a co-founding member of our company, in order to
comply with the state’s laws regulating the ownership of medical
practices. The professional service corporation directs the
provision of medical services to patients and employs the
physicians and registered nurses at the clinics, we do not. Rather,
pursuant to the terms of a long-term, exclusive management services
agreement, we employ the non-medical provider staff for the clinics
and provide comprehensive management and administrative services to
help the professional service corporation operate the clinics. We
believe that the service fees and other terms of our management
services agreement are standard in the outpatient healthcare
practice area. Nonetheless, the management services agreement
presents the possibility of a conflict of interest in the event
that issues arise with regard to the respective medical and
non-medical services being provided at the clinics, including
quality of care issues of which we become aware and billing and
collection matters that we handle on behalf of the physician
practices, where our interests may diverge from those of Drs.
Wallis and Brame acting on behalf of the professional service
corporation. No such issues, however, have occurred during this
arrangement.
The
management services agreement provides that we will have the right
to control the daily operations of the medical clinics subject, in
the case of practicing medicine, to the direction of Drs. Wallis
and Brame acting on behalf of the professional service corporation.
Our interests with respect to such direction may be at odds with
those of Drs. Wallis and Brame, requiring them to recuse themselves
from our decisions relating to such matters, or even from further
involvement with our company.
We
comply with applicable state law with respect to transactions
(including business opportunities and management services
agreements) involving potential conflicts. Applicable state
corporate law requires that all transactions involving our company
and any director or executive officer (or other entities with which
they are affiliated) are subject to full disclosure and approval of
the majority of the disinterested independent members of our Board
of Directors, approval of the majority of our stockholders or the
determination that the contract or transaction is intrinsically
fair to us. More particularly, our policy is to have any related
party transactions (i.e., transactions involving a director, an
officer or an affiliate of our company) be approved solely by a
majority of the disinterested independent directors serving on the
Board of Directors.
Drs.
Wallis and Brame are significant holders of our outstanding shares
of common stock and we anticipate they will continue to own a
significant percentage of our outstanding shares. Dr. Wallis
founded our original IMAC medical clinic in Paducah, Kentucky in
August 2000 and, with Jeffrey S. Ervin, our Chief Executive
Officer, founded our current company in March 2015. Dr. Wallis,
working with Mr. Ervin, will be substantially responsible for
selecting the business direction we take, the medical clinics we
open in the future and the services we may provide. The management
services agreement may present Drs. Wallis and Brame with conflicts
of interest.
The loss of the services of Jeffrey S. Ervin or Matthew C. Wallis,
DC for any reason would materially and adversely affect our
business operations and prospects.
Our
financial success is dependent to a significant degree upon the
efforts of Jeffrey S. Ervin, our Chief Executive Officer, and
Matthew C. Wallis, DC, our Chief Operating Officer. Mr. Ervin, who
has unique knowledge regarding the roll-out of our IMAC
Regeneration Centers, and Dr. Wallis, who has extensive business
contacts, would be extremely difficult to replace. We have entered
into employment arrangements with Mr. Ervin and Dr. Wallis, however
there can be no assurance that Mr. Ervin or Dr. Wallis will
continue to provide services to us. A voluntary or involuntary
departure by either executive could have a materially adverse
effect on our business operations if we were not able to attract a
qualified replacement for him in a timely manner. We do not have a
key-man life insurance policy for our benefit on the life of either
Mr. Ervin or Dr. Wallis.
We may fail to obtain the business licenses and any other licenses
necessary to operate our medical clinics, or the necessary
engineering, building, occupancy and other permits to develop the
premises for the clinics, which would materially adversely affect
our growth and expansion strategy.
If we
cannot obtain approval for business licenses or any other licenses
necessary to operate our medical clinics, it could materially
adversely affect our growth and expansion strategy and could result
in a failure to implement our growth and expansion strategy.
Failure to obtain the necessary engineering, building, occupancy
and other permits from applicable governmental authorities to
develop the premises for our medical clinics could also materially
adversely affect our growth and expansion strategy and could result
in a failure to implement our growth and expansion
strategy.
We may face strong competition from other providers in our primary
service areas, and increased competition from new competitors,
which may hinder our ability to obtain and retain
customers.
We
will be in competition with other more established companies using
a variety of treatments for the conditions and ailments that our
services are intended to treat, including orthopedic surgeons, pain
management clinics, hospital systems and outpatient surgery centers
providing joint reconstruction and related surgeries. These
companies may be better capitalized and have more established name
recognition than us. We may face additional competition in the
future if other providers enter our primary service areas.
Competition from existing providers and providers that may begin
competing with us in the future could materially adversely affect
our operations and financial performance.
Further,
the services provided by our company are relatively new and unique.
We cannot be certain that our services will achieve or sustain
market acceptance, or that a sufficient volume of patients in the
Kentucky, Missouri, Tennessee and Illinois areas will utilize our
services. We will be in competition with alternative treatment
methods, including those presently existing and those that may
develop in the future. As such, our growth and expansion strategy
carries many unknown factors that subject us and our investors to a
high degree of uncertainty and risk.
We are competing in a dynamic market with risk of technological
change.
The
market for medical, physical therapy and chiropractic services is
characterized by frequent technological developments and
innovations, new product and service introductions, and evolving
industry standards. The dynamic character of these products and
services will require us to effectively use leading and new
technologies, develop our expertise and reputation, enhance our
current service offerings and continue to improve the
effectiveness, feasibility and consistency of our services. There
can be no assurance that we will be successful in responding
quickly, cost-effectively and sufficiently to these and other such
developments.
Our success will depend largely upon general economic conditions
and consumer acceptance in our primary service
areas.
Our
current primary service areas are located in certain geographical
areas in the states of Kentucky, Missouri, Tennessee and Illinois.
Our operations and profitability could be adversely affected by a
local economic downturn, changes in local consumer acceptance of
our approach to healthcare, and discretionary spending power, and
other unforeseen or unexpected changes within those
areas.
A decline in general economic conditions may adversely affect
consumer behavior and spending, including the affordability of
elective medical procedures, and as a result may adversely affect
our revenue and operating results.
The
country may experience an economic downturn or decline in general
economic conditions. We are unable to predict the timing and
severity of the next economic downturn. Any decline in general
economic conditions may cause a decrease in consumer and commercial
spending, especially spending on elective medical procedures, which
could negatively impact our revenue and operating
results.
We are required to comply with numerous government laws and
regulations, which could change, increasing costs and adversely
affecting our financial performance and
operations.
Medical
and chiropractic service providers are subject to extensive
federal, state and local regulation, including but not limited to
regulation by the U.S. Food and Drug Administration, Centers for
Medicare & Medicaid Services, and other government entities. We
are subject to regulation by these entities as well as a variety of
other laws and regulations. Compliance with such laws and
regulations could require substantial capital expenditures. Such
regulations may be changed from time to time, or new regulations
adopted, which could result in additional or unexpected costs of
compliance.
Changes to national health insurance policy and third-party
insurance carrier fee schedules for traditional medical treatments
could decrease patient revenue and adversely affect our financial
performance and operations.
Political,
economic and regulatory influences are subjecting medical and
chiropractic service providers, health insurance providers and
other participants in the healthcare industry in the United States
to potential fundamental changes. Potential changes to nationwide
health insurance policy are currently being debated. We cannot
predict what impact the adoption of any federal or state healthcare
reform or private sector insurance reform may have on our
business.
We
receive payment for the services we render to patients from their
private health insurance providers and from Medicare and Medicaid.
If third-party payers change the expected fee schedule (the amount
paid by such payers for services rendered by us), we could
experience a loss of revenue, which could adversely affect
financial performance.
At
the present time, most private health insurance providers do not
cover the regenerative medical treatments provided at our medical
clinics. However, traditional physical medical treatments provided
at our medical clinics, such as physical therapy, chiropractic
services and medical evaluations, are covered by most health
insurance providers. Medicare and Medicaid take the same position
as private insurers and reimburse patients for traditional physical
medical treatments but not for regenerative medical treatments. If
private health insurance providers and Medicare and Medicaid were
to begin covering regenerative medical treatments, the revenue we
would receive on a per-treatment basis would likely decline given
their tighter fee schedules. Further, such a change might result in
increased competition as additional healthcare providers begin
offering our customized services.
We could be adversely affected by changes relating to the IMAC
Regeneration Center brand name.
We
are a holding company in which our medical clinics are formed in
separate subsidiaries. Our subsidiaries are currently operating in
Kentucky, Missouri, Tennessee and Illinois. As a consequence of
this entity structure, any adverse change to the brand, reputation,
financial performance or other aspects of the IMAC Regeneration
Center brand at any one location could adversely affect the
operations and financial performance of the entire
company.
We will depend heavily on the efforts of our key personnel, as well
as sports celebrity endorsers.
Our
success depends, to a significant extent, upon the efforts and
abilities of our officers and key employees, including medical and
chiropractic doctors and other practitioners, and our sports
celebrity endorsers. Loss or abatement of the services of any of
these persons, or any adverse change to the sports celebrity
endorsers, could have a material adverse effect on us and our
business, operations and financial performance.
Our
success also will depend on our ability to identify, attract, hire,
train and motivate highly skilled managerial personnel, medical
doctors, chiropractors, licensed physical therapists, and other
practitioners. Failure to attract and retain key personnel could
have a material adverse effect on our business, prospects,
financial condition and results of operation. Further, the quality,
philosophy and performance of key personnel could adversely affect
our operations and performance.
We may incur losses that are not covered by
insurance.
We
maintain insurance policies against professional liability, general
commercial liability and other potential losses of our company. All
of the regenerative, medical, physical therapy and chiropractic
treatments performed at our clinics are covered by our malpractice
insurance; however, there is an upper limit to the payout allowable
in the event of our malpractice. Poor patient outcomes for
healthcare providers may result in legal actions and/or settlements
outside of the scope of our malpractice insurance coverage.
Regenerative medicine represents approximately 2% of our patient
visits and 20% of our revenue. Future innovations in regenerative
medicine may require review or approval of such innovations by
governmental regulators. During formal research studies performed
in collaboration with regulators, we may be required to obtain new
insurance policies and there is no assurance that insurance policy
underwriters will provide coverage for such research initiatives.
If an uninsured loss or a loss in excess of insured limits occurs,
our financial performance and operation could suffer material
adverse effects.
We are susceptible to risks relating to investigation or audit by
the Centers for Medicare & Medicaid Services (“CMS”), health
insurance providers and the IRS.
We
may be audited by CMS or any health insurance provider that pays us
for services provided to patients. Any such audit may result in
reclaimed payments, which would decrease our revenue and adversely
affect our financial performance. Our federal tax returns may be
audited by the IRS and our state tax returns may be audited by
applicable state government authorities. Any such audit may result
in the challenge and disallowance of some of our deductions or an
increase in our taxable income. No assurance can be made with
regard to the deductibility of certain tax items or the position
taken by us on our tax returns. Further, an audit or any litigation
resulting from an audit could unexpectedly increase our expenses
and adversely affect financial performance and
operations.
The Food and Drug Administration has pursued bad actors in the
regenerative medicine therapy industry, and we could be included in
any broad investigation.
The
U.S. Food and Drug Administration has pursued bad actors in the
regenerative medicine therapy industry. Since we provide
regenerative medicine treatments, we may be subject to broad
investigations from the FDA or state medical boards regarding the
marketing and medical delivery of our treatments. In November 2017,
we engaged a medical consulting group to advise us on current
protocols in this area and to organize a clinical trial towards an
investigational new drug application with the FDA, while pursuing a
voluntary regenerative medicine advanced therapy (RMAT) designation
under Section 3033 of the 21st Century Cures Act. We
have not initiated conversations with the FDA and no assurance can
be given that we are able to engage with the FDA or that the FDA
will approve us for RMAT designation.
Any significant disruption in our computer systems or those of
third parties that we utilize in our operations could result in a
loss or degradation of service and could adversely impact our
business.
Our
reputation and ability to attract, retain and serve our patients
and users is dependent upon the reliable performance of our
computer systems and those of third parties that we utilize in our
operations. These systems may be subject to damage or interruption
from earthquakes, adverse weather conditions, other natural
disasters, terrorist attacks, power loss, telecommunications
failures, computer viruses, computer denial of service attacks or
other attempts to harm these systems. Interruptions in these
systems, or to the internet in general, could make our service
unavailable or impair our ability to deliver content to our
customers. Service interruptions, errors in our software or the
unavailability of computer systems used in our operations could
diminish the overall attractiveness of our services to existing and
potential patients. In addition, during the second half of 2019, we
began the implementation of an updated medical and financial
platform in our clinics.
Our
servers and those of third parties we use in our operations are
vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions and periodically experience directed
attacks intended to lead to interruptions and delays in our service
and operations as well as loss, misuse or theft of data. Any
attempt by hackers to disrupt our service or otherwise access our
systems, if successful, could harm our business, be expensive to
remedy and damage our reputation. We have implemented certain
systems and processes to thwart hackers and, to date, hackers have
not had a material impact on our service or systems. However, this
is no assurance that hackers may not be successful in the future.
Efforts to prevent hackers from disrupting our service or otherwise
accessing our systems are expensive to implement and may limit the
functionality of or otherwise negatively impact our service
offering and systems. Any significant disruption to our service or
access to our systems could result in a loss of patients and
adversely affect our business and results of operation.
We
utilize our own communications and computer hardware systems
located either in our facilities or in that of a third-party data
center. In addition, we utilize third-party internet-based or
“cloud” computing services in connection with our business
operations. We also utilize third-party content delivery networks
to help us stream content to our patients and other parties over
the internet. Problems faced by us or our service providers,
including technological or business-related disruptions, could
adversely impact the experience of our audiences and
users.
During
the normal course of business, we may choose to pursue services
with a different third-party vendor or pursue a change in systems
which could result in interruptions and delays in our service and
operations as well as loss, misuse, or theft of data. We have
implemented systems and processes to mitigate these risks and, to
date, have not experienced a material impact on our services or
systems due to change in systems or third-party. However, this is
no assurance that a change in systems or services used by us or a
change in third-party vendors may not have a material impact in the
future. Any significant disruption to our service or access to our
systems could result in a loss of patients and adversely affect our
business and results of operations.
Our reputation and relationships with patients would be harmed if
our patients’ data, particularly personally identifying data, were
to be subject to a cyber-attack or otherwise accessed by
unauthorized persons.
We
maintain personal data regarding our patients, including their
names and other information. With respect to personally identifying
data, we rely on licensed encryption and authentication technology
to secure such information. We also take measures to protect
against unauthorized intrusion into our patients’ data. Despite
these measures, we could experience, though we have not to date
experienced, a cyber-attack or other unauthorized intrusion into
our patients’ data. Our security measures could also be breached
due to employee error, malfeasance, system errors or
vulnerabilities, or otherwise. In the event our security measures
are breached, or if our services are subject to attacks that impair
or deny the ability of patients to access our services, current and
potential patients may become unwilling to provide us the
information necessary for them to become users of our services or
may curtail or stop using our services. In addition, we could face
legal claims for such a breach. The costs relating to any data
breach could be material and exceed the limits of the insurance we
maintain against the risks of a data breach. For these reasons,
should an unauthorized intrusion into our patients’ data occur, our
business could be adversely affected. Changes to operating rules
could increase our operating expenses and adversely affect our
business and results of operations.
Our business is subject to reporting requirements that continue to
evolve and change, which could continue to require significant
compliance effort and resources.
We
are subject to certain rules and regulations of federal, state and
financial market exchange entities charged with the protection of
investors and the oversight of companies whose securities are
publicly traded. These entities, including the Public Company
Accounting Oversight Board (PCAOB), the SEC and The NASDAQ Capital
Market, periodically issue new requirements and regulations and
legislative bodies also review and revise applicable laws. As
interpretation and implementation of these laws and rules and
promulgation of new regulations continues, we will continue to be
required to commit significant financial and managerial resources
and incur additional expenses to address such laws, rules and
regulations, which could in turn reduce our financial flexibility
and create distractions for management. Any of these events, in
combination or individually, could disrupt our business and
adversely affect our business, financial condition, results of
operations and cash flows.
Changes in accounting principles or guidance, or in their
interpretations, could result in unfavorable accounting charges or
effects, including changes to our previously filed consolidated
financial statements, which could cause our stock price to
decline.
We
prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States of
America. These principles are subject to interpretation by the SEC
and various bodies formed to interpret and create appropriate
accounting principles and guidance. A change in these principles or
guidance, or in their interpretations, may have a significant
negative effect on our reported results and retrospectively affect
previously reported results, which, in turn, could cause our stock
price to decline.
We will continue to incur expenses as a result of being a public
company and our management expects to devote substantial time to
public company compliance programs.
As a
public reporting company, we will continue to incur significant
legal, insurance, accounting and other expenses that we did not
incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, stock exchange
listing requirements and other applicable securities rules and
regulations impose various requirements on public companies. Our
management and administrative staff will need to devote a
substantial amount of time to compliance with these requirements.
For example, we will need to adopt and monitor internal controls
and disclosure controls and procedures and bear all of the internal
and external costs of preparing periodic and current public reports
in compliance with our obligations under the securities laws. We
intend to invest resources to comply with evolving laws,
regulations and standards, and this investment will result in
increased general and administrative expenses and may divert
management’s time and attention away from product development
activities. If for any reason our efforts to comply with new laws,
regulations and standards differ from the activities intended by
regulatory or governing bodies, regulatory authorities may initiate
legal proceedings against us and our business may be
harmed.
We
maintain directors’ and officers’ liability insurance coverage,
which increases our insurance cost. In the future, it may be more
expensive for us to obtain directors’ and officers’ liability
insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to obtain coverage. These factors
could also make it more difficult for us to attract and retain
qualified executive officers and qualified members of our board of
directors, particularly to serve on our audit committee and
compensation committee.
In
addition, in order to comply with the requirements of being a
public company, we may need to undertake various actions, including
implementing new internal controls and procedures and hiring new
accounting or internal audit staff. The Sarbanes-Oxley Act requires
that we maintain effective disclosure controls and procedures and
internal control over financial reporting. We are continuing to
develop and refine our disclosure controls and other procedures
that are designed to ensure that information required to be
disclosed by us in the reports that we file with the SEC is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that
information required to be disclosed in reports under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
is accumulated and communicated to our principal executive and
financial officers. Any failure to develop or maintain effective
controls could adversely affect the results of our periodic
management evaluations. In the event that we are not able to
demonstrate compliance with the Sarbanes-Oxley Act, that our
internal control over financial reporting is perceived as
inadequate, or that we are unable to produce timely or accurate
consolidated financial statements, investors may lose confidence in
our operating results and the price of our common stock could
decline. In addition, if we are unable to continue to meet these
requirements, we could be subject to sanctions or investigations by
the stock exchange where we are listed, the SEC or other regulatory
authorities, and we may not be able to remain listed on a national
securities exchange.
We
are required to comply with certain SEC rules that implement
Section 404 of the Sarbanes-Oxley Act, which require making a
formal assessment of the effectiveness of our internal control over
financial reporting, and which will require management to certify
financial and other information in our quarterly and annual reports
and provide an annual management report on the effectiveness of our
internal control over financial reporting commencing with our
second annual report. This assessment will need to include the
disclosure of any material weaknesses in our internal control over
financial reporting identified by our management or our independent
registered public accounting firm. To achieve compliance with
Section 404 within the prescribed period, we will be engaged in a
costly and challenging process to document and evaluate our
internal control over financial reporting. In this regard, we will
need to continue to dedicate internal resources, potentially engage
outside consultants and adopt a detailed work plan to assess and
document the adequacy of our internal control over financial
reporting. We will also need to continue to improve our control
processes as appropriate, validate through testing that our
controls are functioning as documented and implement a continuous
reporting and improvement process for our internal control over
financial reporting. Despite our efforts, there is a risk that we
will not be able to conclude, within the prescribed timeframe or at
all, that our internal control over financial reporting is
effective as required by Section 404.
Our management has identified material weaknesses in our internal
controls over our financial reporting.
Our
Chief Executive Officer and Interim Chief Financial Officer carried
out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act. Based on that
evaluation, our Chief Executive Officer and Interim Chief Financial
Officer concluded that our disclosure controls and procedures are
not effective because of certain material weaknesses in our
internal control over financial reporting. The material weaknesses
relate to the absence of in-house accounting personnel with the
ability to properly account for complex transactions and a lack of
separation of duties between accounting and other
functions.
We
hired a consulting firm to advise on technical issues related to
U.S. generally accepted accounting principles as related to the
maintenance of our accounting books and records and the preparation
of our consolidated financial statements. Although we are aware of
the risks associated with not having dedicated accounting
personnel, we are also at an early stage in the development of our
business. We anticipate expanding our accounting functions with
dedicated staff and improving our internal accounting procedures
and separation of duties when we can absorb the costs of such
expansion and improvement with additional capital resources. In the
meantime, management will continue to observe and assess our
internal accounting function and make necessary improvements
whenever they may be required. If our remedial measures are
insufficient to address the material weakness, or if additional
material weaknesses or significant deficiencies in our internal
control over financial reporting are discovered or occur in the
future, our consolidated financial statements may contain material
misstatements, and we could be required to restate our financial
results. In addition, if we are unable to successfully remediate
this material weakness and if we are unable to produce accurate and
timely financial statements, our stock price may be adversely
affected and we may be unable to maintain compliance with
applicable stock exchange listing requirements.
We are an “emerging growth company” and our election to delay
adoption of new or revised accounting standards applicable to
public companies may result in our consolidated financial
statements not being comparable to those of some other public
companies. As a result of this and other reduced disclosure
requirements applicable to emerging growth companies, our
securities may be less attractive to investors.
As a
public reporting company with less than $1.07 billion in revenue
during our last fiscal year, we qualify as an “emerging growth
company” under the JOBS Act. An emerging growth company may take
advantage of specified reduced reporting requirements that are
otherwise generally applicable to public companies. In particular,
as an emerging growth company, we:
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are
not required to obtain an attestation and report from our auditors
on our management’s assessment of our internal control over
financial reporting pursuant to the Sarbanes-Oxley Act; |
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are
not required to provide a detailed narrative disclosure discussing
our compensation principles, objectives and elements and analyzing
how those elements fit with our principles and objectives (commonly
referred to as “compensation discussion and analysis”); |
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are
not required to obtain a non-binding advisory vote from our
stockholders on executive compensation or golden parachute
arrangements (commonly referred to as the “say-on-pay,”
“say-on-frequency” and “say-on-golden-parachute”
votes); |
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are
exempt from certain executive compensation disclosure provisions
requiring a pay-for-performance graph and CEO pay ratio
disclosure; |
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may
present only two years of audited financial statements and only two
years of related Management’s Discussion & Analysis of
Financial Condition and Results of Operations, or MD&A;
and |
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are
eligible to claim longer phase-in periods for the adoption of new
or revised financial accounting standards under §107 of the JOBS
Act. |
We
intend to take advantage of all of these reduced reporting
requirements and exemptions, including the longer phase-in periods
for the adoption of new or revised financial accounting standards
under §107 of the JOBS Act. Our election to use the phase-in
periods may make it difficult to compare our consolidated financial
statements to those of non-emerging growth companies and other
emerging growth companies that have opted out of the phase-in
periods under §107 of the JOBS Act.
Certain
of these reduced reporting requirements and exemptions were already
available to us due to the fact that we also qualify as a “smaller
reporting company” under SEC rules. For instance, smaller reporting
companies are not required to obtain an auditor attestation and
report regarding management’s assessment of internal control over
financial reporting, are not required to provide a compensation
discussion and analysis, are not required to provide a
pay-for-performance graph or CEO pay ratio disclosure, and may
present only two years of audited financial statements and related
MD&A disclosure.
Under
the JOBS Act, we may take advantage of the above-described reduced
reporting requirements and exemptions for up to five years after
our initial sale of common equity pursuant to a registration
statement declared effective under the Securities Act, or such
earlier time that we no longer meet the definition of an emerging
growth company. In this regard, the JOBS Act provides that we would
cease to be an “emerging growth company” if we have more than $1.07
billion in annual revenue, have more than $700 million in market
value of our common stock held by non-affiliates, or issue more
than $1.0 billion in principal amount of non-convertible debt over
a three-year period. Under current SEC rules, however, we will
continue to qualify as a “smaller reporting company” for so long as
we have a public float (i.e., the market value of common
equity held by non-affiliates) of less than $250 million as of the
last business day of our most recently completed second fiscal
quarter.
Risks
Related to Ownership of Our Common Stock and
Warrants
Our stock price may be volatile and your investment could decline
in value.
The
market price of our common stock may fluctuate substantially as a
result of many factors, some of which are beyond our control. These
fluctuations could cause you to lose all or part of the value of
your investment in our common stock and/or warrants. Factors that
could cause fluctuations in the market price of our common stock
include the following:
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quarterly
variations in our results of operations; |
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results
of operations that vary from the expectations of securities
analysts and investors; |
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results
of operations that vary from those of our competitors; |
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changes
in expectations as to our future financial performance, including
financial estimates by securities analysts; |
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publication
of research reports about us or the outpatient medical clinic
business; |
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announcements
by us or our competitors of significant contracts, acquisitions or
capital commitments; |
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announcements
by third parties of significant claims or proceedings against
us; |
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changes
affecting the availability of financing in the outpatient medical
services market; |
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regulatory
developments in the outpatient medical clinic business; |
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significant
future sales of our common stock; |
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additions
or departures of key personnel; |
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the
realization of any of the other risk factors presented in this
prospectus; and |
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general
economic, market and currency factors and conditions unrelated to
our performance. |
In
addition, the stock market in general has experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to operating performance of individual companies.
These broad market factors may seriously harm the market price of
our common stock, regardless of our operating performance. In the
past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has often
been instituted. A class action suit against us could result in
significant liabilities and, regardless of the outcome, could
result in substantial costs and the diversion of our management’s
attention and resources.
If our stock price continues to remain below $1.00, our common
stock may be subject to delisting from The Nasdaq Stock
Market.
If
the bid price of our common stock continues to close below the
required minimum $1.00 per share for 30 consecutive business days,
we may receive a deficiency notice from Nasdaq regarding our
failure to comply with Nasdaq Marketplace Rule 5550(a)(2). If we
receive such a notice, pursuant to Marketplace Rule 5810(c)(3)(A),
we may become subject to a period of 180 calendar days to regain
compliance with Rule 5550(a)(2). If at any time the bid price of
our common stock closes at $1.00 per share or more for a minimum of
10 consecutive business days, we will regain compliance with Rule
5550(a)(2). In the event we do not regain compliance with Rule
5550(a)(2) prior to the expiration of any Nasdaq compliance period,
Nasdaq may notify us that our common stock is subject to delisting.
We may appeal such a delisting determination to a Nasdaq hearing
panel and the delisting may be stayed pending the panel’s
determination. At such hearing, we would present a plan to regain
compliance and Nasdaq would then subsequently render a decision. We
are currently evaluating our alternatives to resolve any listing
deficiency. To the extent that we are unable to resolve a listing
deficiency, there is a risk that our common stock may be delisted
from Nasdaq, which would adversely impact liquidity of our common
stock and potentially result in even lower bid prices for our
common stock.
If our shares of common stock become subject to the penny stock
rules, it would become more difficult to trade our
shares.
The SEC has
adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than
securities registered on certain national securities exchanges or
authorized for quotation on certain automated quotation systems,
provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or
system. If we do not retain our listing on The Nasdaq Capital
Market and if the price of our common stock is less than $5.00, our
common stock will be deemed a penny stock. The penny stock rules
require a broker-dealer, before a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk
disclosure document containing specified information. In addition,
the penny stock rules require that before effecting any transaction
in a penny stock not otherwise exempt from those rules, a
broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive
(i) the purchaser’s written acknowledgment of the receipt of a risk
disclosure statement; (ii) a written agreement to transactions
involving penny stocks; and (iii) a signed and dated copy of a
written suitability statement. These disclosure requirements may
have the effect of reducing the trading activity in the secondary
market for our common stock, and therefore stockholders may have
difficulty selling their shares.
The warrants are speculative in nature.
The
warrants issued in our initial public offering do not confer any
rights of common stock ownership on their holders, such as voting
rights or the right to receive dividends, but rather merely
represent the right to acquire shares of common stock at a fixed
price for a limited period of time. Specifically, commencing on the
date of issuance, holders of the warrants may exercise their right
to acquire the common stock and pay an exercise price equal to the
initial public offering price of the units in our initial public
offering, subject to certain adjustments, prior to the fifth
anniversary of the date such warrants are issued, after which date
any unexercised warrants will expire and have no further value.
Moreover, the market value of the warrants, if any, is uncertain
and there can be no assurance that the market value of the warrants
will equal or exceed their original imputed offering price. Our
warrants trade on The NASDAQ Capital Market. There can be no
assurance that an active trading market for the warrants will be
sustained, or that the market price of the common stock will ever
equal or exceed the exercise price of the warrants, and
consequently, whether it will ever be profitable for holders of the
warrants to exercise the warrants.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our stock
adversely, or if our actual results differ significantly from our
guidance, our stock price and trading volume could
decline.
The
trading market for our common stock will be influenced by the
research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. If
any of the analysts who may cover us change their recommendation
regarding our stock adversely, or provide more favorable relative
recommendations about our competitors, our stock price would likely
decline. If any analyst who may cover us were to cease coverage of
our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
In
addition, from time to time, we may release earnings guidance or
other forward-looking statements in our earnings releases, earnings
conference calls or otherwise regarding our future performance that
represent our management’s estimates as of the date of release.
Some or all of the assumptions of any future guidance that we
furnish may not materialize or may vary significantly from actual
future results. Any failure to meet guidance or analysts’
expectations could have a material adverse effect on the trading
price or volume of our stock.
Anti-takeover provisions in our charter documents could discourage,
delay or prevent a change in control of our company and may affect
the trading price of our common stock.
Our
corporate documents and the Delaware General Corporation Law
contain provisions that may enable our board of directors to resist
a change in control of our company even if a change in control were
to be considered favorable by you and other stockholders. These
provisions:
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authorize
the issuance of “blank check” preferred stock that could be issued
by our board of directors to help defend against a takeover
attempt; |
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establish
advance notice requirements for nominating directors and proposing
matters to be voted on by stockholders at stockholder
meetings; |
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provide
that stockholders are only entitled to call a special meeting upon
written request by 331/3% of the outstanding
common stock; and |
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require
supermajority stockholder voting to effect certain amendments to
our certificate of incorporation and bylaws. |
In
addition, Delaware law prohibits large stockholders, in particular
those owning 15% or more of our outstanding voting stock, from
merging or consolidating with us except under certain
circumstances. These provisions and other provisions under Delaware
law could discourage, delay or prevent a transaction involving a
change in control of our company. These provisions could also
discourage proxy contests and make it more difficult for you and
other stockholders to elect directors of your choosing and cause us
to take other corporate actions you desire.
We have 5,000,000 authorized unissued shares of preferred stock,
and our board has the ability to designate the rights and
preferences of this preferred stock without your
vote.
Our
certificate of incorporation authorizes our board of directors to
issue “blank check” preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights,
of these shares, without further stockholder approval. The rights
of the holders of common stock will be subject to and may be
adversely affected by the rights of holders of any preferred stock
that may be issued in the future. As indicated in the preceding
risk factor, the ability to issue preferred stock without
stockholder approval could have the effect of making it more
difficult for a third party to acquire a majority of the voting
stock of our company thereby discouraging, delaying or preventing a
change in control of our company. We currently have no outstanding
shares of preferred stock, or plans to issue any such shares in the
future.
Concentration of ownership of our common stock among our existing
executive officers and directors may limit our other stockholders
from influencing significant corporate
decisions.
Jeffrey
S. Ervin, our Chief Executive Officer, Matthew C. Wallis, DC, our
Chief Operating Officer, and our other executive officers and
directors own a significant percentage of our outstanding shares.
These persons, acting together, are able to influence all matters
requiring stockholder approval, including the election and removal
of directors and any merger or other significant corporate
transactions. The interests of this group of stockholders may not
coincide with our interests or the interests of other
stockholders.
We do not expect to pay any dividends on our common stock for the
foreseeable future.
We
currently expect to retain all future earnings, if any, for future
operation, expansion and debt repayment and have no current plans
to pay any cash dividends to holders of our common stock for the
foreseeable future. Any decision to declare and pay dividends in
the future will be made at the discretion of our board of directors
and will depend on, among other things, our operating results,
financial condition, cash requirements, contractual restrictions
and other factors that our board of directors may deem relevant. In
addition, we must comply with the covenants in our credit
agreements in order to be able to pay cash dividends, and our
ability to pay dividends generally may be further limited by
covenants of any existing and future outstanding indebtedness we or
our subsidiaries incur. As a result, you may not receive any return
on an investment in our common stock unless you sell our common
stock for a price greater than that which you paid for
it.
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ITEM 1B. |
UNRESOLVED
STAFF COMMENTS |
None.
We
manage our business operations from our principal executive office
in Brentwood, Tennessee, in approximately 2,250 square feet of
leased space. Our office lease extends through July 2024, under
which we currently pay $1,455 per month. Our business is conducted
at fifteen outpatient medical clinics. Our total rent expense was
$982,591 under our office and medical clinic leases for 2019. For
more information about our outpatient locations and the terms of
their leases, see Item 1, “Business - Our Operations”
above.
We
believe our present office space and locations are adequate for our
current operations and for near-term planned expansion.
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ITEM 3. |
LEGAL
PROCEEDINGS |
From
time to time, we may become involved in various lawsuits and legal
proceedings that arise in the ordinary course of our business, as
described below. Litigation is, however, subject to inherent
uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are
currently not aware of any legal proceedings or claims that we
believe would or could have, individually or in the aggregate, a
material adverse effect on us. Regardless of final outcomes,
however, any such proceedings or claims may nonetheless impose a
significant burden on management and employees and may come with
costly defense costs or unfavorable preliminary interim
rulings.
In
February 2019, we received notice of a lawsuit involving BioFirma,
LLC. The lawsuit was resolved in October 2019 for
$17,500.
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ITEM 4. |
MINE
SAFETY DISCLOSURES |
Not
applicable.
PART II
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ITEM 5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES |
Market
Information
In
connection with the completion of our initial public offering, our
common stock and warrants began trading on the Nasdaq Capital
Market on February 13, 2019, under the symbols “IMAC” and “IMACW”,
respectively.
As of
March 20, 2020, there were approximately 44 holders of record of
our common stock. We believe that the number of beneficial owners
is substantially greater than the number of record holders because
a large portion of our common stock is held of record through
brokerage firms in “street name.”
Dividend
Policy
Our
board of directors will determine our future dividend policy based
on our result of operations, financial condition, capital
requirements and other circumstances. We have not previously
declared or paid any cash dividends on our common stock. We
anticipate that we will retain earnings to support operations and
finance the growth of our business. Accordingly, it is not
anticipated that any cash dividends will be paid on our common
stock in the foreseeable future. Previously, as a limited liability
company, we made periodic minimal distributions to our members,
primarily to cover the members’ tax obligations.
Sales
of Unregistered Securities
Upon
the completion of the acquisition of ISDI Holdings II and PHR
Holdings by IMAC Management of Illinois, LLC on April 19, 2019,
each of ISDI Holdings II and PHR Holdings’ issued and outstanding
shares of common stock were cancelled and were converted
automatically into the right of their sole shareholder to receive
1,002,306 restricted shares of our common stock (the “Merger
Consideration”). The Merger Consideration was issued to such sole
shareholder and a trust designated by such sole shareholder on
April 22, 2019. Representations were made to us regarding such
share recipients’ knowledge and experience, ability to bear
economic risk and investment purpose with respect to the restricted
shares they received. The Merger Consideration was issued in
reliance on an exemption from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), provided
by Section 4(a)(2) of the Securities Act as a private offering.
Such issuance did not involve a public offering, and was made
without general solicitation or advertising.
On
July 18, 2019, we issued to Lincoln Park Capital Fund, LLC
(“Lincoln Park”) 60,006 shares of our common stock as a commitment
fee (the “Initial Commitment Shares”) in connection with a
financing transaction between us and Lincoln Park. The Initial
Commitment Shares were issued in reliance on an exemption from the
registration requirements of the Securities Act provided by Section
4(a)(2) of the Securities Act as a private offering. Such issuance
did not involve a public offering, and was made without general
solicitation or advertising.
Securities
Authorized for Issuance Under Equity Compensation
Plans
See
“2018 Incentive Compensation Plan” under Item 11 in Part III of
this Annual Report.
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ITEM 6. |
SELECTED
CONSOLIDATED FINANCIAL DATA |
Not
applicable for smaller reporting companies.
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ITEM 7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The
following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of various factors, including those set
forth previously under the caption “Risk Factors.” This
Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our
audited consolidated financial statements and related notes
included elsewhere in this report.
The
results of operations for the periods reflected herein are not
necessarily indicative of results that may be expected for future
periods.
References
in this MD&A to “we,” “us,” “our,” “our company,” “our
business” and “IMAC Holdings” are to IMAC Holdings, Inc., a
Delaware corporation and prior to the Corporate Conversion (defined
below), IMAC Holdings, LLC, a Kentucky limited liability company,
and the following entities which are consolidated due to direct
ownership of a controlling voting interest or other rights granted
to us as the sole general partner or managing member of the entity:
IMAC Management Services, LLC (“IMAC Management”), IMAC
Regeneration Management, LLC (“IMAC Texas”) IMAC Regeneration
Management of Nashville, LLC (“IMAC Nashville”) and IMAC Management
of Illinois, LLC (“IMAC Illinois”); the following entity which is
consolidated with IMAC Regeneration Management of Nashville, LLC
due to control by contract: IMAC Regeneration Center of Nashville,
PC (“IMAC Nashville PC”); and the following which prior to June 1,
2018 was held as a minority interest, IMAC Regeneration Center of
St. Louis, LLC (“IMAC St. Louis”).
Overview
We
are a provider of movement and orthopedic therapies and minimally
invasive procedures performed through our regenerative and
rehabilitative medical treatments to improve the physical health of
our patients at our fast-growing chain of IMAC Regeneration Centers
which we own or manage. Our outpatient medical clinics provide
conservative, minimally invasive medical treatments to help
patients with back pain, knee pain, joint pain, ligament and tendon
damage, and other related soft tissue conditions. Our licensed
healthcare professionals evaluate each patient and provide a custom
treatment plan that integrates traditional medical procedures and
innovative regenerative medicine procedures in combination with
physical medicine. We do not use or offer opioid-based
prescriptions as part of our treatment options in order to help our
patients avoid the dangers of opioid abuse and addiction. The
original IMAC Regeneration Center opened in Kentucky in August 2000
and remains the flagship location of our current business, which
was formally organized in March 2015. To date, we have opened
seven, acquired seven and manage one outpatient medical clinics in
Kentucky, Missouri, Tennessee and Illinois, and plan to further
expand the reach of our facilities to other strategic locations
throughout the United States. We have partnered with several active
and former professional athletes, including Ozzie Smith, David
Price, Tony Delk and Mike Ditka, in the branding of our IMAC
Regeneration Centers. Our outpatient medical clinics emphasize our
focus around treating sports and orthopedic injuries as an
alternative to traditional surgeries for repair or joint
replacement.
We
own our medical clinics directly or have entered into long-term
management services agreements to operate and control certain of
our medical clinics by contract. Our preference is to own the
clinics; however, some state laws restrict the corporate practice
of medicine and require a licensed medical practitioner or own the
clinic. Accordingly, our managed clinics are owned exclusively by a
medical professional within a professional service corporation
(formed as a limited liability company or corporation) and are
under common control with us in order to comply with state laws
regulating the ownership of medical practices. We are compensated
under management services agreements through service fees based on
the cost of the services provided, plus a specified markup
percentage, and a discretionary annual bonus determined in the sole
discretion of each professional service corporation.
Corporate Conversion
Prior
to June 1, 2018, we were a Kentucky limited liability company named
IMAC Holdings, LLC. Effective June 1, 2018, we converted into a
Delaware corporation pursuant to a statutory merger (the “Corporate
Conversion”) and changed our name to IMAC Holdings, Inc. All of our
outstanding membership interests were exchanged on a proportional
basis into shares of common stock of IMAC Holdings, Inc.
Following
the Corporate Conversion, IMAC Holdings, Inc. continues to hold all
of the property and assets of IMAC Holdings, LLC and all of the
debts and obligations of IMAC Holdings, LLC continue as the debts
and obligations of IMAC Holdings, Inc. The purpose of the Corporate
Conversion was to reorganize our corporate structure so that the
top tier entity in our corporate structure is a corporation rather
than a limited liability company and so that our existing owners
own shares of our common stock rather than membership interests in
a limited liability company. Except as otherwise noted herein, the
consolidated financial statements included herein are those of IMAC
Holdings, Inc. and its consolidated subsidiaries.
2018 Private Placement
In
the first six months of 2018, we received gross proceeds of
$1,530,000 from a private placement of our 4% convertible
promissory notes. The $1,530,000 and an additional $200,000 in
existing equity and payments to investors (plus accrued interest)
is convertible into 445,559 shares of our common stock, pursuant to
the terms of a Securities Purchase Agreement with 23 accredited
investors. The principal amount of the promissory notes was
convertible into shares of common stock automatically upon the
closing our initial public offering, which was completed in
February 2019. The conversion price of the promissory notes was an
amount reflecting a 20% discount to the initial public offering
price of $5.00 per share attributable to the common
stock.
On June 1, 2018, we entered into a note payable to the Edward S.
Bredniak Revocable Trust in the amount of up to $2,000,000. An
existing note payable with this entity with an outstanding balance
of $379,675.60 was combined into the new note payable. The note
carries an interest rate of 10% per annum and all outstanding
balances are due and payable 13 months after the closing
our
initial public offering, which was completed in February
2019. This note was amended
effective June 28, 2019 to, among other things, reduce the
outstanding principal amount to $1,750,000 and extend the maturity
of this note to January 5, 2021. The proceeds of this note are
being used to satisfy ongoing working capital needs, expenses
related to the preparation for our initial public offering,
equipment and construction costs related to new clinic locations
and potential business combination and transaction
expenses.
Initial Public Offering
On
February 15, 2019, we completed our initial public offering of
850,000 units, with each unit consisting one share of our common
stock and two warrants each to purchase one share of our common
stock, at a combined initial public offering price of $5.125 per
unit. The exercise price of the warrants is $5.00 per warrant. The
units immediately and automatically separated upon issuance, and
the common stock and warrants trade on The NASDAQ Capital Market
under the ticker symbols “IMAC” and “IMACW,”
respectively.
We
received aggregate gross proceeds of $4,356,250 from our initial
public offering, before deducting underwriting discounts,
commissions and other related expenses. Proceeds from the offering
have been used for financing the costs of leasing, developing and
acquiring new clinic locations, funding research and new product
development activities, and for working capital and general
corporate purposes.
In
addition, upon the closing of our initial public offering, we
issued unit purchase options to Dawson James Securities, Inc., as
representative of the several underwriters, and its affiliates
entitling them to purchase a number of our securities equal to 4%
of the securities sold in the initial public offering. The unit
purchase options have an exercise price equal to 120% of the public
offering price of the units (or $6.15 per share and two warrants)
and may be exercised on a cashless basis. The unit purchase options
are not redeemable by us.
Matters that May or Are Currently Affecting Our
Business
We
believe that the growth of our business and our future success
depend on various opportunities, challenges, trends and other
factors, including the following:
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Our
ability to identify, contract with, install equipment and operate a
large number of outpatient medical clinics and attract new patients
to them; |
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Our
need to hire additional healthcare professionals in order to
operate the large number of clinics we intend to open; |
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Our
ability to enhance revenue at each facility on an ongoing basis
through additional patient volume and new services; |
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Our
ability to obtain additional financing for the projected costs
associated with the acquisition, management and development of new
clinics, and the personnel involved, if and when
needed; |
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Our
ability to attract competent, skilled medical and sales personnel
for our operations at acceptable prices to manage our overhead;
and |
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Our
ability to control our operating expenses as we expand our
organization into neighboring states. |
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements in conformity with
Generally Accepted Accounting Principles (“GAAP”) requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses at
the date and for the periods that the consolidated financial
statements are prepared. On an ongoing basis, we evaluate our
estimates, including those related to insurance adjustments and
provisions for doubtful accounts. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results
could materially differ from those estimates.
We
believe that, of the significant accounting policies discussed in
our Notes to the Consolidated Financial Statements, the following
accounting policies require our most difficult, subjective or
complex judgments in the preparation of our financial
statements.
Intangible Assets
The
Company capitalizes the fair value of intangible assets acquired in
business combinations. Intangible assets are amortized on a
straight-line basis over their estimated economic useful lives,
generally the contract term. The Company performs valuations of
assets acquired and liabilities assumed on each acquisition
accounted for as a business combination and allocates the purchase
price of each acquired business to its respective net tangible and
intangible assets. Acquired intangible assets include trade names,
non-compete agreements, customer relationships and contractual
agreements.
Goodwill
Our
goodwill represents the excess of the purchase price over the fair
value of the net identifiable assets acquired in business
combinations. The goodwill generated from the business combinations
is primarily related to the value placed on the employee workforce
and expected synergies. Judgment is involved in determining if an
indicator or change in circumstances relating to impairment has
occurred. Such changes may include, among others, a significant
decline in expected future cash flows, a significant adverse change
in the business climate, and unforeseen competition. There was no
goodwill impairment for the years presented.
The
Company tests goodwill for impairment on an annual basis, or when
events or circumstances indicate the fair value of a reporting unit
is below its carrying value. No impairments of goodwill were
recorded for the years ended December 31, 2019 and 2018.
Revenue Recognition
Our
patient service revenue is derived from minimally invasive
procedures performed at our outpatient medical clinics and patient
visits to physicians. The fees for such services are billed either
to the patient or a third-party payer, including Medicare. We
recognize patient service revenue, net of contractual adjustments,
which we estimate based on the historical trend of our cash
collections and contractual write-offs in the period in which
services are performed. Contractual adjustments represent discounts
offered for patients serviced within a negotiated third-party payer
contract.
Other
management service fees are derived from management services where
we provide billings and collections support to the clinics and
where management services are provided based on state specific
regulations known as the corporate practice of medicine (“CPM”).
Under the CPM, a business corporation is precluded from practicing
medicine or employing a physician to provide professional medical
services. In these circumstances, we provide all administrative
support to the physician-owned professional corporation (“PC”)
through a limited liability company. The PC is consolidated due to
control by contract (an “SMA” or Service Management Agreement). The
fees we derive from these management arrangements are based on a
percentage mark-up on the costs of the LLC. We recognize other
management service revenue in the period in which services are
rendered. These revenues are eliminated in
consolidation.
Patient Deposits
Patient
deposits are derived from patient payments in advance of services
delivered. Our service lines include traditional and regenerative
medicine. Regenerative medicine procedures are not paid by
insurance carriers; therefore, we typically require up-front
payment from the patient for regenerative services and any co-pays
and deductibles as required by the patient specific insurance
carrier. For some patients, credit is provided through an outside
vendor. In this case, we are paid from the outsourced credit vendor
and the risk is transferred to the credit vendor for collection
from the patient. These funds are accounted for as patient deposits
until the procedures are performed at which point the patient
deposit is recognized as patient service revenue.
Accounts Receivable
Accounts
receivable primarily consists of amounts due from third-party
payers (non-governmental), governmental payers and private pay
patients and is recorded net of allowances for doubtful accounts
and contractual discounts. Our ability to collect outstanding
receivables is critical to our results of operations and cash
flows. Accordingly, accounts receivable reported in our
consolidated financial statements are recorded at the net amount
expected to be received. Our primary collection risks are (i) the
risk of overestimation of net revenues at the time of billing that
may result in our receiving less than the recorded receivable, (ii)
the risk of non-payment as a result of commercial insurance
companies’ denial of claims, (iii) the risk that patients will fail
to remit insurance payments to us when the commercial insurance
company pays out-of-network claims directly to the patient, (iv)
resource and capacity constraints that may prevent us from handling
the volume of billing and collection issues in a timely manner, (v)
the risk that patients do not pay us for their self-pay balances
(including co-pays, deductibles and any portion of the claim not
covered by insurance), and (vi) the risk of non-payment from
uninsured patients.
Our
accounts receivables from third-party payers are recorded net of
estimated contractual adjustments and allowances from third-party
payers, which are estimated based on the historical trend of our
facilities’ cash collections and contractual write-offs, accounts
receivable aging, established fee schedules, relationships with
payers and procedure statistics. While changes in estimated
reimbursement from third-party payers remain a possibility, we
expect that any such changes would be minimal and, therefore, would
not have a material effect on our financial condition or results of
operations. Our collection policies and procedures are based on the
type of payor, size of claim and estimated collection percentage
for each patient account. The operating systems used to manage our
patient accounts provide for an aging schedule in 30-day
increments, by payer, physician and patient. We analyze accounts
receivable at each of the facilities to ensure the proper
collection and aged category. The operating systems generate
reports that assist in the collection efforts by prioritizing
patient accounts. Collection efforts include direct contact with
insurance carriers or patients and written
correspondence.
We
had an increase in accounts receivable of $0.9 million to $1.3
million as of December 31, 2019. Our accounts receivable balance
increased throughout 2019 due to multiple factors. An increase in
patient visits yielded a corresponding increase in accounts
receivable. However, the most significant impact was due to the
addition of new service lines implemented during the third quarter
of 2019 which were typically covered by insurance. We were able to
add additional insurance payors with the addition of service lines.
After our initial public offering in February, we put in place
initiatives for further review and analysis of our accounts
receivable, including contractual allowances. Through this review
we were able to refine our collection percentage and reduce our
contractual expense which in turn increased accounts receivable.
For example, in 2018 our collection percentage was 41% of gross
charges whereas our 2019 collection percentage exceeded 47% of
charges. Finally, in September 2019, we converted to a new billing
system. As a result of this conversion, there was a lag in digital
claim submissions and provider credentialing amendments during the
last quarter of 2019 due to transition of National Provider
Identifier (NPI) numbers from our former Electronic Medical Record
(EMR) system to our current EMR system. To assist with this
slowdown, we engaged a billing company to process claims in
December 2019. As of the first quarter of 2020 we are current with
our claim submissions and have some credentialing updates
outstanding.
Income Taxes
IMAC
Holdings was taxed as a partnership through May 31, 2018. As a
result, income tax liabilities were passed through to the
individual members. Accordingly, no provision for income taxes were
reflected in the consolidated financial statements for periods
prior to May 31, 2018, at which time the Company converted from a
limited liability company to a Delaware corporation. Subsequent to
the Company converting to a Delaware corporation, IMAC Nashville,
IMAC Texas, IMAC St. Louis continued as single-member limited
liability companies that are disregarded entities for tax purposes
and do not file separate returns. Their activity is included as
part of IMAC Holdings Inc. Advantage Therapy and IMAC Illinois are
also disregarded entities for tax purposes. BioFirma was a limited
liability company taxed as a partnership. Effective October 1,
2019, BioFirma became wholly owned by IMAC Holdings and is a
disregarded entity for tax purposes. IMAC Management is taxed as a
C-corporation and is included in the consolidated return of IMAC
Holdings as a subsidiary.
Any
future benefit arising from losses have been offset by a valuation
allowance. Accordingly, no provision for income taxes is reflected
in the consolidated financial statements. The Company records a
liability for uncertain tax positions when it is probable that a
loss has been incurred and the amount can be reasonably estimated.
Interest and penalties related to income tax matters, if any, would
be recognized as a component of income tax expense. At December 31,
2019 and 2018, the Company had no liabilities for uncertain tax
positions. The Company continually evaluates expiring statutes of
limitations, audits, proposed settlements, changes in tax law and
new authoritative rulings. Currently, the tax years subsequent to
2017 are open and subject to examination by the taxing
authorities.
Results
of Operations for the Twelve Months Ended December 31, 2019
Compared to the Twelve Months Ended December 31,
2018
We
own our medical clinics directly or have entered into long-term
management services agreements to operate and control these medical
clinics by contract. Our preference is to own the clinics; however,
some state laws restrict the corporate practice of medicine and
require a licensed medical practitioner to own the clinic.
Accordingly, our managed clinics are owned exclusively by a medical
professional within a professional service corporation (formed as a
limited liability company or corporation) under common control with
us or eligible members of our company in order to comply with state
laws regulating the ownership of medical practices. We are
compensated under management services agreements through service
fees based on the cost of the services provided, plus a specified
markup percentage, and a discretionary annual bonus determined in
the sole discretion of each professional service
corporation.
The
following table sets forth a summary of IMAC Holdings, Inc.’s
statements of operations for the years ended December 31, 2019 and
2018:
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Patient revenues |
|
$ |
32,756,644 |
|
|
$ |
16,135,967 |
|
| Contractual
adjustments |
|
|
(17,655,936 |
) |
|
|
(9,498,896 |
) |
| Total patient
revenue, net |
|
|
15,100,708 |
|
|
|
6,637,071 |
|
| |
|
|
|
|
|
|
|
|
| Management
fees |
|
|
25,318 |
|
|
|
64,000 |
|
| Total
revenue |
|
|
15,126,026 |
|
|
|
6,701,071 |
|
| |
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| Patient
expenses |
|
|
2,540,323 |
|
|
|
933,907 |
|
| Salaries and
benefits |
|
|
10,523,409 |
|
|
|
4,730,035 |
|
| Share-based
compensation |
|
|
392,217 |
|
|
|
14,998 |
|
| Advertising and
marketing |
|
|
1,238,352 |
|
|
|
859,191 |
|
| General and
administrative |
|
|
5,064,437 |
|
|
|
3,063,270 |
|
|
Depreciation and amortization |
|
|
1,552,919 |
|
|
|
651,066 |
|
|
Total operating expenses |
|
|
21,311,657 |
|
|
|
10,252,467 |
|
| |
|
|
|
|
|
|
|
|
| Operating loss |
|
|
(6,185,631 |
) |
|
|
(3,551,396 |
) |
| |
|
|
|
|
|
|
|
|
| Other income (expense): |
|
|
|
|
|
|
|
|
| Interest
income |
|
|
7,794 |
|
|
|
7,541 |
|
| Other income
(expense) |
|
|
(16,132 |
) |
|
|
18,356 |
|
| Beneficial
conversion interest expense |
|
|
(639,159 |
) |
|
|
- |
|
| Gain on sale of
assets |
|
|
140,074 |
|
|
|
- |
|
|
Interest expense |
|
|
(258,535 |
) |
|
|
(153,824 |
) |
|
Total other income (expenses) |
|
|
(765,958 |
) |
|
|
(127,927 |
) |
| |
|
|
|
|
|
|
|
|
| Loss before
equity in earnings (loss) of non-consolidated affiliate |
|
|
(6,951,589 |
) |
|
|
(3,679,323 |
) |
| |
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of non-consolidated affiliate |
|
|
- |
|
|
|
(105,550 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss before income taxes |
|
|
(6,951,589 |
) |
|
|
(3,784,873 |
) |
| |
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net loss |
|
|
(6,951,589 |
) |
|
|
(3,784,873 |
) |
| |
|
|
|
|
|
|
|
|
| Net
loss attributable to non-controlling interests |
|
|
454,359 |
|
|
|
731,130 |
|
| |
|
|
|
|
|
|
|
|
| Net loss
attributable to IMAC Holdings, Inc. |
|
$ |
(6,497,230 |
) |
|
$ |
(3,053,743 |
) |
Revenues
Our
revenue mix is diversified between medical treatments and
physiological treatments. Our medical treatments are further
segmented into traditional medical and regenerative medicine
practices. We are an in-network provider for traditional physical
medical treatments, such as physical therapy, chiropractic services
and medical evaluations, with most private health insurance
carriers. Regenerative medical treatments are typically not covered
by insurance, but paid by the patient. For more information on our
revenue recognition policies, see “Critical Accounting Policies and
Estimates - Revenue Recognition.”
See
the table below for more information regarding our revenue
breakdown by service type.
| |
|
Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
| Revenues: |
|
|
|
|
|
|
|
|
| Medical treatments |
|
|
60.0 |
% |
|
|
60.4 |
% |
| Physical therapy |
|
|
35.4 |
% |
|
|
34.2 |
% |
| Chiropractic
care |
|
|
4.6 |
% |
|
|
5.4 |
% |
| |
|
|
100 |
% |
|
|
100 |
% |
Patient
service revenues increased 128% to $15.1 million for the year ended
December 31, 2019, compared to $6.6 million for the year ended
December 31, 2018. This increase was primarily due to the 2019
acquisitions of ISDI Holdings
II and PHR Holdings (collectively “IMAC of Illinois”) and
2018 acquisitions of IMAC of Kentucky, IMAC of Missouri and
Advantage Health. The change in other service revenues is due to a
decrease in management and administrative service fees derived from
non-consolidated outpatient clinics.
Procedures
performed and visits to our clinics are an indication of business
activity. Procedures increased 87% for the year ended December 31,
2019 compared to the year ended December 31, 2018. Procedures
increased from 166,656 in the year ended December 31, 2018 to
312,445 in the year ended December 31, 2019. Visits to our clinics
increased by 117% for the year ended December 31, 2019 compared to
the year ended December 31, 2018. Visits increased from 63,812 for
the year ended December 31, 2018 to 138,639 in the year ended
December 31, 2019.
Operating Expenses
Operating
expenses consist of patient expenses, salaries and benefits, share
based compensation, advertising and marketing, general and
administrative expenses and depreciation expenses.
Patient
Expenses. Cost of revenues (patient expenses) increased $1.6
million to $2.5 million for the year ended December 31, 2019 as
compared to $0.9 million in December 31, 2018. This was driven by
the increase in procedures performed and due to the 2019
acquisition of IMAC of Illinois and 2018 acquisitions of IMAC of
Kentucky, IMAC of Missouri and Advantage Health.
Salaries
and Benefits. Salaries and benefits expenses increased $5.8
million to $10.5 million for the year ended December 31, 2019 as
compared to $4.7 million in December 31, 2018. The increase was
attributable to our 2019 and 2018 acquisitions and the costs
related to our operating as a public company.
Share-based
Compensation. Share-based compensation increased from $14,998
to $.4 million for the years ended December 31, 2018 and 2019,
respectively. At the time of the share-based compensation in 2018,
our company was still a limited liability company; therefore,
compensation was in the form of limited liability company units
instead of stock. The units converted to stock effective upon the
Corporate Conversion. The increase in share-based compensation in
2019 was due to the grant of stock options and restricted stock
units to our employees in the second and third quarters of
2019.
Advertising
and Marketing. Advertising and marketing expenses increased
$379,161, or 44%, to $1.2 million for 2019 from $0.9 million for
2018. The increase in advertising and marketing expense was due to
our 2019 acquisition of IMAC of Illinois and 2018 acquisitions of
IMAC of Kentucky, IMAC of Missouri and Advantage Health.
General
and Administrative. General and administrative expense
(“G&A”) consists of all other costs other than advertising and
marketing, salaries and wages, patient expenses and depreciation.
G&A increased 65% from $3.1 million to $5.10 million for the
years ended December 31, 2018 and 2019, respectively. G&A
expense increase was primarily due to travel, rent, insurance and
service fees related to the 2019 acquisition of IMAC of Illinois
and 2018 acquisitions of IMAC of Kentucky, IMAC of Missouri and
Advantage Health. The average monthly rent for the year ending
December 31, 2019 and 2018, respectively, was $115,000 and
$64,000.
Depreciation
and Amortization. Depreciation is related to our property and
equipment purchases to use in the course of our business
activities. Amortization is related to our business acquisitions.
Depreciation and amortization increased from $0.7 million for 2018
to $1.6 million for 2019. The increase in depreciation and
amortization expense resulted from the 2019 acquisition of IMAC of
Illinois and 2018 acquisitions of IMAC of Kentucky, IMAC of
Missouri and Advantage Health.
Beneficial
Conversion Interest Expense. Beneficial conversion interest
expense relating to the conversion of our 4% convertible notes to
shares of our common stock was $0.64 million in 2019, as such notes
were converted upon the consummation of our initial public
offering. We did not convert any notes to shares in
2018.
Gain
on Sale of Assets. A gain of $0.1 million was recognized in
2019 on the sale of substantially all of the assets of our
subsidiary BioFirma.
Net
Loss Attributable to the Non-controlling Interest. Net loss
attributable to the non-controlling interest is the amount of net
income (loss) for the period allocated to non-controlling partners
of IMAC Holdings, Inc. that is included in the entity’s
consolidated financial statements.
Analysis
of Cash Flows
The
primary source of our operating cash flow is the collection of
accounts receivable from patients, private insurance companies,
government programs, self-insured employers and other
payers.
During
the year ended December 31, 2019, net cash used in operations
increased to $4.1 million compared to $1.8 million for the year
ended December 31, 2018. This increase was primarily attributable
to our net loss.
Net
cash used in investing activities during the years ended December
31, 2019 and 2018 was $1.1 million and $1.6 million, respectively.
This was primarily driven by purchases of property and equipment
and leasehold improvements, which were $1.2 million and $1.6
million for the years ended December 31, 2019 and 2018,
respectively.
Net
cash provided by financing activities during the year ended
December 31, 2019 was $5.3 million, including proceeds from our
initial public offering, net of related fees, which totaled $3.8
million. Net cash provided by financing activities during the year
ended December 31, 2018 was $3.5 million, including proceeds from
notes payable, which totaled $4.0 million.
Reconciliation
of Non-GAAP Financial Measures
This
report contains certain non-GAAP financial measures, including
non-GAAP net income and adjusted EBITDA, which are used by
management in analyzing our financial results and ongoing
operational performance.
In
order to better assess the Company’s financial results, management
believes that net income before interest, income taxes, stock based
compensation, and depreciation and amortization (“adjusted EBITDA”)
is a useful measure for evaluating the operating performance of the
Company because adjusted EBITDA reflects net income adjusted for
certain non-cash and/or non-operating items. We also believe that
adjusted EBITDA is useful to many investors to assess the Company’s
ongoing results from current operations. Adjusted EBITDA is a
non-GAAP financial measure and should not be considered a measure
of financial performance under GAAP. Because adjusted EBITDA is not
a measurement determined in accordance with GAAP, such non-GAAP
financial measures are susceptible to varying calculations.
Accordingly, adjusted EBITDA, as presented, may not be comparable
to other similarly titled measures of other companies.
This
non-GAAP financial measure should not be considered as a substitute
for, or superior to, measures of financial performance which are
prepared in accordance with US GAAP and may be different from
non-GAAP financial measures used by other companies and have
limitations as analytical tools.
A
reconciliation of adjusted EBITDA to the most directly comparable
GAAP measures is set forth below.
| |
|
2019 |
|
|
2018 |
|
| GAAP loss attributable to
IMAC Holdings, Inc. |
|
$ |
(6,497,230 |
) |
|
$ |
(3,053,743 |
) |
| Interest income |
|
|
(7,794 |
) |
|
|
(7,541 |
) |
| Interest expense |
|
|
258,535 |
|
|
|
153,824 |
|
| Beneficial conversion interest
expense |
|
|
639,159 |
|
|
|
- |
|
| Share-based compensation expense |
|
|
392,217 |
|
|
|
14,998 |
|
| Gain on sale of assets |
|
|
(140,074 |
) |
|
|
- |
|
| Depreciation
and amortization |
|
|
1,552,919 |
|
|
|
651,066 |
|
| Adjusted
EBITDA |
|
$ |
(3,802,268 |
) |
|
$ |
(2,241,396 |
) |
Liquidity
and Capital Resources
As of
December 31, 2019, we had $0.4 million in cash and a deficiency in
working capital of $3.5 million. As of December 31, 2018, we had
cash of $0.2 million and deficiency in working capital of $13.1
million. The decrease in working capital deficiency was primarily
due to the capital raised pursuant to our initial public offering
completed in February 2019.
In
February 2019, we completed an initial public offering of units of
our common stock and warrants to purchase our common stock for net
proceeds to us of approximately $3.8 million, after deducting
underwriting discount and commissions and estimated offering
expenses payable by us. We believe the net proceeds of our recent
public offering, together with the cash at December 31, 2019 will
be sufficient to meet our cash, operational and liquidity
requirements for at least 12 months.
On March 25, 2020, the Company entered into a note purchase
agreement with Iliad Research & Trading, L.P. (the “Holder”),
pursuant to which the Company agreed to issue and sell to the
Holder a secured promissory note (the “Note”) in an aggregate
initial principal amount of $1,115,000, which is payable on or
before the date that is 18 months from the issuance date (the
“Maturity Date”). Interest on the Note accrues at a rate of 10% per
annum and is payable on the Maturity Date or otherwise in
accordance with the Note.
As of
December 31, 2019, we had approximately $6.1 million in current
liabilities. Approximately $3.0 million of our current liabilities
outstanding were to our vendors and for operating lines of credit,
which we have historically paid down in the normal course of our
business. Patient deposits accounted for approximately $0.2 million
of our current liabilities. The current portion of notes payable by
us accounted for approximately $1.4 million of our current
liabilities. The current portion of our capital lease obligations
accounted for approximately $0.02 million of our current
liabilities. The current portion of our liability to issue common
stock accounted for approximately $0.4 million of our current
liabilities. The current portion of our operating lease liability
accounted for approximately $1.0 million of our current
liabilities.
As of
December 31, 2019, we had an accumulated deficit of $10 million. We
anticipate that we will need to raise additional capital to fund
future operations. However, we may be unable to raise additional
funds or enter into such arrangements when needed or favorable
terms, or at all, which would have a negative impact on our
financial condition and could force us to delay, limit, reduce or
terminate our development or acquisition activity. Failure to
receive additional funding could also cause us to cease operations,
in part or in full. Furthermore, even if we believe we have
sufficient funds for our current of future operating plans, we may
seek additional capital due to favorable market conditions or
strategic considerations.
Our
independent registered public accounting firm has indicated that
our financial condition raises substantial doubt as to our ability
to continue as a going concern.
On
July 15, 2019, we signed a $10 million purchase agreement (the
“Purchase Agreement”) with Lincoln Park. We also entered into a
registration rights agreement (the “Registration Agreement”) with
Lincoln Park in which we agreed to file a registration statement
related to the transaction with the SEC covering the shares of our
common stock that may be issued to Lincoln Park under the Purchase
Agreement.
Pursuant
to the Purchase Agreement, we have the right, in our sole
discretion, over a 36-month period to sell shares of common stock
to Lincoln Park, subject to certain limitations contained in the
Purchase Agreement, in amounts up to 50,000 shares per regular
sale, which may be increased to up to 100,000 shares depending on
certain conditions as set forth in the Purchase Agreement (and
subject to adjustment for any reorganization, recapitalization,
non-cash dividend, stock split, reverse stock split or other
similar transaction as provided in the Purchase Agreement), up to
the aggregate commitment of $10 million (“Regular Purchases”). In
addition to Regular Purchases and subject to the terms and
conditions of the Purchase Agreement, we in our sole discretion may
direct Lincoln Park on each purchase date to make “accelerated
purchases” and “additional accelerated purchases” on the following
business day as provided in the Purchase Agreement. However, in no
event may we sell any number of shares that would result in Lincoln
Park beneficially owning more than 4.99% of our outstanding common
stock.
There
are no upper limits on the per share price Lincoln Park may pay to
purchase our common stock; however, we may not sell more than
$1,000,000 in shares of common stock to Lincoln Park per Regular
Purchase. The Purchase Agreement also has a minimum price per share
of $1.00 for the sale of any shares to Lincoln Park. The purchase
price of the shares related to the $10 million of future funding
will be based on the prevailing market prices of our shares without
any fixed discount. Furthermore, we control the timing and amount
of any future sales, if any, of shares of common stock to Lincoln
Park.
The
Purchase Agreement limits our sales of shares of common stock to
Lincoln Park to 1,669,359 shares of common stock, representing
19.99% of the shares of common stock outstanding on the date of the
Purchase Agreement unless (a) stockholder approval is obtained to
issue more than such amount or (b) the average price of all
applicable sales of our common stock to Lincoln Park under the
Purchase Agreement equals or exceeds the lower of (i) the closing
price of our common stock on the Nasdaq Capital Market immediately
preceding July 15, 2019 or (ii) the average of the closing price of
our common stock on the Nasdaq Capital Market for the five Business
Days immediately preceding July 15, 2019.
The
Purchase Agreement contains customary representations, warranties,
covenants, closing conditions and indemnification and termination
provisions by, among and for the benefit of the parties.
Additionally, Lincoln Park has agreed not to cause or engage in any
manner whatsoever, any direct or indirect short selling or hedging
of our common stock. The Purchase Agreement does not limit our
ability to raise capital from other sources at our sole discretion,
provided that we have agreed not to enter into any “variable rate”
transactions with any third party for the 36-month period following
the execution of the Purchase Agreement.
In
consideration for entering into the $10 million agreement, we
issued to Lincoln Park 60,006 shares of our common stock as a
commitment fee and will issue up to an additional 60,006 shares pro
rata, when and if Lincoln Park purchases, at the Company’s sole
discretion, the $10 million aggregate commitment. The Purchase
Agreement may be terminated by us at any time at our discretion
without any cost to us. The proceeds received by us under the
Purchase Agreement may be used for any corporate purpose at our
sole discretion.
As of
December 31, 2019, pursuant to the Purchase Agreement, the Company
sold an additional 506,454 shares of common stock of the Company to
Lincoln Park for aggregate proceeds to the Company of
$1,020,224.
Contractual
Obligations
The
following table summarizes our contractual obligations by period as
of December 31, 2019:
| |
|
Payments Due by Period |
|
| |
|
Total |
|
|
Less Than 1 Year |
|
|
1-3 Years |
|
|
4-5 Years |
|
|
More Than 5 Years |
|
| Short-term
obligations |
|
$ |
1,703,839 |
|
|
$ |
1,703,839 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Long-term obligations, including
interest |
|
|
2,138,827 |
|
|
|
- |
|
|
|
2,082,850 |
|
|
|
46,221 |
|
|
|
9,756 |
|
| Finance lease obligations, including
interest |
|
|
97,226 |
|
|
|
21,806 |
|
|
|
65,417 |
|
|
|
10,003 |
|
|
|
- |
|
| Operating lease obligations, including
interest |
|
|
5,036,132 |
|
|
|
1,141,106 |
|
|
|
2,770,334 |
|
|
|
837,111 |
|
|
|
287,581 |
|
| |
|
$ |
8,976,024 |
|
|
$ |
2,866,751 |
|
|
$ |
4,918,601 |
|
|
$ |
893,335 |
|
|
$ |
297,337 |
|
Off-Balance Sheet Arrangements
As of
December 31, 2019, we did not have any off-balance sheet
arrangements.
Impact of Inflation
We
believe that inflation has not had a material impact on our results
of operations for the years ended December 31, 2019 and 2018. We
cannot assure you that future inflation will not have an adverse
impact on our operating results and financial condition.
|
ITEM 7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not
applicable for smaller reporting companies.
ITEM 8.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of IMAC Holdings, Inc.
Brentwood,
Tennessee
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of IMAC
Holdings, Inc. (the “Company”) at December 31, 2019 and 2018, and
the related consolidated statements operations, stockholders’
equity (deficit) and cash flows for each of the years
in the two-year period ended December 31, 2019, and the related
notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company at December 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the years in the two-year
period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of
America.
Going
Concern Uncertainty
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
3 to the financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
|
/s/
Daszkal Bolton LLP |
|
Daszkal
Bolton LLP
|
|
| |
|
|
March
25, 2020
Boca
Raton, Florida
We
have served as the Company’s auditor since 2017.
|
IMAC Holdings, Inc.
Consolidated
Balance Sheets
December
31, 2019 and 2018
| |
|
2019 |
|
|
2018 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
373,689 |
|
|
$ |
194,316 |
|
| Accounts
receivable, net |
|
|
1,258,325 |
|
|
|
303,630 |
|
| Deferred
compensation, current portion |
|
|
312,258 |
|
|
|
- |
|
| Other
assets |
|
|
633,303 |
|
|
|
170,163 |
|
| Total current
assets |
|
|
2,577,575 |
|
|
|
668,109 |
|
| |
|
|
|
|
|
|
|
|
| Property and equipment, net |
|
|
3,692,009 |
|
|
|
3,333,638 |
|
| |
|
|
|
|
|
|
|
|
| Other assets: |
|
|
|
|
|
|
|
|
| Goodwill |
|
|
2,040,696 |
|
|
|
2,042,125 |
|
| Intangible assets,
net |
|
|
7,169,072 |
|
|
|
4,257,434 |
|
| Deferred IPO
costs |
|
|
- |
|
|
|
335,318 |
|
| Deferred equity
costs |
|
|
170,274 |
|
|
|
- |
|
| Deferred
compensation, net of current portion |
|
|
549,563 |
|
|
|
- |
|
| Security
deposits |
|
|
499,488 |
|
|
|
438,163 |
|
| Right
of use asset |
|
|
3,719,401 |
|
|
|
- |
|
| Total
other assets |
|
|
14,148,494 |
|
|
|
7,073,040 |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
20,418,078 |
|
|
$ |
11,074,787 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable
and accrued expenses |
|
$ |
2,909,666 |
|
|
$ |
1,261,582 |
|
| Acquisition
liabilities |
|
|
- |
|
|
|
7,259,208 |
|
| Patient
deposits |
|
|
189,691 |
|
|
|
454,380 |
|
| Notes payable,
current portion |
|
|
1,422,554 |
|
|
|
4,459,302 |
|
| Finance lease
obligation, net of current portion |
|
|
17,473 |
|
|
|
16,740 |
|
| Lines of credit |
|
|
79,961 |
|
|
|
379,961 |
|
| Liability to issue
common stock, current portion |
|
|
421,044 |
|
|
|
- |
|
|
Operating lease liability, current portion |
|
|
1,025,247 |
|
|
|
- |
|
| Total
current liabilities |
|
|
6,065,636 |
|
|
|
13,831,173 |
|
| |
|
|
|
|
|
|
|
|
| Long-term liabilities: |
|
|
|
|
|
|
|
|
| Notes payable, net
of current portion |
|
|
2,109,065 |
|
|
|
317,291 |
|
| Finance lease
obligation, net of current portion |
|
|
66,565 |
|
|
|
84,038 |
|
| Deferred rent |
|
|
- |
|
|
|
197,991 |
|
| Lease incentive
obligation |
|
|
- |
|
|
|
576,454 |
|
| Liability to issue
common stock, net of current portion |
|
|
578,866 |
|
|
|
- |
|
|
Operating lease liability, net of current portion |
|
|
3,660,654 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities |
|
|
12,480,786 |
|
|
|
15,006,947 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
| Preferred stock -
$0.001 par value, 5,000,000 authorized, nil issued and outstanding
at December 31, 2019 and 2018 |
|
|
- |
|
|
|
- |
|
| Common stock;
$0.001 par value, 30,000,000 authorized, 8,913,258 and 4,533,623
shares issued and outstanding at December 31, 2019 and 2018,
respectively |
|
|
8,907 |
|
|
|
4,534 |
|
| Additional paid-in
capital |
|
|
20,050,634 |
|
|
|
1,233,966 |
|
| Accumulated
deficit |
|
|
(10,042,050 |
) |
|
|
(3,544,820 |
) |
|
Non-controlling interest |
|
|
(2,080,199 |
) |
|
|
(1,625,840 |
) |
| Total
stockholders’ equity (deficit) |
|
|
7,937,292 |
|
|
|
(3,932,160 |
) |
| |
|
|
|
|
|
|
|
|
| Total
liabilities and stockholders’ equity |
|
$ |
20,418,078 |
|
|
$ |
11,074,787 |
|
See
notes to consolidated financial statements
IMAC Holdings, Inc.
Consolidated
Statements of Operations
For
the Years Ended December 31, 2019 and 2018
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Patient revenues |
|
$ |
|
|
|
$ |
16,135,967 |
|
| Contractual
adjustments |
|
|
|
|
|
|
(9,498,896 |
) |
| Total patient
revenue, net |
|
|
15,100,708 |
|
|
|
6,637,071 |
|
| |
|
|
|
|
|
|
|
|
| Management
fees |
|
|
25,318 |
|
|
|
64,000 |
|
| Total revenue |
|
|
15,126,026 |
|
|
|
6,701,071 |
|
| |
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| Patient
expenses |
|
|
2,540,323 |
|
|
|
933,907 |
|
| Salaries and
benefits |
|
|
10,523,409 |
|
|
|
4,730,035 |
|
| Share-based
compensation |
|
|
392,217 |
|
|
|
14,998 |
|
| Advertising and
marketing |
|
|
1,238,352 |
|
|
|
859,191 |
|
| General and
administrative |
|
|
5,064,437 |
|
|
|
3,063,270 |
|
|
Depreciation and amortization |
|
|
1,552,919 |
|
|
|
651,066 |
|
| Total
operating expenses |
|
|
21,311,657 |
|
|
|
10,252,467 |
|
| |
|
|
|
|
|
|
|
|
| Operating loss |
|
|
(6,185,631 |
) |
|
|
(3,551,396 |
) |
| |
|
|
|
|
|
|
|
|
| Other income (expense): |
|
|
|
|
|
|
|
|
| Interest
income |
|
|
7,794 |
|
|
|
7,541 |
|
| Other income
(expense) |
|
|
(16,132 |
) |
|
|
18,356 |
|
| Beneficial
conversion interest expense |
|
|
(639,159 |
) |
|
|
- |
|
| Gain on sale of
assets |
|
|
140,074 |
|
|
|
- |
|
|
Interest expense |
|
|
(258,535 |
) |
|
|
(153,824 |
) |
| Total
other income (expenses) |
|
|
(765,958 |
) |
|
|
(127,927 |
) |
| |
|
|
|
|
|
|
|
|
| Loss before
equity in earnings (loss) of non-consolidated affiliate |
|
|
(6,951,589 |
) |
|
|
(3,679,323 |
) |
| |
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of non-consolidated affiliate |
|
|
- |
|
|
|
(105,550 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss before income taxes |
|
|
(6,951,589 |
) |
|
|
(3,784,873 |
) |
| |
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net loss |
|
|
(6,951,589 |
) |
|
|
(3,784,873 |
) |
| |
|
|
|
|
|
|
|
|
| Net
loss attributable to non-controlling interest |
|
|
454,359 |
|
|
|
731,130 |
|
| |
|
|
|
|
|
|
|
|
| Net loss
attributable to IMAC Holdings, Inc. |
|
$ |
(6,497,230 |
) |
|
$ |
(3,053,743 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss per share attributable to
common stockholders |
|
|
|
|
|
|
|
|
| Basic and
diluted |
|
$ |
(0.84 |
) |
|
$ |
(0.47 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
| Basic and
diluted |
|
|
7,753,642 |
|
|
|
4,533,623 |
|
See
notes to consolidated financial statements
IMAC Holdings, Inc.
Consolidated
Statement of Stockholders’ Equity (Deficit)
For
the Years Ended December 31, 2019 and 2018
| |
|
Common Stock |
|
|
Additional |
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Number of
Shares |
|
|
Par |
|
|
Paid-In-
Capital |
|
|
Controlling
Interest |
|
|
Accumulated Deficit |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2017 |
|
|
6,582,737 |
|
|
$ |
6,583 |
|
|
$ |
1,233,966 |
|
|
$ |
(575,994 |
) |
|
$ |
(491,077 |
) |
|
$ |
173,478 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(730,704 |
) |
|
|
(3,053,743 |
) |
|
|
(3,784,447 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchase of non-controlling
interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(319,142 |
) |
|
|
- |
|
|
|
(319,142 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reverse stock
split |
|
|
(2,049,114 |
) |
|
|
(2,049 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,049 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2018 |
|
|
4,533,623 |
|
|
$ |
4,534 |
|
|
$ |
1,233,966 |
|
|
$ |
(1,625,840 |
) |
|
$ |
(3,544,820 |
) |
|
$ |
(3,932,160 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for initial public
offering proceeds, net of related fees |
|
|
850,000 |
|
|
|
850 |
|
|
|
3,503,314 |
|
|
|
- |
|
|
|
- |
|
|
|
3,504,164 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock in connection
with convertible notes |
|
|
449,217 |
|
|
|
449 |
|
|
|
2,245,636 |
|
|
|
- |
|
|
|
- |
|
|
|
2,246,085 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock in connection
with acquisitions |
|
|
2,412,489 |
|
|
|
2,412 |
|
|
|
11,320,234 |
|
|
|
- |
|
|
|
- |
|
|
|
11,322,646 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercise of warrants |
|
|
71,469 |
|
|
|
72 |
|
|
|
357,273 |
|
|
|
- |
|
|
|
- |
|
|
|
357,345 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of employee stock
options |
|
|
- |
|
|
|
- |
|
|
|
79,104 |
|
|
|
- |
|
|
|
- |
|
|
|
79,104 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock |
|
|
596,460 |
|
|
|
590 |
|
|
|
1,311,107 |
|
|
|
- |
|
|
|
- |
|
|
|
1,311,697 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(454,359 |
) |
|
|
(6,497,230 |
) |
|
|
(6,951,589 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2019 |
|
|
8,913,258 |
|
|
$ |
8,907 |
|
|
$ |
20,050,634 |
|
|
$ |
(2,080,199 |
) |
|
$ |
(10,042,050 |
) |
|
$ |
7,937,292 |
|
See
notes to consolidated financial statements
IMAC Holdings, Inc.
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2019 and 2018
| |
|
Year Ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(6,951,589 |
) |
|
$ |
(3,784,873 |
) |
| Adjustments to
reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
1,552,919 |
|
|
|
651,067 |
|
| Beneficial
conversion interest expense |
|
|
639,159 |
|
|
|
- |
|
| Share based comp |
|
|
392,217 |
|
|
|
- |
|
| Deferred rent |
|
|
- |
|
|
|
133,238 |
|
| Equity in
(earnings) loss of non-consolidated affiliate |
|
|
- |
|
|
|
(105,550 |
) |
| (Increase)
decrease in operating assets: |
|
|
|
|
|
|
|
|
| Accounts
receivable, net |
|
|
(412,805 |
) |
|
|
(170,235 |
) |
| Due from related
parties |
|
|
- |
|
|
|
(95,501 |
) |
| Other assets |
|
|
(271,654 |
) |
|
|
(70,038 |
) |
| Security
deposits |
|
|
(111,400 |
) |
|
|
(410,335 |
) |
| Increase
(decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable
and accrued expenses |
|
|
1,359,099 |
|
|
|
1,204,417 |
|
| Patient
deposits |
|
|
(264,689 |
) |
|
|
323,474 |
|
| Lease
incentive obligation |
|
|
- |
|
|
|
516,026 |
|
| Net
cash used in operating activities |
|
|
(4,068,743 |
) |
|
|
(1,808,310 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
| Purchase of
property and equipment |
|
|
(1,200,216 |
) |
|
|
(1,579,842 |
) |
| Cash paid for
acquisitions |
|
|
- |
|
|
|
(23,931 |
) |
|
Proceeds from sale of fixed assets |
|
|
147,096 |
|
|
|
- |
|
| Net
cash used in investing activities |
|
|
(1,053,120 |
) |
|
|
(1,603,773 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
| Proceeds from
initial public offering, net of related fees |
|
|
3,839,482 |
|
|
|
- |
|
| Proceeds from
warrants exercised |
|
|
357,345 |
|
|
|
- |
|
| Proceeds from
issuance of common stock |
|
|
1,311,697 |
|
|
|
- |
|
| Proceeds from
notes payable |
|
|
212,800 |
|
|
|
3,998,195 |
|
| Payments on notes
payable |
|
|
(123,348 |
) |
|
|
(193,625 |
) |
| Proceeds from line
of credit |
|
|
20,000 |
|
|
|
175,000 |
|
| Payments on line
of credit |
|
|
(300,000 |
) |
|
|
(140,000 |
) |
| Payments on
finance lease obligation |
|
|
(16,740 |
) |
|
|
(25,642 |
) |
|
Deferred IPO costs |
|
|
- |
|
|
|
(335,318 |
) |
| Net
cash provided by financing activities |
|
|
5,301,236 |
|
|
|
3,478,610 |
|
| |
|
|
|
|
|
|
|
|
| Net increase in cash |
|
|
179,373 |
|
|
|
66,527 |
|
| |
|
|
|
|
|
|
|
|
| Cash, beginning of period |
|
|
194,316 |
|
|
|
127,789 |
|
| |
|
|
|
|
|
|
|
|
| Cash, end of period |
|
$ |
373,689 |
|
|
$ |
194,316 |
|
| |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
| Interest
paid |
|
$ |
97,147 |
|
|
$ |
153,824 |
|
| Taxes paid |
|
$ |
18,533 |
|
|
$ |
- |
|
| Non Cash Financing
and Investing: |
|
|
|
|
|
|
|
|
| Business
acquisition via stock issuance |
|
$ |
3,771,978 |
|
|
$ |
7,259,208 |
|
See
notes to consolidated financial statements
Note 1 –
Description of Business
IMAC
Holdings, Inc. and its affiliates (collectively, the “Company”)
provide orthopedic therapies through its chain of IMAC Regeneration
Centers. Through its consolidated and equity owned entities, its
outpatient medical clinics provide conservative, non-invasive
medical treatments to help patients with back pain, knee pain,
joint pain, ligament and tendon damage, and other related soft
tissue conditions. The Company has opened two (2) medical clinics
located in Tennessee and opened or acquired through Management
Service Agreements thirteen (13) medical clinics located in
Kentucky, Missouri and Illinois at December 31, 2019. The Company
has partnered with several well-known sports stars such as Ozzie
Smith, David Price, Tony Delk, and Mike Ditka in opening its
medical clinics, with a focus around treating sports
injuries.
Effective
June 1, 2018, the Company converted from IMAC Holdings, LLC a
Kentucky limited liability company to IMAC Holdings, Inc. a
Delaware Corporation, followed by a reverse stock split in February
2019. These accounting changes have been given retrospective
treatment in the consolidated financial statements.
During
February 2019, the Company completed an initial public offering
(“IPO”) of securities. See Note 12 – Stockholder’s
Equity.
Note 2 – Summary of Significant Accounting
Policies
Principles of Consolidation
The
accompanying consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles
(“GAAP”) in the United States of America (“U.S.”) as promulgated by
the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) and with the rules and regulations
of the U.S. Securities and Exchange Commission (“SEC”).
The
accompanying consolidated financial statements include the accounts
of IMAC Holdings, Inc. (“IMAC Holdings”) and the following entities
which are consolidated due to direct ownership of a controlling
voting interest or other rights granted to us as the sole general
partner or managing member of the entity: IMAC Management Services,
LLC (“IMAC Management”), IMAC Regeneration Management, LLC (“IMAC
Texas”), IMAC Regeneration Management of Nashville, LLC (“IMAC
Nashville”) and IMAC Management of Illinois, LLC (“IMAC Illinois”);
the following entity which is consolidated with IMAC Regeneration
Management of Nashville, LLC due to control by contract: IMAC
Regeneration Center of Nashville, PC (“IMAC Nashville PC”); and the
following which prior to June 1, 2018 was held as a minority
interest, IMAC Regeneration Center of St. Louis, LLC (“IMAC St.
Louis”).
In
June 2018, the Company consummated certain transactions resulting
in the acquisition of the outstanding equity interests in IMAC St.
Louis and Clinic Management Associates of KY, LLC (“CMA of KY”), an
entity which consolidates Integrated Medical and Chiropractic
Regeneration Center, PSC (“IMAC Kentucky”) due to control by
contract. These entities are included in the consolidated financial
statements from the date of acquisition.
In
August 2018, the Company acquired 100% of Advantage Hand Therapy
and Orthopedic Rehabilitation, LLC (“Advantage Therapy”) and 70% of
BioFirma LLC (“BioFirma”). Both companies are consolidated due to
direct ownership of a controlling voting interest or other rights
granted to us as the sole general partner or managing member of the
entity. Substantially all of the assets of BioFirma were sold
effective December 31, 2019.
In
April 2019, the Company consummated certain transactions resulting
in the acquisition of the outstanding equity interest in ISDI
Holdings II, Inc., an Illinois corporation (“ISDI Holdings II”),
and PHR Holdings, Inc., an Illinois corporation (“PHR Holdings”),
entities which consolidate the results of Progressive Health and
Rehabilitation, Ltd (“Progressive”) and Illinois Spine and Disc
Institute, Ltd (“ISDI”) due to control by contract. These entities
are included in the consolidated financial statements from the date
of acquisition.
All
significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The
preparation of consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses at the date and for the periods that the consolidated
financial statements are prepared. On an ongoing basis, the Company
evaluates its estimates, including those related to insurance
adjustments and provisions for doubtful accounts. The Company bases
its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. Actual results could materially differ from those
estimates.
Revenue Recognition
The
Company’s patient service revenue is derived from non-surgical
procedures performed at our outpatient medical clinics and patient
visits to physicians. The fees for such services are billed either
to the patient or a third- party payer, including Medicare. The
Company recognizes service revenues based upon the estimated
amounts the Company expects to be entitled to receive from patients
and third-party payers. Estimates of contractual adjustments are
based upon the payment terms specified in the related contractual
agreements. The Company also records estimated implicit price
concessions (based primarily on historical collection experience)
related to uninsured accounts to record these revenues at the
estimated amounts expected to be collected.
Other
management service fees are derived from management services where
the Company provides billings and collections support to the
clinics and where management services are provided based on state
specific regulations known as the corporate practice of medicine
(“CPM”). Under the CPM, a business corporation is precluded from
practicing medicine or employing a physician to provide
professional medical services. In these circumstances, the Company
provides all administrative support to the physician-owned PC
through an LLC. The PC is consolidated due to control by contract
(an “MSA” – Management Services Agreement). The fees we derive from
these management arrangements are either based on a predetermined
percentage of the revenue of each clinic or a percentage mark up on
the costs of the LLC. The company recognize other management
service revenue in the period in which services are rendered. These
revenues are earned by IMAC Nashville, IMAC Management and IMAC
Illinois and are eliminated in consolidation to the extent
owned.
The
Company’s patient revenue consisted of the following as of December
31, 2019 and 2018:
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Patient revenues |
|
$ |
32,756,644 |
|
|
$ |
16,135,967 |
|
| Contractual
adjustments |
|
|
(17,655,936 |
) |
|
|
(9,498,896 |
) |
|
Patient revenue, net |
|
$ |
15,100,708 |
|
|
$ |
6,637,071 |
|
Patient Deposits
Patient
deposits are derived from patient payments in advance of services
delivered. Our service lines include traditional and regenerative
medicine. Regenerative medicine procedures are rarely paid by
insurance carriers; therefore, the Company typically requires
up-front payment from the patient for regenerative services and any
co-pays and deductibles as required by the patient specific
insurance carrier. For some patients, credit is provided through an
outside vendor. In this case, the Company is paid from the credit
card company and the risk is transferred to the credit card company
for collection from the patient. These funds are accounted for as
patient deposits until the procedures are performed at which point
the patient deposit is recognized as patient service
revenue.
Fair Value of Financial Instruments
The
carrying amount of accounts receivable, accounts payable and
acquisition liabilities approximate their respective fair values
due to the short- term nature. The carrying amount of the line of
credit and note payable approximates fair values due to their
market interest rates. Financial instruments that potentially
subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and accounts
receivable.
Cash and Cash Equivalents
The
Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents. The
Company had no cash equivalents at December 31, 2019 and
2018.
Accounts Receivable
Accounts
receivable primarily consists of amounts due from third-party
payers (non-governmental), governmental payers and private pay
patients and is recorded net of allowances for doubtful accounts
and contractual discounts. The Company’s ability to collect
outstanding receivables is critical to its results of operations
and cash flows. Accordingly, accounts receivable reported in the
Company’s consolidated financial statements is recorded at the net
amount expected to be received. The Company’s primary collection
risks are (i) the risk of overestimation of net revenues at the
time of billing that may result in the Company receiving less than
the recorded receivable, (ii) the risk of non-payment as a result
of commercial insurance companies’ denial of claims, (iii) the risk
that patients will fail to remit insurance payments to the Company
when the commercial insurance company pays out-of-network claims
directly to the patient, (iv) resource and capacity constraints
that may prevent the Company from handling the volume of billing
and collection issues in a timely manner, (v) the risk that
patients do not pay the Company for their self-pay balances
(including co-pays, deductibles and any portion of the claim not
covered by insurance) and (vi) the risk of non-payment from
uninsured patients.
The
Company’s accounts receivable from third-party payers are recorded
net of estimated contractual adjustments and allowances from
third-party payers, which are estimated based on the historical
trend of the Company’s facilities’ cash collections and contractual
write- offs, accounts receivable aging, established fee schedules,
relationships with payers and procedure statistics. While changes
in estimated reimbursement from third-party payers remain a
possibility, the Company expects that any such changes would be
minimal and, therefore, would not have a material effect on the
Company’s financial condition or results of operations. The
Company’s collection policies and procedures are based on the type
of payor, size of claim and estimated collection percentage for
each patient account. The operating systems used to manage the
Company’s patient accounts provide for an aging schedule in 30-day
increments, by payer, physician and patient. The Company analyzes
accounts receivable at each of the facilities to ensure the proper
collection and aged category. The operating systems generate
reports that assist in the collection efforts by prioritizing
patient accounts. Collection efforts include direct contact with
insurance carriers or patients and written
correspondence.
Allowance for Doubtful Accounts, Contractual and Other
Discounts
Management
estimates the allowance for contractual and other discounts based
on its historical collection experience and contracted relationship
with the payers. The services authorized and provided and related
reimbursement are often subject to interpretation and negotiation
that could result in payments that differ from the Company’s
estimates. The Company’s allowance for doubtful accounts is based
on historical experience, but management also takes into
consideration the age of accounts, creditworthiness and current
economic trends when evaluating the adequacy of the allowance for
doubtful accounts. An account may be written-off only after the
Company has pursued collection efforts or otherwise determines an
account to be uncollectible. Uncollectible balances are written-off
against the allowance. Recoveries of previously written-off
balances are credited to income when the recoveries are
made.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation.
Additions and improvements to property and equipment are
capitalized at cost. Depreciation of owned assets and amortization
of leasehold improvements are computed using the straight-line
method over the shorter of the estimated useful lives of the
related assets or the lease term. The cost of assets sold or
retired, and the related accumulated depreciation are removed from
the accounts and any resulting gains or losses are reflected in
other income (expense) for the year. Expenditures for maintenance
and repairs are charged to expense as incurred.
Intangible Assets
The
Company capitalizes the fair value of intangible assets acquired in
business combinations. Intangible assets are amortized on a
straight-line basis over their estimated economic useful lives,
generally the contract term. The Company performs valuations of
assets acquired and liabilities assumed on each acquisition
accounted for as a business combination and allocates the purchase
price of each acquired business to its respective net tangible and
intangible assets. Acquired intangible assets include trade names,
non-compete agreements, customer relationships and contractual
agreements.
Goodwill
Our
goodwill represents the excess of the purchase price over the fair
value of the net identifiable assets acquired in business
combinations. The goodwill generated from the business combinations
is primarily related to the value placed on the employee workforce
and expected synergies. Judgment is involved in determining if an
indicator or change in circumstances relating to impairment has
occurred. Such changes may include, among others, a significant
decline in expected future cash flows, a significant adverse change
in the business climate, and unforeseen competition. There was no
goodwill impairment for the years presented.
The
Company tests goodwill for impairment on an annual basis, or when
events or circumstances indicate the fair value of a reporting unit
is below its carrying value.
Long-Lived Assets
Long-lived
assets such as property and equipment and intangible assets are
evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. There were no impairments of long-lived assets for the
years presented.
Advertising and Marketing
The
Company uses advertising and marketing to promote its services.
Advertising and marketing costs are expensed as incurred.
Advertising and marketing expense was $1,238,352 and $859,191 for
the years ended December 31, 2019 and 2018,
respectively.
Net Loss Per Share
Basic
net loss per common share is computed by dividing net loss
applicable to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted net loss per
common share is determined using the weighted-average of common
shares outstanding during the period, adjusted for the dilutive
effect of common stock equivalents, consisting of the conversion
option embedded in convertible debt. The weighted-average number of
common shares outstanding excludes common stock equivalents because
their inclusion would have an anti-dilutive effect.
Income Taxes
IMAC
Holdings was taxed as a partnership through May 31, 2018. As a
result, income tax liabilities were passed through to the
individual members. Accordingly, no provision for income taxes were
reflected in the consolidated financial statements for periods
prior to May 31, 2018, at which time the Company converted from a
limited liability company to a Delaware corporation. Subsequent to
the Company converting to a Delaware corporation, IMAC Nashville,
IMAC Texas, IMAC St. Louis continued as single-member limited
liability companies that are disregarded entities for tax purposes
and do not file separate returns. Their activity is included as
part of IMAC Holdings Inc. Advantage Therapy and IMAC Illinois are
also disregarded entities for tax purposes. BioFirma is a limited
liability company taxed as a partnership. Effective October 1,
2019, BioFirma became wholly owned by IMAC Holdings and is a
disregarded entity for tax purposes. IMAC Management is a
C-corporation and is included in the consolidated return of IMAC
Holdings as a subsidiary.
Any
future benefit arising from losses have been offset by a valuation
allowance. Accordingly, no provision for income taxes is reflected
in the consolidated financial statements. The Company records a
liability for uncertain tax positions when it is probable that a
loss has been incurred and the amount can be reasonably estimated.
Interest and penalties related to income tax matters, if any, would
be recognized as a component of income tax expense. At December 31,
2019 and 2018, the Company had no liabilities for uncertain tax
positions. The Company continually evaluates expiring statutes of
limitations, audits, proposed settlements, changes in tax law and
new authoritative rulings. Currently, the tax years subsequent to
2017 are open and subject to examination by the taxing
authorities.
Recently Adopted Accounting
Pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases” which, for
operating leases, requires a lessee to recognize a right-of-use
asset and a lease liability, initially measured at the present
value of the lease payments, in its balance sheet. The standard
also requires a lessee to recognize a single lease cost, calculated
so that the cost of the lease is allocated over the lease term, on
a generally straight-line basis. We adopted ASU 2016-02 on January
1, 2019. We recognized a right of use asset and a related
obligation on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In
January 2017, the Financial Accounting Standards Board (“FASB”)
issued ASU 2017-04 “Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment”. This update
simplifies the subsequent measurement of goodwill by eliminating
Step 2 from the goodwill impairment test. Under this updated
standard, an entity should recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s
fair value, but the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. An entity also
should consider income tax effects from any tax-deductible goodwill
on the carrying amount of the reporting unit when measuring the
goodwill impairment loss, if any. This guidance is effective
prospectively and is effective for interim and annual periods
beginning after December 15, 2019 with early adoption permitted. We
do not expect the adoption of this guidance to have a material
impact on our consolidated financial statements
Note 3 – Capital Requirements, Liquidity and Going Concern
Considerations
The
Company’s consolidated financial statements are prepared in
accordance with GAAP including the assumption of a going concern
basis, which contemplates the realization of assets and liquidation
of liabilities in the normal course of business. However, as shown
in the accompanying consolidated financial statements, the Company
has sustained substantial losses from operations since inception
and had a deficiency in working capital of approximately $3.5
million at December 31, 2019. The Company had a net loss of
approximately $6.5 million at December 31, 2019, and used cash in
operations of approximately $4.1 million for the year ended
December 31, 2019. The Company expects to continue to incur
significant expenditures to develop and expand its owned and
managed outpatient medical clinics.
Management
recognizes that the Company must obtain additional resources to
successfully integrate its acquired and managed clinics and
implement its business plans. Through December 31, 2019, the
Company has received funding in the form of indebtedness and from
the sale of common stock and warrants. Management plans to continue
to raise funds and/or refinance our indebtedness to support our
operations in 2020 and beyond. However, no assurances can be given
that we will be successful. If management is not able to timely and
successfully raise additional capital and/or refinance
indebtedness, the implementation of the Company’s business plan,
financial condition and results of operations will be materially
affected. These consolidated financial statements do not include
any adjustments relating to the recoverability and classification
of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a
going concern.
Note 4 – Concentration of Credit Risks
Cash
The
Company maintains its cash in accounts at financial institutions,
which may, at times, exceed federally-insured limits of $250,000.
As of December 31, 2019, the Company had cash of approximately $0
in excess of federally insured limits.
Revenue and Accounts Receivable
Concentration
As of
December 31, 2019 and 2018, the Company had the following revenue
and accounts receivable concentrations:
| |
|
2019 |
|
|
2018 |
|
| |
|
% of Revenue |
|
|
% of Accounts Receivable |
|
|
% of Revenue |
|
|
% of Accounts Receivable |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Patient payment |
|
|
47 |
% |
|
|
40 |
% |
|
|
54 |
% |
|
|
54 |
% |
| Medicare payment |
|
|
27 |
% |
|
|
26 |
% |
|
|
20 |
% |
|
|
20 |
% |
| Insurance payment |
|
|
26 |
% |
|
|
34 |
% |
|
|
26 |
% |
|
|
26 |
% |
Note 5 – Accounts Receivable
Accounts
receivable consisted of the following at December 31:
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
| Accounts
receivable, net of contractual adjustments |
|
$ |
1,285,228 |
|
|
$ |
314,185 |
|
| Less:
allowance for doubtful accounts |
|
|
(26,903 |
) |
|
|
(10,555 |
) |
| Accounts
receivable, net |
|
$ |
1,258,325 |
|
|
$ |
303,630 |
|
Note 6 – Business Acquisitions
During
June 2018, the Company acquired CMA of Kentucky and IMAC St. Louis
for aggregate consideration of approximately $6.1 million, which
was paid in equity of the Company. The operating results of these
two companies have been included in the Company’s consolidated
financial statements from their dates of acquisition. The Company
accounted for the transactions as business combinations and has
allocated the purchase consideration to the net assets acquired
based on estimated fair values.
In
addition, during June 2018, the Company acquired the
non-controlling interest held in a majority-owned subsidiary for
$300,000, which was paid in equity of the Company.
During
August 2018, the Company acquired Advantage Therapy and BioFirma
for aggregate consideration of approximately $900,000, which was
paid in cash and equity. The operating results of these two
companies have been included in the Company’s consolidated
financial statements from their dates of acquisition. The Company
accounted for the transactions as business combinations and has
allocated the purchase consideration to the net assets acquired
based on estimated fair values. Substantially all of the assets of
BioFirma were sold effective December 31, 2019.
During
April 2019, the Company acquired ISDI Holdings II and PHR Holdings
for aggregate consideration of approximately $4.1 million, which
was paid in equity of the Company. The operating results of these
companies have been included in the Company’s consolidated
financial statements from the dates of acquisition. The Company
accounted for the transactions as business combinations and has
allocated the purchase consideration to the net assets acquired
based on estimated fair values.
IMAC Kentucky
On
June 29, 2018, IMAC Management completed a merger of CMA of
Kentucky, which was merged into IMAC Management. Pursuant to this
merger, IMAC Management has a long-term MSA to provide exclusive
comprehensive management and related administrative services to
IMAC Kentucky, an entity engaged in the practice of medicine
through physicians and nurse practitioners. Under the IMAC Kentucky
MSA, the Company receives service fees based on the cost of the
services provided, plus a specified markup percentage, and a
discretionary annual bonus.
The
Company has included the consolidated financial results of IMAC
Kentucky in the consolidated financial statements from the date of
acquisition.
IMAC St. Louis
On
June 1, 2018 the Company acquired the remaining 64% membership
interest in IMAC St. Louis not already owned by it pursuant to a
Unit Purchase Agreement, increasing the Company’s ownership to
100%. IMAC St. Louis operates two (2) Ozzie Smith Centers in
Missouri. Pursuant to the terms of a Unit Purchase Agreement, the
Company agreed to pay the current owners, upon the closing of the
Company’s initial public offering, an amount equal to 1.05 times
the total collections from payments at the IMAC St. Louis centers
on account of regeneration-related services and associated products
from the period from June 1, 2017 to May 31, 2018, or $1,490,632.
The purchase consideration will be paid in the form of shares of
our common stock based on the price per share of the Company’s
common stock in the Company’s initial public offering. See Note 12
– Stockholders’ Equity.
The
Company has included the financial results of IMAC St. Louis in the
consolidated financial statements from June 1, 2018, the date of
acquisition.
IMAC Nashville
Also,
on June 1, 2018 the Company acquired the remaining 25% of the
outstanding units of the limited liability company membership
interests not already owned by the Company in IMAC Nashville for
$300,000 and was paid in the form of shares of our common stock
based on the price per share in the IPO. See Note 12 –
Stockholders’ Equity.
Advantage Therapy
On
August 1, 2018, the Company entered into an agreement to purchase
all outstanding membership units of Advantage Therapy. The purchase
price for the interests was equal to the dollar amount represented
by 0.7 times the total collections from payments for service in the
Company account from June 1, 2017 to May 31, 2018, or approximately
$892,000, of which $870,000 and $22,000 and was paid in equity and
cash, respectively. See Note 12 – Stockholders’ Equity.
The
Company has included the financial results of Advantage Therapy in
the consolidated financial statements from August 1, 2018, the date
of acquisition.
BioFirma
On
August 1, 2018, the Company entered into an agreement to purchase
70% of all outstanding membership units of BioFirma LLC. The
purchase price for the interests was $1,000 paid in
cash.
The
Company has included the financial results of BioFirma in the
consolidated financial statements from August 1, 2018, the date of
acquisition.
On
October 1, 2019, Dr. Ian White and the Company entered into an
Assignment and Assumption of Interests of BioFirma LLC, pursuant to
which Dr. White assigned to the Company the 30% of BioFirma’s
membership interests which were not previously held by the Company,
resulting in the Company owning 100% of the membership interests of
BioFirma.
On
December 31, 2019, the Company and BioFirma consummated the sale of
substantially all of BioFirma’s assets pursuant to an asset
purchase agreement with Self Care Regeneration LLC for a purchase
price of $320,800, plus the assumption of certain of BioFirma’s
liabilities, all of which are due to be paid to us no later than
March 30, 2020.
IMAC Illinois
On
April 1, 2019, the Company entered into an Agreement and Plan of
Merger (the “Merger Agreement”) for the acquisition of a practice
management group that manages three clinics in the Chicago,
Illinois area. The acquisition was completed on April 19, 2019.
Pursuant to the Merger Agreement, the Company issued 1,002,306
restricted shares of the Company’s common stock (the “Merger
Consideration”) valued at approximately $4.1 million. The Company
has included the financial results of IMAC Illinois from April 19,
2019, the date of acquisition.
The
following table summarizes the fair value of consideration paid and
the allocation of purchase price to the fair value of net assets
acquired for the business acquisitions:
| |
|
IMAC Kentucky |
|
|
IMAC
St.
Louis
|
|
|
Advantage
Therapy
|
|
|
Illinois
|
|
| Property &
equipment |
|
$ |
607,257 |
|
|
$ |
- |
|
|
$ |
18,647 |
|
|
$ |
55,693 |
|
| Intangible assets |
|
|
4,224,113 |
|
|
|
264,000 |
|
|
|
37,000 |
|
|
|
3,716,285 |
|
| Goodwill |
|
|
- |
|
|
|
1,327,507 |
|
|
|
713,189 |
|
|
|
- |
|
| Other assets |
|
|
5,521 |
|
|
|
- |
|
|
|
255,018 |
|
|
|
757,388 |
|
| Current liabilities |
|
|
(119,902 |
) |
|
|
- |
|
|
|
(50,948 |
) |
|
|
(369,796 |
) |
| Noncurrent liabilities |
|
|
(118,413 |
) |
|
|
- |
|
|
|
(79,975 |
) |
|
|
- |
|
|
Non-controlling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
$ |
4,598,576 |
|
|
$ |
1,591,507 |
|
|
$ |
892,931 |
|
|
$ |
4,159,570 |
|
Note 7 – Property and Equipment
Property
and equipment consisted of the following at December 31:
| |
|
Estimated |
|
|
|
|
|
|
| |
|
Useful Life in Years |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
|
|
| Land and building |
|
40 |
|
$ |
1,175,000 |
|
|
$ |
1,175,000 |
|
| Leasehold improvements |
|
Shorter of asset or lease term |
|
|
2,262,398 |
|
|
|
1,427,828 |
|
| Equipment |
|
1.5 - 7 |
|
|
1,948,347 |
|
|
|
1,180,093 |
|
| Total property and
equipment |
|
|
|
|
5,385,745 |
|
|
|
3,782,921 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Less:
accumulated depreciation |
|
|
|
|
(1,693,736 |
) |
|
|
(449,283 |
) |
| Total
property and equipment, net |
|
|
|
$ |
3,692,009 |
|
|
$ |
3,333,638 |
|
In
March 2018, the Company purchased real estate in Lexington,
Kentucky for the development of an IMAC facility for approximately
$1.2 million. The Company funded the purchase with a note payable.
See Note 11 – Notes Payable.
Depreciation
was $748,271 and $383,388 for the years ended December 31, 2019 and
2018, respectively.
Note 8 – Intangibles Assets and Goodwill
Intangible
assets that were acquired in connection with the acquisition
transactions (Note 6) during 2018 and 2019:
| |
|
|
|
December 31, 2018 |
|
| |
|
Estimated |
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Useful Life |
|
Cost |
|
|
Amortization |
|
|
Net |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Intangible
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management service agreements |
|
10 years |
|
$ |
4,224,113 |
|
|
$ |
(211,206 |
) |
|
$ |
4,012,907 |
|
|
Non-compete agreements |
|
3 years |
|
|
301,000 |
|
|
|
(56,473 |
) |
|
|
244,527 |
|
| Definite lived assets |
|
|
|
|
4,525,113 |
|
|
|
(267,679 |
) |
|
|
4,257,434 |
|
| Goodwill |
|
|
|
|
2,042,125 |
|
|
|
- |
|
|
|
2,042,125 |
|
| Total
intangible assets and goodwill |
|
|
|
$ |
6,567,238 |
|
|
$ |
(267,679 |
) |
|
$ |
6,299,559 |
|
| |
|
|
|
December 31, 2019 |
|
|
|
|
| |
|
Estimated |
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Useful Life |
|
Cost |
|
|
Amortization |
|
|
Net |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Intangible
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management service agreements |
|
10 years |
|
$ |
8,019,199 |
|
|
$ |
(994,321 |
) |
|
$ |
7,024,878 |
|
|
Non-compete agreements |
|
3 years |
|
|
301,000 |
|
|
|
(156,806 |
) |
|
|
144,194 |
|
| Definite lived assets |
|
|
|
|
8,320,199 |
|
|
|
(1,151,127 |
) |
|
|
7,169,072 |
|
| Goodwill |
|
|
|
|
2,040,696 |
|
|
|
- |
|
|
|
2,040,696 |
|
| Total
intangible assets and goodwill |
|
|
|
$ |
10,360,895 |
|
|
$ |
(1,151,127 |
) |
|
$ |
9,209,768 |
|
Amortization
was $804,648 and $267,679 for the years ended December 31, 2019 and
2018, respectively.
The
Company’s estimated future amortization of intangible assets is as
follows:
|
Years Ending December 31, |
|
|
|
| |
|
|
|
|
2020 |
|
$ |
894,373 |
|
| 2021 |
|
|
837,901 |
|
| 2022 |
|
|
794,040 |
|
| 2023 |
|
|
794,040 |
|
| 2024 |
|
|
794,040 |
|
|
Thereafter |
|
|
3,054,678 |
|
| |
|
$ |
7,169,072 |
|
Note 9 – Operating Leases
On
January 1, 2019, the Company adopted ASC 842 using the modified
retrospective method applied to leases that were in place at
January 1, 2019. Results for operating periods beginning after
January 1, 2019 are presented under ASC 842, while prior period
amounts are not adjusted and continue to be reported in accordance
with our historic accounting under ASC 840. The Company’s leases
consist of operating leases that relate to real estate rental
agreements. All of the value of the Company’s lease portfolio
relates to real estate lease agreements that were entered into
starting March 2017.
Discount Rate Applied to Property Operating
Lease
To
determine the present value of minimum future lease payments for
operating leases at January 1, 2019, the Company was required to
estimate a rate of interest that we would have to pay to borrow on
a collateralized basis over a similar term an amount equal to the
lease payments in a similar economic environment (the “incremental
borrowing rate” or “IBR”).
The
Company determined the appropriate IBR by identifying a reference
rate and making adjustments that take into consideration financing
options and certain lease-specific circumstances. For the reference
rate, the Company used the ten year mortgage interest
rate.
Right of Use Assets
Right
of use assets are included in the consolidated Balance Sheet as
follows:
| Non-current
assets |
|
|
|
|
| Right of use assets, net
of amortization |
|
$ |
3,719,401 |
|
Total operating lease cost
Individual
components of the total lease cost incurred by the Company is as
follows:
| |
|
December 31, 2019 |
|
| |
|
|
|
|
| Operating lease expense |
|
$ |
1,042,028 |
|
Minimum
rental payments under operating leases are recognized on a straight
light basis over the term of the lease.
Maturity of operating leases
The
amount of future minimum lease payments under operating are as
follows:
| |
|
Operating Leases |
|
| |
|
|
|
| Undiscounted future minimum lease
payments: |
|
|
|
|
| 2020 |
|
$ |
1,141,106 |
|
| 2021 |
|
|
945,877 |
|
| 2022 |
|
|
949,333 |
|
| 2023 |
|
|
875,125 |
|
| 2024 |
|
|
536,736 |
|
| Thereafter |
|
|
587,955 |
|
| Total |
|
|
5,036,132 |
|
| Amount
representing imputed interest |
|
|
(350,231 |
) |
| Total operating
lease liability |
|
|
4,685,901 |
|
| Current portion
of operating lease liability |
|
|
(1,025,247 |
) |
| Operating lease
liability, non-current |
|
$ |
3,660,654 |
|
Note 10 – Lines of Credit
IMAC
Nashville had a $150,000 line of credit with a financial
institution that matured on October 15, 2018. The line accrued
interest at 6.50% per annum. The line was secured by substantially
all of the Company’s assets and personally guaranteed by the
members. The line had a $150,000 balance at December 31, 2018 and
was repaid in February 2019.
IMAC
Kentucky had a $150,000 line of credit with a financial institution
that matured on August 1, 2018. The line accrued interest at 4.25%
per annum. The line was secured by substantially all of the IMAC
Kentucky’s assets and personally guaranteed by the members. The
line had a $150,000 balance at December 31, 2018 and was repaid in
July 2019.
Advantage
Therapy has a $100,000 line of credit with a financial institution
that matures on November 20, 2020. The line accrues interest at a
variable rate which is currently 6.0% per annum. The line is
secured by substantially all of IMAC Holding’s assets. This line of
credit had a balance of $79,975 as of December 31, 2019 and
2018.
Progressive
had a $750,000 line of credit with a financial institution that
matured August 2019. The line had a balance of $140,000 when it was
converted to a note payable on September 19, 2019. See Note 11 –
Notes Payable for additional information regarding the note
payable.
Note 11 – Notes Payable
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Note payable to Edward S.
Bredniak in the amount of up to $2,000,000. An existing note
payable with this entity in the amount of $379,676 has been
combined into the new note payable which carries an interest rate
of 10% per annum. This note was amended in June 2019 and all
outstanding balances are due January 5, 2021. |
|
$ |
1,750,000 |
|
|
$ |
1,584,426 |
|
| |
|
|
|
|
|
|
|
|
| Note payable to a financial
institution in the amount of $200,000 dated November 15, 2017. The
note requires 66 consecutive monthly installments of $2,652
including principal and interest at 5%, with a balloon payment of
$60,000 which was paid on June 15, 2018. The note matures on May
15, 2023, and is secured by the personal guarantees of certain
Company executives. |
|
|
99,628 |
|
|
|
125,670 |
|
| |
|
|
|
|
|
|
|
|
| Convertible notes interest accrued at
4%, convertible to equity at or prior to maturity at a 20% discount
to the per share price of a sale of equity securities. At the time
of issuance of the convertible notes, the Company was unable to
calculate the amount of a beneficial conversion (“BCF”) and related
discount to be recorded until the occurrence of a Qualified
Financing, which occurred during the first quarter of 2019, at
which time the Company recorded the BCF liability and related
interest charge of approximately $639,000 associated with the
discount. The BCF liability was reclassified to paid-in-capital
upon conversion of these convertible notes. |
|
|
- |
|
|
|
1,540,000 |
|
| |
|
|
|
|
|
|
|
|
| $1.2 million six-month mortgage loan
with a financial institution with an interest rate of 3.35%. The
loan matured in 2019. The principal amount is currently due on
demand, with interest being paid monthly. |
|
|
1,232,500 |
|
|
|
1,232,500 |
|
| |
|
|
|
|
|
|
|
|
| Note payable to a financial
institution in the amount of $131,400 dated August 1, 2016. The
note requires 120 monthly installments of $1,394 including
principal and interest at 5%. The note matures on July 1, 2026, and
is secured by a letter of credit. |
|
|
93,652 |
|
|
|
105,374 |
|
| |
|
|
|
|
|
|
|
|
| Note payable to a financial
institution in the amount of $200,000 dated May 4, 2016. The note
requires 60 monthly installments of $3,881 including principal and
interest at 4.25%. The note matures on May 4, 2021, and is secured
by the equipment and personal guarantees of certain Company
executives. |
|
|
63,913 |
|
|
|
106,778 |
|
| |
|
|
|
|
|
|
|
|
| Note payable to an employee in the
amount of $101,906 dated March 8, 2017. The note requires payments
in five annual installments of $23,350, including principal and
interest at 5%. The note matures on December 31, 2021, and is
unsecured. |
|
|
60,000 |
|
|
|
60,000 |
|
| |
|
|
|
|
|
|
|
|
| Note payable to a financial
institution in the amount of $133,555 dated September 17, 2014. The
note required 60 monthly installments of $2,475 including principal
and interest at 4.25%. The note was repaid in September 2019. |
|
|
- |
|
|
|
21,845 |
|
| |
|
|
|
|
|
|
|
|
| $112,800 payable to a landlord of
Advantage Therapy, LLC pursuant to a lease dated March 1, 2019. The
debt is payable in 60 monthly installments of $2,129, including
principal and interest at 5%. The debt matures on June 1,
2024. |
|
|
102,744 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Note payable to
a financial institution in the amount of $140,000, dated September
25, 2019. The note requires 36 consecutive monthly installments of
$4,225 including principal and interest at 5.39%. The note matures
on September 19, 2022 and is secured by a personal guarantee of the
Vice President of Business Development of the Company. |
|
|
129,182 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
3,531,619 |
|
|
|
4,776,593 |
|
| Less:
current portion: |
|
|
(1,422,554 |
) |
|
|
(4,459,302 |
) |
| |
|
$ |
2,109,065 |
|
|
$ |
317,291 |
|
Principal
maturities of notes payable are as follows:
|
Years Ending December 31, |
|
Amount |
|
| |
|
|
|
| 2020 |
|
$ |
1,422,554 |
|
| 2021 |
|
|
1,900,181 |
|
| 2022 |
|
|
104,186 |
|
| 2023 |
|
|
51,657 |
|
| 2024 |
|
|
27,631 |
|
|
Thereafter |
|
|
25,410 |
|
| Total |
|
$ |
3,531,619 |
|
Note 12 – Shareholders’ Equity
Prior
to the Company’s conversion to a corporation, the Company had 400
member units authorized with 365 units issued and
outstanding.
On
June 1, 2018, the Company converted its 365 outstanding member
units into 6,582,737 shares of common stock with a $0.001 par value
pursuant to the Company’s conversion from a limited liability
company to a corporation. The conversion has been given
retrospective treatment.
On
February 12, 2019, the Company completed a reverse split of its
6,582,737 shares of common stock to 4,533,623 shares of common
stock outstanding pursuant to an amendment of the Company’s
certificate of incorporation. The reverse split has been given
retrospective treatment to December 31, 2017.
During
February 2019, the Company completed an initial public offering of
securities and issued 850,000 shares of its common stock, along
with 1,700,000 warrants to purchase common stock and an option to
purchase 34,000 shares of common stock for gross proceeds of
$4,356,815. The Company also issued 449,217 shares of common stock
for the conversion of its 4% convertible notes and 1,410,183 shares
to satisfy deferred acquisition consideration payable in connection
with its 2018 business acquisitions.
On
April 19, 2019, the Company consummated the transaction
contemplated by the Merger Agreement and issued 1,002,306 shares of
its common stock as Merger Consideration.
On
July 15, 2019, the Company signed a $10 million share purchase
agreement (the “Purchase Agreement”) with Lincoln Park Capital
Fund, LLC (“Lincoln Park”), an Illinois limited liability company.
In consideration for entering into the $10 million agreement, the
Company issued to Lincoln Park 60,006 shares of Company common
stock as a commitment fee. The Purchase Agreement limits our sales
of shares of common stock to Lincoln Park to 1,669,359 shares of
common stock, representing 19.99% of the shares of common stock
outstanding on the date of the Purchase Agreement unless (a)
stockholder approval is obtained to issue more than such amount or
(b) the average price of all applicable sales of our common stock
to Lincoln Park under the Purchase Agreement equals or exceeds the
lower of (i) the closing price of our common stock on the Nasdaq
Capital Market immediately preceding July 15, 2019 or (ii) the
average of the closing price of our common stock on the Nasdaq
Capital Market for the five business days immediately preceding
July 15, 2019. As of December 31, 2019, pursuant to the Purchase
Agreement, the Company sold an additional 506,454 shares of common
stock of the Company to Lincoln Park for aggregate proceeds to the
Company of $1,020,224.
2018 Incentive Compensation Plan
The
Company’s board of directors and holders of a majority of
outstanding shares approved and adopted the Company’s 2018
Incentive Compensation Plan (“2018 Plan”) in May 2018, reserving
the issuance of up to 1,000,000 shares of common stock (subject to
certain adjustments) upon exercise of stock options and grants of
other equity awards. The 2018 Plan provides for the grant of
incentive stock options (“ISOs”), nonstatutory stock options, stock
appreciation rights, restricted stock awards, restricted stock unit
awards, performance-based stock awards, other forms of equity
compensation and performance cash awards. ISOs may be granted only
to employees. All other awards may be granted to employees,
including officers, and to the Company’s non-employee directors and
consultants, and affiliates.
Stock Options
At
December 31, 2018, the Company had no outstanding stock options to
purchase its common stock. During 2019, the Company issued stock
options to purchase 292,550 shares of its common stock as
non-qualified stock options to various employees of the Company.
These options vest over a period of four years, with 25% vesting
after one year and the remaining 75% vesting in equal monthly
installments over the following 36 months and are exercisable for a
period of ten years. Stock based compensation for stock options is
estimated at the grant date based on the fair value calculated
using the Black-Scholes method. The per-share fair values of these
options is calculated based on the Black-Scholes-Merton pricing
model with the following assumptions: a volatility rate of 32.2%,
risk free rate of 2.4% and the expected term of 10
years.
The
information below summarizes the stock options:
| |
|
Number of Shares |
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Life |
|
| Outstanding at December 31,
2018 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
| Granted |
|
|
310,094 |
|
|
|
1.86 |
|
|
|
4.00 |
|
| Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Cancelled |
|
|
(17,544 |
) |
|
|
1.87 |
|
|
|
3.53 |
|
| Outstanding
at December 31, 2019 |
|
|
292,550 |
|
|
$ |
1.85 |
|
|
|
3.38 |
|
Restricted Stock Units
On
May 21, 2019, the Company granted an aggregate of 277,500
Restricted Stock Units (“RSUs”) to certain employees, executives
and Board members, the terms of which vest over various periods
between the date of grant and four years following the date of
grant. On August 13, 2019, 30,000 shares of common stock were
issued pursuant to granted RSUs which had vested as of such
date.
| |
|
Number of Shares |
|
|
Weighted
Average Grant
Date Fair Value
|
|
| Outstanding at December 31,
2018 |
|
|
- |
|
|
$ |
- |
|
| Granted |
|
|
277,500 |
|
|
|
4.04 |
|
| Exercised |
|
|
- |
|
|
|
- |
|
|
Cancelled |
|
|
(30,000 |
) |
|
|
4.04 |
|
| Outstanding
at December 31, 2019 |
|
|
247,500 |
|
|
$ |
4.04 |
|
Note 13 – Retirement Plan
The
Company offers a 401(k) plan that covers eligible employees. The
plan provides for voluntary salary deferrals for eligible
employees. Additionally, the Company is required to make matching
contributions of 50% of up to 6 % of total compensation for those
employees making salary deferrals. The Company made contributions
of $78,768 and $39,115 during 2019 and 2018,
respectively.
Note 14 – Income Taxes
The
provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before
provision for income taxes. The sources and tax effects of the
differences are as follows:
| Deferred tax benefit at
the federal statutory rate |
|
|
21 |
% |
| Valuation
allowance |
|
|
-21 |
% |
| |
|
|
0 |
% |
At
December 31, 2019, the Company has a net operating loss
carryforward of approximately $3.7 million for federal and state
purposes. This loss will be available to offset future taxable
income. If not used, this carryforward will begin to expire in
2029. The deferred tax asset relating to the operating loss
carryforward has been fully reserved at December 31, 2019. The
principal differences between the operating loss for income tax
purposes and reporting purposes are shares issued for services and
share-based compensation and a temporary difference in depreciation
expense.
Note 15 – Commitments and Contingencies
The
Company is subject to extensive regulation, including health
insurance regulations directed at ascertaining the appropriateness
of reimbursement, preventing fraud and abuse and otherwise
regulating reimbursement. To ensure compliance, various insurance
providers often conduct audits and request patient records and
other documents to support claims submitted by the Company for
payment of services rendered to customers. In the event that an
audit results in discrepancies in the records provided, insurance
providers may be entitled to extrapolate the results of the audit
to make overpayment demands based on a wider population of claims
than those examined in the audit.
From
time to time the Company may become subject to threatened and/or
asserted claims arising in the ordinary course of our business.
Management is not aware of any matters, either individually or in
the aggregate, that are reasonably likely to have a material impact
on the Company’s financial condition, results of operations or
liquidity.
Note 16 – Subsequent Events
Subsequent to December 31, 2019, pursuant to the Purchase
Agreement, the Company sold 771,661 shares of common stock of the
Company to Lincoln Park for aggregate proceeds to the Company of
$936,660.
On
January 13, 2020, the Company consummated an agreement for the
acquisition of Chiropractic Health of Southwest Florida, Inc.
(CHSF) in Bonita Springs, Florida. The transaction was completed as
an all-cash asset purchase for $200,000 and the assumption of
building lease liabilities. CHSF, established in 1998, delivers
physical therapy, chiropractic care, and soft tissue
therapies.
On March 4, 2020, the Company entered into a series of 10%
Promissory Notes with two independent directors of the Company,
George Hampton and Gerard M. Hayden, Jr., as well as Jeffrey S.
Ervin, Chief Executive Officer and director, and Matthew C. Wallis,
DC, Chief Operating Officer and director, pursuant to which the
Company borrowed a total of $200,000 from these individuals to be
used by the Company to fund its working capital requirement. The
borrowings under the notes are unsecured and bear interest at a
rate of 10% per annum, with interest deferred through and payable
on the maturity date of March 25, 2020. The principal amount and
interest were repaid by the Company on March 25, 2020.
On March 25, 2020, the Company entered into a note purchase
agreement with Iliad Research & Trading, L.P. (the “Holder”),
pursuant to which the Company agreed to issue and sell to the
Holder a secured promissory note (the “Note”) in an aggregate
initial principal amount of $1,115,000 (the “Initial Principal
Amount”), which is payable on or before the date that is 18 months
from the issuance date (the “Maturity Date”). The Initial Principal
Amount includes an original issue discount of $100,000 and $15,000
that the Company agreed to pay to the Holder to cover the Holder’s
legal fees, accounting costs, due diligence and other transaction
costs. In exchange for the Note, the Holder paid an aggregate
purchase price of $1,000,000. Interest on the Note accrues at a
rate of 10% per annum and is payable on the Maturity Date or
otherwise in accordance with the Note. The Note may be prepaid by
the Company (with the payment of a premium), may be required by the
Holder to be redeemed by the Company for up to $200,000 per month
after the six-month anniversary of the issuance of the Note
(subject to certain deferral rights), and is subject to customary
events of default (with a default interest rate of up to 22%). The
Note transaction documents also give the Holder a right of first
refusal to future debt issuances and a right to the first $250,000
of every $1 million of proceeds from future sales of equity by the
Company. The Note is secured by the assets of the Company, other
than the Company’s owned real property, intellectual property and
accounts receivable, pursuant to a security agreement. The Company
will use the proceeds of the Note for certain growth initiatives
including an IND filing with the FDA.
|
ITEM 9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES |
None.
|
ITEM 9A. |
CONTROLS
AND PROCEDURES |
|
(1) |
Evaluation
of Disclosure Controls and Procedures |
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Securities
and Exchange Commission Act of 1934 reports is recorded, processed,
summarized, and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such
information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer,
as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, we recognize that any controls and procedures, no
matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and
management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and
procedures.
As
further discussed below, we carried out an evaluation, under the
supervision and with the participation of our management, including
our chief executive officer and interim chief financial officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act. Based on that evaluation, our chief
executive officer and interim chief financial officer concluded
that, because of certain material weaknesses in our internal
control over financial reporting our disclosure controls and
procedures as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act were not effective as of December 31, 2019. The
material weaknesses relate to the absence of in-house accounting
personnel with the ability to properly account for complex
transactions and a lack of separation of duties between accounting
and other functions.
We
hired a consulting firm to advise on technical issues related to
U.S. generally accepted accounting principles as related to the
maintenance of our accounting books and records and the preparation
of our consolidated financial statements. Although we are aware of
the risks associated with not having dedicated accounting
personnel, we are also at an early stage in the development of our
business. We anticipate expanding our accounting functions with
dedicated staff and improving our internal accounting procedures
and separation of duties when we can absorb the costs of such
expansion and improvement with additional capital resources. In the
meantime, management will continue to observe and assess our
internal accounting function and make necessary improvements
whenever they may be required. If our remedial measures are
insufficient to address the material weakness, or if additional
material weaknesses or significant deficiencies in our internal
control over financial reporting are discovered or occur in the
future, our consolidated financial statements may contain material
misstatements, and we could be required to restate our financial
results. In addition, if we are unable to successfully remediate
this material weakness and if we are unable to produce accurate and
timely financial statements, our stock price may be adversely
affected and we may be unable to maintain compliance with
applicable stock exchange listing requirements.
|
(2) |
Management’s
Report on Internal Control over Financial Reporting |
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the
supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Because of its inherent limitations, internal control
over financial reporting may not prevent or detect all
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation. Based on our evaluation
under the framework in Internal Control—Integrated Framework
(2013), our management concluded that our internal control over
financial reporting was ineffective as of December 31, 2019 and
2018.
|
(3) |
Changes
in Internal Control over Financial Reporting |
There
has been no change in our internal control over financial reporting
identified in connection with the evaluation required by paragraph
(d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of
1934 that occurred during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
|
ITEM 9B. |
OTHER
INFORMATION |
None.
PART III
|
ITEM 10. |
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The
names and ages of our executive officers and directors, and their
positions with us, are as follows:
|
Name |
|
Age |
|
Position |
|
|
|
|
|
|
|
Jeffrey
S. Ervin |
|
42 |
|
Chief
Executive Officer and Director |
|
|
|
|
|
|
|
Matthew
C. Wallis, DC |
|
46 |
|
Chief
Operating Officer and Director |
|
|
|
|
|
|
|
Sheri
Gardzina, CPA |
|
51 |
|
Interim
Chief Financial Officer |
|
|
|
|
|
|
|
David
Ellwanger |
|
59 |
|
Director |
|
|
|
|
|
|
|
George
Hampton |
|
50 |
|
Director |
|
|
|
|
|
|
|
Gerard
Hayden, Jr. |
|
65 |
|
Director |
Jeffrey
S. Ervin co-founded our company in March 2015 and serves as our
Chief Executive Officer and a member of our Board of Directors. Mr.
Ervin earned his M.B.A. from Vanderbilt University and has a
history of working within strategic finance roles in the healthcare
and high tech industries. Following his M.B.A., Mr. Ervin was the
Senior Financial Analyst and Vice President of Finance for the
Baptist Hospital System of Nashville from 2006 to September 2011,
responsible for sourcing and managing direct investments to satisfy
pension obligations. After these five years, Mr. Ervin joined
Medicare.com parent Medx Publishing in October 2011 as the senior
financial officer tasked with building administrative functions to
satisfy rapid growth in the CMS education sector. During this time
through March 2015, Medicare.com earned INC. 500 recognition and he
was instrumental in the acquisition of Medicaid.com which was sold
to United Healthcare Group. Mr. Ervin was also responsible for the
disposition and ultimate sale of Medicare.com to eHealth
Insurance.
As
our Chief Executive Officer and a director, Mr. Ervin leads the
Board and manages our company. Mr. Ervin brings extensive
healthcare services industry knowledge and a deep background in
growing early stage companies, mergers and acquisitions and capital
market activities. His service as the Chief Executive Officer and a
director creates a critical link between management and our Board
of Directors.
Matthew
C. Wallis, DC co-founded our company in March 2015 and serves
as our Chief Operating Officer and a member of our Board of
Directors. Dr. Wallis established the first Integrated Medicine and
Chiropractic (IMAC) Regeneration Center in August 2000 and has led
the Paducah, Kentucky center since then. Prior to establishing the
first IMAC medical clinic, Dr. Wallis practiced as a licensed
chiropractor in Kentucky. As our Chief Operating Officer, Dr.
Wallis, has implemented consistent operating efficiencies for our
sales, marketing and serviced delivery operations. Dr. Wallis
received a Doctor of Chiropractic (DC) degree from Life
University.
Dr.
Wallis’ 18 years of experience in the healthcare services industry,
day-to-day operational leadership of our initial Paducah, Kentucky
medical clinic and in-depth knowledge of our company’s
rehabilitative services make him well qualified as a member of the
Board.
Sheri
Gardzina, CPA joined our company in November 2017 and serves as
our Interim Chief Financial Officer. Prior to joining IMAC, Ms.
Gardzina served as the controller or member of the accounting
executive team of Smile Direct Club, LLC, a marketer of invisible
aligners, from June 2016 to September 2017, Adoration Health, a
home health and hospice company, from October 2015 to June 2016,
Lattimore, Black, Morgan & Cain, an accounting and consulting
firm where she provided temporary chief financial officer services
to Peak Health Solutions, from August to September 2015, EB
Employee Solutions, LLC, a healthcare self-insurance product
developer, from May to December 2014, and Inspiris Inc., a start-up
care management company sold to Optum, from November 2003 to May
2014. Ms. Gardzina started her career as an auditor with Ernst
& Young, where she worked from October 1994 to August 1997. Ms.
Gardzina earned a B.S. degree in business administration and
finance from Purdue University and an M.S. in accountancy and
M.B.A. from Northeastern University.
David
Ellwanger joined our Board of Directors in February 2019. Mr.
Ellwanger was the President of Health Plan Operations and Senior
Vice President for Development of Intercede Health, a private
managed care company, from January 2016 to September 2019. At
Intercede Health, Mr. Ellwanger was involved in acquiring and
building Medicare Advantage programs. From March 2014 to December
2015, Mr. Ellwanger was the President of Hospital Systems and
Physicians for Healthways, the largest population health company in
the country at the time. From September 2001 to May 2006, Mr.
Ellwanger was the President of HealthSpring, an HMO, PPO and
Medicare Advantage plan provider. HealthSpring went public in
February 2006 and was eventually sold to CIGNA. From April 1994 to
July 1997, Mr. Ellwanger worked for InPhyNet Medical Management,
where he ran multiple primary care clinics and PPO accepting full
risk capitation from insurance payors. InPhyNet went public in 1994
and was sold to MedPartners in 1996. Mr. Ellwanger began his
healthcare career in 1985 with Partners National Health Plans,
which eventually was merged into Aetna Health Plans. Mr. Ellwanger
earned a B.B.A. degree in finance and financial management services
from the University of Georgia.
Mr.
Ellwanger has more than 33 years of experience operating insurance
companies, physician practices and hospitals. Using this
experience, Mr. Ellwanger brings insight to the Board and, in
particular, with regard to aligning incentives across constituents
for long-term results. Additionally, Mr. Ellwanger was part of
several management teams that took companies public, such as
HealthSpring and InPhyNet Medical Management. Mr. Ellwanger’s
experience and expertise in relevant market areas make him well
qualified as a member of our Board of Directors.
George
Hampton joined our Board of Directors in February 2019. Mr.
Hampton has served as executive vice president of the primary care
business unit for Horizon Pharmaceuticals, a publicly-traded
biopharmaceuticals company, since February 2016. Mr. Hampton leads
Horizon Pharmaceuticals’ forward-looking strategy and establishes
operational goals for the business. From April 2015 to February
2016, he was the executive vice president, global orphan business
unit and international operations for Horizon Pharmaceuticals. From
October 2008 to December 2014, Mr. Hampton served as a consultant
to Horizon Pharmaceuticals focusing on preparing the company for
the commercialization of its first product. Mr. Hampton has been
involved in more than ten product launches in roles of increasing
responsibility in sales, international marketing and operations at
G.D. Searle (1992 to 2002), Abbott (now AbbVie) (2002 to 2005), and
Amylin Pharmaceuticals (July 2007 to February 2009). Mr. Hampton
earned a B.A. degree from Miami University in Oxford,
Ohio.
Mr.
Hampton has more than 25 years of experience as a successful
executive in the pharmaceutical and biotech field on both a
national and international scale including specific expertise in
the autoimmune, primary care, orthopedic, diabetes, anti-infectives
and cardiovascular spaces, making his input invaluable to our Board
of Directors’ discussions.
Gerard
Hayden, Jr. joined our Board of Directors in February 2020. Mr.
Hayden is an independent consultant engaged with a variety of
healthcare businesses. From May 2008 to March 2019, Mr. Hayden was
Senior Vice President and Chief Financial Officer for HealthStream,
Inc., (NASDAQ: HSTM), a company dedicated to improving patient
outcomes through the development of healthcare organizations’
greatest asset: their people. From September 2006 to April 2008, he
also served on HealthStream’s Board of Directors and Audit
Committee. Prior to HealthStream, from 2007 to 2008, he served as
Chief Financial Officer for Medavant Healthcare Solutions. Mr.
Hayden received a M.S. degree from Northeastern University and a
B.A degree in government and international studies from the
University of Notre Dame. Mr. Hayden’s extensive knowledge of
finance, accounting and operational matters relevant to the
Company’s business makes him well qualified as a member of our
Board of Directors.
Mr.
Hayden’s nearly ten years of experience as Chief Financial Officer
of a Nasdaq-listed company should be helpful as we build broader
awareness with Wall Street. Mr. Hayden’s experience and expertise
in relevant market areas make him well qualified as a member of our
Board of Directors.
Code
of Ethics
We
have adopted a Code of Business Ethics and Conduct (“Ethics Code”)
that applies to all our officers, directors, employees, and
contractors. The Ethics Code contains general guidelines for
conducting our business consistent with the highest standards of
business ethics and compliance with applicable law, and is intended
to qualify as a “code of ethics” within the meaning of Section 406
of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K.
Day-to-day compliance with the Ethics Code is overseen by the
Company compliance officer appointed by our Board of Directors. If
we make any substantive amendments to the Ethics Code or grant any
waiver from a provision of the Ethics Code to any director or
executive officer, we will promptly disclose the nature of the
amendment or waiver on our website at
https://ir.imacregeneration.com.
Board
Composition
Our
business and affairs are managed under the direction of our board
of directors. The number of directors is determined by our board of
directors, subject to the terms of our certificate of incorporation
and bylaws. Our board of directors currently consists of six
members.
Director
Independence
Or
common stock and warrants are listed for trading on The NASDAQ
Capital Market. Under Nasdaq rules, independent directors must
comprise a majority of a listed company’s board of directors. In
addition, Nasdaq rules require that, subject to specified
exceptions, each member of a listed company’s audit, compensation
and nominating and governance committees must be independent. Under
Nasdaq rules, a director will only qualify as an “independent
director” if, in the opinion of that company’s board of directors,
that person does not have a relationship that would interfere with
the exercise of independent judgment in carrying out the
responsibilities of a director.
Audit
committee members must also satisfy the independence criteria set
forth in Rule 10A-3 under the Exchange Act. In order to be
considered independent for purposes of Rule 10A-3, a member of an
audit committee of a listed company may not, other than in his or
her capacity as a member of the audit committee, the board of
directors, or any other board committee: (i) accept, directly or
indirectly, any consulting, advisory, or other compensatory fee
from the listed company or any of its subsidiaries; or (ii) be an
affiliated person of the listed company or any of its
subsidiaries.
Our
board of directors undertook a review of its composition, the
composition of its committees and the independence of each
director. Based upon information requested from and provided by
each director concerning his or her background, employment and
affiliations, including family relationships, our board of
directors has determined that Messrs. Ellwanger, Hampton and
Hayden, representing a majority of our directors, do not have any
relationships that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director and
that each of these directors is “independent” as that term is
defined under Nasdaq rules. In making these determinations, our
board of directors considered the relationships that each
non-employee director has with our company and all other facts and
circumstances our board of directors deemed relevant in determining
their independence, including the beneficial ownership of our
capital stock by each non-employee director.
Board
Committees
Our
board of directors has three standing committees: an audit
committee, a compensation committee and a nominating and corporate
governance committee. Under Nasdaq rules, the membership of the
audit committee is required to consist entirely of independent
directors, subject to applicable phase-in periods. The following is
a brief description of our committees.
Audit committee. In accordance with our audit committee
charter, our audit committee oversees our corporate accounting and
financial reporting processes and our internal controls over
financial reporting; evaluates the independent public accounting
firm’s qualifications, independence and performance; engages and
provides for the compensation of the independent public accounting
firm; approves the retention of the independent public accounting
firm to perform any proposed permissible non-audit services;
reviews our consolidated financial statements; reviews our critical
accounting policies and estimates and internal controls over
financial reporting; and discusses with management and the
independent registered public accounting firm the results of the
annual audit and the reviews of our quarterly consolidated
financial statements. We believe that our audit committee members
meet the requirements for financial literacy under the current
requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and
regulations. In addition, the board of directors has determined
that David Ellwanger is qualified as an audit committee financial
expert within the meaning of SEC regulations. We have made this
determination based on information received by our board of
directors, including questionnaires provided by the members of our
audit committee. The audit committee is composed of Messrs.
Ellwanger (Chairman), Hampton and Hayden.
Compensation committee. In accordance with our compensation
committee charter, our compensation committee reviews and
recommends policies relating to compensation and benefits of our
officers and employees, including reviewing and approving corporate
goals and objectives relevant to compensation of the Chief
Executive Officer and other senior officers, evaluating the
performance of these officers in light of those goals and
objectives and setting compensation of these officers based on such
evaluations. The compensation committee also administers the
issuance of stock options and other awards under our equity-based
incentive plans. We believe that the composition of our
compensation committee meets the requirements for independence
under, and the functioning of our compensation committee complies
with, any applicable requirements of the Sarbanes-Oxley Act, Nasdaq
and SEC rules and regulations. We intend to comply with future
requirements to the extent they become applicable to us. The
compensation committee is composed of Messrs. Hampton (Chairman)
and Hayden.
Nominating and governance committee. In accordance with our
nominating and governance committee charter, our nominating and
governance committee recommends to the board of directors nominees
for election as directors, and meets as necessary to review
director candidates and nominees for election as directors;
recommends members for each committee of the board; oversee
corporate governance standards and compliance with applicable
listing and regulatory requirements; develops and recommends to the
board governance principles applicable to the company; and oversee
the evaluation of the board and its committees. We believe that the
composition of our nominating and governance committee meets the
requirements for independence under, and the functioning of our
compensation committee complies with, any applicable requirements
of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. We
intend to comply with future requirements to the extent they become
applicable to us. The nominating and governance committee is
composed of Messrs. Hayden (Chairman) and Hampton.
Compensation
Committee Interlocks and Insider Participation
None
of the members of our compensation committee is an executive
officer or employee of our company. None of our executive officers
serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers
serving on our board of directors or compensation
committee.
Limitations
on Director and Officer Liability and
Indemnification
Our
certificate of incorporation limits the liability of our directors
to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
|
|
● |
any
breach of their duty of loyalty to the corporation or its
stockholders; |
| |
|
|
| |
● |
acts
or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; |
| |
|
|
| |
● |
unlawful
payments of dividends or unlawful stock repurchases or redemptions;
or |
| |
|
|
| |
● |
any
transaction from which the director derived an improper personal
benefit. |
Our
certificate of incorporation and our bylaws provide that we are
required to indemnify our directors and officers, in each case to
the fullest extent permitted by Delaware law. Any repeal of or
modification to our certificate of incorporation and our bylaws may
not adversely affect any right or protection of a director or
officer for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
Our bylaws will also provide that we shall advance expenses
incurred by a director or officer in advance of the final
disposition of any action or proceeding, and permit us to secure
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in
connection with their services to us, regardless of whether our
bylaws permit such indemnification.
We
intend to enter into separate indemnification agreements with our
directors and executive officers, in addition to the
indemnification provided for in our bylaws. These agreements, among
other things, provide that we will indemnify our directors and
executive officers for certain expenses (including attorneys’
fees), judgments, fines, penalties and settlement amounts incurred
by a director or executive officer in any action or proceeding
arising out of such person’s services as one of our directors or
executive officers, or any other company or enterprise to which the
person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
The
limitation of liability and indemnification provisions that are
contained in our certificate of incorporation and our bylaws may
discourage stockholders from bringing a lawsuit against our
directors for breach of their fiduciary duty. They may also reduce
the likelihood of derivative litigation against our directors and
officers, even though an action, if successful, might benefit us
and other stockholders. Further, a stockholder’s investment may be
adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers as
required by these indemnification provisions. There is no pending
litigation or proceeding involving one of our directors or
executive officers as to which indemnification is required or
permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for
indemnification.
The
Board of Directors’ Role in Risk Oversight
Our
Board of Directors, as a whole and also at the committee level, has
an active role in managing enterprise risk. The members of our
Board of Directors participate in our risk oversight assessment by
receiving regular reports from members of senior management and the
Company compliance officer appointed by our Board of Directors on
areas of material risk to us, including operational, financial,
legal and regulatory, and strategic and reputational risks. The
Compensation Committee is responsible for overseeing the management
of risks relating to our executive compensation plans and
arrangements. The Audit Committee oversees management of financial
risks, as well as our policies with respect to risk assessment and
risk management. The Nominating and Governance Committee manages
risks associated with the independence of our Board of Directors
and potential conflicts of interest. Members of the management team
report directly to our Board of Directors or the appropriate
committee. The directors then use this information to understand,
identify, manage, and mitigate risk. Once a committee has
considered the reports from management, the chairperson will report
on the matter to our full Board of Directors at the next meeting of
the Board of Directors, or sooner if deemed necessary. This enables
our Board of Directors and its committees to effectively carry out
its risk oversight role.
Communications
with our Board of Directors
Any
stockholder may send correspondence to our Board of Directors, c/o
IMAC Holdings, Inc., 1605 Westgate Circle, Brentwood, Tennessee
37027 and our telephone number is (844) 266-IMAC (4622). Our
management will review all correspondence addressed to our Board of
Directors, or any individual director, and forward all such
communications to our Board of Directors or the appropriate
director prior to the next regularly scheduled meeting of our Board
of Directors following the receipt of the communication, unless the
corporate secretary decides the communication is more suitably
directed to Company management and forwards the communication to
Company management. Our management will summarize all stockholder
correspondence directed to our Board of Directors that is not
forwarded to our Board of Directors and will make such
correspondence available to our Board of Directors for its review
at the request of any member of our Board of Directors.
Indebtedness
of Directors and Executive Officers
None
of our directors or executive officers or their respective
associates or affiliates is currently indebted to us.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our executive officers,
directors and holders of more than 10% of our equity securities to
file reports of ownership and changes in ownership of our
securities (Forms 3, 4 and 5) with the SEC. To the best of our
knowledge, based solely on a review of the Section 16(a) reports
and written statements from executive officers and directors, for
the years ended December 31, 2019 and 2018, all required reports of
executive officers, directors and holders of more than 10% of our
equity securities were filed on time, except for any such reports
which may have been filed late due to administrative
delays.
Family
Relationships
There
are no family relationships among our directors and executive
officers.
|
ITEM 11. |
EXECUTIVE
COMPENSATION |
Summary
Compensation Table
The
following table sets forth summary compensation information for the
following persons: (i) all persons serving as our principal
executive officer during the years ended December 31, 2019 and
2018, and (ii) our two other most highly compensated executive
officers who received compensation during the years ended December
31, 2019 and 2018 of at least $100,000 and who were executive
officers on December 31, 2019 and 2018. We refer to these persons
as our “named executive officers” in this prospectus. The following
table includes all compensation earned by the named executive
officers for the respective period, regardless of whether such
amounts were actually paid during the period:
|
Name and Position |
|
Years |
|
|
Salary |
|
|
Bonus |
|
|
Stock Awards |
|
|
Option Awards |
|
|
Non-equity Incentive Plan Comp |
|
|
Non-qualified Deferred Comp |
|
|
All Other Comp |
|
|
Total |
|
| Jeffrey S. Ervin, |
|
|
2019 |
|
|
$ |
238,077 |
|
|
|
- |
|
|
$ |
606,000 |
|
|
$ |
606,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
1,800 |
|
|
$ |
1,451,877 |
|
| Chief Executive Officer |
|
|
2018 |
|
|
$ |
177,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
24,000 |
|
|
$ |
201,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Matthew C. Wallis, DC, |
|
|
2019 |
|
|
$ |
252,269 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
5,000 |
|
|
$ |
257,269 |
|
| Chief Operating Officer |
|
|
2018 |
|
|
$ |
6,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
6,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| D. Anthony Bond, |
|
|
2019 |
|
|
$ |
100,645 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
500 |
|
|
$ |
101,145 |
|
| Chief Financial Officer (1) |
|
|
2018 |
|
|
$ |
209,484 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
209,484 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sheri Gardzina, |
|
|
2019 |
|
|
$ |
160,538 |
|
|
|
- |
|
|
$ |
151,500 |
|
|
$ |
151,500 |
|
|
|
- |
|
|
|
- |
|
|
$ |
1,500 |
|
|
$ |
465,038 |
|
| Interim Chief Financial Officer
(1) |
|
|
2018 |
|
|
$ |
142,416 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
142,416 |
|
|
|
(1) |
Mr.
Bond left our company in April 2019, and was replaced by Ms.
Gardzina as Interim Chief Financial Officer. Mr. Bond’s prior
employment agreement with our company was terminated in connection
with his separation from our company. |
Employment
Agreements
We
entered into employment agreements effective October 1, 2018 with
Sheri Gardzina and March 1, 2019 with each of Jeffrey Ervin and
Matthew Wallis. The employment agreement with Ms. Gardzina extends
for a term expiring on December 31, 2020. The employment agreements
with Messrs. Ervin and Wallis extend for a term expiring on
February 28, 2023.
Pursuant
to their employment agreements, Messrs. Ervin and Wallis and Ms.
Gardzina have agreed to devote substantially all of their business
time, attention and ability, to our business as our Chief Executive
Officer, Chief Operating Officer and interim Chief Financial
Officer, respectively. The employment agreements provide that
Messrs. Ervin and Wallis will receive a base salary during the
first year of the agreement at an annual rate of $240,000 and
$240,000, respectively, for services rendered in such positions.
Under the employment agreements for Messrs. Ervin and Wallis, their
annual base salaries are each increased to $254,000, $267,000 and
$280,000 during the second, third and fourth years of each
agreement, respectively. Ms. Gardzina received a base salary at a
rate of $150,000 per year through December 31, 2018, $160,000 for
the period of January 1, 2019 through September 30, 2019 and
$170,000 for the period of October 1, 2019 through September 30,
2020. In addition, each executive may be entitled to receive, at
the sole discretion of our board of directors, cash bonuses based
on the executive meeting and exceeding performance goals of the
company. Each executive is entitled to participate in our 2018
Incentive Compensation Plan. We have also agreed to pay or
reimburse each executive up to $100 per month for the business use
of his personal cell phone.
The
employment agreements also provide for termination by us upon death
or disability of the executive (defined as three aggregate months
of incapacity during any 365-consecutive day period) or upon
conviction of a felony crime of moral turpitude or a material
breach of their obligations to us. In the event any of the
employment agreements are terminated by us without cause, such
executive will be entitled to compensation for the balance of the
term. We intend to obtain commitments for $1,000,000 key-man life
insurance policies in respect of each of Messrs. Ervin and
Wallis.
In
the event of a change of control of our company, Messrs. Ervin and
Wallis may terminate their employment within six months after such
event and will be entitled to continue to be paid pursuant to the
terms of their respective employment agreements.
The
employment agreements also contain covenants (a) restricting the
executive from engaging in any activities competitive with our
business during the terms of such employment agreements and one
year thereafter, (b) prohibiting the executive from disclosure of
confidential information regarding us at any time and (c)
confirming that all intellectual property developed by the
executive and relating to our business constitutes our sole and
exclusive property.
Grants
of Plan-Based Awards
As of
December 31, 2019, the Company had outstanding stock options to
purchase 316,518 shares of its common stock which were granted
during the second and third quarter of 2019 as non-qualified stock
options to various employees of the Company. These options vest
over a period of four years, with 25% vesting in May 2020 and the
remaining 75% vesting in equal monthly installments over the
following 36 months, are exercisable for a period of ten years, and
enable the holders to purchase shares of the Company’s common stock
at the exercise price of $4.04. The per-share fair values of these
options are $1.87, based on Black-Scholes-Merton pricing model with
the following assumptions: a volatility rate of 32.2%, risk free
rate of 2.4% and the expected term of 10 years.
On
May 21, 2019, the Company granted an aggregate of 277,500
Restricted Stock Units (“RSUs”) to certain employees, executives
and Board members, the terms of which vest over various periods
between the date of grant and four years following the date of
grant. On August 13, 2019, 30,000 shares of common stock were
issued pursuant to granted RSUs which had vested as of such
date.
Outstanding
Equity Awards at December 31, 2019
Mr.
Ervin and Ms. Gardzina were awarded 150,000 and 37,500 restricted
stock units and 150,000 and 37,500 stock options, respectively,
during the year ended December 31, 2019. No stock options or other
equity awards were granted to any of our named executive officers
during the year ended December 31, 2018, and no such awards were
outstanding as of such date.
The
following table presents the outstanding equity awards held by each
of the named executive officers as of the fiscal year ended
December 31, 2019, including the value of the stock
awards.
| |
|
|
|
Option Awards |
|
Stock Awards |
|
|
Name |
|
Grant Date |
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable |
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable |
|
|
Option
Exercise
Price
($) |
|
|
Option
Expiration
Date |
|
Number of
Shares or Units
of Stock That
Have Not Vested
(#) |
|
|
Market Value of Shares or Units
That Have Not
Vested
($) |
|
| Jeffrey Ervin |
|
5/21/2019 |
|
|
- |
|
|
|
150,000 |
(1) |
|
$ |
4.04 |
|
|
5/21/2029 |
|
|
150,000 |
(1) |
|
$ |
225,000 |
|
| Sheri Gardzina |
|
5/21/2019 |
|
|
- |
|
|
|
37,500 |
(1) |
|
$ |
4.04 |
|
|
5/21/2029 |
|
|
37,500 |
(1) |
|
$ |
56,250 |
|
|
(1) |
Four-year
vesting with a one year cliff of 25% and monthly thereafter at 1/36
until fully vested |
2018
Incentive Compensation Plan
Under
our 2018 Incentive Compensation Plan (the “Plan”), adopted by our
board of directors and holders of a majority of our outstanding
shares of common stock in May 2018, 1,000,000 shares of common
stock (subject to certain adjustments) are reserved for issuance
upon exercise of stock options and grants of other equity awards.
The Plan is designed to serve as an incentive for attracting and
retaining qualified and motivated employees, officers, directors,
consultants and other persons who provide services to us. The
compensation committee of our board of directors administers and
interprets the Plan and is authorized to grant stock options and
other equity awards thereunder to all eligible employees of our
company, including non-employee consultants to our company and
directors.
The
Plan provides for the granting of “incentive stock options” (as
defined in Section 422 of the Code), non-statutory stock options,
stock appreciation rights, shares of restricted stock, restricted
stock units, deferred stock, dividend equivalents, bonus stock and
awards in lieu of cash compensation, other stock-based awards and
performance awards. Options may be granted under the Plan on such
terms and at such prices as determined by the compensation
committee of the board, except that the per share exercise price of
the stock options cannot be less than the fair market value of our
common stock on the date of grant. Each option will be exercisable
after the period or periods specified in the stock option
agreement, but all stock options must be exercised within ten years
from the date of grant. Options granted under the Plan are not
transferable other than by will or by the laws of descent and
distribution. The compensation committee of the board has the
authority to amend or terminate the Plan, provided that no
amendment shall be made without stockholder approval if such
stockholder approval is necessary to comply with any tax or
regulatory requirement. Unless terminated sooner, the Plan will
terminate ten years from its effective date.
Equity
Compensation Plan Summary
The
following table provides information as of December 31, 2019,
relating to our equity compensation plan:
|
Plan Category |
|
Number
of Securities to
be
Issued Upon Exercise
of
Outstanding Equity Grants
|
|
|
Weighted-Average
Exercise
Price of
Outstanding
Options
|
|
|
Number
of Securities
Remaining
Available
for Further
Issuance
Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected
in
the First Column)
|
|
| Equity
compensation plan approved by security holders
(1) |
|
|
570,050 |
|
|
$ |
2.86 |
|
|
|
429,950 |
|
| Equity
compensation plans not approved by security holders |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
| Total |
|
|
570,050 |
|
|
$ |
2.86 |
|
|
|
429,950 |
|
|
(1) |
Consists
solely of the 2018 Incentive Compensation Plan. |
Director
Compensation
We
compensate each non-employee director through annual stock option
grants and by paying a cash fee for each board of directors and
committee meeting attended. Our directors in 2019, Messrs.
Ellwanger, Hampton and Weiland were paid $6,000 each and awarded
30,000 RSUs. Mr. Weiland resigned as a director on February 10,
2020, and Gerard M. Hayden, Jr. was appointed to replace Mr.
Weiland on the same date. No compensation was paid to our directors
in the years ended December 31, 2018. Our board of directors will
review director compensation annually and adjust it according to
then current market conditions and good business
practices.
Non-Employee
Director Compensation Table
The
following table sets forth summary information concerning
compensation paid or accrued for services rendered to us in all
capacities to the non-employee members of our Board of Directors
for the fiscal year ended December 31, 2019.
|
Name |
|
Fees Paid
in Cash
($) |
|
|
Stock
Awards
($) (1) |
|
|
Option
Awards
($) |
|
|
Non-Equity
Incentive
Plan
Compensation
($) |
|
|
Nonqualified
Deferred
Compensation
Earnings
($) |
|
|
All Other
Comp
($) |
|
|
Total
($) |
|
| David Ellwanger |
|
$ |
6,000 |
|
|
$ |
128,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
134,100 |
|
| George Hampton |
|
$ |
6,000 |
|
|
$ |
128,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
134,100 |
|
| Dean
Weiland(2) |
|
$ |
6,000 |
|
|
$ |
128,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
134,100 |
|
| |
(1) |
Represents
full fair value at grant date of RSUs granted to our directors,
computed in accordance with FASB ASC Topic 718. |
| |
(2) |
Mr.
Weiland resigned as a director on February 10, 2020, and Gerard M.
Hayden, Jr. was appointed to replace Mr. Weiland on the same
date. |
|
ITEM 12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS |
The
following table sets forth information as of March 23, 2020
regarding the beneficial ownership of our common stock by (i) each
person we know to be the beneficial owner of 5% or more of our
common stock, (ii) each of our current executive officers, (iii)
each of our directors, and (iv) all of our current executive
officers and directors as a group. Information with respect to
beneficial ownership has been furnished by each director, executive
officer or 5% or more stockholder, as the case may be. The address
for all executive officers and directors is c/o IMAC Holdings,
Inc., 1605 Westgate Circle, Brentwood, Tennessee 37027.
Percentage
of beneficial ownership in the table below is calculated based on
9,835,960 shares of common stock outstanding as of March 23, 2020.
Beneficial ownership is determined in accordance with the rules of
the SEC, which generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes
shares of our common stock issuable pursuant to the exercise of
stock options, warrants or other securities that are immediately
exercisable or convertible or exercisable or convertible within 60
days of March 23, 2020. Unless otherwise indicated, the persons or
entities identified in this table have sole voting and investment
power with respect to all shares shown as beneficially owned by
them.
|
Name
of Beneficial Owner |
|
Shares
Beneficially
Owned |
|
|
Percentage
Beneficially
Owned |
|
| |
|
|
|
|
|
|
|
Jeffrey
S. Ervin |
|
|
262,900 |
|
|
|
2.7 |
% |
| |
|
|
|
|
|
|
|
|
| Matthew
C. Wallis, DC |
|
|
2,151,604 |
|
|
|
21.9 |
% |
| |
|
|
|
|
|
|
|
|
| Sheri
Gardzina |
|
|
- |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
| David
Ellwanger |
|
|
- |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
| George
Hampton(1) |
|
|
6,438 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
| Gerard
Hayden |
|
|
- |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
| Edward
S. Bredniak 2008 Grantor Retained Annuity
Trust(2) |
|
|
699,409 |
|
|
|
7.1 |
% |
| |
|
|
|
|
|
|
|
|
| Edward
S. Bredniak Exempt Trust(3) |
|
|
699,413 |
|
|
|
7.1 |
% |
| |
|
|
|
|
|
|
|
|
| Jason
Brame |
|
|
686,246 |
|
|
|
7.0 |
% |
| |
|
|
|
|
|
|
|
|
| All
directors and executive officers as a group (6
persons)(4) |
|
|
2,420,942 |
|
|
|
24.6 |
% |
|
* |
Less
than 1% of outstanding shares. |
| |
|
| (1) |
Includes
currently exercisable warrants to purchase 4,292 shares of common
stock. |
| |
|
| (2) |
The
beneficiaries of the Edward S. Bredniak 2008 Grantor Retained
Annuity Trust (Susan L. Bredniak, trustee) (the “GRAT”) are the
grantor’s spouse and descendants. The GRAT’s primary objective is
to fund distributions to the grantor’s spouse and
children. |
| |
|
| (3) |
The
beneficiaries of the Edward S. Bredniak Exempt Trust (Susan L.
Bredniak, trustee) (the “Exempt Trust”) are the grantor’s spouse
and descendants. The Exempt Trust has the primary objective of
funding distributions to the grantor’s grandchildren and later
descendants. The GRAT and the Exempt Trust disclaim beneficial
ownership of each other’s shares of common stock. The address of
each trust described in footnotes (3) and (4) is 140 Pearl Street,
Suite 100, Buffalo, NY 14202. |
| |
|
| (4) |
Includes
currently exercisable warrants to purchase 4,292 shares of common
stock. |
|
ITEM 13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDENPENDENCE |
Policies
and Procedures for Transactions with Related Persons
Our
board of directors intends to adopt a written related person
transaction policy to set forth the policies and procedures for the
review and approval or ratification of related person transactions.
Related persons include any executive officer, director or a holder
of more than 5% of our common stock, including any of their
immediate family members and any entity owned or controlled by such
persons. Related person transactions refers to any transaction,
arrangement or relationship, or any series of similar transactions,
arrangements or relationships in which (i) we were or are to be a
participant, (ii) the amount involved exceeds $120,000, and (iii) a
related person had or will have a direct or indirect material
interest. Related person transactions include, without limitation,
purchases of goods or services by or from the related person or
entities in which the related person has a material interest,
indebtedness, guarantees of indebtedness, and employment by us of a
related person, in each case subject to certain exceptions set
forth in Item 404 of Regulation S-K under the Securities
Act.
We
expect that the policy will provide that in any related person
transaction, our audit committee and board of directors will
consider all of the available material facts and circumstances of
the transaction, including: the direct and indirect interests of
the related persons; in the event the related person is a director
(or immediate family member of a director or an entity with which a
director is affiliated), the impact that the transaction will have
on a director’s independence; the risks, costs and benefits of the
transaction to us; and whether any alternative transactions or
sources for comparable services or products are available. After
considering all such facts and circumstances, our audit committee
and board of directors will determine whether approval or
ratification of the related person transaction is in our best
interests. For example, if our audit committee determines that the
proposed terms of a related person transaction are reasonable and
at least as favorable as could have been obtained from unrelated
third parties, it will recommend to our board of directors that
such transaction be approved or ratified. In addition, if a related
person transaction will compromise the independence of one of our
directors, our audit committee may recommend that our board of
directors reject the transaction if it could affect our ability to
comply with securities laws and regulations or Nasdaq listing
requirements.
Each
transaction described in this section was entered into prior to the
adoption of our audit committee charter and the foregoing policy
proposal.
Corporate
Conversion
Effective
June 1, 2018, we converted to a Delaware corporation and changed
our name to IMAC Holdings, Inc. Prior to June 1, 2018, we were a
Kentucky limited liability company controlled by Matthew C. Wallis,
DC, Jason Brame, DC, and Jeffrey S. Ervin. Upon the Corporate
Conversion, all of our outstanding membership interests were
exchanged on a proportional basis for shares of common stock of
IMAC Holdings, Inc.
Business
Transactions
Integrated Medicine and Chiropractic Regeneration Center
PSC. Our wholly-owned subsidiary, IMAC Management Services,
LLC, holds a long-term Management Services Agreement with
Integrated Medicine and Chiropractic Regeneration Center PSC, a
professional service corporation controlled by our co-founders
Matthew C. Wallis, DC and Jason Brame, DC, which operates two IMAC
Regeneration Centers in Kentucky. The Management Services Agreement
is exclusive, extends through June 2048 and will automatically
renew annually each year thereafter unless written notice is given
within 180 days prior to the completion of the extended term. On
June 29, 2018, Clinic Management Associates, LLC, controlled by
Drs. Wallis and Brame, merged with and into our subsidiary IMAC
Management Services, LLC. IMAC Management Services, LLC provides
exclusive comprehensive management and related administrative
services to the IMAC Regeneration Centers under the Management
Services Agr