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:
|
●
|
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;
|
|
|
|
|
●
|
We
believe in the power of doctors, from many different specializations, working together for the best patient care possible;
|
|
|
|
|
●
|
We
believe that employees should know patients by their face, not by a chart number;
|
|
|
|
|
●
|
We
believe consumers have a choice regardless of physician referral or insurance coverage; and
|
|
|
|
|
●
|
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:
Clinic Name
|
|
Location of Clinic
|
|
Date
Opened or
Acquired
|
|
Form and
Date of
Control
|
|
Primary Services Performed
|
|
|
|
|
|
|
|
|
|
IMAC Regeneration Center
|
|
Paducah, Kentucky
|
|
August 2000
|
|
Managed since June 28, 2018
|
|
Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
Ozzie Smith Center
|
|
Chesterfield, Missouri
|
|
May 2016
|
|
Full ownership effective June 1, 2018, when remaining 64% interest was acquired
|
|
Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
IMAC Regeneration Center
|
|
Murray, Kentucky
|
|
February 2017
|
|
Managed since June 28, 2018
|
|
Medical evaluations with x-rays, fluoroscopic joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
David Price Center
|
|
Brentwood, Tennessee
|
|
May 2017
|
|
Managed since November 1, 2016
|
|
Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
Ozzie Smith Center
|
|
St. Peters, Missouri
|
|
August 2017
|
|
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
|
|
|
|
|
|
|
|
|
|
David Price Center
|
|
Murfreesboro, Tennessee
|
|
November 2017
|
|
Managed since November 2017
|
|
Medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
Tony Delk Center
|
|
Lexington, Kentucky
|
|
July 2018
|
|
Managed since July 2, 2018
|
|
Medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
Advantage Therapy
|
|
South Springfield, Missouri
|
|
August 2018 (originally opened August 2004)
|
|
Full ownership effective August 1, 2018, when 100% interest was acquired
|
|
Occupational and physical therapy
|
|
|
|
|
|
|
|
|
|
Advantage Therapy
|
|
North Springfield, Missouri
|
|
August 2018 (originally opened March 2013)
|
|
Full ownership effective August 1, 2018, when 100% interest was acquired
|
|
Occupational and physical therapy
|
|
|
|
|
|
|
|
|
|
Advantage Therapy
|
|
Monett, Missouri
|
|
August 2018 (originally opened May 2015)
|
|
Full ownership effective August 1, 2018, when 100% interest was acquired
|
|
Occupational and physical therapy
|
|
|
|
|
|
|
|
|
|
Advantage Therapy
|
|
Ozark, Missouri
|
|
August 2018 (originally opened November 2015)
|
|
Full ownership effective August 1, 2018, when 100% interest was acquired
|
|
Occupational and physical therapy
|
|
|
|
|
|
|
|
|
|
Mike Ditka Center
|
|
Arlington Heights, Illinois
|
|
April 2019
|
|
Managed since April 19, 2019
|
|
Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
IMAC Regeneration Center
|
|
Buffalo Grove, Illinois
|
|
April 2019
|
|
Managed since April 19, 2019
|
|
Medical evaluations with x-ray, joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
IMAC Regeneration Center
|
|
Elgin, Illinois
|
|
April 2019
|
|
Managed since April 19, 2019
|
|
Medical evaluations with x-ray, joint and appendage injections, and physical medicine
|
|
|
|
|
|
|
|
|
|
IMAC Regeneration Center
|
|
Rockford, Illinois
|
|
November 2019
|
|
Managed since November 7, 2019
|
|
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:
|
●
|
raise
sufficient capital through debt and equity raises;
|
|
|
|
|
●
|
hire
and retain a number of highly skilled employees, including medical and chiropractic doctors, physical therapists and other
practitioners;
|
|
|
|
|
●
|
lease
and develop acceptable premises for our IMAC Regeneration Centers;
|
|
|
|
|
●
|
build
a consistent patient base within the areas of our medical clinics;
|
|
|
|
|
●
|
secure
and maintain arrangements with third-party payers, sports celebrity endorsers and other service providers, all on terms favorable
or acceptable to our company;
|
|
|
|
|
●
|
implement
the other numerous necessary portions of our growth and expansion strategy; and
|
|
|
|
|
●
|
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:
|
●
|
implement
our growth and expansion strategy;
|
|
|
|
|
●
|
recoup
start-up costs;
|
|
|
|
|
●
|
operate
profitably;
|
|
|
|
|
●
|
maintain
acceptable levels of liquidity;
|
|
|
|
|
●
|
obtain
additional financing in the future for working capital, capital expenditures, development and other general business purposes;
|
|
|
|
|
●
|
obtain
additional financing on favorable terms; and
|
|
|
|
|
●
|
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:
|
●
|
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;
|
|
|
|
|
●
|
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”);
|
|
|
|
|
●
|
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);
|
|
|
|
|
●
|
are
exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
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:
|
●
|
quarterly
variations in our results of operations;
|
|
|
|
|
●
|
results
of operations that vary from the expectations of securities analysts and investors;
|
|
|
|
|
●
|
results
of operations that vary from those of our competitors;
|
|
|
|
|
●
|
changes
in expectations as to our future financial performance, including financial estimates by securities analysts;
|
|
●
|
publication
of research reports about us or the outpatient medical clinic business;
|
|
|
|
|
●
|
announcements
by us or our competitors of significant contracts, acquisitions or capital commitments;
|
|
|
|
|
●
|
announcements
by third parties of significant claims or proceedings against us;
|
|
|
|
|
●
|
changes
affecting the availability of financing in the outpatient medical services market;
|
|
|
|
|
●
|
regulatory
developments in the outpatient medical clinic business;
|
|
|
|
|
●
|
significant
future sales of our common stock;
|
|
|
|
|
●
|
additions
or departures of key personnel;
|
|
|
|
|
●
|
the
realization of any of the other risk factors presented in this prospectus; and
|
|
|
|
|
●
|
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:
|
●
|
authorize
the issuance of “blank check” preferred stock that could be issued by our board of directors to help defend against
a takeover attempt;
|
|
|
|
|
●
|
establish
advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholder meetings;
|
|
|
|
|
●
|
provide
that stockholders are only entitled to call a special meeting upon written request by 331/3% of the
outstanding common stock; and
|
|
|
|
|
●
|
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.