In
addition to the information set forth under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31,
2022, the information set forth at the beginning of Management’s Discussion and Analysis entitled “Special Note
Regarding Forward-Looking Information,” and updates noted below, 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.
We
recorded a net loss for the three months ended March 31, 2023 and March 31, 2022 and there can be no assurance that our future operations
will result in net income; we received a going concern qualification.
For
the three months ended March 31, 2023 and March 31, 2022, we had net revenue of approximately $2,093,000 and $3,895,000, respectively,
and we had net loss of approximately $3,699,000 and $3,162,000, respectively. 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.
As
discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net
capital deficiency that raise substantial doubt about its ability to continue as a going concern.
Acquisition-Related
Risks. As part of its growth strategy, the Company will seek to acquire or invest in complementary (including competitive) businesses,
products or technologies. Although the Company has identified potential acquisition candidates, it currently has no commitments or agreements
with respect to any such acquisitions or investments other than the Brain scientific Acquisition, and there can be no assurance that
it will eventually consummate the Brain Scientific acquisition or any other acquisition or investment. The process of integrating acquired
assets into the Company’s operations may result in unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for the ongoing development of the Company’s business. In addition, the
Company has limited experience in performing acquisitions and managing growth. There can be no assurance that the anticipated benefits
of any acquisition will be realized. In addition, future acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible
assets, any of which could materially adversely affect the Company’s operating results and financial position. In addition, acquisitions
also involve other risks, including risks inherent in entering markets in which the Company has no or limited prior experience and the
potential loss of key employees.
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 strategy, we may be forced to dramatically
change our planned operations.
We
have incurred significant losses since our inception. We expect to incur losses this year and may never achieve or maintain profitability.
Our
recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.
Our
future success depends on our ability to attract and retain qualified personnel, and changes in management may negatively affect our
business.
We
have a need for additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate
our development.
We
may form or seek strategic alliances in the future, and we may not realize the benefits of such alliances.
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 was lifted on May 4, 2020. 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 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
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 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, 2022 a statement that there is substantial doubt as to our ability
to continue as a going concern as a result of continued losses and financial condition at December 31, 2022, 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
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 President, 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 President. 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
will depend heavily on the efforts of our key personnel.
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. Loss or abatement of the services of any of these persons, 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 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 Florida, Illinois, Kentucky, Louisiana, Missouri and Tennessee 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 Florida, Illinois, Kentucky, Louisiana and Missouri.
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.
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 Florida,
Illinois, Kentucky, Louisiana and Missouri. 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
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 9% 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.
We
are subject to the possible repayment of a claimed CMS overpayment, but we cannot predict the outcome.
On
April 15, 2021, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”)
contractor, that they are recommending to CMS that the Company was overpaid in the amount of $2,921,868. This amount represents a statistical
extrapolation of $11,530 of charges from a sample of 40 claims for the periods February 2017 to November 2020.
On
June 3, 2021, the Company received a request for payment from CMS in the amount of $2,918,472. The Company began its own internal audit
process and initiated the appropriate appeals. The Company received a notification dated September 30, 2021, from CMS that they “found
the request to be favorable by reversing the extrapolation to actual”. The Company received a separate notification stating “the
extrapolated overpayment was reduced to the actual overpayment amount for the sampled denied claims $5,327.73,” which had been
paid as of December 31, 2021.
On
October 21, 2021, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”)
contractor, that they are recommending to CMS that the Company was overpaid in the amount of $2,716,056.33. This amount represents a
statistical extrapolation of $6,791.33 of charges from a sample of 38 claims for the periods July 2017 to November 2020 for Progressive
Health & Rehabilitation, Ltd (“Progressive Health”). The Company entered into a management agreement with Progressive
Health in April 2019 and therefore liable for only a portion of the sampled claims. There were a total of 38 claims reviewed, 25 of these
claims were from the period prior to the management agreement with the Company and the remaining 13 claims were related to the period
that Progressive Health was managed by the Company. In December 2021, the Company received a request for payment from CMS in the amount
of $2,709,265. The Company has begun its own internal audit process and has initiated the appropriate appeals. The Company has accrued
$20,000 for this potential overpayment. The Company submitted a reconsideration request February 26, 2023.
On
May 17, 2022, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”)
contractor, that they are recommending to CMS that the Company was overpaid in the amount of $492,086.22 related to Advantage Therapy.
This amount represents a statistical extrapolation of charges from a sample, the actual amount found to be overpaid was $10,420.22. On
May 27, 2022 the Company received a request for payment from CMS in the amount of $481,666.00. The Company has begun its own internal
audit process and has initiated the appropriate appeals. Prior to this May 2022 notification, CMS had implemented a pre-payment audit
for Advantage Therapy. As of March 31, 2023, this audit had resulted in a recoupment balance of approximately $0.1 million of Medicare
accounts receivable. The Company will be submitting a reconsideration request in May 2023.
On
December 9, 2022, the Company received a suspension of payment notification from Covent Bridge Group, a Center for Medicare & Medicaid
Services contractor, for IMAC Regeneration Center of Kentucky. On December 22, 2022, the Company responded to the payment suspension
with a Rebuttal of Notice. The suspension of payment will remain in effect until the Rebuttal of Notice is answered. Guidelines suggest
a 30 to 45 day response time, although no response has been provided nor any explanation regarding the payment suspension as of the date
of this filing.
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
depend on enrollment of patients in our clinical trials for our product candidates. If we experience delays or difficulties enrolling
in our clinical trials, our research and development efforts and business, financial condition, and results of operations could be materially
adversely affected.
Successful
and timely completion of the clinical trial will require that we enroll a sufficient number of patient candidates. This trial and other
trials we may conduct may be subject to delays for a variety of reasons, including as a result of patient enrollment taking longer than
anticipated, patient withdrawal or adverse events. These types of developments could cause us to delay the trial or halt further development.
Our
clinical trial will compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition
reduces the number and types of patients available to us, as some patients who might have opted to enroll in our trials may instead opt
to enroll in a trial being conducted by one of our competitors. In addition, there may be limited patient pools from which to draw for
clinical studies. In addition to the rarity of some diseases, the eligibility criteria of our clinical studies will further limit the
pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure
their disease is either severe enough or not too advanced to include them in a study. Patient enrollment depends on many factors, including:
| ● |
the
size and nature of the patient population; |
| |
|
| ● |
the
severity of the disease under investigation; |
| |
|
| ● |
eligibility
criteria for the trial; |
| |
|
| ● |
the
proximity of patients to clinical sites; |
| |
|
| ● |
the
design of the clinical protocol; |
| |
|
| ● |
the
ability to obtain and maintain patient consents; |
| |
|
| ● |
the
ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| |
|
| ● |
the
risk that patients enrolled in clinical trials will drop out of the trials before the administration of our product candidates or
trial completion; |
| |
|
| ● |
the
availability of competing clinical trials; |
| |
|
| ● |
the
availability of new drugs approved for the indication the clinical trial is investigating; and |
| |
|
| ● |
clinicians’
and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies. |
These
factors may make it difficult for us to enroll enough patients to complete our clinical trial in a timely and cost-effective manner.
In addition, our clinical trial has experienced, and continues to experience, some delays in patient enrollment as a result of the COVID-19
pandemic, as some clinical sites in high impact areas have delayed new patient enrollment as dictated by local conditions. Such delays
have impacted and could further adversely affect the expected timelines for our product development and approval process and may adversely
affect our business, financial condition and results of operations. Delays in the completion of any clinical trial increases our costs.
We
rely on Contract Research Organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these third parties
do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in completing this phase of the
clinical trial.
We
have relied and will continue to rely on CROs for the execution of our preclinical and clinical studies and monitor and manage data for
our clinical programs. We control only certain aspects of our CROs’ activities, but we are responsible for ensuring that each of
our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards. Our reliance on the
CROs does not relieve us of these regulatory responsibilities. We and our CROs are required to comply with the FDA’s regulations,
which are regulations and guidelines enforced by the FDA and comparable regulatory authorities meant to protect the rights and health
of clinical trial subjects. The FDA and comparable regulatory authorities enforce their regulations through periodic inspections of trial
sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable good clinical practices
(“GCPs”), the clinical data generated in our clinical trials may be deemed unreliable, and the FDA (or similar foreign authorities)
may require us to perform additional clinical trials before approving our product candidates. We cannot assure you that, upon inspection,
the FDA (or similar foreign authorities) will determine that any of our clinical trials comply with GCPs.
In
addition, our CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our non-clinical,
preclinical or clinical programs. Our CROs may also have relationships with other commercial entities, including our competitors, for
whom they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate
time to our clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines,
if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere
to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated.
As a result, our financial results and the commercial prospects for the clinical trial would be harmed, our costs could increase and
our ability to generate revenues could be delayed or ended.
If
any of our relationships with these CROs change or terminate, we may not be able to enter into arrangements with alternative CROs or
clinical study management organizations, or be able to do so on commercially reasonable terms. Switching or adding additional CROs or
other clinical study management organizations involves additional cost and requires management time and focus. In addition, there is
a natural transition period when a new CRO or clinical study management organization commences work. As a result, delays could occur,
which could compromise our ability to meet our desired development timelines.
We
have no experience as a company in bringing a drug to regulatory approval.
As
a company, we have never obtained regulatory approval for, or commercialized, a drug or biologic. It is possible that the FDA may refuse
to accept any or all of our planned BLAs for substantive review or may conclude after review of our data that our application is insufficient
to obtain regulatory approval of any product candidate. If the FDA does not accept or approve any or all of our planned BLAs, it may
require that we conduct additional preclinical, clinical or manufacturing validation studies, which may be costly, and submit that data
before it will reconsider our applications. Depending on the extent of these or any other FDA required studies, approval of any BLA or
application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than
we have available.
We
may be subject, directly or indirectly, to foreign, federal and state healthcare laws, including applicable anti-kickback, fraud and
abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational
harm and diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for
which we obtain marketing approval. Our business operations and current and future arrangements with third-party payors, healthcare providers
and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business
or financial arrangements and relationships through which we research, develop, market, sell and distribute our products for which we
obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
| ● |
the
federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual
for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare
programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute
or specific intent to violate it to have committed a violation; |
| |
|
| ● |
the
federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against
individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that
are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government.
In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; |
| |
|
| ● |
HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program; |
| |
|
| ● |
the
federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making
any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar
to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent
to violate it to have committed a violation; |
| |
|
| ● |
the
federal transparency requirements under the ACA requires certain manufacturers of drugs, devices, biologics and medical supplies
for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions)
to report to the Department of Health and Human Services information related to physician payments and other transfers of value and
ownership and investment interests held by physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors),
certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists,
anesthesiologist assistants and certified nurse midwives), and their immediate family members and payments or other transfers of
value made to such physician owners; |
| |
|
| ● |
analogous
state laws and regulations, such as state anti-kickback and false claims laws, and transparency laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private
insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers
to report information related to payments to physicians and other health care providers or marketing expenditures and pricing information;
and |
| |
|
| ● |
efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our
operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare
programs, such as Medicare and Medicaid, additional reporting obligations and oversight if we become subject to a corporate integrity
agreement or other agreement to resolve allegations of non-compliance with these laws, imprisonment and the curtailment or restructuring
of our operations. Further, defending against any such actions, even if successful, can be costly, time-consuming and may require
significant personnel resources. If any of the physicians or other providers or entities with whom we expect to do business are found
to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs. |
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.
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.
Our
management has identified material weaknesses in our internal controls over our financial reporting.
Our
Chief Executive Officer and 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 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 relates to the absence of in-house accounting
personnel with the ability to properly account for complex transactions and the lack of separation of duties between accounting and other
functions.
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
Relating to Ownership of Our Common Stock and Warrants
Our
stock price is volatile and an investment could decline in value.
The
market price of our common stock fluctuates substantially as a result of many factors, some of which are beyond our control. During the
52-week period prior to the filing of this Quarterly Report, the market price of our common stock ranged from a low of $0.10 per share
to a high of $1.28 per share, and as of May 19, 2023, was $0.15 per share. 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.
Our
stock price is below $1.00 per share, and if it continues, our common stock may be subject to delisting from The Nasdaq Capital Market.
Our
common stock closed below the required minimum $1.00 per share for 30 consecutive business days and we received a deficiency notice from
Nasdaq regarding our failure to comply with Nasdaq Marketplace Rule 5550(a)(2) on September 21, 2022. When the notice was received, pursuant
to Marketplace Rule 5810(c)(3)(A), we 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). We did not regain compliance with Rule 5550(a)(2) prior to the expiration of the Nasdaq compliance period.
We appealed the delisting determination to a Nasdaq hearing panel and the panel stayed the delisting. The Company received an extension
through September 18, 2023. 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 shares of our common stock become
subject to the penny stock rules, it would become more difficult to trade them.
Our
ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We
may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize
carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted.
Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be
able to take full advantage of these carryforwards for federal or state tax purposes. As of December 31, 2022, we had federal and state
net operating loss carryforwards of approximately $37.0 million and $39.3 million, respectively.
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 President, 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 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.
We
may issue additional shares of common stock, warrants or other securities to finance our growth.
We
may finance the business development or generate additional working capital through additional equity financing. Therefore, subject to
the rules of the Nasdaq, we may issue additional shares of our common stock, warrants and other equity securities of equal or senior
rank, with or without stockholder approval, in a number of circumstances from time to time. The issuance by us of shares of our common
stock, warrants or other equity securities of equal or senior rank will have the following effects:
| ● |
the
proportionate ownership interest in us held by our existing stockholders will decrease; |
| |
|
| ● |
the
relative voting strength of each previously outstanding share of common stock may be diminished; and |
| |
|
| ● |
the
market price of our common stock may decline. |
In
addition, if we issue shares of our common stock and/or warrants in a future offering (or, in the case of our common stock, the exercise
of outstanding warrants to purchase our common stock), it could be dilutive to our security holders.
There
can be no assurance that we will ever provide liquidity to our investors through a sale of our company.
While
acquisitions of healthcare companies like ours are not uncommon, potential investors are cautioned that no assurances can be given that
any form of merger, combination, or sale of our company will take place, or that any merger, combination, or sale, even if consummated,
would provide liquidity or a profit for our investors. You should not invest in our company with the expectation that we will be able
to sell the business in order to provide liquidity or a profit for our investors.
We
have broad discretion in the use of the net proceeds from our public offerings and private placement and may not use them effectively.
Our
management has broad discretion in the application of the net proceeds from our public offerings and private placement and could spend
the proceeds in ways that do not enhance the value of our common stock. Because of the number and variability of factors that will determine
our use of the net proceeds from our completed offerings, their ultimate use may vary substantially from their currently intended use.
The failure by our management to apply these funds effectively could have a material adverse effect on our business. Pending their use,
we may invest the net proceeds from the offerings in a manner that does not produce income or that loses value. If we do not apply or
invest the net proceeds from the offerings in ways that enhance stockholder value, we may fail to achieve expected financial results,
which could cause the price of our securities to decline.
Investors
should carefully review and consider the information regarding certain factors which could materially affect our business, operating
results, cash flows, and financial condition set forth under Item 1A, Risk Factors, in our fiscal 2022 Annual Report on Form 10-K filed
with the SEC on March 31, 2023. There have been no material changes to such risk factors, except as set forth below. The risk factors
set forth below supplement, and should be read together with, that section for disclosures regarding what we believe are the more significant
risks and uncertainties related to our businesses. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial also may impair our business operations.
Any
of these factors could cause or contribute to the risks and uncertainties identified in our Annual Report on Form 10-K for the year ended
December 31, 2022 and could materially adversely affect our business, financial condition and results of operations.