Item 1A Risk Factors 15
Item 1B Unresolved Staff Comments 25
Item 2 Properties 25
Item 3 Legal Proceedings 25
Item 4 Mine Safety Disclosures 25
Item 6 Selected Financial Data 26
Item 7A Quantitative and Qualitative Disclosures About Market Risk 43
Item 8 Financial Statements and Supplementary Data 44
Item 9A Controls and Procedures 66
Item 9B Other Information 66
PART III 67
Item 10 Directors, Executive Officers and Corporate Governance 67
Item 11 Executive Compensation 71
Item 14 Principal Accounting Fees and Services 79
Item 15 Exhibits, Financial Statement Schedules 81
Signatures 83
PART
I
Cautionary
Statement Regarding Forward-Looking Statements
Portions
of this Annual Report on Form 10-K (including information incorporated by reference) include “forward-looking statements”
based on our current beliefs, expectations, and projections regarding our business strategies, market potential, future financial
performance, industry, and other matters. This includes, in particular, “Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K, as well as other portions
of this Annual Report on Form 10-K. The words “believe,” “expect,” “anticipate,” “project,”
“could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,”
which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject
to risks, uncertainties, and other factors that could cause our actual results to differ materially from those projected, anticipated,
or implied in the forward-looking statements. The most significant of these risks, uncertainties, and other factors are described
in “Item 1A — Risk Factors” of this Annual Report on Form 10-K. Except to the limited extent required by applicable
law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events, or otherwise.
Unless
the context requires otherwise, references herein to “we,” “us,” “our,” “our company,”
“our business” or “IMAC Holdings” are to IMAC Holdings, Inc., a Delaware corporation, and prior to the
Corporate Conversion discussed herein, IMAC Holdings, LLC, a Kentucky limited liability company, and in each case, their consolidated
subsidiaries.
ITEM 1. BUSINESS
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.
As of December 31, 2020, we own seven, manage seven, and sublease two 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 16% of our revenue) with traditional, minimally invasive (minimizing skin punctures) medical procedures
(representing 50% of our revenue) in combination with physical therapies (representing 31% of our revenue from physical therapy,
and remaining 3% 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. In February 2019, we completed an initial public offering and our shares commenced trading
on the Nasdaq Capital Market.
Since
May 2016, IMAC has opened seven outpatient medical clinics, acquired nine physical medicine practices and subleased two outpatient
medical clinics for a total of 18 clinics in Kentucky, Missouri, Tennessee, Illinois and Florida. In 2020, we closed two acquired
facilities. 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 including Ozzie Smith, David
Price, Tony Delk, and Mike Ditka. 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 is driven by our five fundamental beliefs:
● 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, co-founder of IMAC Holdings and 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..
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. Sheri F. Gardzina serves as our Chief Financial Officer and joined the
company in November 2017. Mrs. Gardzina earned an M.B.A. and M.S. from Northeastern University and is a licensed Certified Public
Accountant.
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 16 outpatient medical clinics in five states as of December 31, 2020. 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
for more than 20 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. In 2020, we acquired a chiropractic clinic in Florida,
acquired a chiropractic clinic in Missouri and entered into a sublease in Kentucky for a shared space arrangement. During the
second half of 2019, we began the implementation of an updated medical and financial platform in our clinics with full integration
of this platform during 2020.
Below
is a list of our outpatient medical clinics and information about how we own or control these medical clinics:
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 ended in December 2020 and is now continuing on a month-to-month basis.
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.
We
entered into a sublease agreement for a facility in Richmond, Kentucky in August 2020. The shared space arrangement allows us
full access to the space twice weekly. This facility provides chiropractic care and will allow collaboration opportunities in
the future.
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.
The
Ozzie Smith Center acquired the chiropractic clinic of Lockwood Chiropractic in Webster Groves, Missouri, a suburb of St. Louis,
in November 2020. The facility will continue to operate under the direction of Sharon Whalen, D.C. and gives us the opportunity
to expand medical services to reach prospective patients while expanding into neighboring suburbs.
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.
This building was sold in June 2020 and we then entered into a lease for the building that expires in July 2025.
Advantage
Therapy. In August 2018, we acquired the physical and occupational therapy provider, Advantage Therapy, which operated
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 2022. The Monett location occupied 2,200 square feet pursuant to a lease that
expired in February 2021. We negotiated with the landlord to exit the lease early, and closed the facility in December 2020. 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.
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 occupied 2,850 square
feet and had a lease which expired in July 2020 and was not renewed. The Elgin location occupies 3,880 square feet and has a lease
which expires in October 2023.
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.
Chiropractic
Health of Southwest Florida. In January 2020, we acquired the assets and assumed the building lease liability of
Chiropractic Health of Southwest Florida, Inc. in Bonita Springs, Florida. The building lease expires in December2024.
The acquisition of this practice expands our presence into a new market where we have extended our service offering to
incorporate medical procedures, to the existing physical therapy, chiropractic care and soft tissue therapies.
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 medical 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.
FDA
Clinical Trial
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 conduct
an investigator-initiated trial utilizing regenerative advancements to alleviate symptoms of debilitating, neurological conditions
and diseases. Stem cell therapy is emerging as a potentially revolutionary new way to treat disease and injury, with wide-ranging
medical benefits. It aims to repair damaged and diseased body parts with Healthy new cells provided by stem cell transplants.
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 executed a technology transfer agreement with a research university to license an FDA
Phase I approved mesenchymal stem cell drug candidate. We submitted an IND application with the FDA using this therapeutic product
in May 2020, and the FDA Office of Tissues and Advanced Therapies authorized the Phase I clinical trial in August 2020. IMAC physicians
were trained to administer treatments within IMAC facilities and the FDA approved opening enrollment for the trial in November
2020. The first enrollee was treated in December 2020, utilizing umbilical cord-derived allogenic mesenchymal stem cells for the
treatment of bradykinesia due to Parkinson’s disease. The Phase 1 clinical trial consists of a 15-patient dose escalation
safety and tolerability study. The trial is being divided into three groups: (1) five patients with bradykinesia due to Parkinson’s
disease will receive a low dose, (2) five patients will receive a medium intravenous dose, (3) and five patients will receive
a high intravenous dose. Each trial participant will receive an intravenous infusion of stem cells and be tracked for 12 months
for data collection, as required within the study.
No
assurance can be given that the FDA will approve advancement beyond a Phase I study or the RMAT designation. We believe the RMAT
designation may be helpful in differentiating our services and gaining a broader collaborative connection with the FDA. Failure
to earn the RMAT designation will result in unfulfilled research expenses, but should not have a materially adverse effect on
our operations or financial condition.
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
to acquisition targets and performance metrics. Given the current market valuations, we favor growth through acquisitions of profitable
physical medicine centers with a decade or more of history in a current location. We believe these targets can be found with favorable
long-term transaction prices in contiguous or current markets to capitalize on operational and marketing efficiencies.
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 new locations at which to lease, develop,
or acquire operating practices to transition into new IMAC Regeneration Centers. We anticipate expansion by acquisition of operating
clinics in the midwest and southern United States 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 the creation of the group,
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. Additionally,
in 2020 most of our clinics achieved network credentialling to treat patients that receive US Department of Labor medical benefits.
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 a FDA Phase I approved stem cell product from
a research university. With this product, we gained FDA authorization to conduct a Phase I clinical trial for the purpose of researching
and developing regenerative medicine products for neurological diseases that restrict movement. We began a low-cost clinical trial
in 2020 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.
Launch
a Spinal Care and Wellness Clinic. We have tremendous experience treating patients with back and neck pain and recognize
the underserved population for such a widely-impacted symptom. We will launch and test a retail healthcare concept focused on
treatments for back and neck pain, soft-tissue recovery, muscle tension, and spinal wellness while providing chiropractic adjustments,
nerve and muscle stimulation, and percussion tool therapies.
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 $933,338 and $1,238,352 for the years ended December 31, 2020
and 2019, 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, 2020 and 2019, no single customer accounted for more than 10% of our consolidated revenue.
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 seven and manage nine clinics in five 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, 2020 and 2019, 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