UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
Form
10-K
(Mark
One)
For
the fiscal year ended December 31, 2021
or
For
the transition period from to
Commission
file number: 001-38797
IMAC
Holdings, Inc.
(Exact
Name of Registrant as Specified in its Charter)
1605 Westgate Circle, Brentwood, Tennessee 37027
(Address of Principal Executive Offices) (Zip Code)
(844)
266-4622
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share IMAC The NASDAQ Stock Market LLC
Warrants to Purchase Common Stock IMACW The NASDAQ Stock Market LLC
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the registrant’s voting common stock held by non-affiliates based on the closing stock price on June
30, 2021, was approximately $17million.
For purposes of this computation only, all executive officers and directors have been deemed affiliates.
The
number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of April 12, 2022 was 26,485,167.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
IMAC
HOLDINGS, INC.
FORM
10-K—ANNUAL REPORT
For
the Fiscal Year Ended December 31, 2021
Table
of Contents
Page
PART I 1
Item 1 Business 1
Item 1A Risk Factors 22
Item 1B Unresolved Staff Comments 41
Item 2 Properties 41
Item 3 Legal Proceedings 41
Item 4 Mine Safety Disclosures 41
Item 6 [Reserved] 42
Item 7A Quantitative and Qualitative Disclosures About Market Risk 58
Item 8 Financial Statements and Supplementary Data 59
Item 9A Controls and Procedures 83
Item 9B Other Information 83
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 83
PART III 84
Item 10 Directors, Executive Officers and Corporate Governance 84
Item 11 Executive Compensation 90
Item 14 Principal Accounting Fees and Services 99
Item 15 Exhibits, Financial Statement Schedules 101
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 provider and manager of value-based, conservative medical care combining life science advancements with traditional medical
care for movement-restricting diseases and conditions in IMAC Regeneration Centers and BackSpace clinics. Our Innovative Medical
Advancements and Care (IMAC) Regeneration Centers combine medical and physical procedures to improve patient experiences and outcomes
and reduce healthcare costs as compared to other available treatment options. As of December 31, 2021, we own five and manage twelve
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 12% of our revenue) with traditional, minimally invasive (minimizing skin punctures) medical procedures (representing 55%
of our revenue) in combination with physical therapies (representing 28% of our revenue from physical therapy), chiropractic care (representing
3% of our revenue) and remaining 2% of our revenue from memberships. 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 President, 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, Limited Liability Company (“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.
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 100 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 President.
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. Ben Lerner, DC, a licensed chiropractor,
joined the team in February 2022 as our Chief Operating Officer.
Our
Operations
We
currently operate 17 outpatient medical clinics in six states and 4 BackSpace locations in two states as of December 31, 2021. In 2020,
we acquired a chiropractic clinic in Florida and a chiropractic clinic in Missouri. In 2021, we added three managed clinics
in Florida, one managed clinic in Illinois, one managed clinic in Louisiana, and acquired a management company in Louisiana that
manages an orthopedic specialist clinic. There were also 4 BackSpace clinics opened in 2021 in Missouri and Tennessee.
Below
is a description of each of our outpatient medical clinics:
Kentucky
Market
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.
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.
We
opened a 4,700 square foot facility in Murray, Kentucky, a town of nearly 15,000 residents near the Tennessee border in February 2017.
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.
Missouri
Market, St. Louis
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. This
clinic discontinued patient care in December 2021.
The Ozzie Smith Center acquired
the chiropractic clinic of Lockwood Chiropractic in Webster Groves, Missouri, a suburb of St. Louis, in November 2020. The clinic
relocated to a new medical facility in January 2022, which gives us the opportunity to expand medical services to broaden our
patient base while expanding into neighboring suburbs.
Missouri
Market, Springfield
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.
Tennessee
Market
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 however, this clinic discontinued patient care in February 2021.
Chicago
Market
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.
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. This management agreement was terminated in 2021.
In
June 2021, we completed an asset purchase in Naperville, Illinois. The clinic provides a wide variety of orthopedic treatments for various
conditions through a combination of medical and physical rehabilitation services. This location occupies 2,153 square feet and
has a lease that expires in July 2025.
Florida
Market
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 December 2024. The acquisition of this practice expanded 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.
In
February 2021, we acquired the business of Willmitch Chiropractic, P.A. in Tampa, Florida. This location provides chiropractic care and
occupies 3,613 square feet with a lease that expires in April 2026.
In
March 2021, we completed an asset purchase in Orlando, Florida. The clinic operates in 2,500 square feet with a lease that expires in
September 2023.
In
June 2021, we completed an asset purchase in Fort Piece, Florida. The clinic provides chiropractic care and will be incorporating
medical procedures. This clinic occupies 3,368 square feet and the lease for this space expires in May 2026.
IMAC
Medical of Louisiana.
In
October 2021, we acquired the assets and management agreement of IMAC Medical of Louisiana in Baton Rouge, Louisiana. The building is
leased through December 2026 with 9,000 of square feet.
BackSpace
As
of December 31, 2021 we had opened 4 BackSpace clinics in Missouri and Tennessee. These clinics are located in Walmart and provide chiropractic
adjustments, nerve and muscle stimulation, and percussion tool therapies for soft tissue recovery, muscle relaxation, and spinal wellness.
The current lease includes the addition of 6 locations to be opened in early 2022 in Tennessee and Florida.
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.
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.
Expand
our 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 intend to expand our 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. We anticipate a combination of clinics to be managed through
management service agreements or franchised.
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
approximately $1,325,000 and $933,000 for the years ended December 31, 2021 and 2020, 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, 2021 and 2020,
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 five and manage twelve clinics in six states, providing us 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, 2021 and 2020, 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,