Introduction
Progressive
Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006 under the name
Progressive Training, Inc. We changed our name to Progressive Care Inc. in connection with a merger with Progressive Care Inc. on
November 23, 2010. Progressive, through its wholly-owned subsidiaries, Pharmco, LLC doing business as Pharmcorx (“Pharmco
901”) and Pharmcorx LTC, Touchpoint RX, LLC doing business as PharmcoRx 1002, LLC (“Pharmco 1002”), Family
Physicians RX, Inc. doing business as PharmcoRx 1103 and PharmcoRx 1204 (“FPRX” historically or “Pharmco
1103” and “Pharmco 1204”) (pharmacy subsidiaries collectively referred to as “Pharmco”), and
ClearMetrX Inc (“ClearMetrX”) is a personalized healthcare services and technology company that provides prescription pharmaceuticals and risk
and data management services to healthcare organizations and providers. Pharmco provides prescription pharmaceuticals, compounded
medications, tele-pharmacy services, anti-retroviral medications, medication therapy management, the supply of prescription
medications to long-term care facilities, contracted pharmacy services for 340B covered entities under the 340B Drug Discount
Pricing Program, and health practice risk management. Pharmco also offers certain disease testing and vaccinations.
We offer services in a variety
of languages, including English, Spanish, French, Creole, Portuguese, Ukrainian and Russian.
Our services are designed to provide satisfaction across all medication
stakeholders and enhance loyalty and key performance metrics. We offer value-added services at no additional charge including prior authorization
assistance, same-day home-medication delivery, on site provider consultation services, primary care reporting and analytics, and customized
packaging solutions. The pharmacies accept most major insurance plans and provide access to co-pay assistance programs to income qualified
patients, discount and manufacturer coupons, and competitive cash payment options.
Products
and Services
We
enhance patient adherence to complex drug regimens, collect and report data, and ensure effective dispensing of medications to support
the needs of patients, providers, and payors. Our patient and provider support services ensure appropriate drug initiation, facilitate
patient compliance and adherence, and capture important information regarding safety and effectiveness of the medications that we dispense.
Pharmco
is rated by pharmacy benefit managers (“PBMs”) based on its ability to adequately supply chronic care medications to patients
during a measurement period. This score is then compared to the scores of other pharmacies in the network at which point a relative rating
is issued. For the year ended December 31, 2022, per EQuIPP®, a performance information management tool that provides
standardized, benchmarked data to help shape strategies and guide medication-related performance improvement, our performance score was
Five Stars, ranking our pharmacy among the top pharmacies in the U.S. Primary care physicians may refer patients to pharmacies that
have high performance scores, though patients retain the right to have their prescriptions dispensed by a network of pharmacies of their
choice.
Through
our wholly owned subsidiary, ClearMetrX, we offer data management and reporting services to support health care organizations. There
are substantial restrictions in federal and state laws on the use and sharing of patient data and ClearMetrX is in compliance with such
laws. The ClearMetrX offerings include data management and Third-Party Administration (“TPA”) services for 340B covered entities,
pharmacy data analytics, and programs to manage HEDIS Quality Measures including Medication Adherence. These offerings cater to the glaring
need for frontline providers to understand best practices, patient behaviors, care management processes, and the financial mechanisms
behind these decisions. We provide data access and actionable insights that providers and support organizations can use to improve their
practice and patient care.
Pharmco
also provides contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program. Under the terms of
these agreements, we act as a pass through for third-party payor reimbursements on prescription claims adjudicated on behalf of each
340B covered entity and receive a dispensing fee per prescription. These dispensing fees vary by the 340B covered entity and the level
of service provided by us.
For
our long-term care (“LTC”) customers, Pharmco provides purchasing, repackaging and dispensing of both prescription and non-prescription
pharmaceutical products. Pharmco utilizes a unit-of-dose packaging system as opposed to the traditional vials as this method of distribution
is the industry best practice standard. Pharmco is equipped for various types of unit-of-dose packaging options to meet the needs of
LTC patients and retail customers. Pharmco uses the same robotic packaging systems currently used by chain, mail order, and large-scale
pharmacies. Pharmco also provides computerized maintenance of patient prescription histories, third-party billing and consultant pharmacist
services. Pharmco’s consultant pharmacist services consist primarily of evaluation of monthly patient drug therapy and monitoring
the LTC institution’s drug distribution system.
Medication
therapy management (“MTM”) involves review and adjustment of prescribed drug therapies to improve patient health outcomes
for patients with multiple prescriptions. This process includes several activities such as performing patient assessments, creating medication
treatment plans, monitoring the effectiveness of and adherence to prescribed therapies, and delivering documentation of these services
to the patient’s physician to coordinate comprehensive care.
Distribution
Methods
We
currently deliver prescriptions throughout Florida and ship medications to residents in those states where we hold non-resident pharmacy
licenses. We currently hold Florida Community Pharmacy Permits at all Florida pharmacy locations and our Pharmco 901 location is licensed
as a non-resident pharmacy in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada, New Jersey,
New York, Pennsylvania, Texas, and Utah. We can dispense to patients in the state of Massachusetts without a non-resident pharmacy license
because Massachusetts does not require such a license for these activities.
Pharmco
subsidiaries are full-service retail specialty services pharmacies that offer same-day free delivery within Florida.
Industry
Overview and Market Opportunities
Pharmacy
operations
The
retail pharmacy and pharmaceutical wholesale industries are highly competitive
and dynamic and have experienced consolidation and an evolving competitive landscape in recent years. Prescription drugs play a significant
role in healthcare, constituting a first line of treatment for many medical conditions. New and innovative drugs will improve quality
of life and control healthcare costs. In light of accelerating usage of mail order and delivery-based services, both before and after
the global COVID-19 pandemic, we believe the market for personalized and convenient care access is increasing. We have provided same-day
and next-day home delivery services since the beginning of our operations. We are well positioned in Florida to gain additional market
share among a broad demographic of patients due to our high-performance scores and value-added services. Additionally, we value opportunities
that create strategic partnerships, acquire synergistic operations and expand current operations to round out pharmacy capabilities which
could potentially include, but are not limited to, specialty medications, sterile compounding, and mail-order.
Data
management services
The
latest trend in healthcare is to use data to improve patient outcomes and quality of life – a practice known as “Applied
Health Analytics”. “Data analytics” refers to the practice of aggregating large data sets and analyzing them to draw
important insights and recommendations. This process is increasingly aided by new software and technology that facilitates the examination
of large volumes of data to detect hidden information.
A
key objective within organizations with access to large data collections
is to harness the most relevant data and use it to optimize decision making. ClearMetrX developed the 340MetrX platform that retrieves
dispensing pharmacy data to provide physicians and 340B covered entities with valuable and insightful reports and analytics to manage
their operations.
We
also serve the following key constituents, to benefit our patients:
Physicians
and Health Systems: Our team works with physician offices to manage prior-authorization and other requirements of managed care organization
requirements, such as denial and appeal process, to ensure that complicated administrative tasks do not impair the delivery of quality
patient care. We provide risk evaluation services, implement risk mitigation strategies, and collect patient adherence data to provide
physicians and health systems with enhanced visibility. Our tools and processes improve physician performance metrics which in turn results
in enhanced profitability of the physicians’ practices.
Payors:
We manage prescription regimens for chronically ill populations and help payors, including health insurance plans and PBMs, reduce
costs through patient care management, reduction in readmission rates, decreased acute care spending for chronic care conditions, formulary
compliance, and implementation of lowest cost-effective alternative therapies.
Virtual
healthcare services and healthcare technologies
Virtual
healthcare services, or Telehealth, is a growing segment of the healthcare sector. It involves remotely exchanging patient data
between locations for the purposes of obtaining assistance in monitoring and diagnosing. Telehealth allows the healthcare
practitioner to easily offer their services on consultation, care management, diagnosis, and self-management services using
information and communication technologies. These services are being offered through various modes of delivery, such as on-premises,
web-based, and cloud-based delivery. A growing population over the age of 65, the increase in the number of chronic diseases, and a
rise in demand for home monitoring devices are the major drivers which are likely to aid the growth of the telehealth
market.
In
the current environment, healthcare information is increasingly fragmented with numerous electronic healthcare record platforms, virtual
care systems, pharmacy software, and data silos and transmitters which lack fundamental integration. Healthcare stakeholders are often
at odds about proper care techniques and this lack of alignment increases burdens on providers and patients alike and is associated with
decreasing satisfaction with healthcare services and negative health outcomes.
Growth
Strategy
We
plan to grow our business by continuing to execute on the following key growth strategies:
Data
Management Services. We believe that data management for frontline and independent providers, 340B covered entities, and pharmacies
will have increasing importance as health systems evolve to become virtual and digitized. Increasing focus on performance, margins, and
quality, means that our models and platforms will have strategic value through our roots in day-to-day care management. Data management
services will become an increasing driver of growth and development for us with its higher margins and diverse monetization pathways.
Invest
in Sales and Marketing. We are based in South Florida and will continue to grow our dispensing operations throughout the state, and
there are opportunities to expand geographically throughout the rest of the country. Our data management services and health IT services
can be used by customers across the U.S. and we expect to continue to invest in sales and marketing efforts for these services.
Selectively
Pursue Growth Through Strategic Acquisitions. We believe the specialty pharmacy industry is highly fragmented and provides numerous
opportunities to expand through acquisitions. While we will continue to focus on growing our business organically, we believe we can
opportunistically enhance our competitive position through complementary acquisitions in both existing and new markets. We plan to selectively
evaluate potential acquisition opportunities in other therapeutic categories, services, and technologies with the goal of preserving
our culture, optimizing patient outcomes, enhancing value to other constituents, and building long-term value for our shareholders.
Competitive
Business Conditions, Competitive Positions and Methods of Competition
Competitive
Strengths
We
believe we are well positioned to continue to increase our market share based on the following competitive strengths:
Adding
value to all constituents. The value we deliver to all constituents is based upon our thousands of daily
patient interactions. We help patients adhere to complicated medication therapies, process refills, manage any side effects, and manage
any insurance concerns ensuring that they get the best standard of care. The clinical efficacy of drug therapies, especially for acute
and chronic conditions, is typically enhanced when patients precisely follow the prescribed treatment regimens, including dosing and frequency.
Performance.
Pharmacies are measured against their peers to improve quality of patient care. We have dedicated staff to track performance metrics,
ensuring high comparative adherence rates. Across the population, an average 50% of patients are adherent to prescribed medication protocols.
We believe our high adherence rates are due to, among other things, our model of proactive patient engagement, direct communication with
and connections to healthcare stakeholders, our patient training and education, patient behavior analysis and medication coaching, compliance
packaging, tracking timing of refills, free home delivery, and language support. We also help identify third-party funding support programs
to help cover expensive out-of-pocket costs.
Clinically
trained operational professionals. Our licensed pharmacists and technicians have been trained on our patient care
model and data management tools to conduct a full healthcare evaluation. These healthcare professionals not only dispense medications,
but also analyze patients’ needs, behaviors, lifestyles, healthcare services providers, and payor resources to optimize the medication
therapies received. Our staff conducts this full healthcare evaluation while also communicating necessary care information to authorized
providers and caregivers before medications are dispensed, which differentiates our pharmacy operations from our competitors’ models.
Lean
and nimble operational strategy. Healthcare is an industry where best practices are continuously evolving. With increasing emphasis
on reducing healthcare costs which puts pressure on gross margins, we have identified new trends and opportunities pivoting to business
processes better suited to future environments. Additionally, we have focused on diversifying our revenue streams within the pharmacy
industry to identify complementary and associated revenue opportunities to keep the operation one step ahead of market forces.
Diversity
and cultural awareness. We represent the fabric of the community from which we originate. Our employees consist of diverse faiths,
races, ethnic origins, and sexual orientations. This provides us with the unique ability to speak the language that our patients and
providers speak. It has also allowed us to be innovative in our approach to healthcare by leveraging the broad perspectives of our team
to challenge our methodologies and be responsive to the unique needs of our patients, clients, and customers.
Competitive
Positions and Methods of Competition
We
compete with national and independent retail drug stores, supermarkets,
convenience stores, mail order prescription providers, discount merchandisers, membership clubs, health clinics, provider dispensaries,
and internet pharmacies. Competition is based on several factors including store location and convenience, customer service and satisfaction,
product selection and variety, and price. Our primary competitive advantages lie in providing personalized service to the patients and
facility operators, selectively adding labor saving and compliance enhancing processes and carrying inventory to provide rapid delivery
of all pharmaceutical needs, free home delivery services, and data management and analytics.
In
the United States, the provision of healthcare services of any kind is highly competitive. Our ability to recruit qualified
personnel, attract new institutional and retail clients, and expand the reach of our pharmacy operations relies on our ability to
quickly adapt to changing societal attitudes, market pressure, and government regulation.
We
face substantial competition within the pharmaceutical healthcare services industry and in the past year have seen even more consolidation.
We expect to see this trend continue in the coming year and it is uncertain what effect, if any, these consolidations will have on us
or the industry. The industry includes several large, well-capitalized companies with nationwide operations and capabilities in
the specialty services and PBM services arenas, such as CVS Caremark, Express Scripts, Humana, Walgreens, Optum, MedImpact Healthcare
Systems and many smaller organizations that typically operate on a local or regional basis. In the Specialty Pharmacy Services segment,
we compete with several national and regional specialty pharmacy companies that have substantial financial resources and which also provide
products and services to the chronically ill, such as CVS Caremark, Express Scripts, Humana, Optum and Walgreens.
Some
of our pharmacy service competitors are under common control with, or are owned by, pharmaceutical wholesalers and distributors or retail
pharmacy chains and may be better positioned with respect to the cost-effective distribution of pharmaceuticals. Some of our primary
competitors, such as Omnicare and Walgreens, have a substantially larger market share than our existing market share. Moreover, some
of our competitors may have secured long-term supply or distribution arrangements for prescription pharmaceuticals necessary to treat
certain chronic disease states on price terms substantially more favorable than the terms currently available to us. Because of such
advantageous pricing, we may be less price competitive than some of these competitors with respect to certain pharmaceutical products.
Suppliers
We
obtain pharmaceutical and other products from wholesale drug distributors. We have maintained a relationship with a primary supplier
that accounted for 95% and 96% of pharmaceutical purchases for the years ended December 31, 2022 and 2021, respectively, and several
supplementary suppliers. Our primary supplier for the years ended December 31, 2022 and 2021 was McKesson. The loss of a supplier could
adversely affect our business if alternate sources of drug supply are unavailable. We believe that our relationships with our suppliers,
overall, are good, and that there are alternative suppliers in the marketplace.
Dependence
On One or a Few Major Customers
We
sell to numerous customers including various managed care organizations within both the private and public sectors. Certain
healthcare payors account for up to 56% and 59% of our consolidated net revenue for the years ended December 31, 2022 and 2021,
respectively. Medicare Part D and the State of Florida Medicaid public assistance program are major sources of revenue. However,
both government programs are privatized and are managed under several different healthcare payors, the concentration of which varies
throughout the course of the year. Many of these healthcare payors have contracted agreements with our pharmacies for annual terms
that have options to automatically renew annually. We depend on these healthcare payors and a loss of one or more would have a major
impact on the business. The Company or the healthcare payor may terminate the network participation agreement at any time by way of advance
notice to the other party.
Patents
and Trademarks
We
currently have no registered patents or trademarks that we either own or lease.
Governmental
Approval
Government
approval is necessary to open any new pharmacy or other health services location.
Effect
of Existing or Probable Governmental Regulations
As
a participant in the healthcare industry, our operations and relationships
are subject to federal and state laws and regulations and enforcement by federal and state governmental agencies. Various federal and
state laws and regulations govern the purchase, dispensing or distribution, and management of prescription drugs and related services
we provide and may affect us. We believe that we are in substantial compliance with all legal requirements material to our operations.
We
conduct ongoing educational programs to inform employees regarding compliance with relevant laws and regulations and maintain a formal
reporting procedure to disclose possible violations of these laws and regulations to the Office of Inspector General (“OIG”)
of the U.S. Department of Health and Human Services.
Professional
Licensure. Pharmacists, pharmacy technicians and certain other health care professionals employed by us are required to be
individually licensed or certified under applicable state law. We perform searches in criminal, federal and state exclusion lists,
and other background checks on employees and are required under state licensure to ensure that our employees possess all necessary
licenses and certifications. We believe that our employees comply in all material respects with applicable licensure
laws.
State
laws require that each pharmacy location be licensed as an in-state or
non-resident pharmacy to dispense pharmaceuticals in that state. State controlled substance laws require registration and compliance with
state pharmacy licensure, registration or permit standards promulgated by the state’s pharmacy licensing authority. Such standards
often address the qualification of an applicant’s personnel, the adequacy of its prescription fulfillment and inventory control
practices and the adequacy of its facilities. In general, pharmacy licenses are renewed annually or biennial according to state laws.
We believe that our pharmacies’ present and future locations comply with all state licensing laws applicable to these businesses.
If our pharmacy locations become subject to additional licensure requirements, are unable to maintain their required licenses or if states
place burdensome restrictions or limitations on pharmacies, our ability to operate in the state would be limited, which could have an
adverse impact on our business.
Other
Laws Affecting Pharmacy Operations. We are subject to federal and state statutes and regulations governing the
operation of pharmacies, repackaging of drug products, wholesale distribution, dispensing of controlled substances, medical waste disposal,
and clinical trials. Federal and state statutes and regulations govern the labeling, packaging, advertising and adulteration of prescription
drugs and the dispensing of controlled substances. Federal and state-controlled substance laws require us to register our pharmacies with
the U.S. Drug Enforcement Administration (“DEA”) and to comply with security, record keeping, inventory control, labeling
standards and other requirements to dispense controlled substances.
Food,
Drug and Cosmetic Act. Certain provisions of the federal Food, Drug and Cosmetic Act govern the handling and distribution of
pharmaceutical products. This law exempts many pharmaceuticals and medical devices from federal labeling and packaging requirements if
they are not adulterated or misbranded and are dispensed in accordance with, and pursuant to, a valid prescription. We believe that we
comply in all material respects with all applicable requirements.
Anti-Kickback
Laws. Subject to certain statutory and regulatory exceptions (including exceptions relating to certain managed care, discount,
bona fide employment arrangements, group purchasing and personal services arrangements), the federal “anti-kickback” law
prohibits the knowing and willful offer or payment of any remuneration to induce the referral of an individual or the purchase, lease
or order (or the arranging for or recommending of the purchase, lease or order) of healthcare items or services paid for in whole or
in part by Medicare, Medicaid or other government-funded healthcare programs (including both traditional Medicaid fee-for-service programs
as well as Medicaid managed care programs). Violation of the federal anti-kickback statute could subject us to criminal and/or civil
penalties including suspension or exclusion from Medicare and Medicaid programs and other government-funded healthcare programs for not
less than five years, or the imposition of civil monetary penalties. Exclusion from any of these programs or sanctions of civil monetary
penalties could have a material adverse impact on our operations and financial condition.
The
federal anti-kickback law has been interpreted broadly by courts, the OIG of the U.S.
Department of Health and Human Services (“HHS”), and other administrative bodies. Because of the broad scope of those statutes,
federal regulations establish certain safe harbors from liability. Safe harbors exist for certain properly reported discounts received
from vendors, certain investment interests held by a person or entity, and certain properly disclosed payments made by vendors to group
purchasing organizations, as well as for other transactions or relationships. Nonetheless, a practice that does not fall within a safe
harbor is not necessarily unlawful but may be subject to scrutiny and challenge. In the absence of an applicable exception or safe harbor,
a violation of the statute may occur even if only one purpose of a payment arrangement is to induce patient referrals or purchases. Among
the practices that have been identified by the OIG as potentially improper under the statute are certain “product conversion”
or “switching” programs in which benefits are given by drug manufacturers to pharmacists or physicians for changing a prescription
(or recommending or requesting such a change) from one drug to another. Anti-kickback laws have been cited as a partial basis, along
with state consumer protection laws discussed below, for investigations and multi-state settlements relating to financial incentives
provided by drug manufacturers to retail pharmacies about such programs.
Several
states also have enacted anti-kickback laws that sometimes apply not only
to state-sponsored healthcare programs but also to items or services that are paid for by private insurance and self-pay patients. State
anti-kickback laws can vary considerably in their applicability and scope and sometimes have fewer statutory and regulatory exceptions
than federal law. Management understands the importance of anti-kickback laws and has helped structure our operations in a manner believed
to be compliant with these laws.
The
Stark Laws. The federal self-referral law, commonly known as the “Stark Law”,
prohibits physicians from referring Medicare or Medicaid patients for “designated health services” (which include, among other
things, outpatient prescription drugs, durable medical equipment and supplies and home health services) to an entity with which the physician,
or an immediate family member of the physician, has a direct or indirect financial relationship, unless the financial relationship is
structured to meet an applicable exception. Several states have enacted laws similar to the Stark Law. These state laws may cover all,
not just Medicare and Medicaid, patients and exceptions or safe harbors may vary from the Stark Law and vary significantly from state
to state. Many federal healthcare reform proposals in the past few years have attempted to expand the Stark Law to cover all patients
as well. Possible penalties for violation of the Stark Law include denial of payment, refund of amounts collected in violation of the
statute, civil monetary penalties, and program exclusion. Noncompliance with the Stark Law could adversely affect our financial results
and operations.
Statutes
Prohibiting False Claims and Fraudulent Billing Activities. A range of federal civil and criminal laws target false claims and fraudulent
billing activities. One of the most significant is the federal False Claims Act (the “False Claims Act”), which imposes civil
penalties for knowingly making or causing to be made false claims to secure a reimbursement from government-sponsored programs, such as
Medicare and Medicaid. Investigations or actions commenced under the False Claims Act may be brought either by the government or by private
individuals on behalf of the government, through a “whistleblower” or “qui tam” action. The False Claims Act authorizes
the payment of a portion of any recovery to the individual suing. Such actions are initially required to be filed under seal pending their
review by the Department of Justice. If the government intervenes in the lawsuit and prevails, the whistleblower (or plaintiff filing
the initial complaint) may share with the federal government in any settlement or judgment. If the government does not intervene in the
lawsuit, the whistleblower plaintiff may pursue the action independently. The False Claims Act generally provides for the imposition of
civil penalties and for treble damages, resulting in the possibility of substantial financial penalties for small billing errors that
are replicated in many claims, as each individual claim could be deemed to be a separate violation of the False Claims Act.
Some
states also have enacted statutes like the False Claims Act which may include criminal penalties, substantial fines, and treble damages.
In recent years, federal and state governments have launched several initiatives aimed at uncovering practices that violate false claims
or fraudulent billing laws. Under Section 1909 of the Social Security Act, if a state false claim act meets certain requirements as determined
by the OIG in consultation with the U.S. Attorney General, the state is entitled to an increase of ten percentage points in the state
medical assistance percentage with respect to any amounts recovered under a state action brought under such a law. Some of the larger
states in terms of population that have had the OIG review such laws include California, Florida, Illinois, Indiana, Massachusetts, Michigan,
Nevada, Tennessee and Texas. We operate in several of these states and submit claims for Medicaid reimbursement to the respective state
Medicaid agency. This legislation has led to increased auditing activities by state healthcare regulators. As such, we have been the
subject of an increased number of audits. While we believe that we are following Medicaid and Medicare billing rules and requirements,
there can be no assurance that regulators would agree with the methodology employed by us in billing for our products and services and
a material disagreement between us and these governmental agencies on the way we provide products or services could have a material adverse
effect on our business and operations, our financial position, and our results of operations.
The
False Claims Act also has been used by the federal government and private whistleblowers to bring enforcement actions under so-called
“fraud and abuse” laws like the federal anti-kickback statute and the Stark Law. Such actions are not based on a contention
that an entity has submitted claims that are facially invalid. Instead, such actions are based on the theory that when an entity submits
a claim, it either expressly or impliedly certifies that it has provided the underlying services in compliance with applicable laws,
and therefore that services provided and billed for during an anti-kickback statute or Stark Law violation result in false claims, even
if such claims are billed accurately for appropriate and medically necessary services. The availability of the False Claims Act to enforce
alleged fraud and abuse violations has increased the potential for such actions to be brought, and which often are costly and time-consuming
to defend.
Confidentiality and Privacy. Most of our activities involve the receipt, use and disclosure of confidential medical, pharmacy or other
health-related information concerning individual members, including the disclosure of the confidential information to the member’s
health benefit plan.
On
April 14, 2003, the final regulations issued by HHS, regarding the privacy of individually identifiable health information (the “Privacy
Regulations”) pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) took effect. The
Privacy Regulations are designed to protect the medical information of a healthcare patient or health plan enrollee that could be used
to identify the individual.
The
requirements imposed by the Privacy Regulations, the Transactions Standards, and the Security Standards are extensive and can require
substantial cost and effort to assess and implement. We have taken and will continue to take steps that we believe are reasonable to
ensure that our policies and procedures are following the Privacy Regulations, the Transactions Standards, and the Security Standards.
The requirements imposed by HIPAA have increased our burden and costs of regulatory compliance, altered our reporting to Plan Sponsors
and reduced the amount of information we can use or disclose if members do not authorize such uses or disclosures.
Medicare
Part D. The Medicare Part D program, which makes prescription drug coverage available to eligible Medicare beneficiaries, regulates
various aspects of the provision of Medicare drug coverage, including enrollment, formularies, pharmacy networks, marketing, and claims
processing. The Centers for Medicare & Medicaid Services (“CMS”) imposed restrictions and consent requirements for automatic
prescription delivery programs, and further limited the circumstances under which Medicare Part D plans may recoup payments to pharmacies
for claims that are subsequently determined not payable under Medicare Part D. CMS sanctions for non-compliance may include suspension
of enrollment and even termination from the program.
The
Medicare Part D program has undergone significant legislative and regulatory changes since its inception. Medicare Part D continues to
attract a high degree of legislative and regulatory scrutiny, and applicable government rules and regulations continue to evolve. For
example, CMS may issue regulations that limit the ability of Medicare Part D plans to establish preferred pharmacy networks.
Any
Willing Provider Statutes and Narrow Networks. Any Willing Provider (“AWP”) statutes are laws that require
health insurance carriers to permit providers to join those networks so long as the provider is willing to accept the terms and conditions
of that carrier’s plan. Numerous states have some form of AWP law, though nearly all prohibit insurance carriers from limiting membership
within their provider networks based on geography or other characteristics. The laws in each state addressing the legality of narrow networks
vary widely. Some laws address plans only while other laws address non-insurers, like a PBM. Some laws address all types of health benefits
while other laws only address a single type of benefit, like pharmacy. The risk to a pharmacy would be in those states that do not have
an applicable AWP statute, a provider can be excluded from a narrow network.
While
the offering of narrow and preferred networks is common across the country, there have been many lawsuits challenging the use of these
type of arrangements due to the fact that they exclude certain providers from participating. The outcome of the challenges has varied,
primarily based upon the interpretation of the state laws under which the challenges are made. This is an evolving area of law. Given
the intense scrutiny of drug pricing and arrangements, and the ongoing lawsuits that are being filed in response to narrow networks,
there remains risk in developing narrow networks, which will vary by state, depending on each state’s laws and legal precedent.
Additionally, state laws are subject to change at any time, resulting in uncertainty for pharmacy operations in a given state.
Health
Reform Legislation. Congress passed major health reform legislation, including the Patient Protection
and Affordable Care Act (“ACA”), as amended by the Healthcare and Education Reconciliation Act of 2010 (the “Health
Reform Laws”), which enacted a number of significant healthcare reforms. There have been executive, judicial, and Congressional
challenges to certain aspects of the Health Reform Laws. For instance, the Tax Cuts and Jobs Act of 2017 included a provision that repealed
the tax-based shared responsibility payment imposed by the Health Reform Laws on certain individuals who fail to maintain qualifying health
coverage for all or part of a year that is commonly referred to as the “individual mandate.” On June 17, 2021, the Supreme
Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual
mandate” was repealed by Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA)
into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces
through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly
lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will
be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures
of the Biden administration will impact the ACA and our business.
Costs
and Effects of Compliance with Environmental Laws
Not
applicable.
Employees
As of December 31, 2022, we had 105 total employees, none of which are
subject to a collective bargaining agreement. Approximately 98 of these employees are employed full-time. We consider our relationship
with our employees to be good.
Risks
Related to our Business
We
have a history of losses and may not be able to achieve or sustain profitability.
We
may incur operating losses in the foreseeable future. For the years ended December 31, 2022 and December 31, 2021 we recognized
overall revenue of approximately $40.6 million and $38.9 million, respectively. For the year ended December 31, 2022, we had net
loss of approximately $5.9 million and for the year ended December 31, 2021, we had net income of approximately $0.2 million. Our
ability to sustain profitability depends on our ability to have successful operations and generate and sustain sales, while
maintaining reasonable expense levels.
We
have a substantial amount of debt of approximately $4.3 million, and approximately $0.2 million in principal will come due in 2023.
As
of December 31, 2022, and 2021, we had cash balances of approximately $6.7
million and $1.4 million, respectively. Over the last several years, we have been substantially dependent on funding our pharmacy acquisitions
and operations through the private sale of debt securities. We have approximately $4.3 million of debt, which includes convertible debt
and accrued interest of approximately $2.8 million. If we are unable to meet
the obligations or default on our obligations in any other way, even if we are otherwise generating positive earnings, we could lose
substantially all of our business assets as well as being held liable for any deficiency in payment. The net result of such a failure
would likely be the end of our business operations.
We
derive a significant portion of our sales from prescription drug sales reimbursed by pharmacy benefit management companies.
We
derive a significant portion of our sales from prescription drug sales reimbursed through prescription drug plans administered by PBM
companies. PBM companies typically administer multiple prescription drug plans that expire at various times and provide for varying reimbursement
rates. There can be no assurance that we will continue to participate in any PBM network at any future time. If
our participation in the prescription drug programs administered by one or more of the large PBM companies is restricted or terminated,
we expect that our sales would be adversely affected, at least in the short-term. The Company or the PBM may terminate the network participation agreement at any time by way of advance notice to
the other party. If we are unable to replace any such lost sales, either
through an increase in other sales or through a resumption of participation in those plans, our operating results may be materially adversely
affected. When we exit a pharmacy provider network and later resume network participation, there can be no assurance that we will achieve
any level of business on any pace, or that all clients of the PBM sponsor of the network will choose to include us again in their pharmacy
network initially or at all. In addition, in such circumstances we may incur increased marketing and other costs about initiatives to
regain former patients and attract new patients covered by in-network plans.
Litigation
and other legal proceedings may adversely affect our business.
From time-to-time we may become involved in legal proceedings relating
to product liability claims, employee claims, tort or contract claims, federal regulatory investigations, securities class action and
other legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and
divert the attention of our management from the operation of our business. Litigation is inherently unpredictable and can result in excessive
or unanticipated verdicts and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements
of claims for monetary damages or for agreements to change the way we operate our business, or both. There may be an increase in the scope
of these matters or there may be additional lawsuits, claims, proceedings or investigations in the future, which could have a material
adverse effect on our business, financial condition and results of operations. Adverse publicity about regulatory or legal action against
us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our services,
even if the regulatory or legal action is unfounded or not material to our operations.
Events
outside of our control, including relating to public health crises, supply-chain disruptions, geopolitical conflicts, including acts
of war, and inflation, could negatively affect our Company and our results of operations and financial condition.
Periods
of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These
types of events may adversely affect operating results for us. For example, the COVID-19 pandemic has led to, and for an unknown period
of time, will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby, including
the United States. With respect to U.S. and global credit markets and the economy in general, this outbreak has resulted in, and until
fully resolved is likely to continue to result in, the following (among other things): (i) restrictions on travel and the temporary closure
of many corporate offices, retail stores, and manufacturing facilities and factories, resulting in significant disruption to the business
of many companies, including supply chains and demand, as well as layoffs of employees; (ii) increased draws by borrowers on lines of
credit; (iii) increased requests by borrowers for amendments or waivers of their credit agreements to avoid default, increased defaults
by borrowers and/or increased difficulty in obtaining refinancing; (iv) volatility in credit markets, including greater volatility in
pricing and spreads; and (v) evolving proposals and actions by state and federal governments to address the problems being experienced
by markets, businesses and the economy in general, which may not adequately address the problems being facing such persons. While many
countries, including the United States, have relaxed or eliminated the early public health restrictions adopted in response to the COVID-19
pandemic, the outbreak of new, worsening strains of COVID-19 may result in a resurgence in the number of reported cases and hospitalizations.
Such increases in cases could lead to the reintroduction of restrictions and business shutdowns in certain states, counties and cities
in the United States and globally.
As
the future impact of COVID-19 and its variants is difficult to predict, the extent to which they could negatively affect our operating
results, or the duration of any potential business or supply-chain disruption, is uncertain. Any potential impact to our results of operations
will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of the
COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread of COVID-19 and its variants or treat
its impact, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our operating results
and financial condition.
Disruptions
to our supply chain have and could continue to impact our supply chain for products we sell, particularly as a result of mandatory shutdowns
in locations where our products are manufactured or held for distribution. We could also see significant disruptions of the operations
of our logistics, service providers, delays in shipments and negative impacts to pricing of certain of our products.
Efforts
to reduce reimbursement levels and alter health care financing practices could adversely affect our businesses.
The
continued efforts of health maintenance organizations, managed care organizations, other companies, government entities, and other third-party
payors to reduce prescription drug costs and pharmacy reimbursement rates may impact our profitability. Increased utilization of generic
pharmaceuticals, which normally yield a higher gross profit rate than equivalent brand-named drugs, has resulted in a decrease in reimbursement
payments to retail and mail order pharmacies for generic drugs through the imposition by third-party payors of generic effective rates that have caused a reduction in the generic profit rate. We expect pricing pressures from third-party payors to
continue given the high and increasing costs of specialty drugs. As a result of this industry-wide pressure, we also may see profit margins
on our contracts continue to compress, which may adversely affect our profitability.
PBM
fees, including Direct and Indirect Remuneration (“DIR”) fees, transaction charges and network access fees, applied significant
downward pressure on our profitability. DIR fees are often calculated and charged several months after adjudication of a claim,
which adversely impacts our profitability. These fees lack transparency and are extremely difficult to predict and accrue. DIR fees are
sometimes retroactively “clawed back” by the PBMs with little or no warning at the end of a quarter, which has a significant
downward effect on our gross margins.
Retroactive
contractual adjustments may be imposed on the pharmacies through execution of new contracts between pharmacy services administration
organizations and PBMs with retroactive effectiveness. These contractual adjustments typically impose new lowered
effective rate calculations on previously dispensed medications resulting in a PBM overpayment, which is later recouped with or without
notice to the pharmacy. DIR fees and other PBM fees are generally not disclosed at adjudication and may change throughout the year. These
adjustments and the resultant fees may not be predictable or avoidable and can adversely affect our revenues, cash flow, and profitability.
In
addition, during the past several years, the U.S. health care industry has been subject to an increase in governmental regulation at
both the federal and state levels. Efforts to control health care costs, including prescription drug costs, are underway at the federal
and state government levels. Changing political, economic, and regulatory influences may affect health care financing and reimbursement
practices. If the current health care financing and reimbursement system changes significantly, our business, financial position and
results of operations could be materially adversely affected.
Quality
measurement networks have a significant impact on our revenues. Quality measurement networks can be, but are not always, tied to DIR
fees collected by PBMs. These networks designate specific metrics through which pharmacy performance is assessed. These metrics are disclosed
along with benchmark guidance for quality or superior performance, which can lead to a return of the DIR fees by the PBMs in the form
of performance bonuses. Failure to meet quality measures can result in loss of DIR fees collected and loss of PBM relationship. There
is no guarantee that we will be successful in meeting quality review standards. Quality measurement networks are increasingly rigorous
and can be based on comparative success against other pharmacies in the network. If other pharmacies out-perform our pharmacy or if we
fail to meet quality metrics, our profitability can be adversely affected.
A
slowdown in the frequency and rate of the introduction of new prescription drugs as well as generic alternatives to brand name prescription
products could adversely affect our business, financial position, and results of operations.
The
profitability of retail pharmacy businesses is dependent upon the utilization of prescription drug products. Generally, our pharmacies
receive greater profit from generic drugs. Utilization trends are affected by the introduction of new and successful prescription pharmaceuticals
as well as lower priced generic alternatives to existing brand name products. Accordingly, a slowdown in the introduction of new and
successful prescription pharmaceuticals and/or generic alternatives could adversely affect our business, financial position and results
of operations.
Uncertainty
regarding the impact of Medicare Part D may adversely affect our business, financial position and our results of operations.
Since
its inception in 2006, the Medicare drug benefit has resulted in increased utilization and decreased pharmacy gross margin rates as higher
margin business, such as cash and state Medicaid customers, migrated to Medicare Part D coverage. To the extent this occurs, the adverse
effects of the Medicare drug benefit may outweigh any opportunities for new business generated by the Medicare drug benefit. In addition,
if the government alters Medicare program requirements or reduces funding because of the higher-than-anticipated cost to taxpayers of
the Medicare drug benefit or for other reasons; or if we fail to design and maintain programs that are ttracttive to Medicare participants,
our Medicare Part D services and the ability to expand our Medicare Part D services could be materially and adversely affected, and our
business, financial position and results of operations may be adversely affected.
Unexpected
safety or efficacy concerns may arise from pharmaceutical products.
Unexpected
safety or efficacy concerns can arise with respect to pharmaceutical drugs dispensed at our pharmacies, whether or not scientifically
justified, leading to product recalls, withdrawals or declining sales. If we fail to or do not promptly withdraw pharmaceutical drugs
upon a recall by a drug manufacturer, our business and results of operations could be negatively impacted by reversals of pharmacy billings
that will result in loss of revenue.
Prescription
volumes may decline, and our net revenues and ability to generate earnings may be negatively impacted, if products are withdrawn from
the market or if increased safety risk profiles of specific drugs result in utilization decreases.
We
dispense significant volumes of drugs from our pharmacies. These volumes are the basis for our net revenues. When increased safety risk
profiles of specific drugs or classes of drugs result in utilization decreases, physicians may cease writing or reduce the numbers of
prescriptions written for these drugs. Additionally, negative press regarding drugs with higher safety risk profiles may result in reduced
consumer demand for such drugs. On occasion, products are withdrawn by their manufacturers. In cases where there are no acceptable prescription
drug equivalents or alternatives for these prescription drugs, our volumes, net revenues, profitability, and cash flows may decline.
Certain
risks are inherent in providing pharmacy services; our insurance may not be adequate to cover any claims against us.
Pharmacies
are exposed to risks inherent in the packaging and distribution of pharmaceutical products, such as with respect to improper filling
of prescriptions, labeling of prescriptions, adequacy of warnings, unintentional distribution of counterfeit drugs and expiration of
drugs. In addition, federal and state laws that require our pharmacists to offer counseling, without additional charge, to their customers
about medication, dosage, delivery systems, common side effects and other information the pharmacists deem significant can impact our
business. Our pharmacists may also have a duty to warn customers regarding any potential negative effects of a prescription drug if the
warning could reduce or eliminate these effects. Although we maintain professional liability and errors and omissions liability insurance,
from time to time, claims result in the payment of significant amounts, some portions of which are not funded by insurance.
We
cannot assure you that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that
we will be able to maintain this insurance on acceptable terms in the future. Our results of operations, financial condition or cash
flows may be adversely affected if in the future our insurance coverage proves to be inadequate or unavailable or there is an increase
in liability for which we self-insure or we suffer reputational harm as a result of an error or omission.
Changes
in industry pricing benchmarks could adversely affect our business, financial position and results of operations.
Contracts
in the prescription drug industry generally use certain published benchmarks to establish pricing for prescription drugs. These benchmarks
include average wholesale price (“AWP”), average sales price and wholesale acquisition cost.
Recent
events have raised uncertainties as to whether payors, pharmacy providers, PBMs and others in the prescription drug industry will continue
to utilize AWP as it has previously been calculated or whether other pricing benchmarks will be adopted for establishing prices within
the industry. In some circumstances, such changes could also impact the reimbursement that we receive from Medicare or Medicaid programs
for drugs covered by such programs and from MCOs that contract with government health programs to provide prescription drug benefits.
The
industries in which we operate are extremely competitive and competition could adversely affect our business, financial position and
results of operations.
We
operate in a highly competitive environment. As a pharmacy retailer, we compete with other drugstore chains, supermarkets, discount retailers,
membership clubs, Internet companies and retail health clinics, as well as other mail order pharmacies. In that regard, many pharmacy
benefits plans have implemented plan designs that mandate or provide incentives to fill maintenance medications through mail order pharmacies.
To the extent this trend continues, our retail pharmacy business could be adversely affected. In addition, some of these competitors
may offer services and pricing terms that we may not be willing or able to offer. Competition may also come from other sources in the
future. Thus, competition could have an adverse effect on our business, financial position and results of operations.
Existing
and new government legislative and regulatory action could adversely affect our business, financial position and results of operations.
The
retail drugstore business is subject to numerous federal, state and local laws and regulations. Changes in these regulations may require
extensive system and operating changes that may be difficult to implement. Untimely compliance or noncompliance with applicable laws
and regulations could adversely affect the continued operation of our business, including, but not limited to: imposition of civil or
criminal penalties; suspension of payments from government programs; loss of required government certifications or approvals; loss of
authorizations to participate in or exclusion from government reimbursement programs, such as the Medicare and Medicaid programs; or
loss of licensure. The regulations to which we are subject include, but are not limited to: the laws and regulations; accounting standards;
tax laws and regulations; laws and regulations relating to the protection of the environment and health and safety matters, including
those governing exposure to, and the management and disposal of, hazardous substances; and regulations of the FDA, the U.S. Federal Trade
Commission, the Drug Enforcement Administration, and the Consumer Product Safety Commission, as well as state regulatory authorities,
governing the sale, advertisement and promotion of products that we sell. In that regard, our business, financial position and results
of operations could be affected by one or more of the following:
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federal
and state laws and regulations governing the purchase, distribution, management, dispensing and reimbursement of prescription drugs
and related services, whether at retail or mail, and applicable licensing requirements; |
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the
effect of the expiration of patents covering brand name drugs and the introduction of generic products; |
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the
frequency and rate of approvals by the FDA of new brand named and generic drugs, or of over-the-counter status for brand name drugs; |
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FDA
regulation affecting the retail pharmacy industry; |
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rules
and regulations issued pursuant to the HIPAA; and other federal and state laws affecting the use, disclosure and transmission of
health information, such as state security breach laws and state laws limiting the use and disclosure of prescriber information; |
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administration
of the Medicare drug benefit, including legislative changes and/or CMS rulemaking and interpretation; |
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government
regulation of the development, administration, review and updating of formularies and drug lists; |
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state
laws and regulations establishing or changing prompt payment requirements for payments to retail pharmacies; |
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impact
of network access (any willing provider) legislation on ability to manage pharmacy networks; |
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managed
care reform and plan design legislation; |
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insurance
licensing and other insurance regulatory requirements applicable to offering prescription drug providers (“PDP”) about
the Medicare drug benefit; |
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direct
regulation of pharmacies by regulatory and quasi-regulatory bodies; and |
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Federal
government sequestration affecting Medicare Part B reimbursements. |
Changes
in the health care regulatory environment may adversely affect our business.
Future
rulemaking could increase regulation of pharmacy services, result in changes to pharmacy reimbursement rates, and otherwise change the
way we do business. We cannot predict the timing or impact of any future rulemaking, but any such rulemaking could have an adverse impact
on our results of operations.
The
sustainability of our current business model is also dependent on the availability, pricing and rules and regulations relating to the
dispensing of controlled medications. Changes that affect any of these variables could greatly impact our current revenue streams as
well as alter our business structure and future plans for growth and development.
Efforts
to reform the U.S. health care system may adversely affect our financial performance.
Congress
periodically considers proposals to reform the U.S. health care system. These proposals may increase government involvement in health
care and regulation of pharmacy services, or otherwise change the way we or our clients do business. Health plan sponsors may react to
these proposals and the uncertainty surrounding them by reducing or delaying purchases of cost control mechanisms and related services
that the combined company would provide. We cannot predict what effect, if any, these proposals may have on its retail and pharmacy services
businesses. Other legislative or market-driven changes in the health care system that we cannot anticipate could also materially adversely
affect our results of operations, financial position and/or cash flow from operations.
If
we are found to be in violation of Medicaid and Medicare reimbursement regulations, we could become subject to retroactive adjustments
and recoupment, or exclusion from the Medicaid, Medicare programs, and PBM networks.
As
a Medicaid and Medicare provider, we are subject to retroactive adjustments due to prior-year audits, reviews and investigations, government
fraud and abuse initiatives, and other similar actions. Federal regulations provide for withholding payments to recoup amounts payable
under the programs and, in certain circumstances, allow for exclusion from Medicaid and Medicare. We cannot offer any assurance that,
pursuant to such audits, reviews, investigations, or other proceedings, we will be found to be complying in all respects with such reimbursement
regulations. A determination that we are in violation of any such reimbursement regulation could result in retroactive adjustments and
recoupment of payments and have a material adverse effect on our financial condition and results of operations. As a Medicaid and Medicare
provider, we are also subject to routine, unscheduled audits, and if any such audit results in a negative finding, finding, we may be
subject to exclusions from Medicaid, Medicare, and other PBM networks, which would adversely affect our results of operations and financial
condition.
Our
industry is subject to extensive government regulation, and noncompliance by us or our suppliers could harm our business.
The
repackaging, marketing, sale, and purchase of medications are extensively regulated by federal and state governments. In addition, many
of the brand name and controlled medications that we sell receive greater attention from law enforcement officials than medications that
are most often dispensed by traditional pharmacies due to the high cost of these medications and the potential for diversion and fraud,
waste, and abuse. We sell common blood pressure, statin and other common drugs, and dispense either brand name or generic drugs according
to the doctor’s prescription. If we fail to, or are accused of failing to, comply with applicable laws and regulations, we could
be subject to penalties that may include exclusion from the Medicare or Medicaid programs, fines, requirements to change our practices,
and civil or criminal penalties, which could harm our business, financial condition, and results of operations. Any disqualification
from participating in Medicare or the state Medicaid programs would significantly reduce our net sales and our ability to maintain profitability.
Our business could also be harmed if the entities with which we contract or have business relationships, such as pharmaceutical manufacturers,
distributors, physicians, clinics, or home health agencies are accused of violating laws or regulations.
While
we believe that we are operating our business in substantial compliance with existing legal requirements material to the operation of
our business, there are significant uncertainties involving the application of many of these legal requirements to our business. Changes
in interpretation or enforcement policies could subject our current practices to allegations of impropriety or illegality. The applicable
regulatory framework is complex and evolving, and the laws are very broad in scope. Many of the laws remain open to interpretation and
have not been addressed by substantive court decisions to clarify their meaning. We are also unable to predict what additional federal
or state legislation or regulatory initiatives may be enacted in the future relating to our business or the healthcare industry in general,
or what effect any such legislation or regulation might have on us. Further, we cannot provide any assurance that federal or state governments
will not impose additional restrictions or adopt interpretations of existing laws that could increase our cost of compliance with such
laws or reduce our ability to remain profitable.
Federal
and state investigations and enforcement actions continue to focus on the healthcare industry, scrutinizing a wide range of items such
as referral and billing practices, product discount arrangements, dissemination of confidential patient information, clinical drug research
trials, pharmaceutical marketing programs, and gifts for patients. It is difficult to predict how any of the laws implicated in these
investigations and enforcement actions may be interpreted to apply to our business. Any future investigation may cause publicity, regardless
of the eventual result of the investigation, or its underlying merits, that would cause potential patients to avoid us, reducing our
net sales and profits and causing our stock price to decline.
Our
operating results are affected by the health of the economy in general and the markets we serve.
The U.S. capital markets are currently experiencing extreme volatility
and disruption following the global outbreak of COVID-19 and other global events. Disruptions in the capital markets in the past have
resulted in illiquidity in parts of the capital markets we serve. Our business is affected by the economy in general, including changes
in consumer purchasing power, preferences and/or spending patterns. These changes could affect drug utilization trends as well as the
financial health and number of covered lives of our clients, resulting in an adverse effect on our business, financial condition, results
of operations and cash flows.
Unfavorable economic conditions may cause a decline in drug utilization
and dampen demand for pharmaceutical drugs and durable medical equipment as well as consumer demand for sundry products sold in our retail
store and our business and financial results could be adversely affected. Further, interest rate fluctuations and changes in capital market
conditions may affect our ability to obtain necessary financing on acceptable terms, our ability to secure suitable store locations under
acceptable terms and our ability to execute sale or lease transactions under acceptable terms.
If
the products and services that we offer fail to meet customer needs, our sales may be affected.
Our products and services must satisfy the needs and desires of our customers, whose preferences may change in the
future. If we misjudge either the demand for products and services we provide or our customers’ purchasing habits and tastes, we may
be faced with excess inventories of some products and missed opportunities for products and services we chose not to offer. In addition,
our sales may decline, or we may be required to dispose of the inventory we have obtained at lower prices. This would have a negative effect
on our business and results of operations.
We
are highly dependent on one supplier for our products, and a loss of that supplier may adversely impact our ability to sell products
to our customers.
We
obtain pharmaceutical and other products from wholesale distributors. We maintained a relationship with a primary supplier, McKesson,
that accounted for 95% and 96% of pharmaceutical purchases for the years ended December 31, 2022 and 2021, respectively, and several
supplementary suppliers. If that supplier was to cease supplying us with products for any reason, we would be forced to find alternative
sources for our products. Despite this, we believe we would be able to readily find multiple alternative sources for our products. We
may not be able to quickly or effectively replace that supplier, which may lead to delays in product availability and losses of sales,
which would have a negative effect on our business, results of operations and financial condition.
We
derive a significant portion of our revenues from a small number of customers and a loss of one or both of those customers would have
a material adverse impact on our business.
We
sell to numerous customers including various managed care organizations within both the private and public sectors. Certain healthcare
payors, including Medicare Part D and the State of Florida, account for more than ten percent or more of our consolidated net revenue
in fiscal 2022 and fiscal 2021. Medicare Part D and the State of Florida Medicaid public assistance program are major customers of ours.
However, both government programs function under several different healthcare payors, the concentration of which varies throughout the
course of the year. To the extent we lost the business of one or more of these healthcare payors, our revenues would significantly decrease,
having a material adverse effect on our business, results of operations and financial condition.
Our
ability to grow our business may be constrained by our inability to find suitable new pharmacy locations at acceptable prices.
Our ability to grow our business
may be constrained if suitable new pharmacy locations cannot be identified with lease terms or purchase prices that are acceptable to
us. We compete with other retailers and businesses for suitable pharmacy locations. Local land use and other regulations may impact our
ability to find suitable locations and influence the cost of construction. The expiration of leases at existing locations may adversely
affect us if the renewal terms of those leases are unacceptable to us and we are forced to close or relocate. Furthermore, changing local
demographics at existing locations may adversely affect revenue and profitability levels at those locations.
Our
ability to grow our business may be constrained by our inability to obtain adequate permits and licensing for new locations, business
lines, and market territories.
Our
ability to grow our business may be constrained if new locations, business lines, and market territories are not permitted and licensed
to conduct ordinary operations. Expansion initiatives can be delayed or even canceled due to a failure to acquire certain government
agency approvals. Such delay or cancellation will have a negative impact on our business and results of operations.
Product
liability, product recall or personal injury issues could damage our reputation and have a significant adverse effect on our businesses,
operating results, cash flows and/or financial condition.
Should
a product liability issue, recall or personal injury issue arise, inadequate product or other liability insurance coverage or our inability
to maintain such insurance may result in a material adverse effect on our business and financial condition. Products that we sell could
become subject to contamination, product tampering, mislabeling, recall or other damage. In addition, errors in the dispensing and packaging
of pharmaceuticals could lead to serious injury. Product liability or personal injury claims may be asserted against us with respect
to any of the products or pharmaceuticals we sell or services we provide.
If
we are not able to market our services effectively to clinics, their affiliated healthcare providers and prescription drug providers,
we may not be able to grow our patient base as rapidly as we have anticipated.
Our
success depends, in part, on our ability to develop and maintain relationships with clinics and their affiliated healthcare providers
because each is an important patient referral source for our business. In addition, we also must maintain and continue to establish relationships
with prescription drug providers so we can continue to fill prescriptions for our dual eligible customers who receive prescription drug
coverage under Medicare Part D. If we are unable to market our services effectively to these clinics, healthcare providers and prescription
drug providers, or if our existing relationships with clinics and providers are terminated, our ability to grow our patient base will
be harmed, which could significantly reduce our net sales and our ability to maintain profitability. Additionally, Medicare Part D regulations
that strictly limit our ability to market to our current and new patients may limit our ability to maintain and grow our current patient
base.
We
may fail to maintain effective internal control over financial reporting and effective disclosure controls and procedures, and as a result,
we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor
confidence in our company.
We
are not currently required to comply with the rules of the Securities and Exchange Commission (the “SEC” or “Commission”) implementing Section 404(b) of the Sarbanes-Oxley Act of 2002 and, therefore, we are not required to make
a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. We are required to
comply with the SEC’s rules implementing Sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002, which require management to
certify financial and other information in our quarterly and annual reports and provide an annual management report on the
effectiveness of internal controls over financial reporting. Although we will be required to disclose changes made in our internal
controls and procedures on a quarterly basis, we are not required to make our first annual assessment of our internal control over
financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As
an emerging growth company and a low-revenue smaller reporting company, our independent registered public accounting firm will not
be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no
longer an emerging growth company or a low-revenue smaller reporting company. At such time, our independent registered public
accounting firm may issue a report that is adverse in the event material weaknesses have been identified in our internal control
over financial reporting.
To
comply with the requirements of being a public company, we have undertaken and will need to undertake additional actions, such as implementing
new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control
can divert our management’s attention from other matters that are important to the operation of our business. In addition, when
evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in
time to meet the applicable deadlines imposed upon us for compliance with the requirements of Section 404. If we identify any material
weaknesses in our internal controls over financial reporting or we are unable to comply with the requirements of Section 404 in a timely
manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting
firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an
emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports. As a result, the market
price of our common stock could be materially adversely affected.
If
we fail to manage our growth or implement changes to our reporting systems effectively, our business could be harmed.
If
we are unable to manage our growth effectively, we could incur losses. How we manage our growth will depend, among other things, on our
ability to adapt our operational, financial and management controls, reporting systems and procedures to the demands of a larger business,
including the demands of integrating our acquisitions. To manage the growth and increasing complexity of our business, we may make modifications
to or replace computer and other reporting systems, including those that report on our financial results and on which we are substantially
dependent. We may incur significant financial and resource costs because of any such modifications or replacements, and our business
may be subject to transitional difficulties. The difficulties associated with any such implementation, and any failure or delay in the
system implementation, could negatively affect our internal control over financial reporting and harm our business and results of operations.
In addition, we may not be able to successfully hire, train and manage additional sales, marketing, customer support and pharmacists
quickly enough to support our growth. To provide this support, we may need to open additional offices, which will result in additional
burdens on our systems and resources and require additional capital expenditures.
We
may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our
shareholders and otherwise disrupt our operations and harm our operating results.
Our
success will depend, in part, on our ability to grow our business in response to the demands of the patients and physicians we serve
within the health services industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition
of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates
can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face
in connection with acquisitions include:
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diversion
of management time and focus from operating our business to addressing acquisition integration challenges; |
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coordination
of technology, research and development and sales and marketing functions; |
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retention
of employees from the acquired company; |
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cultural
challenges associated with integrating employees from the acquired company into our organization; |
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integration
of the acquired company’s accounting, management information, human resources and other administrative systems; |
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the
need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective
controls, procedures and policies; |
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potential
write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect our operating results in
a given period; |
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liability
for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of
laws, commercial disputes, tax liabilities and other known and unknown liabilities; and |
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litigation
or other claims in connection with the acquired company, including claims from terminated employees, consumers, former shareholders
or other third-parties. |
Our
failure to address these risks or other problems encountered in connection with our future acquisitions and investments could cause us
to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm
our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt,
contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition. Also,
the anticipated benefits of any acquisitions may not materialize to the extent we anticipate or at all.
Conflicts
of interest may arise between us and our directors and officers as a result of other business activities undertaken by such individuals.
We
may be subject to various potential conflicts of interest because some of our directors and executive officers may be engaged in a range
of business activities. In addition, our executive officers and directors may devote time to their outside business interests, so long
as such activities do not materially or adversely interfere with their duties to us. In some cases, our executive officers and directors
may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business
and affairs and that could adversely affect our operations. These business interests could require significant time and attention of
our executive officers and directors.
In
addition, we may also become involved in other transactions which conflict with the interests of our directors and the officers who may
from time-to-time deal with persons, firms or institutions with which we may be dealing, or which may be seeking investments similar
to those we desire. The interests of these persons could conflict with our interests. In addition, from time to time, these persons may
be competing with us for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies
provided under applicable laws, regulations and stock market rules. In particular, in the event that such a conflict of interest arises
at a meeting of our board of directors, a director who has such a conflict will abstain from voting for or against the approval of such
transaction. In accordance with applicable laws, our directors are required to act honestly, in good faith and in our best interests.
A
disruption in our telephone system or our computer system could harm our business.
We
receive and take most prescription orders electronically, over the telephone and by facsimile. We also rely extensively upon our computer
system to confirm payor information, patient eligibility and authorizations; to check on medication interactions and patient medication
history; to facilitate filling and labeling prescriptions for delivery and billing; and to help with the collection of payments. Our
success depends, in part, upon our ability to promptly fill and deliver complex prescription orders as well as on our ability to provide
reimbursement management services for our patients and their healthcare providers. Any continuing disruption in our telephone, facsimile
or computer systems could adversely affect our ability to receive and process prescription orders, make deliveries on a timely basis
and receive reimbursement from our payors. This could adversely affect our relations with the patients and healthcare providers we serve
and potentially result in a partial reduction in orders from, or a complete loss of, these patients.
We
incur increased costs as a result of being a reporting company, and given our limited capital resources, such additional costs may have
an adverse impact on our profitability.
We
are an SEC reporting company. The rules and regulations under the Exchange Act require a public company to provide periodic reports with
interactive data files which will cause the Company to incur legal, accounting and auditing services, and XBRL and EDGAR service providers.
The engagement of such services can be costly. In addition, the Sarbanes-Oxley Act of 2002, as well as a variety of related rules implemented
by the SEC, have required changes in corporate governance practices and generally increased the disclosure requirements of public companies.
For example, as a result of becoming a reporting company, we will be required to file periodic and current reports and other information
with the SEC and we must adopt policies regarding disclosure controls and procedures and regularly evaluate those controls and process.
The expenses incurred for filing periodic reports and implementing disclosure controls and procedures may be as high as $100,000 annually.
Furthermore, there is no guarantee that we will have sufficient resources to meet our reporting and filing obligations with the SEC as they
come due.
We
may fail to retain or recruit necessary personnel, and, even if we are successful, we may be unable to successfully integrate new personnel
into our operations.
Our
success is highly dependent on the performance of our management team and certain employees, and our continuing ability to attract, develop,
motivate, and retain highly qualified and skilled employees and consultants.
We
have also engaged consultants to advise us on various aspects of our business. Qualified individuals are in high demand, and we may incur
significant costs to attract and retain them. While employment agreements and incentive agreements are customarily used as a primary
method of retaining the services of key employees, these agreements and arrangements cannot assure the continued services of such employees.
The loss of the services of any key personnel or an inability to attract other suitably qualified persons when needed, could prevent
us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all.
Moreover,
to execute our growth plans, we expect to hire additional executive officers and key employees. Our future performance will depend in
part on our ability to successfully integrate those newly hired executive officers into our management team and our ability to develop
an effective working relationship among senior management.
Our
Chief Financial Officer has additional business activities which may result in periodic interruptions, or business failure.
Our Chief Financial Officer (“CFO”), Cecile Munnik, pursuant to an amendment
to the Amended and Restated Employment Agreement between the Company and Cecile Munnik, may provide up to approximately 30% of her time
on a weekly basis to provide services to NextPlat and receive compensation from NextPlat. While Ms. Munnik will continue to serve the
Company faithfully and to the best of her ability and shall devote her full time, attention, and energies to the business of the Company
during customary business hours, Ms. Munnik must balance her time between both NextPlat and our Company. In the event Ms. Munnik is unavailable
during times where she was previously available, it may lead to the periodic interruption in our business and could have a significant
negative effect on the success of the business.
Our
Chief Executive Officer has additional business activities which may result in periodic interruption, business failure or have a negative
impact on our ability to generate revenue.
On
November 11, 2022, Alan Jay Weisberg tendered his resignation which the Board approved. On the same date, the Board appointed
Charles M. Fernandez as our new Chief Executive Officer (“CEO”). Mr. Fernandez is also the CEO of Nexplat. Mr. Fernandez
does not have to commit his full time to our affairs, which may result in a conflict of interest in allocating his time between
managing the Company and NextPlat. Mr. Fernandez does not have to contribute any specific number of hours to our affairs. While Mr.
Fernandez intends to serve the Company faithfully and to the best of his ability, he shall devote his full time, attention, and
energies to the business of NextPlat, Mr. Fernandez must balance his time between both NextPlat and our Company. Moreover, because
we did not enter into any new compensatory arrangements, nor did we make any additional grants or awards to Mr. Fernandez, it is not
clear how Mr. Fernandez will prioritize our business affairs. For example, NextPlat beneficially owns 44.3% of our Company and Mr.
Fernandez owns 17% of our convertible debt through eApeiron, Partners, LLC. Mr. Fernandez is the sole member and managing partner of
eApeiron Partners, LLC. If any of his other business affairs, primarily as CEO of NextPlat, require him to devote substantial
amounts of time to such matters, it could materially limit his ability to devote his time and attention to our business which may
lead to the periodic interruption in our business, could have a significant negative effect on the success of the business and our
ability to generate revenue.
The
transition to our new Chief Executive Officer is critical to our success and our business may be adversely impacted if we do not
successfully manage the transition process in a timely manner.
Our
success depends, in part, on the effectiveness of our new CEO. The CEO is critical to executing on and achieving our vision, strategic
direction, culture, products, and technology. The transition may be disruptive to the Company and our relationships with customers and
employees. If we are unable to execute an orderly transition and successfully integrate the new CEO into our leadership team, revenue,
operating results, and financial conditions may be adversely affected.
Additionally,
Alan Jay Weisberg, our former CEO and Vice-Chairman of the Board resigned from his office of CEO and from the Board, and the departure
of Mr. Weisberg as our CEO and as a member of the Board has resulted in a loss of institutional knowledge. This loss of knowledge and
experience can be mitigated through successful transition, but there can be no assurance that we will be successful in such efforts.
The ability of the new CEO to quickly adapt to and understand our business, operations, and strategic plans will be critical to the Board
and our management’s ability to make informed decisions about our strategic direction and operations.
Risks
Related to the Pharmacy Industry
There
is substantial competition in our industry, and we may not be able to compete successfully.
The
pharmacy industry is highly competitive and is continuing to become more competitive. All medications, supplies and services that we
provide are also available from our competitors. Our current and potential competitors may include:
|
● |
Other
pharmacy distributors; |
|
● |
Specialty
pharmacy divisions of wholesale drug distributors; |
|
● |
Not
for profit organizations with pharmacies; |
|
● |
Hospital-based
pharmacies; |
|
● |
Local
infusion providers; |
|
● |
Sterile
and non-sterile compounding pharmacies; |
|
● |
Other
retail pharmacies; |
|
● |
Provider
dispensaries; |
|
● |
Manufacturers
that sell their products both to distributors and directly to clinics and physicians’ offices; |
|
● |
Hospital-based
care centers and other alternate-site healthcare providers; |
|
● |
Insurance
companies with proprietary pharmacy services; |
|
● |
Customers
and MSO’s of ours who decide to open their own pharmacies; |
|
● |
Chain
pharmacies; and |
|
● |
Mail-order
pharmacies. |
Many
specialty patients are currently receiving prescription benefits from federally funded programs such as the Ryan White CARE Act. These
payors only use non-profit providers to dispense medications to their enrollees.
Many
of our competitors have substantially greater resources and marketing staffs and more established operations and infrastructure than
we have. A significant factor in effective competition will be our ability to maintain and expand our relationships with patients, healthcare
providers and government and private payors.
If
demand for our products and services is reduced, our business and ability to grow would be harmed.
A
reduction in demand for specialty medications would significantly harm our business, as we would not be able to quickly shift our business
to provide medications for other diseases or disorders. Reduced demand for our products and services could be caused by several circumstances,
such as:
|
● |
A
cure or vaccine for chronic care conditions; |
|
● |
The
emergence of new diseases resistant to available medications; |
|
● |
Shifts
to treatment regimens other than those we offer; |
|
● |
New
methods of delivery of existing medications or of injectable or infusible medications that do not require our specialty pharmacy
and disease management services; |
|
● |
Recalls
of the medications we sell; |
|
● |
Adverse
reactions caused by the medications we sell; and |
|
● |
The
expiration of or challenge to the drug patents on the medications we sell. |
Our
revenues could be adversely affected if new drugs or combination therapies are developed and prescribed to our patients that have a reimbursement
rate less than that of the current drug therapies our patients receive.
If
our patients switch medications to those with lower reimbursement rates or to combination therapies, which combine multiple drugs into
a single medication, our net sales could decline. Combination therapies reduce the number of total prescriptions received by our patients,
resulting in reduced average revenues and a decrease in dispensing fees per patient.
If
our credit terms with vendors become unfavorable or our relationship with them is terminated, our business could be adversely affected.
We
depend on existing credit terms from vendors to meet our working capital needs between the times we purchased medications from vendors
and when we received reimbursement or payment from third-party payors. Our ability to grow has been limited in part by our inability
to negotiate favorable credit terms from our suppliers. If our position changes and we are unable to maintain adequate credit terms or
sufficient financing from third-party lenders, we may become limited in our ability to continue to increase the volume of medications
we need to fill prescriptions.
There
are only a few wholesale distributors from which we can purchase the high cost medications we offer. If any of our vendor agreements
terminate or are not renewed, we might not be able to enter a new agreement with another wholesale distributor on a timely basis or on
terms favorable to us. Our inability to enter a new supply agreement may cause a shortage of the supply of medications we keep in stock,
or we may be required to accept pricing and credit terms from a vendor that are less favorable to us than those we currently have.
Risks
Relating to Our Data Management Services
Competition
with some customers, or decisions by customers to perform internally some of the same solutions or services that we offer, could harm
our business, results of operations or financial condition.
Some
of our existing customers compete with us, or may do so in the future, and some customers belong to alliances that compete with us, or
may do so in the future, either with respect to the solutions or services we provide to them now, or with respect to other lines of business.
To the extent that customers elect to perform internally any of the business processes our solutions address, either because they believe
they can provide such processes more efficiently internally or otherwise, we may lose such customers, or the volume of our business with
such customers may be reduced, which could harm our business, results of operations or financial condition.
If
our solutions do not interoperate with our customers’ or their vendors’ networks and infrastructures, or if customers or
their vendors implement new system updates that are incompatible with our solutions, sales of those solutions could be adversely affected.
Our
solutions must interoperate with our customers’ and their vendors’ existing infrastructures, which often have different specifications,
rapidly evolve, utilize multiple protocol standards, and applications from multiple vendors, and contain multiple generations of products
that have been added to that infrastructure over time. Some of the technologies supporting our customers and their vendors are changing
rapidly and we must continue to adapt to these changes in a timely and effective manner at an acceptable cost. In addition, our customers
and their vendors may implement new technologies into their existing networks and systems infrastructures that may not immediately interoperate
with our solutions.
Our
continued success will depend on our ability to adapt to changing technologies, manage and process ever-increasing amounts of data and
information and improve the performance, features and reliability of our services in response to changing customer and industry demands.
If we encounter complications related to network configurations or settings, we may have to modify our solutions to enable them to interoperate
with customers’ and their vendors’ networks and manage customers’ transactions in the manner intended.
Our
ability to generate revenue could suffer if we do not continue to update and improve existing solutions and develop new ones.
We
must continually improve the functionality of our existing solutions in a timely manner and introduce new and valuable healthcare IT
and service solutions in order to respond to technological and regulatory developments and customer demands and, thereby, retain existing
customers and attract new ones. For example, from time to time, government agencies may alter format and data code requirements applicable
to electronic transactions. In addition, customers may request that solutions be customized to satisfy particular security protocols,
modifications, and other contractual terms in excess of industry norms and standard configurations. We may not be successful in responding
to technological and regulatory developments or changing customer needs. In addition, these regulatory or customer-imposed requirements
may impact the profitability of particular solutions and customer engagements. The pace of change in the markets served by us is rapid,
and there are frequent new product and service introductions by competitors in their offerings. If we do not respond successfully to
technological and regulatory changes, as well as evolving industry standards and customer demands, our solutions may become obsolete.
Technological changes also may result in the offering of competitive solutions at lower prices than we are charging for our solutions,
which could result in us losing sales unless we lower the prices we charge or provide additional efficiencies or capabilities to the
customer. If we lower our prices on some of our solutions, we will need to increase margins on other solutions in order to maintain overall
profitability.
There
are increased risks of performance problems and breaches during times when we are making significant changes to our solutions or systems
we use to provide our solutions. In addition, changes to our solutions or systems, including cost savings initiatives, may cost more
than anticipated, may not provide the benefits expected, may take longer than anticipated to develop and implement or may increase the
risk of performance problems.
In
order to respond to technological changes, such as continuing development in the areas of data analytics as well as regulatory changes
and evolving security risks and industry standards, our solutions and the software and systems we use to provide our solutions must be
continually updated and enhanced. We cannot be certain that errors will not arise in connection with any such changes, updates, enhancements
or new versions, especially when first introduced. Even if our new, updated or enhanced solutions do not have performance problems, technical
and customer service personnel may have difficulties installing them or providing any necessary training and support to customers, and
customers may not follow our guidance on appropriate training, support and implementation for such new, updated or enhanced solutions.
In addition, changes in technology and systems may not provide the additional functionality or other benefits that were expected.
Implementation
of changes in our technology and systems may cost more or take longer than originally expected and may require more testing than initially
anticipated. While new, updated or enhanced solutions will be tested before they are used in production, we cannot be sure that the testing
will uncover all problems that may occur in actual use.
If
significant problems occur as a result of these changes, we may fail to meet our contractual obligations to customers, which could result
in claims being made against us or in the loss of customer relationships.
Breaches
and failures of our IT systems and the security measures protecting them, and the sensitive information we transmit, use and store, expose
us to potential liability and reputational harm.
Our
business relies on sophisticated information systems to obtain, rapidly process, analyze, and manage data, affecting our ability to provide
services. To the extent our IT systems are not successfully implemented or fail, our business and results of operations may be adversely
affected.
Our
business and results of operations may also be adversely affected if a vendor servicing our IT systems does not perform satisfactorily,
or if the IT systems are interrupted or damaged by unforeseen events, including the actions of third-parties. Further, our business relies
to a significant degree upon the secure transmission, use and storage of sensitive information, including protected health information
and other personally identifiable information, financial information and other confidential information and data within these systems.
To protect this information, we seek to implement commercially reasonable security measures and maintain information security policies
and procedures informed by requirements under applicable law and recommended practices, in each case, as applicable to the data collected,
hosted and processed. Despite our security management efforts with respect to physical and technological infrastructure, employee training,
vendor controls and contractual relationships, our infrastructure, data or other operation centers and systems used in connection with
our business operations, including the internet and related systems of our vendors are vulnerable to, and from time to time experience,
unauthorized access to data and/or breaches of confidential information due to criminal conduct, physical break-ins, hackers, employee
or insider malfeasance and/or improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks,
ransomware events, phishing schemes, fraud, terrorist attacks, human error or other breaches by insiders or third-parties or similar
disruptive problems. It is not possible to prevent all security threats to our systems and data. Techniques used to obtain unauthorized
access, disable or degrade service or sabotage systems change frequently and may be difficult to detect for long periods of time.
Because
our products and services involve the storage, use and transmission of personal information of consumers, we and other industry participants
have been and expect to routinely be the target of attempted cyber and other security threats by outside third-parties, including technically
sophisticated and well-resourced bad actors attempting to access or steal the data we store. Vendor, insider or employee cyber and security
threats also occur and are a significant concern for all companies, including us. While we maintain liability insurance coverage including
coverage for errors and omissions and cyber-liability, claims may not be covered or could exceed the amount of our applicable insurance
coverage, if any, or such coverage may not continue to be available on acceptable terms or in sufficient amounts.
We
collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to protect
such information and data could damage our reputation and brand and harm our business and operating results.
We
collect, process, store, share, disclose and use personal information and other data provided by patients and healthcare providers.
We rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information.
We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Any
failure or perceived failure to maintain the security of personal and other data that is provided to us by patients and healthcare
providers could harm our reputation and brand and expose us to a risk of loss or litigation and possible liability, any of which
could harm our business and operating results. In addition, from time to time, it is possible that concerns will be expressed about
whether our products, services, or processes compromise the privacy of our users. Concerns about our practices with regard to the
collection, use or disclosure of personal information or other privacy related matters, even if unfounded, could harm our business
and operating results.
There
are numerous federal, state and local laws around the world regarding privacy and the collection, processing, storing, sharing,
disclosing, using and protecting of personal information and other data, the scope of which are changing, subject to differing
interpretations, and which may be costly to comply with and may be inconsistent between countries and jurisdictions or conflict with
other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related
obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of
conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be
interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other
rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy
policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any
compromise of security that results in the unauthorized release or transfer of sensitive information, which may include personally
identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against
us by consumer advocacy groups or others and could cause consumers to lose trust in us, which could have an adverse effect on our
business. Additionally, if vendors, developers or other third parties that we work with violate applicable laws or our policies,
such violations may also put consumer or dealer information at risk and could in turn harm our reputation, business and operating
results.
If
we are unable to successfully execute on cross-selling opportunities of our solutions the growth of our business and financial performance
could be harmed.
Our
ability to generate growth partly depends on our ability to cross-sell solutions to existing customers and new customers. We have identified
our ability to successfully cross-sell our solutions as a key part of our business strategy and therefore one of the most significant
factors influencing growth. We may not be successful in cross-selling our solutions because customers may find additional solutions unnecessary,
unattractive or cost-ineffective. Failure to sell additional solutions to existing and new customers could negatively affect our ability
to grow our business.
We
rely on internet infrastructure, bandwidth providers, other third parties and our own systems in providing certain of our solutions
to our customers, and any failure or interruption in the services provided by these third parties or our own systems could
negatively impact our relationships with customers, adversely affecting our brand and our business.
Our
ability to deliver our solutions is dependent on the development and maintenance of the infrastructure of the internet and other
telecommunications services by third parties. This includes maintenance of a reliable network connection with the necessary speed,
data capacity and security for providing reliable internet access and services and reliable telephone and facsimile services. As a
result, our information systems require an ongoing commitment of significant resources to maintain and enhance existing systems and
develop new systems in order to keep pace with continuing changes in information technology, emerging cybersecurity risks and
threats, evolving industry and regulatory standards and changing preferences of our customers.
Our
solutions are designed to operate without interruption in accordance with our service level commitments. However, we have experienced
limited interruptions in these systems in the past, including server failures that temporarily slow down the performance of our solutions,
and we may experience more significant interruptions in the future. We rely on internal systems as well as vendors, including bandwidth
and telecommunications equipment providers, to provide our solutions. We do not maintain redundant systems or facilities for some of
these services. Interruptions in these systems, whether due to system failures, computer viruses, physical or electronic break-ins or
other catastrophic events, could affect the security or availability of our solutions and prevent or inhibit the ability of our customers
to access our solutions.
If
a catastrophic event were to occur with respect to one or more of these systems or facilities, we may experience an extended period of
system unavailability, which could result in substantial costs to remedy those problems or negatively impact our relationship with our
partners, our business, results of operations and financial condition. To operate without interruption, both we and our vendors must
guard against:
|
● |
damage
from fire, power loss, tornado and other natural disasters; |
|
● |
telecommunications
failures; |
|
● |
software
and hardware errors, failures and crashes; |
|
● |
security
breaches, computer viruses and similar disruptive problems; and |
|
● |
other
potential interruptions. |
Any
disruption in the network access, telecommunications or co-location services provided by vendors, or any failure of or by vendors’
systems or our own systems to handle current or higher volume of use could significantly harm our business. We exercise limited control
over these vendors, which increases our vulnerability to problems with services they provide. Any errors, failures, interruptions or
delays experienced in connection with these vendor technologies and information services or our own systems could negatively impact our
relationships with partners and adversely affect our business and could expose us to liabilities. Although we maintain insurance for
our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot
provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
Risks
Relating to Our Common Stock
We
expect to seek to raise additional funds in the future, which may be dilutive to stockholders or impose operational restrictions.
We
are currently seeking additional funding through equity and/or debt financing arrangements and we expect to raise additional capital
in the future to help fund development of our future expansion plans. If we raise additional capital through the issuance of equity or
convertible debt securities, the percentage ownership of our current stockholders will be reduced. We may also enter strategic transactions,
compensate employees or consultants or settle outstanding payables using equity that may be dilutive. Our stockholders may experience
additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior
to those of the holders of our common stock. If we cannot raise additional funds, we will have to delay development activities of our
expansion plans.
Our
stock price is likely to be highly volatile because of several factors, including a limited public float.
The
market price of our common stock has been volatile in the past and is likely to be highly volatile in the future because there has been
a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock
price. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse
reaction to volatility.
Other
factors that could cause such volatility may include, among other things:
|
● |
actual
or anticipated fluctuations in our operating results; |
|
● |
the
absence of securities analysts covering us and distributing research and recommendations about us; |
|
● |
overall
stock market fluctuations; |
|
● |
announcements
concerning our business or those of our competitors; |
|
● |
actual
or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; |
|
● |
conditions
or trends in the industry; |
|
● |
litigation; |
|
● |
changes
in market valuations of other similar companies; |
|
● |
future
sales of common stock; |
|
● |
departure
of key personnel or failure to hire key personnel; and |
|
● |
general
market conditions. |
Any
of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in
general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating
performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless
of our actual operating performance.
We
are an emerging growth and smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable to emerging
growth and smaller reporting companies will make our common stock less attractive to investors.
We
are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. For as
long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies, including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in this Annual Report and our periodic reports and proxy statements, and exemptions from the requirements of holding
nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We could be an emerging growth company for up to five years following the fifth anniversary of the date of the first sale
of common equity securities pursuant to an effective registration statement, although circumstances could cause us to lose that
status earlier. We will remain an emerging growth company until the earlier of (i) December 31, 2026, the last day of the fiscal
year (a) following the fifth anniversary of the of the date of the first sale of common equity securities pursuant to an effective
registration statement, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to
be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700
million as of the prior September 30th, and (ii) the date on which we have issued more than $1.0 billion in
non-convertible debt during the prior three-year period.
Under
the JOBS Act, emerging growth companies can also delay adopting new or
revised accounting standards until such time as those standards apply to private companies. We have elected to irrevocably opt out of
this exemption and, therefore, we will comply with new or revised accounting standards as required when they are adopted.
Even
after we no longer qualify as an emerging growth company, we may still
qualify as a smaller reporting company, which would allow us to continue to take advantage of many of the same exemptions from disclosure
requirements, including, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act
and reduced disclosure obligations regarding executive compensation in this Annual Report and our periodic reports and proxy statements.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find
our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be
more volatile.
We
provide indemnification of our officers and directors and we may have limited recourse against these individuals.
Our
Articles of Incorporation and Bylaws contain broad indemnification and liability limiting provisions regarding our officers and directors,
including the limitation of liability for certain violations of fiduciary duties. If we were called upon to indemnify an officer or director,
then the portion of our available funds expended for that purpose would reduce the amount otherwise available for our business. The indemnification
obligations and the resultant costs associated with indemnification may also discourage us from bringing a lawsuit against our directors
and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our shareholders
against our directors and officers even though such actions, if successful, might otherwise benefit us and our shareholders. We would
bear the expenses of such litigation for any of its directors or officers upon such person’s promise to repay us if it is ultimately
determined that any such person shall not have been entitled to indemnification. This could result in significant expenditures which
we may be unable to recoup.
We
have never paid dividends and do not anticipate paying any dividends to holders of our shares of common stock for the foreseeable future.
We have never paid cash dividends
on our common stock and do not anticipate paying any for the foreseeable future. Payment of any future dividends will be at the discretion
of our board of directors after considering many factors, including our earnings, operating results, financial condition and current and
anticipated cash needs. As a result, investors may not receive any return on an investment in our shares of common stock unless they sell
their shares of common stock for a price greater than that which such investors paid for them.
We
are controlled by our current officers, directors, and certain beneficial shareholders.
Currently,
our directors, executive officers, and certain beneficial shareholders
own a majority of the voting control of the Company. Thus, they will be able to exert substantial influence over the election of our Board
of Directors and the vote on issues submitted to our shareholders. As of the date of this filing, our officers, directors and certain
beneficial shareholders beneficially owned 4,229,459 shares (56%) of our common stock and 3,000 shares of our Series B Preferred Stock
(100%), which excludes shares of common stock held in street name by non-affiliated individuals.
We
cannot assure you that the common stock will be liquid or that it will remain listed on a securities exchange.
We
cannot assure you that we will be able to maintain the listing standards of the OTCQB or any other national market. If we are delisted
from the OTCQB then our common stock will not trade. In addition, delisting of our common stock could further depress our stock price,
substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to
us, or at all. Delisting could also have other negative results, including the potential loss of confidence by suppliers and employees,
the loss of institutional investor interest and fewer business development opportunities.
We
cannot assure you that restricted shares issued in certificate form will be cleared by clearing firms for sale.
We
are subject to all rules and regulations promulgated for issuing companies. However, we cannot provide assurance that restricted shares
issued in certificate form will be accepted by brokerage or clearing firms. We can provide support with legend removal subject to all
rules and regulations provided by the SEC and FINRA, however we cannot guarantee that certificates with legends removed will be accepted
or cleared for sale by brokerage or clearing firms.