PROSPECTUS
SUMMARY
This
prospectus summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider
to be important information about us, you should carefully read this entire prospectus, including our financial statements, before investing
in our securities, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context
requires otherwise, references to “our company,” “we,” “us,” “our,” “Company”
and “Progressive” refer to Progressive Care Inc. (f/k/a Progressive Training, Inc.) and its subsidiaries on a consolidated
basis.
Business
Overview
We
are a personalized healthcare services and technology company which provides prescription pharmaceuticals and risk and data management
services to healthcare organizations and providers.
Over the past 15 years we have developed
a unique model for pharmacy operation and data management. As a healthcare services company, we specialize in analyzing health outcomes,
costs and risks associated with the administration of prescription pharmaceuticals. The industry has increasingly put the onus on primary
care physicians to manage the health outcomes and patient healthcare spending, so our medication therapy management and patient prescription
services can assist this process. Physicians recommend our services to their patients as means of ensuring medication adherence and compliance,
which prevents costly acute care spending for chronic care conditions and enhances their performance as a practice.
Over the past year, we have been
performing data management and other services for 340B Covered Entities dispensing medications under the federal 340B Drug Discount Pricing
Program. Our unique expertise in prescription data management has attracted additional 340B Covered Entities as clients. We created ClearMetrX
as a wholly owned subsidiary to perform third party administration and data management services. We generate revenue in connection with
data management services provided for 340B Covered Entities. Our pharmacy operations use data management services internally to drive
prescription volumes.
We operate four PharmCo pharmacies.
Our pharmacy operations generate a substantial majority of our revenues. Our prescription revenue generated 95%, 99%, 86% and 98% of
our total net revenue for the years ended December 31, 2020, and 2019, and the nine months ended September 30, 2021 and 2020, respectively.
Our data management services generated 7%, 2%, 7% and 7% of our total net revenue for the years ended December 31, 2020, and 2019, and
the nine months ended September 30, 2021 and 2020, respectively. Please refer to section entitled “Management’s Discussion
and Analysis and Results of Operations.” We have incurred and may continue to incur operating losses in the foreseeable future.
For the years ended December 31, 2020 and December 31, 2019 we had net revenue from continuing operations of $38.9 million and $32.6
million, respectively. For the years ended December 31, 2020 and 2019, we had net losses from continuing operations of $(1.4) million
and $(2.5) million, respectively. For the nine months ended September 30, 2021, we had net revenue of $29.0 million, and a net income
of $0.4 million, respectively. As of December 31, 2020, and September 30, 2021, we had cash balances of $2.1 million and $2.1 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. Of the $2.3 million as of September 30, 2021, in convertible debt, including accrued interest of
$0.7 million, bearing interest at 10% per annum that we have issued and outstanding, approximately $1.6 million in principal and $0.7
million in interest will come due in 2022.
Our
PharmCo subsidiaries are full-service retail specialty services pharmacies that offer same-day free delivery within Florida. The pharmacies
accept most major insurance plans, have competitive out-of-pocket pricing for cash paying patients, and have the capacity to fill all
prescriptions just like other traditional pharmacies. We sell common blood pressure, statin and other common drugs, and dispense either
brand name or generic drugs according to the doctor’s prescription.
We are focused on strategic growth
through SaaS-based revenue streams, digital health technologies and expanded penetration of our PharmCo-branded operations. We anticipate
these efforts will be realized through our ongoing B2B healthcare marketing strategies, strategic partnerships, and acquisitions.
Products
and Services and their Markets
Pharmacy
operations
We
provide 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. We improve the lives of patients with complex chronic
diseases through our partnerships with patients, payors, pharmaceutical manufacturers and distributors, and physicians. We offer a broad
range of innovative solutions to address the dispensing, delivery, dosing, and reimbursement of clinically intensive, high-cost drugs.
We also provide patient health risk reviews and free same-day delivery. On a trailing twelve months we fill on average approximately
41,000 prescriptions per month. We believe we are well positioned to continue expanding our market share in the pharmacy industry.
We
offer a variety of value-added services for no additional charge that further encourage satisfaction across all medication stake holders
and enhance loyalty and key performance metrics. These services include language support for broad demographics, prior authorization
assistance, same-day home-medication delivery, on site provider consultation services, reporting and analytics, customized medication
adherence packaging solutions, and patient advocacy. Our pharmacies accept most major insurance plans and provide access to co-pay assistance
programs, discount and manufacturer coupons, and competitive cash payment options. We also offer e-commerce of over-the-counter products,
certain disease testing, and vaccinations. We also provide contracted pharmacy services for 340B Covered Entities under the 340B Drug
Discount Pricing Program.
We
currently deliver prescriptions to Florida’s diverse population and ship compounded medications to patients in states where we
hold non-resident pharmacy licenses as well. We hold a community pharmacy permit in Florida and we hold non-resident pharmacy licenses
that allow us to dispense to patients in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada,
New Jersey, New York, Pennsylvania, Texas, and Utah. We are able to 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.
Data
Management Services
Global
healthcare systems have been taxed in recent years with aging populations seeking care in greater numbers. Big data and analytics have
seen large increases in the market as healthcare stakeholders seek to use information to increase efficiency, lower costs, improve patient
outcomes, and innovate. Frontline and independent providers have benefitted from improvements to their digital systems, but data insights
are a rare commodity. Regardless of size, digitization of healthcare as global trend will encourage the usage of data analytics to improve
care and allow us to compete in an intense healthcare market. Per Fortune Business Insights Report on the Healthcare Analytics Market,
the healthcare analytics market size is projected to reach $80.2 billion by 2026, exhibiting a compound annual growth rate of 27.5%.
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 over the past 15 years of our operations. We are uniquely positioned in
Florida to gain an increasing market share among a broad demography of patients due to our high-performance scores and value-added services.
Additionally, we see value in the opportunity to create strategic partnerships, acquire synergistic operations and expand current operations
to round out pharmacy capabilities which could include specialty medications, sterile compounding, and mail-order.
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 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-premise, 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. We believe our unique vision of pharmacy enabled health
technology will lead the way to independent and integrated health systems.
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.
We have a different approach to data and how
to incorporate it into business and professional practice. The goal of all businesses with access to large data collections should be
to harness the most relevant data and use it for optimized decision making. ClearMetrX focuses on using data-driven analytic tools to
identify insights targeting three key areas where we see the potential to improve patient outcome and maximize revenue and margin for
our clients: improving medication adherence, improving patient engagement with their physicians, and optimizing operational efficiency
and costs. The data that will be provided to our physicians’ practices will help doctors to meet third party payor performance goals
which will improve reimbursement payments from third party payors.
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 and manage any side effects and 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. Per the EQuIPP® performance
valuation report, we have achieved patient adherence rates of over 90% which has resulted in our five-star rating through 2020 and 2019.
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. These healthcare professionals
do not simply 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.
Successful
acquisition strategies. Our strategy in identifying synergistic acquisition targets stems from identifying characteristics that enhance
our core operations and provide the opportunity for further innovation. The acquisitions of both PharmCo 1002 and PharmCo 1103 in 2018
and 2019, respectively, have expanded our geographic service area, while also diversifying our demographics and revenue streams by increasing
MTM capabilities and contracted pharmacy services for 340B Covered Entities. We believe this strategy will continue to be successful
as we add more organizations to our arsenal of service providers.
Highly
experienced and passionate operating team. Our senior operations team has worked together for over 12 years and is responsible for
our proven track record of growth-consistent performance and industry leading service.
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.
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. As a five-star rated pharmacy per EQuIPP performance valuation reports, 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.
Growth
Strategy
We
plan to grow our business by continuing to execute on the following key growth strategies:
Data
Management Services. We have begun transitioning from a pharmacy centered organization focusing on dispensing to an organization
that provides data management services and health technology to pharmacies. 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.
Virtual
Health and Health IT. We have initiated plans to invest in high-growth and high-margin healthcare technologies and virtual health
services. Our vision of integrated, pharmacy enabled health tech will be instrumental in reducing health information silos, closing health
care gaps and lessening the burdens on providers and patients alike. Through the development of proprietary platforms, we can enter strategic
partnerships with public and private health systems. The COVID-19 pandemic has further accelerated the need for these services and entrenched
the growing adoption trend of virtual care services in recent years.
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. as well, and we expect to use funds from this offering to invest in sales
and marketing efforts.
Expand
Clinical Expertise to a Broad Range of Therapeutic Categories. We serve a broad range of therapeutic
categories, and we believe we can expand our clinical expertise to penetrate additional markets such as hormone therapies, reproductive
health, mental health, sexual health, and nutrition/dietetics. We believe these categories will become increasingly important to our
patient population in the coming years due to advancement of therapies and increased incidences of chronic illness and that our platform
will allow us to grow with market expansion.
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. In June 2019,
we completed the acquisition of Family Physicians RX, Inc., a pharmacy with operations in Miami-Dade, Broward, and Orange County, Florida.
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.
Summary
Risk Factors
Our
business is subject to numerous risks and uncertainties, including those in the section titled “Risk Factors” and
elsewhere in this prospectus. You should read these risks before you invest in our securities. These risks include, but are not limited
to, the following:
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We
have a history of losses and may not be able to achieve or sustain profitability.
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We
derive a significant portion of our sales from prescription drug sales reimbursed by pharmacy
benefit management companies.
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A pandemic,
including COVID-19, or an epidemic or outbreak of an infectious disease in the United States or Europe may adversely affect our business.
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Efforts
to reduce reimbursement levels and alter health care financing practices could adversely
affect our businesses.
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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.
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Changes
in industry pricing benchmarks could adversely affect our business, financial position and
results of operations.
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The
industries in which we operate are extremely competitive and competition could adversely
affect our business, financial position, and results of operations.
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Existing
and new government legislative and regulatory action could adversely affect our business,
financial position, and results of operations.
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Our
industry is subject to extensive government regulation, and noncompliance by us or our suppliers
could harm our business.
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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.
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Conflicts
of interest may arise between us and our directors and officers as a result of other business
activities undertaken by such individuals.
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We
will incur increased costs as a result of being a public reporting company and our management
will be required to devote substantial time to new compliance initiatives.
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We
will seek to raise additional funds in the future, which may be dilutive to stockholders
or impose operational restrictions.
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Our
stock price is likely to be highly volatile because of several factors, including a limited
public float.
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A
significant portion of our total outstanding shares are restricted from immediate resale
but may be sold into the market in the near future. This could cause the market price of
our common stock to significantly decrease, even if our business is doing well.
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We cannot assure you that our common stock and
warrants will be liquid or that they will remain listed on a securities exchange.
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Recent
Developments
Exchange
of Series A Preferred Stock
On January 7, 2021, we entered into an exchange
agreement with the Yelena Braslavskaya 2020 Gift Trust, the holder of all 51 of our outstanding shares of Series A Preferred Stock, to
exchange all of the 51 shares of Series A Preferred Stock into an amount equal to 4.6% of the number of shares of our Common Stock issued
and outstanding as of the date immediately preceding the date of the filing of a final Amendment to Registration Statement on Form S-1/A
filed with the SEC. As of November 3, 2021, the holders of our common stock are entitled to one vote per share on all matters submitted
to a vote of the stockholders. Each share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by
the total issued and outstanding common stock and preferred stock eligible to vote at the time of the respective vote (the “Numerator”),
divided by (y) 0.49, minus (z) the Numerator. With respect to all matters upon which stockholders are entitled to vote or to which stockholders
are entitled to give consent, the holders of the outstanding shares of Series A Preferred Stock shall vote together with the holders
of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the
Certificate of Incorporation or By-laws. As of the Record Date, each share of Series A Preferred Stock has voting rights equal to 10,926,680
shares, and on an aggregate basis the 51 shares of Series A Preferred Stock have voting rights equal to 557,260,682 shares. On November
22, 2021, the parties re-executed the exchange agreement and expect to complete the exchange simultaneously with the closing of this
offering which would have the effect of cancelling all shares of Series A Preferred Stock owned by the Yelena Braslavskaya 2020 Gift
Trust.
Listing on the Nasdaq Capital Market
Our Common Stock is currently quoted on the
OTCQB. In connection with this offering, we are in the process of applying to have our Common Stock and Warrants sold in this offering
listed on Nasdaq under the symbols “ ” and “W”, respectively. If our listing application is approved, we expect
to list our Common Stock and Warrants on the Nasdaq upon consummation of the offering, at which time our Common Stock will cease to be
quoted on the OTCQB. If Nasdaq does not approve the listing of our Common Stock and Warrants, we will not consummate this offering. There
can be no assurance that our Common Stock and Warrants will be listed on Nasdaq.
Implications
of Being an Emerging Growth Company and Smaller Reporting Company
We
qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the
JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise
applicable generally to public companies. These provisions include:
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only
two years of audited financial statements in addition to any required unaudited interim financial
statements with correspondingly reduced “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” disclosure;
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reduced
disclosure about our executive compensation arrangements;
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no
non-binding advisory votes on executive compensation or golden parachute arrangements; and
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exemption
from the auditor attestation requirement in the assessment of our internal control over financial
reporting.
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We
may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We
would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have
total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date
of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous
three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take
advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly,
the information contained herein may be different from the information you receive from other public companies in which you hold stock.
Additionally, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying
with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore,
while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become
applicable to other public companies that are not emerging growth companies.
We
are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company
even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller
reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates
is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million
during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million
measured on the last business day of our second fiscal quarter.
Company
Information
Our executive offices are located at 400 Ansin
Boulevard, Suite A, Hallandale Beach, FL 33009, and our telephone number is (305) 760-2053. Our corporate website address is http://www.progressivecareus.com,
and the website addresses of our subsidiaries are http://www.pharmcorx.com, and http://www.clearmetrx.com. The references to our websites
are intended to be an inactive textual reference only. Information contained on, or accessible through, our websites are not a part of,
and are not incorporated by reference into, this prospectus, and you should not rely on this information in making a decision to invest
in our securities in this offering.
THIS
OFFERING
Securities offered by us
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Units, each Unit consisting of one share of Common Stock and one warrant
to purchase one share of Common Stock. The Warrants have an exercise price of $ (which
will not be less than % of the public offering price of one Unit) per whole share of Common Stock, are exercisable immediately
and will expire ([●]) years from the date of issuance. The Units
will not be certificated or issued in stand-alone form. The shares of Common Stock and the Warrants comprising the Units are immediately
separable upon issuance and will be issued separately in this offering.
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Common Stock outstanding prior to
this offering(1)
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Common Stock to be outstanding after the offering(1)
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Over-allotment option
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We have granted the underwriters the option to purchase up to
additional shares of Common Stock and/or additional
Warrants to purchase up to shares of Common Stock (equal to 15.0% of the number of Units sold in this
offering) from us in any combination thereof at a price per Unit equal to the public offering price per Unit, less the underwriting
discounts payable by us, solely to cover over-allotments, if any.
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Use of proceeds
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We expect to receive net proceeds from
this offering of approximately $ (assuming a public offering price
of $ per Unit, set forth on the cover page of this prospectus),
or approximately $ if the underwriters exercise their over-allotment
option in full, after deducting the underwriting discounts and commissions and estimated offering expenses of approximately $
payable by us.
We intend to direct approximately $
of the net proceeds of the offering towards the development and marketing of the healthcare data analytics platforms of our wholly
owned subsidiary, ClearMetrX. We also intend to use any remaining net proceeds from this offering for working capital, and other
general corporate purposes which may include potential future business acquisitions and to a lesser extent repayment of debt. Pending
the use of the net proceeds of this offering as described above, we may invest the net proceeds in short-term interest- bearing investment
grade instruments.
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Description of Warrants
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The exercise price of the Warrants is $
per share (with an exercise price no less than % of the public offering price of one Unit). Each Warrant is exercisable for one share
of Common Stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations
or similar events affecting our shares of Common Stock as described herein. A holder may not exercise any portion of a Warrant to
the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99%
(or 9.99% at the election of the holder prior to issuance) of the outstanding shares of Common Stock after exercise, as such percentage
ownership is determined in accordance with the terms of the Warrants, except that upon notice from the holder to us, the holder may
waive such limitation up to a percentage, not in excess of 9.99%. Each Warrant will be exercisable immediately upon issuance and
will expire five years after the initial issuance date. The terms of the Warrants will be governed by a warrant agreement, dated
as of the date of this prospectus, between us and ClearTrust, as the warrant agent. This prospectus also relates to the offering
of the shares of Common Stock issuable upon exercise of the warrants. For more information regarding the Warrants, you should carefully
read the section titled “Description of —Warrants” in this prospectus.
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Representative’s
Warrant
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The
registration statement of which this prospectus is a part also registers warrants being issued
to the Representative (the “Representative’s Warrants”) to purchase up
to shares of Common
Stock (5.0% of the number of shares of Common Stock sold in this offering (including any
shares of Common Stock sold pursuant to the over-allotment option), as a portion of the underwriting
compensation payable in connection with this offering, as well as the shares of Common Stock
issuable upon the exercise of the Representative’s Warrants. The Representative’s
Warrants will not be exercisable for six months after the closing of the offering and will
expire five years from the commencement of sales of this offering is a part at an exercise
price of $ per share (100%
of the public offering price of the Units) and may be exercised on a cashless basis. Please
see “Underwriting—Representative’s Warrants” for a description of
these warrants.
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Risk
factors
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Investing in our securities
is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk
Factors” section beginning on page 13 before deciding to invest in our securities.
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Dividend
policy
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We
expect to retain all future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future. See “Dividend Policy”.
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Proposed
Nasdaq Listing
and Symbol
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Our Common Stock is quoted on the OTCQB under the symbol “RXMD”.
On December 3, 2021, the last reported sale price of our Common Stock on the OTCQB was $0.028 per share. We are in the process of applying
to have our Common Stock and Warrants listed on Nasdaq under the symbols “ ” and “W”, respectively. We will not
consummate this offering unless our Common Stock and Warrants are approved for listing on Nasdaq.
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(1)
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Assumes
no exercise of the underwriters’ option to purchase up to an additional [ ] shares of our Common Stock and/or
additional Warrants to purchase up to [ ] shares of common stock. Excludes: (i) shares of Common Stock issuable upon exercise of
the Representative’s Warrants to be issued to the Representative of the underwriters upon closing of this offering; and (ii) shares
of Common Stock issuable upon conversion of the notes held by Chicago Ventures and Iliad Research.
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All share and per share information referenced
through this prospectus has been retroactively adjusted to reflect a series of transactions that occurred prior to the closing of this
offering on , 2021: (i) the exchange of all shares of our Series A Preferred Stock for
shares of our Common Stock on a basis effective , 2021; (ii) the filing of our Amended
and Restated Articles of Incorporation and the adoption of our Amended and Restated Bylaws effective ,
2021; and (iii) a reverse stock split effected on a 1 for basis effective , 2021.
Accordingly, all share and per share amounts
presented in this prospectus have been adjusted, where applicable, to reflect such conversions. Nevertheless, this prospectus retains
references to our Series A Preferred Stock to the extent referring to transactions occurring prior to the closing of this offering.
The number of shares of our Common Stock to
be outstanding as shown above is based on shares outstanding as of , 2021, and excludes:
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Assumes no exercise
by the Underwriters of their option to purchase up to an additional [ ] shares of Common Stock and/or [ ] additional
Warrants to purchase up to [ ] shares of Common Stock to cover over-allotments, if any;
|
|
●
|
Excludes shares
of Common Stock underlying the Warrants issued as part of the Units; and
|
|
●
|
Excludes
shares of Common Stock underlying the Warrants to be issued to the Representative in connection with this offering.
|
|
●
|
Excludes
shares of Common Stock issuable upon conversion of the notes held by Chicago Ventures and Iliad Research.
|
SUMMARY
CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated statements
of operations data for the fiscal years ended December 31, 2020 and 2019 have been derived from our audited consolidated financial statements
included elsewhere in this prospectus. Additionally, the nine months ended September 30, 2021 and 2020 have been derived from our unaudited
condensed consolidated financial statements included elsewhere in this prospectus. The historical financial data presented below is not
necessarily indicative of our financial results in future periods, and the results for the nine months ended September 30, 2021 and 2020
are not necessarily indicative of our operating results to be expected for the full fiscal year ending December 31, 2021 or any other
period. You should read this information in conjunction with those financial statements and the accompanying notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and
presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated interim condensed
financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting
of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations
as of and for such periods.
Historical
Financial Information
Progressive
Care Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
|
|
Nine
Months
Ended September 30,
|
|
|
Nine
Months
Ended
September 30,
|
|
|
Years
Ended
December 31,
|
|
|
Years
Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Revenues,
net
|
|
$
|
28,999,122
|
|
|
$
|
28,770,960
|
|
|
$
|
38,937,838
|
|
|
$
|
32,629,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
21,031,826
|
|
|
|
22,462,377
|
|
|
|
29,970,337
|
|
|
|
24,661,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,967,296
|
|
|
|
6,308,583
|
|
|
|
8,967,501
|
|
|
|
7,967,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
152,953
|
|
|
|
192,485
|
|
|
|
130,792
|
|
|
|
139,030
|
|
Share-based
compensation
|
|
|
189,012
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,000
|
|
Other
selling, general and administrative expense
|
|
|
8,230,688
|
|
|
|
7,347,709
|
|
|
|
9,983,528
|
|
|
|
8,719,861
|
|
Total
Selling, general and administrative expenses
|
|
|
8,572,653
|
|
|
|
7,540,194
|
|
|
|
10,114,320
|
|
|
|
8,901,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(605,357
|
)
|
|
|
(1,231,611
|
)
|
|
|
(1,146,819
|
)
|
|
|
(933,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liability
|
|
|
913,640
|
|
|
|
881,000
|
|
|
|
814,000
|
|
|
|
(321,000
|
)
|
Gain
in debt extinguishment
|
|
|
1,056,225
|
|
|
|
-
|
|
|
|
592,500
|
|
|
|
-
|
|
Automobile
casualty loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,545
|
)
|
Loss
on disposal of property and equipment
|
|
|
(8,237
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,973
|
)
|
Other
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
Interest
income
|
|
|
10
|
|
|
|
140
|
|
|
|
148
|
|
|
|
512
|
|
Interest
expense
|
|
|
(985,163
|
)
|
|
|
(1,084,198
|
)
|
|
|
(1,702,858
|
)
|
|
|
(1,245,526
|
)
|
Total
other income (expense) - net
|
|
|
976,475
|
|
|
|
(203,058
|
)
|
|
|
(296,210
|
)
|
|
|
(1,569,389
|
)
|
Income
(loss) before provision for income taxes
|
|
|
371,118
|
|
|
|
(1,434,669
|
)
|
|
|
(1,443,029
|
)
|
|
|
(2,503,339
|
)
|
Provision
for income taxes
|
|
|
(7,029
|
)
|
|
|
(6,780
|
)
|
|
|
(6,780
|
)
|
|
|
(2,689
|
)
|
Net
income (loss)
|
|
$
|
364,089
|
|
|
$
|
(1,441,449
|
)
|
|
$
|
(1,449,809
|
)
|
|
$
|
(2,506,028
|
)
|
Basic
and diluted net loss per common share(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Weighted
average number of common shares outstanding during the year - basic
|
|
|
515,389,061
|
|
|
|
457,224,832
|
|
|
|
462,185,453
|
|
|
|
430,999,711
|
|
Weighted
average number of common shares outstanding during the year - diluted
|
|
|
604,651,456
|
|
|
|
457,224,832
|
|
|
|
462,185,453
|
|
|
|
430,999,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
766,833
|
|
|
$
|
(744,625
|
)
|
|
$
|
7,012
|
|
|
$
|
(478,983
|
)
|
Prescriptions Dispensed(3)
|
|
|
329,000
|
|
|
|
396,000
|
|
|
|
530,000
|
|
|
|
457,000
|
|
Net
sales per prescription dispensed(4)
|
|
|
88
|
|
|
|
73
|
|
|
|
73
|
|
|
|
71
|
|
Gross
profit per prescription dispensed(5)
|
|
|
24
|
|
|
|
16
|
|
|
|
17
|
|
|
|
17
|
|
(1)
|
All share
and per share amounts presented have been adjusted to reflect the applicable conversions of capital stock and the one for [ ]
reverse stock split, occurring immediately prior to the completion of the public offering.
|
|
(2)
|
Adjusted
EBITDA is a non-GAAP measure. See “Adjusted EBITDA” below for our definition
of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of net income (loss)
attributable to us to Adjusted EBITDA.
|
|
(3)
|
Prescriptions
dispensed (rounded to nearest thousand) represents actual prescriptions filled and dispensed
by our wholly owned subsidiaries.
|
|
(4)
|
Net
sales per prescription dispensed represents total prescription revenue from prescriptions
dispensed by our wholly owned subsidiaries, divided by the number of prescriptions dispensed.
Total prescription revenue from prescriptions dispensed includes all revenue collected from
patients, third party payors and various patient assistance programs.
|
|
(5)
|
Gross
profit per prescription dispensed represents gross profit from prescriptions dispensed, divided
by the number of prescriptions dispensed. Gross profit represents total prescription revenue
from prescriptions dispensed less the cost of the drugs purchased.
|
Progressive
Care Inc. and Subsidiaries
Condensed
Consolidated Balance Sheet Data
|
|
As of September 30,
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Cash and cash equivalents
|
|
$
|
2,100,854
|
|
|
$
|
2,100,695
|
|
|
$
|
816,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficit)
|
|
$
|
(3,311,249
|
)
|
|
$
|
(2,909,071
|
)
|
|
$
|
(4,256,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,038,889
|
|
|
$
|
11,544,407
|
|
|
$
|
8,587,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
11,922,194
|
|
|
$
|
13,264,459
|
|
|
$
|
10,843,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficiency)
|
|
$
|
116,695
|
|
|
$
|
(1,720,052
|
)
|
|
$
|
(2,256,102
|
)
|
Adjusted
EBITDA
We
define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, share-based compensation,
and certain other items that we do not consider indicative of our ongoing operating performance (which items are itemized below). Adjusted
EBITDA is a non-GAAP financial measure.
We
consider Adjusted EBITDA to be a supplemental measure of our operating performance. We present Adjusted EBITDA because it is used by
our Board and management to evaluate our operating performance. It is also used as a factor in determining incentive compensation, for
budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends and for evaluating
the effectiveness of our business strategies. Further, we believe it assists us, as well as investors, in comparing performance from
period to period on a consistent basis. Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance
with accounting principles generally accepted in the United States (“U.S. GAAP”). In addition, this non-GAAP measure is not
based on any comprehensive set of accounting rules or principles.
As
a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations
as determined in accordance with U.S. GAAP and therefore you should not consider Adjusted EBITDA in isolation from, or as a substitute
for, financial information prepared in accordance with U.S. GAAP. You should be aware that in the future we may incur expenses that are
the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected
by unusual or non-recurring items. Adjusted EBITDA does not include:
|
●
|
depreciation
expense from property and equipment or amortization expense from acquired intangible assets
(and although they are non-cash charges, the assets being depreciated/amortized will often
have to be replaced in the future)
|
|
●
|
interest
expense on our debt and capital leases or interest income we earn on cash and cash equivalents;
|
|
●
|
the
amounts we paid in taxes or other components of our tax provision (which reduces cash available
to us);
|
|
●
|
change
in fair value of derivatives;
|
|
●
|
certain
expenses associated with our acquisition activities; or
|
|
●
|
the
impact of share-based compensation or other matters we do not consider to be indicative of
our ongoing operations.
|
Further,
other companies in our industry may calculate Adjusted EBITDA differently than we do and these calculations may not be comparable to
our Adjusted EBITDA metric. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures,
including net income (loss) attributable to us and our financial results presented in accordance with U.S. GAAP.
The table below presents a reconciliation
of the most directly comparable U.S. GAAP measure, net income (loss) attributable to us to Adjusted EBITDA for the nine months ended
September 30, 2021 and the years ended December 31, 2020 and 2019:
Progressive
Care Inc. and Subsidiaries
Adjusted
EBITDA
|
|
Nine Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
Year Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
364,089
|
|
|
$
|
(1,441,449
|
)
|
|
$
|
(1,449,809
|
)
|
|
$
|
(2,506,028
|
)
|
Interest expense
|
|
|
985,163
|
|
|
|
1,084,198
|
|
|
|
1,702,858
|
|
|
|
1,245,526
|
|
Change in fair value of derivative liability (1)
|
|
|
(913,640
|
)
|
|
|
(881,000
|
)
|
|
|
(814,000
|
)
|
|
|
321,000
|
|
Income tax expense
|
|
|
7,029
|
|
|
|
6,780
|
|
|
|
6,780
|
|
|
|
2,689
|
|
Depreciation and amortization expense
|
|
|
324,192
|
|
|
|
486,846
|
|
|
|
561,183
|
|
|
|
457,830
|
|
Adjusted EBITDA
|
|
$
|
766,833
|
|
|
$
|
(744,625
|
)
|
|
$
|
7,012
|
|
|
$
|
(478,983
|
)
|
|
(1)
|
Change in fair value of derivative liability relates to gains
or losses recognized on changes in the fair value of embedded derivative features in the Chicago Venture and Iliad Research notes payable.
See Note 8 in both the Notes to the Consolidated Financial Statements for the Nine Months ended September 30, 2021, and the Years Ended
December 31, 2020 and 2019 starting on pages A-17, B-17 and C-17, respectively.
|
RISK
FACTORS
Investing
in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information
included in this prospectus before deciding to purchase our securities. There are many risks that affect our business and results of
operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by
any of these risks. This could cause the trading price of our securities to decline, and you may lose all or part of your investment.
Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.
Risks
Related to our Business
We
have a history of losses and may not be able to achieve or sustain profitability.
We have incurred and may continue to incur
operating losses in the foreseeable future. For the years ended December 31, 2020 and December 31, 2019 we had net revenue from continuing
operations of $38.9 million and $32.6 million, respectively. For the years ended December 31, 2020 and 2019, we had net losses from continuing
operations of $(1.4) million and $(2.5) million, respectively. For the nine months ended September 30, 2021, we had net revenue of $29.0
million, and a net income of $0.4 million, respectively. Our ability to achieve and maintain 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 $3.1 million, and approximately $1.7 million in principal will come due in 2022.
As of December 31, 2020, and September 30,
2021, we had cash balances of $2.1 million and $2.1 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. Of the $2.3 million as of September
30, 2021, in convertible debt, including accrued interest of $0.7 million, bearing interest at 10% per annum that we have issued and
outstanding, approximately $1.6 million in principal and $0.7 million of interest will come due in 2022. While these debt securities
are convertible into our shares of Common Stock at variable prices based on lowest closing trading prices prior to the conversion, there
can be no assurance that the holders of such securities will agree to convert amounts due into Common Stock. If we are unable to meet
these 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 and a complete loss of your investment.
There can be no assurance that holders of
our debt securities will agree to convert amounts due into common stock.
As of December 31, 2020, and September 30,
2021, we had cash balances of $2.1 million and $2.1 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. Of the $2.3 million as of September
30, 2021, in convertible debt, including accrued interest of $0.7 million, bearing interest at 10% per annum that we have issued and
outstanding, approximately $1.6 million in principal and $0.7 million of interest will come due in 2022. While these debt securities
are convertible into our shares of Common Stock at variable prices based on lowest closing trading prices prior to the conversion, there
can be no assurance that the holders of such securities will agree to convert amounts due into Common Stock. We are attempting to extend
the maturity date of these debt securities, but can provide no assurance that the holders of such securities will agree to extend the
maturity date on these securities on acceptable terms. If we are unable to meet these 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
and a complete loss of your investment.
Our
Series A Preferred Stock entitles the holder of such shares to a supermajority voting on all matters submitted to a stockholder vote.
The
Yelena Braslavskaya 2020 Gift Trust (the “Trust”) is the owner of all outstanding shares of our Series A Preferred Stock,
which entitles the holder to vote on all matters submitted or required to be submitted to a vote of the stockholders. Through its ownership
of the Series A Preferred Stock, the Trust has voting power equal to 50.99% of the total voting power of all issued and outstanding voting
capital of the Company. Due to such disproportionate voting power, new investors may not be able to effect a change in our business or
management, and therefore, stockholders would have limited recourse as a result of decisions made by management. Moreover, this Series
A Preferred Stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control
of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
As of November 3, 2021, the holders of our common stock are entitled
to one vote per share on all matters submitted to a vote of the stockholders. Each share of the Series A Preferred Stock shall have voting
rights equal to (x) 0.019607 multiplied by the total issued and outstanding common stock and preferred stock eligible to vote at the
time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator. With respect to all matters
upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares
of Series A Preferred Stock shall vote together with the holders of common stock without regard to class, except as to those matters
on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws. As of the Record Date, each
share of Series A Preferred Stock has voting rights equal to 10,926,680 shares, and on an aggregate basis the 51 shares of Series A Preferred
Stock have voting rights equal to 557,260,682 shares.
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 pharmacy benefit manager 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. 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.
A
pandemic, including COVID-19, or an epidemic or outbreak of an infectious disease in the United States or Europe may adversely affect
our business.
If a pandemic, epidemic or outbreak of an
infectious disease occurs in the United States, Europe or worldwide, our business may be adversely affected. In December 2019, a novel
strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of March 2020, has spread
to over 70 countries, including the U.S., The World Health Organization has declared a pandemic in March 2020 and this virus continues
to spread globally. As of December 2021, the virus has spread to over 200 countries globally, including the U.S. The spread of COVID-19
has impacted the global economy and may impact our operations, including revenue from patient prescriptions. The risk is somewhat mitigated
as pharmacies are considered essential businesses by federal, state, and local governments and are required to remain open during health
emergencies. Nonetheless, such events may result in a period of business disruption and in reduced operations, which could materially
affect our business, financial condition, and results of operations. The extent to which the coronavirus impacts our business will depend
on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the
severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, there continues to
be uncertainty around the COVID-19 pandemic, its duration, and its impact on U.S. and global economic activity and consumer behavior.
The Delta variant of COVID-19, which appears to be the most transmissible and contagious variant to date, has caused a surge in
COVID-19 cases globally. The impact of the Delta variant, or other variants that may emerge, cannot be predicted at this time, and
could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the
population, the effectiveness of COVID-19 vaccines against the Delta variant and other variants, and the response by governmental
bodies to reinstate mandated business closures, orders to “shelter in place,” and travel and transportation restrictions.
A significant outbreak of coronavirus and other infectious diseases could result in a widespread health crisis that could adversely affect
the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition
and results of operations.
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
(“GERs”) 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 (“PSAOs”) 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 attractive 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.
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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.
Any
disruption to our supply chain could materially harm our business, operating results, financial condition and cash flows.
Any
disruption to our supply chain could 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 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.
Passed
in 2010, the Affordable Care Act (“ACA”) enacted a number of significant health care reforms. However, there is a significant
degree of uncertainty associated with the current state of active healthcare legislation such that we cannot adequately predict how future
incarnations of healthcare reform will impact the business.
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
health of the economy in general and in the markets that we serve could adversely affect our business and our financial results. 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 and financial results.
It
is possible that the state of the economy could change, and current trends could reverse in the future. A reversal of these trends will
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. If this were to occur, 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 merchandise and services that we offer fail to meet customer needs, our sales may be affected.
Our
success depends on our ability to offer a superior shopping experience, a quality assortment of available merchandise and superior customer
service. We must identify, obtain supplies of, and offer to our customers, attractive, innovative, and high-quality merchandise on a
continuous basis. 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 sell 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 sell the merchandise 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 that accounted for 95%, 95%, 95% and 91% of pharmaceutical
purchases for the nine months ended September 30, 2021 and 2020, and the years ended December 31, 2020 and 2019, respectively, and several
supplementary suppliers. Our primary supplier for the nine months ended September 30, 2021 and 2020, and the years ended December 31,
2020 and 2019 was McKesson. 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 2020 and 2019. 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 store locations at acceptable prices.
Our
ability to grow our business may be constrained if suitable new pharmacy store locations cannot be identified with lease terms or purchase
prices that are acceptable to us. We compete with other retailers and businesses for suitable locations for our pharmacy stores. Local
land use and other regulations applicable to the types of stores we desire to construct may impact our ability to find suitable locations
and influence the cost of constructing our stores. The expiration of leases at existing store locations may adversely affect us if the
renewal terms of those leases are unacceptable to us and we are forced to close or relocate stores. Further, changing local demographics
at existing store locations may adversely affect revenue and profitability levels at those stores.
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.
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
stockholders 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 stockholders or other third parties.
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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
will incur increased costs as a result of being a public reporting company and our management will be required to devote substantial
time to new compliance initiatives.
We
will become a “reporting issuer” under Section 12 of the Securities Exchange Act of 1934 after this registration statement
becomes effective. The Sarbanes-Oxley Act of 2002, including the requirements of Section 404, as well as new rules and regulations subsequently
implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board impose additional reporting and
other obligations on public reporting companies. A number of these requirements will require us to carry out activities we have not done
recently or at all. For example, we will adopt new internal controls over financial reporting (“ICFR”) and disclosure controls
and procedures. In addition, we will incur additional expenses associated with our Securities and Exchange Commission reporting requirements.
For example, under Section 404 of the Sarbanes-Oxley Act, we will need to document and test our internal control procedures and our management
will need to assess and report on our internal control over financial reporting.
Our
management and other personnel have limited experience operating a public company, which may result in operational inefficiencies or
errors, or a failure to improve or maintain effective ICFR and disclosure controls and procedures necessary to ensure timely and accurate
reporting of operational and financial results. Our existing management team will need to devote a substantial amount of time to these
compliance initiatives, and we may need to hire additional personnel to assist us with complying with these requirements. Moreover, these
rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly.
These increased costs will require us to divert money that we could otherwise use to expand our business and achieve our strategic objectives.
Furthermore,
if we identify any issues in complying with those requirements (for example, if we or our accountants identify a material weakness or
significant deficiency in our ICFR), we could incur additional costs rectifying those issues, and the existence of those issues could
adversely affect us, our reputation or investor perceptions of us.
We
also expect that being a public company and complying with applicable rules and regulations will make it more expensive for us to obtain
director and officer liability insurance, and we may be required to incur substantially higher costs to obtain and maintain the same
or similar coverage that is currently in place. These factors could also make it more difficult for us to attract and retain qualified
executive officers and members of our board of directors.
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.
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:
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Other
pharmacy distributors;
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Specialty
pharmacy divisions of wholesale drug distributors;
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Not
for profit organizations with pharmacies;
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Hospital-based
pharmacies;
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Local
infusion providers;
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Sterile
and non-sterile compounding pharmacies;
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Other
retail pharmacies;
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Provider
dispensaries;
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Manufacturers
that sell their products both to distributors and directly to clinics and physicians’ offices; and
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Hospital-based
care centers and other alternate-site healthcare providers;
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Insurance
companies with proprietary pharmacy services.
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Chain
pharmacies
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Mail-order
pharmacies
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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:
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A
cure or vaccine for chronic care conditions;
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The
emergence of new diseases resistant to available medications;
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Shifts
to treatment regimens other than those we offer;
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New
methods of delivery of existing medications or of injectable or infusible medications that do not require our specialty pharmacy
and disease management services;
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Recalls
of the medications we sell;
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Adverse
reactions caused by the medications we sell; and
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The
expiration of or challenge to the drug patents on the medications we sell.
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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.
There
are several additional business risks which could adversely affect our financial results.
Many
other factors could adversely affect our financial results, including:
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If
we are unsuccessful in establishing effective advertising, marketing and promotional programs, our sales or sales margins could be
negatively affected.
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Our
success depends on our continued ability to attract and retain store, management and other professional
personnel, and the loss of key personnel could have an adverse effect on the results of our operations,
financial condition or cash flow.
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We
rely on sales and marketing personnel to bring new sales and maintain relationships with current clients. If we fail to retain these
individuals or fail to recruit new sales staff, it could have a material adverse effect on sales and our ability to meet operational
needs.
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We
may not be able to successfully and timely implement new computer systems and technology or business
processes,
or may experience disruptions or delays to the computer systems we depend on to manage our ordering, pricing, point-of-sale,
inventory replenishment and other processes, which could adversely impact our operations and our ability to attract and retain
customers.
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Severe
weather conditions, terrorist activities, health epidemics or pandemics or the prospect of these
events
can
impact our store operations or damage our facilities in affected areas or have an adverse impact on consumer confidence levels
and spending in our store.
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The
long-term effects of climate change on general economic conditions and the pharmacy industry in particular are unclear, and changes
in the supply, demand or available sources of energy may affect the availability or cost of goods and services, including natural
resources, necessary to run our business.
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The
products we sell are sourced from a wide variety of domestic and international vendors, and any future
inability
to find qualified vendors and access products in a timely and efficient manner could adversely impact our business.
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Mr.
Weisberg is involved in outside businesses, which may interfere with his ability to devote time and attention to our business and affairs.
We
rely on our senior management team, including Mr. Weisberg, for the day-to-day operations of our business. Our employment agreement with
Mr. Weisberg requires him to devote a substantial portion of his business time and attention to our business. Mr. Weisberg continues
to serve as chairman of the board of directors and CEO of Progressive Care Inc. and principal of Weisberg and Company. As such, Mr. Weisberg
has certain ongoing duties to Progressive Care Inc. and Weisberg and Company that could require a substantial portion of his time and
attention. Although we expect that Mr. Weisberg will continue to devote a substantial portion of his business time and attention to us,
we cannot accurately predict the amount of time and attention that will be required of Mr. Weisberg to perform such ongoing duties. To
the extent that Mr. Weisberg is required to dedicate time and attention to Progressive Care Inc. and/or Weisberg and Company, his ability
to devote a substantial portion of his business time and attention to our business and affairs may be limited and could adversely affect
our operations.
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 and power/rec
vehicle dealers 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 us and our vendors must
guard against:
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damage
from fire, power loss, tornado and other natural disasters;
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telecommunications
failures;
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software
and hardware errors, failures and crashes;
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security
breaches, computer viruses and similar disruptive problems; and
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other
potential interruptions.
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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 and this Offering
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:
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actual
or anticipated fluctuations in our operating results;
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the
absence of securities analysts covering us and distributing research and recommendations
about us;
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overall
stock market fluctuations;
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announcements
concerning our business or those of our competitors;
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actual
or perceived limitations on our ability to raise capital when we require it, and to raise
such capital on favorable terms;
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conditions
or trends in the industry;
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changes
in market valuations of other similar companies;
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future
sales of common stock;
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departure
of key personnel or failure to hire key personnel; and
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general
market conditions.
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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.
The price per share of our Common Stock
offered under this prospectus may not accurately reflect the value of your investment.
The offering price for shares of Common Stock
offered under this prospectus has been determined by negotiation among us and the underwriters. We cannot predict the price at which
our shares of Common Stock will trade upon the closing of the offering, and there can be no assurance that an active and liquid trading
market will develop after closing or, if developed, that such a market will be sustained at the offering price. In addition, if an active
public market does not develop or is not maintained, holders of our shares of Common Stock may have difficulty selling their shares.
Our
management has broad discretion in using the net proceeds from this Offering.
We have stated, in only a general manner, how
we intend to use the net proceeds from this offering. See “Use of Proceeds.” We cannot, with any assurance, be more specific
at this time. We will have broad discretion in the timing of the expenditures and application of proceeds received in this offering. If
we fail to apply the net proceeds effectively, we may not be successful in implementing our business plan. You will not have the opportunity
to evaluate all of the economic, financial or other information upon which we may base our decisions to use the net proceeds from this
offering.
There is no public market for our Warrants and we do not
expect one to develop.
We are offering Warrants together with shares
of Common Stock in this offering. The Warrants are exercisable for additional shares of Common Stock. There is no established public
trading market for the Warrants being offered in this offering, and we do not expect a market to develop. In addition, while we are in
the process of applying to have our shares of Common Stock and Warrants sold in this offering listed on Nasdaq, if Nasdaq does not approve
the listing of our Common Stock and Warrants, we will not consummate this offering. There can be no assurance that our Common Stock and
Warrants will be listed on Nasdaq. Without an active market, the liquidity of our Warrants will be limited.
Warrants are speculative in nature.
The Warrants offered in this offering do not
confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely
represent the right to acquire shares of our Common Stock at a fixed price for a limited period of time. Specifically, commencing on
the date of issuance, holders of the Warrants may exercise their right to acquire the Common Stock and pay an exercise price of $[ ]
per share ([ ]% of the assumed public offering price per Unit), prior to five years from the date of issuance, after which date any unexercised
Warrants will expire and have no further value. In addition, there is no established trading market for the Warrants and, although we
have applied to list the Warrants on Nasdaq, there can be no assurance that an active trading market will develop.
If our shares of Common Stock or Warrants
are listed on a national exchange, we will be subject to potential delisting if we do not meet or continue to maintain the listing
requirements of the national exchange. Moreover, the cost of remaining compliant with the listing requirements will be expensive.
We intend to apply for our shares of Common
Stock and Warrants to become listed on a national exchange. An approval of our listing application by a national exchange will be subject
to, among other things, our fulfilling all of the listing requirements of such national exchange. In addition, each national exchange
has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain
our listing, or de-listing from this market, would make it more difficult for shareholders to dispose of our shares of Common Stock and
more difficult to obtain accurate price quotations on our shares of common stock. This could have an adverse effect on the price of our
shares of Common Stock. Moreover, the cost of remaining compliant with the listing requirements will be expensive, and our Board of Directors
has determined that the benefits of such listing outweigh the potential costs. Our ability to issue additional securities for financing
or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected
if our shares of Common Stock or Warrants are not traded on a national securities exchange.
If
we are delisted from the Nasdaq Capital Market, your ability to sell your securities could also be limited by the penny stock restrictions,
which could further limit the marketability of your shares.
If
our securities become listed on Nasdaq, and then subsequently delisted from Nasdaq, it could come within the definition of “penny
stock” as defined in the Exchange Act and would then be covered by Rule 15g-9 of the Exchange Act. Rule 15g-9 imposes additional
sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors.
For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive
the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable,
would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders
to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in
the future.
A significant portion of our total outstanding
shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of
our Common Stock to significantly decrease, even if our business is doing well.
Sales of a substantial number of our shares
of Common Stock in the public market could occur at any time. These sales, or the perception in the market that these sales may occur,
could result in a decrease in the market price of our shares of Common Stock. Immediately after this offering, we will have outstanding
shares of Common Stock, based on the number of shares of Common Stock outstanding as of ,
2021. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction,
unless purchased by our affiliates or existing shareholders. Of the remaining shares,
shares are currently restricted as a result of securities laws or 90-day or 180-day lock-up agreements (which may be waived, with or
without notice, by the Representative) but will be able to be sold beginning 90 or 180 days, as applicable, after this offering, unless
held by one of our affiliates, in which case the resale of those securities will be subject to volume limitations under Rule 144 of the
Securities Act of 1933, as amended. See “Shares Eligible for Future Sale.” Once we register these shares, they can
be freely sold in the public market, subject to volume limitations applicable to affiliates and the lock-up agreements referred to above
and described in the section of this prospectus entitled “Underwriting.”
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 Nasdaq or any other national market. If we are delisted from any national market, 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
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 prospectus 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 year in which we complete this offering, although circumstances could cause us to lose that status earlier. We will
remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the
closing of this offering, (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 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 not “opt out” of this exemption from complying with new or revised accounting
standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting
standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period
or (ii) no longer qualify as an emerging growth company.
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 prospectus 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.
Our reverse stock split may not result
in a proportional increase in the per share price of our Common Stock.
The effect of the reverse stock split on the
market price for our Common Stock cannot be accurately predicted. In particular, we cannot assure you that the prices for shares of the
Common Stock after the reverse stock split will increase proportionately to prices for shares of our Common Stock immediately before
the reverse stock split. The market price of our Common Stock may also be affected by other factors which may be unrelated to the reverse
stock split or the number of shares outstanding.
Furthermore, even if the market price of our
Common Stock does rise following the reverse stock split, we cannot assure you that the market price of our Common Stock immediately
after the proposed reverse stock split will be maintained for any period of time. Moreover, because some investors may view the reverse
stock split negatively, we cannot assure you that the reverse stock split will not adversely impact the market price of our Common Stock.
Accordingly, our total market capitalization after the reverse stock split may be lower than the market capitalization before the reverse
stock split.
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.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events.
You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements
involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability,
our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. Forward-looking
statements are generally identifiable by the use of words like “may,” “will,” “should,” “anticipate,”
“estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,”
“expects,” “management believes,” “we believe,” “we intend” or the negative of these
words or other variations on these words or comparable terminology. These forward-looking statements may be found under the sections
entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,”
as well as in this prospectus generally. In particular, this prospectus includes statements relating to future actions, prospective products,
market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies
such as legal proceedings and financial results.
Examples
of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, ability
to complete and recognize the benefits from acquisitions, business prospects, operating results, operating expenses, working capital,
liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others,
assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of
capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations,
beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions
could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable,
our expectations may prove to be incorrect.
Important
factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking
statements include, but are not limited to:
|
●
|
changes in the market
acceptance of our products;
|
|
|
|
|
●
|
increased levels of
competition;
|
|
|
|
|
●
|
the effect of the COVID-19
pandemic on our business;
|
|
|
|
|
●
|
changes in political,
economic or regulatory conditions generally and in the markets in which we operate;
|
|
|
|
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●
|
our relationships with
our key customers;
|
|
|
|
|
●
|
our ability to retain
and attract senior management and other key employees;
|
|
|
|
|
●
|
our ability to quickly
and effectively respond to new technological developments;
|
|
|
|
|
●
|
our ability to protect
our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others
from infringing on our proprietary rights; and
|
|
|
|
|
●
|
other risks, including
those described in the “Risk Factors” discussion of this prospectus.
|
We
operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict
all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual
results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus
are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements,
you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date
they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light
of new information, future events, or otherwise.
USE
OF PROCEEDS
We expect to receive net proceeds from this
offering of approximately $ (assuming a public offering price of $ per Unit, as
set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses
of approximately $ payable by us. Each $1.00 increase (decrease) in the assumed public offering price of $
per Unit would increase (decrease) the net proceeds to us from this offering by approximately $ million, after deducting
the underwriting discount and estimated offering expenses payable by us.
We intend
to direct the net proceeds of the offering as follows:
Name of Item
|
|
Percentage
of
Offering
|
|
|
$
|
|
Working Capital
|
|
|
27
|
%
|
|
|
|
|
Software Development for Internal Use
|
|
|
25
|
%
|
|
|
|
|
Sales and Marketing
|
|
|
25
|
%
|
|
|
|
|
Debt
|
|
|
23
|
%
|
|
|
|
|
As of December 31, 2020, and September 30,
2021, we had cash balances of $2.1 million and $2.1 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. Of the $2.3 million as of September
30, 2021, in convertible debt, including accrued interest of $0.7 million, bearing interest at 10% per annum that we have issued and
outstanding, approximately $1.6 million in principal and $0.7 million in interest will come due in 2022.
The underwriters have an option to purchase up to [ ] additional
shares of our Common Stock and/or [ ] additional Warrants to purchase up to [ ] shares of Common Stock at the public offering price less
the underwriting discounts and commissions within 30 days after the date of this prospectus to cover over-allotments, if any, made by
the underwriters to investors from whom orders were solicited prior to the date of this prospectus. Exercise of this option in full would
result in additional net proceeds to us of approximately $ . All of such additional net proceeds would be used as described
above in this section.
DIVIDEND
POLICY
We do not currently anticipate paying any
dividends to our shareholders in the foreseeable future. We currently expect to retain all future earnings, if any, for use in the operation
and expansion of our business. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and
will depend upon results of operations, financial performance and condition, capital requirements, restrictions imposed by applicable
law, other factors our Board of Directors deems relevant and contractual restrictions under our debt agreements including those discussed
under “Our Business—Material Agreements” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources” in this prospectus. As a result, capital appreciation, if any,
of our Common Stock will be your sole source of gain from your purchase of our Common Stock for the foreseeable future.
CAPITALIZATION
The following table sets forth our cash and
capitalization as of September 30, 2021 on:
|
●
|
as adjusted
basis to give further effect to the sale of Units by us in this offering at the public offering price of $
per Unit, which is the assumed public offering price set forth on the cover page of this prospectus, after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds of this offering
by us as described under “Use of Proceeds”.
|
The
information below is illustrative only and our cash and capitalization following the completion of this offering will be based on the
actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related
notes included elsewhere in this prospectus.
|
|
As of September 30, 2021
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(unaudited)
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,100,854
|
|
|
|
$
|
|
Debt:
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
10,568,375
|
|
|
|
|
|
Total Long-term Liabilities
|
|
|
1,353,819
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, Series A par value $0.001; 10,000,000 shares authorized, 51
shares issued and outstanding as of September 30, 2021
|
|
|
-
|
|
|
|
|
|
Common stock, par value $0.0001; 1,000,000,000 shares authorized, 527,871,715
issued and outstanding as of September 30, 2021
|
|
|
52,787
|
|
|
|
|
|
Additional Paid-in Capital
|
|
|
8,446,749
|
|
|
|
|
|
Accumulated deficit
|
|
|
(8,382,841
|
)
|
|
|
|
|
Total stockholders’ equity
|
|
$
|
116,695
|
|
|
|
$
|
|
Total capitalization
|
|
$
|
1,470,514
|
|
|
|
$
|
|
DILUTION
If you invest in our Common Stock, your ownership
interest will be immediately diluted to the extent of the difference between the assumed public offering price per share of our Common
Stock in this offering and the net tangible book value per share of Common Stock upon completion of this offering.
Net tangible book value per share of Common
Stock represents the amount of our total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding.
Our net tangible book value as of September 30, 2021 was $ , or $
per share of Common Stock, based upon shares of Common Stock outstanding as of such date.
Investors participating in this offering will
incur immediate, substantial dilution. After giving effect to the sale of shares of our Common Stock by us at the assumed public offering
price of $ per Unit, and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of September 30, 2021 would have
been approximately $ , or approximately $
per share of Common Stock.
This represents an immediate increase in net
tangible book value of $ per share to existing Common Stock shareholders,
and an immediate dilution of $ per share to investors participating in this offering. If the public
offering price is higher or lower, the dilution to new shareholders will be greater or lower, respectively.
The following table illustrates this dilution
on a per share basis:
Assumed public offering price per share
|
|
$
|
|
|
Historical net tangible book value per share as of September 30, 2021
|
|
$
|
|
|
Increase in as adjusted pro forma net tangible book value per share attributable
to the offering
|
|
$
|
|
|
As adjusted pro forma net tangible book value (deficit) per share
|
|
$
|
|
|
Dilution in net tangible book value per share
to new investors(1)
|
|
$
|
|
|
|
(1)
|
Dilution is determined by subtracting net tangible book value per
share of Common Stock after giving effect to this offering from the public offering price paid by a new investor.
|
A $1.00 increase (or decrease) in the assumed
public offering price of $ per Unit, which is the assumed public offering price set forth on the cover page of this prospectus, would
increase (or decrease) the as adjusted net tangible book value per share of Common Stock after this offering by approximately $ , and
dilution in net tangible book value per share of Common Stock to new investors by approximately $ , assuming that the number of shares
offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional
shares of our Common Stock in this offering, the as adjusted net tangible book value after this offering would be $ per share, the increase
in net tangible book value to existing shareholders would be $ per share and the dilution to new investors would be $ per share, in each
case assuming a public offering price of $ per share, which is assumed public offering price set forth on the cover page of this prospectus.
The following table summarizes, as of the
date of this prospectus, the differences between our existing shareholders and new investors with respect to the number of shares of
our Common Stock purchased from us, the total consideration paid and the average price per share paid. The calculations with respect
to shares purchased by new investors in this offering reflect the public offering price of $ per share, which is assumed public offering
price set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us:
|
|
Shares
Purchased
|
|
|
Total
Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Per
Share
|
|
Existing shareholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New Investors
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
$
|
|
|
If the underwriters exercise their option
to purchase an additional [ ] shares of our Common Stock in full, our existing shareholders would own [ ] % and our new investors would
own [ ]% of the total number of shares of our Common Stock outstanding following this offering.
The outstanding share information in the table
above is based on shares of our Common Stock outstanding as of September 30, 2021, and:
|
●
|
assumes no exercise of the underwriters’
option to purchase up to additional shares of our Common Stock;
|
|
●
|
excludes shares
of Common Stock underlying the Warrants issued as part of the Units;
|
|
●
|
excludes
shares of our common stock issuable upon the exercise of the Representative’s
Warrants to be issued to the representative of the underwriters upon closing of this offering; and
|
|
●
|
excludes shares
of our common stock issuable upon conversion of the Chicago Venture and Iliad Research notes.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our Common Stock is qualified for quotation
on the OTC Markets-OTCQB under the symbol “RXMD” and has been quoted on the OTCQB since March 16, 2010. Previously, our Common
Stock was quoted on the OTC Markets-OTC Pink Current, under the symbol “RXMD.”
Our intention is to list our Common Stock
and Warrants on Nasdaq under the symbols ” ” and ” W”, respectively. The approval of our listing on Nasdaq
is a condition of closing this offering. No assurance can be given that our application will be accepted.
The following table sets forth the range of
the high and low bid prices per share of our Common Stock for each quarter as reported in the over-the-counter markets. These quotations
represent interdealer prices, without retail markup, markdown or commission, and may not represent actual transactions. There currently
is a liquid trading market for our Common Stock. There can be no assurance that a significant active trading market in our Common Stock
will develop, or if such a market develops, that it will be sustained.
|
|
2021
|
|
|
2021
|
|
|
|
Post-Reverse
|
|
|
Post-Reverse
|
|
|
Pre-Reverse
|
|
|
Pre-Reverse
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First Quarter (through March 31)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.195
|
|
|
$
|
0.031
|
|
Second Quarter (through June 30)
|
|
|
|
|
|
|
|
|
|
|
0.150
|
|
|
|
0.051
|
|
Third Quarter (through September 30)
|
|
|
|
|
|
|
|
|
|
|
0.062
|
|
|
|
0.031
|
|
|
|
2020
|
|
|
2020
|
|
|
|
Post-Reverse
|
|
|
Post-Reverse
|
|
|
Pre-Reverse
|
|
|
Pre-Reverse
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First Quarter (through March 31)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.067
|
|
|
$
|
0.031
|
|
Second Quarter (through June 30)
|
|
|
|
|
|
|
|
|
|
|
0.098
|
|
|
|
0.036
|
|
Third Quarter (through September 30)
|
|
|
|
|
|
|
|
|
|
|
0.075
|
|
|
|
0.036
|
|
Fourth Quarter (through December 31)
|
|
|
|
|
|
|
|
|
|
|
0.050
|
|
|
|
0.023
|
|
|
|
2019
|
|
|
2019
|
|
|
|
Post-Reverse
|
|
|
Post-Reverse
|
|
|
Pre-Reverse
|
|
|
Pre-Reverse
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First Quarter (through March 31)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.092
|
|
|
$
|
0.049
|
|
Second Quarter (through June 30)
|
|
|
|
|
|
|
|
|
|
|
0.071
|
|
|
|
0.055
|
|
Third Quarter (through September 30)
|
|
|
|
|
|
|
|
|
|
|
0.068
|
|
|
|
0.037
|
|
Fourth Quarter (through December 31)
|
|
|
|
|
|
|
|
|
|
|
0.069
|
|
|
|
0.030
|
|
On ,
the closing price for our Common Stock on the OTCQB Market was $ ($
pre-reverse split) per share with respect to an insignificant volume of shares.
The
volume of shares traded on the OTCQB Market was insignificant and therefore, does not represent a reliable indication of the fair market
value of these shares.
Holders
According to the records of our transfer agent,
as of November 12, 2021, there were approximately 209 record holders of our Common Stock. The number of record holders does not include
beneficial owners of Common Stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Dividends
We have never paid any cash dividends on our
Common Stock. We currently anticipate that we will retain all future earnings for use in our business. Consequently, we do not anticipate
paying any cash dividends in the foreseeable future. The payment of dividends in the future will depend upon our results of operations,
as well as our short-term and long-term cash availability, working capital, working capital needs, and other factors as determined by
our Board of Directors. Currently, except as may be provided by applicable laws, there are no contractual or other restrictions on our
ability to pay dividends if we were to decide to declare and pay them.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the attached audited consolidated financial statements and notes thereto. In
addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and
assumptions. Where possible, we have tried to identify these forward-looking statements by using words such as “anticipate,”
“believe,” “intends” or similar expressions. Our actual results may differ materially from those anticipated
by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk
Related to our Business” beginning on page 13 of this Prospectus.
Overview
Progressive Care Inc. 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 (referred to as “PharmCo 901”), Touchpoint RX, LLC doing business as PharmCo Rx 1002, LLC (referred to as “PharmCo
1002”), Family Physicians RX, Inc. doing business as PharmCoRx 1103 and PharmCoRx 1204 (referred to as “FPRX” historically
or “PharmCo 1103” and “PharmCo 1204” currently) (pharmacy subsidiaries collectively referred to as “PharmCo”),
ClearMetrX Inc., and RXMD Therapeutics, Inc (collectively with all entities referred to as the “Company”, or “we”)
is a personalized healthcare services and technology company which provides prescription pharmaceutical and risk and data management
services to healthcare organizations and providers.
We
provide Third Party Administration (“TPA”), data management, COVID-19 related diagnostics and vaccinations, prescription
pharmaceuticals, compounded medications, tele-pharmacy services, anti-retroviral medications, medication therapy management, the supply
of prescription medications to long term care facilities, medication adherence packaging, contracted pharmacy services for 340B Covered
Entities under the 340B Drug Discount Pricing Program, and health practice risk management. We are focused on improving lives of patients
with complex chronic diseases through our partnerships with patients, payors, pharmaceutical manufacturers and distributors, and physicians.
We offer a broad range of innovative solutions to address the dispensing, delivery, dosing, and reimbursement of clinically intensive,
high-cost drugs.
In
2020 and 2019, per EQuIPP® (” Electronic Quality Improvement Platform for Plans and Pharmacies”), 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 with a relative ranking in the top 20% of all pharmacies.
PharmCo
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 reimbursements on prescription claims adjudicated on behalf of the 340B Covered Entities in
exchange for a dispensing fee per prescription. These fees vary by the covered entity and the level of service provided by us.
The COVID-19 pandemic has created several
hurdles for the pharmacy industry, but our history of patient care management and same-day free home delivery resulted in more recommendations
from physicians and new patients using our pharmacies. We currently own and operate four pharmacies, which generate most of our revenues.
Our pharmacy revenues were 86% and 98% of total revenues for the nine months ended September 30, 2021 and 2020, respectively. Pharmacy
revenues were 95% and 99% of total revenues for the years ended December 31, 2020 and 2019, respectively.
Our
revenue is derived from customized care management programs we deliver to our patients, including the dispensing of their medications.
We also provide patient health risk reviews and free same-day delivery.
Our
focus is on complex chronic diseases that generally require multiyear or lifelong therapy, which drives recurring revenue and sustainable
growth. Our pharmacy services revenue growth is from our expanding breadth of services, new drugs coming to market, new indications for
existing drugs, volume growth with current clients, and addition of new customers due to our focus on higher patient engagement, benefit
of free delivery to the patient, and clinical expertise. We also expect expanded revenue growth through the signing of new contract pharmacy
service and data management contracts with 340B Covered Entities and expansion of data management and analytics services to healthcare
organizations.
We formed ClearMetrX in June 2020, the Company’s
first wholly-owned data management company with services designed to support health care organizations across the country. We believe
Artificial Intelligence (“AI”) will improve preventive healthcare by helping physicians make informed decisions in the medication
therapy management process. Through ClearMetrX, third party administrative and data management fees for the three and nine months ended
September 30, 2021, was approximately $0.2 million and $0.7 million, respectively. These fees have gross margins significantly greater
than those generated from our pharmacy operations. ClearMetrX focuses on providing insights and technological development. The Company
has transitioned data service customers from the pharmacies to the ClearMetrX platform to better scale the products and improve the capabilities
of existing analytics options.
According
to data provided to Drug Channels by HRSA, discounted 340B purchases were at least $29.9 billion in 2019 with a compound average
growth rate of 27.1% from 2014 through 2019. ClearMetrX includes data management and TPA services for 340B Covered Entities, pharmacy
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 also deliver actionable insights that providers and support organizations can use to improve their
practice and patient care. The company TPA services include management of wholesale accounts and contract pharmacies, patient eligibility
with regard to the 340B drug program, development and review of 340B policies and procedures, and management of receivables.
We have isolated and prioritized key marketing
methods which have yielded the lowest cost of customer acquisition and the most opportunity for growth. Social media, website maintenance,
and thought leadership are being optimized to promote brand awareness and recognition, which increases the likelihood of securing physician
referrals and customer loyalty. As a result, net pharmacy revenue for the three months ended September 30, 2021 and 2020 was approximately
$9.8 million and $10.5 million, respectively, which included revenue from COVID-19 testing of approximately $1.3 million in 2021. We
have filled approximately 106,000 and 138,000 prescriptions during the three months ended September 30, 2021 and 2020, respectively,
a 23% year over year decrease in the number of prescriptions filled. Net pharmacy revenue for the nine months ended September 30, 2021,
and 2020 was approximately $29.0 million and $28.8 million, respectively, which included revenue from COVID-19 testing of approximately
$2.9 million in 2021. We have filled approximately 329,000 and 396,000 prescriptions during the first nine months of 2021 and 2020, respectively,
a 17% year over year decrease in the number of prescriptions filled. The decrease in prescriptions filled and pharmacy revenues are due
to several factors as follows:
(a) The COVID-19 pandemic had a significant
impact on our workforce, as it caused a large number of employee absences due to employees contracting the virus or out of work to care
for sick family members. Furthermore, a number of our employees had issues with childcare/remote schooling that prevented them from working
full time hours;
(b) We experienced challenges in the labor
market as it relates to hiring new employees due to fewer workers seeking employment since unemployment benefits were extended and increased,
which resulted in an overall smaller selection of properly qualified workers. We have experienced competition for qualified workers from
our larger competitors that provide similar services and offered higher hourly compensation and sign-on bonuses;
(c)
We have implemented new pharmacy software at our PharmCo 901 location during February 2021, and our PharmCo 1103 location during March
2021. During the second quarter of 2021, we experienced multiple post implementation issues with the software that we did not anticipate
and learned that the software did not function as originally presented to us when we made the decision to implement the software. Amongst
other things 1) the software was not designed to accommodate our prescription volume and we have experienced continuous business interruptions
due to system downtime which caused prescriptions not being received by us; 2) continuous system performance issues that resulted in
patients filling prescriptions elsewhere; 3) lack of ability to synchronize patient prescription which led to an increase in the number
of deliveries to one patient. As a result of all the performance issues we have experienced with the new software we made the decision
to re-implement our previous pharmacy software during the third quarter of 2021, since the continuous lack of performance with the new
software had a severe impact on our pharmacy operations and results that was not sustainable;
(d) Downtime experienced moving our PharmCo
901 operations from North Miami Beach to Hallandale Beach towards the end of 2020/beginning of 2021, and temporary closure of the North
Miami Beach location during that time; and
(e) Moving of our PharmCo 1103 Orlando pharmacy
to a new facility in Orlando.
It
is difficult to predict whether these conditions will be recurring given recent COVID-19 pandemic conditions in Florida.
We have experienced a year over year growth
in revenue from our 340B contracts with healthcare providers. Dispensing fee and third party administration revenue earned on these contracts
increased over 8% for the nine months ended September 30, 2021 as compared to the same period in 2020 ($2.1 million in 2021; $2.0 million
in 2020). For the three months ended September 30, 2021 we have experienced a decrease of 49% in dispensing fee and third party administration
revenue earned on these contracts when compared to the same period in 2020 ($0.7 million in 2021; $1.3 million in 2020). The decrease
was primarily a result of our decision to terminate a non-performing 340B contract.
Per
the discussion above, the disruptions in pharmacy operations ultimately led to a downturn in customer service and negatively affected
our patient retention and growth. We recognized the inefficiencies caused by the disruptions in our pharmacy operations and are actively
working on improving our current processes. We have also improved our marketing efforts primarily in the Orlando area as we have greatly
expanded our capacity to serve patients from our new Orlando pharmacy. We expect that our patient numbers will return to or exceed their
former levels in the coming months.
We continue to experience an overall reduction
in the gross profit per drug prescribed predominantly in high cost brand drugs where in many cases reimbursements are at or below dispensed
drug costs. Our gross profit per prescription continued to be eroded through increases in contractual rate adjustments such as generic
and brand effective rates. We continue to promote the health and well-being of the community through ensuring necessary medications are
received by the patient regardless of cost to us, and we are working with physicians and patients alike to optimize medication practices
to dispense drugs that do not result in losses.
We have incurred and may continue to incur
operating losses in the foreseeable future. For the years ended December 31, 2020 and December 31, 2019 we had net revenue from continuing
operations of $38.9 million and $32.6 million, respectively. For the years ended December 31, 2020 and 2019, we had net losses from continuing
operations of $(1.4) million and $(2.5) million, respectively. For the nine months ended September 30, 2021, we had net revenue of $29.0
million, and a net income of $0.4 million, respectively. As of September 30, 2021, and December 31, 2020, we had cash balances of $2.1
million and $2.1 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. As of September 30, 2021, and December 31, 2020, the convertible debt balances
issued and outstanding were $1.6 million and $2.9 million, respectively, bearing interest at 10% per annum and approximately $1.6 million
will come due in 2022. These debt securities are convertible into our shares of common stock at variable prices based on the lowest closing
trading prices prior to the conversion.
Management
expects that future growth will be driven by new data management and virtual healthcare service lines; expansion of 340B Covered Entities
Third Party Administrative services; market penetration in existing geographies; development of enhanced healthcare B2B services; development
of cash based products and services; and continued implementation of Medication Therapy Management (“MTM”) protocols.
We
also expect future acquisitions, which could provide continued expansion into new market territories; diversification into direct healthcare
service relationships and cash based products; concentrated efforts toward developing our compliance and adherence services provided
to medical providers; and enhancement of technological opportunities that boost loyalty and customer satisfaction.
Additionally,
profitability and cash flow will be positively impacted by the elimination of non-recurring expenses and diversification to revenue streams
outside of the third-party insurance payor model.
In
February 2021, we entered into a service agreement with EagleForce Health, LLC to integrate its proprietary telehealth platform, called
“myVax”, and develop a platform for the Company’s Digital Passport for COVID-19 testing and vaccination results. The
platform was launched on July 20, 2021 and is capable of managing an individual’s COVID-19 vaccine and test records. Once a PharmcoRx
myVax profile has been created, patients have a secure way to store health records, including testing records, vaccination records, medications,
vitals, and passport data. It is also capable of tracking vital health data from smart watches and other smart devices. The myVax Passport
will serve as an easy and secure way to store and manage verifiable COVID-19 related records for traveling or work purposes. This provides
a powerful tool for various processes that the Company believes will come to depend upon accurate real-time virus spread risk abatement,
including merchants such as cruise lines, airlines, sports venues, high-population-density, manufacturing, packing, or shipping facilities,
and institutions such as school districts, universities, court proceedings, public transportation systems, and other service providers.
COVID-19
Pandemic
Global health concerns relating to the outbreak
of COVID-19 continue to have an impact on the economies of the U.S. and around the world. We believe COVID-19’s impact
on our business, financial condition and operating results primarily will be driven by the geographies impacted and the severity and
duration of the pandemic, as well as the pandemic’s impact on the U.S. and global economies, consumer behavior and health care
utilization patterns. In addition, the outbreak has resulted in authorities implementing numerous measures to reduce the transmission
of the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. These measures
may not effectively combat the severity and/or duration of the COVID-19 pandemic. The ultimate extent of the impact of any epidemic,
pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future
developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of
such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent further spread, among others.
Accordingly, we cannot predict the extent to which our business, financial condition and results of operations will be affected. We will
continue to work diligently with our partners and stakeholders to continue supporting patient access to their prescribed medications
to the extent safe to do so for patients, caregivers and healthcare practitioners, as well as ensuring the continuity of our supply chain.
Specific COVID-19 related impacts on the Company during the nine months ended September 30, 2021, and 2020 are further described below.
During the third quarter of 2020, the Company
launched an aggressive expansion of its COVID-19 testing service registered through the FDA under its Emergency Use Authorization (“EUA”)
guidelines, featuring Polymerase Chain Reaction (“PCR”) and Antigen testing systems that produces rapid detection of the
SARS-CoV-2 virus, and Antibody testing to detect the presence of IGG and IGM antibodies in the blood with market-leading accuracy in
15 to 45 minutes. The systems we use for Rapid Detection of the SARS-CoV-2 virus is a molecular test using a lab technique called PCR,
an antigen-based testing system designed to detect proteins from the virus that causes COVID-19, and COVID-19 IgG/IgM Rapid Test Cassette
authorized for the detection of antibodies to SARS-CoV-2 in human venous whole blood. The Company provides these new testing systems
to patients at its North Miami Beach, Hallandale Beach, Palm Springs and Orlando locations. Our testing sites are equipped with analyzers
capable of detecting positive or negative COVID-19 results within minutes. Each site is operated by clinically trained Pharmacy staff
and administering tests on and off site. The Company has established a reputation of a reliable testing partner and currently provides
testing services to international travelers and international airlines, chain restaurants, US and international production and entertainment
companies, and local healthcare communities. The Company has been able to build an Ecosystem that allows a patient, employer, or coordinator
in-charge to chat with the company’s support team, schedule a test, pay for the test, and at the point of arrival to the site by
scanning a QR code from a mobile devise create a profile and access test results. Using the same Ecosystem, the companies support staff
is able to manage the entire patients journey and provide automated reporting of the results to regulatory authorities, supervisors and
coordinators in-charge. For the three and nine months ended September 30, 2021, we have earned approximately $1.3 and $2.9 million, respectively
from COVID-19 testing.
During
April 2021, we received a large inventory of the Moderna vaccine, which represent 2,000 doses and began distribution to customers. The
company is providing vaccinations at the pharmacy locations as well as administering vaccines at locations such as long-term care facilities,
clinics, community centers and vaccination events carried out in partnership with various community organizations. We are also playing
an imperative role in helping to educate our patients and the residents of our surrounding communities on the safety, importance, and
value of vaccinations that protects against COVID-19.
Products
and Services and their Markets
Pharmacy
operations
We
provide 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. We improve the lives of patients with complex chronic
diseases through our partnerships with patients, payors, pharmaceutical manufacturers and distributors, and physicians. We offer a broad
range of innovative solutions to address the dispensing, delivery, dosing, and reimbursement of clinically intensive, high-cost drugs.
We also provide patient health risk reviews and free same-day delivery. On a trailing twelve months we fill on average approximately
41,000 prescriptions per month. We believe we are well positioned to continue expanding our market share in the pharmacy industry.
We
offer a variety of value-added services for no additional charge that further encourage satisfaction across all medication stake holders
and enhance loyalty and key performance metrics. These services include language support for broad demographics, prior authorization
assistance, same-day home-medication delivery, on site provider consultation services, reporting and analytics, customized medication
adherence packaging solutions, and patient advocacy. Our pharmacies accept most major insurance plans and provide access to co-pay assistance
programs, discount and manufacturer coupons, and competitive cash payment options. We sell common blood pressure, statin and other common
drugs, and dispense either brand name or generic drugs according to the doctor’s prescription. We also offer e-commerce of over-the-counter
products, certain disease testing, and vaccinations.
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 persistence, and capture important information regarding safety and effectiveness of the medications that we dispense.
We
have filled over 329,000 prescriptions during the nine months ended September 30, 2021, compared to 396,000 prescriptions for the same
period in 2020. In 2020 and 2019, 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 with a relative
ranking in the top 20% of all pharmacies in the U.S. Primary care physicians similarly are measured based on chronic care management,
the results of which impact their annual revenue. This creates incentive for physicians to refer patients to pharmacies that have high
performance scores. As a result of our pharmacy performance and value-added services, we have helped retain customers and attract new
ones. This has resulted in the receipt of performance incentives from PBMs of approximately $0.9 million and $0.7 million for the years
ended December 31, 2020 and 2019, respectively.
We
provide contracted pharmacy services for 340B Covered Entities under the 340B Drug Discount Pricing Program. The drugs are owned by the
340B Covered Entity up until sale, so we do not incur out of pocket costs for this drug inventory. Under the terms of these agreements,
we act as a pass through for reimbursements on prescription claims adjudicated on behalf of the 340B Covered Entities and receive a dispensing
fee per prescription. These fees vary by the covered entity and the level of service we provide.
For
our LTC customers, we provide purchasing, custom packaging and dispensing of both prescription and non-prescription pharmaceutical products.
We utilize a best practice unit-of-dose packaging system as opposed to the traditional vials, using the same robotic packaging systems
currently used by chain, mail order, and large-scale pharmacies. We also provide computerized maintenance of patient prescription histories,
third party billing and consultant pharmacist services. Our consultant pharmacy services consist primarily of evaluation of monthly patient
drug therapy, as well as monitoring the institution’s drug distribution system.
We
currently deliver prescriptions to Florida’s diverse population and ship compounded medications to patients in states where we
hold non-resident pharmacy licenses as well. We hold a community pharmacy permit in Florida and we hold non-resident pharmacy licenses
that allow us to dispense to patients in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada,
New Jersey, New York, Pennsylvania, Texas, and Utah. We are able to 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.
Data
Management Services
Global
healthcare systems have been taxed in recent years with aging populations seeking care in greater numbers. Big data and analytics have
seen large increases in the market as healthcare stakeholders seek to use information to increase efficiency, lower costs, improve patient
outcomes, and innovate. Frontline and independent providers have benefitted from improvements to their digital systems, but data insights
are a rare commodity. Regardless of size, digitization of healthcare as global trend will encourage the usage of data analytics to improve
care and allow us to compete in an intense healthcare market. Per Fortune Business Insights Report on the Healthcare Analytics Market,
the healthcare analytics market size is projected to reach $80.2 billion by 2026, exhibiting a compound annual growth rate of 27.5%.
Through
our wholly owned subsidiary, ClearMetrX, we offer data management and reporting services to support health care organizations. Our 340MetrX
offering includes data management and TPA services for 340B Covered Entities, pharmacy analytics, and programs to manage HEDIS Quality
Measures including medication adherence. These offerings address the glaring need for frontline providers to understand best practices,
patient behaviors, care management processes, and the financial mechanisms driving decisions. We deliver data access and actionable insights
that providers and support organizations can use to improve their practice and patient care.
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.
The
U.S. retail pharmacy industry relies significantly on private and governmental third-party payors. Many private organizations throughout
the healthcare industry, including PBM companies and health insurance companies, have consolidated in recent years to create larger healthcare
enterprises with greater bargaining power. Third-party payors, including the Medicare Part D plans and the state-sponsored Medicaid and
related managed care Medicaid agencies in the United States, can change eligibility requirements or reduce certain reimbursement rates.
Changes
in law or regulation can also impact reimbursement rates and terms. The Patient Protection and Affordable Care Act was enacted to help
control federal healthcare spending, including for prescription drugs. These changes at the federal and state level are generally expected
to reduce Medicaid reimbursements in the U.S. When third-party payors or governmental authorities take actions that restrict eligibility
or reduce prices or reimbursement rates, sales and margins in the retail pharmacy industry could be reduced. In some cases, these possible
adverse effects may be partially or entirely offset by controlling inventory costs and other expenses, dispensing higher margin generics,
finding new revenue streams through pharmacy services or other offerings, dispensing a greater volume of prescriptions or any combination
of these actions.
Generic
prescription drugs have continued to help lower overall costs for customers and third-party payors. In the U.S. in general, generic versions
of drugs generate lower sales dollars per prescription, but higher gross profit percentages, as compared with patent-protected brand
name drugs. In general, in the U.S., specialty prescription business is also growing and generates higher sales dollars per prescription,
but lower gross margin, as compared to generic prescription drugs.
Pharmacists
are on the frontlines of the healthcare delivery system, and we believe rising healthcare costs and the limited supply of primary care
physicians present opportunities for pharmacists and retail pharmacies to play an even greater role in driving positive outcomes for
patients and payors through expanded service offerings such as immunizations and other preventive care, healthcare clinics, pharmacist-led
medication therapy management and chronic condition management.
Pharmaceuticals
represent a significant and growing total addressable healthcare market. The pharmaceutical market experienced significant growth in
recent years as complex chronic conditions, care coordination, technology-enabled patient care, biotechnology research and outcomes-based
healthcare have increased in focus.
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 over
the past 15 years of our operations. We are uniquely positioned in Florida to gain an increasing market share among a broad demography
of patients due to our high-performance scores and value-added services. Additionally, we see value in the opportunity to create strategic
partnerships, acquire synergistic operations and expand current operations to round out pharmacy capabilities which could include specialty
medications, sterile compounding, and mail-order.
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 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-premise, 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 U.S. and globally there has been a surge in interest in digital health services as the COVID-19 pandemic upended the traditional
practice of medicine. The pandemic has encouraged accelerating adoption of digital and remote health technologies by providers, and patients
have seen the value in using virtual care services for routine care and consultation. Increased usage of these services has shown new
methodologies for reducing healthcare spending and increasing access to patients in both rural and urban settings. CMS has recently adopted
CPT codes to allow physicians to bill for virtual healthcare encounters. While those codes are initially expected to be temporarily tied
to the pandemic, industry experts anticipate broader adoption of insurance acceptance of virtual healthcare claims as the broader market
seeks to use the services to perform triage, lower backlogs, and increase access at lower costs than traditional healthcare encounters.
Virtual
healthcare today centers on singular health encounters on an as-needed basis with limited integration into the overall care management
plan of the practice or the patient. We see a widening gulf between the intent of virtual care services and actual application. Market
opportunities exist for us to leverage existing core competencies in remote patient monitoring and home-based care management to enhance
the quality of health services provided virtually, increase connectivity and integration, and focus on the intrinsic value of the relationship
between physician and patient.
A
growing trend involves the capturing of personal health data by smartphone apps and wearable technology. A patient can easily mislead
a care provider on a questionnaire regarding what they ate or how much they exercised, but a wearable device can track and transmit healthcare
data in real time without being manipulated. Getting access to personal health and fitness data could favorably impact follow-up care,
too, as medical professionals are better able to monitor and communicate with patients after they are discharged from care. Patients
may be able to address follow-up care without having to go back to the doctor’s office or hospital, saving them time and saving
the clinic or hospital money. Better follow-up care is key to lowering hospital readmission rates.
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. We believe our unique vision of pharmacy enabled health
technology will lead the way to independent and integrated health systems.
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.
In
the context of the increasingly data-reliant health care system, data management services can help derive insights on systemic wastes
of resources, track individual practitioner performance, and identify people within the population that are most at risk for chronic
diseases. With this information, the healthcare system can more efficiently allocate resources to deliver individualized patient care
at lower costs, improve the health of the population and maximize revenues and margin in the healthcare system.
Insurance
companies and healthcare providers are also working to use medical data to identify and better manage high-risk, high-cost patients.
Insurance companies and self-funded organizations want to identify these patients to provide early interventions that could keep patients
in better health and reduce medical costs later. Another sophisticated use of this kind of healthcare data could be to use algorithms
with ICU patients to foresee who is more at risk for readmission. Medical staff can then take different, proactive measures as necessary
to try to lower that risk of readmission, such as precise discharge instructions, different prescriptions, or a specific follow-up visit
schedule.
We
have a different approach to data and how to incorporate it into business and professional practice. The goal of all businesses with
access to large data collections should be to harness the most relevant data and use it for optimized decision making. ClearMetrX focuses
on using data-driven analytic tools to identify insights targeting three key areas where we see the potential to improve patient outcome
and maximize revenue and margin for our clients:
|
1.
|
Improving
medication adherence. Increasing patients’ adherence to medication treatment plans means they will be healthier, reducing costly
advanced treatment claims for those patients. Third party payors will see lower claim payments, and the physicians are rewarded with
higher reimbursement under managed care contracts with third party payors.
|
|
2.
|
Improving
patient engagement with their physicians. Reducing abandonment while nurturing patients to comply with their therapy through education,
reminder, and medication synchronization will improve refill rates, resulting in healthier outcomes.
|
|
3.
|
Optimizing
operational efficiency and costs.
|
The
data that will be provided to our physicians’ practices will help doctors to meet third party payor performance goals which will
improve reimbursement payments from third party payors.
RESULTS
OF OPERATIONS
Results of Operations for the Three and Nine Months Ended September
30, 2021 and 2020.
The following
table summarizes our results of operations for the three months ended September 30, 2021, and 2020:
|
|
For the Three Months Ended September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
Total revenues, net
|
|
$
|
9,797,523
|
|
|
$
|
10,471,015
|
|
|
$
|
(673,492
|
)
|
|
|
-6
|
%
|
Total cost of revenue
|
|
|
6,871,206
|
|
|
|
7,608,749
|
|
|
|
(737,543
|
)
|
|
|
-10
|
%
|
Total gross profit
|
|
|
2,926,317
|
|
|
|
2,862,266
|
|
|
|
64,051
|
|
|
|
2
|
%
|
Operating expenses
|
|
|
2,702,382
|
|
|
|
2,767,693
|
|
|
|
(65,311
|
)
|
|
|
-2
|
%
|
Income from operations
|
|
|
223,935
|
|
|
|
94,573
|
|
|
|
129,362
|
|
|
|
137
|
%
|
Other income (loss)
|
|
|
302,544
|
|
|
|
(357,413
|
)
|
|
|
659,957
|
|
|
|
185
|
%
|
Income (loss) before provision for income taxes
|
|
|
526,479
|
|
|
|
(262,840
|
)
|
|
|
789,319
|
|
|
|
300
|
%
|
Benefit from income taxes
|
|
|
1,920
|
|
|
|
-
|
|
|
|
1,920
|
|
|
|
100
|
%
|
Net income (loss)
|
|
$
|
528,399
|
|
|
$
|
(262,840
|
)
|
|
$
|
791,239
|
|
|
|
301
|
%
|
For the three months ended September 30, 2021, the Company recognized
overall revenue from operations of approximately $9.8 million, which was a $0.7 million decrease over revenue for the same period in 2020.
The decrease is mainly due to a decrease in pharmacy revenue of approximately $1.3 million, 340B fees earned of approximately $0.6 million,
and an increase in DIR and other PBM fees of approximately $0.1 million. This was offset by an increase in COVID-19 testing and other
revenue of approximately $1.3 million.
The decrease in pharmacy revenues is due to several factors as
follows:
(a) The COVID-19
pandemic had a significant impact on our workforce, as it caused a large number of employee absences due to employees contracting the
virus or out of work to care for sick family members. Furthermore, a number of our employees had issues with childcare/remote schooling
that prevented them from working full time hours;
(b) We experienced challenges in the labor
market as it relates to hiring new employees due to fewer workers seeking employment since unemployment benefits were extended and increased,
which resulted in an overall smaller selection of properly qualified workers. We have experienced competition for qualified workers from
our larger competitors that provide similar services and offered higher hourly compensation and sign-on bonuses; and
(c) We have implemented new pharmacy software
at our PharmCo 901 location during February 2021, and our PharmCo 1103 location during March 2021. During the second quarter of 2021,
we experienced multiple post implementation issues with the software that we did not anticipate and learned that the software did not
function as originally presented to us when we made the decision to implement the software. Amongst other things 1) the software was
not designed to accommodate our prescription volume and we have experienced continuous business interruptions due to system downtime
which caused prescriptions not being received by us; 2) continuous system performance issues that resulted in patients filling prescriptions
elsewhere; 3) lack of ability to synchronize patient prescription which led to an increase in the number of deliveries to one patient.
As a result of all the performance issues we have experienced with the new software, we made the decision to re-implement our previous
pharmacy software during the third quarter of 2021, since the continuous lack of performance with the new software had a severe impact
on our pharmacy operations and results that was not sustainable.
It is difficult to predict whether these conditions will be recurring
given recent COVID-19 pandemic conditions in Florida.
For the three months ended September 30, 2021
we experienced a decrease of 49% in dispensing fee and third party administration revenue earned on 340B contracts when compared to the
same period in 2020 ($0.7 million in 2021; $1.3 million in 2020). The decrease was primarily a result of our decision to terminate a
non-performing 340B contract.
Gross profit
margins increased from 27% in 2020 to 30% in 2021. COVID-19 testing and 340B revenue continue to be the leading contributors to profitability
during the quarter. Income from operations increased by approximately $0.1 million in 2021 as compared to 2020 mainly due to higher gross
profit margins from 340B fees earned and COVID-19 testing.
The following
table summarizes our results of operations for the nine months ended September 30, 2021 and 2020:
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
Total revenues, net
|
|
$
|
28,999,122
|
|
|
$
|
28,770,960
|
|
|
$
|
228,162
|
|
|
|
1
|
%
|
Total cost of revenue
|
|
|
21,031,826
|
|
|
|
22,462,377
|
|
|
|
(1,430,551
|
)
|
|
|
-6
|
%
|
Total gross profit
|
|
|
7,967,296
|
|
|
|
6,308,583
|
|
|
|
1,658,713
|
|
|
|
26
|
%
|
Operating expenses
|
|
|
8,572,653
|
|
|
|
7,540,194
|
|
|
|
1,032,459
|
|
|
|
14
|
%
|
Loss from operations
|
|
|
(605,357
|
)
|
|
|
(1,231,611
|
)
|
|
|
626,254
|
|
|
|
51
|
%
|
Other income (loss)
|
|
|
976,475
|
|
|
|
(203,058
|
)
|
|
|
1,179,533
|
|
|
|
581
|
%
|
Income (loss) before provision for income taxes
|
|
|
371,118
|
|
|
|
(1,434,669
|
)
|
|
|
1,805,787
|
|
|
|
126
|
%
|
Provision for income taxes
|
|
|
(7,029
|
)
|
|
|
(6,780
|
)
|
|
|
(249
|
)
|
|
|
-4
|
%
|
Net income (loss)
|
|
$
|
364,089
|
|
|
$
|
(1,441,449
|
)
|
|
$
|
1,805,538
|
|
|
|
125
|
%
|
For the nine months ended September 30, 2021,
we recognized overall revenue from operations of approximately $29.0 million, which was a $0.2 million year over year increase for the
same period in 2020. The increase is mainly due to an increase in 340B fees earned of approximately $0.2 million, COVID-19 testing revenue
of approximately $2.9 million, and a decrease in DIR and other PBM fees of approximately $0.5 million. This was offset by a decrease
in pharmacy and other revenues of $3.3 million.
The decrease in pharmacy revenues is due to
several factors as follows:
(a) The COVID-19 pandemic had a significant
impact on our workforce, as it caused a large number of employee absences due to employees contracting the virus or out of work to care
for sick family members. Furthermore, a number of our employees had issues with childcare/remote schooling that prevented them from working
full time hours;
(b) We experienced challenges in the labor
market as it relates to hiring new employees due to fewer workers seeking employment since unemployment benefits were extended and increased,
which resulted in an overall smaller selection of properly qualified workers. We have experienced competition for qualified workers from
our larger competitors that provide similar services and offered higher hourly compensation and sign-on bonuses; and,
(c) We have implemented new pharmacy software
at our PharmCo 901 location during February 2021, and our PharmCo 1103 location during March 2021. During the second quarter of 2021,
we experienced multiple post implementation issues with the software that we did not anticipate and learned that the software did not
function as originally presented to us when we made the decision to implement the software. Amongst other things 1) the software was
not designed to accommodate our prescription volume and we have experienced continuous business interruptions due to system downtime
which caused prescriptions not being received by us; 2) continuous system performance issues that resulted in patients filling prescriptions
elsewhere; 3) lack of ability to synchronize patient prescription which led to an increase in the number of deliveries to one patient.
As a result of all the performance issues we have experienced with the new software, we made the decision to re-implement our previous
pharmacy software during the third quarter of 2021, since the continuous lack of performance with the new software had a severe impact
on our pharmacy operations and results that was not sustainable;
d) Downtime experienced moving our PharmCo
901 operations from North Miami Beach to Hallandale Beach towards the end of 2020/beginning of 2021, and temporary closure of the North
Miami Beach location during that time; and
e) Moving of our PharmCo 1103 Orlando pharmacy to a new facility
in Orlando.
It is difficult to predict whether these conditions will be recurring
given recent COVID-19 pandemic conditions in Florida.
Total revenues for the nine months
ended September 30, 2021, and 2020 included approximately $2.1 million and $2.0 million, respectively, of fees earned on providing TPA
services and dispensing prescription medications to patients under 340B programs managed by non-profit healthcare organizations in Florida.
Gross profit margins increased from
22% for the nine months ended September 30, 2020, to 27% for the same period in 2021. COVID-19 testing and 340B revenue continue to be
the leading contributors to profitability during the nine month period..
The loss from operations decreased by approximately
$0.6 million for the nine months ended September 30, 2021, when compared to the same period in 2020 as a result of improved gross margin
as discussed above.
Revenue
Our
pharmacy revenues were as follows:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
% of Revenue
|
|
|
Dollars
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
Prescription revenue
|
|
$
|
8,125,834
|
|
|
|
83
|
%
|
|
$
|
9,401,798
|
|
|
|
90
|
%
|
|
$
|
(1,275,964
|
)
|
|
|
-14
|
%
|
340B contract revenue
|
|
|
670,880
|
|
|
|
7
|
|
|
|
1,318,622
|
|
|
|
13
|
|
|
$
|
(647,742
|
)
|
|
|
-49
|
|
Testing revenue
|
|
|
1,315,946
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,315,946
|
|
|
|
100
|
|
Rent and other revenue
|
|
|
270
|
|
|
|
0
|
|
|
|
0
|
|
|
|
-
|
|
|
$
|
270
|
|
|
|
100
|
|
|
|
|
10,112,930
|
|
|
|
103
|
|
|
|
10,720,420
|
|
|
|
102
|
|
|
$
|
(607,490
|
)
|
|
|
-6
|
|
PBM Fees
|
|
|
(315,142
|
)
|
|
|
-3
|
|
|
|
(247,710
|
)
|
|
|
-2
|
|
|
$
|
(67,432
|
)
|
|
|
27
|
|
Sales returns
|
|
|
(265
|
)
|
|
|
0
|
|
|
|
(1,695
|
)
|
|
|
-
|
|
|
$
|
1,430
|
|
|
|
-84
|
|
Revenues, net
|
|
$
|
9,797,523
|
|
|
|
100
|
%
|
|
$
|
10,471,015
|
|
|
|
100
|
%
|
|
$
|
(673,492
|
)
|
|
|
-6
|
%
|
For the three months ended September 30, 2021, we recognized overall
revenue from operations of approximately $9.8 million, which was a $0.7 million year over year decrease for the same period in 2020. The
decrease is mainly due to a decrease in pharmacy revenue of approximately $1.3 million, 340B fees earned of approximately $0.6 million,
and an increase in DIR and other PBM fees of approximately $0.1 million. This was offset by an increase in COVID-19 testing and other
revenue of approximately $1.3 million.
Total prescriptions dispensed decreased to
approximately 106,000 for the three months ended September 30, 2021, from approximately 138,000 during the same period in 2020, a 23%
decrease.
The decrease in prescriptions filled and pharmacy
revenues are due to several factors and as follows:
(a) The COVID-19 pandemic had a significant
impact on our workforce, as it caused a large number of employee absences due to employees contracting the virus or out of work to care
for sick family members. Furthermore, a number of our employees had issues with childcare/remote schooling that prevented them from working
full time hours;
(b) We experienced challenges in the labor
market as it relates to hiring new employees due to fewer workers seeking employment since unemployment benefits were extended and increased,
which resulted in an overall smaller selection of properly qualified workers. We have experienced competition for qualified workers from
our larger competitors that provide similar services and offered higher hourly compensation and sign-on bonuses; and
(c) We have implemented new pharmacy software
at our PharmCo 901 location during February 2021, and our PharmCo 1103 location during March 2021. During the second quarter of 2021,
we experienced multiple post implementation issues with the software that we did not anticipate and learned that the software did not
function as originally presented to us when we made the decision to implement the software. Amongst other things 1) the software was
not designed to accommodate our prescription volume and we have experienced continuous business interruptions due to system downtime
which caused prescriptions not being received by us; 2) continuous system performance issues that resulted in patients filling prescriptions
elsewhere; 3) lack of ability to synchronize patient prescription which led to an increase in the number of deliveries to one patient.
As a result of all the performance issues we have experienced with the new software, we made the decision to re-implement our previous
pharmacy software during the third quarter of 2021, since the continuous lack of performance with the new software had a severe impact
on our pharmacy operations and results that was not sustainable.
It is difficult to predict whether these conditions will be recurring
given recent COVID-19 pandemic conditions in Florida.
Pharmacy revenues exceeded 83% and 102% of
all revenue for three months ended September 30, 2021, and 2020, respectively. Pharmacy revenues as a percentage of total net revenues
for the three months ended September 30, 2021, have decreased when compared to the same period in 2020 due to the increase in revenue
from COVID-19 testing in 2021. Revenue from 340B contracts is 7% and 13% as a percentage of total net revenues for the three months ended
September 30, 2021, and 2020, respectively. The revenue from 340B contracts has decreased by $0.6 million or 49% for the three months
ended September 30, 2021, when compared to 2020. The decrease was primarily a result of our decision to terminate a non-performing 340B
contract.
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
% of Revenue
|
|
|
Dollars
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
Prescription revenue
|
|
$
|
24,929,722
|
|
|
|
86
|
%
|
|
$
|
28,235,462
|
|
|
|
98
|
%
|
|
$
|
(3,305,741
|
)
|
|
|
-12
|
%
|
340B contract revenue
|
|
|
2,120,701
|
|
|
|
7
|
|
|
|
1,958,077
|
|
|
|
7
|
|
|
$
|
162,624
|
|
|
|
8
|
|
Testing revenue
|
|
|
2,926,452
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,926,452
|
|
|
|
100
|
|
Rent and other revenue
|
|
|
1,575
|
|
|
|
0
|
|
|
|
13,076
|
|
|
|
0
|
|
|
$
|
(11,501
|
)
|
|
|
-88
|
|
|
|
|
29,978,450
|
|
|
|
103
|
|
|
|
30,206,615
|
|
|
|
105
|
|
|
$
|
(228,166
|
)
|
|
|
-1
|
|
PBM Fees
|
|
|
(976,127
|
)
|
|
|
-3
|
|
|
|
(1,430,993
|
)
|
|
|
-5
|
|
|
$
|
454,866
|
|
|
|
-32
|
|
Sales returns
|
|
|
(3,201
|
)
|
|
|
0
|
|
|
|
(4,662
|
)
|
|
|
-
|
|
|
$
|
1,462
|
|
|
|
-31
|
|
Revenues, net
|
|
$
|
28,999,122
|
|
|
|
100
|
%
|
|
$
|
28,770,960
|
|
|
|
100
|
%
|
|
$
|
228,162
|
|
|
|
1
|
%
|
For the nine months ended September 30, 2021,
we recognized overall revenue from operations of approximately $29.0 million, which was a $0.2 million year over year increase for the
same period in 2020. The increase is mainly due to an increase in 340B fees earned of approximately $0.2 million, COVID-19 testing revenue
of approximately $2.9 million, and a decrease in DIR and other PBM fees of approximately $0.5 million. This was offset by a decrease
in pharmacy and other revenues of $3.3 million.
Total prescriptions dispensed decreased to
approximately 329,000 for the nine months ended September 30, 2021, from approximately 396,000 during the same period in 2020, a 17%
decrease. The decrease in prescriptions filled and pharmacy revenues are due to several factors as follows:
(a) The COVID-19 pandemic had a significant
impact on our workforce, as it caused a large number of employee absences due to employees contracting the virus or out of work to care
for sick family members. Furthermore, a number of our employees had issues with childcare/remote schooling that prevented them from working
full time hours;
(b) We experienced challenges in the labor
market as it relates to hiring new employees due to fewer workers seeking employment since unemployment benefits were extended and increased,
which resulted in an overall smaller selection of properly qualified workers. We have experienced competition for qualified workers from
our larger competitors that provide similar services and offered higher hourly compensation and sign-on bonuses; and
(c) We have implemented new pharmacy software
at our PharmCo 901 location during February 2021, and our PharmCo 1103 location during March 2021. During the second quarter of 2021,
we experienced multiple post implementation issues with the software that we did not anticipate and learned that the software did not
function as originally presented to us when we made the decision to implement the software. Amongst other things 1) the software was
not designed to accommodate our prescription volume and we have experienced continuous business interruptions due to system downtime
which caused prescriptions not being received by us; 2) continuous system performance issues that resulted in patients filling prescriptions
elsewhere; 3) lack of ability to synchronize patient prescription which led to an increase in the number of deliveries to one patient.
As a result of all the performance issues we have experienced with the new software, we made the decision to re-implement our previous
pharmacy software during the third quarter of 2021, since the continuous lack of performance with the new software had a severe impact
on our pharmacy operations and results that was not sustainable;
d) Downtime experienced moving our PharmCo
901 operations from North Miami Beach to Hallandale Beach towards the end of 2020/beginning of 2021, and temporary closure of the North
Miami Beach location during that time; and
e) Moving of our PharmCo 1103 Orlando pharmacy to a new facility
in Orlando.
It is difficult to predict whether these conditions will be recurring
given recent COVID-19 pandemic conditions in Florida.
Pharmacy revenues exceeded 86% and 103% of
all revenue for the nine months ended September 30, 2021, and 2020, respectively. Pharmacy revenues as a percentage of total net revenues
for the nine months ended September 30, 2021, have decreased when compared to the same period in 2020 due to the increase in revenue
from 340B contracts and COVID-19 testing in 2021. Revenue from 340B contracts remains flat at 7% of total net revenues for the nine months
ended September 30, 2021, and 2020, respectively. The revenue from 340B contracts has increased by $0.2 million or 8% for the nine months
ended September 30, 2021, when compared to 2020.
Operating Expenses
Our operating expenses increased by approximately
$1.0 million, or 14%, for the nine months ended September 30, 2021, as compared to the same period in 2020. The increase was mainly attributable
to the additional operating costs to expand 340B program, moving of our PharmCo 901 and PharmCo 1103 Orlando into new facilities, and
costs incurred implementation of new pharmacy software and re-implementation of previous pharmacy software at the PharmCo 901 and PharmCo
1103 locations.
Other Income (loss)
Other income (loss) increased by approximately
$1.2 million for the nine months ended September 30, 2021, as compared to the same period in 2020. The increase was mainly attributable
to the gain from debt extinguishment of $1.1 million from the forgiveness of the Paycheck Protection Program (“PPP”) loans
that were issued during the second quarter of 2020 and first quarter of 2021 ($0.9 million) and a reduction in the Iliad Research note
from the excess sales of converted common stock during the first and second quarters of 2021 ($0.2 million).
Net Income (Loss)
We had net income of $0.4 million for the
nine months ended September 30, 2021, compared to a net loss of $1.4 million for the same period in 2020. As discussed above, the decrease
in net loss is mainly attributable to improved gross margin due to the increase in 340B fees and COVID-19 testing, decrease in DIR and
other PBM fees, gain on debt extinguishment, and gain from the change in fair value of the derivative liability.
Non-GAAP
Financial Measures
We define Adjusted EBITDA as net income (loss)
before interest expense, income taxes, depreciation and amortization, share-based compensation, and certain other items that we do not
consider indicative of our ongoing operating performance (which items are itemized below). Adjusted EBITDA is a non-GAAP financial measure.
We consider Adjusted EBITDA to be a supplemental
measure of our operating performance. We present Adjusted EBITDA because it is used by our Board and management to evaluate our operating
performance. It is also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial
and operational expectations, for identifying underlying trends and for evaluating the effectiveness of our business strategies. Further,
we believe it assists us, as well as investors, in comparing performance from period to period on a consistent basis. Adjusted EBITDA
is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is
not based on any comprehensive set of accounting rules or principles.
As a non-GAAP measure, Adjusted EBITDA has
limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with
U.S. GAAP and therefore you should not consider Adjusted EBITDA in isolation from, or as a substitute for, financial information prepared
in accordance with U.S. GAAP. You should be aware that in the future we may incur expenses that are the same as or similar to some of
the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items.
Adjusted EBITDA does not include:
|
●
|
depreciation
expense from property and equipment or amortization expense from acquired intangible assets
(and although they are non-cash charges, the assets being depreciated/amortized will often
have to be replaced in the future);
|
|
●
|
interest
expense on our debt and capital leases or interest income we earn on cash and cash equivalents;
|
|
●
|
the
amounts we paid in taxes or other components of our tax provision (which reduces cash available
to us);
|
|
●
|
change
in fair value of derivatives;
|
|
●
|
certain
expenses associated with our acquisition activities; or
|
|
●
|
the
impact of share-based compensation or other matters we do not consider to be indicative of
our ongoing operations.
|
Further, other companies in our industry may
calculate Adjusted EBITDA differently than we do and these calculations may not be comparable to our Adjusted EBITDA metric. Because
of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income (loss)
attributable to us and our financial results presented in accordance with U.S. GAAP.
The table below presents a reconciliation
of the most directly comparable U.S. GAAP measure, net income (loss) attributable to us, to Adjusted EBITDA for the periods indicated
below:
|
|
For the Three Months Ended September
30,
|
|
|
|
2021
|
|
|
2020
|
|
Net income (loss)
|
|
$
|
528,399
|
|
|
$
|
(262,840
|
)
|
Interest expense
|
|
|
335,750
|
|
|
|
357,439
|
|
Change in fair value of derivative liability
|
|
|
(225,130
|
)
|
|
|
-
|
|
Income tax benefit
|
|
|
(1,920
|
)
|
|
|
-
|
|
Depreciation and amortization expense
|
|
|
57,884
|
|
|
|
200,166
|
|
Consolidated Adjusted EBITDA
|
|
$
|
694,983
|
|
|
$
|
294,765
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net income (loss)
|
|
$
|
364,089
|
|
|
$
|
(1,441,449
|
)
|
Interest expense
|
|
|
985,163
|
|
|
|
1,084,198
|
|
Change in fair value of derivative liability
|
|
|
(913,640
|
)
|
|
|
(881,000
|
)
|
Income tax expense
|
|
|
7,029
|
|
|
|
6,780
|
|
Depreciation and amortization expense
|
|
|
324,192
|
|
|
|
486,846
|
|
Consolidated Adjusted EBITDA
|
|
$
|
766,833
|
|
|
$
|
(744,625
|
)
|
Results
of Operations for the Years Ended December 31, 2020 and 2019
The following
table summarizes our results of operations for the years ended December 31, 2020 and 2019:
|
|
For
the Twelve Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
$
Change
|
|
|
%
Change
|
|
Total revenues, net
|
|
$
|
38,937,838
|
|
|
$
|
32,629,127
|
|
|
$
|
6,308,711
|
|
|
|
19
|
%
|
Total cost of revenue
|
|
|
29,970,337
|
|
|
|
24,661,186
|
|
|
|
5,309,151
|
|
|
|
22
|
%
|
Total gross profit
|
|
|
8,967,501
|
|
|
|
7,967,941
|
|
|
|
999,560
|
|
|
|
13
|
%
|
Operating expenses
|
|
|
10,114,320
|
|
|
|
8,901,891
|
|
|
|
1,212,429
|
|
|
|
14
|
%
|
Loss from operations
|
|
|
(1,146,819
|
)
|
|
|
(933,950
|
)
|
|
|
(212,869
|
)
|
|
|
23
|
%
|
Other expense
|
|
|
(296,210
|
)
|
|
|
(1,569,389
|
)
|
|
|
1,273,179
|
|
|
|
81
|
%
|
Loss before provision for income taxes
|
|
|
(1,443,029
|
)
|
|
|
(2,503,339
|
)
|
|
|
1,060,310
|
|
|
|
42
|
%
|
Provision for income
taxes
|
|
|
(6,780
|
)
|
|
|
(2,689
|
)
|
|
|
(4,091
|
)
|
|
|
-152
|
%
|
Net loss
|
|
$
|
(1,449,809
|
)
|
|
$
|
(2,506,028
|
)
|
|
$
|
1,056,219
|
|
|
|
42
|
%
|
For
the year ended December 31, 2020, we recognized overall revenue from operations of approximately $38. 9 million, which increased
approximately $6.3 million when compared to the same period in 2019 due to the increase in fees earned from 340B contracts of $2 .2
million, organic growth of approximately $1.0 million, the addition of our FPRX acquisition in 2019 of approximately $3.6 million (seven
month in 2019 and twelve months in 2020), COVID-19 testing revenue of $0.6 million, and offset by an increase in DIR and other PBM
fees of $1. 0 million. Total revenues for the year ended December 31, 2020 and 2019 included approximately $2.8 million and $0.7
million, respectively, of fees earned on dispensing prescription medications and third party administration service to patients under
340B programs managed by seven non-profit healthcare organizations in Florida. Total billings collected on behalf of and remitted to
these organizations was $19.2 million and $8.3 million for the years ended December 31, 2020 and 2019, respectively.
Gross
profit margins decreased from 24% for the year ended December 31, 2019 to 23% for the same period in 2020. Gross margin for 2020 was
negatively impacted by DIR and other PBM fees of approximately $1.0 million that we record as a component of net revenues, as well as
continued reimbursement compression by third party payors.
The
loss from operations increased by approximately $0.2 million for the year ended December 31, 2020 when compared to the same period in
2019 as a result of decreased gross margin as discussed above, as well as increased personnel costs related to new hires in pharmacy
operations associated with our continued growth and development.
Revenue
Our
revenues were as follows:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
%
of Revenue
|
|
|
Dollars
|
|
|
%
of Revenue
|
|
|
$
Change
|
|
|
%
Change
|
|
Prescription revenue
|
|
$
|
36,898,020
|
|
|
|
95
|
%
|
|
$
|
32,314,746
|
|
|
|
99
|
%
|
|
$
|
4,583,274
|
|
|
|
14
|
%
|
340B contract revenue
|
|
|
2,837,085
|
|
|
|
7
|
|
|
|
670,513
|
|
|
|
2
|
|
|
|
2,166,572
|
|
|
|
323
|
|
Testing revenue
|
|
|
599,851
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
599,851
|
|
|
|
100
|
|
Rent revenue
|
|
|
13,136
|
|
|
|
-
|
|
|
|
39,901
|
|
|
|
-
|
|
|
|
(26,765
|
)
|
|
|
-67
|
|
Subtotal
|
|
|
40,348,092
|
|
|
|
104
|
|
|
|
33,025,160
|
|
|
|
101
|
|
|
|
7,322,932
|
|
|
|
22
|
|
PBM Fees
|
|
|
(1,403,966
|
)
|
|
|
-4
|
|
|
|
(364,386
|
)
|
|
|
-1
|
|
|
|
(1,039,580
|
)
|
|
|
285
|
|
Sales returns
|
|
|
(6,288
|
)
|
|
|
-
|
|
|
|
(31,647
|
)
|
|
|
-
|
|
|
|
25,359
|
|
|
|
-80
|
|
Revenues, net
|
|
$
|
38,937,838
|
|
|
|
100
|
%
|
|
$
|
32,629,127
|
|
|
|
100
|
%
|
|
$
|
6,308,711
|
|
|
|
19
|
%
|
For
the year ended December 31, 2020, we recognized overall revenue from operations of approximately $38.9 million, which was a $6.3 million
or 19% year over year increase when compared to the same period in 2019. The increase is mainly due to an increase in 340B fees earned
on dispensing prescription medications and third party administration service to patients under 340B programs of approximately $2.2 million,
organic growth of approximately $1.0 million, revenue from addition of our FPRX acquisition in 2019 of approximately of $3.6 million
(seven month in 2019 and twelve months in 2020), and COVID-19 testing revenue of approximately $0.6 million. This was offset by a year
over year increase in DIR and other PBM fees of approximately $1.0 million.
Pharmacy
revenues, net of PBM fess, exceeded 91% of all revenue for years ended December 31, 2020 and 2019. Pharmacy revenues as a percentage
of total net revenues, for the year ended December 31, 2020, have decreased when compared to 2019 due to the increase in revenue from
340B contracts in 2020. Revenue from 340B contracts is 7% and 2% as a percentage of total net revenues for the years ended December 31,
2020 and 2019, respectively. The revenue from 340B contracts has increased by $2.2 million or 323% for the year ended December 31, 2020
when compared to 2019.
Total
prescriptions dispensed increased to over 530,000 for the year ended December 31, 2020 from approximately 457,000 during the same period
in 2019, a 16% increase.
Operating
Expenses
Our
operating expenses increased by approximately $1.2 million, or 14%, for the year ended December 2020, as compared to the same period
in 2019. The increase was mainly attributable to the additional operating costs of the FPRX pharmacy acquired in June 2019 of approximately
$0.5 million (seven months in 2019 and twelve months in 2020), and additional operating costs of approximately $0.7 million due to year
over year revenue growth.
Other
Expense
Other
expense decreased by approximately $1.3 million for the year ended December 31, 2020 as compared to the same period in 2019. The decrease
was mainly attributable to an increase of $1.1 million in the change in fair value of the derivative liability associated with the Chicago
Venture and Iliad Research note agreements and the gain of $0.6 million recognized in November 2020 due to the forgiveness of the Paycheck
Protection Program (“PPP”) loans that were issued during the second quarter of 2020, which was offset by an increase in interest
expense of $0.4 million associated with notes payable.
Net
Loss
We
had net losses for both years ended December 31, 2020 and 2019. As discussed above, the net losses are mainly attributable to the increase
in DIR and other PBM fees and interest expense offset by the favorable change in the fair value of our embedded derivative and the PPP
loan forgiveness.
Non-GAAP
Financial Measures
We
define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, share-based compensation,
and certain other items that we do not consider indicative of our ongoing operating performance (which items are itemized below). Adjusted
EBITDA is a non-GAAP financial measure.
We
consider Adjusted EBITDA to be a supplemental measure of our operating performance. We present Adjusted EBITDA because it is used by
our Board and management to evaluate our operating performance. It is also used as a factor in determining incentive compensation, for
budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends and for evaluating
the effectiveness of our business strategies. Further, we believe it assists us, as well as investors, in comparing performance from
period to period on a consistent basis. Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance
with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles.
As
a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations
as determined in accordance with U.S. GAAP and therefore you should not consider Adjusted EBITDA in isolation from, or as a substitute
for, financial information prepared in accordance with U.S. GAAP. You should be aware that in the future we may incur expenses that are
the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected
by unusual or non-recurring items. Adjusted EBITDA does not include:
|
●
|
depreciation expense from property and equipment
or amortization expense from acquired intangible assets (and although they are non-cash charges, the assets being depreciated/amortized
will often have to be replaced in the future);
|
|
●
|
interest expense on our
debt and capital leases or interest income we earn on cash and cash equivalents;
|
|
●
|
the amounts we paid in
taxes or other components of our tax provision (which reduces cash available to us);
|
|
●
|
change in fair value of
derivatives;
|
|
●
|
certain expenses associated
with our acquisition activities; or
|
|
●
|
the impact of share-based
compensation or other matters we do not consider to be indicative of our ongoing operations.
|
Further,
other companies in our industry may calculate Adjusted EBITDA differently than we do and these calculations may not be comparable to
our Adjusted EBITDA metric. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures,
including net income (loss) attributable to us and our financial results presented in accordance with U.S. GAAP.
The
table below presents a reconciliation of the most directly comparable U.S. GAAP measure, net income (loss) attributable to us, to Adjusted
EBITDA for the periods indicated below:
|
|
For
the Years Ended
December, 31
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(1,449,809
|
)
|
|
$
|
(2,506,028
|
)
|
Interest expense
|
|
|
1,702,858
|
|
|
|
1,245,526
|
|
Change in fair value of derivative liability
|
|
|
(814,000
|
)
|
|
|
321,000
|
|
Income tax expense
|
|
|
6,780
|
|
|
|
2,689
|
|
Depreciation and amortization
expense
|
|
|
561,183
|
|
|
|
457,830
|
|
Adjusted EBITDA
|
|
$
|
7,012
|
|
|
$
|
(478,983
|
)
|
EBITDA
has increased by approximately $0.5 million for the year ended December 31, 2020 when compared to the same period in 2019. The increase
is mainly attributable to the increase in interest expense offset by the favorable change in the fair value of our embedded derivative
and funding received to cover certain payroll expenses during the pandemic.
Cash
Flows
The following table summarizes our
cash flows for the Nine Months Ended September 30, 2021, and 2020.
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net change in cash from:
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(114,569
|
)
|
|
$
|
462,699
|
|
Investing activities
|
|
|
(132,702
|
)
|
|
|
(552,879
|
)
|
Financing activities
|
|
|
247,430
|
|
|
|
960,747
|
|
Change in cash
|
|
$
|
159
|
|
|
$
|
870,567
|
|
Cash at end of the period
|
|
$
|
2,100,854
|
|
|
$
|
1,687,204
|
|
Net cash used
in operating activities totaled $114,569 during the nine months ended September 30, 2021, compared to cash provided by operating activities
of $462,699 for the nine months ended September 30, 2020. During the first nine months of 2021, operation cash flows were negatively
impacted due to payment of the first trimester payment of DIR fees that was paid during the third quarter of 2021. During the first nine
months of 2020, operational cash flow was positively impacted by the overall change in working capital which was largely due to the accrual
for PBM fees during 2020 that did not exist at the end of 2019 when compared to 2020.
Net cash used
in investing activities was $132,702 for the nine months ended September 30, 2021, compared to $552,879 for the same period in 2020.
The cash outflow in 2020 is mainly attributable to the construction at 400 Ansin Blvd in preparation of the relocation of the North Miami
Beach location that occurred at the end of 2020, equipment purchases, capital improvement costs at the various pharmacies, and leasehold
improvements.
Net cash provided
by financing activities was $247,430 for the nine months ended September 30, 2021, compared to $960,747 for the same period in 2020.
During the first nine months of 2020, $1,013,900 in loan proceeds were received from the U.S. CARES Act compared to $421,400 loan proceeds
received during the same period in 2021. The loan proceeds were offset by payments on notes payable and lease liabilities in both periods.
The
following table summarizes our cash flows for the years ended December 31, 2020 and 2019:
|
|
Years
Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net change in cash from:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1,149,265
|
|
|
$
|
(614,739
|
)
|
Investing activities
|
|
|
(669,611
|
)
|
|
|
(2,244,282
|
)
|
Financing activities
|
|
|
804,404
|
|
|
|
3,588,827
|
|
Change in cash
|
|
$
|
1,284,058
|
|
|
$
|
729,806
|
|
Cash at end of year
|
|
$
|
2,100,695
|
|
|
$
|
816,637
|
|
Net
cash provided by operating activities totaled $1.1 million for the year ended December 31, 2020 compared to net cash used in operating
activities of $0.6 million for the year ended December 31, 2019. Operational cash flow was positively impacted by the increase in accounts
payable and accrued liabilities for the year ended December 31, 2020, which was largely due to the significant increase in billing activity
from the 340B contracts.
Net
cash used in investing activities was $0.7 million for the year ended December 31, 2020 attributable to equipment purchases, construction
in progress at the Hallandale Beach and Orlando buildings, and leasehold improvements.
Net
cash provided by financing activities was $0.8 million for the year ended December 31, 2020 as a result of loan proceeds in the amount
of $1.0 million received from the U.S. CARES Act loans received during the second quarter of 2020, reduced by payments on notes payable
and lease liabilities.
Liquidity
and Capital Resources
Current
and Future Financing Needs
We have an accumulated
deficit of $8.4 million through September 30, 2021. We have spent, and expect to continue to spend, additional amounts in connection
with implementing our business strategy.
We believe that our cash
and cash equivalents on hand on September 30, 2021, along with the cash we expect to generate from pharmacy sales and the available funding
from our borrowing arrangements, will allow us to operate over the next 12 months. However, additional funding will be necessary to complete
our business plan, which includes public registration with the SEC to become a fully reporting public company and an uplisting to a national
stock exchange, as anticipated by this offering. We also will need additional funding for future expansion initiatives. The actual amount
of funds we will need to operate and expand is subject to many factors, some of which are beyond our control. We have based our estimate
on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate.
Potential sources of financing include public or private sales of our shares or debt and other sources. We may seek to access the public
markets when conditions are favorable due to our long-term capital requirements.
Acquisitions
Acquisition
of Family Physicians RX, Inc. (dba PharmCoRx 1103)
On
March 8, 2019, we entered into an agreement (the “FPRX Purchase Agreement”) for the acquisition of 100% of the issued and
outstanding common stock FPRX, dba PharmCoRx 1103, a Florida based pharmacy with locations in Davie and Orlando, Florida. The initial
purchase price for the acquisition of FPRX was $3,000,000, whereby $2.3 million was payable in cash to the former owners over the two-year
period following the closing, and $700,000 was payable in 10,000,000 shares of our common stock, valued at $0.07 per share. In addition,
we also agreed to pay to the former owners consideration equal to the following, all value at the closing date: the fair value of FPRX
inventory at the closing date plus an amount equal to the book value of FPRX accounts receivable minus accounts payable and all other
accrued liabilities as of the closing date, plus an amount equal to the FPRX cash balances. The closing date of the acquisition was May
31, 2019.
On
November 8, 2019, the FPRX Purchase Agreement was modified to include a reduced purchase price to approximately $2.5 million, which included
approximately $417,000 for the fair value of FPRX inventory at the closing date and approximately $157,000 for FPRX cash balances. In
connection with the amendment to the purchase agreement, the sellers agreed to the return and rescission of the common stock shares issued,
and retention of net accounts receivable. The acquisition is fully closed and integrated into the operation with no further consideration
due to the former owners.
Recent
Developments
Exchange
of Series A Preferred Stock
On January 7, 2021, we entered into an exchange
agreement with the Yelena Braslavskaya 2020 Gift Trust, the holder of all 51 of our outstanding shares of Series A Preferred Stock, to
exchange all of the 51 shares of Series A Preferred Stock into an amount equal to 4.6% of the number of shares of our Common Stock issued
and outstanding as of the date immediately preceding the date of the filing of a final Amendment to Registration Statement on Form S-1/A
filed with the SEC. As of November 3, 2021, the holders of our common stock are entitled to one vote per share on all matters submitted
to a vote of the stockholders. Each share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by
the total issued and outstanding common stock and preferred stock eligible to vote at the time of the respective vote (the “Numerator”),
divided by (y) 0.49, minus (z) the Numerator. With respect to all matters upon which stockholders are entitled to vote or to which stockholders
are entitled to give consent, the holders of the outstanding shares of Series A Preferred Stock shall vote together with the holders
of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the
Certificate of Incorporation or By-laws. As of the Record Date, each share of Series A Preferred Stock has voting rights equal to 10,926,680
shares, and on an aggregate basis the 51 shares of Series A Preferred Stock have voting rights equal to 557,260,682 shares. On November
22, 2021, the parties re-executed the exchange agreement and expect to complete the exchange simultaneously with the closing of this
offering which would have the effect of cancelling all shares of Series A Preferred Stock owned by the Yelena Braslavskaya 2020 Gift
Trust.
Reverse
Stock Split
On [ ], we amended our Restated Certificate
(the “Amendment”), with the Secretary of State of the State of Delaware to effectuate a one-for-[ ] (1:[ ]) reverse stock
split (the “[month year] Reverse Stock Split”) of our Common Stock without any change to its par value. The Amendment became
effective on [insert date]. No fractional shares were issued in connection with the [month year] Reverse Stock Split as all fractional
shares were rounded down to the next whole share. All share and per share amounts of our Common Stock listed in this prospectus have
been adjusted to give effect to the [month year] Reverse Stock Split.
Critical
Accounting Policies
Revenue
Recognition
We
recognize pharmacy revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or when a
customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers to the
customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments are
received directly from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For third-party
medical insurance and other claims, authorization to ensure payment is obtained from the customer’s insurance provider before the
medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization number
is issued by the customers’ insurance provider.
We
record unearned revenue for prescriptions that are filled but not yet delivered at period-end. Billings for most prescription orders
are with third-party payers, including Medicare, Medicaid and insurance carriers. Customer returns are nominal. Pharmacy revenues were
approximately 98% of total revenue for all periods presented.
We
accrue an estimate of fees, including DIR fees, which are assessed or expected to be assessed by payers at some point after adjudication
of a claim, as a reduction of revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment
to revenue when the change becomes known.
Lease
Accounting
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), to provide a new comprehensive
model for lease accounting. Under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for
all leases (including subleases) and eliminate the concept of operating leases as off-balance sheet lease arrangements. Recognition,
measurement, and presentation of expenses will depend on classification as a finance or operating lease. Topic 842 establishes a right-of-use
model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the condensed consolidated balance sheet for all leases
with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the recognition, measurement,
and presentation of expenses in the income statement. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted
Improvements.
In
adopting Topic 842, a modified retrospective transition approach is required, applying the new standard to all leases existing at the
date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition
requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The
entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the
comparative periods. We adopted the guidance in Topic 842 on January 1, 2020 (“the transition date”) and we elected to adopt
the transition relief provisions from ASU 2018-11 to use this date as our date of initial application. Consequently, financial information
has not been updated and the disclosures required under Topic 842 have not been provided for dates and periods before January 1, 2020.
Our reporting for 2019 presented in the consolidated financial statements includes the disclosures required under ASC Topic 840. There
was no cumulative effect adjustment to the opening balance of accumulated deficit required.
Topic
842 provides a number of optional practical expedients in transition. We have elected all of Topic 842’s available transition practical
expedients which permit us not to reassess under Topic 842 our prior conclusions about lease identification, lease classification and
initial direct costs. We did not elect the practical expedient pertaining to land easements as it is not applicable to us. We have also
elected the practical expedient for short-term lease recognition exemption for two of our real estate leases. This means that for these
leases we will not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected
the practical expedient to not separate lease and non-lease components for all of our leases.
Accounts
Receivable and Allowances
Accounts
receivable consist of amounts due from third party medical insurance carriers, pharmacy benefit management companies, patients and credit
card processors. Management periodically reviews the accounts receivable to assess collectability and estimates potential uncollectible
accounts. Accounts receivable are written off after collection efforts have been completed in accordance with our policies. The uncollectible
accounts allowance reduces the carrying value of the account receivable.
Inventories
Inventories
are located at our four pharmacy locations. Inventory consists solely of finished products (primarily prescription drugs) and is valued
at the lower of first-in, first-out cost (FIFO) or market. Our inventories are maintained on a periodic basis through the performance
of physical inventory counts. Our cost of sales is recorded based upon the quantity of prescription drugs dispensed for each prescription
filled by our pharmacies and the corresponding unit cost of each drug.
Inventories
are comprised of brand and generic pharmaceutical drugs. Our pharmacies maintain a wide variety of different drug classes, known as Schedule
II, Schedule III, and Schedule IV drugs, which vary in degrees of addictiveness. Schedule II drugs, considered narcotics by the DEA,
are the most addictive; hence, they are highly regulated by the DEA and are required to be segregated and secured in a separate cabinet.
Schedule III and Schedule IV drugs are less addictive and are not regulated. The cost in acquiring Schedule II drugs is higher than Schedule
III and IV drugs.
Deferred
Taxes
In
assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning
strategies and the realizability of tax loss carry-forwards. Valuation allowances related to deferred tax assets can be affected by changes
to tax laws, changes to statutory tax rates and future taxable income levels. Based on current estimates of future taxable income, we
believe that we will not be able to realize the full value of deferred tax assets and has increased its valuation allowance to offset
completely its deferred tax assets resulting from our net operating losses.
Off-Balance
Sheet Arrangements
We
do not have any unconsolidated special purpose entities and, we do not have significant exposure to any off-balance sheet arrangements.
The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which
an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument
or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves
as credit, liquidity or market risk support for such assets.
DESCRIPTION
OF BUSINESS
Our Company
Progressive
Care Inc. 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 (referred to as “PharmCo 901”), Touchpoint RX, LLC doing business as PharmCo Rx 1002,
LLC (referred to as “PharmCo 1002”), Family Physicians RX, Inc. doing business as PharmCoRx 1103 and PharmCoRx 1204 (referred
to as “FPRX” historically or “PharmCo 1103” and “PharmCo 1204 “currently) (pharmacy subsidiaries
collectively referred to as “PharmCo”), and ClearMetrX Inc (collectively with all entities referred to as the “Company”,
or “we”) is a personalized healthcare services and technology company which 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 e-commerce of over-the-counter products, certain disease testing, and vaccinations.
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 persistence, and capture important information regarding safety and effectiveness of the medications that we dispense.
The
pharmacy is rated by 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 and fees are
assessed to the pharmacy. In some cases, PBMs may return PBM Fees collected during the measurement period in part or in full to the pharmacies
which earn a performance based incentive, while other PBMs use these scores to determine the amount of fees to collect at a later point.
In 2020 and 2019, per EQuIPP performance valuation reports, our performance score was five stars with a relative ranking in the top 20%
of all pharmacies.
Primary
care physicians similarly are measured by Health Insurance Plans based on chronic care management, the results of which impact their
annual revenue from these Plans. This potential revenue from the Health Insurance Plans may provide a possible incentive for such prescribing
primary care physicians to refer patients to pharmacies that have high performance scores, though patients retain the right to have their
prescriptions dispensed by a network of pharmacy 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 HIPAA and state laws on the use and sharing of patient data and the company is in compliance with such
laws. The ClearMetrX offerings include data management and 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.
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 are able to 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.
We
currently offer services in a variety of languages, including English, Spanish, French, Creole, Portuguese, and Russian. We currently
have four operating pharmacies, each of which are owned and operated by wholly owned subsidiaries. The current locations of our pharmacies
are as follows:
Pharmacy
|
|
Address
|
PharmCo 901
|
|
400 Ansin
Blvd Suite A, Hallandale Beach, FL 33009
|
PharmCo 1002
|
|
3208 2Nd
Ave N. Bay 4, Palm Springs, FL 33461
|
PharmCo 1204
(North Miami Beach)
|
|
901 N. Miami
Beach Blvd., Suite 1, North Miami Beach, FL 33162
|
PharmCo 1103
(Orlando)
|
|
1160 S Semoran
Blvd., Suites D,E,F, Orlando, FL 32822
|
PharmCo
pharmacies are full-service pharmacies that offer a variety of value-add services and accept walk-ins. These services are designed to
provide satisfaction across all medication stakeholders and enhance loyalty and key performance metrics. These value-add services that
are at no additional charge include prior authorization assistance, same-day home-medication delivery, on site provider consultation
services, primary care reporting and analytics, customized packaging solutions, and patient advocacy. 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. PharmCo also offers e-commerce of over-the-counter products, certain disease testing, and vaccinations.
PharmCo
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 the 340B Covered
Entity and receive a dispensing fee per prescription. These dispensing fees vary by the Covered Entity and the level of service provided
by us.
Our
non-sterile compounding lab was designed to support those patients looking for alternative topical pain management treatments and customizable
dosage forms to accommodate struggles with existing conditions. Our compounding department specializes in formularies such as non-narcotic
topical pain creams, wound care creams, scar gels, hormone replacement therapies, female health, pediatrics, and sports medicine. We
only use FDA approved and registered ingredients and the compound can be individually tailored for a result that fully meets the needs
of each patient. In addition to these medications, PharmCo prepares psoriasis creams, wellness vitamins, weight loss formulations and
holistic capsules which are 100% Kosher and Halal certified. Compounded medications require strict compliance procedures, are highly
labor intensive and as of 2020 are largely not covered by insurance. However, we continue to believe that compounded options must be
available for our patients as they have proven effective in improving quality of life for patients with complex conditions and treatment
regimens.
For
our 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. Its consultant
pharmacist services consist primarily of evaluation of monthly patient drug therapy and monitoring the LTC institution’s drug distribution
system.
We
also generate revenue from our work in MTM, which 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
Method of Products and Services
Sales
and marketing efforts are focused primarily on MSOs, ACOs, healthcare organizations, and independent provider practices. Though there
is great competition in this market and the landscape of the industry is complicated, we believe we can capitalize on providing risk
and data management services, remote patient monitoring, and adherence management. We actively promote our services to patients through
traditional advertising methods, health fair sponsorship, speaking engagements, and social media. We have also been conducting market
awareness campaigns of the broad extent of our services to develop our market and attract and maintain a loyal customer base. The addition
of contracts with 340B Covered Entities have become an integral component for sales success.
Strategic
Plan
Our
plan is to develop a national footprint as a premier provider of SaaS-based healthcare services and data analytics services to healthcare
practitioners in all sectors of the healthcare industry. As a pharmacy enabled health technology company we build upon our established
reputation as a five-star- rated pharmacy operation capable of catering to the diverse healthcare needs of individual patients while
also enhancing provider practices and healthcare organizations.
We
have begun transitioning from a pharmacy centered organization to a pharmacy enabled organization that provides data analytics and health
technology. We believe that data analytics for frontline and independent providers, 340B Covered Entities, and pharmacies will have increasing
importance as health systems evolve to become virtual and digitized. With more electronic health data and increasing focus on performance,
margins, and quality, our models and platforms will have strategic value through their 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.
We
are investing in healthcare technologies and virtual health services. Furthermore, our vision of integrated, pharmacy enabled health
tech will be instrumental in reducing health information silos, closing health care gaps and lessening the burdens on providers and patients
alike. Through the development of proprietary platforms, we can enter strategic partnerships with public and private health systems both
domestically and abroad. The COVID-19 Pandemic has further accelerated the need for these services and hopefully entrenched the growing
trend of virtual care services.
We
currently have four operating pharmacies and a data management and analytics company, each of which is a wholly owned subsidiary, and
our plan over the next two years is to develop a proprietary analytics platform to scale up service offerings, integrate health technology
assets through in house development and acquisition of innovative patient centric organizations, and further strengthen our pharmacy
operations through the acquisition of strategic pharmacies with service offerings such specialty, mail-order, and sterile compounding.
The foundation for our plan to increase and leverage sales at our existing four pharmacies is based on increasing our outreach program
to healthcare organizations in need to patient support and prescriptions services, data management and analytics, virtual care platforms,
or customized health IT solutions.
We
serve a broad range of therapeutic categories, and we believe we can expand our clinical expertise to increasingly penetrate additional
markets for products such as hormone therapies, reproductive health, mental health, sexual health, and nutrition/ dietetics. We believe
these categories will become increasingly important to our patient population in the coming years due to advancement of these therapies
and increased incidences of chronic illness and that our platform will allow us to grow with market expansion.
We
believe the healthcare 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. In June 2019, we completed the acquisition of Family Physicians RX, Inc., a pharmacy with
operations in Miami-Dade, Broward, and Orange County, Florida. Management expects that future growth will be driven by future acquisitions,
which will provide continued expansion into new market territories; diversification into direct healthcare service relationships and
cash based products; concentrated efforts toward developing our compliance and adherence services provided to medical providers; and
enhancement of technological opportunities that boost loyalty and customer satisfaction. Additionally, 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.
We
also have evaluated options to reduce the costs of our corporate infrastructure, which includes executive management, centralized support
services, accounting, finance, information systems, human resources, payroll and compliance to support each pharmacy’s operations.
Notwithstanding these actions, the costs to support our existing corporate infrastructure are significant when allocated over the operations
of just four pharmacies. Management believes that our current corporate infrastructure can efficiently support our existing pharmacies
and execute on ambitious growth and development plans. However, uplisting to a national exchange, the addition of strategic partnerships,
new subsidiaries, and acquisitions may require additional corporate infrastructure.
The implementation of the foregoing is dependent
on ability to obtain additional financing and improve our liquidity position. If we are not able to secure additional financing, the
implementation of our business plan will be delayed and our ability to expand and develop additional pharmacies will be impaired. We
are currently seeking additional funding through equity and/or debt financing arrangements, but there can be no assurance that such additional
financing will be available to us on acceptable terms, or at all. Our efforts to secure equity financing have been inhibited by our existing
capital structure. In particular, the rights and preferences of our Series A Preferred Stock confer upon the holder of such preferred
shares significant control over our management and affairs and over matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions, and this has been an impediment to securing equity financing. Management
intends to register its class of Common Stock under the Securities Exchange Act of 1934, as amended, and believes that filing periodic
public reports with the SEC will enhance our ability to raise capital and under acceptable terms.
Our business is highly leveraged and the successful
implementation of the foregoing plan necessitates that we reach an agreement with our existing debt holders or identify other investors
to refinance the debt securities with other equity and/or debt financing arrangements that contain more favorable market based repayment
and interest terms. As of September 30, 2021, we have approximately $1.8 million in convertible debt securities all of which will come
due in the year 2022. Our past experience with these debt holders has been that the debt securities have been converted into equity based
on the variable conversion terms in each debt agreement; however, our debt holders have no obligation to convert their debt into shares.
If our debt holders choose not to convert certain of these securities into equity, we will need to repay such debt, or reach an agreement
with the debt holders to extend the terms thereof. If we are forced to repay the debt, this need for funds would have a material adverse
impact on our business operations, financial condition and prospects, would threaten our ability to operate as a going concern and may
force us to seek bankruptcy protection.
Management
believes that the foregoing plan and outlined steps to improve our liquidity position will have a positive impact on our efforts to generate
earnings and positive cash flow, but the implementation of such plan is dependent on our ability to secure additional financing and restructure
our outstanding debt.
Competitive
Business Conditions, Competitive Position 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 competitive
advantage lies in providing superior personalized service to the patients and facility operators, selectively adding labor saving and
compliance enhancing technologies and carrying inventory to provide rapid delivery of all pharmaceutical needs, free home delivery services,
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, 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 also 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 Services 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.
However, we do not believe that we compete strictly on the selling price of products or services in either business segment; rather,
we offer patients the opportunity to receive high quality care through a wide range of value added services and for physicians to be
unburdened by pharmacy measurement metrics including in their rating by utilizing our five-star-rated pharmacies, reporting tools, and
data analytics services.
Suppliers
We obtain pharmaceutical and other products
from wholesale drug distributors. We have maintained a relationship with a primary supplier that accounted for 95%, 95%, 95%, and 91%
of pharmaceutical purchases for the nine months ended September 30, 2021 and 2020, and the years ended December 31, 2020 and 2019, respectively,
and several supplementary suppliers. Our primary supplier for the nine months ended September 30, 2021 and 2020, and the years ended
December 31, 2020 and 2019 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 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 more than ten percent or
more of our consolidated net revenue for the nine months ended September 30, 2021 and years ended December 31, 2020 and 2019, 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. We depend on these healthcare payors and a loss of one or more would have a major impact on the business.
Patents
and Trademarks
We
currently have no registered patents or trademarks that we either own or lease.
Need
for Governmental Approval of Principal Products or Services
Government
approval is necessary to open any new pharmacy or other health services location.
Government
contracts
We
fill prescriptions for Medicare Part D and the State of Florida Medicaid public assistance program. Both government programs are privatized
and are managed under several different private healthcare payors, the concentration of our business with which varies throughout the
course of the year. However, while we do not rely on maintaining active contracts with government entities themselves other than the
Florida Medicaid Program, the loss of Florida Medicaid or one or more private healthcare payors would have a major impact on our business.
Effect
of Existing or Probable Governmental Regulation
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 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. We believe that our pharmacies’ present and future locations comply with all state licensing laws
applicable to these businesses. If our pharmacy location becomes 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 statutes and regulations govern the labeling, packaging, advertising and adulteration of
prescription drugs and the dispensing of controlled substances. Federal 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 Office of the Inspector General (“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 carefully considers the importance
of such anti-kickback laws when structuring our operations and believes that we are complying therewith.
The
Stark Laws. The Federal self-referral law, commonly known as the “Stark Law”, prohibits
physicians from referring Medicare 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. 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. Management carefully considers the Stark Law and its accompanying
regulations in structuring our relationships with physicians and believes that we are complying therewith.
State
Self-Referral Laws. We are subject to state statutes and regulations that prohibit payments for
the referral of patients and referrals by physicians to healthcare providers with whom the physicians have a financial relationship.
Some state statutes and regulations apply to services reimbursed by governmental as well as private payors. Violation of these laws may
result in prohibition of payment for services rendered, loss of pharmacy or health provider licenses, fines and criminal penalties. The
laws and exceptions or safe harbors may vary from the Federal Stark Law and vary significantly from state to state. Certain of these
state statutes mirror the Federal Stark Law while others may be more restrictive. The laws are often vague, and in many cases, have not
been widely interpreted by courts or regulatory agencies; however, we believe we are following such laws.
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,
Privacy and HIPAA. 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 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 any willing provider 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. Some laws address non-insurers (like a PBM).
Some laws address all types of health benefits. Some 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 any willing provider 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, as amended by the Healthcare and Education Reconciliation Act of 2010 (the “Health Reform Laws”),
which enacted a number of significant healthcare reforms. President Donald Trump has stated his intentions to support the repeal and
possible replacement of the Health Reform Laws during his term of office. While Congress has not passed repeal legislation, 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.” Congress may consider other legislation to repeal or replace elements of the Health Reform Laws. While
not all of these reforms, or their repeal or replacement, affect our business directly, they could affect the coverage and plan designs
that are or will be provided by many of our health plan clients. As a result, these reforms, or their repeal or replacement, could impact
many of our services and business practices. There is considerable uncertainty as to the continuation of these reforms, their repeal,
or their replacement.
21st
Century Cures Act. The 21st Century Cures Act (“Cures Act”), enacted in December
2016, among other things implemented Average Sales Price pricing for Part B DME infusion drugs in January 2017 and delayed payment for
the home infusion services necessary to administer these drugs until January 2021. Given our current understanding of the Cures Act,
we do not believe that it will have a significant impact on our business.
Estimate
of the Amount Spent on Research and Development
Research
and development expenses were $0 for each of the years 2020 and 2019.
Costs
and effects of environmental compliance
Our
environmental compliance costs are minimal. We engage recycling companies for the disposal of all paper products and standard recyclable
materials amounting to approximately $500 per month.
Properties
PharmCo
901
We
purchased an approximately 11,000 sq. ft. facility at 400 Ansin Blvd, Bay A, Hallandale, FL. The monthly mortgage payment is
approximately $12,000.
During
December 2020, PharmCo 901 moved a majority of its pharmacy operations from their North Miami Beach, Florida location to the new 11,000
square foot pharmacy facility in our administrative offices in Ansin Blvd., Hallandale Beach, Florida.
PharmCo
1002
We rent pharmacy space at 3208 2nd Avenue North, Bays 2, 3 and 4, Palm Springs, FL 33461. The original lease expired in March 2021
and automatically renewed for an additional 36 months through March 2024. The lease agreement calls for monthly payments of approximately
$4,300, with an escalating payment schedule each year thereafter.
PharmCo
1103
We
rent pharmacy space at 1160 South Semoran Blvd, Suites D, E, F, Orlando, Florida. The lease was entered into and commenced on August
1, 2020 with a 66-month term and expires on February 1, 2026. The lease agreement calls for monthly payments beginning February 1, 2021
of $4,310, with an escalating payment schedule each year thereafter.
PharmCo
1204
Our
PharmCo 1204 Davie location moved to North Miami Beach, Florida during August 2021. We rent approximately 2,200 square foot of retail
and pharmacy space. The lease is for five years and commenced on September 1, 2021. The lease agreement calls for monthly payments of
approximately $4,800, with an escalating payment schedule each year thereafter.
We
believe that our existing office facilities are adequate for current and presently foreseeable operations. In general, our properties
are well maintained and are being utilized for their intended purposes. Additional space may be required as we expand our business activities.
We do not foresee any significant difficulties in obtaining additional facilities if deemed necessary.
Employees
As of November 12, 2021, we have approximately 114 employees,
none of which are subject to a collective bargaining agreement. Approximately 97 of these employees are full time.
Legal
Proceedings
From
time to time we may be subject to claims and litigation arising in the ordinary course of business. One or more unfavorable outcomes
in any claim or litigation against us could have a material adverse effect for the period in which such claim or litigation is resolved.
In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention, and
may materially adversely affect our reputation, even if resolved in our favor.
MANAGEMENT
Directors
and Executive Officers
The
following table sets forth the names of our directors and executive officer employees and their ages, positions and biographical information
as of the date of this prospectus. Our executive officers are appointed by, and serve at the discretion of, our Board of Directors. Our
directors will hold office until our next annual meeting of shareholders, or until their earlier resignation or removal.
Name
|
|
Position
|
|
Age
|
Alan Jay Weisberg
|
|
Chairman of the Board of Directors and Chief Executive
Officer
|
|
75
|
Cecile Munnik
|
|
Chief Financial Officer
|
|
44
|
Birute Norkute
|
|
Chief Operating Officer
|
|
40
|
Jervis Bennett Hough
|
|
Director
|
|
45
|
Oleg Firer
|
|
Director
|
|
44
|
Alan
Jay Weisberg: Mr. Weisberg has served as the Chairman of the Board of Progressive Care since October 2010 and Chief Executive Officer
of Progressive Care since August 2020. Also Mr. Weisberg served as CFO of Progressive Care from January 2016 to October 2020. Mr. Weisberg
has more than thirty years of accounting experience and has been the CFO of several publicly traded companies. Mr. Weisberg is also a
partner in Weisberg & Company, a Boca Raton, Florida accounting firm and has been in that role since July 1987. Mr. Weisberg has
served as an adjunct professor of introductory finance at Florida International University and as an instructor of introductory accounting
at the American Institute of Banking. He has also lectured to community groups on tax and estate planning. Mr. Weisberg is a graduate
of Penn State University where he earned his Bachelor of Science in Accounting and a graduate of Florida International University where
he earned his Master of Business Administration. Mr. Weisberg is also a registered Certified Public Accountant in the state of Florida.
Mr. Weisberg was selected to serve as a director on our Board due to his expertise in public company accounting.
Cecile
Munnik: Ms. Munnik has served as the Chief Financial Officer of Progressive Care since October 2020. She has over fifteen years
of accounting and finance experience. She has served in finance and accounting leadership positions for companies and business units
with annual revenues ranging from $100M to $3B, and demonstrated expertise in US GAAP, SEC Reporting (10-K, 10-Q), Sarbanes-Oxley, Public
Accounting, Mergers & Acquisitions, Internal Controls/Process Efficiencies, ERPs, and Strategy Planning for private and public entities.
Prior to joining Progressive Care, she has held several senior management positions. Ms. Munnik served as Director of Asset Management
at Unified Women’s Healthcare, a single-specialty management services organization to support Ob-Gyn practices from November 2018
through April 2020. She joined The Service Companies as Director of Finance in May 2017 through October 2018. Prior to The Service Companies,
she worked at Lennox International for eleven years. She joined Lennox in June 2006 as Sr. Internal Auditor and left in May 2017 as Manager
of Financial Planning and Analysis. Ms. Munnik has a bachelor’s degree in accounting from the University of Pretoria (South Africa)
and is a Certified Public Accountant (CPA) and Chartered Accountant (CA). She serves on the board of Damascus Road Partners, which is
a group of social enterprise investors who invest charitable capital to sustainably address human suffering.
Birute
Norkute: Mrs. Norkute has served as the Chief Operating Officer of Progressive Care since January 2020. Mrs. Norkute has over fifteen
years of experience in the healthcare industry, working in medical equipment, compliance, and operations management. She started her
career with PharmCo in 2008 to establish the durable medical equipment department. Through strong performance and fostering organic growth
in her department, she earned her path into the pharmacy operations in 2013 where she played a vital part in their growth overseeing
the compliance, credentialing, licensing, and integration of PharmCo’s two acquisitions in 2018 and 2019. She was promoted to COO
in January 2020. Mrs. Norkute graduated from Kaunas University of Technology in 2003 with a bachelor’s degree in Business Administration.
Her expertise lies in the healthcare industry, insurance relations, and compliance.
Jervis
Bennet Hough: Mr. Hough has served as a Director of Progressive Care since August 2017. Mr. Hough has worked in the capital markets
and financial services industry in various compliance and management capacities. His regulatory background provides valuable perspective
when assisting firms in the development and implementation of managerial plans and developing business. Mr. Hough currently serves at
the nation’s oldest African-American Investment Banking Firm Blaylock Van, LLC as Chief Operations Officer and Chief Compliance
Officer. Prior to Blaylock, Mr. Hough served as Chief Compliance Officer for IFS Securities, Inc from 2014 to 2018. Prior to 2014, Mr.
Hough has also served in several executive positions at various companies including: President at Fund America Securities; CEO and COO
at J&C Global Securities; and CEO and President at Capital & Credit International Inc. Having begun his career with the Financial
Industry Regulatory Authority (FINRA), Mr. Hough has gone on to amass experience is various sectors of the industry including corporate
investment and public finance. Mr. Hough holds a B.S. Degree in Economics and an M.S. Degree in Agricultural and Applied Economics from
Clemson University. He has earned the Certified Securities Compliance Professional Certification from the National Society of Compliance
Professionals. Mr. Hough holds the Series 7, 24, 53, 63, 79, and 99 licenses from FINRA (Financial Industrial Regulatory Authority).
Mr. Hough is a Founding Board Member of the Georgia Crowdfunding Association and Past Board Member of the U.S.A. Jamaica Chamber of Commerce.
Oleg
Firer: Mr. Firer has served as a Director of Progressive Care since October 2017. Mr. Firer is an experienced leader and a visionary
with knowledge in international relations, corporate transactions, financial services, wireless technology, and logistics. Mr. Firer
served as the Executive Chairman of Unified Payments since January 2011 and led the company from inception until its acquisition by Net
Element (NASDAQ: NETE) in April of 2013, where he serves currently as CEO and Executive Chairman and is responsible for the overall vision,
strategy, and execution of the company’s mission of developing and providing value-added technologies for mobile payments and transactional
services as well as powering global commerce. Prior to Net Elements and Unified Payments, Mr. Firer held senior executive positions as
Managing Partner and Director of Star Capital Management, and President and CEO of Acies Corporation. Mr. Firer serves as the Executive
Chairman of Net Element and a board/advisory member of various companies including: World Health Organization (WHO), Eastern Caribbean
Blockchain Association, E2Exchange, Star Capital, Progressive Care, PharmCo, SarTeleMed and Gainfy Foundation. Mr. Firer also holds a
diplomatic rank of the Ambassador Extraordinary and Plenipotentiary. Mr. Firer further supports the initiatives of the Firer Family Charitable
Foundation, the charitable family fund focused on helping families and children in need.
Family
Relationships
There
are no family relationships among any of our directors or executive officers.
Corporate
Governance Principles and Code of Ethics
Our
Board is committed to sound corporate governance principles and practices. Our Board’s core principles of corporate governance
are set forth in our Corporate Governance Principles. In order to clearly set forth our commitment to conduct our operations in accordance
with our high standards of business ethics and applicable laws and regulations, our Board also adopted a Code of Business Conduct and
Ethics, which is applicable to all directors, officers and employees. A copy of the Code of Business Conduct and Ethics and the Corporate
Governance Principles are available on .
You also may obtain without charge a printed copy of the Code of Ethics and Corporate Governance Principles by sending a written request
to: , Progressive
Care Inc., 400 Ansin Blvd, Suite A, Hallandale Beach, Florida 33009. Amendments or waivers of the Code of Business Conduct and Ethics
will be provided on our website within four business days following the date of the amendment or waiver.
Board
of Directors
The
business and affairs of our company are managed by or under the direction of the Board. The Board is currently composed of three members
Alan Jay Weisberg, Jervis Bennett Hough, and Oleg Firer. The Board has not appointed a lead independent director; instead the presiding
director for each executive session is rotated among the Chairmen of the committees of our Board.
Board
Committees
Pursuant
to our bylaws, our Board may establish one or more committees of the Board however designated, and delegate to any such committee the
full power of the Board, to the fullest extent permitted by law.
Our
Board has established three separately designated standing committees to assist the Board in discharging its responsibilities: the Audit
Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The charters for our Board committees set
forth the scope of the responsibilities of that committee. The Board will assess the effectiveness and contribution of each committee
on an annual basis. The charters for our Board committees were adopted by the Board in October 2020. These charters are available at
and you may obtain a printed copy of any of these charters by sending a written request to: Attn: Chief Executive Officer, Progressive
Care Inc., 400 Ansin Blvd, Suite A, Hallandale Beach, Florida 33009.
|
Independent
|
|
Audit
Committee
|
|
Compensation
Committee
|
|
Nominating
and
Corporate
Governance
Committee
|
Alan Jay Weisberg(1)
|
|
|
|
|
|
|
|
Jervis Bennett Hough
|
X
|
|
M
|
|
M
|
|
M
|
Oleg Firer
|
X
|
|
M
|
|
M
|
|
M
|
(1)
|
|
Chairman
of Board of Directors.
|
C
|
-
|
Chairman
of Committee.
|
Audit
Committee.
The
current members of the Audit Committee are Messrs. Hough and Firer, each of whom qualifies as an “independent” director in
accordance with the listing requirements of Nasdaq and the SEC. The Board has determined that Mr. Firer is an “audit committee
financial expert,” as defined in Item 407 of Regulation S-K and is the Chairman of the Audit Committee. Prior to the completion
of this offering, we will appoint a third independent director to serve on our audit committee in accordance with the rules of Nasdaq.
The Audit Committee is responsible for, among other things:
|
●
|
appointing, retaining and
compensating the independent registered public accounting firm to audit our financial statements;
|
|
●
|
helping to ensure the independence
and performance of the independent registered public accounting firm;
|
|
|
|
|
●
|
approving audit and non-audit
services and fees;
|
|
|
|
|
●
|
reviewing financial statements
and discussing with management and the independent registered public accounting firm our annual audited and quarterly financial statements,
the results of the independent audit and the quarterly reviews, and the reports and certifications regarding internal controls over
financial reporting and disclosure controls;
|
|
|
|
|
●
|
preparing the audit committee
report that the SEC requires to be included in our annual proxy statement;
|
|
|
|
|
●
|
reviewing reports and communications
from the independent registered public accounting firm;
|
|
|
|
|
●
|
reviewing earnings press
releases and earnings guidance;
|
|
|
|
|
●
|
reviewing the adequacy
and effectiveness of our internal controls and disclosure controls and procedures;
|
|
|
|
|
●
|
reviewing our policies
on risk assessment and risk management;
|
|
|
|
|
●
|
reviewing related party
transactions;
|
|
|
|
|
●
|
establishing and overseeing
procedures for the receipt, retention and treatment of accounting related complaints and the confidential submission by our employees
of concerns regarding questionable accounting or auditing matters; and
|
|
|
|
|
●
|
reviewing and monitoring
actual and potential conflicts of interest.
|
For
a complete description of the Audit Committee’s responsibilities, you should refer to the Audit Committee Charter.
Compensation
Committee.
The
current members of the Compensation Committee are Messrs. Hough and Firer, each of whom qualifies as an “independent” director
in accordance with the listing requirements of Nasdaq. Our compensation committee will be responsible for, among other things:
|
●
|
reviewing and approving
our general compensation strategy;
|
|
|
|
|
●
|
reviewing and approving
the compensation of our other executive officers;
|
|
|
|
|
●
|
making recommendations
to our board of directors regarding the compensation of our directors;
|
|
|
|
|
●
|
reviewing and approving
our incentive compensation and equity-based plans and arrangements; and
|
|
|
|
|
●
|
appointing and overseeing
any compensation consultants.
|
For
a complete description of the Compensation Committee’s responsibilities, you should refer to the Compensation Committee Charter.
Nominating
and Corporate Governance Committee.
The
current members of the Nominating and Corporate Governance Committee are Messrs. Hough and Firer, each of whom qualifies as an “independent”
director in accordance with the listing requirements of Nasdaq. The Nominating Committee is responsible for identifying individuals qualified
to become members of the Board or any committee thereof; recommending nominees for election as directors at each annual stockholder meeting;
recommending candidates to fill any vacancies on the Board or any committee thereof; and overseeing the evaluation of the Board. For
a complete description of the Nominating and Corporate Governance Committee’s responsibilities, you should refer to the Nominating
and Corporate Governance Committee Charter.
The
Nominating and Corporate Governance Committee will consider all qualified director candidates identified by various sources, including
members of the Board, management and stockholders. Candidates for directors recommended by stockholders will be given the same consideration
as those identified from other sources. The Nominating and Corporate Governance Committee is responsible for reviewing each candidate’s
biographical information, meeting with each candidate and assessing each candidate’s independence, skills and expertise based on
a number of factors.
While
there are no specific minimum requirements that the Nominating and Corporate Governance Committee believes must be met by a prospective
director nominee, the Nominating and Corporate Governance Committee does believe that director nominees should possess personal and professional
integrity, have good business judgment, have relevant experience and skills, and be willing and able to commit the necessary time for
Board and Board committee service. The Company does not have a formal diversity policy. However, the Nominating and Corporate Governance
Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending individuals that can best
perpetuate the success of our business and represent stockholder interests through the exercise of sound business judgment using their
diversity of experience in various areas. We believe our current directors possess diverse professional experiences, skills and backgrounds,
in addition to (among other characteristics) high standards of personal and professional ethics, proven records of success in their respective
fields and valuable knowledge of our business and our industry.
Board
Leadership
The
Board has no policy regarding the need to separate or combine the offices of Chairman of the Board and Chief Executive Officer and instead
the Board remains free to make this determination from time to time in a manner that seems most appropriate for the Company. The positions
of Chairman of the Board and Chief Executive Officer are currently held by Alan Jay Weisberg. The Board believes the Chief Executive
Officer is in the best position to direct the independent directors’ attention on the issues of greatest importance to the Company
and its stockholders. As a result, the Company does not have a lead independent director. Our overall corporate governance policies and
practices combined with the strength of our independent directors and our internal controls minimize any potential conflicts that may
result from combining the roles of Chairman and Chief Executive Officer.
Board
Oversight of Enterprise Risk
The
Board is actively involved in the oversight and management of risks that could affect the Company. This oversight and management is conducted
primarily through the committees of the Board identified above but the full Board has retained responsibility for general oversight of
risks. The Audit Committee is primarily responsible for overseeing the risk management function, specifically with respect to management’s
assessment of risk exposures (including risks related to liquidity, credit, operations and regulatory compliance, among others), and
the processes in place to monitor and control such exposures. The other committees of the Board consider the risks within their areas
of responsibility. The Board satisfies its oversight responsibility through full reports by each committee chair regarding the committee’s
considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within
the Company.
Director
Independence
Our
Board determines which directors qualify as “independent” directors in accordance with the listing requirements of Nasdaq.
The Nasdaq independence definition includes a series of objective tests regarding a director’s independence and requires that the
Board make an affirmative determination that a director has no relationship with us that would interfere with such director’s exercise
of independent judgment in carrying out the responsibilities of a director. In making the determination of whether a member of the board
is independent, our board considers, among other things, transactions and relationships between each director and his immediate family
and the Company, including those reported under the caption “Certain Relationships and Related Party Transactions”. The purpose
of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination
that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our board
affirmatively determined that Jervis Bennett Hough and Oleg Firer have qualified as independent and that they have no material relationship
with us that might interfere with his or her exercise of independent judgment. Prior to the completion of this offering, we will appoint
an additional independent director.
Legal
Proceedings
On
July 22, 2016, Jervis Hough entered into a letter of acceptance, waiver and consent (No. 2015046056404) with the Financial Industry Regulatory
Authority (“FINRA”) with respect to alleged violations of NASD Rule 3010 and FINRA Rule 2010 relating to insufficient due
diligence conducted in a private placement. Mr. Hough was fined $5,000 and given a 15 business day suspension from associating with any
FINRA registered firm in a principal capacity.
Except
as set forth above, during the past ten years, none of our current directors or executive officers has been:
|
●
|
the
subject of any bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the bankruptcy or within
two years prior to that time;
|
|
●
|
convicted
in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses);
|
|
●
|
subject
to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending
or otherwise limiting his involvement in any type of business, securities or banking activities;
|
|
●
|
found
by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, that
has not been reversed, suspended, or vacated;
|
|
●
|
subject
of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended
or vacated, relating to an alleged violation of a federal or state securities or commodities
law or regulation, law or regulation respecting financial institutions or insurance companies,
law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or
|
|
●
|
subject
of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated,
of any self-regulatory organization, any registered entity or any equivalent exchange, association,
entity or organization that has disciplinary authority over its members or persons associated
with a member.
|
None
of our directors, officers or affiliates, or any beneficial owner of 5% or more of our common stock, or any associate of such persons,
is an adverse party in any material proceeding to, or has a material interest adverse to, us or any of our subsidiaries.
EXECUTIVE
COMPENSATION
The
following table sets forth certain information concerning compensation earned by or paid to Shital Parikh Mars, our former Chief Executive
Officer, for services provided for the fiscal years ended December 31, 2020 and 2019. Other than Ms. Mars, no person serving as an executive
officer for any part of the fiscal year ended December 31, 2019 received compensation of $100,000 or more in that fiscal year.
|
|
Summary Compensation Table
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock Awards
|
|
|
Non-Equity
Incentive Plan
Compensation
|
|
|
All Other
Compensation
|
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Shital Parikh Mars(1)
|
|
2020
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,000
|
|
Chief Executive Officer
|
|
2019
|
|
|
120,000
|
|
|
|
2,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
122,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan Jay Weisberg(2)
|
|
2020
|
|
|
100,000
|
|
|
|
4,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,900
|
|
Chairman of the Board of Directors, Chief Executive Office
|
|
2019
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
Cecile Munnik,
Chief Financial Officer (3)
|
|
2020
|
|
|
150,000
|
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Birute Norkute
|
|
2020
|
|
|
105,000
|
|
|
|
10,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115,800
|
|
Chief Operating Officer
|
|
2019
|
|
|
79,500
|
|
|
|
6,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86,400
|
|
(1)
|
Ms. Mars resigned on August
13, 2020. Ms. Mars did not hold any unexercised options, unvested stock or other contingent equity awards as of December 31, 2020
|
(2)
|
Alan Jay Weisberg has earned $55,200 for the fiscal
year ended December 31, 2020.
|
(3)
|
Cecile
Munnik joined our Company on October 15, 2020 and has earned $71,200 for the fiscal year ended December 31, 2020.
|
Compensation
Components
Salary.
We compensate our executive officers for their service by payment of salary, which is set in each of the named executive officer’s
employment agreement discussed below.
Discretionary
Bonuses. Our board of directors has the authority and discretion to award performance-based compensation to our executives if it
determined that a particular executive has exceeded his or her objectives and goals or made a unique contribution to us during the year,
or other circumstances warrant.
Stock
Awards. Stock awards are determined by the board of directors based on numerous factors, some of which include responsibilities incumbent
with the role of each executive and tenure with us.
On January 5, 2018, we issued shares of our
Common Stock as stock-based compensation, including a grant of 10,000,000 shares to Ms. Mars in consideration of services to be provided.
The stock grants were subject to a one year vesting period, and fully vested on January 5, 2019.
Employment
Agreements
Employment
Agreement by and between Shital Parikh Mars and the Company, dated as of August 27, 2012
We
entered into an executive employment agreement with Ms. Mars on August 27, 2012. The term of the employment agreement was initially three
years and was renewed by oral agreement for one year renewal terms each year thereafter. Ms. Mars terminated her employment on August
13, 2020. For the year ended December 31, 2019, we agreed to pay Ms. Mars a base annual salary of $120,000. Prior to the termination
of her employment, the Board reviewed the base salary for annual increases, and bonuses were determined by the Board based upon corporate
profitability and cash flow. Ms. Mars’ employment agreement contained covenants restricting her ability to compete with us in the
United States, and to solicit our customers or employees, for a period of two years following her termination of employment, as well
as covenants with respect to the protection of our confidential information. On September 22, 2020, we entered into a severance agreement
with Ms. Mars, pursuant to which we agreed to pay Ms. Mars a severance amount of $100,000, plus up to $10,000 for outplacement employment
services and under which Ms. Mars released us from all claims, known or unknown, arising from her employment.
Employment Agreement by and between Alan
Jay Weisberg and the Company dated as of November 22, 2021
We entered into an executive employment agreement
with Mr. Weisberg on October 15, 2020 which was amended on July 19, 2021 and amended and restated on November 22, 2021. The initial term
of the employment agreement shall be for three years and shall automatically renew for successive one year periods unless either the
Company or Mr. Weisberg provide the other party with written notice of non-renewal at least sixty days before the end of each term. We
agreed to pay Mr. Weisberg a base annual salary of $100,000. Mr. Weisberg will receive options to purchase up to fourteen million one
hundred thousand (14,100,000) shares upon a qualified offering pursuant to the provisions of an option agreement and up to fifteen million
(15,000,000) restricted stock units pursuant to the provisions of a restricted stock unit agreement. The employment agreement contains
covenants restricting Mr. Weisberg’s ability to compete with us, and to solicit our customers or employees, for a period of 12
months following termination of his employment, as well as covenants with respect to the protection of our confidential information.
The employment agreement also requires us to indemnify Mr. Weisberg against certain claims made against him arising from services he
provides us in good faith. The employment agreement provides for severance pay in certain circumstances. Please refer to the text of
the employment agreement filed as an exhibit to this registration statement.
Employment Agreement by and between Cecile
Munnik and the Company dated as of November 22, 2021
We entered into an executive employment agreement
with Ms. Munnik October 15, 2020 which was amended and restated on November 22, 2021. The initial term of the employment agreement shall
be for three years and shall automatically renew for successive one year periods unless either the Company or Ms. Munnik provide the
other party with written notice of non-renewal at least sixty days before the end of each term. We agreed to pay Ms. Munnik a base annual
salary of $180,000. Ms. Munnik will receive options to purchase up to five million (5,000,000) shares upon a qualified offering pursuant
to the provisions of an option agreement and is eligible for a cash incentive bonus in an amount to be approved by the board. The employment
agreement contains covenants restricting Ms. Munnik’s ability to compete with us, and to solicit our customers or employees, for
a period of 12 months following termination of her employment, as well as covenants with respect to the protection of our confidential
information. The employment agreement also requires us to indemnify Ms. Munnik against certain claims made against her arising from services
she provides us in good faith. The employment agreement provides for severance pay in certain circumstances. Please refer to the text
of the employment agreement filed as an exhibit to this registration statement.
Employment Agreement by and between Birute
Norkute and the Company dated as of November 22, 2021
We entered into an executive employment agreement
with Mrs. Norkute on January 3, 2020 which was amended and restated on November 22, 2021. The initial term of the employment agreement
shall be for three years and shall automatically renew for successive one year periods unless either the Company or Mrs. Norkute provide
the other party with written notice of non-renewal at least sixty days before the end of each term. We agreed to pay Mrs. Norkute a base
annual salary of $125,000. Mrs. Norkute will receive options to purchase up to five million (5,000,000) shares upon a qualified offering
pursuant to the provisions of an option agreement and up to five million (5,000,000) restricted stock units pursuant to the provisions
of a restricted stock unit agreement. The Board will review the base salary for annual increases after the conclusion of the initial
term, and bonuses will be determined by the Board based upon corporate profitability and cash flow. Mrs. Norkute’s employment agreement
contains covenants restricting her ability to compete with us in the United States, and to solicit our customers or employees, for a
period of two years following her termination of employment, as well as covenants with respect to the protection of our confidential
information. The employment agreement also requires us to indemnify Mrs. Norkute against certain claims made against her arising from
services she provides us in good faith. The employment agreement provides for severance pay in certain circumstances. Please refer to
the text of the employment agreement filed as an exhibit to this registration statement.
Employment Agreement by and between Armen
Karapetyan and the Company dated as of November 22, 2021
We entered into an executive employment agreement
with Mr. Karapetyan on July 19, 2021 which was amended and restated on November 22, 2021. The initial term of the employment agreement
shall be for three years and shall automatically renew for successive one year periods unless either the Company or Mr. Karapetyan provide
the other party with written notice of non-renewal at least sixty days before the end of each term. We agreed to pay Mr. Karapetyan a
base annual salary of $320,000. Mr. Karapetyan will receive options to purchase up to fourteen million one hundred thousand (14,100,000)
shares upon a qualified offering pursuant to the provisions of an option agreement and up to fifteen million (15,000,000) restricted
stock units pursuant to the provisions of a restricted stock unit agreement. The employment agreement contains covenants restricting
Mr. Karapetyan’s ability to compete with us, and to solicit our customers or employees, for a period of 12 months following termination
of his employment, as well as covenants with respect to the protection of our confidential information. The employment agreement also
requires us to indemnify Mr. Karapetyan against certain claims made against him arising from services he provides us in good faith. The
employment agreement provides for severance pay in certain circumstances. Please refer to the text of the employment agreement filed
as an exhibit to this registration statement.
Employment Agreement by and between Carlos
Rangel and the Company dated as of November 22, 2021
We entered into an executive employment agreement
with Mr. Rangel on November 22, 2021. The initial term of the employment agreement shall be for three years and shall automatically renew
for successive one year periods unless either the Company or Mr. Rangel provide the other party with written notice of non-renewal at
least sixty days before the end of each term. We agreed to pay Mr. Rangel a base annual salary of $100,000. Mr. Rangel will receive options
to purchase up to three million (3,000,000) shares upon a qualified offering pursuant to the provisions of an option agreement and is
eligible for a cash incentive bonus in an amount to be approved by the board. The employment agreement contains covenants restricting
Mr. Rangel’s ability to compete with us, and to solicit our customers or employees, for a period of 12 months following termination
of her employment, as well as covenants with respect to the protection of our confidential information. The employment agreement also
requires us to indemnify Mr. Rangel against certain claims made against him arising from services he provides us in good faith. The employment
agreement provides for severance pay in certain circumstances. Please refer to the text of the employment agreement filed as an exhibit
to this registration statement.
Compensation
of Directors
For the years ended December 31, 2020 and
2019, we did not compensate our directors for their services to the Board. Effective July 21, 2021, our three directors were issued $50,000
in shares of the Company’s Common Stock in exchange for services, and annually thereafter, provided each director remains a member
of the Board as of such date, shall be issued the equivalent of $50,000 in shares of the Company’s Common Stock as determined based
on the average closing price on the three trading days immediately preceding the last day of such anniversary date. We intend to continue
compensating directors following this offering.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In
addition to the executive officer and director compensation arrangements discussed in “Executive Compensation” beginning
on page 76, the following describes transactions since January 1, 2018, to which we have been a participant, in which the amount involved
in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year end and in which any of our directors,
executive officer or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household
with, any of these individuals, had or will have a direct or indirect material interest.
We have a consulting agreement with Spark
Financial Consulting (“Spark”), which is a consulting company owned by Armen Karapetyan, who, as of the date of this
prospectus, owns approximately 8.7% of our issued and outstanding Common Stock. Spark provides business development services including
but not limited to recruiting, targeting and evaluation of potential mergers and acquisitions, finding third party contractors and assisting
with related negotiations in exchange for a monthly fee of $16,000. Additionally, Spark may be entitled to additional fees for additional
consulting services. During the nine months ended September 30, 2021, and the years ended December 31, 2020, 2019 and 2018, we paid Spark
$96,000, $224,400, $238,158, and $238,275, respectively. We had accrued balances payable to Spark on our Consolidated Balance Sheets
for the nine months ended September 30, 2021, and for the years ended December 31, 2020, 2019 and 2018 of $0, $0, $400, and $0, respectively.
The agreement was terminated during the third quarter of 2021.
Policies
and Procedures for Transactions with Related Persons
Our
CEO and CFO are responsible for reviewing and assessing the relevance of proposed relationships and transactions with related parties
and ratify agreements for execution on our behalf. We do not currently have a formal policy with respect to approval of transactions
with related persons but intend on adopting one in the future.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November
3, 2021, certain information with respect to the beneficial ownership of our common stock by each shareholder known by us to be the beneficial
owner of more than 5% of our Common Stock and by each of our current directors and executive officers. Each person has sole voting and
investment power with respect to the shares of Common Stock, except as otherwise indicated.
This
table is prepared based on information supplied to us by the listed security holders.
Under
the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner of a security if that person has or
shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power
to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person
has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person
may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to
which he or she may not have any pecuniary beneficial interest.
Shares of Common Stock which an individual
or group has a right to acquire within 60 days pursuant to the exercise or conversion of options are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person shown in the table below. Unless provided otherwise, the addresses for each of the individuals
below is 400 Ansin Blvd, Suite A, Hallandale Beach, Florida 33009.
Name
and Address of Beneficial Owner
|
|
Common
Stock Owned Beneficially
|
|
|
Percent
of Class
|
|
|
Series
A Preferred Stock Owned Beneficially
|
|
|
Percent
of Class
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Jay Weisberg, Chairman of the Board of Directors and Chief Executive Officer(1)
|
|
|
7,070,487
|
|
|
|
1.32
|
%
|
|
|
-
|
|
|
|
-
|
|
Birute Norkute, Chief Operating Officer(2)
|
|
|
1,550,000
|
|
|
|
*
|
%
|
|
|
-
|
|
|
|
-
|
|
Jervis Bennett Hough, Director(3)
|
|
|
1,943,396
|
|
|
|
*
|
%
|
|
|
-
|
|
|
|
-
|
|
Oleg Firer, Director(4)
|
|
|
1,943,396
|
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
All directors and officers as a group (4 persons)
|
|
|
12,507,279
|
|
|
|
2.34
|
%
|
|
|
-
|
|
|
|
-
|
|
Greater than 5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Armen
Karapetyan(5)
3742 NE 208th Street, Aventura, FL, 333180
|
|
|
37,169,210
|
|
|
|
6.94
|
%
|
|
|
-
|
|
|
|
-
|
|
Yelena Braslavskaya 2020 Gift Trust(6)(7)
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
|
100
|
%
|
Total
|
|
|
49,676,489
|
|
|
|
9.28
|
%
|
|
|
51
|
|
|
|
100
|
%
|
|
(1)
|
Includes
6,127,091 Common Stock owned directly by Mr. Weisberg.
|
|
(2)
|
Includes
1,550,000 Common Stock owned directly by Mrs. Norkute.
|
|
(3)
|
Includes
1,000,000 Common Stock owned directly by Mr. Hough.
|
|
(4)
|
Includes
1,000,000 Common Stock owned directly by Mr. Firer.
|
|
(5)
|
Includes
(i) 31,304,694+ common stock owned directly by Mr. Karapetyan and (ii) 5,864,516 common stock
owned by Spark Consulting, which is owned by Mr. Karapetyan.
|
|
(6)
|
The
beneficiary of the Yelena Braslavskaya 2020 Gift Trust (the “Trust”) is Yelena
Braslavskaya. Ms. Braslaskava does not maintain any dispositive power over the shares in
the Trust. Dmitry Kristal serves as the trustee of the Trust and has no pecuniary interest
in the Trust. See “Preferred Stock – Voting Rights” below.
|
|
(7)
|
Does
not reflect voting power conferred by ownership of Series A Preferred Stock.
|
There
are no arrangements, known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date
result in a change in control of the Company.
As of September
30, 2021, we have a formal equity compensation plan in effect which was approved by our stockholders at our shareholders meeting in November
2020, however, no issuances have been made under the plan. .
DESCRIPTION
OF SECURITIES TO BE REGISTERED
In
the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Delaware General
Corporation Law (“DGCL”) relating to our capital stock. This summary is not complete. This discussion is subject to the relevant
provisions of Delaware law and is qualified by reference to our certificate of incorporation and our bylaws. You should read the provisions
of our certificate of incorporation and our bylaws as currently in effect for provisions that may be important to you.
General
We are authorized to issue an aggregate number
of 1,010,000,000 shares of capital stock of which 10,000,000 shares are blank check Series A Super-Voting preferred stock, $0.001 par
value per share and 1,000,000,000 shares are Common Stock, $0.0001 par value per share.
On
September 23, 2019, our board of directors and stockholders approved an amendment to our certificate of incorporation wherein the total
number of shares of all classes of capital stock which we shall have the authority to issue is 1,010,000,000 shares, of which 1,000,000,000
shares are designated as common stock, par value $0.0001 per share, and 10,000,000 shares are designated as Series A preferred stock,
par value $0.001 per share.
Common
Stock
We are authorized to issue 1,000,000,000 shares
of Common Stock, $0.0001 par value per share. As of September 30, 2021 and December 31, 2020, we had 527,871,715 and
485,768,076, respectively, shares of Common Stock issued and outstanding.
Dividend
Rights
We
have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our board
of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions,
and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest
earnings, if any, in our business operations.
The holders of the
Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, dividends
payable in cash, stock or otherwise. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary,
our net assets shall be distributed pro rata to the holders of the common stock in accordance with their respective rights and interest.
Voting
Rights
The holders of Common Stock are entitled to
one vote per share on all matters submitted to a vote of the stockholders. Holders of Common Stock do not have cumulative voting rights.
The holders of Common Stock are entitled to dividends if declared by the Board of Directors. There are no redemption or sinking fund
provisions applicable to the Common Stock, and holders of common stock are not entitled to any preemptive rights with respect to additional
issuances of Common Stock by the Company.
Preferred
Stock
We
are authorized to issue 10,000,000 shares of Series A Super-Voting preferred stock, $0.001 par value per share.
As
of the date of this prospectus, we have 51 shares of Series A Super-Voting preferred stock issued and outstanding, all of which are owned
by the Yelena Braslavskaya 2020 Gift Trust.
Dividend
Rights
The Series A Super-Voting preferred stock
is a non-dividend producing instrument that ranks superior to our Common Stock.
Voting
Rights
Each one (1) share of the Series A Super-Voting
preferred stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding Common Stock and preferred
stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.
With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders
of the outstanding shares of Series A preferred stock shall vote together with the holders of Common Stock without regard to class, except
as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws.
Liquidation
Rights
The Series A Super-Voting preferred stock
ranks senior to our Common Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary
or involuntary. Upon the occurrence of a Liquidation Event (as defined in our certificate of incorporation, as amended), the holders
of Series A Super-Voting Preferred Stock are entitled to receive net assets on a pro rata basis.
Registration
Rights
None of the holders of securities hold any
rights to require us to register any unregistered shares of our Common Stock.
Units
Each unit consists of one share of our common
stock and one warrant to purchase ____ share(s) of our common stock for an exercise price of $____ per share, subject to adjustment as
described in this prospectus. The warrants will become exercisable _______ and will expire ______.
Warrants
The following summary of the material terms
of the warrants included in the units offered hereby is not complete and is subject to, and qualified in its entirety by the form of
warrant and the warrant agency agreement between us and _________, as the Warrant Agent, both of which are filed as exhibits to the registration
statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the
warrant agency agreement and form of warrant, before making an investment decision. Each warrant is exercisable into ____ share(s) of
our common stock.
Exercise Price
The exercise price per share of common stock purchasable
upon exercise of the warrants is $___. Each warrant is exercisable into ____ share(s) of our common stock. The exercise price is subject
to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations (including reverse stock splits),
reclassifications or similar events affecting our shares of common stock.
Term
The warrants are exercisable beginning ____
until ____. The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date to the Warrant
Agent, together with delivery of a completed and executed exercise form, accompanied by full payment of the exercise price by one of
the means set forth therein.
Exercise Limitation
A holder may not exercise any portion of a
warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more
than 4.99% (or 9.99% at the election of the holder) of the outstanding shares of common stock after exercise, as such percentage
ownership is determined in accordance with the terms of the warrant, except that upon prior notice from the holder to us, the holder
may waive such limitation up to a percentage not in excess of 9.99%.
Transferability
Subject to applicable laws, the warrants may
be offered for sale, sold, transferred or assigned by the holders without our consent.
No Rights as a Stockholder Prior to Exercise
The warrant holders do not have the rights
or privileges of holders of shares of common stock or any voting rights until they exercise their warrants and receive shares
of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to
one vote for each share held of record on all matters to be voted on by stockholders.
Governing Law
By their terms the warrants are governed by
_____ law.
Exchange Listing
We intend to apply to list the warrants on
Nasdaq under the symbol “ W”.
Transfer
Agent
The
transfer agent and registrar for our Common Stock is ClearTrust, LLC, 16540 Pointe Village Drive, Suite 210, Lutz, FL 33558.
Delaware
Anti-Takeover Law and Certain Charter and Bylaw Provisions
The
following is a summary of certain provisions of Delaware law, our Certificate of Incorporation and our bylaws. This summary does not
purport to be complete and is qualified in its entirety by reference to the corporate law of Delaware and our Certificate of Incorporation
and bylaws.
Effect
of Delaware Anti-Takeover Statute. We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general,
Section 203 prohibits a Delaware corporation from engaging in any business combination (as defined below) with any interested stockholder
(as defined below) for a period of three years following the date that the stockholder became an interested stockholder, subject to certain
exceptions.
Section
203 defines “business combination” to include the following:
|
●
|
any
merger or consolidation involving the corporation and the interested stockholder;
|
|
●
|
any
sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation
involving the interested stockholder;
|
|
●
|
subject
to certain exceptions, any transaction that results in the issuance or transfer by the corporation
of any stock of the corporation to the interested stockholder;
|
|
●
|
subject
to limited exceptions, any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the corporation beneficially
owned by the interested stockholder; or
|
|
●
|
the
receipt by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
|
In
general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation, or who beneficially owns 15% or more of the outstanding voting stock of the corporation at any time within
a three-year period immediately prior to the date of determining whether such person is an interested stockholder, and any entity or
person affiliated with or controlling or controlled by any of these entities or persons.
Our
Charter Documents. Our charter documents include provisions that may have the effect of discouraging, delaying or preventing a change
in control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result
in the payment of a premium over the market price for the shares held by our stockholders. Certain of these provisions are summarized
in the following paragraphs.
Effects
of authorized but unissued common stock. One of the effects of the existence of authorized but unissued common stock may be to enable
our board of directors to make more difficult or to discourage an attempt to obtain control of our Company by means of a merger, tender
offer, proxy contest or otherwise, and thereby to protect the continuity of management. If, in the due exercise of its fiduciary obligations,
the board of directors were to determine that a takeover proposal was not in our best interest, such shares could be issued by the board
of directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion
of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, by putting
a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors,
by effecting an acquisition that might complicate or preclude the takeover, or otherwise.
Cumulative
Voting. Our Certificate of Incorporation, as amended, does not provide for cumulative voting in the election of directors, which
would allow holders of less than a majority of the stock to elect some directors.
SHARES
ELIGIBLE FOR FUTURE SALE
General
Future
sales of substantial amounts of our Common Stock (including shares issued on the exercise of options) in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices as well as our ability to raise equity capital in the future.
Upon completion of this offering, we will
have shares of Common Stock issued and outstanding (or shares
if the underwriters exercise in full their option to purchase additional shares).
The shares of our Common Stock sold in this
offering will be freely tradable without further restriction or registration under the Securities Act, except for any shares held by
our “affiliates” as that term is defined in Rule 144 under the Securities Act. The remaining outstanding shares of our Common
Stock will be deemed “restricted securities” or “control securities” under the Securities Act. Subject to certain
contractual restrictions, including the lock-up agreements described below, restricted securities and control securities may be sold
in the public market only if (i) they have been registered or (ii) they qualify for an exemption from registration under Rule 144 or
any other applicable exemption.
Rule
144
In general, under Rule 144 as currently
in effect, once the Company has been subject to the public company reporting requirements of Section 13 or Section 15(d) of
the Exchange Act for at least 90 days, a person who is not deemed to have been one of the Company’s affiliates for purposes
of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of its Common Stock
proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation
or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person
has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than
Company affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under
Rule 144, as currently in effect, the Company’s affiliates or persons selling shares of its Common Stock on behalf of its
affiliates are entitled to sell upon expiration of the market standoff agreements and lock-up agreements described above, within any
three-month period, a number of shares that does not exceed the greater of:
|
(a)
|
1%
of the number of shares of the Company’s capital stock then outstanding, which will equal approximately 85,033 shares
immediately after this offering; or
|
|
(b)
|
the
average weekly trading volume of the Company’s Common Stock during the four calendar
weeks preceding the filing of a notice on Form 144 with respect to that sale.
|
Sales under Rule 144
by the Company’s affiliates or persons selling shares of its Common Stock on behalf of its affiliates are also subject to certain
manner of sale provisions and notice requirements and to the availability of current public information about the Company.
Rule 701
Rule 701 generally
allows a stockholder who purchased shares of the Company’s Common Stock pursuant to a written compensatory plan or contract and
who is not deemed to have been an affiliate of the Company during the immediately preceding 90 days to sell these shares in reliance
upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions
of Rule 144. Rule 701 also permits affiliates of the Company to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until
90 days after the date of this prospectus before selling such shares pursuant to Rule 701 and until expiration of the lock-up
period described below.
Lock-Up
Periods
Shares
held by our directors, officers and certain of our shareholders are subject to lock-up periods. (See “Underwriting”)
UNDERWRITING
The Benchmark Company, LLC is
acting as the representative of the several underwriters of this offering (the “Representative” or “Benchmark”).
We have entered into an underwriting agreement dated , 2021 with the Representative.
Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter
named below has severally and not jointly agreed to purchase from us, at the public offering price per share less the underwriting discounts
set forth on the cover page of this prospectus, the number of securities listed next to its name in the following table:
Underwriter
|
|
Number
of
shares of
Common
Stock
|
|
|
Number
of
Warrants
|
|
The Benchmark Company, LLC
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
The underwriters are committed to purchase
all shares of Common Stock and Warrants offered by us other than those covered by the over-allotment option described below, if any are
purchased. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting
agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions,
representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates
and legal opinions.
The
underwriters are offering the securities subject to prior sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, and other conditions. The underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
The
underwriters propose to offer the securities offered by us to the public at the public offering price set forth on the cover of the prospectus.
After the securities are released for sale to the public, the underwriters may change the offering price and other selling terms at various
times.
Over-Allotment
Option
We have granted an over-allotment option to
the underwriters. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to
purchase a maximum of additional shares of Common Stock and/or additional
Warrants to purchase up to [ ] shares of Common Stock (an amount equal to 15.0% of the Units sold in this offering) from us to cover
over-allotments if any, at a price per Unit equal to the public offering price, less the underwriting discounts and commissions. The
underwriters may exercise this option only to cover over-allotments, if any, made in connection with this offering. If this option is
exercised in full, the total offering price to the public will be $ and the total net proceeds,
before expenses, to us will be $ .
Discounts
and Commissions
The Representative has advised us that the
underwriters propose to offer the shares of Common Stock to the public at the public offering price per Unit set forth on the cover page
of this prospectus. The underwriters may offer shares to securities dealers at that price less a concession of not more than $
per share and $ per related Warrant.
The
following table summarizes the public offering price, underwriting discounts and commissions and proceeds before expenses to us assuming
both no exercise and full exercise by the underwriters of their over-allotment option:
|
|
Per
Unit
|
|
|
Total
Without Over-allotment Option
|
|
|
Total
With Over-allotment Option
|
|
Public
offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting
discount(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds,
before expenses, to us(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
(1)
|
We
have agreed to allow the Representative an underwriting discount of 8.0% of the gross proceeds
of this offering.
|
|
(2)
|
We
have agreed to pay a non-accountable expense allowance to the Representative equal to 1.0%
of the gross proceeds received in this offering which is not included in Underwriting discount
above.
|
In addition, we have also agreed to reimburse
the Representative for all expenses relating to this offering; provided that, if either we or the underwriters elect to terminate our
or its further participation in the offering, upon such termination, we will not be obligated to pay any such expenses in excess of $ .
Such expenses may include, among other things: (a) all filing fees and communication expenses associated with the review of this offering
by FINRA; (b) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under
the securities laws of foreign jurisdictions designated by Benchmark; (c) the fees and expenses of the underwriters’ legal counsel
(the “Benchmark Legal Expenses”) up to a maximum of $125,000; (e) the underwriters’ use of Ipreo’s book-building,
prospectus tracking and compliance software for the Public Offering; (f) “road show” expenses for the offering; and (g) the
costs associated with receiving commemorative mementos and lucite tombstones. Such Actual Out-of-pocket Expenses shall be capped at $150,000.
In addition to the forgoing, the Company shall be responsible for the costs of background checks on its senior management in an amount
not to exceed $7,500 in the aggregate.
We
estimate the expenses of this offering payable by us, not including underwriting discounts and commissions,
will be approximately $ .
Representative’s
Retainer
We
have agreed to the payment of $50,000 to be applied against Benchmark’s accountable expenses (“the Retainer”) which
has been paid in full. Such Retainer will be applied against the accountable expenses in connection with the offering, and to the extent
not actually incurred, such Retainer shall be reimbursed to us.
Representative’s Warrants
Upon
closing of this offering, we have agreed to issue to the Representative, as compensation, warrants to purchase a number of shares of
Common Stock equal to 5.0% of the aggregate number of shares of Common Stock sold in this offering (the “Representative’s
Warrants”). The Representative’s Warrants will be exercisable at a per share exercise price equal to 100% of the public offering
price per Unit in this offering. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in
part, commencing on the date that is six months from the commencement of sales of the offering and expiring on the date that is five
years following the commencement of sales and may be exercised on a cashless basis.
Pursuant to FINRA Rule 5110(e), the Representative’s
Warrants and any shares of Common Stock issued upon exercise of the Representative’s Warrants shall not be sold, transferred, assigned,
pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the
effective economic disposition of the securities by any person for a period of 180 days immediately following the date of commencement
of sales of this offering, except the transfer of any security: (i) by operation of law or by reason of reorganization of the issuer;
(ii) to any FINRA member firm participating in the offering and the officers, partners, registered persons or affiliates thereof, if
all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period; (iii) if
the aggregate amount of our securities held by the Representative or related persons does not exceed 1% of the securities being offered;
(iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member
manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity
in the fund; (v) the exercise or conversion of any security, if all securities remain subject to the lock-up restriction set forth above
for the remainder of the time period; (vi) if we meet the registration requirements of Forms S-3, F-3 or F-10; or (vii) back to us in
a transaction exempt from registration with the SEC . The Representative’s Warrants and the shares of Common Stock underlying the
Representative’s Warrants are registered on the registration statement of which this prospectus forms a part.
Discretionary
Accounts
The
underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up
Agreements
Pursuant to certain “lock-up”
agreements, we and our executive officers, directors and any 5.0% or greater holder of outstanding shares of the Common Stock as of the
date of this prospectus, have agreed, subject to limited exceptions, without the prior written consent of the Representative, not to
directly or indirectly, offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly,
our common stock or any securities convertible into or exercisable or exchangeable for our Common Stock (the “Lock-Up Securities”),
enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership
of the Lock-Up Securities, make any demand for or exercise any right with respect to the registration of any Lock-Up Securities, publicly
disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement
relating to any Lock-Up Securities, subject to customary exceptions, for a period of 180 days from the date of this prospectus.
In
addition, we have agreed that for a period of after this offering, we will not, directly or
indirectly, in any “at-the-market,” continuous equity or variable rate transaction, offer to sell, sell, contract to sell,
grant any option to sell or otherwise dispose of shares of our capital stock or any securities convertible into or exercisable or exchangeable
for shares of our capital stock without the Representative’s prior written consent.
Right
of Participation
We
have agreed to grant the Representative the right to act as lead or joint-lead investment banker, lead or joint book-runner and/or lead
or joint placement agent, for every future public and private equity and debt offering, including all equity linked financings during
such twelve (12) month period following the completion of this Offering, for the Company, or any successor to or any subsidiary of the
Company on terms customary to Benchmark.
Tail
Fee
We have also agreed to pay the Representative
a tail fee equal to the cash and warrant compensation in this offering, if any investor, with whom the Company had a conference call
or meeting arranged by the Representative during the term of its engagement, provides us with capital in any public or private offering
or other financing or capital raising transaction during the twelve (12) month period following the termination or expiration of our
engagement agreement or the closing of this offering, whichever is earlier.
Indemnification
We
have agreed to indemnify the underwriters against liabilities relating to this offering arising under the Securities Act and the Exchange
Act, liabilities arising from breaches of some or all of the representations and warranties contained in the underwriting agreement,
and to contribute to payments that the underwriters may be required to make for these liabilities.
Nasdaq
Listing
Our
shares of Common Stock are quoted on the OTCQB under the symbol “RXMD.” We are in the process of applying to have
our shares of Common Stock and Warrants listed on Nasdaq under the symbols “ ” and “W”, respectively. We
will not consummate this offering unless our Common Stock and Warrants are approved for
listing on Nasdaq. There is no established public trading market for the Warrants. There is no assurance that a market will develop
for the Warrants. Without an active trading market, the liquidity of the Warrants will be limited.
Electronic
Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made
available on the websites maintained by one or more underwriters or selling group members, if any, participating in this offering and
one or more of the underwriters participating in this offering may distribute prospectuses electronically. The Representative may agree
to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis
as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ websites is not part
of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not
been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Price
Stabilization
In
connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering
transactions, penalty bids, and purchases to cover positions created by short sales.
Stabilizing
transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for
the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
Over-allotment
transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase.
This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position,
the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment
option. In a naked short position, the number of shares involved is greater than the number of shares that they purchase in the over-allotment
option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open
market.
Syndicate
covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate
short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise
of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and,
therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the
shares in the open market that could adversely affect investors who purchase in the offering.
Penalty
bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate
member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of Common Stock or
preventing or retarding a decline in the market price of our shares of Common Stock. As a result, the price of our Common Stock in the
open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation
or prediction as to the effect that the transactions described above may have on the price of our Common Stock. These transactions may
be affected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive
Market Making
In connection with this offering, underwriters
and selling group members may engage in passive market making transactions in our Common Stock in accordance with Rule 103 of Regulation
M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion
of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security.
However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified
purchase limits are exceeded.
Other
Relationships
The
underwriters and their affiliates may in the future provide various advisory, investment and commercial banking and other services for
us in the ordinary course of business, for which they may receive customary fees and commissions. However, we have not yet had, and have
no present arrangements with any of the underwriters for any further services.
Pricing
of the Offering
The
public offering price will be determined by negotiations among us and the Representative. In addition to prevailing market conditions
on the OTC Markets, among the factors to be considered in determining the public offering price of our common stock will be:
|
●
|
our
historical performance;
|
|
●
|
estimates
of our business potential and our earnings prospects;
|
|
●
|
an
assessment of our management; and
|
|
●
|
the
consideration of the above factors in relation to market valuation of companies in related
businesses.
|
The estimated public offering price set forth
on the cover page of this prospectus is subject to change as a result of market conditions and other factors. An active trading market
for the shares of our Common Stock may not develop. It is also possible that the shares will not trade in the public market at or above
the public offering price following the closing of this offering.
Offer
Restrictions Outside of the United States
Other
than in the United States, no action has been taken by us or the underwriters that would permit a public offering offered by this prospectus
in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale
of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of that country or jurisdiction. Persons into whose possession this prospectus comes are advised
to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction
in which such an offer or a solicitation is unlawful.
LEGAL
MATTERS
The validity of the issuance of the Units,
and the Common Stock and Warrants underlying the Units, offered by us in this offering will be passed upon for us by Lucosky Brookman
LLP, Woodbridge, New Jersey.
CHANGE
IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On
June 22, 2020, (the “Dismissal Date”) the Company dismissed Berkowitz Pollack Brant Advisors + CPAs (“Berkowitz”)
from its role as the independent registered public accounting firm for the Company. On June 22, 2020, the Company engaged Daszkal Bolton
LLP (“Daszkal”) as its new independent registered public accounting firm. The change of the Company’s independent registered
public accounting firm from Berkowitz to Daszkal was approved unanimously by the Audit Committee of our Board of Directors.
Berkowitz
audited the Company’s financial statements as of and for the year ended December 31, 2019. Berkowitz’s reports on the Company’s
financial statements as of and for the year ended December 31, 2019 did not contain any adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting principles.
In
connection with Berkowitz’s audits of the Company’s financial statements as of and for the year ended December 31, 2019,
there were (i) no “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions)
between the Company and Berkowitz on any matter of accounting principles or practices, financial statement disclosure or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of Berkowitz, would have caused Berkowitz to make a reference
to the subject matter thereof in connection with its reports on the Company’s financial statements for such years and (ii) no “reportable
events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K and the related instructions).
The
Company provided Berkowitz with a copy of this Prospectus and requested that Berkowitz furnish it with a letter addressed to the Securities
and Exchange Commission stating whether or not Berkowitz agrees with the above statements. A copy of such letter, dated xx, is attached
as Exhibit 16.1 to the Registration Statement of which this Prospectus forms a part.
During
the year ended December 31, 2019, neither the Company, nor any party on its behalf, consulted with Daszkal regarding either (i) the application
of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered
with respect to the Company’s financial statements, and no written reports or oral advice was provided to the Company by Daszkal
that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue
or (ii) any matter that was either the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and
related instructions) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
EXPERTS
No
expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon
the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common
stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of
its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
Our
consolidated balance sheet as of December 31, 2019, and the related consolidated statement of operations, stockholders’ deficit,
and cash flows for the year ended December 31, 2019 have been audited by Berkowitz Pollack Brant, an independent registered public accounting
firm, as set forth in its report appearing herein and are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
Our
consolidated balance sheet at December 31, 2020, and the related consolidated statement of operations, deficiency in stockholders’
equity, and cash flows for the year ended December 31, 2020 have been audited by Daszkal Bolton LLP, an independent registered public
accounting firm, as set forth in its report appearing herein and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
Upon the completion of this offering, we will
be subject to the information and periodic reporting requirements of the Exchange Act, applicable to a company with securities registered
pursuant to Section 12 of the Exchange Act. In accordance therewith, we will file proxy statements, periodic information, and other information
with the SEC. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
We
maintain a website at www.progressivecareus.com. We will make available, free of charge, on our website, our annual reports, quarterly
reports, current reports, and amendments to any of those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained
in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.
This prospectus is part of a registration
statement on Form S-1 that we filed with the SEC. Certain information in the registration statement has been omitted from this prospectus
in accordance with the rules and regulations of the SEC. We have also filed exhibits and schedules with the registration statement that
are excluded from this prospectus. For further information with respect to us and the securities offered in this prospectus, we refer
you to the registration statement and the accompanying exhibits.
PROGRESSIVE
CARE INC.
INDEX
TO FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements
for the Three and Nine Months Ended September 30, 2021 and 2020
Progressive Care Inc. and Subsidiaries
Condensed Consolidated
Balance Sheets
|
|
September 30,
2021
|
|
|
December 31,
2020 (1)
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,100,854
|
|
|
$
|
2,100,695
|
|
Accounts receivable – trade,
net
|
|
|
2,667,288
|
|
|
|
2,580,509
|
|
Accounts receivable - other
|
|
|
679,653
|
|
|
|
811,235
|
|
Inventory, net
|
|
|
1,157,250
|
|
|
|
945,274
|
|
Prepaid
expenses
|
|
|
652,081
|
|
|
|
466,490
|
|
Total
Current Assets
|
|
|
7,257,126
|
|
|
|
6,904,203
|
|
Property and
equipment, net
|
|
|
2,543,755
|
|
|
|
2,532,433
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,387,860
|
|
|
|
1,387,860
|
|
Intangible assets, net
|
|
|
83,907
|
|
|
|
247,142
|
|
Right of use assets, net
|
|
|
727,604
|
|
|
|
436,368
|
|
Deposits
|
|
|
38,637
|
|
|
|
36,401
|
|
Total
Other Assets
|
|
|
2,238,008
|
|
|
|
2,107,771
|
|
Total
Assets
|
|
$
|
12,038,889
|
|
|
$
|
11,544,407
|
|
Liabilities
and Stockholders' Equity (Deficiency)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
7,021,133
|
|
|
$
|
6,551,230
|
|
Notes payable, net of unamortized
debt discount and debt issuance costs, current portion
|
|
|
1,792,386
|
|
|
|
570,914
|
|
Lease liabilities - current portion
|
|
|
217,134
|
|
|
|
197,975
|
|
Unearned revenue
|
|
|
408,362
|
|
|
|
450,155
|
|
Derivative
liability
|
|
|
1,129,360
|
|
|
|
2,043,000
|
|
Total Current
Liabilities
|
|
|
10,568,375
|
|
|
|
9,813,274
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Notes payable, net of current
portion
|
|
|
784,155
|
|
|
|
3,130,622
|
|
Lease liabilities
- net of current portion
|
|
|
569,664
|
|
|
|
320,563
|
|
Total
Liabilities
|
|
|
11,922,194
|
|
|
|
13,264,459
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficiency)
|
|
|
|
|
|
|
|
|
Preferred Stock, Series A par value
$0.001; 10,000,000 shares authorized, 51 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.0001;
1,000,000,000 shares authorized, 527,871,715 and 485,768,076 issued and outstanding as of September 30, 2021 and December 31, 2020,
respectively
|
|
|
52,787
|
|
|
|
48,577
|
|
Additional paid-in capital
|
|
|
8,446,749
|
|
|
|
6,978,301
|
|
Accumulated
Deficit
|
|
|
(8,382,841
|
)
|
|
|
(8,746,930
|
)
|
Total
Stockholders' Equity (Deficiency)
|
|
|
116,695
|
|
|
|
(1,720,052
|
)
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$
|
12,038,889
|
|
|
$
|
11,544,407
|
|
(1)
|
The information in this column was derived from the Company’s audited consolidated
financial statements as of December 31, 2020.
|
See Accompanying Notes
to Unaudited Condensed Consolidated Financial Statements
Progressive Care Inc. and Subsidiaries
Condensed Consolidated Statements of
Operations
For the Three and Nine Months Ended September
30, 2021 and 2020 (Unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net
|
|
$
|
9,797,523
|
|
|
$
|
10,471,015
|
|
|
$
|
28,999,122
|
|
|
$
|
28,770,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
|
6,871,206
|
|
|
|
7,608,749
|
|
|
|
21,031,826
|
|
|
|
22,462,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,926,317
|
|
|
|
2,862,266
|
|
|
|
7,967,296
|
|
|
|
6,308,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
30,904
|
|
|
|
133,000
|
|
|
|
152,953
|
|
|
|
192,485
|
|
Share-based compensation
|
|
|
41,667
|
|
|
|
-
|
|
|
|
189,012
|
|
|
|
-
|
|
Other selling,
general and administrative expenses
|
|
|
2,629,811
|
|
|
|
2,634,693
|
|
|
|
8,230,688
|
|
|
|
7,347,709
|
|
Total
selling, general and administrative expenses
|
|
|
2,702,382
|
|
|
|
2,767,693
|
|
|
|
8,572,653
|
|
|
|
7,540,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
from operations
|
|
|
223,935
|
|
|
|
94,573
|
|
|
|
(605,357
|
)
|
|
|
(1,231,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative
liability
|
|
|
225,130
|
|
|
|
-
|
|
|
|
913,640
|
|
|
|
881,000
|
|
Gain on debt extinguishment
|
|
|
421,400
|
|
|
|
-
|
|
|
|
1,056,225
|
|
|
|
-
|
|
Loss on disposal of fixed assets
|
|
|
(8,237
|
)
|
|
|
-
|
|
|
|
(8,237
|
)
|
|
|
-
|
|
Interest income
|
|
|
1
|
|
|
|
26
|
|
|
|
10
|
|
|
|
140
|
|
Interest
expense
|
|
|
(335,750
|
)
|
|
|
(357,439
|
)
|
|
|
(985,163
|
)
|
|
|
(1,084,198
|
)
|
Total
other income (expense)
|
|
|
302,544
|
|
|
|
(357,413
|
)
|
|
|
976,475
|
|
|
|
(203,058
|
)
|
Income (loss)
before provision for income taxes
|
|
|
526,479
|
|
|
|
(262,840
|
)
|
|
|
371,118
|
|
|
|
(1,434,669
|
)
|
Benefit
from (provision for) income taxes
|
|
|
1,920
|
|
|
|
-
|
|
|
|
(7,029
|
)
|
|
|
(6,780
|
)
|
Net
income (loss)
|
|
$
|
528,399
|
|
|
$
|
(262,840
|
)
|
|
$
|
364,089
|
|
|
$
|
(1,441,449
|
)
|
Basic
and diluted net income (loss) per common share
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Weighted
average number of common shares outstanding during the period - basic
|
|
|
516,284,388
|
|
|
|
459,508,465
|
|
|
|
515,389,061
|
|
|
|
457,224,832
|
|
Weighted
average number of common shares outstanding during the period - diluted
|
|
|
603,756,129
|
|
|
|
459,508,465
|
|
|
|
604,651,456
|
|
|
|
457,224,832
|
|
See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements
Progressive Care Inc. and Subsidiaries
Condensed Consolidated Statements of
Stockholders’ Equity (Deficiency)
For the Three and Nine Months Ended September
30, 2021 (Unaudited)
|
|
Preferred Series A
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
$0.001 Par Value
|
|
|
$0.0001 Par Value
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity (Deficiency)
|
|
Balance,
December 31, 2020
|
|
|
51
|
|
|
$
|
-
|
|
|
|
485,768,076
|
|
|
$
|
48,577
|
|
|
$
|
6,978,301
|
|
|
$
|
(8,746,930
|
)
|
|
$
|
(1,720,052
|
)
|
Issuance of common stock for settlement
of debt principal and interest
|
|
|
|
|
|
|
|
|
|
|
32,231,321
|
|
|
|
3,223
|
|
|
|
1,038,756
|
|
|
|
|
|
|
|
1,041,979
|
|
Issuance of common stock for services
rendered
|
|
|
|
|
|
|
|
|
|
|
1,989,390
|
|
|
|
199
|
|
|
|
74,801
|
|
|
|
|
|
|
|
75,000
|
|
Net income
for the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,852
|
|
|
|
26,852
|
|
Balance March
31, 2021
|
|
|
51
|
|
|
$
|
-
|
|
|
|
519,988,787
|
|
|
$
|
51,999
|
|
|
$
|
8,091,858
|
|
|
$
|
(8,720,078
|
)
|
|
$
|
(576,221
|
)
|
Issuance of common stock for services
rendered
|
|
|
|
|
|
|
|
|
|
|
107,142
|
|
|
|
11
|
|
|
|
5,668
|
|
|
|
|
|
|
|
5,679
|
|
Net income
for the three months ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191,162
|
)
|
|
|
(191,162
|
)
|
Balance June
30, 2021
|
|
|
51
|
|
|
$
|
-
|
|
|
|
520,095,929
|
|
|
$
|
52,010
|
|
|
$
|
8,097,526
|
|
|
$
|
(8,911,240
|
)
|
|
$
|
(761,704
|
)
|
Issuance of common stock for settlement
of debt principal and interest
|
|
|
|
|
|
|
|
|
|
|
4,945,598
|
|
|
|
495
|
|
|
|
199,505
|
|
|
|
|
|
|
|
200,000
|
|
Issuance of common stock for services
rendered
|
|
|
|
|
|
|
|
|
|
|
2,830,188
|
|
|
|
282
|
|
|
|
149,718
|
|
|
|
|
|
|
|
150,000
|
|
Net income
for the three months ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528,399
|
|
|
|
528,399
|
|
Balance
September 30, 2021
|
|
|
51
|
|
|
$
|
-
|
|
|
|
527,871,715
|
|
|
$
|
52,787
|
|
|
$
|
8,446,749
|
|
|
$
|
(8,382,841
|
)
|
|
$
|
116,695
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
Progressive Care Inc. and Subsidiaries
Condensed Consolidated Statements of
Deficiency in Stockholders' Equity
For the Three and Nine months Ended September
30, 2020 (Unaudited)
|
|
Preferred
Series A
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total Deficiency In
|
|
|
|
$0.001
Par Value
|
|
|
$0.0001 Par Value
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance,
December 31, 2019
|
|
|
51
|
|
|
$
|
-
|
|
|
|
436,280,944
|
|
|
$
|
43,628
|
|
|
$
|
4,997,391
|
|
|
$
|
(7,297,121
|
)
|
|
$
|
(2,256,102
|
)
|
Issuance of common stock for settlement
of debt principal and interest
|
|
|
|
|
|
|
|
|
|
|
13,228,310
|
|
|
|
1,323
|
|
|
|
578,677
|
|
|
|
|
|
|
|
580,000
|
|
Net loss
for the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(604,065
|
)
|
|
|
(604,065
|
)
|
Balance March
31, 2020
|
|
|
51
|
|
|
$
|
-
|
|
|
|
449,509,254
|
|
|
$
|
44,951
|
|
|
$
|
5,576,068
|
|
|
$
|
(7,901,186
|
)
|
|
$
|
(2,280,167
|
)
|
Issuance of common stock for settlement
of debt principal and interest
|
|
|
|
|
|
|
|
|
|
|
24,012,777
|
|
|
|
2,401
|
|
|
|
747,599
|
|
|
|
|
|
|
|
750,000
|
|
Issuance of common stock for services
rendered
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
48,100
|
|
|
|
|
|
|
|
48,200
|
|
Net loss
for the three months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(574,544
|
)
|
|
|
(574,544
|
)
|
Balance June
30, 2020
|
|
|
51
|
|
|
$
|
-
|
|
|
|
474,522,031
|
|
|
$
|
47,452
|
|
|
$
|
6,371,767
|
|
|
$
|
(8,475,730
|
)
|
|
$
|
(2,056,511
|
)
|
Issuance of common stock for consulting
services
|
|
|
|
|
|
|
|
|
|
|
5,750,831
|
|
|
|
575
|
|
|
|
229,504
|
|
|
|
|
|
|
|
230,079
|
|
Issuance of common stock for business
acquisition
|
|
|
|
|
|
|
|
|
|
|
(10,000,000
|
)
|
|
|
(1,000
|
)
|
|
|
1,000
|
|
|
|
|
|
|
|
-
|
|
Net loss
for the three months ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,840
|
)
|
|
|
(262,840
|
)
|
Balance
September 30, 2020
|
|
|
51
|
|
|
$
|
-
|
|
|
|
470,272,862
|
|
|
$
|
47,027
|
|
|
$
|
6,602,271
|
|
|
$
|
(8,738,570
|
)
|
|
$
|
(2,089,272
|
)
|
See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.
Progressive Care Inc. and Subsidiaries
Condensed Consolidated Statements of
Cash Flows
For the Nine Months Ended September 30,
2021 and 2020 (Unaudited)
|
|
2021
|
|
|
2020
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
364,089
|
|
|
$
|
(1,441,449
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
135,949
|
|
|
|
168,028
|
|
Change in provision for doubtful accounts
|
|
|
45,700
|
|
|
|
185,660
|
|
Share-based compensation
|
|
|
189,012
|
|
|
|
48,200
|
|
Amortization of debt issuance costs and debt discounts
|
|
|
729,280
|
|
|
|
742,303
|
|
Gain on debt extinguishment
|
|
|
(1,056,225
|
)
|
|
|
-
|
|
Amortization of right of use assets-Finance leases
|
|
|
25,008
|
|
|
|
62,168
|
|
Amortization of right of use assets-Operating leases
|
|
|
148,986
|
|
|
|
84,533
|
|
Change in fair value of derivative liability
|
|
|
(913,640
|
)
|
|
|
(881,000
|
)
|
Amortization of intangible assets
|
|
|
163,235
|
|
|
|
256,650
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(897
|
)
|
|
|
(532,794
|
)
|
Inventory
|
|
|
(211,976
|
)
|
|
|
99,473
|
|
Prepaid expenses
|
|
|
(17,611
|
)
|
|
|
(102,229
|
)
|
Deposits
|
|
|
(2,236
|
)
|
|
|
(14,584
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
469,903
|
|
|
|
1,866,274
|
|
Operating lease liabilities
|
|
|
(141,353
|
)
|
|
|
(182,600
|
)
|
Unearned revenue
|
|
|
(41,793
|
)
|
|
|
72,371
|
|
Deferred rent payable
|
|
|
-
|
|
|
|
31,695
|
|
Net cash (used in) provided by operating
activities
|
|
|
(114,569
|
)
|
|
|
462,699
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(132,702
|
)
|
|
|
(552,879
|
)
|
Net Cash (Used in) Investing Activities
|
|
|
(132,702
|
)
|
|
|
(552,879
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable
|
|
|
421,400
|
|
|
|
1,013,900
|
|
Payments of notes payable
|
|
|
(126,190
|
)
|
|
|
(35,053
|
)
|
Payments on lease liabilities
|
|
|
(47,780
|
)
|
|
|
(18,100
|
)
|
Net Cash Provided by Financing Activities
|
|
|
247,430
|
|
|
|
960,747
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
159
|
|
|
|
870,567
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning
of period
|
|
|
2,100,695
|
|
|
|
816,637
|
|
Cash and cash equivalents at end of
period
|
|
$
|
2,100,854
|
|
|
$
|
1,687,204
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
57,303
|
|
|
$
|
202,165
|
|
Cash paid for income taxes
|
|
$
|
7,029
|
|
|
$
|
6,780
|
|
Supplemental Schedule of non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt principal and interest repaid through conversion into
common stock shares
|
|
$
|
1,241,979
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services rendered
|
|
$
|
230,397
|
|
|
$
|
48,200
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC topic for operating lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use asset
|
|
$
|
-
|
|
|
$
|
171,420
|
|
|
|
|
|
|
|
|
|
|
Right of use liability
|
|
$
|
-
|
|
|
$
|
239,400
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums financed through issuance of note payable
|
|
$
|
126,313
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase financed through issuance of note payable
|
|
$
|
14,569
|
|
|
$
|
-
|
|
See Accompanying Notes
to Unaudited Condensed Consolidated Financial Statements.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Note 1 Organization & Nature of Operations
Progressive Care Inc. (“Progressive”)
was incorporated under the laws of the state of Delaware on October 31, 2006.
Progressive, through its wholly-owned subsidiaries,
PharmCo, LLC (referred to as “PharmCo 901”), Touchpoint RX, LLC doing business as PharmCo Rx 1002, LLC (referred to as “PharmCo
1002”), Family Physicians RX, Inc. doing business as PharmCoRx 1103 and PharmCoRx 1204 (referred to as “FPRX” historically
or “PharmCo 1103” and “PharmCo 1204” currently) (pharmacy subsidiaries collectively referred to as “PharmCo”),
ClearMetrX Inc. and RXMD Therapeutics, Inc (collectively with all entities referred to as the “Company”, or “we”)
is a personalized healthcare services and technology company that provides prescription pharmaceuticals and risk and data management
services to healthcare organizations and providers.
PharmCo 901 was formed on November 29, 2005
as a Florida Limited Liability Company and is a 100% owned subsidiary of Progressive. PharmCo 901 was acquired by Progressive on October
21, 2010. We currently deliver prescriptions to Florida’s diverse population and ship medications to patients in states where we
hold non-resident pharmacy licenses as well. 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 are able to 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.
FPRX is a pharmacy with locations in North
Miami Beach and Orlando, Florida that provides PharmCo’s pharmacy services to Broward County, the Orlando/Tampa corridor, and the
Treasure Coast of Florida. Progressive acquired all of the ownership interests in FPRX in a purchase agreement entered into on June 1,
2019.
PharmCo 1002 is a pharmacy located in Palm
Springs, Florida that provides PharmCo’s pharmacy services to Palm Beach, St. Lucie and Martin Counties, Florida. Progressive acquired
all of the ownership interests in PharmCo 1002 in a purchase agreement entered into on July 1, 2018.
ClearMetrX
was formed on June 10, 2020 and provides third party administration services to 340B covered entities. ClearMetrX also provides data
analytics and reporting services to support and improve care management for health care organizations.
RXMD Therapeutics
was formed on October 1, 2019. RXMD Therapeutics had no operating activity to date.
Note 2 Basis of Presentation
The Company’s fiscal year end is December
31. The Company uses the accrual method of accounting. The accompanying unaudited interim condensed consolidated financial statements
have been prepared on the same basis as the annual consolidated financial statements. The December 31, 2020, balance sheet has been derived
from audited consolidated financial statements.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
The accompanying unaudited condensed consolidated
financial statements for the three and nine months ended September 30, 2021, and 2020 have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant
to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes
required by U.S. GAAP for complete financial statements.
The unaudited financial information included
in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary
to reflect a fair statement of the results for the interim periods. The results of operations for the three and nine months ended September
30, 2021, are not necessarily indicative of the results of the full fiscal year.
The unaudited condensed consolidated financial
statements included in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s
financial statements for the fiscal year ended December 31, 2020.
Note 3 Summary of Significant Accounting
Policies
Principles of Consolidation
The unaudited condensed consolidated financial
statements include the accounts of Progressive and its wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of unaudited condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported
in the unaudited condensed consolidated financial statements and accompanying notes. Such estimates and assumptions impact both assets
and liabilities, including but not limited to: net realizable value of accounts receivable and inventories, estimated useful lives and
potential impairment of long lived assets and goodwill, estimated fair value of derivative liabilities using the Monte Carlo simulation
model, fair value of assets acquired and liabilities assumed in business combinations, and estimates of current and deferred tax assets
and liabilities.
Making estimates requires management to exercise
significant judgment. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations
and financial condition, including sales, expenses, and reserves and allowances, will depend on future developments that are highly uncertain,
including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as
well as the economic impact on local, regional, and national customers and markets. We have made estimates of the impact of COVID-19
within our unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods. Actual
results may differ from these estimates.
Cash and Cash Equivalents
The Company maintains its cash and cash equivalents
in bank deposit accounts which, at times, may exceed federally insured limits. The Company had $1,058,097 of cash in excess of insured
amounts at September 30, 2021. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to
any significant credit risk associated with its cash and cash equivalent balances, since our deposits are held with high quality financial
institutions that are well capitalized.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Cash Equivalents: The Company considers all
highly liquid investments purchased with original maturities of three months or less to be cash equivalents. As of September 30, 2021
and December 31, 2020, the Company’s cash equivalents consist of a money market account.
Accounts Receivable and Allowance for Doubtful
Accounts
Trade accounts receivable are stated at the
invoiced amount. Trade accounts receivable primarily include amounts from third-party pharmacy benefit managers and insurance providers
and are based on contracted prices. Trade accounts receivable are unsecured and require no collateral. The Company recorded an allowance
for doubtful accounts for estimated differences between the expected and actual payment of accounts receivable. These reductions were
made based upon reasonable and reliable estimates that were determined by reference to historical experience, contractual terms, and
current conditions. Each quarter, the Company reevaluates its estimates to assess the adequacy of its allowance and adjusts the amounts
as necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote.
Risks and Uncertainties
The Company’s operations are subject
to intense competition, risk and uncertainties including financial, operational, regulatory and other risks including the potential risk
of business failure.
Billing Concentrations
The Company’s primary trade receivables
are primarily from prescription medications billed to various insurance providers. Ultimately, the insured is responsible for payment
should the insurance company not reimburse the Company. The Company generated reimbursements from three significant insurance providers
for the nine months ended September 30, 2021:
Payors
|
|
|
|
A
|
|
|
36
|
%
|
B
|
|
|
31
|
%
|
C
|
|
|
12
|
%
|
The Company generated reimbursements
from three significant pharmacy benefit managers (PBMs) for the nine months ended September 30, 2021:
Inventory
Inventory is valued on a lower of first-in, first-out (FIFO) cost or
net realizable value basis. Inventory primarily consists of prescription medications, pharmacy supplies, and retail items. The Company
provides a valuation allowance for obsolescence and slow-moving items. The Company recorded an allowance for obsolescence of approximately
$40,000 as of September 30, 2021 and December 31, 2020.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Property and Equipment
Property and equipment are recorded
at cost or fair value if acquired as part of a business combination. Property and equipment are depreciated or amortized using the straight-line
method over their estimated useful lives. Upon the retirement or disposition of property and equipment, the related cost and accumulated
depreciation or amortization are removed, and a gain or loss is recorded, when appropriate. Expenditures for maintenance and repairs
are charged to expense as incurred. Estimated useful lives of property and equipment as follows:
Description
|
|
Estimated
Useful Life
|
Building
|
|
40 years
|
Leasehold improvements and fixtures
|
|
Lesser
of estimated useful life or life of lease
|
Furniture and equipment
|
|
5
years
|
Computer equipment and software
|
|
3
years
|
Vehicles
|
|
3-5
years
|
Property and equipment are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There
were no impairment charges for the three and nine months ended September 30, 2021, and 2020.
Business acquisitions
The Company records business acquisitions
using the acquisition method of accounting. All of the assets acquired, liabilities assumed, and contractual contingencies are recognized
at their fair value on the acquisition date. The application of the acquisition method of accounting for business combinations requires
management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed
in order to properly allocate purchase price consideration between assets that are depreciated and amortized and goodwill. The excess
of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.
Goodwill
Goodwill represents the excess of the purchase
price of FPRX and PharmCo 1002 over the value assigned to their net tangible and identifiable intangible assets. FPRX and PharmCo 1002
are considered to be the reporting units for goodwill. Acquired intangible assets other than goodwill are amortized over their useful
lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination, the estimated fair
values of the assets received are used to establish their recorded values. Valuation techniques consistent with the market approach,
income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible assets are tested
annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances indicate that the assets
may be impaired.
For both reporting units for the nine months
ended September 30, 2021, we qualitatively assessed whether it is more likely than not that the respective fair values of the reporting
units are less than their carrying amounts, including goodwill. Based on that assessment, we determined that this condition for the FPRX
and PharmCo 1002 reporting units does not exist. As such, performing the first step of the two-step impairment test for the FPRX and
PharmCo 1002 reporting units was not necessary, and no goodwill impairment loss was recorded for the nine months ended September 30,
2021.
Intangible Assets
The amortization of identifiable intangible
assets generally represent the cost of client relationships and trade names acquired, as well as non-compete agreements to which the
Company is a party. In valuing these assets, the Company makes assumptions regarding useful lives and projected growth rates, and significant
judgment is required. The Company periodically reviews its identifiable intangible assets for impairment as events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of those assets exceed their respective
fair values, additional impairment tests are performed to measure the amount of the impairment losses, if any.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Fair Value Measurements
Financial Accounting Standards Board Accounting
Standards Codification (“FASB ASC”) Topic 820 establishes a framework for measuring fair value that includes a hierarchy
used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure
fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based
on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in
active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities (both common stock
and preferred stock) that are traded in an active exchange market, as well as U.S. Treasury securities.
Level 2: Unadjusted observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for the assets or liabilities. Level 2 assets and liabilities
include debt securities with quoted prices that are traded less frequently than exchange-traded instruments. This category generally
includes certain U.S. Government, agency mortgage-backed debt securities, non-agency structured securities, corporate debt securities
and preferred stocks.
Level 3: Unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain
pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The following table presents the Company’s
fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2021, and December
31, 2020:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Balance
at
September 30,
2021
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,129,360
|
|
|
$
|
1,129,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Balance
at December 31,
2020
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,043,000
|
|
|
$
|
2,043,000
|
|
The following table is a roll forward of the opening
and closing balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level
3).
|
|
September 30,
2021
Derivative
Liabilities
|
|
|
December 31,
2020
Derivative
Liabilities
|
|
Beginning balance
|
|
$
|
2,043,000
|
|
|
|
2,857,000
|
|
Transfers into (out of) Level 3
|
|
|
|
|
|
|
|
|
Total (gains) or losses for the period
|
|
|
|
|
|
|
|
|
Included in net income for the period
|
|
|
(913,640
|
)
|
|
|
(814,000
|
)
|
Ending balance
|
|
$
|
1,129,360
|
|
|
|
2,043,000
|
|
Total gains for the three and nine
months ended September 30, 2021 are included in net income (loss) for the period.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Fair Value of Financial Instruments
The Company’s financial instruments
consisted of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, lease liabilities, and notes payable.
The carrying amounts of the Company’s financial instruments other than notes payable and capital lease obligations generally approximate
their fair values at September 30, 2021 and December 31, 2020 due to the short-term nature of these instruments. The carrying amount
of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company could obtain in current
financing. The carrying value of lease liabilities approximate fair value due to the implicit rate in the leases in relation to the Company’s
borrowing rate and the duration of the leases.
Derivative Liabilities
U.S. GAAP requires bifurcation of embedded
derivative instruments such as conversion features in convertible debt or equity instruments, and their measurement at fair value. In
assessing the convertible debt instruments, management determines if the conversion feature requires bifurcation from the host instrument
and recording of the bifurcated derivative instrument at fair value.
Once derivative liabilities are determined,
they are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value is recorded in
results of operations as an adjustment to fair value of derivatives. The fair value of these derivative instruments is determined using
the Monte Carlo Simulation Model.
Revenue Recognition
The Company recognizes
pharmacy revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or when a customer picks
up their prescription or purchases merchandise at the store, which is the point in time when control transfers to the customer. Each
prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments are received directly
from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For third party medical
insurance and other claims, authorization to ensure payment is obtained from the customer’s insurance provider before the medication
is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization number is issued
by the customers’ insurance provider.
The Company recognizes
testing revenue when the tests are performed, and results are delivered to the customer. Each test is considered an arrangement with
the customer and is a separate performance obligation. Payment is generally received in advance from the customer.
The Company records unearned
revenue for prescriptions that are filled but not yet delivered at period-end. Billings for most prescription orders are with third-party
payers, including Medicare, Medicaid, and insurance carriers. Customer returns are nominal. Pharmacy revenues exceeded 83% of total revenue
for the three and nine months ended September 30, 2021, and 2020.
The Company
accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or expected
to be assessed by payers at some point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized. Changes
in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
The following table disaggregates
net revenue by categories for the nine months ended September 30, 2021, and 2020
|
|
2021
|
|
|
2020
|
|
Prescription revenue
|
|
$
|
24,929,722
|
|
|
$
|
28,235,462
|
|
340B contract revenue
|
|
|
2,120,701
|
|
|
|
1,958,077
|
|
Testing revenue
|
|
|
2,926,452
|
|
|
|
-
|
|
Rent and other revenue
|
|
|
1,575
|
|
|
|
13,076
|
|
Subtotal
|
|
|
29,978,450
|
|
|
|
30,206,615
|
|
PBM fees
|
|
|
(976,127
|
)
|
|
|
(1,430,993
|
)
|
Sales returns
|
|
|
(3,201
|
)
|
|
|
(4,662
|
)
|
Revenues, net
|
|
$
|
28,999,122
|
|
|
$
|
28,770,960
|
|
Cost of Revenue
Cost of pharmacy revenue is derived based
upon vendor purchases relating to prescriptions sold and point-of-sale scanning information for non-prescription sales and is adjusted
based on periodic inventories. All other costs related to revenues are expensed as incurred.
DIR Fees
The
Company reports Direct and Indirect Remuneration (“DIR”) fees as a reduction of revenue on the accompanying unaudited condensed
consolidated statement of operations. DIR Fees are fees charged by Pharmacy Benefit Managers (“PBMs“) to pharmacies for network
participation as well as periodic reimbursement reconciliations. For some PBMs, DIR fees are charged at the time of the settlement of
a pharmacy claim. Other PBMs do not determine DIR fees at the claim settlement date, and therefore DIR fees are collected from pharmacies
after claim settlement, often as clawbacks of reimbursements based on factors that vary from plan to plan. For example, two PBMs calculate
DIR fees on a trimester basis and charge the Company for these fees as reductions of reimbursements paid to the Company 2-3 months after
the end of the trimester (e.g., DIR fees for January – April 2021 claims were charged by these PBMs in July – August 2021).
For DIR fees that are not collected at the time of claim settlement, the Company records an accrued liability at each reporting date
for estimated DIR fees that are expected to be collected by the PBMs in a future period. The estimated liability for these fees is highly
subjective and the actual amount collected may differ from the accrued liability. The uncertainty of management’s estimates is
due to inadequate disclosure to the Company by the PBMs as to exactly how these fees are calculated either at the time the DIR fees are
actually assessed and reported to the Company. The detail level of the disclosure of assessed DIR fees varies based on the information
provided by the PBM.
Vendor Concentrations
For the nine months ended September 30, 2021,
the Company had a significant vendor concentration with one vendor. The purchases from this significant vendor were 95% of total vendor
purchases for the nine months ended September 30, 2021.
Selling, General and Administrative Expenses
Selling expenses primarily consist of store
salaries, contract labor, occupancy costs, and expenses directly related to the stores. General and administrative costs include advertising,
insurance, professional fees, and depreciation and amortization.
Advertising
Costs incurred
for producing and communicating advertising for the Company are charged to operations as incurred. Advertising expense was $145,973
and $138,666 for the nine months ended September 30, 2021, and 2020, respectively.
Share-Based Payment Arrangements
Generally, all forms of share-based payments,
including warrants, are measured at their fair value on the awards’ grant date typically using a Black-Scholes pricing model, based
on the estimated number of awards that are ultimately expected to vest. The costs associated with share-based compensation awards to
employees and non-employee directors are measured at the grant date based on the calculated fair value of the award and recognized as
an expense ratably over the recipient’s requisite service period during which that award vests or becomes unrestricted. Share-based
compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the
fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded
in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Income Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Progressive Care Inc., RXMD Therapeutics and
PharmCoRx 1103 are taxed as C corporations. PharmCo 901 and PharmCo 1002 are taxed as partnerships, wherein each member is responsible
for the tax liability, if any, related to its proportionate share of PharmCo 901 and PharmCo 1002’s taxable income. Progressive
Care Inc. has a 100% ownership interest in PharmCo 901 and PharmCo 1002; therefore, all of PharmCo 901 and PharmCo 1002’s taxable
income attributable to the period of ownership is included in Progressive Care Inc.’s taxable income.
The provision for income taxes for the three
and nine months ended September 30, 2021, and 2020 on the unaudited condensed consolidated statements of operations represents the minimum
state corporate tax payments. There was no current tax provision for the three and nine months ended September 30, 2021, and 2020, because
the Company did not have taxable income during those periods. Total available net operating losses to be carried forward to future taxable
years was approximately $11 million as of September 30, 2021, $6 million of which will expire in various years through 2038. The temporary
differences giving rise to deferred income taxes principally relate to accelerated depreciation on property and equipment and amortization
of goodwill recorded for tax purposes, reserves for estimated doubtful accounts and inventory obsolescence and net operating losses recorded
for financial reporting purposes. The Company’s net deferred tax asset on September 30, 2021 and December 31, 2020 was fully offset
by a 100% valuation allowance as it was not more likely than not that the tax benefits of the net deferred tax asset would be realized.
The change in the valuation allowance was approximately $32,000 for the nine months ended September 30, 2021.
The Company accounts for uncertainty in income
taxes by recognizing a tax position in the unaudited condensed consolidated financial statements only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not
threshold, the amount recognized in the unaudited consolidated financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company records interest and penalties
related to tax uncertainties, if any, as income tax expense. Based on management’s evaluation, the Company does not believe it
has any uncertain tax positions during the nine months ended September 30, 2021, and 2020.
Income (Loss) per Share
Basic
income (loss) per share (“EPS”) is computed by dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the year, excluding the effects of any potentially dilutive securities. Diluted EPS
gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury
stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise
of stock warrants), and convertible debt, using the if converted method. Diluted EPS excludes all dilutive potential of shares of common
stock if their effect is anti-dilutive.
Paycheck
Protection Program Loan
The Company records Paycheck Protection Program
(“PPP”) loan proceeds in accordance with Accounting Standards Codification (“ASC”) 470, Debt. The Company treats
the PPP loan as indebtedness, which is extinguished and recorded as a gain on debt extinguishment when legally released by the primary
obligor.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Accounting Standards Issued but Not Yet
Adopted
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income
Taxes (Topic 740)—simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic
740 and amends existing guidance to improve consistent application. ASU 2019-12 is required to be adopted for annual periods beginning
after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. Management
is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.
Debt
In August 2020, the FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which among other things, simplifies
the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument. As a result,
after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt.
Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred
stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative
under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard becomes effective for the Company in
the first quarter of 2022 and early adoption is permitted. Management is currently evaluating the impact of the adoption of this
guidance on the Company’s consolidated financial statements.
Management has evaluated other recently issued
accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s
consolidated financial statements.
Note 4. Accounts Receivable – Trade,
net
Accounts receivable consisted of the following
on September 30, 2021, and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Gross accounts receivable - trade
|
|
$
|
2,818,488
|
|
|
$
|
2,686,009
|
|
Less: Allowance for doubtful accounts
|
|
|
(151,200
|
)
|
|
|
(105,500
|
)
|
Accounts receivable – trade, net
|
|
$
|
2,667,288
|
|
|
$
|
2,580,509
|
|
For the nine
months ended September 30, 2021 and 2020, the Company recognized bad debt expense in the amount of $152,953 and $192,485, respectively.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Note 5. Property and Equipment, net
Property and equipment, net consisted of the following on September
30, 2021, and December 31, 2020:
|
|
September 30, 2021
|
|
|
December 31,
2020
|
|
Building
|
|
$
|
1,651,069
|
|
|
$
|
1,651,069
|
|
Building improvements
|
|
|
507,238
|
|
|
|
437,733
|
|
Land
|
|
|
184,000
|
|
|
|
184,000
|
|
Leasehold improvements and fixtures
|
|
|
276,614
|
|
|
|
385,902
|
|
Furniture and equipment
|
|
|
330,291
|
|
|
|
330,291
|
|
Computer equipment and software
|
|
|
101,230
|
|
|
|
101,230
|
|
Vehicles
|
|
|
94,431
|
|
|
|
108,011
|
|
Website
|
|
|
67,933
|
|
|
|
67,933
|
|
Total
|
|
|
3,212,806
|
|
|
|
3,266,169
|
|
Less: accumulated depreciation and amortization
|
|
|
(745,475
|
)
|
|
|
(872,198
|
)
|
|
|
|
2,467,331
|
|
|
|
2,393,971
|
|
Construction in progress
|
|
|
-
|
|
|
|
108,362
|
|
Software not in service
|
|
|
76,424
|
|
|
|
30,100
|
|
Property and equipment, net
|
|
$
|
2,543,755
|
|
|
$
|
2,532,433
|
|
Depreciation and amortization expense for the nine months
ended September 30, 2021, and 2020 was $135,949 and $168,028, respectively.
Note 6. Intangible Assets
Intangible
assets consisted of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
Trade names
|
|
$
|
362,000
|
|
|
$
|
362,000
|
|
Pharmacy records
|
|
|
263,000
|
|
|
|
263,000
|
|
Non-compete agreements
|
|
|
166,000
|
|
|
|
166,000
|
|
Subtotal
|
|
|
791,000
|
|
|
|
791,000
|
|
Less accumulated
amortization
|
|
|
(707,093
|
)
|
|
|
(543,858
|
)
|
Net intangible assets
|
|
$
|
83,907
|
|
|
$
|
247,142
|
|
Amortization of intangible
assets amounted to $163,235 and $256,650 for the nine months ended September 30, 2021, and 2020, respectively. The following table represents
the total estimated amortization of intangible assets for the five succeeding years:
Year
|
|
Amount
|
|
2021 (three months)
|
|
$
|
7,898
|
|
2022
|
|
|
31,452
|
|
2023
|
|
|
31,452
|
|
2024
|
|
|
13,105
|
|
Total
|
|
$
|
83,907
|
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Note 7. Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consisted of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Accounts payable - trade
|
|
$
|
5,005,536
|
|
|
$
|
5,157,472
|
|
Accrued payroll and payroll taxes
|
|
|
199,000
|
|
|
|
114,851
|
|
Accrued interest payable
|
|
|
773,091
|
|
|
|
574,512
|
|
Accrued DIR fees
|
|
|
635,537
|
|
|
|
477,053
|
|
Other accrued liabilities
|
|
|
407,969
|
|
|
|
227,342
|
|
Totals
|
|
$
|
7,021,133
|
|
|
$
|
6,551,230
|
|
Note 8. Notes Payable
Notes payable consisted
of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
A. Convertible notes payable - collateralized
|
|
$
|
1,559,700
|
|
|
$
|
2,878,619
|
|
B. Mortgage note payable – commercial bank - collateralized
|
|
|
1,327,782
|
|
|
|
1,376,826
|
|
C. Note payable – uncollateralized
|
|
|
25,000
|
|
|
|
25,000
|
|
D. Note payable - collateralized
|
|
|
56,579
|
|
|
|
59,094
|
|
E. U.S. CARES Act PPP Loans - uncollateralized
|
|
|
-
|
|
|
|
421,400
|
|
Insurance premium financing
|
|
|
105,071
|
|
|
|
31,148
|
|
Subtotal
|
|
|
3,074,132
|
|
|
|
4,792,087
|
|
Less
Unamortized debt discount
|
|
|
(388,978
|
)
|
|
|
(953,846
|
)
|
Less
Unamortized debt issuance costs
|
|
|
(1,419
|
)
|
|
|
(3,909
|
)
|
Less Unamortized investment length premium
|
|
|
(107,194
|
)
|
|
|
(132,796
|
)
|
Total
|
|
|
2,576,541
|
|
|
|
3,701,536
|
|
Less: Current portion of notes payable
|
|
|
(1,792,386
|
)
|
|
|
(570,914
|
)
|
Long-term portion of notes payable
|
|
$
|
784,155
|
|
|
$
|
3,130,622
|
|
The corresponding notes payable above are
more fully discussed below:
|
(A)
|
Convertible Notes Payable – collateralized
|
Chicago Ventures Partners, L..P.
On January 2, 2019, Progressive entered a
Securities Purchase Agreement (the “Purchase Agreement”) with Chicago Venture Partners, L.P. (“Chicago Venture”),
a Utah limited partnership, in the amount of $2,710,000, which included a $200,000 Original Issue Discount (“OID”) and $10,000
in debt issuance costs for the transaction. The note balance was satisfied through a series of redemption notices for conversion of note
principal and accrued interest into shares of Progressive common stock at various conversion rates. The last redemption request and conversion
of note principal and accrued interest was completed on November 3, 2020.
The Company has identified conversion features
embedded within the Chicago Venture note. The Company has determined that the conversion features represent an embedded derivative. Accordingly,
the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. On January 2, 2019, the
Company recorded a derivative liability on the note in the amount of $571,000. The fair value of the embedded derivative liability was
determined using the Monte Carlo Simulation model on the issuance date. For the nine months ended September 30, 2021, and 2020, the Company
recorded a Change in Fair Value of the Derivative Liability in the amount of $0 and $586,000, respectively, which was recorded as other
income or expenses on the accompanying unaudited condensed consolidated statements of operations.
Debt Issuance Costs and Debt Discount:
Debt Issuance Costs consist of fees incurred
through securing financing from Chicago Venture on January 2, 2019. Debt Discount consists of the discount recorded upon recognition
of the derivative liability upon issuance of the first tranche. Debt issuance costs and debt discount are amortized to interest expense
over the term of the related debt using the effective interest method. Total amortization expense for the nine months ended September
30, 2021, and 2020 was $0 and $168,404, respectively.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Iliad Research and Trading, L.P.
On March 6, 2019, Progressive entered a Securities
Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad Research”), a Utah
limited partnership, in the amount of $3,310,000, which included a $300,000 Original Issue Discount (“OID”) and $10,000 in
debt issuance costs for the transaction. The note is comprised of two tranches consisting of an initial tranche in the amount of $2,425,000
and a second tranche in the amount of $885,000. The initial tranche consisted of the initial cash purchase price of $2,425,000, $115,000
of the OID and the debt issuance costs of $10,000. The remaining OID of $185,000 has been allocated to the second tranche. The note is
convertible into shares of common stock ($0.0001 par value per share) in 1 year at the average of the two lowest closing trading prices
during the twenty trading days immediately preceding the applicable conversion. The note matures on March 6, 2022 (the “Maturity
Date”). The note accrues interest at the rate of 10% per annum and the entire unpaid principal balance plus all accrued and unpaid
interest are due on the Maturity Date.
Progressive received the initial tranche of
$2,425,000 at the closing of the transaction, which included $115,000 of OID and legal costs. Progressive granted the Investor a security
interest in all right, title, interest and claims of Progressive. PharmCo 901 has agreed to guarantee Progressive’s obligations
under the Purchase Agreement, the note and the Security Agreement by entering into a Guaranty Agreement in favor of Iliad Research. Pursuant
to the Guaranty Agreement, Progressive has agreed to pay to PharmCo 901 10% of all proceeds it received from Iliad Research, as consideration
to secure Progressive’s obligations. Progressive used the net proceeds as part of the total purchase price of the acquisition of
100% of the FPRX ownership interests.
The first tranche of $2,425,000 less the OID
and debt issuance costs was disbursed and held in escrow by Iliad Research on March 6, 2019. $1 million of the escrow deposit was disbursed
to the owners of FPRX at the purchase closing date, June 1, 2019. The second tranche of $885,000 less the OID was disbursed to Progressive
on June 4, 2019, and was used to complete the total purchase price of the FPRX acquisition. On November 8, 2019, the Company entered
into an amendment of the FPRX Purchase Agreement, which in part included a reduction of the purchase price. As a result of the amended
Purchase Agreement, the Company returned $400,000 of the second tranche to Iliad Research and Trading, L.P. on November 12, 2019.
An investment length premium in the amount
of $168,619 was applied to the outstanding balance of the Iliad Research note in September 2020, and another investment length premium
in the amount of $136,486 was applied to the outstanding balance in March 2021. The investment length premium was calculated at a 5%
premium on the outstanding note balance when the note was still outstanding at (a) eighteen months from the effective date, (b) twenty-four
months from the effective date, and (c) thirty months from the effective date.
The Iliad Research promissory note includes
a provision that limits the volume of sales of common stock shares received by Iliad from note conversions (“Conversion Shares”).
Iliad Research agreed that, with respect to the sale of Conversion Shares, in any given calendar week its net sales of Conversion Shares
shall not exceed the greater of (i) ten percent (10%) of Progressive’s Common Stock dollar trading volume (the “Trading Volume”)
in such week (which, for purposes hereof, means the number of shares traded during such calendar week multiplied by the volume weighted
average price per share for such week), and (ii) $100,000.00 (the “Volume Limitation”); provided; however, that if Lender’s
Net Sales are less than the Volume Limitation for any given week, then in the following week (or two (2) weeks in the case of any week
where the Closing Trade Price on any given day during that week is 25% greater than the previous week’s VWAP) Lender shall be allowed
to sell an additional amount of Conversion Shares equal to the difference between the amount Lender was allowed to sell and the amount
Lender actually sold.
In the event Iliad Research breaches the Volume
Limitation where its Net Sales of Conversion Shares during any calendar week exceed the dollar volume it is permitted to sell during
such week pursuant to the Volume Limitation (such excess, the “Excess Sales”), then in such event Progressive shall be entitled
to reduce the Outstanding Balance of the Iliad Research note by an amount equal to such Excess Sales upon delivery of written notice
to Iliad Research setting forth its basis for such reduction (the “Outstanding Balance Reduction”).
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
The volume of Conversion Shares sales exceeded
the Volume Limitation in June 2021, which resulted in Excess Sales of $213,425 and a corresponding Outstanding Balance Reduction in the
Iliad Research note carrying value of $213,425 as of September 30, 2021. The Company reported the Outstanding Balance Reduction as a
Gain on Debt Extinguishment in the amount of $213,425 on the Company’s unaudited condensed consolidated statements of operations
for the nine months ended September 30, 2021.
The balance outstanding on the Iliad Research
note payable was $1,559,700 and $2,878,619 at September 30, 2021 and December 31, 2020, respectively. Accrued interest on the note payable
at September 30, 2021 and December 31, 2020 was $773,190 and $574,512, respectively, and such amounts are included in accounts payable
and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.
The Company has identified conversion features
embedded within the Iliad Research note. The Company has determined that the conversion features represent an embedded derivative. Accordingly,
the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. On March 6, 2019, the
Company recorded a derivative liability on the first tranche in the amount of $1,351,000. On June 4, 2019, the Company recorded a derivative
liability on the second tranche in the amount of $614,000. For the nine months ended September 30, 2021, and 2020, the Company recorded
a Change in Fair Value of the Derivative Liability in the amount of $913,640 and $295,000, respectively. The derivative liability balance
on the Iliad Research note at September 30, 2021 and December 31, 2020 was $ 1,129,360 and $2,043,000, respectively.
At inception, the fair value of the derivative
instrument has been recorded as a liability on the unaudited condensed consolidated balance sheets with the corresponding amount recorded
as a discount to the note. The discount was accreted from the issuance date to September 30, 2021, with a corresponding charge to interest
expense. The change in the fair value of the derivative liability was recorded in other income or expenses on the unaudited condensed
consolidated statements of operations for the nine months ended September 30, 2021 and 2020, with the offset to the derivative liability
on the unaudited condensed consolidated balance sheets. The fair value of the embedded derivative liability was determined using the
Monte Carlo Simulation model on the issuance and subsequent balance sheet dates.
Debt Issuance Costs, Debt Discount and
Investment Length Premium:
Debt Issuance Costs consist of fees
incurred through securing financing from Iliad Research on March 6, 2019. Debt Discount consists of the discount recorded upon recognition
of the derivative liability at the issuance of the first and second tranches. Investment length premium is calculated at a 5% premium
on the outstanding balance when the note is still outstanding at (a) eighteen months from the effective date, (b) twenty-four months
from the effective date, and (c) thirty months from the effective date.
Debt issuance costs, debt discount
and investment length premium are amortized to interest expense over the term of the related debt using the effective interest method.
Total amortization expense for the nine months ended September 30, 2021 and 2020 was $729,280 and $569,269, respectively.
|
(B)
|
Mortgage Note Payable – collateralized
|
In 2018, PharmCo 901 closed on the purchase
of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase price was financed in part through a mortgage
note and security agreement entered into with a commercial lender in the amount of $1,530,000. The promissory note is collateralized
by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December 14, 2028, and is subject to a prepayment
penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began in January 2019, with the final payment
of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed by Progressive Care Inc. The balance
outstanding on the mortgage payable was $1,327,782 and $1,376,826 at September 30, 2021 and December 31, 2020, respectively.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
|
(C)
|
Note Payable – Uncollateralized
|
As of September 30, 2021 and December 31,
2020, the uncollateralized note payable represents a non-interest-bearing loan that is due on demand from an investor.
|
(D)
|
Note Payable – Collateralized
|
In September 2019, the Company entered into
a note obligation with a commercial lender, the proceeds from which were used to pay off a capital lease obligation on pharmacy equipment
in the amount of $85,429. The terms of the promissory note payable require 48 monthly payments of $2,015, including interest at 6.5%.
The balance outstanding on the note payable was $43,488 and $59,094 at September 30, 2021 and December 31, 2020, respectively. The promissory
note is secured by equipment with a net book value of $40,601 and $55,217 at September 30, 2021 and December 31, 2020, respectively.
In April 2021, the Company entered into a
note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of $29,657.
During September 2021, pharmacy equipment was returned since the installation was cancelled and the note was amended. The amended promissory
note payable requires 46 monthly payments of $331, including interest at 6.9%. The balance outstanding at September 30, 2021 on the note
payable was $13,091. The remaining equipment was written off during September 2021.
|
(E)
|
U.S. CARES Act PPP Loans – Uncollateralized
|
The Paycheck Protection Program
(“PPP”), established as part of the Coronavirus Aid, Relief and Economic Security Act (“U.S. CARES Act”), provides
for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The
loans and accrued interest are forgivable after eight-weeks or twenty-four-weeks as long as the borrower used the loan proceeds for eligible
purposes, including payroll, mortgage interest payments, employee benefits, rent and utilities, and maintains its payroll levels. The
amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week or twenty-four
week periods. The unforgiven portion of the PPP loans are payable over two or five years at an interest rate of 1%, with a deferral of
payments for the first nine months. Thereafter, any unforgiven principal and interest are payable in 18 equal monthly installments.
On various dates in April and May 2020, the
Company received loan proceeds in the amount of $1,013,900 under the PPP. During the period from March 2020 to August 2020, the Company
used the entire proceeds for qualifying expenses. Therefore, the Company applied for forgiveness of the PPP loans. On November 10, 2020,
the Company received notification from the lender that the U.S. Small Business Administration approved the forgiveness of the U.S. CARES
Act PPP Loans for PharmCo 901 in the amount of $511,000 and PharmCo 1002 in the amount of $81,500. The total debt forgiveness in the
amount of $592,500 was recorded as a gain on debt extinguishment in the Company’s consolidated statements of operations for the
year ended December 31, 2020.
The Company applied for forgiveness
of the PPP loan received by PharmCo 1103 in April 2020 in the amount of $421,400 and on January 7, 2021, received notification from the
lender that the U.S. Small Business Administration approved the forgiveness of the U.S. CARES Act PPP Loan for PharmCo 1103. On December
27, 2020, a supplemental appropriations bill was signed into law that provided additional COVID-19 relief in the form of added PPP funds
for businesses and organizations needing either a first loan or a second round of funding. We applied for an additional PPP loan in the
amount of $421,400 under the new law for PharmCo 1103. The loan was approved, and we received the funds on February 16, 2021. The funds
were used for eligible purposes, including payroll, mortgage interest payments, employee benefits, rent and utilities, and to maintain
payroll levels. The Company applied for forgiveness of the additional PPP loan received by PharmCo 1103 in February 2021 in the amount
of $421,400 and on August 2, 2021, received notification from the lender that the U.S. Small Business Administration approved the forgiveness
of the U.S. CARES Act PPP Loan for PharmCo 1103. The total debt forgiveness in the amount of $842,800 is recorded as a Gain on Debt Extinguishment
in the Company’s unaudited condensed consolidated statements of operations during the nine months ended September 30, 2021.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Future maturities of notes payable are as follows:
Year
|
|
Amount
|
|
2021 (three months)
|
|
$
|
88,267
|
|
2022
|
|
|
1,735,090
|
|
2023
|
|
|
104,836
|
|
2024
|
|
|
93,408
|
|
2025
|
|
|
96,228
|
|
Thereafter
|
|
|
956,303
|
|
Total
|
|
$
|
3,074,132
|
|
Interest expense on these notes
payable was $250,333 and $339,958 for the nine months ended September 30, 2021 and 2020, respectively.
Note 9. Lease Obligations
The
Company has entered into a number of lease arrangements under which we are the lessee. Three of our leases are classified as finance
leases and three of our leases are classified as operating leases. In addition, we have elected the short-term lease practical expedient
in ASC Topic 842 related to real estate leases with terms of one year or less and short-term leases of equipment used in our pharmacy
locations. The following is a summary of our lease arrangements.
Finance Leases
In
May 2018, the Company entered into a finance lease obligation to purchase pharmacy equipment with a cost of $114,897. The terms of the
lease agreement require monthly payments of $1,678 plus applicable tax over 84 months ending March 2025 including interest at the rate
of 6%. The finance lease obligation is secured by equipment with a net book value of $58,809 as of September 30, 2021.
The Company assumed an equipment
finance lease obligation for medication dispensing equipment from the acquisition of PharmCo 1002 in July 2018. The lease expires in
March 2022 and required monthly installments of $2,855 including interest at the rate of 2.36%. The finance lease obligation was secured
by equipment with a net book value of $0 as of September 30, 2021.
In
December 2020, the Company entered into an interest-free finance lease obligation to purchase computer servers with a cost of $50,793.
The terms of the lease agreement require monthly payments of $1,411 plus applicable tax over 36 months ending November 2023. The finance
lease obligation is secured by equipment with a net book value of $36,684 as of September 30, 2021.
Operating Leases
The Company entered into a lease agreement
for its Orlando pharmacy on August 1, 2020 (the lease commencement date). The term of the lease is 66 months with a termination date
of February 1, 2026. The lease agreement calls for monthly payments that began on February 1, 2021, of $4,310, with an escalating payment
schedule each year thereafter.
The Company leases its North Miami Beach pharmacy
locations under an operating lease agreement with a lease commencement date on September 1, 2021. The term of the lease is 60 months
with a termination date of August 31, 2026. The lease calls for monthly payments of $5,327, with an escalating payment schedule each
year thereafter.
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
The Company also leases its Palm Beach County
pharmacy locations under operating lease agreements expiring in March 2024.
The Company recognized lease costs associated with all leases as follows:
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Operating lease cost:
|
|
|
|
|
|
|
|
|
Fixed rent expense
|
|
$
|
324,174
|
|
|
$
|
337,894
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right of use assets (included in depreciation expense)
|
|
|
25,008
|
|
|
|
62,168
|
|
Interest expense
|
|
|
5,550
|
|
|
|
7,575
|
|
Total Lease Costs
|
|
$
|
354,732
|
|
|
$
|
407,637
|
|
Supplemental cash flow information
related to leases was as follows:
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
141,353
|
|
|
$
|
182,600
|
|
Financing cash flows from finance leases
|
|
|
47,780
|
|
|
|
18,100
|
|
Total cash paid for lease liabilities
|
|
$
|
189,133
|
|
|
$
|
200,700
|
|
Supplemental balance
sheet information related to leases was as follows:
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets, net
|
|
$
|
628,008
|
|
|
$
|
315,868
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
149,850
|
|
|
|
112,210
|
|
Long-term portion
|
|
|
504,786
|
|
|
|
228,772
|
|
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Finance lease right-of-use assets, net
|
|
|
99,596
|
|
|
|
120,500
|
|
|
|
|
|
|
|
|
|
|
Finance lease liabilities:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
67,284
|
|
|
|
85,765
|
|
Long-term portion
|
|
|
64,878
|
|
|
|
91,791
|
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Unaudited Condensed Consolidated Financial Statements
Three
and Nine Months Ended September 30, 2021, and 2020
Maturities of lease liabilities were as follows:
Year Ending December 31,:
|
|
Finance Lease
|
|
|
Operating Lease
|
|
|
Total Future Lease Commitments
|
|
2021 (three months)
|
|
$
|
40,437
|
|
|
$
|
33,548
|
|
|
$
|
73,985
|
|
2022
|
|
|
37,073
|
|
|
|
175,710
|
|
|
|
212,783
|
|
2023
|
|
|
35,662
|
|
|
|
181,787
|
|
|
|
217,449
|
|
2024
|
|
|
20,142
|
|
|
|
144,583
|
|
|
|
164,725
|
|
2025
|
|
|
5,035
|
|
|
|
134,933
|
|
|
|
139,968
|
|
Thereafter
|
|
|
-
|
|
|
|
53,459
|
|
|
|
53,459
|
|
Total lease payments to be paid
|
|
|
138,349
|
|
|
|
724,020
|
|
|
|
862,369
|
|
Less: Future interest expense
|
|
|
(6,187
|
)
|
|
|
(69,384
|
)
|
|
|
(75,571
|
)
|
Lease liabilities
|
|
|
132,162
|
|
|
|
654,636
|
|
|
|
786,798
|
|
Less: current maturities
|
|
|
(67,284
|
)
|
|
|
(149,850
|
)
|
|
|
(217,134
|
)
|
Long-term portion of lease liabilities
|
|
$
|
64,878
|
|
|
$
|
504,786
|
|
|
$
|
569,664
|
|
Note 10. Stockholders’
Equity (Deficiency)
Preferred Stock
The Series A preferred stock is a non-dividend
producing instrument that ranks superior to the Company’s common stock. Each one (1) share of the Series A Preferred Stock shall
have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding Common Stock and Preferred Stock eligible
to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.
With respect to all matters upon which stockholders
are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series A Preferred
Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class
voting is required by applicable law or the Certificate of Incorporation or By-laws.
On July 11, 2014, the board of directors
approved the issuance of 51 shares of the Company’s Series A Preferred Stock to a certain employee of the Company, which is equal
to 50.99% of the total voting power of all issued and outstanding voting capital of the Company in satisfaction of $20,000 in past due
debt. These issued shares of preferred stock are outstanding as of September 30, 2021, and December 31, 2020. On January 7, 2021, the
preferred shares were transferred to a trust whose beneficiary is related to the employee.
Note 11. Commitments and Contingencies
Legal Matters
The Company is subject to claims and
lawsuits that arise primarily in the ordinary course of business. In the opinion of management, the disposition or ultimate resolution
of currently known claims and lawsuits will not have a material adverse effect on the Company’s condensed consolidated financial
position, results of operations or liquidity.
Note
12. Related Party Transactions
During the nine months ended September 30,
2021, and 2020, the Company had a consulting arrangement with Spark Financial Consulting (“Spark”), which is a consulting
company owned by an employee and beneficial shareholder of the Company. Spark provides business development services including but not
limited to recruiting, targeting and evaluation of potential mergers and acquisitions, finding third party contractors and assisting
with related negotiations in exchange for a monthly fee of $16,000 in 2021 and 2020. Additionally, Spark may be entitled to additional
fees for additional consulting services. During the nine months ended September 30, 2021, and 2020, the Company paid Spark $96,000 and
$176,400, respectively. The agreement was terminated during the third quarter of 2021.
The Company has an employment agreement (the
“Agreement”) with a certain pharmacist, Head of the Compounding Department, who is the first paternal cousin to the beneficial
shareholder and employee of the Company. In consideration for duties performed including but not limited to marketing, patient consultation,
formulary development, patient and physician education, training, recruitment, sales management, as well as pharmacist responsibilities,
the Company agreed to provide monthly compensation of $15,000 or $10,000 per month plus 5% commission on monthly gross profits generated
by the Compounding Department, whichever is greater. During the nine months ended September 30, 2021, and 2020, payments to the pharmacist
were $63,495 and $106,550, respectively. The agreement was terminated during the third quarter of 2021.
Note 13. Retirement Plan
The Company sponsors a 401(k) retirement plan
(“the Plan”) covering qualified employees of PharmCo 901, PharmCo 1002 and FPRX, as defined. Employees who have been employed
more than one year are eligible to participate in the Plan. Through March 31, 2021, the Company matched the employee’s contribution
up to a maximum of 3% of the eligible employee’s compensation. The Company contributed approximately $2,200 and $15,800 in matching
contributions for the nine months ended September 30, 2021, and 2020, respectively.
Note 14. Subsequent Events
On October 12, 2021, Iliad Research made a
partial redemption request on its note agreement with Progressive Care. The redemption request resulted in a conversion of $200,000 of
note principal into 7,558,579 shares of Progressive Care common stock.
PROGRESSIVE
CARE INC.
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
To the Board
of Directors
Stockholders
of Progressive Care, Inc.
Hallandale
Beach, FL
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of Progressive Care, Inc. (the “Company”) at December 31, 2020,
and the related consolidated statement operations, deficiency in stockholders equity and cash flows for the year ended December 31, 2020,
and the related notes (collectively referred to as the consolidate financial statements). In our opinion, the consolidate financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations
and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States
of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error ort
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audit included performing procedures to assess the risks of material misstatements of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles
used and significant estimated made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audit provides a reasonable basis for our opinion.
Continued
from previous page
Critical
Audit Matter
The
critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
were communicated or require to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication
of critical audit matters does not alter in any way opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matters below, providing separate opinions on the critical audit mattes or on the accounts or disclosures
to which they relate.
Intangible
Assets Impairment Assessments
As
described in Notes 3 and 6 the consolidated financial statements, the Company has intangible assets and goodwill at December 31, 2020.
In most cases, no directly observable market inputs are available to measure the fair value less costs of disposal that is used to determine
if the asset is impaired. Therefore, an estimate is derived indirectly and is based on net present value techniques utilizing post-tax
cash flows and discount rates. The estimates that management used in calculating the net present values depend on assumptions specific
to the nature of the managements service activities with regard to the amount and timing of projected future cash flows; long-term professional
service forecasts; actions of competitors (competing services), future tax discount rates.
The
principal consideration for our determination that performing procedures relating to the intangible assets impairment assessments is
a critical audit matter is the significant judgement by management when developing the net present value of the intangible assets. This
in turn led to a high degree of auditor judgement, subjectivity, and effort in performing procedures and evaluating management’s
significant assumptions related to the amount and timing of projected future cash flows and the discount rate. In addition, the audit
effort involved the use of professionals with specialized skill and knowledge.
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating
the appropriateness of the net present value techniques; testing the completeness and accuracy of underlying data used in the model;
and evaluating the significant assumptions used by management, including the amount and timing of projected future cash flows and the
discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the discount
rate involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the
intangible assets, the consistency with external market and industry data, and whether these assumptions were consistent with evidence
obtained in other areas of the audit.
We have served
as the Company’s auditor since 2020
/s/ Daszkal
Bolton LLP
Boca Raton,
Florida
March 31,
2021
Progressive
Care Inc. and Subsidiaries
Consolidated
Balance Sheet
December
31, 2020
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,100,695
|
|
Accounts
receivable – trade, net
|
|
|
2,580,509
|
|
Accounts
receivable - other
|
|
|
811,235
|
|
Inventory,
net
|
|
|
945,274
|
|
Prepaid
expenses
|
|
|
466,490
|
|
Total
Current Assets
|
|
|
6,904,203
|
|
Property
and equipment, net
|
|
|
2,532,433
|
|
Other
Assets
|
|
|
|
|
Goodwill
|
|
|
1,387,860
|
|
Intangible
assets, net
|
|
|
247,142
|
|
Right
of use assets, net
|
|
|
436,368
|
|
Deposits
|
|
|
36,401
|
|
Total
Other Assets
|
|
|
2,107,771
|
|
Total
Assets
|
|
$
|
11,544,407
|
|
Liabilities
and Deficiency in Shareholders’ Equity
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
6,551,230
|
|
Notes
payable, net of unamortized debt discount and debt issuance costs
|
|
|
570,914
|
|
Lease
liabilities - current portion
|
|
|
197,975
|
|
Unearned
revenue
|
|
|
450,155
|
|
Derivative
liability
|
|
|
2,043,000
|
|
Total
Current Liabilities
|
|
|
9,813,274
|
|
Long-term
Liabilities
|
|
|
|
|
Notes
payable, net of current portion
|
|
|
3,130,622
|
|
Lease
liabilities - net of current portion
|
|
|
320,563
|
|
Total
Liabilities
|
|
|
13,264,459
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
Deficiency
in Shareholders’ Equity
|
|
|
|
|
Preferred
Stock, Series A par value $0.001; 10,000,000 shares authorized, 51 shares issued and outstanding as of December 31, 2020
|
|
|
-
|
|
Common
stock, par value $0.0001; 1,000,000,000 shares authorized, 485,768,076 issued and outstanding as of December 31, 2020
|
|
|
48,577
|
|
Additional
paid-in capital
|
|
|
6,978,301
|
|
Accumulated
Deficit
|
|
|
(8,746,930
|
)
|
Total
Deficiency in Shareholder’ Equity
|
|
|
(1,720,052
|
)
|
Total
Liabilities and Deficiency in Shareholders’ Equity
|
|
$
|
11,544,407
|
|
See
Accompanying Notes to Consolidated Financial Statements
Progressive
Care Inc. and Subsidiaries
Consolidated
Statement of Operations
Year
Ended December 31, 2020
Revenues,
net
|
|
$
|
38,937,838
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
29,970,337
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,967,501
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
Bad
debt expense
|
|
|
130,792
|
|
Other
selling, general and administrative expense
|
|
|
9,983,528
|
|
Total
Selling, general and administrative expenses
|
|
|
10,114,320
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,146,819
|
)
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
Change
in fair value of derivative liability
|
|
|
814,000
|
|
Gain
on debt extinguishment
|
|
|
592,500
|
|
Interest
income
|
|
|
148
|
|
Interest
expense
|
|
|
(1,702,858
|
)
|
Total
other income (expense) - net
|
|
|
(296,210
|
)
|
Loss
before provision for income taxes
|
|
|
(1,443,029
|
)
|
Provision
for income taxes
|
|
|
(6,780
|
)
|
Net
loss
|
|
$
|
(1,449,809
|
)
|
Basic
and diluted net loss per share of common stock
|
|
$
|
-
|
|
Weighted
average number of shares of common stock outstanding during the year - basic and diluted
|
|
|
462,185,453
|
|
See
Accompanying Notes to Consolidated Financial Statements.
Progressive
Care Inc. and Subsidiaries
Consolidated
Statement of Deficiency in Shareholders’ Equity
Year
Ended December 31, 2020
|
|
Preferred
Series A
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Total
Deficiency In
|
|
|
|
$0.001
Par Value
|
|
|
$0.0001
Par Value
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance,
December 31, 2019
|
|
|
51
|
|
|
$
|
-
|
|
|
|
436,280,944
|
|
|
$
|
43,628
|
|
|
$
|
4,997,391
|
|
|
$
|
(7,297,121
|
)
|
|
$
|
(2,256,102
|
)
|
Issuance
of common stock for settlement of debt principal and interest
|
|
|
|
|
|
|
|
|
|
|
58,487,132
|
|
|
|
5,849
|
|
|
|
1,931,810
|
|
|
|
|
|
|
|
1,937,659
|
|
Issuance
of common stock for services rendered
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
48,100
|
|
|
|
|
|
|
|
48,200
|
|
Rescission
of common stock previously issued in business acquisition
|
|
|
|
|
|
|
|
|
|
|
(10,000,000
|
)
|
|
|
(1,000
|
)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,449,809
|
)
|
|
|
(1,449,809
|
)
|
Balance
December 31, 2020
|
|
|
51
|
|
|
$
|
-
|
|
|
|
485,768,076
|
|
|
$
|
48,577
|
|
|
$
|
6,978,301
|
|
|
$
|
(8,746,930
|
)
|
|
$
|
(1,720,052
|
)
|
See
Accompanying Notes to Consolidated Financial Statements
Progressive
Care Inc. and Subsidiaries
Consolidated
Statement of Cash Flows
Year
Ended December 31,
|
|
2020
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
loss
|
|
$
|
(1,449,809
|
)
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
Depreciation
|
|
|
188,551
|
|
Change
in provision for doubtful accounts
|
|
|
20,200
|
|
Share-based
compensation
|
|
|
48,200
|
|
Amortization
of debt issuance costs and debt discounts
|
|
|
1,247,752
|
|
Gain on
debt extinguishment
|
|
|
(592,500
|
)
|
Amortization
of right of use assets-Finance leases
|
|
|
30,432
|
|
Amortization
of right of use assets-Operating leases
|
|
|
291,437
|
|
Change
in fair value of derivative liability
|
|
|
(814,000
|
)
|
Amortization
of intangible assets
|
|
|
342,200
|
|
Accrued
interest on lease liabilities
|
|
|
20,647
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
Accounts
receivable
|
|
|
(596,008
|
)
|
Inventory
|
|
|
(223,130
|
)
|
Prepaid
expenses
|
|
|
(312,107
|
)
|
Deposits
|
|
|
(14,585
|
)
|
Increase
(decrease) in:
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
3,027,357
|
|
Operating
lease liabilities
|
|
|
(353,273
|
)
|
Unearned
revenue
|
|
|
287,901
|
|
Net
Cash Provided by Operating Activities
|
|
|
1,149,265
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(669,611
|
)
|
Net
Cash (Used in) Investing Activities
|
|
|
(669,611
|
)
|
Cash
Flows from Financing Activities:
|
|
|
|
|
Proceeds
from issuance of notes payable
|
|
|
1,013,900
|
|
Payments
of notes payable
|
|
|
(161,249
|
)
|
Payments
on lease liabilities
|
|
|
(48,247
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
804,404
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,284,058
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
816,637
|
|
Cash
and cash equivalents at end of year
|
|
$
|
2,100,695
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Cash
paid for interest
|
|
$
|
241,781
|
|
Cash
paid for income taxes
|
|
$
|
6,780
|
|
|
|
|
|
|
Supplemental
Schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Adoption
of ASC Topic 842 for operating lease obligations:
|
|
|
|
|
|
|
|
|
|
Right
of use assets
|
|
$
|
694,383
|
|
Lease
liabilities
|
|
$
|
728,828
|
|
Equipment
under capital lease
|
|
$
|
(136,486
|
)
|
Accumulated
depreciation
|
|
$
|
(65,368
|
)
|
Deferred
rent liability
|
|
$
|
(36,285
|
)
|
Debt
principal and interest repaid through conversion into common stock shares
|
|
$
|
1,937,659
|
|
Issuance
of common stock for services rendered
|
|
$
|
48,200
|
|
Insurance
premiums financed through issuance of note payable
|
|
$
|
72,115
|
|
See
Accompanying Notes to Consolidated Financial Statements
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Note 1
Organization & Nature of Operations
Progressive
Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006.
Progressive,
through its wholly-owned subsidiaries, PharmCo, LLC (referred to as “PharmCo 901”), Touchpoint RX, LLC doing business as
PharmCo Rx 1002, LLC (referred to as “PharmCo 1002”), Family Physicians RX, Inc. doing business as PharmCoRx 1103 (referred
to as “FPRX” historically or “PharmCo 1103” currently) (pharmacy subsidiaries collectively referred to as “PharmCo”),
and ClearMetrX Inc. (collectively with all entities referred to as the “Company”, or “we”) is a personalized
healthcare services and technology company that provides prescription pharmaceutical and risk and data management services to healthcare
organizations and providers.
During
December 2020, PharmCo 901 moved the majority of its pharmacy operations from its North Miami Beach, Florida location to a new 11,000
square foot pharmacy facility in Hallandale Beach, Florida. PharmCo 901 will continue to operate an approximately 1,050 square foot pharmacy
at the North Miami Beach, Florida location. PharmCo 901 was formed on November 29, 2005 as a Florida Limited Liability Company and is
a 100% owned subsidiary of Progressive. PharmCo 901 was acquired by Progressive on October 21, 2010. We currently deliver prescriptions
to Florida’s diverse population and ship compounded medications to patients in states where we hold non-resident pharmacy licenses
as well. We hold a community pharmacy permit in Florida and we hold non-resident pharmacy licenses that allow us to dispense to patients
in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Massachusetts, Minnesota, Nevada, New Jersey, New York, Pennsylvania,
Texas, and Utah. In addition to its retail pharmacy license, PharmCo 901 is licensed as a closed door pharmacy, which will enable it
to obtain additional contracts with long-term care facilities.
FPRX
is a pharmacy with locations in Davie and Orlando, Florida that provides PharmCo’s pharmacy services to Broward County, the Orlando/Tampa
corridor, and the Treasure Coast of Florida. Progressive acquired all of the ownership interests in FPRX in a purchase agreement entered
into on June 1, 2019.
PharmCo
1002 is a pharmacy located in Palm Springs, Florida that provides PharmCo’s pharmacy services to Palm Beach, St. Lucie and Martin
Counties, Florida. Progressive acquired all of the ownership interests in PharmCo 1002 in a purchase agreement entered into on July 1,
2018.
RXMD
Therapeutics was formed on October 1, 2019. RXMD Therapeutics had no operating activity in 2020.
ClearMetrX
was formed on June 10, 2020 and provides data analytics and reporting services to support and improve care management for health care
organizations across the country. ClearMetrX also provides third party administration services to 340B covered entities.
Note
2 Basis of Presentation
The
Company’s fiscal year end is December 31. The Company uses the accrual method of accounting.
Note
3 Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Progressive and its wholly-owned subsidiaries. All inter-company accounts and
transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Such estimates and assumptions impact both assets and liabilities, including but not limited
to: net realizable value of accounts receivable and inventories, estimated useful lives and potential impairment of property and equipment,
estimated fair value of derivative liabilities using the Monte Carlo simulation model, fair value of assets acquired and liabilities
assumed in business combinations, and estimates of current and deferred tax assets and liabilities.
Making
estimates requires management to exercise significant judgment. The full extent to which the COVID-19 pandemic will directly or indirectly
impact our business, results of operations and financial condition, including sales, expenses, and reserves and allowances, will depend
on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the
actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, and national customers and markets.
We have made estimates of the impact of COVID-19 within our consolidated financial statements and there may be changes to those estimates
in future periods. Actual results may differ from these estimates.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Cash and
Cash Equivalents
The
Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed federally insured limits. The Company
had $989,759 in excess cash at December 31, 2020. The Company has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk associated with its cash and cash equivalent balances, since our deposits are held with
high quality financial institutions that are well capitalized,
Cash
Equivalents: The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash
equivalents. As of December 31, 2020, the Company’s cash equivalents consist of a money market account.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade
accounts receivable are stated at the invoiced amount. Trade accounts receivable primarily include amounts from third-party pharmacy
benefit managers and insurance providers and are based on contracted prices. Trade accounts receivable are unsecured and require no collateral.
The Company recorded an allowance for doubtful accounts for estimated differences between the expected and actual payment of accounts
receivable. These reductions were made based upon reasonable and reliable estimates that were determined by reference to historical experience,
contractual terms, and current conditions. Each quarter, the Company reevaluates its estimates to assess the adequacy of its allowance
and adjusts the amounts as necessary. Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Risks
and Uncertainties
The
Company’s operations are subject to intense competition, risk and uncertainties including financial, operational, regulatory and
other risks including the potential risk of business failure.
Billing
Concentrations
The
Company’s trade receivables are primarily from prescription medications billed to various insurance providers. Ultimately, the
insured is responsible for payment should the insurance company not reimburse the Company. The Company generated reimbursements from
three significant insurance providers for the year ended December 31, 2020:
Payors
|
|
|
|
A
|
|
|
22
|
%
|
B
|
|
|
15
|
%
|
C
|
|
|
13
|
%
|
The
Company generated reimbursements from three significant pharmacy benefit managers (PBMs) for the year ended December 31, 2020:
Inventory
Inventory
is valued on a lower of first-in, first-out (FIFO) cost or net realizable value basis. Inventory primarily consists of prescription medications,
pharmacy supplies, and retail items. The Company provides a valuation allowance for obsolescence and slow-moving items. The Company recorded
an allowance for obsolescence of $40,000 as of December 31, 2020.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Property
and Equipment
Property
and equipment are recorded at cost or fair value if acquired as part of a business combination. Property and equipment are depreciated
or amortized using the straight-line method over their estimated useful lives. Upon the retirement or disposition of property and equipment,
the related cost and accumulated depreciation or amortization are removed, and a gain or loss is recorded, when appropriate. Expenditures
for maintenance and repairs are charged to expense as incurred.
Depreciation
is computed on a straight-line basis over estimated useful lives as follows:
Description
|
|
Estimated
Useful Life
|
Building
|
|
40 years
|
Leasehold improvements and fixtures
|
|
Lesser of estimated useful life or life of lease
|
Furniture and equipment
|
|
5 years
|
Computer equipment and software
|
|
3 years
|
Vehicles
|
|
3-5 years
|
Property
and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. There were no impairment charges for the year ended December 31, 2020.
Business
acquisitions
The
Company records business acquisitions using the acquisition method of accounting. All of the assets acquired, liabilities assumed, and
contractual contingencies are recognized at their fair value on the acquisition date. The application of the acquisition method of accounting
for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of
assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated
and amortized and goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assets
and liabilities is recorded as goodwill. Acquisition-related expenses and restructuring costs are recognized separately from the business
combination and are expensed as incurred.
Goodwill
Goodwill
represents the excess of the purchase price of FPRX and PharmCo 1002 over the value assigned to their net tangible and identifiable intangible
assets. FPRX and PharmCo 1002 are considered to be the reporting units for goodwill. Acquired intangible assets other than goodwill are
amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination,
the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the
market approach, income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible
assets are tested annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances indicate
that the assets may be impaired.
For
both reporting units in 2020, we qualitatively assessed whether it is more likely than not that the respective fair values of the reporting
units are less than their carrying amounts, including goodwill. Based on that assessment, we determined that this condition for the PharmCo
1002 reporting unit does not exist. As such, performing the first step of the two-step impairment test for the PharmCo 1002 reporting
unit was not necessary.
For
the FPRX reporting unit, we determined that it was more likely than not that the fair value of this reporting unit may be less than its
carrying amount and therefore determined that step one of the two-step impairment test was necessary. We compared the fair value of the
FPRX reporting unit, inclusive of assigned goodwill, to its carrying amount. We estimated the fair value of the FPRX reporting unit by
weighting results from the market approach and the income approach. Significant assumptions inherent in the valuation methodologies for
goodwill are employed and include, but are not limited to, prospective financial information, growth rates, terminal value, discount
rates, and comparable multiples from publicly traded companies in our industry. Based on this quantitative test, we determined that the
fair value of the FPRX reporting unit exceeded its carrying amount and, therefore, we concluded that goodwill was not impaired in 2020.
Intangible
Assets
Amortizing
identifiable intangible assets generally represent the cost of client relationships and tradenames acquired, as well as non-compete agreements
to which the Company is a party. In valuing these assets, the Company makes assumptions regarding useful lives and projected growth rates,
and significant judgment is required. The Company periodically reviews its identifiable intangible assets for impairment as events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of those assets
exceed their respective fair values, additional impairment tests are performed to measure the amount of the impairment losses, if any.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Fair Value
Measurements
Financial
Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 820 establishes a framework for measuring
fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to
valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value
measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the
fair value hierarchy are as follows:
Level
1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and
equity securities (both common stock and preferred stock) that are traded in an active exchange market, as well as U.S. Treasury securities.
Level
2: Unadjusted observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for the assets or
liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded
instruments. This category generally includes certain U.S. Government, agency mortgage-backed debt securities, non-agency structured
securities, corporate debt securities and preferred stocks.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant
unobservable inputs.
The
following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring
basis as of December 31, 2020:
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Balance
at December 31, 2020
|
|
|
Total
Gains (Losses)
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,043,000
|
|
|
$
|
2,043,000
|
|
|
$
|
814,000
|
|
Total gains
for the year ended December 31, 2020 are included in net loss for the period.
The
following table is a reconciliation of the opening and closing balances for assets and liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) during the year ended December 31, 2020.
|
|
Derivative
Liabilities
|
|
|
Total
|
|
Opening balance December 31, 2019
|
|
$
|
2,857,000
|
|
|
$
|
2,857,000
|
|
Transfers into (out of) Level 3
|
|
|
-
|
|
|
|
-
|
|
Total (gains) or losses for the year
|
|
|
|
|
|
|
|
|
Included
in net loss for the year
|
|
|
(814,000
|
)
|
|
|
(814,000
|
)
|
Closing balance December 31, 2020
|
|
$
|
2,043,000
|
|
|
$
|
2,043,000
|
|
Fair Value
of Financial Instruments
The
Company’s financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities,
capital lease obligations, and notes payable. The carrying amounts of the Company’s financial instruments other than notes payable
and capital lease obligations generally approximate their fair values at December 31, 2020 due to the short-term nature of these instruments.
The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company
could obtain in current financing. The carrying value of the capital lease obligations approximate fair value due to the implicit rate
in the lease in relation to the Company’s borrowing rate and the duration of the leases.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Derivative
Liabilities
U.S.
GAAP requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and
their measurement at fair value. In assessing the convertible debt instruments, management determines if the conversion feature requires
bifurcation from the host instrument and recording of the bifurcated derivative instrument at fair value.
Once
derivative liabilities are determined, they are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease
in the fair value is recorded in results of operations as an adjustment to fair value of derivatives. The fair value of these derivative
instruments is determined using the Monte Carlo Simulation Model.
Revenue
Recognition
The
Company recognizes pharmacy revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or
when a customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers
to the customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments
are received directly from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For
third party medical insurance and other claims, authorization to ensure payment is obtained from the customer’s insurance provider
before the medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization
number is issued by the customers’ insurance provider.
The
Company records unearned revenue for prescriptions that are filled but not yet delivered at period-end. Billings for most prescription
orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are nominal. Pharmacy revenues
exceeded 91% of total revenue for the year ended December 31, 2020.
The
Company accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or
expected to be assessed by payers at some point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized.
Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
The
following table disaggregates net revenue by categories for the year ended December 31, 2020:
Prescription revenue
|
|
$
|
36,898,020
|
|
340B contract revenue
|
|
|
2,837,085
|
|
Testing revenue
|
|
|
599,851
|
|
Rent revenue
|
|
|
13,136
|
|
Subtotal
|
|
|
40,348,092
|
|
PBM fees
|
|
|
(1,403,966
|
)
|
Sales returns
|
|
|
(6,288
|
)
|
Revenues, net
|
|
$
|
38,937,838
|
|
Cost of
Revenue
Cost
of pharmacy revenue is derived based upon vendor purchases relating to prescriptions sold and point-of-sale scanning information for
non-prescription sales and is adjusted based on periodic inventories. All other costs related to revenues are expensed as incurred.
DIR
Fees
The
Company reports Direct and Indirect Remuneration (“DIR”) fees as a reduction of revenue on the accompanying Consolidated
Statement of Operations. DIR Fees are fees charged by Pharmacy Benefit Managers (“PBMs”) to pharmacies for network participation
as well as periodic reimbursement reconciliations. For some PBMs, DIR fees are charged at the time of the settlement of a pharmacy claim.
Other PBMs do not determine DIR fees at the claim settlement date, and therefore DIR fees are collected from pharmacies after claim settlement,
often as clawbacks of reimbursements based on factors that vary from plan to plan. For example, two PBMs calculate DIR fees on a trimester
basis and charge the Company for these fees as reductions of reimbursements paid to the Company 2-3 months after the end of the trimester
(e.g., DIR fees for January – April 2020 claims were charged by these PBMs in July – August 2020). For DIR fees that are
not collected at the time of claim settlement, the Company records an accrued liability at each reporting date for estimated DIR fees
that are expected to be collected by the PBMs in a future period. The estimated liability for these fees is highly subjective and the
actual amount collected may differ from the accrued liability. The uncertainty of management’s estimates is due to inadequate disclosure
to the Company by the PBMs as to exactly how these fees are calculated either at the time the DIR fees are actually assessed and reported
to the Company. The detail level of the disclosure of assessed DIR fees varies based on the information provided by the PBM.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Vendor
Concentrations
For
the year ended December 31, 2020, the Company had significant vendor concentrations with one vendor. The purchases from this significant
vendor were 95 % of total vendor purchases in 2020.
Selling,
General and Administrative Expenses
Selling
expenses primarily consist of store salaries, contract labor, occupancy costs, and expenses directly related to the stores. General and
administrative costs include advertising, insurance, professional fees, and depreciation and amortization.
Advertising
Costs
incurred for producing and communicating advertising for the Company are charged to operations as incurred. Advertising expense was $204,399
for the year ended December 31, 2020.
Share-Based
Payment Arrangements
Generally,
all forms of share-based payments, including warrants, are measured at their fair value on the awards’ grant date typically using
a Black-Scholes pricing model, based on the estimated number of awards that are ultimately expected to vest. The costs associated with
share-based compensation awards to employees and non-employee directors are measured at the grant date based on the calculated fair value
of the award and recognized as an expense ratably over the recipient’s requisite service period during which that award vests or
becomes unrestricted. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value
of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The shares are subsequently
re-measured at their fair value at each reporting date over the service period of the awards. The expense resulting from share-based
payments is recorded in selling, general and administrative expenses in the Consolidated Statement of Operations.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Progressive
Care Inc., RXMD Therapeutics and PharmCoRx 1103 are taxed as C corporations. PharmCo 901 and PharmCo 1002 are taxed as partnerships,
wherein each member is responsible for the tax liability, if any, related to its proportionate share of PharmCo 901 and PharmCo 1002’s
taxable income. Progressive Care Inc. has a 100% ownership interest in PharmCo 901 and PharmCo 1002; therefore, all of PharmCo 901 and
PharmCo 1002’s taxable income attributable to the period of ownership is included in Progressive Care Inc.’s taxable income.
The
provision for income taxes for the year ended December 31, 2020 on the Consolidated Statement of Operations represents the minimum state
corporate tax payments. There was no current tax provision for the year ended December 31, 2020 because the Company did not have taxable
income for 2020. Total available net operating losses to be carried forward to future taxable years was approximately $9.3 million as
of December 31, 2020, $6.0 million of which will expire in various years through 2038. The temporary differences giving rise to deferred
income taxes principally relate to accelerated depreciation on property and equipment and amortization of goodwill recorded for tax purposes,
reserves for estimated doubtful accounts and inventory obsolescence and net operating losses recorded for financial reporting purposes.
The Company’s net deferred tax asset at December 31, 2020 was fully offset by a 100% valuation allowance as it was not more likely
than not that the tax benefits of the net deferred tax asset would be realized. The change in the valuation allowance was approximately
$471,000 for the year ended December 31, 2020.
The
Company accounts for uncertainty in income taxes by recognizing a tax position in the consolidated financial statements only after determining
that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more
likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than
50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company records interest and penalties
related to tax uncertainties, if any, as income tax expense. Based on management’s evaluation, the Company does not believe it
has any uncertain tax positions during the year ended December 31, 2020.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Earnings
(Loss) per Share
Basic
earnings(loss) per share (“EPS”) is computed by dividing net income available to common stock shareholders by the weighted
average number of shares of common stock outstanding during the year, excluding the effects of any potentially dilutive securities. Diluted
EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the
treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from
the exercise of stock warrants), and convertible debt, using the if converted method. Diluted EPS excludes all dilutive potential of
shares of common stock if their effect is anti-dilutive. The effect of including common stock equivalents in weighted average shares
of common stock outstanding for 2020 is anti-dilutive, and therefore a separate computation of diluted earnings per share for 2020 is
not presented.
Recently
Adopted Accounting Standards
Lease
Accounting
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), to provide a new comprehensive
model for lease accounting. Under this guidance, lessees and lessors should apply a “right-of-use” model in accounting
for all leases (including subleases) and eliminate the concept of operating leases as off-balance sheet lease arrangements. Recognition,
measurement, and presentation of expenses will depend on classification as a finance or operating lease. Topic 842 establishes a right-of-use
model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the Consolidated Balance Sheet for all leases with
a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the recognition, measurement,
and presentation of expenses in the income statement. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted
Improvements.
In
adopting Topic 842, a modified retrospective transition approach is required, applying the new standard to all leases existing at the
date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition
requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The
entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the
comparative periods. The Company adopted the guidance in Topic 842 on January 1, 2020 (“the transition date”) and we elected
to adopt the transition relief provisions from ASU 2018-11 to use this date as our date of initial application. Consequently, financial
information has not been updated and the disclosures required under Topic 842 have not been provided for dates and periods before January
1, 2020. There was no material cumulative effect adjustment to the opening balance of accumulated deficit required.
Topic
842 provides a number of optional practical expedients in transition. We have elected all of Topic 842’s available transition practical
expedients which permit us not to reassess under Topic 842 our prior conclusions about lease identification, lease classification and
initial direct costs. We did not elect the practical expedient pertaining to land easements as it is not applicable to us. We have also
elected the practical expedient for short-term lease recognition exemption for two of our real estate leases. This means that for these
leases we will not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected
the practical expedient to not separate lease and non-lease components for all of our leases.
Goodwill
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment
charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated
to that reporting unit. This guidance is effective for the Company’s fiscal year ending December 31, 2020 and should be applied
prospectively. The adoption of this guidance on January 1, 2020 did not have a material effect on the Company’s consolidated financial
statements.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Stock
Compensation
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment
Accounting, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance
for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee
awards will be fixed at the grant date. This guidance is effective for the Company’s fiscal year ending December 31, 2020 and interim
periods within fiscal years beginning after December 15, 2020. The adoption of this guidance on January 1, 2020 did not have a material
effect on the Company’s consolidated financial statements.
Fair
Value
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 82)): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement, which modified the disclosure requirements on fair value measurements found with ASC Topic 820,
Fair Value Measurements. Specifically, the following disclosure requirements were removed from ASC 820:
|
●
|
The
amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.
|
|
|
|
|
●
|
The
policy for timing of transfers between levels.
|
|
|
|
|
●
|
The
valuation processes for Level 3 fair value measurements.
|
The
following disclosure requirements were added to ASC 820:
|
●
|
The
changes in unrealized gains and losses for the period included in OCI for recurring Level
3 fair value measurements held at the end of the reporting period.
|
|
|
|
|
●
|
The
range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements.
|
ASU
2018-13 was effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2019. However, early adoption was permitted. The Company has adopted the modified disclosure requirements in its annual and interim financial
statements for the year ended December 31, 2020.
Accounting
Standards Issued but Not Yet Adopted
Income
Taxes
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which removes
certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12
is required to be adopted for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after
December 15, 2022. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this guidance on the
Company’s consolidated financial statements.
Debt
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity, which among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance
of a convertible debt instrument. As a result, after adopting the ASU’s guidance, entities will not separately present in
equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and
for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains
features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium.
The standard becomes effective for the Company in the first quarter of 2022 and early adoption is permitted. Management is
currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.
Management
has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant
impact on the Company’s consolidated financial statements.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Note
4. Accounts Receivable – Trade, net
Accounts
receivable consisted of the following at December 31, 2020:
Gross accounts receivable -
trade
|
|
$
|
2,686,009
|
|
Less: Allowance for
doubtful accounts
|
|
|
(105,500
|
)
|
Accounts receivable
– trade, net
|
|
$
|
2,580,509
|
|
For
the year ended December 31, 2020, the Company recognized bad debt expense in the amount of $130,792.
Note 5.
Property and Equipment, net
Property
and equipment, net consisted of the following at December 31, 2020:
Building
|
|
$
|
1,651,069
|
|
Building improvements
|
|
|
437,733
|
|
Land
|
|
|
184,000
|
|
Leasehold improvements and
fixtures
|
|
|
385,902
|
|
Furniture and equipment
|
|
|
330,291
|
|
Computer equipment and software
|
|
|
101,230
|
|
Vehicles
|
|
|
108,011
|
|
Website
|
|
|
67,933
|
|
Total
|
|
|
3,266,169
|
|
Less:
accumulated depreciation
|
|
|
(872,198
|
)
|
Subtotal
|
|
|
2,393,971
|
|
Construction
in progress
|
|
|
138,462
|
|
Property
and equipment, net
|
|
$
|
2,532,433
|
|
Depreciation
expense for the year ended December 31, 2020 was 188,551.
Note 6.
Intangible Assets
Intangible
assets consisted of the following at December 31, 2019:
Trade names
|
|
$
|
362,000
|
|
Pharmacy records
|
|
|
263,000
|
|
Non-compete agreements
|
|
|
166,000
|
|
Subtotal
|
|
|
791,000
|
|
Less
accumulated amortization
|
|
|
(543,858
|
)
|
Net intangible assets
|
|
$
|
247,142
|
|
Amortization
of intangible assets amounted to $342,200 for 2020. The following table represents the total estimated amortization of intangible assets
for the five succeeding years:
Year
|
|
|
Amount
|
|
2021
|
|
|
$
|
163,700
|
|
2022
|
|
|
|
36,200
|
|
2023
|
|
|
|
36,200
|
|
2024
|
|
|
|
11,042
|
|
Total
|
|
|
$
|
247,142
|
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Note
7. Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consisted of the following at December 31, 2020:
Accounts payable - trade
|
|
$
|
5,157,472
|
|
Accrued payroll and payroll taxes
|
|
|
114,851
|
|
Accrued interest payable
|
|
|
574,512
|
|
Accrued DIR fees and other PBM fees
|
|
|
477,053
|
|
Other accrued liabilities
|
|
|
227,342
|
|
Totals
|
|
$
|
6,551,230
|
|
Note
8. Notes Payable
Notes
payable consisted of the following at December 31, 2020:
A. Convertible
notes payable - collateralized
|
|
$
|
2,878,619
|
|
B. Mortgage note payable –
commercial lender - collateralized
|
|
|
1,376,826
|
|
C. Note payable – uncollateralized
|
|
|
25,000
|
|
D. Note payable - collateralized
|
|
|
59,094
|
|
E. U.S. CARES Act PPP Loans
- uncollateralized
|
|
|
421,400
|
|
Insurance
premium financing
|
|
|
31,148
|
|
Subtotal
|
|
|
4,792,087
|
|
Less
Unamortized debt discount
|
|
|
(953,846
|
)
|
Less
Unamortized debt issuance costs
|
|
|
(3,909
|
)
|
Less
Unamortized investment length premium
|
|
|
(132,796
|
)
|
Total
|
|
|
3,701,536
|
|
Less:
Current portion of notes payable
|
|
|
(570,914
|
)
|
Long-term
portion of notes payable
|
|
$
|
3,130,622
|
|
The
corresponding notes payable above are more fully discussed below:
(A)
Convertible Notes Payable – collateralized
Chicago
Venture Partners, L.P.
On
January 2, 2019, Progressive entered a Securities Purchase Agreement (the “Purchase Agreement”) with Chicago Venture Partners,
L.P. (“Chicago Venture”), a Utah limited partnership, in the amount of $2,710,000, which included a $200,000 Original Issue
Discount (“OID”) and $10,000 in debt issuance costs for the transaction. The note is comprised of seven tranches consisting
of an initial tranche in the amount of $1,090,000 and six additional tranches each in the amount of $270,000. The initial tranche consisted
of the initial cash purchase price of $1,090,000, $80,000 of the OID and the debt issuance costs of $10,000. The remaining OID will be
allocated $20,000 to each of the remaining six tranches. The note was convertible into shares of common stock ($0.0001 par value per
share) at the average of the five lowest closing trading prices during the twenty trading days immediately preceding the applicable conversion.
The note accrued interest at the rate of 9% per annum. Progressive received the initial tranche of $1,090,000 at the closing of the transaction,
which included $90,000 of OID and legal costs. Progressive granted the Investor a security interest in all right, title, interest and
claims of Progressive. On October 25, 2019, the Company drew down the second tranche against the note in the amount of $162,000, which
included $12,000 of the OID.
On
October 25, 2019, the Company drew down the second tranche against the note in the amount of $162,000, which included $12,000 of the
OID.
The
note balance was satisfied through a series of redemption notices for conversion of note principal and accrued interest into shares of
Progressive common stock at various conversion rates, the determination of which is explained in the preceding paragraph. The last redemption
request and conversion of note principal and accrued interest was completed on November 3, 2020. The balance of the Chicago Venture note
was $0 at December 31, 2020.
The
Company has identified conversion features embedded within the Chicago Venture note. The Company has determined that the conversion features
represent an embedded derivative. Accordingly, the embedded conversion feature was bifurcated from the debt host and accounted for as
a derivative liability. On January 2, 2019, the Company recorded a derivative liability on the note in the amount of $571,000. For the
year ended December 31, 2020, the Company recorded a Change in Fair Value of the Derivative Liability in the amount of $758,000. The
derivative liability balance on the Consolidated Balance Sheet at December 31, 2020 was $0.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
At
inception, the fair value of the derivative instrument has been recorded as a liability on the Consolidated Balance Sheets with the corresponding
amount recorded as a discount to the note. The discount was accreted from the issuance date through settlement of the note on November
3, 2020, with a corresponding charge to interest expense. The change in the fair value of the derivative liability was recorded in other
income or expenses in the Consolidated Statement of Operations at the end of 2020, with the offset to the derivative liability on the
consolidated balance sheet as of December 31, 2020. The fair value of the embedded derivative liability was determined using the Monte
Carlo Simulation model on the issuance date.
Debt
Issuance Costs and Debt Discount:
Debt
Issuance Costs consist of fees incurred through securing financing from Chicago Venture on January 2, 2019. Debt Discount consists of
the discount recorded upon recognition of the derivative liability upon issuance of the first tranche. Debt issuance costs and debt discount
are amortized to interest expense over the term of the related debt using the effective interest method. Total amortization expense for
the year ended December 31, 2020 was $452,525.
Iliad
Research and Trading, L.P.
On
March 6, 2019, Progressive entered a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading,
L.P. (“Iliad Research”), a Utah limited partnership, in the amount of $3,310,000, which included a $300,000 Original Issue
Discount (“OID”) and $10,000 in debt issuance costs for the transaction. The note is comprised of two tranches consisting
of an initial tranche in the amount of $2,425,000 and a second tranche in the amount of $885,000. The initial tranche consisted of the
initial cash purchase price of $2,425,000, $115,000 of the OID and the debt issuance costs of $10,000. The remaining OID of $185,000
has been allocated to the second tranche. The note is convertible into shares of common stock ($0.0001 par value per share) in 1 year
at the average of the two lowest closing trading prices during the twenty trading days immediately preceding the applicable conversion.
The note matures on March 6, 2022 (the “Maturity Date”). The note accrues interest at the rate of 10% per annum and the entire
unpaid principal balance plus all accrued and unpaid interest are due on the Maturity Date.
Progressive
received the initial tranche of $2,425,000 at the closing of the transaction, which included $115,000 of OID and legal costs. Progressive
granted the Investor a security interest in all right, title, interest and claims of Progressive. PharmCo 901 has agreed to guarantee
Progressive’s obligations under the Purchase Agreement, the note and the Security Agreement by entering into a Guaranty Agreement
in favor of Iliad Research. Pursuant to the Guaranty Agreement, Progressive has agreed to pay to PharmCo 901 10% of all proceeds it received
from Iliad Research, as consideration to secure Progressive’s obligations. Progressive used the net proceeds as part of the total
purchase price of the acquisition of 100% of the FPRX ownership interests.
The
first tranche of $2,425,000 less the OID and debt issuance costs was disbursed and held in escrow by Iliad Research on March 6, 2019.
$1 million of the escrow deposit was disbursed to the owners of FPRX at the purchase closing date, June 1, 2019. The second tranche of
$885,000 less the OID was disbursed to Progressive on June 4, 2019 and was used to complete the total purchase price of the FPRX acquisition.
On November 8, 2019, the Company entered into an amendment of the FPRX Purchase Agreement, which in part included a reduction of the
purchase price. As a result of the amended Purchase Agreement, the Company returned $400,000 of the second tranche to Iliad Research
and Trading, L.P. on November 12, 2019.
An
investment length premium in the amount of $168,619 was applied to the outstanding balance of the Iliad Research note in September 2020.
The investment length premium was calculated at a 5% premium on the outstanding note balance when the note was still outstanding at (a)
eighteen months from the effective date, (b) twenty-four months from the effective date, and (c) thirty months from the effective date.
The
balance outstanding on the Iliad Research note payable was $2,878,619 at December 31, 2020. Accrued interest on the note payable at December
31, 2020 was $574,512 and such amount is included in accounts payable and accrued liabilities in the accompanying Consolidated Balance
Sheet.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
The
Company has identified conversion features embedded within the Iliad Research note. The Company has determined that the conversion features
represent an embedded derivative. Accordingly, the embedded conversion feature was bifurcated from the debt host and accounted for as
a derivative liability. On March 6, 2019, the Company recorded a derivative liability on the first tranche in the amount of $1,351,000.
On June 4, 2019, the Company recorded a derivative liability on the second tranche in the amount of $614,000. For the year ended December
31, 2020, the Company recorded a Change in Fair Value of the Derivative Liability in the amount of $814,000. The derivative liability
balance on the Iliad Research note at December 31, 2020 was $2,043,000.
At
inception, the fair value of the derivative instrument has been recorded as a liability on the consolidated balance sheets with the corresponding
amount recorded as a discount to the note. The discount was accreted from the issuance date to December 31, 2020, with a corresponding
charge to interest expense. The change in the fair value of the derivative liability was recorded in other income or expenses in the
consolidated statement of operations at the end of 2020, with the offset to the derivative liability on the consolidated balance sheets.
The fair value of the embedded derivative liability was determined using the Monte Carlo Simulation model on the issuance date.
Debt
Issuance Costs, Debt Discount and Investment Length Premium:
Debt
Issuance Costs consist of fees incurred through securing financing from Iliad Research on March 6, 2019. Debt Discount consists of the
discount recorded upon recognition of the derivative liability upon issuance of the first and second tranches. Investment length premium
is calculated at a 5% premium on the outstanding balance when the note is still outstanding at (a) eighteen months from the effective
date, (b) twenty-four months from the effective date, and (c) thirty months from the effective date.
Debt
issuance costs, debt discount and investment length premium are amortized to interest expense over the term of the related debt using
the effective interest method. Total amortization expense for the year ended December 31, 2020 was $795,227.
(B)
Mortgage Note Payable – collateralized
In
2018, PharmCo 901 closed on the purchase of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase
price was financed in part through a mortgage note and security agreement entered into with a commercial lender in the amount of $1,530,000.
The promissory note is collateralized by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December
14, 2028 and is subject to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began
in January 2019, with the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed
by Progressive Care Inc. The balance outstanding on the mortgage payable was $1,376,826 at December 31, 2020.
(C)
Note Payable – Uncollateralized
As
of December 31, 2020, the uncollateralized note payable represents a non-interest-bearing loan that is due on demand from an investor.
(D)
Note Payable – Collateralized
In
September 2019, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to pay off a capital
lease obligation on pharmacy equipment in the amount of $85,429. The terms of the promissory note payable require 48 monthly payments
of $2,015, including interest at 6.5%. The balance outstanding on the note payable was $59,093 at December 31, 2020. The promissory note
is secured by equipment with a net book value of $55,217 at December 31, 2020.
(E)
U.S. CARES Act PPP Loans – Uncollateralized
On
various dates in April and May 2020, the Company received loan proceeds in the amount of $1,013,900 under the Paycheck Protection Program
(“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“U.S. CARES Act”),
provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.
The loans and accrued interest are forgivable after eight-weeks or twenty-four-weeks as long as the borrower uses the loan proceeds for
eligible purposes, including payroll, mortgage interest payments, employee benefits, rent and utilities, and maintains its payroll levels.
The PPP loan regulations were later revised to allow the borrower the option of costs incurred over a twenty-four week period to determine
loan forgiveness. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the
eight-week or twenty-four week periods. The unforgiven portion of the PPP loans are payable over two years at an interest rate of 1%,
with a deferral of payments for the first six months. Thereafter, any unforgiven principal and interest are payable in 18 equal
monthly installments.
During
the period from March 2020 to August 2020, the Company used the entire proceeds for qualifying expenses. Therefore, the Company applied
for forgiveness of the PPP loans. On November 10, 2020, the Company received notification from the lender that the U.S. Small Business
Administration approved the forgiveness of the U.S. CARES Act PPP Loans for PharmCo 901 in the amount of $511,000 and PharmCo 1002 in
the amount of $81,500. The total debt forgiveness in the amount of $592,500 was recorded as a gain on debt extinguishment in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2020.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
The
Company has applied for forgiveness of the PPP loan received by PharmCo 1103 in April 2020 in the amount of $421,400 and on January 7,
2021 received notification from the lender that the U.S. Small Business Administration approved the forgiveness of the U.S. CARES Act
PPP Loan for PharmCo 1103. The total debt forgiveness in the amount of $421,400 will be recorded as a gain on debt extinguishment in
the Company’s Consolidated Statement of Operations during the first quarter of 2021.
On
December 27, 2020, a supplemental appropriations bill was signed into law that provided additional COVID-19 relief in the form of added
Paycheck Protection Program (PPP) funds for businesses and organizations needing either a first loan or a second round of funding. We
applied for an additional PPP loan in the amount of $421,400 under the new law for PharmCo 1103. The loan was approved, and we received
the funds on February 16, 2021. The funds will be used for eligible purposes, including payroll, mortgage interest payments, employee
benefits, rent and utilities, and to maintain payroll levels.
Future
principal maturities of notes payable are as follows:
Year
|
|
|
Amount
|
|
2021
|
|
|
$
|
570,914
|
|
2022
|
|
|
|
2,983,632
|
|
2023
|
|
|
|
102,386
|
|
2024
|
|
|
|
90,856
|
|
2025
|
|
|
|
95,267
|
|
Thereafter
|
|
|
|
949,032
|
|
Total
|
|
|
$
|
4,792,087
|
|
Interest
expense on these notes payable exclusive of debt discount and debt issue cost amortization, was $445,341 for the year ended December
31, 2020.
Note
9. Lease Obligations
The
Company has entered into a number of lease arrangements under which we are the lessee. Three of our leases are classified as finance
leases and three of our leases are classified as operating leases. In addition, we have elected the short-term lease practical expedient
in ASC Topic 842 related to real estate leases with terms of one year or less and short-term leases of equipment used in our pharmacy
locations. The following is a summary of our lease arrangements.
Finance
Leases
In
May 2018, the Company entered into a finance lease obligation to purchase pharmacy equipment with a cost of $114,897. The terms of the
lease agreement require monthly payments of $1,678 plus applicable tax over 84 months ending March 2025 including interest at the rate
of 6%. The finance lease obligation is secured by equipment with a net book value of $ 71,118 as of December 31, 2020.
The
Company assumed an equipment finance lease obligation for medication dispensing equipment from the acquisition of PharmCo 1002 in July
2018. The lease expires in March 2022 and required monthly installments of $2,855 including interest at the rate of 2.36%. The finance
lease obligation was secured by equipment with a net book value of $0 as of December 31, 2020.
In
December 2020, the Company entered into an interest-free finance lease obligation to purchase computer servers with a cost of $50,793.
The terms of the lease agreement require monthly payments of $1,411 plus applicable tax over 36 months ending November 2023. The finance
lease obligation is secured by equipment with a net book value of $ 49,382 as of December 31, 2020.
Operating
Leases
The
Company entered into a lease agreement for its Orlando pharmacy on August 1, 2020. The lease commencement date was August 1, 2020. The
term of the lease is 66 months with a termination date of February 1, 2026. The lease agreement calls for monthly payments beginning
February 1, 2021 of $4,310, with an escalating payment schedule each year thereafter. The Company also leases its Davie and Palm Beach
County pharmacy locations under operating lease agreements expiring in various months through August 2021. The Company’s office
space rentals are subject to scheduled fixed rent increases throughout the terms of the related leases.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
The
Company recognized lease costs associated with all leases for the year ended December 31, 2020 as follows:
Operating lease cost:
|
|
|
|
Fixed rent
expense
|
|
$
|
428,838
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right
of use assets (included in depreciation expense)
|
|
|
30,432
|
|
Interest expense
|
|
|
9,748
|
|
Total
Lease Costs
|
|
$
|
469,018
|
|
Supplemental cash
flow information related to leases was as follows:
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
|
|
Operating
cash flows from operating leases
|
|
$
|
353,273
|
|
Financing cash
flows from finance leases
|
|
|
48,247
|
|
Total
cash paid for lease liabilities
|
|
$
|
401,520
|
|
Supplemental
balance sheet information related to leases was as follows:
Operating leases:
|
|
|
|
Operating
lease right-of-use assets, net
|
|
$
|
365,250
|
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
|
|
Current portion
|
|
|
112,210
|
|
Long-term portion
|
|
|
228,772
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
Finance lease right-of-use
assets, net
|
|
|
71,118
|
|
|
|
|
|
|
Finance lease liabilities:
|
|
|
|
|
Current portion
|
|
|
85,765
|
|
Long-term portion
|
|
|
91,791
|
|
Maturities
of lease liabilities were as follows:
Year
Ending December 31,:
|
|
Finance
Lease
|
|
|
Operating
Lease
|
|
|
Total
Future Lease Commitments
|
|
2021
|
|
$
|
92,434
|
|
|
$
|
124,845
|
|
|
$
|
217,279
|
|
2022
|
|
|
37,073
|
|
|
|
58,503
|
|
|
|
95,576
|
|
2023
|
|
|
35,662
|
|
|
|
60,746
|
|
|
|
96,408
|
|
2024
|
|
|
20,142
|
|
|
|
62,568
|
|
|
|
82,710
|
|
2025
|
|
|
5,035
|
|
|
|
64,445
|
|
|
|
69,480
|
|
Thereafter
|
|
|
-
|
|
|
|
5,384
|
|
|
|
5,384
|
|
Total lease payments to be
paid
|
|
|
190,346
|
|
|
|
376,491
|
|
|
|
566,837
|
|
Less:
Future interest expense
|
|
|
(12,790
|
)
|
|
|
(35,509
|
)
|
|
|
(48,299
|
)
|
Lease liabilities
|
|
|
177,556
|
|
|
|
340,982
|
|
|
|
518,538
|
|
Less:
current maturities
|
|
|
(85,765
|
)
|
|
|
(112,210
|
)
|
|
|
(197,975
|
)
|
Long-term
portion of lease liabilities
|
|
$
|
91,791
|
|
|
$
|
228,772
|
|
|
$
|
320,563
|
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Note
10. Deficiency in Shareholders’ Equity
Common
Stock Issued for Business Acquisition
On
July 1, 2019, the Company issued 10,000,000 shares of its common stock to the former owners of FPRX for the acquisition of 100% of its
issued and outstanding common stock. The shares were initially valued at $700,000. The amended FPRX Purchase Agreement entered into on
November 8, 2019 contained a rescission of the shares issued to the former owners. The common stock shares were returned by the former
owners during the third quarter of 2020 and were cancelled by the Company.
Preferred
Stock
The
Series A preferred stock is a non-dividend producing instrument that ranks superior to the Company’s common stock. Each one (1)
share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding
common stock and Preferred Stock eligible to vote at the time of the respective vote (the “Numerator”), divided
by (y) 0.49, minus (z) the Numerator.
With
respect to all matters upon which stockholders are entitled to vote or to which shareholders are entitled to give consent, the holders
of the outstanding shares of Series A Preferred Stock shall vote together with the holders of common stock without regard to class, except
as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws.
On
July 11, 2014, the board of directors approved the issuance of 51 shares of the Company’s Series A Preferred Stock to a certain
employee of the Company, which is equal to 50.99% of the total voting power of all issued and outstanding voting capital of the Company
in satisfaction of $20,000 in past due debt. These issued shares of preferred stock are outstanding as of December 31, 2020. As of December
31, 2020, the individual is employed by the Company. On January 7, 2021, the preferred shares were transferred to a trust whose beneficiary
is related to the employee.
Note
11. Commitments and Contingencies
Legal
Matters
The
Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. In the opinion of management, the
disposition or ultimate resolution of currently known claims and lawsuits will not have a material adverse effect on the Company’s
consolidated financial position, results of operations or liquidity.
Note
12. Related Party Transactions
During
the year ended December 31, 2020, the Company had a consulting arrangement with Spark Financial Consulting (“Spark”), which
is a consulting company owned by an employee and preferred stock controlling shareholder of the Company. Spark provides business development
services including but not limited to recruiting, targeting and evaluation of potential mergers and acquisitions, finding third party
contractors and assisting with related negotiations in exchange for a monthly fee of $16,000 in 2020. Additionally, Spark may be entitled
to additional fees for additional consulting services. During the year ended December 31, 2020, the Company paid Spark $224,400.
The
Company has an employment agreement (the “Agreement”) with a certain pharmacist, Head of the Compounding Department, who
is the first paternal cousin of the preferred stock controlling shareholder and employee of the Company. In consideration for duties
performed including but not limited to marketing, patient consultation, formulary development, patient and physician education, training,
recruitment, sales management, as well as pharmacist responsibilities, the Company agreed to provide monthly compensation of $15,000
or $10,000 per month plus 5% commission on monthly gross profits generated by the Compounding Department, whichever is greater. During
the year ended December 31, 2020, payments to the pharmacist was approximately $144,000.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
Ended December 31, 2020
Note
13. Retirement Plan
The
Company sponsors a 401(k) retirement plan (“the Plan”) covering qualified employees of PharmCo 901, PharmCo 1002 and FPRX,
as defined. Employees who have been employed more than one year are eligible to participate in the Plan. The Company matches the employee’s
contribution up to a maximum of 3% of the eligible employee’s compensation. The Company contributed approximately $19,500 in matching
contributions for the year ended December 31, 2020.
Note
14. Subsequent Events
Management
has evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through
March 31, 2021, the date the consolidated financial statements were available to be issued.
New
340B contract
On
January 11, 2021, the Company entered into pharmacy service agreements for our PharmCo 901 and PharmCo 1103 locations with Community
Care Resources of Florida (“CCR”), which is a covered entity as defined in Section 340B of the Public Health Service Act.
The Company will maintain sufficient supplies of covered drugs to meet the day-to-day needs of Eligible Patients. CCR will replenish
the Company’s inventory for Covered Drugs dispensed to Eligible Patients for which payment under this Agreement was received by
the Company. CCR will arrange to be billed directly for Covered Drugs by the manufacturer/wholesaler(s) and arrange for shipment of such
drugs directly to the Company.
On
February 5, 2021, the Company entered into a pharmacy service agreement for our PharmCo 901 location with Barroso Medical Services, LLC
(“BMS”), which is a covered entity as defined in Section 340B of the Public Health Service Act. The Company will maintain
sufficient supplies of covered drugs to meet the day-to-day needs of Eligible Patients. BMS will replenish the Company’s inventory
for Covered Drugs dispensed to Eligible Patients for which payment under this Agreement was received by the Company. BMS will arrange
to be billed directly for Covered Drugs by the manufacturer/wholesaler(s) and arrange for shipment of such drugs directly to the Company.
Iliad
Research partial note redemptions
On
January 29, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $200,000 of note principal into 8,138,683 shares of Progressive Care common stock.
On
February 12, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $200,000 of note principal into 8,038,585 shares of Progressive Care common stock.
On
February 8, 2021, the Company issued 1,989,390 shares of its Common Stock to Stanley Campbell, CEO of EagleForce Health, LLC under a
service agreement dated February 8, 2021. The shares were initially valued at $75,000.
On
March 1, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request resulted
in a conversion of $380,880 of note principal into 10,580,000 shares of Progressive Care common stock.
On
March 8, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request resulted
in a conversion of $119,250 of note principal into 2,922,794 shares of Progressive Care common stock.
On
March 15, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $141,850 of note principal into 2,551,259 shares of Progressive Care common stock.
U.S.
CARES Act PPP Loan Forgiveness
The
Company applied for forgiveness of the PPP loan received by PharmCo 1103 in April 2020 in the amount of $421,400 and received notification
from the lender on January 7, 2021 that the U.S. Small Business Administration approved the forgiveness of the PPP Loan. The total debt
forgiveness in the amount of $421,400 will be recorded as a gain on debt extinguishment in the Company’s consolidated statement
of operations during the first quarter of 2021.
Acceptance
of U.S. CARES Act PPP Program Loan Funds
In
February 2021, PharmCo 1103 entered into a Second Draw of the PPP (the “PPP2 Note”) with a financial institution in the amount
of $421,400. The PPP2 Note was issued pursuant to the Consolidated Appropriation Act, 2021, (the “Act”) which was signed
into law on December 27, 2020. The PPP2 Note bears interest at 1% per annum and matures in February 2026. PharmCo 1103 may apply for
forgiveness of a portion or the entire balance of its PPP2 Note based on eligible costs including payroll, rent, utilities, and mortgage
interest incurred during the covered period following the disbursement of the funds by the financial institution (between 8 weeks and
24 weeks).
PROGRESSIVE
CARE INC.
INDEX
TO FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
of
Progressive Care, Inc.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheet of Progressive Care, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 2019 and the related consolidated statements of operations, stockholder’s (deficit) equity, and cash flows for the year then
ended, and the related notes to the consolidated financial statements. In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the Progressive Care, Inc. and Subsidiaries as of December 31,
2019, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles
used and significant estimated made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audit provides a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2016.
Miami,
Florida
March
22, 2021
MIAMI |
FT.LAUDERDALE | BOCA RATON | WEST PALM
BEACH | NEW YORK CITY
Progressive
Care Inc. and Subsidiaries
Consolidated
Balance Sheet
December
31, 2019
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash
and cash equivalents
|
|
$
|
816,637
|
|
Accounts
receivable – trade, net
|
|
|
2,167,159
|
|
Accounts
receivable - other
|
|
|
648,778
|
|
Inventory,
net
|
|
|
722,144
|
|
Prepaid
expenses
|
|
|
82,268
|
|
Total
Current Assets
|
|
|
4,436,986
|
|
Property
and equipment, net
|
|
|
2,151,512
|
|
Other
Assets
|
|
|
|
|
Goodwill
|
|
|
1,387,860
|
|
Deposits
|
|
|
21,816
|
|
Intangible
assets, net
|
|
|
589,342
|
|
Total
Other Assets
|
|
|
1,999,018
|
|
Total
Assets
|
|
$
|
8,587,516
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
3,715,682
|
|
Notes
payable, net of unamortized debt discount and debt issuance costs
|
|
|
1,916,553
|
|
Capital
lease obligations - current portion
|
|
|
42,327
|
|
Unearned
revenue
|
|
|
162,254
|
|
Derivative
liability
|
|
|
2,857,000
|
|
Total
Current Liabilities
|
|
|
8,693,816
|
|
Long-term
Liabilities
|
|
|
|
|
Notes
payable, net of current portion
|
|
|
1,985,261
|
|
Deferred
rent liability
|
|
|
36,285
|
|
Capital
lease obligations, net of current portion
|
|
|
128,256
|
|
Total
Liabilities
|
|
|
10,843,618
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
Preferred
Stock, Series A par value $0.001; 10,000,000 shares authorized, 51 shares issued and outstanding as of December 31, 2019
|
|
|
-
|
|
Common
stock, par value $0.0001; 1,000,000,000 shares authorized, 436,280,944 issued and outstanding as of December 31, 2019
|
|
|
43,628
|
|
Additional
paid-in capital
|
|
|
4,997,391
|
|
Accumulated
Deficit
|
|
|
(7,297,121
|
)
|
Total
Stockholders’ Deficit
|
|
|
(2,256,102
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
8,587,516
|
|
See
Accompanying Notes to Consolidated Financial Statements
Progressive
Care Inc. and Subsidiaries
Consolidated
Statement of Operations
Year Ended December 31, 2019
Revenues,
net
|
|
$
|
32,629,127
|
|
Cost
of revenue
|
|
|
24,661,186
|
|
Gross
profit
|
|
|
7,967,941
|
|
Selling,
general and administrative expenses
|
|
|
|
|
Bad
debt expense
|
|
|
139,030
|
|
Share-based
compensation
|
|
|
43,000
|
|
Other
selling, general and administrative expense
|
|
|
8,719,861
|
|
Total
Selling, general and administrative expenses
|
|
|
8,901,891
|
|
Loss
from operations
|
|
|
(933,950
|
)
|
Other
Income (Expense)
|
|
|
|
|
Change
in fair value of derivative liability
|
|
|
(321,000
|
)
|
Automobile
casualty loss
|
|
|
(1,545
|
)
|
Loss
on disposal of property and equipment
|
|
|
(1,973
|
)
|
Other
income
|
|
|
143
|
|
Interest
income
|
|
|
512
|
|
Interest
expense
|
|
|
(1,245,526
|
)
|
Total
other income (expense) - net
|
|
|
(1,569,389
|
)
|
Loss
before provision for income taxes
|
|
|
(2,503,339
|
)
|
Provision
for income taxes
|
|
|
(2,689
|
)
|
Net
loss
|
|
$
|
(2,506,028
|
)
|
Basic
and diluted net loss per share of common stock
|
|
$
|
0.00
|
|
Weighted
average number of shares of common stock outstanding during the year - basic and diluted
|
|
|
430,999,711
|
|
See
Accompanying Notes to Consolidated Financial Statements.
Progressive
Care Inc. and Subsidiaries
Consolidated
Statement of Stockholders’ Equity (Deficit)
Year
Ended December 31, 2019
|
|
Preferred
Series A
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Total
Stockholders
|
|
|
|
$0.001
Par Value
|
|
|
$0.0001
Par Value
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance,
December 31, 2018
|
|
|
51
|
|
|
$
|
-
|
|
|
|
425,630,944
|
|
|
$
|
42,563
|
|
|
$
|
4,958,620
|
|
|
$
|
(4,791,093
|
)
|
|
$
|
210,090
|
|
Issuance
of common stock for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
650,000
|
|
|
|
65
|
|
|
|
42,935
|
|
|
|
-
|
|
|
|
43,000
|
|
Issuance
of common stock for FPRX business acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000,000
|
|
|
|
1,000
|
|
|
|
699,000
|
|
|
|
-
|
|
|
|
700,000
|
|
Purchase
price adjustments – FPRX business acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,164
|
)
|
|
|
-
|
|
|
|
(3,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
from shareholders for return of common stock issued in FPRX business acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(700,000
|
)
|
|
|
|
|
|
|
(700,000
|
)
|
Net
loss for the year ended December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,506,028
|
)
|
|
|
(2,506,028
|
)
|
Balance,
December 31, 2019
|
|
|
51
|
|
|
$
|
-
|
|
|
|
436,280,944
|
|
|
$
|
43,628
|
|
|
$
|
4,997,391
|
|
|
$
|
(7,297,121
|
)
|
|
$
|
(2,256,102
|
)
|
See
Accompanying Notes to Consolidated Financial Statements
Progressive
Care Inc. and Subsidiaries
Consolidated
Statement of Cash Flows
Year
Ended December 31,
|
|
2019
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
loss
|
|
$
|
(2,506,028
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Depreciation
and amortization
|
|
|
457,830
|
|
Change
in provision for doubtful accounts
|
|
|
74,960
|
|
Amortization
of debt issuance costs and debt discounts
|
|
|
783,956
|
|
Change
in fair value of derivative liability
|
|
|
321,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
Accounts
receivable
|
|
|
(992,759
|
)
|
Inventory
|
|
|
209,843
|
|
Prepaid
expenses
|
|
|
38,059
|
|
Deposits
|
|
|
5,550
|
|
Other
assets
|
|
|
1,480
|
|
Increase
(decrease) in:
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
1,088,534
|
|
Unearned
revenue
|
|
|
(70,351
|
)
|
Deferred
rent payable
|
|
|
(26,813
|
)
|
Net
Cash Used in Operating Activities
|
|
|
(614,739
|
)
|
Cash
Flows from Investing Activities:
|
|
|
|
|
Cash
paid for business acquisition
|
|
|
(2,464,529
|
)
|
Cash
acquired in business acquisition
|
|
|
256,268
|
|
Purchase
of property and equipment
|
|
|
(36,021
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(2,244,282
|
)
|
Cash
Flows from Financing Activities:
|
|
|
|
|
Proceeds
from issuance of notes payable
|
|
|
3,770,000
|
|
Payment
of debt issue costs
|
|
|
(20,000
|
)
|
Payments
of notes payable
|
|
|
(76,441
|
)
|
Payments
of capital lease obligations
|
|
|
(84,732
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
3,588,827
|
|
Net
increase in cash and cash equivalents
|
|
|
729,806
|
|
Cash
and cash equivalents at beginning of year
|
|
|
86,831
|
|
Cash
and cash equivalents at end of year
|
|
$
|
816,637
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
Cash
paid for interest
|
|
$
|
112,001
|
|
Cash
paid for income taxes
|
|
$
|
2,689
|
|
Supplemental
Schedule of Non-Cash Investing and Financing Activities:
|
|
|
|
|
Payment
of insurance premiums through financing agreement
|
|
$
|
36,578
|
|
Capital
lease obligation refinanced by issuance of note payable
|
|
$
|
85,429
|
|
Issuance
of common stock shares for business acquisition
|
|
$
|
700,000
|
|
Receivable
from shareholders for cancellation of stock issuance for business acquisition
|
|
$
|
(700,000
|
)
|
Issuance
of common stock shares for consulting services
|
|
$
|
43,000
|
|
Acquisition:
|
|
|
|
|
Fair
value of assets acquired
|
|
$
|
1,817,802
|
|
Fair
value of liabilities assumed
|
|
$
|
441,203
|
|
Recognition
of debt discount and derivative liability associated with conversion feature in note agreement
|
|
$
|
2,536,000
|
|
See
Accompanying Notes to Consolidated Financial Statements
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Note
1 Organization & Nature of Operations
Progressive
Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006.
Progressive,
through its wholly-owned subsidiaries, PharmCo, LLC (“PharmCo 901”), RXMD Therapeutics, Inc. (“RXMD Therapeutics”),
Family Physicians RX, Inc., doing business as PharmCoRx 1103 (“FPRX” or “PharmCo 1103”), and Touchpoint RX, LLC,
doing business as PharmCo Rx 1002, LLC (“PharmCo 1002”), (collectively, “PharmCo”, and/or “the Company”)
is a Florida technology and health services organization that provides prescription pharmaceuticals, compounded medications, tele-pharmacy
services, anti-retroviral medications, medication therapy management, the supply of prescription medications to long term care facilities,
340B services to charitable organizations, and health practice risk management. The Company is focused on developing the PharmCo brand
and adding business elements that cater to specific under-served markets and demographics. This effort includes community and network-based
marketing strategies, the introduction of new locations, acquisitions and strategic collaboration(s) with community, government and charitable
organizations.
PharmCo
901 is a pharmacy located in North Miami Beach, Florida that was formed on November 29, 2005 as a Florida Limited Liability Company and
is a 100% owned subsidiary of Progressive. PharmCo 901 was acquired by Progressive on October 21, 2010.
FPRX
is a pharmacy with locations in Davie and Orlando, Florida that provides PharmCo’s pharmacy services to Broward County, the Orlando/Tampa
corridor, and the Treasure Coast of Florida. Progressive acquired all of the ownership interests in FPRX in a purchase agreement entered
into on June 1, 2019.
PharmCo
1002 is a pharmacy located in Palm Springs, Florida that provides PharmCo’s pharmacy services to Palm Beach, St. Lucie and Martin
Counties, Florida. Progressive acquired all of the ownership interests in PharmCo 1002 in a purchase agreement entered into on July 1,
2018.
RXMD
Therapeutics was formed on October 1, 2019 and specializes in cannabinoid-based and alternative therapy product lines. RXMD Therapeutics
had no operating activity in 2019 and expects to commence operations in 2020.
Note
2 Basis of Presentation
The
Company’s fiscal year end is December 31. The Company uses the accrual method of accounting.
Note
3 Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Progressive and its wholly-owned subsidiaries. All inter-company accounts and
transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Such estimates and assumptions impact both assets and liabilities, including but not limited
to: net realizable value of accounts receivable and inventories, estimated useful lives and potential impairment of property and equipment,
estimated fair value of derivative liabilities using the Monte Carlo simulation model, fair value of assets acquired and liabilities
assumed in business combinations, and estimates of current and deferred tax assets and liabilities.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered
in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could
differ significantly from estimates.
Cash
and Cash Equivalents
The
Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed federally insured limits. The Company
has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk associated with
its cash and cash equivalent balances.
Cash
Equivalents: The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash
equivalents. As of December 31, 2019, the Company’s cash equivalents consist of a money market account.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade
accounts receivable are stated at the invoiced amount. Trade accounts receivable primarily include amounts from third-party pharmacy
benefit managers and insurance providers and are based on contracted prices. Trade accounts receivable are unsecured and require no collateral.
The Company recorded an allowance for doubtful accounts for estimated differences between the expected and actual payment of accounts
receivable. These reductions were made based upon reasonable and reliable estimates that were determined by reference to historical experience,
contractual terms, and current conditions. Each quarter, the Company reevaluates its estimates to assess the adequacy of its allowance
and adjusts the amounts as necessary. Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Risks
and Uncertainties
The
Company’s operations are subject to intense competition, risk and uncertainties including financial, operational, regulatory and
other risks including the potential risk of business failure.
Billing
Concentrations
The
Company’s trade receivables are primarily from prescription medications billed to various insurance providers. Ultimately, the
insured is responsible for payment should the insurance company not reimburse the Company. The Company generated reimbursements from
three significant insurance providers for the year ended December 31, 2019:
Payors
|
|
|
|
A
|
|
|
23
|
%
|
B
|
|
|
18
|
%
|
C
|
|
|
8
|
%
|
The
Company generated reimbursements from three significant pharmacy benefit managers (PBMs) for the year ended December 31, 2019:
PBMs
|
|
|
|
A
|
|
|
33
|
%
|
B
|
|
|
26
|
%
|
C
|
|
|
24
|
%
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Inventory
Inventory is valued on a lower of first-in, first-out
(FIFO) cost or net realizable value basis. Inventory primarily consists of prescription medications, pharmacy supplies, and retail items.
The Company provides a valuation allowance for obsolescence and slow-moving items. The Company recorded an allowance for obsolescence
of $40,000 as of December 31, 2019.
Property
and Equipment
Property
and equipment are recorded at cost or fair value if acquired as part of a business combination. Property and equipment are depreciated
or amortized using the straight-line method over their estimated useful lives. Upon the retirement or disposition of property and equipment,
the related cost and accumulated depreciation or amortization are removed, and a gain or loss is recorded, when appropriate. Expenditures
for maintenance and repairs are charged to expense as incurred.
Depreciation
is computed on a straight-line basis over estimated useful lives as follows:
Description
|
|
Estimated
Useful Life
|
Building
|
|
40 years
|
Leasehold improvements and
fixtures
|
|
Lesser of estimated useful
life or life of lease
|
Furniture and equipment
|
|
5 years
|
Computer equipment and software
|
|
3 years
|
Vehicles
|
|
3-5 years
|
Property
and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. There were no impairment charges for the year ended December 31, 2019.
Business
acquisitions
The
Company records business acquisitions using the acquisition method of accounting. All of the assets acquired, liabilities assumed, and
contractual contingencies are recognized at their fair value on the acquisition date. The application of the acquisition method of accounting
for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of
assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated
and amortized and goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assets
and liabilities is recorded as goodwill. Acquisition-related expenses and restructuring costs are recognized separately from the business
combination and are expensed as incurred.
Goodwill
Goodwill
represents the excess of purchase price of FPRX and PharmCo 1002 over the value assigned to their net tangible and identifiable intangible
assets. FPRX and PharmCo 1002 are considered to be the reporting units for goodwill. Acquired intangible assets other than goodwill are
amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination,
the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the
market approach, income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible
assets are tested annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances indicate
that the assets may be impaired. There were no facts or circumstances occurring during 2019 suggesting possible impairment and, therefore,
the Company did not record an impairment charge during the year ended December 31, 2019.
Intangible
Assets
Amortizing
identifiable intangible assets generally represent the cost of client relationships and tradenames acquired, as well as non-compete agreements
to which the Company is a party. In valuing these assets, the Company makes assumptions regarding useful lives and projected growth rates,
and significant judgment is required. The Company periodically reviews its identifiable intangible assets for impairment as events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of those assets
exceed their respective fair values, additional impairment tests are performed to measure the amount of the impairment losses, if any.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Fair
Value of Financial Instruments
The
Company’s financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities,
capital lease obligations, and notes payable. The carrying amounts of the Company’s financial instruments other than notes payable
and capital lease obligations generally approximate their fair values at December 31, 2019 due to the short-term nature of these instruments.
The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company
could obtain in current financing. The carrying value of the capital lease obligations approximate fair value due to the implicit rate
in the lease in relation to the Company’s borrowing rate and the duration of the leases.
Derivative
Liabilities
U.S.
GAAP requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and
their measurement at fair value. In assessing the convertible debt instruments, management determines if the conversion feature requires
bifurcation from the host instrument and recording of the bifurcated derivative instrument at fair value.
Once
derivative liabilities are determined, they are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease
in the fair value is recorded in results of operations as an adjustment to fair value of derivatives. The fair value of these derivative
instruments is determined using the Monte Carlo Simulation Model.
Revenue
Recognition
The
Company recognizes pharmacy revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or
when a customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers
to the customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. The
Company records unearned revenue for prescriptions that are filled but not yet delivered at period-end. Billings for most prescription
orders are with third-party payers, including Medicare, Medicaid and insurance carriers. Customer returns are nominal. Pharmacy revenues
were approximately 98% of total revenue in 2019.
The
Company accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or
expected to be assessed by payers at some point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized.
Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
The
following table disaggregates net revenue by categories for the year ended December 31, 2019:
Prescription revenue
|
|
$
|
32,314,746
|
|
340B contract revenue
|
|
|
670,513
|
|
Rent revenue
|
|
|
39,901
|
|
Subtotal
|
|
|
33,025,160
|
|
PBM fees
|
|
|
(364,386
|
)
|
Sales returns
|
|
|
(31,647
|
)
|
Revenues, net
|
|
$
|
32,629,127
|
|
Cost
of Revenue
Cost
of pharmacy revenue is derived based upon vendor purchases relating to prescriptions sold and point-of-sale scanning information for
non-prescription sales and is adjusted based on periodic inventories. All other costs related to revenues are expensed as incurred.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Vendor
Concentrations
For
the year ended December 31, 2019, the Company had significant vendor concentrations with one vendor. The purchases from this significant
vendor were 91% of total vendor purchases in 2019.
Selling,
General and Administrative Expenses
Selling
expenses primarily consist of store salaries, contract labor, occupancy costs, and expenses directly related to the stores. General and
administrative costs include advertising, insurance and depreciation and amortization.
Advertising
Costs
incurred for producing and communicating advertising for the Company are charged to operations as incurred. Advertising expense was $86,615
for the year ended December 31, 2019.
Share-Based
Payment Arrangements
Generally,
all forms of share-based payments, including warrants, are measured at their fair value on the awards’ grant date typically using
a Black-Scholes pricing model, based on the estimated number of awards that are ultimately expected to vest. The costs associated with
share-based compensation awards to employees and non-employee directors are measured at the grant date based on the calculated fair value
of the award and recognized as an expense ratably over the recipient’s requisite service period during which that award vests or
becomes unrestricted. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value
of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The shares are subsequently
re-measured at their fair value at each reporting date over the service period of the awards. The expense resulting from share-based
payments is recorded in selling, general and administrative expenses in the consolidated statement of operations.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Progressive
Care Inc., RXMD Therapeutics and FPRX are taxed as C corporations. PharmCo 901 and PharmCo 1002 are taxed as partnerships, wherein each
member is responsible for the tax liability, if any, related to its proportionate share of PharmCo 901 and PharmCo 1002’s taxable
income. Progressive Care Inc. has a 100% ownership interest in PharmCo 901 and PharmCo 1002; therefore, all of PharmCo 901 and PharmCo
1002’s taxable income attributable to the period of ownership is included in Progressive Care Inc.’s taxable income.
The
provision for income taxes for the year ended December 31, 2019 on the Consolidated Statement of Operations represents the minimum state
corporate tax payments. There was no current tax provision for the year ended December 31, 2019 because the Company did not have taxable
income for 2019. Total available net operating losses to be carried forward to future taxable years was approximately $7.5 million as
of December 31, 2019, $6 million of which will expire in various years through 2038. The temporary differences giving rise to deferred
income taxes principally relate to accelerated depreciation on property and equipment and amortization of goodwill recorded for tax purposes,
share-based compensation, reserves for estimated doubtful accounts and inventory obsolescence and net operating losses recorded for financial
reporting purposes. The Company’s net deferred tax asset at December 31, 2019 was fully offset by a 100% valuation allowance as
it was not more likely than not that the tax benefits of the net deferred tax asset would be realized. The change in the valuation allowance
was approximately $496,000 for the year ended December 31, 2019.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
The
Company accounts for uncertainty in income taxes by recognizing a tax position in the consolidated financial statements only after determining
that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more
likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than
50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company records interest and penalties
related to tax uncertainties, if any, as income tax expense. Based on management’s evaluation, the Company does not believe it
has any uncertain tax positions during the year ended December 31, 2019.
Earnings
(Loss) per Share
Basic
earnings/loss per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average
number of shares of common stock outstanding during the year, excluding the effects of any potentially dilutive securities. Diluted EPS
gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury
stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise
of stock warrants), and convertible debt, using the if converted method. Diluted EPS excludes all dilutive potential of shares of common
stock if their effect is anti-dilutive. The effect of including common stock equivalents in weighted average shares of common stock outstanding
for 2019 is anti-dilutive, and therefore a separate computation of diluted earnings per share for 2019 is not presented.
New
Accounting Standards
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606) (“Topic 606”), which supersedes the previous revenue recognition guidance
under U.S. GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers
for all industries. The objective of the new standard is for a company to recognize revenue when it transfers the promised goods or services
to its customers for an amount that represents what the company expects to be entitled to in exchange for those goods or services.
Topic
606 permits two methods of adoption:
|
a)
|
Retrospectively
to each prior reporting period presented (full retrospective method), or
|
|
b)
|
Retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial
application (modified retrospective transition method).
|
The
new standard also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive
information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with
customers.
On
January 1, 2019, the Company adopted Topic 606 using the modified retrospective transition method, under which the opening balance of
retained earnings as of January 1, 2019 would be adjusted for the cumulative effect of initially applying the guidance at January 1,
2019 (the date of initial application). The adoption of Topic 606 resulted in a reclassification of DIR fees from cost of revenues to
revenue, as the Company accrues an estimate of fees, including DIR fees that are assessed or expected to be assessed by payers at some
point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized. However, the effect of this change
did not result in a cumulative effect adjustment to beginning retained earnings as of January 1, 2019.
An
additional effect of the adoption of Topic 606 was the Company realized a shift in the timing of revenue recognition of dispensing prescription
drugs for home delivery from the date the drugs are shipped under the Company’s previous accounting policy to the date the drugs
are physically delivered (which better reflects when control transfers) under the new accounting policy adopted in connection with Topic
606. The effect of this change is not significant as there is a very short timeframe (generally 1 – 3 days) from the shipment date
to the physical delivery date of the prescription drugs.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Accounting
Standards Issued But Not Yet Adopted
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to provide a new comprehensive model for lease accounting. Under this
guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and
eliminate the concept of operating leases as off-balance sheet lease arrangements. Recognition, measurement and presentation of expenses
will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with
revenue recognition guidance. This guidance is effective for annual periods and interim periods within those annual periods beginning
after December 15, 2020. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Early
adoption is permitted. The updated guidance requires a modified retrospective adoption. The Company has adopted this standard update
in its 2020 interim and annual consolidated financial statements beginning January 1, 2020.
In
June 2016, the FASB issued ASU 2016-13 Financial Instruments, Measurement of Credit Losses on Financial Instruments. In November 2018,
the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The main objective of these
updates is to replace the incurred loss impairment methodology under current U.S. GAAP, with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Trade
receivables that management has the intent and ability to hold for the foreseeable future until payoff shall be reported in the balance
sheet at outstanding principal adjusted for any charge-offs and the allowance for credit losses (no longer referred to as the allowance
for doubtful accounts). The effective date of these updates is for fiscal years beginning after December 15, 2022. Management does not
expect these updates will have a material impact on the Company’s consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment
charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated
to that reporting unit. This guidance is effective for the Company’s fiscal year ending December 31, 2022, with early adoption
permitted, and should be applied prospectively. The adoption of this guidance is not expected to have a material effect on the Company’s
consolidated financial statements.
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment
Accounting, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based
payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed
at the grant date. This guidance is effective for the Company’s fiscal year ending December 31, 2020 and interim periods within
fiscal years beginning after December 15, 2020. The adoption of this guidance is not expected to have a material impact on the Company’s
consolidated financial statements.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which removes
certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12
is required to be adopted for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after
December 15, 2022. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this guidance on the
Company’s consolidated financial statements.
Management
has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant
impact on the Company’s consolidated financial statements.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Note
4. Acquisition of Family Physicians RX, Inc.
On
March 8, 2019, Progressive entered into an agreement (“the Purchase Agreement”) for the acquisition of 100% of the issued
and outstanding common stock of Family Physicians RX, Inc. (“FPRX”), aka Five Star RX, a Florida based pharmacy with locations
in Davie and Orlando, Florida. The purchase price for the acquisition of FPRX was $3,000,000, whereby $2.3 million is payable in cash
to the former owners over the two-year period following the closing, and $700,000 is payable in common stock of the Company, valued at
the lower of the closing price of the Company’s common stock on the closing date or $0.07 per share. In addition, Progressive also
agreed to pay to the former owners consideration equal to the following, all value at the closing date: the fair value of FPRX inventory
at the closing date plus an amount equal to the book value of FPRX accounts receivable minus accounts payable and all other accrued liabilities
as of the closing date, plus an amount equal to the FPRX cash balances. The closing date of the acquisition was May 31, 2019.
On
November 8, 2019, the Purchase Agreement was modified to include a reduced purchase price to approximately $2.5 million, which included
approximately $417,000 for the fair value of FPRX inventory at the closing date and approximately $157,000 for FPRX cash balances; a
rescission of the common stock shares issued, retention of net accounts receivable, and various modifications to the Employment Agreements.
At December 31, 2019, the rescission of common stock shares issued was accounted for as a reduction of additional paid-in capital in
the accompanying Consolidated Statement of Stockholders’ Equity (Deficit) and the shares were cancelled on September 30, 2020.
As
a result of the acquisition, the Company has expanded the delivery radius of its pharmacy operations to the Orlando/Tampa corridor and
the Treasure Coast of Florida. The acquisition is also expected to decrease costs of expansion of products and services and increase
prescription dispensing efficiency.
The
following table summarizes the consideration paid for FPRX and the amounts of assets acquired and liabilities assumed recognized at the
acquisition date:
Cash
consideration
|
|
$
|
2,473,645
|
|
Recognized
amounts of identifiable assets acquired, and liabilities assumed:
|
|
|
|
|
Cash
|
|
$
|
256,268
|
|
Accounts
receivable
|
|
|
336,449
|
|
Inventory
|
|
|
419,473
|
|
Identifiable
intangible assets
|
|
|
791,000
|
|
Other
financial assets
|
|
|
14,612
|
|
Financial
liabilities
|
|
|
(441,203
|
)
|
Goodwill
|
|
|
1,097,046
|
|
|
|
$
|
2,473,645
|
|
The
Company incurred acquisition-related costs in the amount of $83,000 in 2019 (included in other selling, general administrative expenses
in the Company’s consolidated statement of operations).
The
following unaudited pro forma financial statements have been prepared to give effect to the June 1, 2019 acquisition of Family Physicians
RX, Inc. (“FPRX”) by Progressive Care, Inc. (the “Company” or “Progressive Care”), under the acquisition
method of accounting. The unaudited pro forma statements of operations and pro forma balance sheet give effect to the acquisition.
The unaudited pro forma balance sheet information as of May 31, 2019 has been prepared as if such transactions had occurred on that date,
and the unaudited pro forma statement of operations for the five months ended May 31, 2019 has been prepared as if such transactions
had occurred at January 1, 2019. The adjustments are described in the accompanying schedule of pro forma adjustments.
Unaudited
pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position
or results of operations that would have actually been reported had the acquisition occurred at the beginning of the period presented,
nor is it necessarily indicative of future financial position or results of operations. The unaudited pro forma financial statements
presented herein are based upon the respective historical consolidated financial statements of Progressive Care and FPRX and notes thereto.
These unaudited pro forma financial statements do not include, nor do they assume, any benefits from cost savings or synergies of operations
of the combined companies.
The
unaudited pro forma financial statements should be read in conjunction with the historical consolidated financial statements of Progressive
Care and FPRX.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Progressive
Care Inc. and Subsidiaries
Pro
Forma Combined Balance Sheet as of May 31, 2019
|
Progressive
Care
Inc. and
Subsidiaries
(Unaudited)
|
|
FPRX
(Unaudited)
|
|
Pro
Forma
Adjustments
|
|
|
Total
|
|
Cash
and cash equivalents
|
$
|
32,956
|
|
$
|
256,268
|
|
$
|
-
|
|
|
$
|
289,224
|
|
Accounts
receivable, net
|
|
1,168,676
|
|
|
336,449
|
|
|
|
|
|
|
1,505,125
|
|
Inventory,
net
|
|
270,107
|
|
|
419,473
|
|
|
|
|
|
|
689,579
|
|
Prepaid
expenses
|
|
57,528
|
|
|
13,612
|
|
|
|
|
|
|
71,140
|
|
Property
and equipment
|
|
2,352,312
|
|
|
-
|
|
|
|
|
|
|
2,352,312
|
|
Escrow
|
|
3,300,000
|
|
|
|
|
|
(2,873,645
|
)
|
|
|
426,355
|
|
Goodwill
|
|
290,814
|
|
|
|
|
|
2,197,046
|
|
3
|
|
2,487,860
|
|
Deposits
|
|
27,846
|
|
|
1,000
|
|
|
|
|
|
|
28,846
|
|
Intangible
assets, net
|
|
|
|
|
|
|
|
791,000
|
|
2
|
|
791,000
|
|
Total
Assets
|
$
|
7,500,239
|
|
$
|
1,026,802
|
|
$
|
114,401
|
|
|
$
|
8,641,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
2,306,174
|
|
$
|
330,073
|
|
$
|
99,262
|
|
1
|
$
|
2,735,510
|
|
Notes
payable
|
|
3,292,522
|
|
|
|
|
|
|
|
|
|
3,292,522
|
|
Capital
lease obligations
|
|
279,075
|
|
|
11,868
|
|
|
|
|
|
|
290,943
|
|
Unearned
revenue
|
|
175,051
|
|
|
|
|
|
|
|
|
|
175,051
|
|
Deferred
rent liability
|
|
56,395
|
|
|
|
|
|
|
|
|
|
56,395
|
|
Derivative
liability Total Liabilities
|
|
1,935,000
|
|
|
|
|
|
-
|
|
|
|
1,935,000
|
|
|
|
8,044,217
|
|
|
341,941
|
|
|
99,262
|
|
|
|
8,485,421
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
0
|
|
|
|
|
|
|
|
|
|
0
|
|
Common
stock
|
|
42,563
|
|
|
100
|
|
|
900
|
|
4
|
|
43,563
|
|
Additional
paid-in capital
|
|
4,949,434
|
|
|
125,898
|
|
|
573,102
|
|
1,4
|
|
5,648,434
|
|
(Accumulated
deficit) retained earnings Total Stockholders’ Deficit
|
|
(5,535,975
|
)
|
|
558,863
|
|
|
(558,863
|
)
|
|
|
(5,535,975
|
)
|
|
|
(543,978
|
)
|
|
684,861
|
|
|
15,139
|
|
|
|
156,022
|
|
Total
Liabilities and Stockholders’ Deficit
|
$
|
7,500,239
|
|
$
|
1,026,802
|
|
$
|
114,401
|
|
|
$
|
8,641,442
|
|
Progressive
Care Inc. and Subsidiaries
Pro
Forma Combined Statement of Operations for the Five Months Ended May 31, 2019
|
|
Progressive
Care Inc. and Subsidiaries (Unaudited)
|
|
|
FPRX
(Unaudited)
|
|
|
Pro
Forma
Adjustments
|
|
|
Total
|
|
Revenues,
net
|
|
$
|
8,883,395
|
|
|
$
|
7,042,391
|
|
|
$
|
-
|
|
|
$
|
15,925,786
|
|
Cost
of revenue
|
|
|
7,170,935
|
|
|
|
5,760,202
|
|
|
|
-
|
|
|
|
12,931,137
|
|
Gross
profit
|
|
|
1,712,460
|
|
|
|
1,282,189
|
|
|
|
-
|
|
|
|
2,994,649
|
|
Total
Selling, general and administrative expenses
|
|
|
2,275,946
|
|
|
|
1,546,405
|
|
|
|
-
|
|
|
|
3,822,351
|
|
Loss
from operations
|
|
|
(563,486
|
)
|
|
|
(264,216
|
)
|
|
|
-
|
|
|
|
(827,702
|
)
|
Other
Income (Expense), net
|
|
|
(190,581
|
)
|
|
|
(1,771
|
)
|
|
|
-
|
|
|
|
(192,352
|
)
|
Loss
before provision for income taxes
|
|
|
(754,067
|
)
|
|
|
(265,987
|
)
|
|
|
-
|
|
|
|
(1,020,054
|
)
|
Provision
for income taxes
|
|
|
(2,689
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,689
|
)
|
Net
loss
|
|
$
|
(756,756
|
)
|
|
$
|
(265,987
|
)
|
|
$
|
-
|
|
|
$
|
(1,022,743
|
)
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
SCHEDULE
OF PRO FORMA ADJUSTMENTS
Pro
forma consolidated balance sheet adjustments (1) through (4) below assume that the acquisition occurred as of May 31, 2019.
Certain amounts in the FPRX historical statements of operations have been reclassified to conform to classifications used by Progressive
Care.
|
1
|
To record
the purchase price of FPRX.
|
|
2
|
To record
the fair value of FPRX’s identifiable intangible assets.
|
|
3
|
To record
acquired goodwill.
|
|
4
|
To
eliminate FPRX’s equity accounts.
|
Note 5.
Accounts Receivable – Trade, net
Accounts
receivable consisted of the following at December 31, 2019:
|
|
|
|
Gross
accounts receivable - trade
|
|
$
|
2,252,459
|
|
Less:
Allowance for doubtful accounts
|
|
|
(85,300
|
)
|
Accounts
receivable – trade, net
|
|
$
|
2,167,159
|
|
For the year
ended December 31, 2019, the Company recognized bad debt expense in the amount of $139,030.
Note 6.
Property and Equipment, net
Property
and equipment, net consisted of the following at December 31, 2019 was:
|
|
|
|
Building
|
|
$
|
1,651,069
|
|
Land
|
|
|
184,000
|
|
Leasehold
improvements and fixtures
|
|
|
365,411
|
|
Furniture
and equipment
|
|
|
425,028
|
|
Computer
equipment and software
|
|
|
95,397
|
|
Vehicles
|
|
|
82,668
|
|
Website
|
|
|
67,933
|
|
Total
|
|
|
2,871,506
|
|
Less:
accumulated depreciation and amortization
|
|
|
(719,994
|
)
|
Property
and equipment, net
|
|
$
|
2,151,512
|
|
Depreciation
and amortization expense for the year ended December 31, 2019 was $256,172.
Note 7.
Intangible Assets
Intangible
assets consisted of the following at December 31, 2019:
|
|
|
|
Trade
names
|
|
$
|
362,000
|
|
Pharmacy
records
|
|
|
263,000
|
|
Non-compete
agreements
|
|
|
166,000
|
|
Subtotal
|
|
|
791,000
|
|
Less
accumulated amortization
|
|
|
(201,658
|
)
|
Net
intangible assets
|
|
$
|
589,342
|
|
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Amortization
of intangible assets amounted to $201,658 for 2019. The following table represents the total estimated amortization of intangible assets
for the five succeeding years:
Year
|
|
Amount
|
|
2020
|
|
$
|
345,700
|
|
2021
|
|
|
163,408
|
|
2022
|
|
|
33,200
|
|
2023
|
|
|
33,200
|
|
2024
|
|
|
13,834
|
|
Total
|
|
$
|
589,342
|
|
Note 8.
Notes Payable
Notes payable
consisted of the following at December 31, 2019:
|
|
|
|
A.
Convertible notes payable - collateralized
|
|
$
|
4,162,000
|
|
B.
Mortgage note payable – commercial bank - collateralized
|
|
|
1,459,325
|
|
B.
Mortgage note payable – sellers - collateralized
|
|
|
330,000
|
|
C.
Note payable – uncollateralized
|
|
|
25,000
|
|
D.
Note payable - collateralized
|
|
|
80,348
|
|
Insurance
premium financing
|
|
|
14,823
|
|
Subtotal
|
|
|
6,071,496
|
|
Less
Unamortized debt discount
|
|
|
(2,155,755
|
)
|
Less
Unamortized debt issuance costs
|
|
|
(13,927
|
)
|
Total
|
|
|
3,901,814
|
|
Less:
Current portion of notes payable
|
|
|
(1,916,553
|
)
|
Long-term
portion of notes payable
|
|
$
|
1,985,261
|
|
The corresponding
notes payable above are more fully discussed below:
(A)
Convertible Notes Payable – collateralized
Chicago
Venture Partners, L.P.
On
January 2, 2019, Progressive entered a Securities Purchase Agreement (the “Purchase Agreement”) with Chicago Venture Partners,
L.P. (“Chicago Venture”), a Utah limited partnership, in the amount of $2,710,000, which included a $200,000 Original Issue
Discount (“OID”) and $10,000 in debt issuance costs for the transaction. The note is comprised of seven tranches consisting
of an initial tranche in the amount of $1,090,000 and six additional tranches each in the amount of $270,000. The initial tranche consisted
of the initial cash purchase price of $1,090,000, $80,000 of the OID and the debt issuance costs of $10,000. The remaining OID will be
allocated $20,000 to each of the remaining six tranches. The note is convertible into shares of common stock ($0.0001 par value per share)
in 1 year at the average of the five lowest closing trading prices during the twenty trading days immediately preceding the applicable
conversion. The note matures on January 2, 2022 (the “Maturity Date”). The note accrues interest at the rate of 9% per annum
and the entire unpaid principal balance plus all accrued and unpaid interest are due on the Maturity Date. Progressive received the initial
tranche of $1,090,000 at the closing of the transaction, which included $90,000 of OID and legal costs. Progressive granted the Investor
a security interest in all right, title, interest and claims of Progressive. PharmCo 901 has agreed to guarantee Progressive’s
obligations under the Purchase Agreement, the note and the Security Agreement by entering into a Guaranty Agreement in favor of Chicago
Venture. Pursuant to the Guaranty Agreement, Progressive has agreed to pay to PharmCo 901 10% of all proceeds it received from Chicago
Venture, as consideration to secure Progressive’s obligations, and an additional 50% of all proceeds from Chicago Venture for PharmCo’s
ongoing business operations. Progressive intends to use the net proceeds for its general working capital and the general working capital
of PharmCo 901 to further both companies’ ongoing growth and development.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
The
first tranche of $1,090,000 less the OID and debt issuance costs was disbursed to the Company on January 7, 2019.
On
October 25, 2019, the Company drew down the second tranche against the note in the amount of $162,000, which included $12,000 of the
OID. The balance outstanding on the Chicago Venture note was $1,252,000 at December 31, 2019. Accrued interest on the first and second
tranches at December 31, 2019 was $100,187 and such amount is included in accounts payable and accrued expenses in the accompanying consolidated
balance sheet.
The
Company has identified conversion features embedded within the Chicago Venture note. The Company has determined that the conversion features
represent an embedded derivative. Accordingly, the embedded conversion feature was bifurcated from the debt host and accounted for as
a derivative liability. On January 2, 2019, the Company recorded a derivative liability on the note in the amount of $571,000. For the
year ended December 31, 2019, the Company recorded a Change in Fair Value of the Derivative Liability in the amount of $187,000. The
derivative liability balance on the consolidated balance sheet at December 31, 2019 was $758,000.
At
inception, the fair value of the derivative instrument has been recorded as a liability on the consolidated balance sheets with the corresponding
amount recorded as a discount to the note. The discount was accreted from the issuance date to December 31, 2019, with a corresponding
charge to interest expense. The change in the fair value of the derivative liability was recorded in other income or expenses in the
consolidated statement of operations at the end of 2019, with the offset to the derivative liability on the consolidated balance sheet
as of December 31, 2019. The fair value of the embedded derivative liability was determined using the Monte Carlo Simulation model on
the issuance date.
Debt
Issuance Costs and Debt Discount:
Debt
Issuance Costs consist of fees incurred through securing financing from Chicago Venture on January 2, 2019. Debt Discount consists of
the discount recorded upon recognition of the derivative liability upon issuance of the first tranche. Debt issuance costs and debt discount
are amortized to interest expense over the term of the related debt using the effective interest method. Total amortization expense for
the year ended December 31, 2019 was $220,475.
Iliad
Research and Trading, L.P.
On
March 6, 2019, Progressive entered a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading,
L.P. (“Iliad Research”), a Utah limited partnership, in the amount of $3,310,000, which included a $300,000 Original Issue
Discount (“OID”) and $10,000 in debt issuance costs for the transaction. The note is comprised of two tranches consisting
of an initial tranche in the amount of $2,425,000 and a second tranche in the amount of $885,000. The initial tranche consisted of the
initial cash purchase price of $2,425,000, $115,000 of the OID and the debt issuance costs of $10,000. The remaining OID of $185,000
has been allocated to the second tranche. The note is convertible into shares of common stock ($0.0001 par value per share) in 1 year
at the average of the two lowest closing trading prices during the twenty trading days immediately preceding the applicable conversion.
The note matures on March 6, 2022 (the “Maturity Date”). The note accrues interest at the rate of 10% per annum and the entire
unpaid principal balance plus all accrued and unpaid interest are due on the Maturity Date.
Progressive
received the initial tranche of $2,425,000 at the closing of the transaction, which included $115,000 of OID and legal costs. Progressive
granted the Investor a security interest in all right, title, interest and claims of Progressive. PharmCo 901 has agreed to guarantee
Progressive’s obligations under the Purchase Agreement, the note and the Security Agreement by entering into a Guaranty Agreement
in favor of Iliad Research. Pursuant to the Guaranty Agreement, Progressive has agreed to pay to PharmCo 901 10% of all proceeds it received
from Iliad Research, as consideration to secure Progressive’s obligations. Progressive used the net proceeds as part of the total
purchase price of the acquisition of 100% of the FPRX ownership interests.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
The
first tranche of $2,425,000 less the OID and debt issuance costs was disbursed and held in escrow by Iliad Research on March 6, 2019.
$1 million of the escrow deposit was disbursed to the owners of FPRX at the purchase closing date, June 1, 2019. The second tranche of
$885,000 less the OID was disbursed to Progressive on June 4, 2019 and was used to complete the total purchase price of the FPRX acquisition.
On November 8, 2019, the Company entered into an amendment of the FPRX Purchase Agreement, which in part included a reduction of the
purchase price (Note 4). As a result of the amended Purchase Agreement, the Company returned $400,000 of the second tranche to Iliad
Research and Trading, L.P. on November 12, 2019.
The
balance outstanding on the Iliad Research note payable was $2,910,000 at December 31, 2019. Accrued interest on the note payable at December
31, 2019 was $248,893 and such amount is included in accounts payable and accrued liabilities in the accompanying consolidated balance
sheet.
The
Company has identified conversion features embedded within the Iliad Research note. The Company has determined that the conversion features
represent an embedded derivative. Accordingly, the embedded conversion feature was bifurcated from the debt host and accounted for as
a derivative liability. On March 6, 2019, the Company recorded a derivative liability on the first tranche in the amount of $1,351,000.
On June 4, 2019, the Company recorded a derivative liability on the second tranche in the amount of $614,000. For the year ended December
31, 2019, the Company recorded a Change in Fair Value of the Derivative Liabilities in the amount of $134,000. The derivative liability
balance on the Iliad Research note on the consolidated balance sheet December 31, 2019 was $2,099,000.
At
inception, the fair value of the derivative instrument has been recorded as a liability on the consolidated balance sheets with the corresponding
amount recorded as a discount to the note. The discount was accreted from the issuance date to December 31, 2019, with a corresponding
charge to interest expense. The change in the fair value of the derivative liability was recorded in other income or expenses in the
consolidated statement of operations at the end of 2019, with the offset to the derivative liability on the consolidated balance sheets.
The fair value of the embedded derivative liability was determined using the Monte Carlo Simulation model on the issuance date.
Debt
Issuance Costs and Debt Discount:
Debt
Issuance Costs consist of fees incurred through securing financing from Iliad Research on March 6, 2019. Debt Discount consists of the
discount recorded upon recognition of the derivative liability upon issuance of the first and second tranches. Debt issuance costs and
debt discount are amortized to interest expense over the term of the related debt using the effective interest method. Total amortization
expense for the year ended December 31, 2019 was $557,843.
(B)
Mortgage Notes Payable – collateralized
On
December 14, 2018, PharmCo 901 closed on the purchase of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida.
The purchase price was financed through the issuance of two mortgage notes and security agreements entered into with a commercial bank
and the sellers. PharmCo 901 entered into a mortgage note and security agreement with Regions Bank for $1,530,000. The promissory note
is collateralized by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December 14, 2028 and is subject
to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began in January 2019, with
the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed by Progressive
Care Inc. In February 2020, the mortgage note was purchased from Regions Bank by another financial entity. All of the original mortgage
and security agreement terms remained unchanged. The balance outstanding on the mortgage payable was $1,459,325 at December 31, 2019.
Interest expense was $72,134 for the year ended December 31, 2019.
PharmCo
901 also entered into a mortgage note and security agreement with the sellers of the 400 Ansin Boulevard land and building for $300,000.
The note bore interest at an annual rate of 10% and matured on December 14, 2019. The note was secured by the land and building, but
such security interest was subordinated to the bank’s security interest in the land and building. On December 14, 2019, principal
and accrued but unpaid interest of $330,000 was converted into 6,832,299 shares of Progressive Care Inc.’s common stock at the
stock’s closing price at the conversion date. Since the shares of common stock were not issued to the note holder until January
4, 2020, the $330,000 amount is included in notes payable – current portion in the accompanying consolidated balance sheet as of
December 31, 2019. (Note 10). Interest expense was $30,000 for the year ended December 31, 2019. The seller’s security interest
in the 400 Ansin Boulevard land and building will be retained until such time that the sellers are able to sell the common stock shares.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
(C)
Note Payable – Uncollateralized
As
of December 31, 2019, the uncollateralized note payable represents a non-interest-bearing loan that is due on demand from an investor.
(D)
Note Payable – Collateralized
In
September 2019, the Company entered into a note obligation with a bank, the proceeds from which were used to pay off a capital lease
obligation on pharmacy equipment in the amount of $85,429 (Note 9). The terms of the promissory note payable require 48 monthly payments
of $2,015, including interest at 6.5%. The balance outstanding on the note payable was $80,348 at December 31, 2019. The promissory note
is secured by equipment with a net book value of $74,706 at December 31, 2019. Interest expense on the note payable was $965 for the
year ended December 31, 2019.
Future
maturities of notes payable are as follows (this table reflects Chicago Venture and Iliad Research partial note redemptions disclosed
in Note 14, Subsequent Events):
Year
|
|
Amount
|
|
2020
|
|
$
|
1,916,553
|
|
2021
|
|
|
1,135,346
|
|
2022
|
|
|
1,773,032
|
|
2023
|
|
|
104,074
|
|
2024
|
|
|
90,856
|
|
Thereafter
|
|
|
1,051,635
|
|
Total
|
|
$
|
6,071,496
|
|
Interest
expense on these notes payable was $453,860 for the year ended December 31, 2019.
Note 9.
Capital Lease Obligations
In
July 2016, the Company entered into a capital lease obligation to purchase pharmacy equipment with a cost of $163,224. The terms of the
capital lease agreement required monthly payments of approximately $2,000 over 36 months with no stated interest rate and an incremental
borrowing rate of 6%. The Company recorded a discount on the capital lease obligation in the amount of $26,181 and subsequently amortizes
the discount over the lease term. The Company recorded amortization of the discount in the amount of $4,882 for the year ended December
31, 2019, which has been included in interest expense on the accompanying consolidated statement of operations. The unamortized discount
was $0 at December 31, 2019. The capital lease obligation matured in September 2019 and the remaining unpaid capital lease balance of
$85,429 was refinanced from the proceeds of a promissory note payable (Note 8).
In
May 2018, the Company entered into a capital lease obligation to purchase pharmacy equipment with a cost of $114,897. The terms of the
capital lease agreement require monthly payments of $1,678 plus applicable tax over 84 months at an interest rate of 6%. The lease is
secured by equipment with a net book value of $87,529 at December 31, 2019. As of December 31, 2019, the outstanding capital lease balance
totals approximately $92,000.
The
Company assumed an equipment capital lease obligation for medication dispensing equipment from the acquisition of PharmCo 1002 in July
2018. The lease expires in March 2020 and requires monthly installments of $2,855 including interest at the rate of 2.36%. The capital
lease obligation is secured by equipment with a net book value of $12,610 at December 31, 2019. As of December 31, 2019, the outstanding
capital lease balance totals approximately $79,000.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Minimum lease
payments for years subsequent to December 31, 2019 are as follows:
Year
|
|
Amount
|
|
2020
|
|
$
|
52,158
|
|
2021
|
|
|
76,492
|
|
2022
|
|
|
20,142
|
|
2023
|
|
|
20,142
|
|
2024
|
|
|
20,142
|
|
Thereafter
|
|
|
5,034
|
|
Subtotal
|
|
|
194,110
|
|
Less:
interest
|
|
|
23,527
|
|
Total
|
|
|
170,583
|
|
Less:
current maturities
|
|
|
42,327
|
|
Long-term
portion of capital lease obligation
|
|
$
|
128,256
|
|
The
current portion of the capital lease obligations was $42,327 as of December 31, 2019. Interest expense for the year ended December 31,
2019 was $13,452. Depreciation expense related to the assets under the capital leases was approximately $71,000 for the year ended December
31, 2019 and was included in depreciation and amortization expense in the accompanying consolidated statement of operations.
Note 10.
Stockholders’ Equity
Share-Based
Compensation
On
July 1, 2019, the Company issued 650,000 shares of its common stock to an outside consultant in satisfaction of an accrued compensation
liability from the second quarter 2019. The shares were issued in consideration of investor and public relations services provided to
the Company and initially valued at $43,000.
Common
Stock Issued for Business Acquisition
On
July 1, 2019, the Company issued 10,000,000 shares of its common stock to the former owners of FPRX for the acquisition of 100% of its
issued and outstanding common stock (Note 4). The shares were initially valued at $700,000. The amended FPRX Purchase Agreement entered
into on November 8, 2019 contained a rescission of the shares issued to the former owners. The common stock shares would be cancelled
upon return by the former owners. The common stock shares were returned to the Company in March 2020.
Common
Stock Issued for Mortgage Note Conversion
On
December 14, 2019, mortgage note principal and accrued but unpaid interest of $330,000 was converted into 6,832,299 shares of Progressive
Care Inc.’s common stock at the stock’s closing price at the conversion date (Note 8).
Amendment
to Certificate of Incorporation
On
September 23, 2019, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate
of incorporation wherein the total number of shares of all classes of capital stock which the Company shall have the authority to issue
is 1,010,000,000 shares, of which 1,000,000,000 shares are designated as common stock, par value $0.0001 per share, and 10,000,000 shares
are designated as Series A preferred stock, par value $0.00001 per share.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Preferred
Stock
The
Series A preferred stock is a non-dividend producing instrument that ranks superior to the Company’s common stock. Each one (1)
share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding
common stock and Preferred Stock eligible to vote at the time of the respective vote (the “Numerator”), divided
by (y) 0.49, minus (z) the Numerator.
With
respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders
of the outstanding shares of Series A Preferred Stock shall vote together with the holders of common stock without regard to class, except
as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws.
On
July 11, 2014, the board of directors approved the issuance of 51 shares of the Company’s Series A Preferred Stock to a certain
employee of the Company, which is equal to 50.99% of the total voting power of all issued and outstanding voting capital of the Company
in satisfaction of $20,000 in past due debt. These issued shares of preferred stock are outstanding as of December 31, 2019. As of December
31, 2019, the individual is employed by the Company.
Note 11.
Commitments and Contingencies
Legal
Matters
The
Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. In the opinion of management, the
disposition or ultimate resolution of currently known claims and lawsuits will not have a material adverse effect on the Company’s
consolidated financial position, results of operations or liquidity.
Lease
Commitments
The
Company leases its North Miami Beach pharmacy location under a non-cancelable operating lease agreement expiring in December 2020. This
lease is guaranteed by a shareholder and an unrelated individual. The Company also leases its Davie, Orlando, and Palm Beach County pharmacy
locations under operating lease agreements expiring in various months through March 2021. Rent expense was $365,838 for the year ended
December 31, 2019.
The
Company’s office space rentals are subject to scheduled rent increases throughout the terms of the related leases. As such, the
Company records the related rent expense on a straight-line basis, resulting in a deferred rent liability of $36,285 as of December 31,
2019.
At
December 31, 2019, rental commitments for currently occupied space for the fiscal years of 2020 through 2021 are as follows:
Year
|
|
Amount
|
|
2020
|
|
$
|
320,921
|
|
2021
|
|
|
12,731
|
|
Total
|
|
$
|
333,652
|
|
Note 12.
Related Party Transactions
During
the year ended December 31, 2019, the Company had a verbal consulting arrangement with Spark Financial Consulting (“Spark”),
which is a consulting company owned by an employee and preferred stock controlling shareholder of the Company. Spark provides business
development services including but not limited to recruiting, targeting and evaluation of potential mergers and acquisitions, finding
third party contractors and assisting with related negotiations in exchange for a monthly fee of $16,000 in 2019. Additionally, Spark
may be entitled to additional fees for additional consulting services. During the year ended December 31, 2019, the Company paid Spark
$238,158. The Company had accrued balances payable to Spark on its Consolidated Balance Sheet as of December 31, 2019 of $400.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
The
Company has an employment agreement (the “Agreement”) with a certain pharmacist, Head of the Compounding Department, who
is the first paternal cousin to the preferred stock controlling shareholder and employee of the Company. In consideration for duties
performed including but not limited to marketing, patient consultation, formulary development, patient and physician education, training,
recruitment, sales management, as well as pharmacist responsibilities, the Company agreed to provide monthly compensation of $15,000
or $10,000 per month plus 5% commission on monthly gross profits generated by the Compounding Department, whichever is greater. During
the year ended December 31, 2019, payments to the pharmacist were approximately $211,000.
Note 13.
Retirement Plan
The
Company sponsors a 401(k) retirement plan (“the Plan”) covering qualified employees of PharmCo 901, PharmCo 1002 and FPRX,
as defined. Employees who have been employed more than one year are eligible to participate in the Plan. The Company matches the employee’s
contribution up to a maximum of 3% of the eligible employee’s compensation. The Company contributed approximately $44,600 in matching
contributions for the year ended December 31, 2019.
Note 14.
Subsequent Events
Management
has evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through
March 22, 2021, the date the consolidated financial statements were available to be issued.
New 340B
contracts
On
January 1, 2020, the Company entered into a pharmacy service agreement with Embrace Arms Foundation, Inc., which is a covered entity
as defined in Section 340B of the Public Health Service Act. The Company will maintain sufficient supplies of covered drugs to meet the
day-to-day needs of Eligible Patients. Embrace Arms will replenish the Company’s inventory for Covered Drugs dispensed to Eligible
Patients for which payment under this Agreement was received by the Company. Embrace Arms will arrange to be billed directly for Covered
Drugs by the manufacturer/ wholesaler(s) and arrange for shipment of such drugs directly to the Company.
The
Company entered into a contracted pharmacy service agreement with Alive and Well Community Partners, LLC (“Alive and Well”)
on July 31, 2020, under which the Company will provide drug program services for Alive and Well’s 340B Drug Program. The Company
will receive dispensing and administrative fees for its services under this agreement.
Executive
Employment Agreement
The
Company entered into an executive employment agreement with Birute Norkute on January 3, 2020. The Company has appointed and will employ
Ms. Norkute as its Chief Operating Officer. Her employment duties will include reporting directly to the board of directors of the Company
for the full time high quality performance of directing, supervising and having responsibility for overseeing operations and the general
affairs of the Company. The term of the agreement is 3 years.
Chicago
Venture Partners L.P. Partial Note Redemptions
On
January 7, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $50,000 of note principal into 1,288,527 shares of Progressive Care common stock.
On
January 29, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $100,000 of note principal into 2,536,526 shares of Progressive Care common stock.
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
On
February 24, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $100,000 of note principal into 2,570,958 shares of Progressive Care common stock.
On
April 1, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $100,000 of note principal into 3,794,778 shares of Progressive Care common stock.
On
May 14, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request resulted
in a conversion of $200,000 of note principal into 6,650,705 shares of Progressive Care common stock.
On
June 30, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $450,000 of note principal into 13,567,294 shares of Progressive Care common stock.
On
August 6, 2020, Chicago Venture made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $230,079 of note principal into 5,750,831 shares of Progressive Care common stock.
On
July 1, 2019, the Company issued 10,000,000 shares of Common Stock to the former owners of FPRX, Inc. for the acquisition of 100% of
its issued and outstanding common stock. The shares were initially valued at $700,000. The amended FPRX purchase agreement
entered on November 8, 2019 contained a provision wherein the former owners were required to return the 10,000,000 shares of common stock
to us, at which point the common stock shares would be cancelled. On September 30, 2020, 10,000,000 shares of common stock were
cancelled which was recorded as a reduction in the number of outstanding shares as of September 30, 2020.
On
November 3, 2020, Chicago Venture made a final redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $177,580 of note principal into 6,043,418 shares of Progressive Care common stock.
Acceptance
of U.S. CARES Act PPP Program Loan Funds
On
April 6, 2020, the Company applied for Federal Payment Protection Program (PPP) Loan funds available under the U.S. CARES Act for all
subsidiaries of Progressive Care. Given the level of uncertainty surrounding the healthcare industry and the number of medical practices
closed or operating at fractional capacity, the Company worked to secure loan funding to ensure that it would provide support to its
employees who provide frontline medicinal services to Florida communities. On April 20, 2020, the Company received approval for an FPRX
loan in the amount of $421,400 through the Small Business Administration’s (SBA) preliminary round of funding for the PPP Program.
On May 1, 2020, the Company received approval of PPP loans for PharmCo 901 and PharmCo 1002 in the amount of $511,000 and $81,500, respectively,
through the SBA’s secondary PPP funding round. FPRX, PharmCo 901 and PharmCo 1002 received the proceeds from the PPP Loans on April
24, May 4, and May 6, 2020, respectively. The PPP Loans carry a 1% annual interest rate and mature 2 years from date of issuance with
a 6-month deferment period for repayment. Under the terms of the PPP, certain amounts of the PPP loans may be forgiven if they are used
for qualifying expenses as described in the U.S. CARES Act, including qualifying payroll costs, covered rent payments, covered utilities
and covered mortgage interest payments.
In
February 2021, PharmCo 1103 entered into a Second Draw of the PPP (the “PPP2 Note”) with a financial institution in the amount
of $421,400. The PPP2 Note was issued pursuant to the Consolidated Appropriation Act, 2021, (the “Act”) which was signed
into law on December 27, 2020. The PPP2 Note bears interest at 1% per annum and matures in February 2026. PharmCo 1103 may apply for
forgiveness of a portion or the entire balance of its PPP2 Note based on eligible costs including payroll, rent, utilities, and mortgage
interest incurred during the covered period following the disbursement of the funds by the financial institution (between 8 weeks and
24 weeks).
Progressive
Care Inc. and Subsidiaries
Notes
to the Consolidated Financial Statements
Year
ended December 31, 2019
Resignation
of Chief Executive Officer and Appointment of Chief Executive Officer
The
Company’s Chief Executive Officer and Board Member, Shital Parikh Mars, notified the Board of Directors of her resignation from
those positions on August 10, 2020. The Board of Directors accepted her resignation on August 13, 2020 and appointed Alan Jay Weisberg,
Chairman of the Board of Directors, to serve as Chief Executive Officer of the Company on an interim basis.
Operating
Lease – Orlando
The
Company entered into a non-cancelable operating lease agreement for the rental of its Orlando, Florida pharmacy on August 1, 2020. The
lease term is 66 months and expires on February 1, 2026. The lease agreement requires monthly rental payments of $4,310 commencing on
February 1, 2021, with an escalating payment schedule each year thereafter.
Appointment
of Chief Executive Officer and Chief Financial Officer
On
October 15, 2020, the Board of Directors appointed Alan Jay Weisberg as Chief Executive Officer of the Company and Cecile Munnik as Chief
Financial Officer of the Company.
U.S.
CARES Act PPP Loan Forgiveness
On
November 10, 2020, the Company received notification from Regions Bank that the U.S. Small Business Administration approved the forgiveness
of the U.S. CARES Act PPP Loans for PharmCo 901 in the amount of $511,000 and PharmCo 1002 in the amount of $81,500. The total debt forgiveness
in the amount $592,500 was recorded as a gain on debt extinguishment in the Company’s consolidated statement of operations for
the year ended December 31, 2020.
The
Company has applied for forgiveness of the PPP loan received by PharmCo 1103 in April 2020 in the amount of $421,400 and received notification
from the lender on January 7, 2021 that the U.S. Small Business Administration approved the forgiveness of the PPP Loan. The total debt
forgiveness in the amount of $421,400 will be recorded as a gain on debt extinguishment in the Company’s consolidated statement
of operations during the first quarter of 2021.
Iliad
Research Partial Note Redemptions
On
December 3, 2020, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $200,000 of note principal into 9,451,796 shares of Progressive Care common stock.
On
January 29, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $200,000 of note principal into 8,138,683 shares of Progressive Care common stock.
On
February 12, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $200,000 of note principal into 8,038,585 shares of Progressive Care common stock.
On
March 1, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request resulted
in a conversion of $380,880 of note principal into 10,580,000 shares of Progressive Care common stock.
On
March 8, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request resulted
in a conversion of $119,250 of note principal into 2,922,794 shares of Progressive Care common stock.
On
March 15, 2021, Iliad Research made a partial redemption request on its note agreement with Progressive Care. The redemption request
resulted in a conversion of $141,850 of note principal into 2,551,259 shares of Progressive Care common stock.
Units
Each
Unit Consisting of
One
Share of Common Stock and
One
Warrant to Purchase One Share of Common Stock
Progressive
Care Inc.
Sole
Book-Running Manager
The
Benchmark Company
, 2021
Through
and including , 2021 (25 days after the commencement of this offering), all
dealers that buy, sell or trade shares of our Common Stock, whether or not participating
in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation
to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid by the Registrant in
connection with the issuance and distribution of the securities being registered. All amounts other than the SEC registration fees and
FINRA fees are estimates.
|
|
Amount
|
|
SEC registration fee
|
|
$
|
|
|
FINRA filing fee
|
|
$
|
|
|
Exchange listing fee
|
|
$
|
|
|
Printing fees and expenses
|
|
$
|
|
|
Accounting fees and expenses
|
|
$
|
|
|
Legal fees and expenses
|
|
$
|
|
|
Transfer Agent and Registrar fees
|
|
$
|
|
|
Miscellaneous fees and expenses
|
|
$
|
|
|
Total*
|
|
$
|
|
|
No
pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification
is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification
by any of our directors or executive officers.
Item
14. Indemnification of Directors and Officers
We
shall indemnify our officers and directors under the circumstances and to the full extent permitted by law. A director of the Company
shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good
faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL for unlawful payment
of dividends or improper redemption of stock, or (iv) for any transaction from which the director derived an improper personal benefit.
If the DGCL is hereafter amended to authorize the further elimination or limitation of the liability of directors, then the liability
of a director of the Company, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent
permitted by the DGCL, as amended. Any repeal or modification of this paragraph by our stockholders shall be prospective only and shall
not adversely affect any limitation on the personal liability of a director of the Company existing at the time of such repeal or modification.
Section
145 of the DGCL provides that a Company has the power to indemnify a director, officer, employee, or agent of the Company, or a person
serving at the request of the Company for another Company, partnership, joint venture, trust or other enterprise in related capacities
against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party to any
threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the Company, and, in any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the Company,
no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable
to the Company unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication
of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
If
a claim is not paid in full by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where any undertaking required by the By-laws of the Company has been tendered to
the Company) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Company to indemnify
the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company
(including its Board of Directors, legal counsel, or its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct
set forth in the DGCL, nor an actual determination by the Company (including its Board of Directors, legal counsel, or its stockholders)
that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. Indemnification shall include payment by the Company of expenses in defending
an action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the person
indemnified to repay such payment if it is ultimately determined that such person is not entitled to indemnification.
In
any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree
to indemnify, under certain conditions, us, our directors, our officers, and persons who control us within the meaning of the Securities
Act of 1933, as amended, or the Securities Act, against certain liabilities.
To
the extent that indemnification for liabilities arising under the Securities Act may be permitted to our directors and officers, we
have been advised that, in the opinion of the Securities and Exchange Commission, this indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. Finally, our ability to provide indemnification to our directors and officers
is limited by federal banking laws and regulations.
Item
15. Recent Sales of Unregistered Securities
All
sales of unregistered securities in transactions that were exempt from the requirements of the Securities Act in the last three years
are set forth below.
Issuances
of Common Stock
On
July 22, 2016, we entered into a Securities Purchase Agreement with Chicago Venture. Pursuant the Securities Purchase Agreement, Chicago
Venture purchased from us 10% convertible promissory notes in the aggregate principal amount of $2,205,000, including a 10% OID and $5,000
attorney’s fee. The notes were convertible into shares of common stock at the lesser of market price on the date of conversion
or $0.05 per share. The notes were delivered in eight (8) tranches each in the principal amount of $250,000 and matured on October 18,
2018. We issued 35,367,266 shares of our common stock to Chicago Venture pursuant to the convertible promissory notes through the maturity
date of the notes as follows:
|
●
|
On
January 3, 2018, we issued 3,090,553 shares of our common stock to Chicago Venture at a conversion
price of $0.009707 per share.
|
|
●
|
On
January 24, 2018, we issued 3,113,002 shares of our common stock to Chicago Venture at a
conversion price of $0.009637 per share.
|
|
●
|
On
January 29, 2018, we issued 4,150,669 shares of our common stock to Chicago Venture at a
conversion price of $0.009637 per share
|
|
●
|
On
February 8, 2018we issued 2,739,398 shares of our common stock to Chicago Venture at a conversion
price of $0.011013 per share.
|
|
●
|
On
March 7, 2018, we issued 2,488,800 shares of our common stock to Chicago Venture at a conversion
price of $0.020090 per share.
|
|
●
|
On
April 2, 2018, we issued 2,000,000 shares of our common stock to Chicago Venture at a conversion
price of $0.050000 per share.
|
|
●
|
On
April 11, 2018, we issued 2,000,000 shares of our common stock to Chicago Venture at a conversion
price of $0.050000 per share
|
|
●
|
On
April 18, 2018, we issued 2,000,000 shares of our common stock to Chicago Venture at a conversion
price of $0.050000 per share
|
|
●
|
On
May 10, 2018, we issued 2,184,360 shares of our common stock to Chicago Venture at a conversion
price of $0.045780 per share.
|
|
●
|
On
June 5, 2018, we issued 1,077,354 shares of our common stock to Chicago Venture at a conversion
price of $0.046410 per share
|
|
●
|
On
July 2, 2018, we issued 1,778,811 shares of our common stock to Chicago Venture at a conversion
price of $0.042163 per share.
|
|
●
|
On
August 2, 2018, we issued 1,974,279 shares of our common stock to Chicago Venture at a conversion
price of $0.038523 per share.
|
On
January 5, 2018, we issued 41,843,571 shares of our common stock to our officers, directors and employees as stock-based compensation.
The shares were issued in consideration of services to be provided to us and were valued on the grant date at an aggregate of $577,629,
or $0.013804 per share. The requisite service period for vesting of the stock grants was one year.
On
March 15, 2018, we issued 1,000,000 shares of our common stock to two directors in satisfaction of an accrued compensation liability
from 2017. The shares were issued in consideration of director services provided to us in 2017 and valued at an aggregate of $14,000
or $0.014000 per share.
On
March 15, 2018, we issued 1,625,000 shares of our common stock to First Look Equities, LLC in satisfaction of an accrued compensation
liability from 2017. The shares were issued in consideration of investor and public relations services provided to us in 2017 and valued
at an aggregate of $22,750, or $0.014000 per share.
On
August 16, 2018, we issued 250,000 shares of our common stock to Mass Ventures Corp. for website development services performed during
the third quarter 2018. The shares were valued at an aggregate of $14,250, or $0.057000 per share.
On
July 1, 2019, we issued 400,000 shares of our common stock to Made Consulting in satisfaction of an accrued compensation liability from
the second quarter of 2019. The shares were issued in consideration of investor and public relations services provided to us and valued
at an aggregate of $28,000, or $0.070000 per share.
On July 1, 2019, we issued 250,000 shares of our common stock to Mass
Ventures Corp. in satisfaction of an accrued compensation liability from the second quarter 2019. The shares were issued in consideration
of website development services provided to us and valued at an aggregate of $15,000, or $0.060000 per share.
On
December 14, 2019, mortgage note principal and accrued but unpaid interest at an aggregate of $330,000, or $0.048300 per share, was converted
by 400 Ansin LLC, the noteholder, into 6,832,299 shares of our common stock. The shares were issued on January 4, 2020.
On
January 2, 2019, we entered into a Securities Purchase Agreement (the “Chicago Venture Purchase Agreement”) with Chicago
Venture for the sale of convertible promissory note in the amount of $2,710,000, which included a $200,000 OID and $10,000 in debt issuance
costs for the transaction. The note is convertible into shares of common stock ($0.0001 par value per share) in 1 year at the average
of the five lowest closing trading prices during the twenty trading days immediately preceding the applicable conversion at the redemption
requests of Chicago Venture. Through the date of this prospectus, Chicago Venture made partial redemption requests to convert the note
into common stock on the convertible note resulting in the following conversions to common stock:
|
●
|
On
January 7, 2020, Chicago Venture converted an aggregate of $50,000 of note principal into
1,288,527 shares of our common stock at a redemption rate of $0.038804 per share.
|
|
●
|
On
January 29, 2020, Chicago Venture converted an aggregate of $100,000 of note principal into
2,536,526 shares of our common stock at a redemption rate of $0.039424 per share.
|
|
●
|
On
February 24, 2020, Chicago Venture converted an aggregate of $100,000 of note principal into
2,570,958 shares of our common stock at a redemption rate of $0.038896 per share.
|
|
●
|
On
April 1, 2020, Chicago Venture converted an aggregate of $100,000 of note principal into
3,794,778 shares of our common stock at a redemption rate of $0.026352 per share.
|
|
●
|
On
May 14, 2020, Chicago Venture converted an aggregate of $200,000 of note principal into 6,650,705
shares of our common stock at a redemption rate of $0.030072 per share.
|
|
●
|
On
June 30, 2020, Chicago Venture converted an aggregate of $450,000 of note principal into
13,567,294 shares of our common stock at a redemption rate of $0.033168 per share.
|
|
●
|
On
August 6, 2020, Chicago Venture converted an aggregate of $230,079.24 of note principal into
5,750,831 shares of our common stock at a redemption rate of $0.040008 per share.
|
|
●
|
On
November 3, 2020, Chicago Venture converted an aggregate of $177,579.79 of note principal
into 6,043,418 shares of our common stock at a redemption rate of $0.029384 per share.
|
As
of the date of this prospectus the outstanding amount under the Chicago Venture Purchase Agreement is $0.
On
June 30, 2020, we issued 1,000,000 shares of our common stock valued at an aggregate of $48,200, or $0.048200 per share, to Victoria
Shuster, an independent contractor, as payment of a commission on the purchase of the 400 Ansin Blvd. building.
On
March 6, 2019, Progressive entered a Securities Purchase Agreement (the “Iliad Purchase Agreement”) with Iliad Research and
Trading, L.P. (“Iliad Research”), a Utah limited partnership, in the amount of $3,310,000, which included a $300,000 Original
Interest Discount (“OID”) and $10,000 in debt issuance costs for the transaction. The note is convertible into shares of
common stock ($0.0001 par value per share) in 1 year at the average of the two lowest closing trading prices during the twenty trading
days immediately preceding the applicable conversion. The note matures on March 6, 2022 (the “Maturity Date”). The note accrues
interest at the rate of 10% per annum and the entire unpaid principal balance plus all accrued and unpaid interest are due on the Maturity
Date. Through the date of this prospectus, Iliad Research made partial redemption requests to convert the note into common stock on the
convertible note resulting in the following conversions to common stock:
|
●
|
On
December 3, 2020, Iliad Research converted an aggregate of $200,000 of note principal into
9,451,796 shares of our common stock at a redemption rate of $0.021160 per share.
|
|
●
|
On
January 29, 2021, Iliad Research converted an aggregate of $200,000 of note principal into
8,138,683 shares of our common stock at a redemption rate of $0.024574 per share.
|
|
●
|
On
February 12, 2021, Iliad Research converted an aggregate of $200,000 of note principal into
8,038,585 shares of our common stock at a redemption rate of $0.024880 per share.
|
|
●
|
On
March 1, 2021, Iliad Research converted an aggregate of $380,880 of note principal into 10,580,000
shares of our common stock at a redemption rate of $0.036000 per share.
|
|
●
|
On
March 8, 2021, Iliad Research converted an aggregate of $119,250 of note principal into 2,922,794
shares of our common stock at a redemption rate of $0.04080 per share.
|
|
●
|
On
March 15, 2021, Iliad Research converted an aggregate of $141,850 of note principal into
1,989,390 shares of our common stock at a redemption rate of $0.037700 per share.
|
|
●
|
On
August 3, 2021, Iliad Research converted an aggregate of $200,000 of note principal into
4,945,598 shares of our common stock at a redemption rate of $0.040440 per share.
|
|
●
|
On
October 12, 2021, Iliad Research converted $200,000 of note principal into 7,558,579 shares
of our common stock at a redemption rate of $0.026460 per share.
|
As of November 27, 2021, the outstanding amount
under the Iliad Securities Purchase Agreement is $1,359,700.
On
February 8, 2021, we issued 1,989,390 shares of our common stock valued at an aggregate of $75,000, or $0.03770 per share, to Stanley
Campbell, CEO of EagleForce Health, LLC under a service agreement dated February 8, 2021.
On
April 22, 2021, we issued 107,142 shares of our common stock valued at an aggregate of $5,679, or $0.05300 per share, to Luther Campbell
under a representative agreement dated March 25, 2021.
On August 19, 2021, we issued 943,396 shares
of our common stock valued at an aggregate of $50,000, or $0.053000 to Alan Jay Weisberg under a directors’ agreement dated July
21, 2021.
On August 19, 2021, we issued 943,396 shares
of our common stock valued at an aggregate of $50,000, or $0.053000 to Jervis Hough under a directors’ agreement dated July 21,
2021.
On August 19, 2021, we issued 943,396 shares of our common stock
valued at and aggregate of $50,000, or $0.053000 to Oleg Firer under a directors’ agreement dated July 21, 2021.
All
the securities described above were issued in transactions exempt from registration under the Securities Act, as transactions not involving
a public offering, pursuant to Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder. The recipient of such securities
represented its intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with
any distribution thereof.
Item
16. Exhibits and Financial Statement Schedules
(a)
Exhibits
We
have filed the exhibits listed on the accompanying Exhibit Index of this registration statement and below in this Item 16:
EXHIBIT
INDEX
|
|
|
|
Exhibit
No.
|
|
Description
|
1.1*
|
|
Form
of Underwriting Agreement
|
3.1**
|
|
Progressive Training Inc, Certificate of Incorporation, dated October 31, 2006 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-SB filed on June 13, 2007)
|
3.2**
|
|
Progressive Care Inc., Certificate of Ownership and Merger of Progressive Care Inc. into Progressive Training, Inc. dated November 23, 2010
|
3.3**
|
|
Certificate of Amendment of Certificate of Incorporation dated July 3, 2014
|
3.4**
|
|
Certificate of Designations, Preferences and Rights of Series A Preferred Stock dated December 18, 2014
|
3.5**
|
|
Certificate of Amendment to the Certificate of Incorporation dated February 26, 2015
|
3.6**
|
|
Certificate of Amendment to Certificate of Incorporation dated September 23, 2019
|
3.7**
|
|
Certificate of Correction dated September 26, 2019
|
3.8**
|
|
Progressive Care Inc., Amended and Restated Bylaws
|
4.1**
|
|
Promissory Note between Regions Bank and PharmCo, LLC, 400 Ansin Blvd, Hallandale Beach, FL, dated as of December 14, 2018
|
4.2**
|
|
Promissory Note between 400Ansin LLC and the Company, 400 Ansin Blvd, Hallandale Beach, FL, dated as of December 14, 2018
|
4.3**
|
|
Secured Convertible Promissory Note between Chicago Venture Partners, L.P. and the Company, dated as of January 2, 2019
|
4.4**
|
|
Secured Convertible Promissory Note between Iliad Research and Trading, L.P. and Progressive Care Inc., dated as of March 6, 2019
|
5.1*
|
|
Opinion
of Lucosky Brookman LLP
|
10.1#**
|
|
Director Agreement between Jervis Hough and Progressive Care Inc., dated as of August 1, 2017
|
10.2#**
|
|
Director Agreement between Oleg Firer and Progressive Care Inc., dated as of September 20, 2017
|
10.3#**
|
|
Executive Employment Agreement by and between Alan Jay Weisberg and the Company, dated as of October 15, 2020.
|
10.4#**
|
|
Executive Employment Agreement by and between Cecile Munnik and the Company, dated as of October 15, 2020.
|
10.5#**
|
|
Executive Employment Agreement by and between Birute Norkute and the Company, dated as of January 3, 2020.
|
10.6**
|
|
Membership Interest Purchase Agreement – Touchpoint RX, LLC, dated as of March 30, 2018
|
10.7#**
|
|
Consulting Agreement by and between the Company and Spark Financial Consulting, Inc. dated July 1, 2019
|
10.8**
|
|
Membership Interest Exchange Agreement, dated January 5, 2015 (filed as Exhibit 10.1 to Form 8-K filed on January 9, 2015)
|
10.9#**
|
|
Incentive
Stock Plan
|
10.10*
|
|
Amended and Restated Executive Employment Agreement
by and between Alan Jay Weisberg and the Company, dated as of November 22, 2021
|
10.11*
|
|
Amended and Restated Executive Employment Agreement
by and between Cecile Munnik and the Company, dated as of November 22, 2021
|
10.12*
|
|
Amended and Restated Executive Employment Agreement
by and between Birute Norkute and the Company, dated as of November 22, 2021
|
10.13*
|
|
Amended and Restated Executive Employment Agreement
by and between Alan Jay Weisberg and the Company, dated as of November 22, 2021
|
10.14*
|
|
Amended and Restated Executive Employment Agreement
by and between Armen Karapetyan and the Company, dated as of November 22, 2021
|
10.15*
|
|
Executive Employment Agreement by and between
Carlos Rangel and the Company, dated as of November 22, 2021
|
14.1**
|
|
Code
of Business Conduct and Ethics
|
16.1†
|
|
Letter
regarding change in independent accountants issued by Berkowitz Pollack Brant
|
21.1**
|
|
List of subsidiaries of Progressive Care Inc.
|
23.1†
|
|
Consent
of Berkowitz Pollack Brant
|
23.2†
|
|
Consent of Daszkal Bolton LLP
|
23.3*
|
|
Consent
of Lucosky Brookman LLP
|
24.1†
|
|
Power of Attorney (set forth on the Signature Page of the Registration Statement)
|
99.1**
|
|
Corporate
Governance Principles
|
99.2**
|
|
Audit
Committee Charter
|
99.3**
|
|
Compensation
Committee Charter
|
99.4**
|
|
Nominating
and Corporate Governance Committee Charter
|
#
|
Indicates management
contract or compensatory plan, contract or arrangement.
|
†
|
Filed herewith.
|
**
|
Previously Filed
|
*
|
To be filed by amendment.
|
(b)
Financial Statement Schedules.
All
schedules have been omitted because either they are not required, are not applicable or the information is otherwise set forth in the
financial statements and related notes thereto.
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
(1)
|
To file, during any period in which offers
or sales are being made, a post-effective amendment to this registration statement:
|
|
(i)
|
To include any prospectus required by section
10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
|
|
(ii)
|
To reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement; and
|
|
(iii)
|
To include any material information with respect
to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the
registration statement; provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) above do not apply if the information required
to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Securities
and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the
registration statement.
|
(2)
|
That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
(3)
|
To remove from registration by means of a
post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
(4)
|
That, for the purpose of determining liability
under the Securities Act to any purchaser:
|
|
(A)
|
Each prospectus filed by the registrant pursuant
to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and
included in the registration statement; and
|
|
(B)
|
Each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
|
(5)
|
That for the purpose of determining liability
of the registrant under the Securities Act to any purchaser in the initial distribution of securities, the undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
|
|
(i)
|
Any preliminary prospectus or prospectus of
the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
|
|
(ii)
|
Any free writing prospectus relating to the
offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
|
(iii)
|
The portion of any other free writing prospectus
relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf
of the undersigned registrant; and
|
|
(iv)
|
Any other communication that is an offer in
the offering made by the undersigned registrant to the purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to any charter provision, by law or otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The
undersigned registrant hereby undertakes that:
(1)
|
For purposes of determining any liability
under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
|
(2)
|
For the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Hallandale Beach, Florida, on December 6, 2021.
|
Progressive
Care Inc.
|
|
|
|
|
By:
|
/s/
Alan Jay Weisberg
|
|
|
Name:
Alan Jay Weisberg
Title: Chief Executive Officer
(Principal Executive Officer)
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities
and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Alan Jay Weisberg
|
|
Chief Executive
Officer and
|
|
December
6, 2021
|
Alan Jay Weisberg
|
|
Chairman of the Board (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Cecile Munnik
|
|
Chief Financial Officer
|
|
December
6, 2021
|
Cecile Munnik
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Bennett Hough
|
|
Director
|
|
December
6, 2021
|
Jervis Bennett Hough
|
|
|
|
|
|
|
|
|
|
/s/
Oleg Firer
|
|
Director
|
|
December
6, 2021
|
Oleg Firer
|
|
|
|
|
/s/
Alan Jay Weisberg
|
|
Alan Jay Weisberg
Attorney-in-Fact
|
|
II-8
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