BACK IMAC Holdings Inc

Note 1 – Description of Business

IMAC Holdings, Inc. was a holding company for IMAC Regeneration Centers, The BackSpace retail stores and our Investigational New Drug division. IMAC Holdings, Inc. and its affiliates (collectively, the “Company”) provided movement, orthopedic and neurological therapies through its chain of IMAC Regeneration Centers. Through its consolidated and equity owned entities, its outpatient medical clinics provided conservative, non-invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. As of March 31, 2024 and December 31, 2023, the Company has sold or discontinued patient care at all our locations and has accordingly presented this component as discontinued operations. (See Note 2.) The Company delivered sports medicine treatments without opioids. The BackSpace operated healthcare centers specializing in chiropractic and spinal care services inside Walmart retail locations. The Company’s Investigational New Drug division conducted a clinical trial for its investigational compound utilizing umbilical cord-derived allogenic mesenchymal stem cells for the treatment of bradykinesia due to Parkinson’s disease. In May 2024, we entered a new line of business (See Note 13 Subsequent Events).

Note 2 – Summary of Significant Accounting Policies

Note 3 – Capital Requirements, Liquidity and Going Concern Considerations

The Company’s consolidated financial statements are prepared in accordance with GAAP and includes the assumption of a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying consolidated financial statements, the Company has sustained substantial losses from operations since inception and has discontinued its operations as of December 31, 2023 which raises substantial doubt regarding the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. The Company had a working capital deficit of approximately ($1.2) million at March 31, 2024. The Company had a net loss of approximately $0.4 million for the three months ended March 31, 2024, and used cash in operations of approximately $0.2 million for the three months ended March 31, 2024. The Company expects to continue to incur expenditures for working capital.

Management’s plans are to merge with an operating company or acquire a new business (See Note 13). Management recognizes that the Company may need to obtain additional resources to successfully implement its business plans. No assurances can be given that we will be successful. If management is not able to timely and successfully raise additional capital if needed, the implementation of the Company’s business plan, financial condition and results of operations will be materially affected. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 – Concentration of Credit Risks

Cash

The Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits of $250,000.

Revenue and Accounts Receivable

Note 5 – Accounts Receivable

Note 6 – Property and Equipment

Note 7 – Intangibles Assets and Goodwill

The Company’s intangible assets and goodwill consisted of the following at March 31, 2024 and December 31, 2023:

In January 2023, the Company sold the Louisiana Market which had a total intangible carrying amount of approximately $61,000 which was written off as impaired.

In February 2023, the Company sold the BackSpace retail clinics which had a total intangible carrying amount of approximately $60,000 which was written off as impaired.

On April 1, 2023, the Company executed an agreement to sell all the assets of Ricardo Knight, PC which had a total intangible carrying amount of approximately $265,000 which was written off as impaired.

In October 2023, the Company executed an agreement to sell all the assets of the Kentucky Market which has a total intangible carrying amount of approximately $614,000 which was written off as impaired.

In December, 2023, the Company determined that the intangible asset for the investigational new drug which had a total intangible carrying amount of approximately $244,000 was impaired and was written off.

The Company performs its annual impairment test during the fourth quarter of the fiscal year. For the year ended December 31, 2023, the Company closed or sold all locations. The Company performed a qualitative impairment test and based on the totality of information available for the reporting units, the Company concluded that it was more-likely-than-not that the carrying value is greater than the estimated fair values of the reporting units at December 31, 2023. An intangible impairment loss of approximately $1.2 million was recorded in 2023. There was no goodwill or intangible assets at March 31, 2024.

Amortization was $0 and $44,352* for the three months ended March 31, 2024 and 2023, respectively.

Note 8 – Operating Leases

On January 1, 2019, the Company adopted Topic ASC 842 using the modified retrospective method applied to leases that were in place at January 1, 2019. The Company’s leases consist of operating leases that relate to real estate rental agreements. Most of the value of the Company’s lease portfolio upon adoption relates to real estate lease agreements that were entered into starting March 2017.

Discount Rate Applied to Operating Leases

To determine the present value of minimum future lease payments for operating leases at January 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate of leases added as of March 31, 2024 and December 31, 2023, the Company used a weighted average interest rate.

Total operating lease cost

Minimum rental payments under operating leases are recognized on a straight light basis over the term of the lease.

Maturity of operating leases

Note 9 – Stockholders’ Equity (Deficit)

Reverse Stock Split

Effective on September 7, 2023, the Company implemented a 1-for-30 reverse stock split of the issued and outstanding shares of our common stock, par value $0.001 per share (the “common stock”). Under the reverse split, every thirty shares of outstanding shares issued and outstanding were automatically converted into one share of common stock. Except as otherwise indicated, all information in the accompanying consolidated financial statements and footnotes concerning share and per share data reflects the retroactive effect of the 1-for-30 reverse stock split.

2018 Incentive Compensation Plan

The Company’s board of directors and holders of a majority of outstanding shares approved and adopted the Company’s 2018 Incentive Compensation Plan (“2018 Plan”) in May 2018, reserving the issuance of up to 2,000,000 shares of common stock (subject to certain adjustments) upon exercise of stock options and grants of other equity awards. The 2018 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, other forms of equity compensation and performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to the Company’s non-employee directors and consultants, and affiliates.

Stock Options

During the three months ended March 31, 2024 and the year ended December 31, 2023, the Company did not issue any new stock options. Most options vested over a period of four years, with 25% vesting after one year and the remaining 75% vesting in equal monthly installments over the following 36 months and are exercisable for a period of ten years. Stock based compensation for stock options is estimated at the grant date based on the fair value calculated using the Black-Scholes method. The per-share fair values of these options is calculated based on the Black-Scholes-Merton pricing model.

Restricted Stock Units

On May 19, 2023, the Company granted an aggregate of 10,000 RSUs to Board members with these RSU’s vesting immediately with a fair value of $42,900 based on the grant date stock price.

Preferred Stock

On July 25, 2023, the Company entered into a definitive securities purchase agreement with several institutional and accredited investors, including existing significant investors of Theralink Technologies, Inc., its previously announced merger partner (OTC:THER) (“Theralink”), and Theralink’s Chairman, for the sale of its preferred stock and warrants. IMAC sold an aggregate of 2,500 shares of its Series A-1 Convertible Preferred Stock, stated value $1,000 per share, 1,800 shares of its Series A-2 Convertible Preferred Stock, stated value $1,000 per share, and Warrants to purchase up to 2,075,702 shares of its common stock for aggregate gross proceeds of $4.3 million before deducting placement agent fees and other offering expenses of $480,000. The shares of A-1 Convertible Preferred Stock, shall bear a 12% dividend based on stated value, have no voting rights, and are initially convertible into an aggregate of 763,126 shares of common stock of the Company, and the shares of Series A-2 Convertible Preferred Stock are initially convertible into an aggregate of 549,451 shares of common stock of the Company, in each case, at a conversion price of $3.276 per share. The Warrants have an exercise price of $3.276 per share, are exercisable immediately, and will expire five years from the date of shareholder approval of this private placement. The shares contain price protection provisions and beneficial ownership limitation provisions upon conversion as defined in the certificates of designation. Approximately $3.0 million of the proceeds of the offering was used to make two loans to Theralink for investment into sales and marketing efforts and general working capital purposes as the companies continue to take formal steps together in advancing their merger previously announced on May 23, 2023. As of March 31, 2024 and December 31, 2023 dividends of approximately $209,365 and $130,000, respectively have been declared and accrued on the Series A-1 Convertible Preferred Stock.

The Company also entered into a Registration Rights Agreement, pursuant to which it agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) covering the resale of the shares of the Company’s common stock underlying the Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock and Warrants no later than 45 days following the closing of the planned merger.

On December 20, 2023, the Company entered into a letter agreement with several institutional and accredited investors providing for the sale of an additional aggregate $250,000 of convertible preferred stock (the “Private Placement”) with offering expenses of approximately $25,000. Pursuant to the letter agreement, the Company exchanged its Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred stock for a corresponding number of shares of the Company’s newly-created Series B-1 Convertible Preferred Stock and the Company’s newly-created Series B-2 Convertible Preferred Stock, respectively. Shares of the Series B-1 Convertible Preferred Stock and Series B-2 Convertible Preferred Stock are convertible into shares of common stock of the Company at a conversion price of $1.84 per share, which is above the most recent closing price of the Company’s common stock and represents a reduction in the conversion price from the Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock. Therefore, the Series B-1 and B-2 preferred stock is convertible into 1,437,500 and 1,035,326 common shares, respectively. In addition, the exercise price of the Warrants was reduced to $1.84 pursuant to the letter agreement. The reduction in the conversion price and the exercise price was made in consideration of the additional purchase amount, therefore there was no accounting effect of this exchange. It is expected that the proceeds of the Private Placement will be used for general working capital and general corporate purposes.

All terms other than the conversion price are the same as the Series A-1 and A-2.

In 2024, the Series B-1 and B-2 preferred shares were exchanged for Series C shares (See Note 13).

Common Stock

In January 2023, the Company issued 2,725 common shares for cash of $16,650 under its At The Market (ATM) offering.

On December 27, 2023, issued an aggregate of 10,000 common shares for the Board members valued at $4.29 per share or $42,900 based on the quoted trading price on the grant date which was May 2023.

Warrants

In July 2023, the Company issued 2,075,702 warrants in conjunction with the preferred stock offering discussed above.

Note 10 – Retirement Plan

The Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees. Additionally, the Company is required to make matching contributions of 100% up to 3% and 50% of the next 2% of total compensation for those employees making salary deferrals. The Company made contributions of $0 and $26,823 during the three months ended March 31, 2024 and 2023, respectively. The Company terminated the matching contributions during 2023.

Note 11 – Income Taxes

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management assessed all available evidence to estimate if sufficient future taxable income will be generated in the appropriate period and of the appropriate character to realize deferred tax assets. For the three months ended March 31, 2024 and March 31, 2023, no income tax expense or benefit was recorded related to income taxes due to the Company’s overall operating results and the full valuation allowance.

The Company performed a comprehensive review of its uncertain tax positions and determined that no adjustments were necessary relating to unrecognized tax benefits as December 31, 2023. As of March 31, 2024, the Company had no unrecognized tax benefits recorded. The Company is subject to taxation by federal, state, and local taxing authorities. The Company’s federal, state, and local income tax returns are subject to examination by taxing authorities for three years after the returns are filed, and the Company’s federal, state, and local income tax returns for 2020 through 2023 remain open to examination.

Note 12 – Commitments and Contingencies

The Company accrues a liability and charges operations for the estimated costs of contingent liabilities, including adjudication or settlement of various asserted and unasserted claims existing as of the consolidated balance sheet date, when it is probable that a loss has been incurred and the loss (or range of probable loss) is estimable.

From time to time the Company may become subject to threatened and/or asserted claims arising in the ordinary course of our business. Other than the matter described below, management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material impact on the Company’s financial condition, results of operations or liquidity.

Third Party Audit

From time to time, in the ordinary course of business, we are subject to audits under various governmental programs in which third party firms engaged by the Center for Medicare & Medicaid Services (“CMS”) conduct extensive reviews of claims data to identify potential improper payments. We cannot predict the ultimate outcome of any regulatory reviews or other governmental audits and investigations.

On April 15, 2021, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”) contractor, that they are recommending to CMS that the Company was overpaid in the amount of $2,921,868. This amount represents a statistical extrapolation of $11,530 of charges from a sample of 40 claims for the periods February 2017 to November 2020. On June 3, 2021, the Company received a request for payment from CMS in the amount of $2,918,472. The Company began its own internal audit process and initiated the appropriate appeals. The Company received a notification dated September 30, 2021, from CMS that they “found the request to be favorable by reversing the extrapolation to actual”. The Company received a separate notification stating “the extrapolated overpayment was reduced to the actual overpayment amount for the sampled denied claims $5,327.73,” which had been paid as of December 31, 2021.

On October 21, 2021, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”) contractor, that they are recommending to CMS that the Company was overpaid in the amount of $2,716,056.33. This amount represents a statistical extrapolation of $6,791.33 of charges from a sample of 38 claims for the periods July 2017 to November 2020 for Progressive Health & Rehabilitation, Ltd (“Progressive Health”). The Company entered into a management agreement with Progressive Health in April 2019 and therefore liable for only a portion of the sampled claims. There were a total of 38 claims reviewed, 25 of these claims were from the period prior to the management agreement with the Company and the remaining 13 claims were related to the period that Progressive Health was managed by the Company. In December 2021, the Company received a request for payment from CMS in the amount of $2,709,265. The Company has begun its own internal audit process and has initiated the appropriate appeals. The Company submitted a redetermination request in March 2022, which was denied. The Company submitted a reconsideration request February 27, 2023. On July 5, 2023, the Company received a reconsideration decision from the second appeal. The Qualified Independent Contractor provided a “partially favorable” decision that medical necessity supported 15 of 38 appealed claims. The Company filed a timely appeal and a hearing with an Administrative Law Judge was conducted November 29, 2023. The ALJ decision received on February 7, 2024, failed to address appeal and partially favorable decision impact on the extrapolated charges. The Company timely filed an appeal to Medicare Appeals Council on April 5, 2024.

On May 17, 2022, the Company received notification from Covent Bridge Group, a Center for Medicare & Medicaid Services (“CMS”) contractor, that they are recommending to CMS that the Company was overpaid in the amount of $492,086.22 related to Advantage Therapy. This amount represents a statistical extrapolation of charges from a sample, the actual amount found to be overpaid was $10,420.22. On May 27, 2022, the Company received a request for payment from CMS in the amount of $481,666.00. The Company has begun its own internal audit process and has initiated the appropriate appeals. Prior to this May 2022 notification, CMS had implemented a pre-payment audit for Advantage Therapy. As of June 30, 2023, this audit had resulted in a recoupment balance of approximately $0.1 million of Medicare accounts receivable. The Company submitted a reconsideration request in May 2023. On August 4, 2023, the Company received a reconsideration decision from the second appeal. The Qualified Independent Contractor provided a “partially favorable” decision supporting 31 of 65 appealed claims. The Company filed a timely appeal and conducted a hearing with an Administrative Law Judge February 20, 2024, and awaits the response from the hearing. As of December 31, 2023, this audit had resulted in a balance of approximately $138,000 of Medicare accounts receivable which has been fully reserved.

On December 9, 2022, the Company received a suspension of payment notification from Covent Bridge Group, a Center for Medicare & Medicaid Services contractor, for IMAC Regeneration Center of Kentucky. On December 22, 2022, the Company responded to the payment suspension with a Rebuttal of Notice. The suspension of payment will remain in effect until the Rebuttal of Notice is answered. The Company provided medical records for 10 beneficiaries. Neither CMS nor Covent Bridge have responded to the Company regarding the records, although they initiated the Kepro audit noted in the following paragraph. As of December 31, 2023, the payment suspension resulted in a recoupment balance of approximately $90,000 of Medicare accounts receivable which has been fully reserved.

On October 2, 2023, the Company received notice from Kepro, “Initial Sanction Notice of Failure in a Substantial Number of Cases”. Kepro has recommended a Corrective Action Plan (CAP). (i) Perform a root cause analysis (RCA) and describe the underlying cause of the failure. Submit a copy of the RCA performed. (ii) Identify goals (desired outcomes) of the CAP. These goals must be measurable-containing a numerator and denominator-attainable, and meaningful. (iii) Explain how the process(es) will be created or modified to correct the underlying root cause. (iv) Explain how the process(es) will be implemented, including time frames for implementation. (v) Explain how the implemented process(es) and outcomes will be monitored and reported. (vi) Identify the person who will be responsible for monitoring the CAP’s specified time frame. The Company intends on complying with the recommendations of the CAP. In addition, after further review, the Company will appeal the recommendation and outcomes of the audit by Kepro. A meeting with Kepro was conducted on November 20, 2023 to review findings, CAP, and appeal of findings. The meeting resulted in a CAP and communication to medical providers regarding the audit. There was no financial recoupment request.

Other smaller denials the Company is appealing aggregate approximately $25,000 as of March 31, 2024.

At this stage of the appeals process, based on the information currently available to the Company, the Company is unable to predict the timing and ultimate outcomes of these matters and therefore is unable to estimate the range of possible loss. Any potential loss may be classified as errors and omissions for which insurance coverage was in place during a majority of the years being evaluated.

As of March 31, 2024 and December 31, 2023, the Company has not recorded a provision for any of these claims, as management does not believe that an estimate of a possible loss or range of loss can reasonably be made at this time.

Note 13 - Subsequent Events

As described below on April 10, 2024, we entered into a series of transactions including the exchange of the Company’s outstanding Series B-1 Convertible Preferred Stock, par value $0.001 per share (the “Series B-1 Preferred Stock”) and Series B-2 Convertible Preferred Stock, par value $0.001 per share (the “Series B-2 Preferred Stock” and, collectively with the Series B-1 Preferred Stock, the “Series B Preferred Stock”), for new preferred stock, the exchange of the Company’s outstanding warrants (the “Existing Warrants”) for new warrants, and the sale of new preferred stock and warrants. All such transactions were consummated on April 11, 2024.

Exchange

On April 11, 2024, the Company entered into an exchange agreement (each, an “Exchange Agreement”) with holders of Series B Preferred Stock, pursuant to which the holders would exchange (i) 4,550 shares of Series B Preferred Stock, with a conversion price of $1.84, for 4,750 shares of Series C-1 Convertible Preferred Stock, par value $0.001 per share, of the Company (the “Series C-1 Preferred Stock”), with a conversion price of $2.561 and (ii) their Existing Warrants, with an exercise price of $1.84, for new warrants, with an exercise price of $2.561, (the “Exchange Warrants” and, together with the Series C-1 Convertible Preferred Stock, the “Exchange Securities”), on a one-for-one basis. Such exchanges were made without any additional consideration having been paid by the Holders. All of the outstanding shares of Series B Preferred Stock and all outstanding Existing Warrants were terminated upon the exchange. If at the time of exercise of the Exchange Warrants, there is no effective registration statement registering the shares of the Common Stock underlying the Exchange Warrants, such Exchange Warrants may be exercised on a cashless basis pursuant to their terms.

PIPE Financing

On April 10, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with accredited investors (the “Investors”), pursuant to which the Company agreed to issue and sell, and the Investors agreed to purchase, 1,276 shares of Series C-2 convertible preferred stock (the “Series C-2 Preferred Stock” and, together with the Series C-1 Preferred Stock, the “Series C Preferred Stock”), at a price of $1,000 per share or an aggregate $1,276,000, and 498,243 warrants , with an exercise price of $2.561 (the “PIPE Warrants” and, together with the Exchange Warrants, the “Warrants”), to purchase our common stock for aggregate cash proceeds (after giving effect to the Settlement and Release payment of $376,000 (as discussed below) of $900,000. If at the time of exercise of the PIPE Warrants, there is no effective registration statement registering the shares of the Common Stock underlying the PIPE Warrants, such PIPE Warrants may be exercised on a cashless basis pursuant to their terms.

Rights and Preferences of Series C Preferred Stock

The rights and preferences of the Series C-1 Preferred Stock and the Series C-2 Convertible Stock are identical in all material respects; however, the Series C-1 Convertible Preferred Stock was issued in exchange for Series B Preferred Stock without the payment of any additional consideration and, for the purpose of Rule 144 of the Securities Act of 1933, as amended, ownership of the Series C-1 Preferred Stock shall tack back to December 20, 2023.

Authorized; Stated Value. The Company authorized 4,750 shares of Series C-1 Preferred Stock and 5,376 shares of Series C-2 Preferred Stock. Each share of Series C Preferred Stock has a stated value of $1,000 (subject to increase upon any capitalization of dividends – See “Dividends” below).

Ranking. The Series C Preferred Stock, with respect to the payment of dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company, ranks senior to all capital stock of the Company unless the Required Holders (as defined in the Securities Purchase Agreement) consent to the creation of other capital stock of the Company that is senior or equal in rank to the Series C Preferred Stock.

Liquidation Preference. In the event of a Liquidation Event, as defined in the certificates of designations for the Series C-1 Preferred Stock and the Series C-2 Preferred Stock, the holders thereof shall be entitled to receive payment in an amount per share equal to the greater of (A) 110% of the sum of the stated value of the share plus any amount owed to the holder by the Company in connection with the share, including all declared and unpaid dividends thereon, on the date of such payment and (B) the amount per share such holders would receive if such shares had been converted into Common Stock immediately prior to the date of such payment; provided, however that if the funds available for such payment to the holders of Series C-1 Preferred Stock, the Series C-2 Preferred Stock, and any other capital stock of the Company ranking on par with them for liquidation purposes are insufficient, all such holders shall be paid proportionally to their holdings out of available funds.

Dividends. Dividends on the Series C Preferred Stock equal to 10% per annum (subject to adjustment) will begin to accrue upon issuance and, subject to the satisfaction of certain customary equity conditions, will be payable in shares of Common Stock, provided, however, that the Company may elect to capitalize dividends in lieu of issuing shares of Common Stock by increasing the stated value of each applicable share of Series C Preferred Stock. If the Company fails to properly satisfy such equity conditions, such dividends will be capitalized for each holder of Series C Preferred Stock (unless such holder waives such failure in order to receive shares of Common Stock as payment for such dividend). Notwithstanding the foregoing, unless the Company obtains the Stockholder Approval (see “Stockholder Approval” below), all dividends shall be capitalized dividends.

Conversion Rights

Conversion at Option of Holder. Each holder of Series C Preferred Stock may convert all, or any part, of their outstanding Series C Preferred Stock, at any time at such holder’s option, into shares of Common Stock (which converted shares of Common Stock are referred to as “Conversion Shares” herein) based on the fixed “Conversion Price” of $2.561.

Adjustments to Conversion Price. The Conversion Price is subject to proportional adjustment upon the occurrence of any stock split, stock dividend, stock combination and/or similar transactions. Although the Series C Preferred Stock does not initially have antidilution protection for issuances below the conversion price then in effect in subsequent placements, if the Company obtains the Stockholder Approval (see “Stockholder Approval” below), thereafter the Series C Preferred Stock shall have full ratchet antidilution protection. Subject to the rules and regulations of the Principal Market, the Company may, at any time, with the written consent of the Required Holders, lower the fixed conversion price to any amount and for any period of time deemed appropriate by the Company’s board of directors.

Mandatory Conversion. If the closing price of the Common Stock on the principal trading market, if any, in which the shares of Common Stock then trade (the “Principal Market”), equals at least 300% of the Conversion Price for twenty (20 consecutive trading days and no Equity Conditions Failure exists, the Company may require each holder of Series C Preferred Stock, on a pro rata basis among all such holders, to convert all, or any number, of the shares of Series C Preferred Stock based on the then-current Conversion Price.

Alternate Conversion Upon a Triggering Event. Solely if the Company has obtained the Stockholder Approval (see “Stockholder Approval” below), following the occurrence and during the continuance of a Triggering Event (as defined in the Series C Certificates of Designations), each holder may alternatively elect to convert the Series C Preferred Stock at the “Alternate Conversion Price” equal to the lesser of (A) the Conversion Price, and (B) the greater of (x) the floor price of $0.5122, and (y) 80% of the volume weighted average price of the Common Stock during the 5 consecutive trading days immediately prior to such conversion.

Company Redemption. At any time the Company shall have the right to redeem in cash all, but not less than all, the shares of Series C Preferred Stock then outstanding at the greater of (x) 110% of the amount of shares being redeemed, and (y) the equity value of the Common Stock underlying the Series C Preferred Stock. The equity value of the Common Stock underlying the Series C Preferred Stock is calculated using the greatest closing sale price of the Common Stock on any trading day immediately preceding the date the Company notifies the holders of its election to redeem and the date the Company makes the entire payment required.

Voting Rights. The holders of the Series C Preferred Stock have no voting power and no right to vote on any matter at any time, either as a separate series or class or together with any other series or class of share of capital stock, and shall not be entitled to call a meeting of such holders for any purpose nor shall they be entitled to participate in any meeting of the holders of Common Stock, except as provided in the Series C Certificates of Designations (or as otherwise required by applicable law).

Stockholder Approval

The Company has agreed to seek the approval of the Company’s stockholders to the issuance of all of the securities issuable pursuant to the Series C Preferred Stock and the Warrants in compliance with the rules and regulations of the Nasdaq Capital Market (the “Stockholder Approval”), which, if obtained, would permit the issuance of more than 20% of the outstanding capital stock of the Company at a price less than $2.561, by no later than July 31, 2024. If the Company fails to obtain the Stockholder Approval, the Company has agreed to cause an additional meeting to be held to seek Stockholder Approval on or prior to October 31, 2024 and, if not obtained, semi-annually thereafter.

Settlement and Release Agreements

In connection with the exchange and PIPE financing transactions, each holder of Series B-1 Preferred Stock entered into a Settlement and Release Agreement with the Company, pursuant to which the Company agreed to pay to each such holder a cash amount equal to the damages claimed to have been suffered by such holder upon the attempted conversion and then unwinding of such conversion of shares of such holders Series B-1 Preferred Stock, in exchanged for a release by the holder in favor of the Company of all claims related to such unwinding. All amounts paid pursuant to the Settlement and Release Agreements were reinvested, in full, into the Company pursuant to the Securities Purchase Agreement.

Registration Rights

In connection with the exchange and PIPE financing transactions, the Investors received registration rights customary for such transactions.

Loan to Theralink

On April 11, 2024, the Company entered into a credit agreement (the “Theralink Credit Agreement”) with Theralink, pursuant to which Theralink may borrow from the Company up to $1,000,000 (the “Term Loans”), with an initial borrowing of $350,000 made on April 12, 2024. The Term Loans have a maturity date of October 12, 2024 and bear interest at 9% per annum for interest to be paid in cash and 11% per annum for any portion of the accrued interest that is paid in kind, which “PIK Interest” will be added to the then-outstanding principal amount of the Term Loans. The Term Loans are secured by a first priority interest, subject to permitted liens in accordance with the Theralink Credit Agreement, in the assets of Theralink and its subsidiaries pursuant to a Security and Pledge Agreement dated April 12, 2024 made by Theralink and each of its subsidiaries party thereto as Grantors, in favor of the Company (the “Security and Pledge Agreement”).

Series D Preferred Stock; Acquisition of Theralink Debt

On April 30, 2024, the Company entered into securities purchase agreements (each, a “Securities Purchase Agreement”) with various holders (the “Note Holders”) of senior secured convertible debentures (the “Notes”) of Theralink Technologies, Inc. (“Theralink”) for the sale of shares of the Company’s newly created Series D Convertible Preferred Stock, $0.001 par value (the “Series D Preferred Stock”). The consideration paid by the Note Holders will be in the form of all of the Notes held by them, which have an aggregate principal amount outstanding of $16,221,873.89 and which the Note Holders accelerated earlier on April 30, 2024. Upon the consummation of the transactions contemplated by the Securities Purchase Agreement, the Company will be the holder of approximately 74.01% of the outstanding Notes.

The exact number of shares of Series D Preferred Stock to be issued will be determined in accordance with a schedule (the “Table of Allocations”), set forth as Schedule 1(a) of the Purchase Agreement and copied below, of share amounts based on the results of a valuation of Theralink’s assets by an independent appraiser, currently in process. The shares of Series D Preferred Stock will be issued pursuant to a Certificate of Designations to be filed with the Secretary of State of the State of Delaware.

Settlement and Release Agreement; Series E Preferred Stock

On May 1, 2024, the Company entered into a Settlement and Release Agreement with Theralink (the “Settlement Agreement”) pursuant to which the parties agreed to a settlement of the default by Theralink under the previously announced Credit Agreement dated April 11, 2024 between the Company as Lender and Theralink as Borrower (the “Theralink Credit Agreement”). The default is a cross-default triggered by Theralink’s failure to make payments on the Notes, which had been accelerated by the Noteholders on April 30, 2024. The settlement consists of the transfer of all of the assets of Theralink, other than certain excluded assets, and certain liabilities, to the Company in exchange for (i) the forgiveness by the Company of the outstanding amounts due under (a) the Notes to be held by the Company pursuant to the Securities Purchase Agreement, (b) certain other pre-existing notes made by Theralink in favor of the Company, having an aggregate outstanding principal amount of $3,000,000 and (c) the Theralink Credit Agreement and (ii) the issuance to Theralink of the Company’s newly created Series E Convertible Preferred Stock, $0.001 par value (the “Series E Preferred Stock”). In addition, pursuant to the Settlement Agreement, the parties agreed to mutual releases with respect to the outstanding payments being forgiven, the Company and Theralink agreed to terminate the merger agreement between them and withdraw the Registration Statement on Form S-4 related thereto as soon as commercially practicable, and the Company agreed to assume certain liabilities of Theralink and to hire certain of the employees of Theralink.

The exact number of shares of Series E Preferred Stock to be issued will be determined in accordance with the Table of Allocations. It is possible that no shares of Series E Preferred Stock will be issued, depending on the valuation of Theralink’s assets. The shares of Series E Preferred Stock, if any, will be issued pursuant to a Certificate of Designations to be filed with the Secretary of State of the State of Delaware.

All such transactions are expected to be consummated in May 2024 after the valuation is available and evaluated by management and the numbers of Series D Preferred Stock and Series E Preferred Stock are calculated in accordance with the Table of Allocations, set forth as Schedule B of the Settlement Agreement. The Table of Allocations is set forth below.

Termination of Merger Agreement

With the Company already in possession of such assets of Theralink pursuant to the Settlement Agreement, and a merger with Theralink no longer necessary to acquire such assets, on May 6, 2024, the Company, IMAC Merger Sub, Inc. (“Merger Sub”) and Theralink entered into a Termination Agreement, which immediately terminated the Agreement and Plan of Merger, dated May 26, 2023, by and between the Company, Merger Sub and Theralink.