Filed 2025-03-31 · Period ending 2024-12-31 · 76,096 words · SEC EDGAR
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# INSPIRE VETERINARY PARTNERS, INC. (IVPR) — 10-K
**Filed:** 2025-03-31
**Period ending:** 2024-12-31
**Accession:** 0001213900-25-026232
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1939365/000121390025026232/)
**Origin leaf:** 8420722f3f0012896b79019f27d1c0db7dd2f141e03a89eac0ecb84f6c6ec644
**Words:** 76,096
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**
UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended **December 31, 2024**
or
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________
to _______________
Commission file number **001-41792**
**INSPIRE VETERINARY PARTNERS, INC.**
(exact name of registrant as specified in its charter)
| Nevada | | 85-4359258 | |
| State or other jurisdiction of incorporation or organization | | (I.R.S. Employer Identification No.) | |
**780 Lynnhaven Parkway**
**Suite 400**
**Virginia Beach, Virginia 23452**
(Address of principal executive offices)
**(757) 734-5464**
Registrants telephone number, including
area code
Securities registered pursuant to Section 12(b)
of the Act:
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | |
| Class A Common Stock, par value $0.0001 per share | | IVP | | The Nasdaq Stock Market LLC | |
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of large accelerated filer, accelerated filer, smaller reporting company,
and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | | Accelerated filer | | |
| Non-accelerated filer | | Smaller reporting company | | |
| | | Emerging growth company | | |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrants
executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of June 28, 2024, there market value was $6,214,608
of the common equity of the registrant.
As of March 28, 2025, there were 2,119,551 shares of the registrants Class A common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
**TABLE
OF CONTENTS**
|
FORWARD-LOOKING STATEMENTS |
ii | |
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|
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PART I |
|
1 | |
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|
| |
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ITEM 1. |
BUSINESS |
1 | |
|
ITEM 1A. |
RISK FACTORS |
10 | |
|
ITEM 1B. |
UNRESOLVED STAFF COMMENTS |
28 | |
|
ITEM 1C. |
CYBERSECURITY |
28 | |
|
ITEM 2. |
PROPERTIES |
29 | |
|
ITEM 3. |
LEGAL PROCEEDINGS |
31 | |
|
ITEM 4. |
MINE SAFETY DISCLOSURES. |
31 | |
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PART II |
|
32 | |
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
32 | |
|
ITEM 6. |
[RESERVED] |
33 | |
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
34 | |
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
55 | |
|
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
55 | |
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
55 | |
|
ITEM 9A. |
CONTROLS AND PROCEDURES |
55 | |
|
ITEM 9B. |
OTHER INFORMATION |
56 | |
|
Item 9C. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
56 | |
|
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| |
|
PART III |
|
57 | |
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|
|
| |
|
ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
57 | |
|
ITEM 11. |
EXECUTIVE COMPENSATION |
63 | |
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
66 | |
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
69 | |
|
ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
69 | |
|
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PART IV |
|
70 | |
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| |
|
ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
70 | |
|
ITEM 16. |
FORM 10-K SUMMARY |
71 | |
|
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|
| |
|
SIGNATURES |
72 | |
i
**Forward-Looking
Statements**
This Annual Report on Form
10-K (the Annual Report) includes a number of forward-looking statements that reflect managements current views with
respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future
financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should,
expects, plans, anticipates, believes, estimates, predicts,
potential or continue or the negative of these terms or other comparable terminology. Those statements include
statements regarding the intent, belief or current expectations of our Company and members of our management team as well as the assumptions
on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such
forward-looking statements. Those risks and uncertainties include, among others:
**Risks Related to our Business**
|
|
|
We have a limited operating history, are not profitable and may never become profitable. | |
|
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|
If we fail to attract and keep senior management, we may be unable to successfully integrate acquisitions, scale our offerings of veterinary services, and deliver enhanced customer services, which may impact our results of operations and financial results. | |
|
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We may need to raise additional capital to achieve our goals. | |
|
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The Company incurs significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations. | |
|
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We may seek to grow our business through acquisitions of, or investments in, new or complementary businesses, and facilities, or through strategic alliances, and the failure to manage these acquisitions or strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us. | |
|
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We may acquire other businesses that may be unsuccessful and could adversely dilute your ownership of our company. | |
|
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We have generated net operating loss carryforwards for U.S. income tax purposes, but our ability to use these net operating losses may be limited by our inability to generate future taxable income. | |
|
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Our management does not have experience as senior management of a public company or ensuring compliance with public company obligations, and fulfilling these obligations will be expensive and time consuming, which may divert managements attention from theday-to-day operation of its business. | |
|
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|
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on the Companys business, operating results and stock price. | |
|
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Purchasing real estate with hospital acquisitions brings additional complexity and cost. | |
|
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Our estimate of the size of our addressable market may prove to be inaccurate. | |
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We may be unable to execute our growth strategies successfully or manage and sustain our growth, and as a result, our business may be adversely affected. | |
|
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We may experience difficulties recruiting and retaining skilled veterinarians due to shortages that could disrupt our business. | |
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Negative publicity arising from claims that we do not properly care for animals we handle could adversely affect how we are perceived by the public and reduce our sales and profitability. | |
|
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Our quarterly operating results may fluctuate due to the timing of expenses, veterinary facility acquisitions, veterinary facility closures, and other factors. | |
|
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Our reputation and business may be harmed if our or our vendors computer network security or any of the databases containing customer, employee, or other personal information maintained by us or our third-party providers is compromised, which could materially adversely affect our results of operations. | |
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The animal health industry is highly competitive. | |
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We may be unable to adequately protect our intellectual property rights. | |
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We may be subject to litigation. | |
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Natural disasters and other events beyond our control could harm our business. | |
ii
**Risks Related to Government Regulation**
|
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Various government regulations could limit or delay our ability to develop and commercialize our services or otherwise negatively impact our business. | |
|
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Failure to comply with governmental regulations or the expansion of existing or the enactment of new laws or regulations applicable to our veterinary services could adversely affect our business and our financial condition or lead to fines, litigation, or our inability to offer veterinary products or services in certain states. | |
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We may fail to comply with various state or federal regulations covering the dispensing of prescription pet medications, including controlled substances, through our veterinary services businesses, which may subject us to reprimands, sanctions, probations, fines, or suspensions. | |
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We are subject to environmental, health, and safety laws and regulations that could result in costs to us. | |
****
**Risks Related to our Common Shares and Securities**
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We have received a listing deficiency notice from Nasdaq regarding our Class A Common Stock. | |
|
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It is not possible to predict the actual number of shares we will sell to Tumim Stone Capital LLC (Tumim) under the Purchase Agreement dated November 30, 2023, as amended (the Purchase Agreement), or the actual gross proceeds resulting from those sales. We may not have access to the full amount available under the Purchase Agreement with Tumim. | |
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Investors who buy shares at different times will likely pay different prices. | |
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If securities or industry analysts do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline. | |
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We do not intend to pay cash dividends for the foreseeable future. | |
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Our shares will be subordinate to all of our debts and liabilities, which increases the risk that you could lose your entire investment. | |
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Our board of directors may designate and issue shares of new classes of stock, including the issuance of up to 16,108,500 additional shares of Class B common stock, that could be superior to or adversely affect you as a holder of our Class A common stock. Although a majority of our board of directors are independent, our non-independent directors, officers, and their affiliates control approximately 98.0%of the voting power of our outstanding common stock. | |
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The trading price of our Class A common stock is volatile, which could result in substantial losses toinvestors. | |
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The sale or availability for sale of substantial amounts of our Class A common stock could adversely affect their marketprice. | |
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We are an emerging growth company and a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and a smaller reporting companies will make our Class A Common Stock less attractive to investors. | |
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We may be deemed a controlled company within the meaning of the rules of Nasdaq and, as a result, may qualify for, but do not intend to rely on, exemptions from certain corporate governance requirements. | |
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Sales of a significant number of shares of our Class A Common Stock in the public markets, or the perception that such sales could occur, could depress the market price of our Class A Common Stock. | |
These statements are only
predictions and involve known and unknown risks, uncertainties and other factors. Readers are urged to carefully review and consider the
various disclosures made by us in this Annual Report and in our other reports filed with the Securities and Exchange Commission. We undertake
no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or
changes in future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data
derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our
future activities will not differ materially from our assumptions.
As used in this Annual Report
and unless otherwise indicated, the terms Inspire Veterinary, we, us, our, or
our Company refer to Inspire Veterinary Partners, Inc. and its consolidated subsidiaries.
iii
**Part
I**
**Item
1. Business**
**Company Overview**
Inspire Veterinary owns and
operates veterinary hospitals throughout the United States. The Company specializes in small animal general practice hospitals which serve
all manner of companion pets, emphasizing canine and feline breeds and including equine care. As the Company expands, it expects to acquire
additional veterinary hospitals, including general practice, mixed animal facilities, and critical and emergency care.
The Company completed its
initial public offering on August 31, 2023 and its shares of Class A Common Stock are quoted on The Nasdaq Capital Market under the symbol
IVP.
The Company currently has thirteen veterinary hospitals
located in nine states. Inspire Veterinary has expanded and plans to further expand through acquisitions of existing hospitals which have
the financial track record, marketplace advantages and future growth potential. Because the Company leverages a leadership and support
structure which is distributed throughout the United States, acquisitions are not centralized to one geographic area.
Services provided at the Companys
hospitals include preventive care for companion animals consisting of annual health exams which include: parasite control; dental health;
nutrition and body condition counseling; neurological examinations; radiology; bloodwork; skin and coat health and many breed specific
preventive care services. Surgical offerings include all soft tissue procedures such as spays and neuters, mass removals, splenectomies
and can also include gastropexies, orthopedic procedures and other types of surgical offerings based on a doctors training. In
many locations additional means of care and alternative procedures are also offered such as acupuncture, chiropractic and various other
health and wellness offerings.
Inspire was originally incorporated
as a corporation in the state of Delaware in 2020. In June 2022, the Company converted into a Nevada c-corporation. The Company has two
consolidating holding companies: IVP Practice Holdings Co., LLC and IVP Real Estate Co., LLC. Each of IVP Practice Holdings Co., LLC and
IVP Real Estate Co., LLC are passive intermediate holding companies with no employees, no operations and no assets other than the equity
in the respective subsidiaries.
The Companys principal
executive offices are located at 780 Lynnhaven Parkway, Suite 400, Virginia Beach, Virginia 23452. Our telephone number is (757) 734-5464.
Our website address is www.inspirevet.com. Information contained on our website or connected thereto does not constitute part of, and
is not incorporated by reference into, this annual report on Form 10-K of which it forms a part.
**Recent Developments**
****
**Charles Keiser Consulting Agreement**
On
March 6, 2024, we entered into a consulting agreement (the Consulting Agreement) with Charles Chuck Keiser,
DVM, an experienced professional of veterinary medicine and the business of veterinary medicine, and a former member of the board of directors
of the Company, pursuant to which we agreed to compensate Dr. Keiser for certain consulting services that he has provided to the Company
relating to veterinary medicine business support and other related activities. As consideration for Dr. Keisers consulting services,
Inspire agreed to issue to Dr. Keiser $151,695.60 worth of restricted shares of Class A common stock of the Company, which resulted in
the issuance of 1,865,875 shares of Class A common stock based on the closing price of $0.0813 per share on the last trading day immediately
prior to the date of the Consulting Agreement, as quoted on The Nasdaq Capital Market. The Consulting Agreement contains certain non-disclosure
and confidentiality provisions applicable to Dr. Keiser for the benefit of the Company. Dr. Keiser released the Company from any and all
claims he may have had against the Company.
The
Consulting Agreement terminated upon delivery of the shares to Dr. Keiser on March 7, 2024.
1
*General Release*
**
On
March 6, 2024, Inspire entered into a general release agreement with Kenneth Seth Lundquist, DVM, Charles Chuck Keiser,
DVM, and Don I. Williamson, Jr. DVM, and the Estate of Gregory Armstrong (each, a Releasor and collectively, the Releasors),
pursuant to which the Company agreed to issue to each Releasor $5,000 worth of restricted shares of Class A common stock of the Company,
which resulted in the issuance of 61,501 shares of Class A common stock to each Releasor, based on the closing price of $0.0813 per share
on the last trading day immediately prior to the date of the General Release Agreement, as quoted on The Nasdaq Capital Market. As partial
consideration for the issuance of the shares pursuant to the General Release Agreement, each Releasor agreed to release Inspire from all
potential, pending, or alleged claims, issues or complaints, whether asserted or which could be asserted by the Releasors against the
Company, including any such claims, issues or complaints arising from or in connection with Inspire Veterinarys previous acquisition
from the Releasors of their ownership interest in Kauai Veterinary Clinic, Inc., located in Lihue, Hawaii, and associated real estate.
****
**March OID Notes**
**
On
March 26, 2024 we entered into a securities purchase agreement (the Purchase Agreement) with certain investors. Pursuant
to the Purchase Agreement, Inspire issued to certain investors two Increasing OID Senior Notes (each a Note and collectively
the Notes) each for $250,000. The Notes have a maturity date of the earlier of December 26, 2024 or the consummation of
a capital raise (the Maturity Date).
The
Purchase Agreement contains a number of representations and warranties byInspire and the investors which are qualified by materiality
or Material Adverse Effect as defined in the Purchase Agreement, and also contain customary confidentiality and indemnification provisions.
The
Notes contain an original issue discount (OID) which shall be: (i) fifteen percent (15%) if the Notes are satisfied and
paid in full on or before the forty-fifth (45th) day after the Original Issue Date (as such term is defined in the Notes),
(ii) twenty percent (20%) if the Notes are satisfied and paid in full after such 45thday but on or before the ninetieth
(90th) day after the Original Issue Date, and (iii) thirty percent (30%) after such 90thday. The Notes can
be prepaid at any time prior to the Maturity Date without any penalties.
The
Notes must be repaid in full from any future capital raises (debt, equity or any other form of capital raise) of Inspire Veterinary. All
of the funds raised must be used to repay the Notes until the Notes are repaid in full.
The
Notes are convertible into shares of Class A common stock of Inspire Veterinary, in full or in part, at any time after issuance at the
discretion of the noteholder at a fixed conversion price of $0.03 per share (the Fixed Conversion Price).
If
the Notes are not repaid by the Maturity Date the default provisions are as follow: (i) The Face Value (as such term is defined in the
Notes) of the Notes will increase by 20% (to a 50% OID -- $1,000,000 Face Value); (ii) the conversion price of the Notes will become convertible
at the lower of (a) the Fixed Conversion Price or (b) 20% discount to a 3-Day volume-weighted average price (the Default Conversion
Price).
****
**Nasdaq Compliance**
****
*Minimum Bid Price
and Stockholders Equity*
On March 8, 2024, we received
a staff determination letter (the Staff Determination) from The Nasdaq Stock Market (Nasdaq) to delist the
Companys securities from the Nasdaq Capital Market. The Staff Determination was issued because, as of March 7, 2024, the Companys
securities had a closing bid price of $0.10 or less for at least ten consecutive trading days. Accordingly, the Company is subject to
the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the Low Priced Stocks Rule). The Company appealed the
Staff Determination and filed a hearing request with Nasdaq.
2
In addition, on April 11,
2024, the Companyreceived a Staff Determination from Nasdaq notifying the Company that, based on the Companys stockholders
deficit of ($788,259) as reported in the Companys Annual Report on Form 10-K for the year ended December 31, 2023 as filed with
the Securities and Exchange Commission, the Company does not meet the alternatives of market value of listed securities or net income
from continuing operations. As such, the Company no longer complies with Nasdaq listing rules regarding minimal stockholders equity
for continued listing. Accordingly, this matter serves as an additional basis for delisting the Companys securities from Nasdaq.
The Companys hearing
date with the Hearings Panelwas held on May 14, 2024.
In order to address the bid
price deficiency, on April 15, 2024, our board of directors approved a reverse stock split of the Companys authorized and issued
and outstanding shares of Class A common stock, par value $0.0001 per share at a ratio of 1 for 100 (the Reverse Stock Split).
The Reverse Stock Split was effective on May 8, 2024. The total number of shares of Class A common stock authorized for issuance was reduced
by a corresponding proportion from 100,000,000 shares to 1,000,000 shares.
On June 6, 2024, the Company
received a letter from the Hearings Panel indicating that our request for continued listing on Nasdaq was granted subject to the following:
(i) on or before June 15, 2024, the Company shall file a registration statement with the Securities and Exchange Commission for a public
offering that will be led by Spartan Capital Securities, LLC, and (ii) on or before September 4, 2024, we shall demonstrate compliance
with the minimum stockholders equity rule.
*Shareholder Approval
Rule*
****
On September 24, 2024, the
Companyreceived a Staff determination notifying the Company that, based on its review of the
Companys securities, the Staff determined that the Company failed to comply with Nasdaqs shareholder approval requirements
set forth in Listing Rule 5635(d). The Staff stated that the Companys best efforts public offering, which closed
on July 12, 2024, did not qualify as a public offering for the purposes of Nasdaqs shareholder approval rules.
As
such, Listing Rule 5635(d), which requires prior shareholder approval for transactions other than public offerings involving the issuance
of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price was not met. Accordingly, this matter serves as
an additional basis for delisting the Companys securities from Nasdaq.
On
December 12, 2024, the Company received a letter from the Staff notifying the Company that it has demonstrated compliance with the with
the minimum equity requirement in Listing Rule 5550(b)(1) as required by the Panel. Pursuant to Listing Rule 5815(d)(4)(B), the Company
will be subject to a Mandatory Panel Monitor for a period of one year, until December 12, 2025.
Additionally,
the letter stated that upon further review of the terms and conditions of the best efforts offering closed by the Company
on July 12, 2024, the Staff determined that the offering was not a public offering for the purposes of Nasdaqs shareholder
approval rules and accordingly, the Company was required, but failed, to obtain shareholder approval under the Listing Rule 5635(d) prior
to issuing the securities in the offering. The Company obtained post-execution shareholder ratification of the offering and the Panel
determined a Public Reprimand Letter was an appropriate resolution to this matter.
On
December 16, 2024, the Company received a letter from the Staff notifying the Company that, based
upon the closing bid price of the Companys common stock, par value $0.0001 per share, for the prior 30 consecutive business days,
the Company was not in compliance with the minimum bid price requirement ofNasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), the Company was provided a grace period of 180 days, or until June 16, 2025, to regain compliance with the
minimum bid price requirement.
3
*January
2025 Reverse Stock Split*
In order to address the bid
price deficiency, on January 3, 2025, our board of directors approved a reverse stock split of the Companys authorized and issued
and outstanding shares of Class A common stock, par value $0.0001 per share at a ratio of 1 for 25 (the January 2025 Reverse Stock
Split). The January 2025 Reverse Stock Split was effective on January 27, 2025. The total number of shares of Class A common stock
authorized for issuance was reduced from 100,000,000 shares to 1,000,000 shares.
*Increase in Authorized*
On
January 29, 2025, the holders of a majority of the issued and outstanding voting securities (the Majority Stockholders)
of Inspire Veterinary Partners, Inc., (the Company), approved, by written consentan amendment to the Companys
Amended and Restated Articles of Incorporation to increase the total number of authorized shares of ClassA common stock to one hundred
million (100,000,000) shares (the Amendment).
The
Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada, which became effective on February 11, 2025.
**Best Efforts Offerings**
**
*February Offering*
**
On July 12, 2025 we entered into Securities Purchase
Agreements under which the Company agreed to sell to the investors named therein, in a best efforts public offering of an aggregate of
47,058,823shares of Class A common shares and, at the option of purchasers, pre-funded warrants in lieu of shares, priced at a public
offering price of $0.085 for one common share or pre-funded warrant (less the par value of each share of Class A common stock in the case
of each pre-funded warrant). The pre-funded warrants are issuable to purchasers in lieu of shares of Class A common stock that would otherwise
result in such purchasers beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of the Companys outstanding
Class A common stock, if any such purchaser so chooses. Each pre-funded warrant is exercisable at any time to purchase one common share
at an exercise price of $0.0001 per share.
Gross proceeds from the offering,
before deducting the placement agents fees and other offering expenses, were approximately$4.0 million. Spartan Capital Securities,
LLC(Spartan) acted as sole placement agent in connection with this offering.
*July Offering*
**
On
July 12, 2025 we entered into Securities Purchase Agreements under which the Company agreed to sell to the investors named therein, in
a best efforts public offering of an aggregate of 6,000,000 units at an offering price of $1.00 per unit. Each unit consists of either
one share of the Companys Class A common stock, $0.001 par value per share, or one pre-funded warrant to purchase one share of the Companys
Class A common stock and one warrant to purchase one share of the Companys Class A common stock.
The
units have no stand-alone rights and will not be certificated or issued as stand-alone securities and the components of the units will
be immediately separable and will be issued separately in the offering.
The
warrants have an exercise price of $1.00 and are exercisable for a period of six months commencing upon issuance. The pre-funded warrants
are issuable to purchasers in lieu of shares of Class A common stock that would otherwise result in such purchasers beneficial ownership
exceeding 4.99% (or, at the election of the purchaser, 9.99%) of the Companys outstanding Class A common stock, if any such purchaser
so chooses. Each pre-funded warrant is exercisable at any time to purchase one share of Class A common stock at an exercise price of$0.0001per
share.
Spartan
Capital Securities, LLC acted as the sole placement agent for the offering and received a fee of 8% of the gross proceeds and reimbursement
of $60,000 in non-accountable expenses and $125,000 of legal fees and out-of-pocket expenses, pursuant to a letter of engagement between
the Company and Spartan.
4
Gross
proceeds from the offering, before deducting the placement agents fees and other offering expenses, were approximately$6.0 million.
The
securities were offered and sold pursuant to the Companys registration statement on Form S-1 (File No. 333- 280194), as amended,
which was declared effective by the Securities and Exchange Commission on July 2, 2024.
*October Offering*
**
On
October 21, 2024, we entered into Securities Purchase Agreements under which the Company agreed to sell to the investors named therein,
in a best efforts public offering an aggregate of 1,800,000 shares of the Companys Class A Common Stock, par value $0.0001 per
share and pre-paid warrants to purchase 8,200,000 shares of Class A Common Stock at a public offering price of $0.25 per Share or Pre-paid
Warrant.
The
shares and pre-paid warrants were offered by the Company pursuant to a registration statement on FormS-3, as amended (File No.333-282355),
filed with the Securities and Exchange Commission (the Commission), which was declared effective by the Commission on October
11, 2024 (the Registration Statement). A supplement to the prospectus contained in the Registration Statement filed with
the Commission on October 22, 2024.
Spartan
Capital Securities, LLC acted as the sole placement agent for the offering and received a fee of 8% of the gross proceeds, reimbursement
of $25,000 in non-accountable expenses, and up to $75,000 in legal fees and out-of-pocket expenses, pursuant to a letter of engagement
between the Company and Spartan. Gross proceeds from the Offering, before deducting the placement agents fees and other offering
expenses, were $2,500,000.
*H.C. Wainwright ATM*
On
December 20, 2024, we entered into an At The Market Offering Agreement (the ATM Agreement) with H.C. Wainwright & Co.,
LLC, as sales agent (Wainwright), pursuant to which the Company may offer and sell, from time to time through Wainwright,
shares of the Companys common stock, par value $0.0001 per share, for aggregate gross proceeds of up to $25,000,000. The offer
and sale of the shares will be made pursuant to a previously filed registration statement on Form S-3 (File No. 333- 282355) and the related
prospectus, as supplemented by a prospectus supplement dated December 20, 2024 (the Registration Statement) and filed with
the Securities and Exchange Commission on such date pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities
Act).
Pursuant
to the ATM Agreement, Wainwright may sell the shares in sales deemed to be at-the-market equity offerings as defined in
Rule 415 promulgated under the Securities Act, including sales made directly on or through the Nasdaq Capital Market. If agreed to in
a separate terms agreement, the Company may sell shares to Wainwright as principal, at a purchase price agreed upon by Wainwright and
the Company. Wainwright may also sell shares in negotiated transactions with the Companys prior approval. The offer and sale of
the shares pursuant to the ATM Agreement will terminate upon the earlier of (a) the issuance and sale of all of the shares subject to
the ATM Agreement or (b) the termination of the ATM Agreement by Wainwright or the Company pursuant to the terms thereof. The Company
has no obligation to sell any of the shares, and may at any time suspend offers under the Agreement or terminate the Agreement.
The
Company has agreed to pay Wainwright a commission of 3.0% of the aggregate gross proceeds from any shares sold by Wainwright and to provide
Wainwright with customary indemnification and contribution rights, including for liabilities under the Securities Act. The Company also
will reimburse Wainwright for certain specified expenses in connection with entering into the ATM Agreement. The ATM Agreement contains
customary representations and warranties and conditions to the placements of the Shares pursuant thereto.
5
*Richard Frank Employment Agreement*
****
On March 3, 2025 we entered into an employment
agreement (the Employment Agreement) with Richard Frank, the Companys current Chief Financial Officer. The Employment
Agreement provides for an initial two-year term. Further contract extensions will be managed by revised or new contract agreements. The
Employment Agreement provides that Mr. Frank will receive a base salary of $255,000 per annum. The
base salary will be reviewed at the end of each fiscal year and any recommended changes will be subject to approval of the compensation
committee of the board of directors of the Company. Mr. Frank is eligible for annual bonuses which are dependent on certain key
performance indications and incentive measurements are further described in the Employment Agreement. The Employment Agreement contains
certain non-disclosure and confidentiality provisions applicable to Mr. Frank for the benefit of the Company. Mr. Frank has also agreed,
during the term of his employment and for a two-year period following the termination of his employment not to solicit for employment
any employee or any person who was employed by the Company within the prior six months. Mr. Frank is also barred from soliciting any clients
or certain former clients of the Company for a period of two years following the termination of his employment with the Company. The Company
has the right to terminate Mr. Franks employment immediately for cause upon certain specified acts, and he may be entitled to severance
payments in certain circumstances.
**Industry Overview and Market Opportunity**
Inspire Veterinary expects
to target a ten-unit per year acquisition pipeline with the five-year goal to acquire 50 locations throughout the United States. Additional
growth through the acquisition of newer practices is not expected to be ruled out but managements emphasis is expected to focus
on acquiring existing veterinary hospitals throughout the United States. In years two through five the Company will seek to expand purchases
beyond the small companion animal only hospital to include mixed animal (including bovine and additional equine care) and add specialty
care to our geographies. With over 28,000 veterinary hospitals in the United States and less than 30% of those having been consolidated,
management believes large upside potential exists and the addressable market for new acquisitions is large.
**Our Strategy**
With an emphasis on general
practice hospitals in its first seven to eight quarters, the Company expanded into purchase of mixed animal hospitals in late 2022, adding
equine care to its mix. Further, the Company intends to continue to the due diligence toward acquisition toward strategically acquiring
existing general practice, specialty hospitals and/or expand existing locations to include emergency care and more complex surgeries,
holistic care and comprehensive diagnostics which allow it to offer more complex surgeries and internal medicine work ups.
We account for acquisitions
under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair
values on the closing date. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding
of the fair value of the acquired assets and assumed liabilities.
**Selling and Marketing**
Inspire Veterinary has established
contacts with most major veterinary brokerages and has purchased locations in every region of the United States, providing visibility
and establishing a pipeline of deals which allow the Company to extend a letter of intent on approximately 10% of the hospitals which
are analyzed. The acquisitions and valuation team is sufficient for current levels of acquisition activity and personnel have already
been identified for expanding this team to provide deeper integration at industry events, generating organic leads and leveraging deep
relationships with service and product suppliers across the industry.
We depend upon the skills, knowledge and experience
of our management personnel, as well as that of our other employees, advisors, consultants and contractors, none of which are patentable.
To help protect our know-how, we require all of our employees, consultants, advisors and other contractors to enter into customary confidentiality
agreements that prohibit the disclosure of confidential information.
6
**Competition**
The veterinary industry, as
of early 2022, consists of approximately 13 national consolidators and 30 regional consolidators. These groups combined currently own
or operate around 6,000 of the nearly 30,000 veterinary hospitals in the United States.
Competitors range in size
from the largest such as Mars and NVA, which collectively own approximately 4,000 hospitals, to other national and regional groups such
as Pathway/Thrive, VetcCor, Southern Vet Partners, Community Veterinary Partners, and others. Growth in recent years has centered primarily
on mid-sized and small platforms coming into the industry and/or acquiring existing hospitals in order to achieve location numbers between
50 and 200 units. In select cases, large to mid-sized groups have absorbed competitors in order to grow numbers or move into other modes
of care. Examples include Pathways purchase of Thrive or NVA acquiring Compassion First. More than 30 groups comprise those entities
owning less than 100 individual hospitals.
Increasingly, owner/operators
of veterinary groups are also purchasing facilities and technology within the space, such as Pathways purchase of Vetspire Practice
software. Additionally, as the line between general practice and more specialized modes of care becomes less defined, formerly general
practice-only groups are branching into additional service offerings.
Competitors of the Company
possess the advantages of years in operation and the resulting brand awareness which comes with their size and time in existence. Additional
advantages are the financial and infrastructure resources possessed by larger competitors such as Mars, Pathway, Southern Vet Partners,
Community Vet Partners and others.
The company has an opportunity
to differentiate itself from these competitors via the following:
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A broad equity offering to a large group of employees which is not offered at other veterinary entities via an Employee Stock Option Plan. | |
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A personalized and approach to purchasing and integrating hospitals into the Company which is not matched by other groups. Because the Company works closely with acquired locations to allow them to sustain their own practices, methods and identities, this is an approach preferred by sellers to the more homogenized model used by competitors. | |
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A coaching and development-based workflow which is customized for each clinician and professional, all of which provide a more one to one environment than the larger consolidators can provide. | |
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Disciplined approach to acquiring locations based on a depth of financials and purchase of profitable locations versus relying on trailing twelve measures or buying at high multiples of EBITDA or revenue. | |
**Government Regulation**
With practice acts that govern
veterinary care and ownership guidelines on a state-by-state basis, Inspire Veterinary has processes and structures in place to provide
the ability to own and operate in any state where it chooses to acquire locations. Governmental regulations regarding care for pets while
also preserving pets as property are favorable to the continued growth of the veterinary channel.
The following descriptions of regulations constitute
all applicable regulations to the Companys operations.
*Veterinary Ownership Restrictions in Certain
States*
**
The State of Texas
Veterinary Licensing Acts, or V.T.C.A., Occupations Code Section 801.506 *Prohibited Practices Relating to Certain Entities*
prohibits non-licensed veterinary persons from owning or operating veterinary clinics in the state of Texas. The Company currently operates
two clinics in Texas and believes it is in compliance with applicable state law.
The State of Indiana
Indiana Code, Article 38.1 Veterinarians, contains very little guidance dealing directly with veterinary practice ownership. There is
no statute or regulation that explicitly defines what it means to have ownership of a veterinary practice in Indiana. Generally,
if the veterinary clinic is owned by a limited liability company, at least one member of the limited liability company must be a veterinarian,
subject to the discretion of the Indiana Board of Veterinary Medical Examiners. The Company operates one clinic in Indiana and believes
it is in compliance with applicable state law.
7
*Limitations for Duties for Non-Credentialed
Employees*
New York State, and certain
other states, have language in their individual veterinary practice acts which require credentials in the form of licensure or certifications
to be held by veterinary personnel who perform certain duties. This requirement varies by state, with many states having very few limitations
of duties which can be performed by non-credentialled personnel while other states (such as New York) utilize language in their practice
acts which can be interpreted as a blanket prohibition against employees without certification working with pets. The Company does not
currently operate any clinics in New York State. There can be no assurance, however, that the Company may not seek to acquire a clinic
or clinics in the New York State.
*Drug Enforcement Agency (DEA) Regulations*
With veterinary care requiring
the use of some controlled and scheduled drugs, utilization logs and security procedures must be maintained in order for hospitals and
clinics to be compliant with federal law. Inventory of controlled drugs is conducted, and scheduled drugs are kept secured and locked
for access and use, by Company veterinarian or acceptable registered technician only pursuant to applicable federal law.
In each of these cases, Inspire
has and will create structures which conform to legal standards and mitigate risk so as to allow the Company to acquire and operate in
the states in which it chooses to do so.
**Employees**
As of March 31, 2025, we had
113 employees. None of our employees are represented by labor unions or covered by collective bargaining agreements.
**Properties**
With a decentralized leadership
team, our company does not have a physical headquarters, but rather, has a distributed leadership team working from home offices across
several states.
**Chiefland Animal Hospital (CAH)**
The real estate underlying Chiefland
Animal Hospital is located at 2630 North Young Boulevard, Chiefland, Florida, and is owned by IVP FL Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $279,500 and was financed by WealthSouth, a division of Farmers National Bank (WealthSouth).
The material terms of the WealthSouth loan are summarized below.
**Pets & Friends Animal Hospital
LLC (P&F)**
The real estate underlying Pets &
Friends Animal Hospital is located at 3625 Baltimore Ave, Pueblo, Colorado, and is owned by IVP CO Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $216,750 and was financed by WealthSouth. The material terms of the WealthSouth loan are
summarized below.
****
**Advanced Veterinary Care of Pasco, LLC (AVCP)**
The real estate underlying our Advanced
Veterinary Care of Pasco facility, located at 12116 Cobble Stone Drive, Hudson, Florida, is leased from Remappa Family Limited Partnership
for one year with two additional possible three-year renewals. The initial rent in the first year of the lease is $2,350 per month increasing
in annual increments for a total of 0.75% over ten years. The lease consists of 2,442 square feet of commercial space zoned to permit
the provision of veterinary services.
****
8
****
**Lytle Veterinary Clinic, Inc. (LVC)**
The real estate underlying Lytle Veterinary
Clinic is located at 63245 Texas State Highway 132, Lytle, Texas, and is owned by IVP TX Properties, LLC, a 100%-owned subsidiary of the
Company. The property was purchased for $780,000 and financed by WealthSouth. The material terms of the WealthSouth loan are summarized
below.
****
**Southern Kern Veterinary Clinic, Inc. (SKVC)**
The real estate underlying Southern
Kern Veterinary Clinic is located at 4455 West Rosamond Boulevard, Rosamond, California, and is owned by IVP CA Properties, LLC, a 100%-owned
subsidiary of the Company. The property was purchased for $500,000 and financed by WealthSouth. The material terms of the WealthSouth
loan are summarized below.
**Bartow Animal Hospital**
The real estate underlying Bartow Animal
Hospital is located at 1515 US Highway 17 South, Bartow, Florida, and is owned by IVP FL Properties, LLC, a 100%-owned subsidiary of the
Company. The property was purchased for $350,000 and financed by WealthSouth. The material terms of the WealthSouth loan are summarized
below.
****
**Dietz Family Pet Hospital**
The real estate underlying Dietz Family
Pet Hospital is located at 7002 Hand Road, Richmond, Texas, and is leased from Clarence and Erna Thielemann for a one-year term, with
optional monthly renewals thereafter. The rent is $2,000 per month. The lease consists of 1,880 square feet of commercial space zoned
to permit the provision of veterinary services.
****
**Aberdeen Veterinary Clinic**
The real estate underlying Aberdeen
Veterinary Clinic is located at 728 South Philadelphia Boulevard, Aberdeen, Maryland, and is leased from H R Fritz LLC for a five-year
term, with three additional optional 5-year renewals. The rent is $4,167 per month, increasing 3% annually. The lease consists of 2,653
square feet of commercial space zoned to permit the provision of veterinary services.
****
**All Breed Pet Care**
The real estate underlying the All Breed
Pet Care facility is located at 7501 Peachwood Drive, Newburgh, Indiana, and is owned by IVP IN Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $1,200,000 and was financed by WealthSouth. The material terms of the WealthSouth loan
are summarized below.
**The Pony Express Veterinary Hospital**
The real estate underlying The Pony
Express Veterinary Hospital is located at 893 Lower Bellbrook Road, Xenia, Ohio and is owned by IVP TX Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $500,000 and was financed by WealthSouth. The material terms of the WealthSouth loan are
summarized below.
9
**The Old 41 Animal Hospital**
****
The real estate underlying The Old 41
Animal Hospital facility is located at 27551 Old 41 Road, Bonita Springs, Florida and 27567 Old 41 Road, Bonita Springs, Florida, and
is owned by IVP FL Properties, LLC, a 100%-owned subsidiary of the Company. The property was purchased for $800,000 and was financed by
WealthSouth. The material terms of the WealthSouth loan are summarized below.
**Valley Veterinary Services**
The real estate underlying Valley Veterinary
Services facility is located 408 Grace Lane, Rostraver Township, Pennsylvania 15012 (Parcel Nos. 56-12-00-0-148 and 56-12-00-0-144) and
is owned by IVP PA Properties, LLC, a 100%-owned subsidiary of the Company. The property was purchased for $590,000 and was financed by
WealthSouth. The material terms of the WealthSouth loan are summarized below.
**WealthSouth Real Estate Loans**
****
Each WealthSouth loan bears
a variable interest rate charged on all sum outstanding equal to the New York Prime Rate plus 0.50%, however, such rate can never be less
than 3.57% per annum.
**Legal Proceedings**
We may from time to time become
a party to various legal or administrative proceedings arising in the ordinary course of our business. As of the date hereof, neither
we nor any of our subsidiaries is a party to any pending legal proceedings, nor are we aware of any such proceedings threatened against
us or our subsidiaries.
****
**Item
1a. risk factors**
Our
business is subject to numerous risks and uncertainties, any one of which could have a materially adverse effect on our results of operations,
financial condition or business. These risks include, but are not limited to, those listed below. This list is not complete.
****
**Risks Related to our Business**
**We have a limited operating history, are
not profitable and may never become profitable.**
****
We have not generated any
net profits to date, and we expect to continue to incur significant acquisition related costs and other expenses. Our net loss for the
twelve months ended December 31, 2024 was $14,264,261 and for the year ended December 31, 2023 was $14,792,886. Our accumulated deficit
as of December 31, 2024 was $36,350,281. As of December 31, 2024, we had total stockholders equity of approximately $1,562,005.
We expect to continue to incur net losses for the foreseeable future, as we continue our development and acquisition of veterinary hospitals
and related veterinary servicing activities. If we fail to achieve or maintain profitability, then we may be unable to continue our operations
at planned levels and be forced to reduce or cease operations.
**If our business plan is not successful, we may not be able to
continue operations as a going concern and our shareholders may lose their entire investment in us.**
As discussed in the Notes
to Financial Statements included in this annual report on Form 10-K, as of December 31, 2024, we had $723,690 cash and restricted cash.
10
If we fail to raise sufficient
capital pursuant to the Purchase Agreement, we will have to explore other financing activities to provide us with the liquidity and capital
resources we need to meet our working capital requirements and to make capital investments in connection with ongoing operations. We cannot
give assurance that we will be able to secure the necessary capital when needed. Consequently, we raise substantial doubt that we will
be able to continue operations as a going concern, and our independent auditors included an explanatory paragraph regarding this uncertainty
in their report on our financial statements for the year ended December 31, 2024. Our ability to continue as a going concern is dependent
upon our generating cash flow sufficient to fund operations and reducing operating expenses. Our business plans may not be successful
in addressing the cash flow issues. If we cannot continue as a going concern, our shareholders may lose their entire investment in us.
If we fail to raise sufficient capital, we will have to explore other financing activities to provide us with the liquidity and capital
resources we need to meet our working capital requirements and to make capital investments in connection with ongoing operations. We cannot
give assurance that we will be able to secure the necessary capital when needed. Consequently, we raise substantial doubt that we will
be able to continue operations as a going concern, and our independent auditors included an explanatory paragraph regarding this uncertainty
in their report on our financial statements for the years ended December 31, 2024 and 2023. Our ability to continue as a going concern
is dependent upon our generating cash flow sufficient to fund operations and reducing operating expenses. Our business plans may not be
successful in addressing the cash flow issues. If we cannot continue as a going concern, our shareholders may lose their entire investment
in us.
**If we fail to attract and keep senior management,
we may be unable to successfully integrate acquisitions, scale our offerings of veterinary services, and deliver enhanced customer services,
which may impact our results of operations and financial results.**
Our success depends in part
on our continued ability to attract, retain and motivate highly qualified management and senior personnel. We are highly dependent upon
our senior management, particularly Kimball Carr, our President and Chief Executive Officer, and Richard Frank, our Chief Executive Officer.
The loss of services of any of these individuals could negatively impact our ability to successfully integrate acquisitions, scale our
employee roster, and deliver enhanced veterinary services, which may impact our results of operations and financial results. Although
we have entered an employment agreement with Kimball Carr, our President and Chief Executive Officer, for one 3-year term (automatically
extending for one-year terms thereafter) there can be no assurance that Mr. Carr or any other senior executive officer will extend their
terms of service.
**We may need to raise additional capital
to achieve our goals.**
We currently incur operate
at a net loss and a comprehensive loss and anticipate incurring additional expenses as a public company. We are also seeking to identify
potential complementary acquisition opportunities in the veterinary services and animal health sectors. Some of our anticipated future
expenditures will include: costs of identifying additional potential acquisitions; costs of obtaining regulatory approvals; and costs
associated with marketing and selling our services. We also may incur unanticipated costs. Because the outcome of our development activities
and commercialization efforts is inherently uncertain, the actual amounts necessary to successfully complete the development and commercialization
of our existing or future veterinary services s may be greater or less than we anticipate.
As a result, we will need
to obtain additional capital to fund the development of our business. We have no master agreements or arrangements with respect to any
financings, and any such financings may result in dilution to our shareholders, the imposition of debt covenants and repayment obligations
or other restrictions that may adversely affect our business or the value of our common shares.
Additional funds may not be
available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis,
we may be required to delay, limit, reduce or terminate one or more of our veterinary service programs or any future commercialization
efforts.
****
11
**The Company incurs significant increased
expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results
of operations.**
The Company will face a significant
increase in insurance, legal, accounting, administrative and other costs and expenses as a public company that none of the formerly corporate
or company privately-held acquisition targets that we may attempt to purchase incur as a private company. The Sarbanes-Oxley Actof2002,
as amended (Sarbanes-Oxley Act), including the requirements of Section404, as well as rules and regulations subsequently
implemented by the Commission, the Dodd-Frank Wall Street Reform and Consumer Protection Actof2010 (the Dodd-Frank
Act) and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board,
the Commission and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public
company requirements will increase costs and make certain activities more time-consuming. A number of those requirements will require
the Company to carry out activities that it previously has not done. For example, the Company will adopt new internal controls and disclosure
controls and procedures. In addition, additional expenses associated with the Commissions reporting requirements will be incurred.
Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness
or significant deficiency in the internal control over financial reporting), The Company could incur additional costs rectifying those
issues, and the existence of those issues could adversely affect the Companys reputation or investor perceptions of it. Being a
public company could make it more difficult or costly for the Company to obtain certain types of insurance, including director and officer
liability insurance, and the Company may be forced to accept reduced policy limits and coverage with increased self-retention risk or
incur substantially higher costs to obtain the same or similar coverage. Being a public company could also make it more difficult and
expensive for the Company to attract and retain qualified persons to serve on the board, board committees or as executive officers. Furthermore,
if the Company is unable to satisfy its obligations as a public company, it could be subject to fines, sanctions and other regulatory
action and potentially civil litigation.
The additional reporting and
other obligations imposed by various rules and regulations applicable to public companies will increase legal and financial compliance
costs and the costs of related legal, accounting and administrative activities. These increased costs will require the Company to divert
a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by
shareholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase
costs.
**If we fail to manage our growth effectively,
our brand, business and operating results could be harmed.**
We have experienced, and expect
to continue to experience, rapid growth in our headcount and operations, which places substantial demands on management and our operational
infrastructure. We will need to significantly expand our organization and systems to support our future expected growth. If we fail to
manage our growth effectively, we will not be successful, and our business could fail. To manage the expected growth of our operations
and personnel, we will be required to improve existing, and implement new, transaction-processing, operational and financial systems,
procedures and controls. We will also be required to expand our finance, administrative and operations staff. We intend to continue making
substantial investments in our technology, sales and data infrastructure. As we continue to grow, we must effectively integrate, develop
and motivate a significant number of new employees, while maintaining the beneficial aspects of our existing corporate culture, which
we believe fosters innovation, teamwork and a passion for our veterinary services and clients. In addition, our revenue may not grow at
the same rate as the expansion of our business. There can be no assurance that our current and planned personnel, systems, procedures
and controls will be adequate to support our future operations or that management will be able to hire, train, retrain, motivate and manage
required personnel. If we are unable to manage our growth effectively, the quality of our platform, efficiency of our operations, and
management of our expenses could suffer, which could negatively impact our brand, business, operating results and profitability.
****
**We may seek to grow our business through acquisitions of, or
investments in, new or complementary businesses, and facilities, or through strategic alliances, and the failure to manage these acquisitions
or strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us.**
The pet care industry is highly
fragmented. We have completed acquisitions in the past and may pursue expansion, acquisition, investment and other strategic alliance
opportunities in the future. If we are unable to manage acquisitions, or strategic ventures, or integrate any acquired businesses effectively,
we may not realize the expected benefits from the transaction relative to the consideration paid, and our business, financial condition,
and results of operations may be adversely affected. Acquisitions, investments and other strategic alliances involve numerous risks, including:
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problems integrating the acquired business, facilities or services, including issues maintaining uniform standards, procedures, controls and policies; | |
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unanticipated costs associated with acquisitions or strategic alliances; | |
12
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losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investees financial performance into our financial results; | |
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diversion of managements attention from our existing business; | |
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risks associated with entering new markets in which we may have limited or no experience; | |
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potential loss of key employees of acquired businesses; | |
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the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses face; | |
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potential unknown liabilities associated with a business we acquire or in which we invest; and | |
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increased legal and accounting compliance costs. | |
Our ability to successfully
grow through strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses,
facilities and services and to obtain any necessary financing. These efforts could be expensive and time-consuming and may disrupt our
ongoing business and prevent management from focusing on our operations. As a result of future strategic transactions, we might need to
issue additional equity securities, spend our cash, or incur debt (which may only be available on unfavorable terms, if at all), contingent
liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business.
If we are unable to identify suitable acquisitions, investments or strategic relationships, or if we are unable to integrate any acquired
businesses, facilities and services effectively, our business, financial condition, and results of operations could be materially and
adversely affected. Also, while we employ several different methodologies to assess potential business opportunities, the new businesses
or investments may not meet or exceed our expectations or desired objectives.
**We may seek to raise additional funds in
the future through debt financing which may impose operational restrictions on our business and may result in dilution to existing or
future holders of our common shares.**
We expect that we will need
to raise additional capital in the future to help fund our business operations. Debt financing, if available, may require restrictive
covenants, which may limit our operating flexibility and may restrict or prohibit us from:
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paying dividends or making certain distributions, investments and other restricted payments; | |
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incurring additional indebtedness or issuing certain preferred shares; | |
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selling some or all of our assets; | |
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entering into transactions with affiliates; | |
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creating certain liens or encumbrances; | |
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merging, consolidating, selling or otherwise disposing of all or substantially all of our assets; and | |
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designating our subsidiaries as unrestricted subsidiaries. | |
Debt financing may also involve
debt instruments that are convertible into or exercisable for our common shares. The conversion of the debt-to-equity financing may dilute
the equity position of our existing shareholders.
13
**We may acquire other businesses that may
be unsuccessful and could adversely dilute your ownership of our company.**
As part of our business strategy,
we intend to pursue acquisitions of other complementary assets and businesses and may also pursue strategic alliances. We may not be able
to successfully integrate any acquisitions into our existing business, and we could assume unknown or contingent liabilities or become
subject to possible stockholder claims in connection with any related-party or third-party acquisitions or other transactions. We also
could experience adverse effects on our reported results of operations from acquisition-related charges, amortization of acquired technology
and other intangibles and impairment charges relating to write-offs of goodwill and other intangible assets from time to time following
an acquisition. Integration of an acquired company requires management resources that otherwise would be available for ongoing development
of our existing business. We may not realize the anticipated benefits of any acquisition, technology license or strategic alliance.
To finance future acquisitions,
we may choose to issue shares of our common stock as consideration, which would dilute your ownership interest in us. Alternatively, it
may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on terms
that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders.
**We have generated net operating loss carryforwards
for U.S. income tax purposes, but our ability to use these net operating losses may be limited by our inability to generate future taxable
income.**
Our U.S. businesses have generated
consolidated net operating loss carryforwards (U.S. NOLs) for U.S. federal and state income tax purposes of $14,264,261
as of December 31, 2024. These U.S. NOLs can be available to reduce income taxes that might otherwise be incurred on future U.S. taxable
income. The utilization of these U.S. NOLs would have a positive effect on our cash flow. However, there can be no assurance that we will
generate the taxable income in the future necessary to utilize these U.S. NOLs and realize the positive cash flow benefit. A portion of
our U.S. NOLs have expiration dates. There can be no assurance that, if and when we generate taxable income in the future from operations
or the sale of assets or businesses, we will generate such taxable income before such portion of our U.S. NOLs expire. Under the Tax Cuts
and Jobs Act (the TCJA), federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely.
Under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), federal NOL carryforwards arising in tax years
beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding the tax year
of such loss. Due to our cumulative losses through December 31, 2024 we do not anticipate that such provision of the CARES Act will be
relevant to us. The deductibility of federal NOLs may be limited. It is uncertain if and to what extent various states will conform to
TCJA or the CARES Act.
Our ability to utilize the
U.S. NOLs after an ownership change is subject to the rules of the United States Internal Revenue Code of 1986, as amended
(the Code) Section 382. An ownership change occurs if, among other things, the shareholders (or specified groups of shareholders)
who own or have owned, directly or indirectly, 5% percent or more of the value of our shares or are otherwise treated as 5% percent shareholders
under Code Section 382 and the Treasury Regulations promulgated thereunder increase their aggregate percentage ownership of the value
of our shares by more than 50 percentage points over the lowest percentage of the value of the shares owned by these shareholders over
a three-year rolling period. An ownership change could also be triggered by other activities, including the sale of our shares that are
owned by our 5% shareholders. In the event of an ownership change, Section 382 would impose an annual limitation on the amount of taxable
income we may offset with U.S. NOLs. This annual limitation is generally equal to the product of the value of our shares on the date of
the ownership change multiplied by the long-term tax-exempt rate in effect on the date of the ownership change. The long-term tax-exempt
rate is published monthly by the IRS. Any unused Section 382 annual limitation may be carried over to later years until the applicable
expiration date for the respective U.S. NOLs (if any). In the event an ownership change as defined under Section 382 were to occur, our
ability to utilize our U.S. NOLs would become substantially limited. The consequence of this limitation would be the potential loss of
a significant future cash flow benefit because we would no longer be able to substantially offset future taxable income with U.S. NOLs.
There can be no assurance that such ownership change will not occur in the future.
14
**Our management does not have experience as senior management
of a public company or ensuring compliance with public company obligations, and fulfilling these obligations will be expensive and time
consuming, which may divert managements attention from theday-to-day operation of its business.**
Our senior management does
not have experience as senior management a publicly traded company and have limited experience complying with the increasingly complex
laws pertaining to public companies. In particular, the significant regulatory oversight and reporting obligations imposed on public companies
will require substantial attention from senior management and may divert attention away from theday-to-day management of its business,
which could have a material adverse effect on our business, financial condition and results of operations. Similarly, corporate governance
obligations, including with respect to the development and implementation of appropriate corporate governance policies will impose additional
burdens on the Companys non-executive directors.
**Failure to maintain effective internal controls
over financial reporting could have a material adverse effect on the Companys business, operating results and stock price.**
Effective internal control
over financial reporting is necessary to increase the reliability of the Companys financial reports. The standards required for
a public company under Section404(a)of the Sarbanes-Oxley Act are significantly more stringent than those of a privately held
company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased
regulatory compliance and reporting requirements. If the Company is not able to implement the additional requirements of Section404(a)in
a timely manner or with adequate compliance, it may not be able to assess whether its internal controls over financial reporting are effective,
which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of the common stock.
The Company and its auditors
were not required to perform an evaluation of internal control over financial reporting as of or for theyears ended December31,
2024 or 2023 in accordance with the provisions of the Sarbanes-Oxley Act. The Companys independent registered public accounting
firm will not be required to report on the effectiveness of its internal control over financial reporting pursuant to Section404(b)of
the Sarbanes-Oxley Act until the Companys first annual report on Form10-K following the date on which it ceases to
qualify as an emerging growth company, which may be up to five full fiscalyears following the date of the first sale
of common equity securities pursuant to an effective registration statement. If such evaluation were performed, control deficiencies could
be identified by our management, and those control deficiencies could also represent one or more material weaknesses. In addition, the
Company cannot, at this time, predict the outcome of this determination and whether the Company will need to implement remedial actions
in order to implement effective control over financial reporting. If in subsequentyears the Company is unable to assert that the
Companys internal control over financial reporting is effective, or if the Companys auditors express an opinion that the
Companys internal control over financial reporting is ineffective, the Company may fail to meet the future reporting obligations
in a timely and reliable manner and its financial statements may contain material misstatements. Any such failure could also adversely
cause our investors to have less confidence in the accuracy and completeness of our financial reports, which could have a material adverse
effect on the price of the Companys common stock.
****
**We may incur successor liabilities due to
conduct arising prior to the completion of the various acquisitions.**
We may become subject to certain
successor liabilities of recently acquired subsidiary businesses. We may also become subject to litigation claims in the operation of
such businesses prior to the closing of such subsidiary acquisitions, including, but not limited to, with respect to tax, regulatory,
employee or contract matters. Any litigation may be expensive and time-consuming and could divert the attention of management from its
business and negatively affect its operating results or financial condition. Furthermore, the outcome of any litigation cannot be guaranteed,
and adverse outcomes can affect our results of operations negatively.
**Purchasing real estate with hospital acquisitions
brings additional complexity and cost.**
****
By purchasing buildings and
land with many of the acquisitions that the Company completes, the financing, due diligence and regulatory requirements of these purchases
are much more complex. Issues such as building inspections and related delays, zoning requirements and permitting variabilities across
many states all have the potential to cause delays with the purchase of acquisitions and increase the costs of acquiring target locations.
15
**Our estimate of the size of our addressable
market may prove to be inaccurate.**
Data for retail veterinary
services to domestic pets is collected for most, but not all channels, and as a result, it is difficult to estimate the size of the market
and predict the rate at which the market for our services will grow, if at all. While our market size estimates have been made in good
faith and is based on assumptions and estimates we believe to be reasonable, this estimate may not be accurate. If our estimates of the
size of our addressable market are not accurate, our potential for future growth may be less than we currently anticipate, which could
have a material adverse effect on our business, financial condition, and results of operations.
****
**We may be unable to execute our growth strategies
successfully or manage and sustain our growth, and as a result, our business may be adversely affected.**
****
Our strategies include expanding
our veterinary service offerings and building out our digital and data capabilities, growing our market share in services like grooming
and training, enhancing our owned brand portfolio, and introducing new offerings to better connect with our customers. However, we may
not be able to execute on these strategies as effectively as anticipated. Our ability to execute on these strategies depends on a number
of factors, including:
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whether we have adequate capital resources to expand our offerings and build out our digital and data capabilities; | |
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our ability to relocate our pet care centers and obtain favorable sites and negotiate acceptable lease terms; | |
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our ability to hire, train and retain skilled managers and personnel, including veterinarians, information technology professionals, owned brand merchants, and groomers and trainers; and | |
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our ability to continue to upgrade our information and other operating systems and to make use of the data that we collect through these systems to offer better products and services to our customers. | |
Our existing locations may
not maintain their current levels of sales and profitability, and our growth strategies may not generate sales levels necessary to achieve
pet care center level profitability comparable to that of our existing locations. To the extent that we are unable to execute on our growth
strategies in accordance with our expectations, our sales growth would come primarily from the organic growth of existing product and
service offerings.
**We may experience difficulties recruiting
and retaining skilled veterinarians due to shortages that could disrupt our business.**
The successful growth of our
veterinary services business depends on our ability to recruit and retain skilled veterinarians and other veterinary technical staff.
We face competition from other veterinary service providers in the labor market for veterinarians, and from time to time, we may experience
shortages of skilled veterinarians in markets in which we operate our veterinary service businesses, which may require us or our affiliated
veterinary practices to increase wages and enhance benefits to recruit and retain enough qualified veterinarians to adequately staff our
veterinary services operations. If we are unable to recruit and retain qualified veterinarians, or to control our labor costs, our business,
financial condition, and results of operations may be materially adversely affected.
****
**Negative publicity arising from claims that we do not properly
care for animals we handle could adversely affect how we are perceived by the public and reduce our sales and profitability.**
From time to time we receive
claims or complaints alleging that we do not properly care for some of the pets we handle or for companion animals we handle, which mainly
includes dogs and cats but may include other animals as we acquire additional facilities. Deaths or injuries may occur in the future while
animals are in our care. As a result, we may be subject to claims that our animal care practices do not provide the proper level of care.
Any such claims or complaints, as well as any related news reports or reports on social media, even if inaccurate or untrue, could cause
negative publicity, which in turn could harm our business and have a material adverse effect on our results of operations.
16
**Our quarterly operating results may fluctuate
due to the timing of expenses, veterinary facility acquisitions, veterinary facility closures, and other factors.**
Our expansion plans, including
the timing of new and remodeled veterinary facility acquisitions, and related pre-opening costs, the amount of net sales contributed by
new and existing veterinary facilities, and the timing of and estimated costs associated with veterinary facility closings or relocations,
may cause our quarterly results of operations to fluctuate. Quarterly operating results are not necessarily accurate predictors of performance.
Quarterly operating results
may also vary depending on a number of factors, many of which are outside our control, including:
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changes in our pricing policies or those of our competitors; | |
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our sales and channels mix and the relevant gross margins of the products and services sold; | |
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the hiring and retention of key personnel; | |
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wage and cost pressures; | |
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changes in fuel prices or electrical rates; | |
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costs related to acquisitions of businesses; and | |
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general economic factors. | |
****
**Our continued success is largely dependent on positive perceptions
of our company.**
Management believes our continued
success is largely dependent on positive perceptions of our company as a high-quality employer and operator within the veterinary space.
We may receive claims or complaints alleging that we do not properly care for some of the pets we handle or for companion animals we handle
and sell, which may include dogs, cats, birds, fish, reptiles, and other small animals. Deaths or injuries sometimes occur while animals
are in our care. As a result, we may be subject to claims that our animal care services, including grooming, training, veterinary, and
other services, or the related training of our associates or handling of animals by them, do not provide the proper level of care. Our
efforts to establish our reputation as a health and wellness company increase the risk of claims or complaints regarding
our practices. Any such claims or complaints, as well as any related news reports or reports on social media, even if inaccurate or untrue,
could cause negative publicity, which in turn could harm our business and have a material adverse effect on our results of operations.
To be successful in the future,
we must continue to preserve, grow, and leverage the value of our reputation and our brand. Reputational value is based in large part
on perceptions of subjective qualities, and even isolated incidents may erode trust and confidence and have adverse effects on our business
and financial results, particularly if they result in adverse publicity or widespread reaction on social media, governmental investigations,
or litigation. Our brand could be adversely affected if our public image or reputation were to be tarnished by negative publicity. Failure
to comply or accusations of failure to comply with ethical, social, labor, data privacy, and environmental standards could also jeopardize
our reputation and potentially lead to various adverse consumer actions. Any of these events could adversely affect our business.
As the Company grows, expanding
the mergers and acquisitions team in order to select and properly integrate new locations will be necessary. We also will have to build
our marketing, sales, managerial and other non-technical capabilities and make arrangements with third parties to perform certain of these
other services, and we may not be successful in doing so. Building an internal sales organization is time consuming and expensive and
will significantly increase our compensation expense. If we are unable to market and build proven client-acquisition processes at local
level our future revenue could suffer.
17
**Our business may be harmed if our computer
network containing employee or other information is compromised, which could adversely affect our results of operations.**
We occasionally collect or
store proprietary or confidential information regarding our employees or customers, and others, including credit card information and
potentially personally identifiable information. We may also collect, store, and transmit employees health information in order
to administer employee benefits; accommodate disabilities and injuries; and comply with public health requirements. We cannot assure you
that future potential cyber-attacks will not expose us to material liability. Security could be compromised and confidential information,
such as customer credit card numbers, employee information, or other personally identifiable information could be misappropriated, or
system disruptions could occur. In addition, cyber-attacks such as ransomware attacks could lock us out of our information systems and
disrupt our operations. If our information systems or infrastructure fail to perform as designed or are interrupted for a significant
period of time, our business could be adversely affected.
In addition, the Company plans
to expand its service offering to include, among other services, tele-veterinarian services. The Company has not implemented such tele-veterinarian
services as of the date of this prospectus. However, in order to implement such services, the Company will likely require significant
investments in information technology and information technology training. There can be no assurance that such investments will generate
commiserate increases in revenue or profitability. In implemented, cyber-attacks such as ransomware attacks against our tele-veterinarian
infrastructure could interrupt our ability to provide such services and could adversely affect that line of business. ****
****
**Labor disputes may have an adverse effect on our operations.**
We are not currently party
to a collective bargaining agreement with any of our employees. If we were to experience a union organizing campaign, this activity could
be disruptive to our operations, increase our labor costs and decrease our operational flexibility. We cannot assure you that some or
all of our employees will not become covered by a collective bargaining agreement or that we will not encounter labor conflicts or strikes.
In addition, organized labor may benefit from new legislation or legal interpretations by the current presidential administration, as
well as current or future unionization efforts among other large employers. Particularly, in light of current support for changes to federal
and state labor laws, we cannot provide any assurance that we will not experience additional and more successful union organization activity
in the future. Any labor disruptions could have an adverse effect on our business or results of operations and could cause us to lose
customers. Further, our responses to any union organizing efforts could negatively impact our reputation and have adverse effects on our
business, including on our financial results.
****
**We may be subject to personal injury, workers compensation,
discrimination, harassment, wrongful termination, wage and hour, and other claims in the ordinary course of business.**
Our business involves a risk
of personal injury, workers compensation, discrimination, harassment, wrongful termination, wage and hour, and other claims in
the ordinary course of business. We maintain general liability insurance with a self-insured retention and workers compensation
insurance with a deductible for each occurrence. We also maintain umbrella insurance above the primary general liability coverage. No
assurance can be given that our insurance coverage will be available or sufficient in any claims brought against us.
Additionally, we are subject
to U.S. federal, state, and local employment laws that expose us to potential liability if we are determined to have violated such employment
laws, including but not limited to, laws pertaining to minimum wage rates, overtime pay, discrimination, harassment, and wrongful termination.
Compliance with these laws, including the remediation of any alleged violation, may have a material adverse effect on our business or
results of operations.
****
**A decline in consumer spending or a change
in consumer preferences or demographics could reduce our sales or profitability and adversely affect our business.**
Some of our product sales
depend on consumer spending, which is influenced by factors beyond our control, including general economic conditions, disruption or volatility
in global financial markets, changes in interest rates, the availability of discretionary income and credit, weather, consumer confidence,
unemployment levels and government orders restricting freedom of movement. We may experience declines in sales or changes in the types
of products and services sold during economic downturns. Our business could be harmed by any material decline in the amount of consumer
spending, which could reduce our sales, or a decrease in the sales of higher-margin products, which could reduce our profitability and
adversely affect our business.
18
We have also benefited from
increasing pet ownership, discretionary spending on pets and current trends in humanization and premiumization in the pet industry, as
well as favorable pet ownership demographics. To the extent these trends slow or reverse, our sales and profitability would be adversely
affected. In particular, COVID-19 has driven an increase in pet ownership and consumer demand for our products that may not be sustained
or may reverse at any time. The success of our business depends in part on our ability to identify and respond to evolving trends in demographics
and consumer preferences. Failure to timely identify or effectively respond to changing consumer tastes, preferences, spending patterns
and pet care needs could adversely affect our relationship with our customers, the demand for our products and services, our market share
and our profitability.
**Our reputation and business may be harmed
if our or our vendors computer network security or any of the databases containing customer, employee, or other personal information
maintained by us or our third-party providers is compromised, which could materially adversely affect our results of operations.**
We collect, store, and transmit
proprietary or confidential information regarding our customers, employees, job applicants, and others, including credit card information
and personally identifiable information. We also collect, store, and transmit employees health information in order to administer
employee benefits; accommodate disabilities and injuries; to comply with public health requirements; and to mitigate the spread of COVID-19
in the workplace. The protection of customer, employee, and company data in the information technology systems we use (including those
maintained by third-party providers) is critical. In the normal course of business, we are and have been the target of malicious cyber-attack
attempts and have experienced other security incidents.
Security could be compromised and confidential
information, such as customer credit card numbers, employee information, or other personally identifiable information that we or our vendors
collect, transmit, or store, could be misappropriated or system disruptions could occur. In addition, cyber-attacks such as ransomware
attacks could lock us out of our information systems and disrupt our operations. We may not have the resources or technical sophistication
to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our customers, our employees, or others
who have entrusted us with information. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy
additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in computer
capabilities, new technological discoveries, or other developments may result in the breach or compromise of the technology used by us
to protect transactions or other sensitive data. In addition, data and security breaches could also occur as a result of non-technical
issues, including intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships, that result
in the unauthorized release of personal or confidential information. Any compromise or breach of our or our vendors computer network
security could result in a violation of applicable privacy and other laws, costly investigations, litigation, including class actions,
and notification, as well as potential regulatory or other actions by governmental agencies and harm to our brand, business, and results
of operations. As a result of any of the foregoing, we could experience adverse publicity, loss of sales, the cost of remedial measures
and significant expenditures to reimburse third parties for damages, which could adversely impact our results of operations. Any insurance
we maintain against the risk of this type of loss may not be sufficient to cover actual losses or may not apply to the circumstances relating
to any particular loss.
**The animal health industry is highly competitive.**
The animal health industry
is highly competitive. The Company is not currently engaged in product development and does not depend on product development for any
of its revenue, however, the Company believes that it may face competition if the Company decides to engage in product development in
future years. In such a case, the Companys competitors may include standalone animal health businesses, the animal health businesses
of large pharmaceutical companies, specialty animal health businesses and companies that mainly produce generic products or offer generic
services. We believe many of such competitors are conducting R&D activities in areas served by our products and or services. There
are also several new start-up companies competing in the animal health industry. We may also face competition from manufacturers of drugs
globally, as well as producers of nutritional health products and animal health service providers. These competitors may have access to
greater financial, marketing, technical and other resources. As a result, they may be able to devote more resources to developing, manufacturing,
marketing and selling their products, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions
or other opportunities.
19
****
**We may be unable to adequately protect our
intellectual property rights.**
We regard our brand, customer
lists, trademarks, trade dress, domain names, trade secrets, proprietary technology and similar intellectual property as critical to our
success. We rely on trademark law, trade secret protection, agreements and other methods with our employees and others to protect our
proprietary rights. The protection of our intellectual property rights may require the expenditure of significant financial, managerial
and operational resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent
third parties from infringing or misappropriating our proprietary rights, and we may be unable to broadly enforce all of our intellectual
property rights. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or
litigation. Our trademark applications may never be granted. Furthermore, our confidentiality agreements may not effectively prevent disclosure
of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure
of such information.
We might be required to spend
resources to monitor and protect our intellectual property rights. For example, we may initiate claims or litigation against others for
infringement, misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity
of such rights. However, we may be unable to discover or determine the extent of any infringement, misappropriation or other violation
of our intellectual property rights and other proprietary rights. Despite our efforts, we may be unable to prevent third parties from
infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights. Any litigation,
whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management
personnel, which may materially and adversely affect our business, financial condition, and results of operations.
**We may be subject to litigation.**
We may become party to litigation
from time to time in the ordinary course of business, which could adversely affect our business. Should any litigation in which we become
involved be determined against us, such a decision could adversely affect our ability to continue operating and the market price for our
Class A Common Stock and could potentially use significant resources. Even if we are involved in litigation and win, litigation can redirect
significant resources of management and the Company.
****
**Natural disasters and other events beyond
our control could harm our business.**
Natural disasters or other
catastrophic events, such as earthquakes, flooding, wildfires, power shortages, pandemics such as COVID-19, terrorism, political unrest,
telecommunications failure, vandalism, cyberattacks, geopolitical instability, war, drought, sea level rise and other events beyond our
control may cause damage or disruption to our operations, the operations of our suppliers and service providers, international commerce
and the global economy, and could seriously harm our revenue and financial condition and increase our costs and expenses. A natural disaster
or other catastrophic event in any of our major markets could have a material adverse impact on our business, financial condition, results
of operations, or cash flows. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for
any losses that we may incur.
20
**Risks Related to Government Regulation**
**Various government regulations could limit
or delay our ability to develop and commercialize our services or otherwise negatively impact our business.**
We are subject to a variety
of federal, state and local laws and regulations that govern, among other things, our business practices in the U.S., such as anti-corruption
and anti-competition laws. rules and regulations promulgated by the Occupational Safety and Health Administration (OSHA),
state veterinary practice acts, state veterinary ownership regulations, and by various other federal, state and local authorities regarding
the medical treatment of domestic animals. See Our BusinessGovernment Regulation. In addition, we are subject to
additional regulatory requirements, including environmental, health and safety laws and regulations administered by the U.S. Environmental
Protection Agency, state, local and foreign environmental, health and safety legislative and regulatory authorities and the National Labor
Relations Board, covering such areas as discharges and emissions to air and water, the use, management, disposal and remediation of, and
human exposure to, hazardous materials and wastes, and public and worker health and safety. These laws and regulations also govern our
relationships with employees, including minimum wage requirements, overtime, terms and conditions of employment, working conditions and
citizenship requirements. Violations of or liability under any of these laws and regulations may result in administrative, civil or criminal
fines, penalties or sanctions against us, revocation or modification of applicable permits, licenses or authorizations, environmental,
health and safety investigations or remedial activities, warning or untitled letters or cease and desist orders against operations that
are not in compliance, among other things. Such laws and regulations generally have become more stringent over time and may become more
so in the future, and we may incur (directly, or indirectly through our outsourced proprietary brand manufacturing partners) material
costs to comply with current or future laws and regulations. Liabilities under, and/or costs of compliance, and the impacts on us of any
non-compliance, with any such laws and regulations could materially and adversely affect our business, financial condition, and results
of operations. These legal and regulatory requirements differ among jurisdictions across the country and are rapidly changing and increasingly
complex. The costs associated with compliance with these legal and regulatory requirements are significant and likely to increase in the
future.
Any failure to comply with
applicable legal and regulatory requirements could result in fines, penalties and sanctions and damage to our reputation. These developments
and others related to government regulation could have a material adverse effect on our reputation, business, financial condition, and
results of operations.
Additionally, some states require veterinary para-professional
team members to be licensed before performing tasks and duties which are critical to the workflow of a veterinary clinic. These regulations
require that we are selective in where we choose to purchase hospitals, or, allocate funds and resources to finding, training and paying
for licensing for employees. As of the date of this filing, the Company has no clinics located in states where these restrictions are
in place.
Further risks to our business
include certain states which prohibit non-veterinarians from owning or operating a veterinary clinic. These regulations are designed to
limit corporate ownership in the veterinary space and, while there are feasible workarounds which our company and others have employed,
these regulations represent additional cost and complexity. Currently, the Company operates in Texas, a state in which only doctors of
veterinary medicine may own veterinary hospitals. Pursuant to a management agreement between the Company and a veterinarian-owned state
entity, this location is owned via a structure which complies with state regulations and allows the Company to manage necessary aspects
of daily operations and derive revenue. Similarly, although no such statute exists in Indiana, the Company operates one location there
and has chosen to employ a similar structure out of an abundance of caution due to uncertainty in the regulatory climate.
**Changes in laws or regulations, or a failure
to comply with any laws and regulations, may adversely affect our business, investments and results of operations.**
We are subject to laws and
regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain Commission
and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and
costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could
have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable
laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
21
**Failure to comply with governmental regulations
or the expansion of existing or the enactment of new laws or regulations applicable to our veterinary services could adversely affect
our business and our financial condition or lead to fines, litigation, or our inability to offer veterinary products or services in certain
states.**
All of the states in which
we operate impose various registration, permit, and/or licensing requirements relating to the provision of veterinary products and services.
To fulfill these requirements, we believe that we have registered with appropriate governmental agencies and, where required, have appointed
a licensed veterinarian to act on behalf of each facility. All veterinarians practicing in our veterinary service businesses are required
to maintain valid state licenses to practice.
In addition, certain states
have laws, rules, and regulations which require that veterinary medical practices be owned by licensed veterinarians and that corporations
which are not owned by licensed veterinarians refrain from providing, or holding themselves out as providers of, veterinary medical care,
or directly employing or otherwise exercising control over veterinarians providing such care. We may experience difficulty in expanding
our operations into other states or jurisdictions with similar laws, rules, and regulations. Our provision of veterinary services through
tele-veterinarian offerings is also subject to an evolving set of state laws, rules, and regulations. Although we believe that we have
structured our operations to comply with our understanding of the veterinary medicine laws of each state or jurisdiction in which we operate,
interpretive legal precedent and regulatory guidance varies by jurisdiction and is often sparse and not fully developed. A determination
that we are in violation of applicable restrictions on the practice of veterinary medicine in any jurisdiction in which we operate could
have a material adverse effect on us, particularly if we are unable to restructure our operations to comply with the requirements of that
jurisdiction.
We strive to comply with all
applicable laws, regulations and other legal obligations applicable to our veterinary services. It is possible, however, that these requirements
may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our
practices. We cannot guarantee that our practices have complied, comply, or will comply fully with all such laws, regulations, requirements,
and obligations. Any failure, or perceived failure, by us to comply with our filed permits and licenses with any applicable federal-,
state-, or international-related laws, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject,
or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand, and business, and
may result in claims, proceedings or actions against us by governmental entities or others or other liabilities. Any such claim, proceeding,
or action could hurt our reputation, brand and business, force us to incur significant expenses in defending such proceedings, distract
our management, increase our costs of doing business, result in a loss of customers and vendors, and may result in the imposition of monetary
liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance
with any laws or regulations applicable to our veterinary services. In addition, various federal, state, and foreign legislative and regulatory
bodies may expand existing laws or regulations, enact new laws or regulations, or issue revised rules or guidance applicable to our veterinary
services. Any such changes may force us to incur substantial costs or require us to change our business practices. This could compromise
our ability to pursue our growth strategy effectively and may adversely affect our ability to acquire customers or otherwise harm our
business, financial condition, and results of operations.****
**We may fail to comply with various state
or federal regulations covering the dispensing of prescription pet medications, including controlled substances, through our veterinary
services businesses, which may subject us to reprimands, sanctions, probations, fines, or suspensions.**
The sale and delivery of prescription
pet medications and controlled substances through our veterinary services businesses are governed by extensive regulation and oversight
by federal and state governmental authorities. The laws and regulations governing our operations and interpretations of those laws and
regulations are increasing in number and complexity, change frequently, and can be inconsistent or conflicting. In addition, the governmental
authorities that regulate our business have broad latitude to make, interpret, and enforce the laws and regulations that govern our operations
and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year. In the future, we may
be subject to routine administrative complaints incidental to the dispensing of prescription pet medications through our veterinary services
businesses.
22
**We are subject to environmental, health,
and safety laws and regulations that could result in costs to us**.
In connection with the ownership
and operations of our pet care centers and distribution centers, we are subject to laws and regulations relating to the protection of
the environment and health and safety matters, including those governing the management and disposal of wastes and the cleanup of contaminated
sites. We could incur costs, including fines and other sanctions, cleanup costs, and third-party claims, as a result of violations of
or liabilities under environmental laws and regulations. Although we are not aware of any of our sites at which we currently have material
remedial obligations, the imposition of remedial obligations as a result of the discovery of contaminants in the future could result in
additional costs.
**Risks Related to our Common Shares and Securities**
****
**We have received a listing deficiency notice from Nasdaq regarding
our Class A Common Stock.**
Our Class A Common Stock currently
trades on The Nasdaq Capital Market (Nasdaq). On December 16, 2024, we received a staff determination from Nasdaq to delist
the Companys securities from the Nasdaq Capital Market, based upon the closing bid price of the Companys Class A Common
Stock. For 30 consecutive business days the Company was not in compliance with the minimum bid price requirement ofNasdaq Listing
Rule 5550(a)(2)(the Minimum Bid Price Requirement). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company
was provided a grace period of 180 days, or until June 16, 2025, to regain compliance with the Minimum Bid Price Requirement.
There
can be no assurance, however, that the Company will be able to regain compliance with the Bid Price Rule or that it will otherwise be
in compliance with other Nasdaq listing rules.
If the Class A Common Stock
is not continued to be listed on Nasdaq, we could face significant material adverse consequences, including:
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a limited availability of market quotations for our securities; | |
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reduced liquidity; | |
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a determination that the common shares are a penny stock which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the common shares; | |
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a decrease in news about and analyst coverage for our Company; and | |
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a decreased ability to issue additional securities or obtain additional financing in the future. | |
Upon delisting from Nasdaq,
our Class A Common Stock may be traded, if at all in the over-the-counter inter-dealer quotation system, more commonly known as the OTC.
OTC transactions involve risks in addition to those associated with transactions in securities traded on securities exchanges such as
Nasdaq. Many OTC stocks trade less frequently and in smaller volumes than exchange-listed Stocks. Accordingly, our stock would be less
liquid than it would be otherwise. Also, the values of OTC stocks are often more volatile than exchange-listed stocks. Additionally, institutional
investors are often prohibited from investing in OTC stocks, and it might be more challenging to raise capital when needed.
In addition, if our Class
A Common Stock is delisted, your ability to transfer or sell your Class A Common Stock may be limited and the value of those securities
will be materially adversely affected.
23
**If our Class A Common Stock becomes subject
to the penny stock rules, it may be more difficult to sell our Class A Common Stock.**
The Commission has adopted
rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities
with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation
on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of our Class A Common
Stock is less than $5.00 and our Class A Common Stock is no longer listed on a national securities exchange such as Nasdaq, our stock
may be deemed a penny stock. The penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny
stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing specified information
and to obtain from the customer a signed and dated acknowledgment of receipt of that document. In addition, the penny stock rules require
that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchasers written acknowledgment
of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and
dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the
secondary market for our Class A Common Stock, and therefore shareholders may have difficulty selling their shares.
**It is not possible to predict the actual
number of shares we will sell under the Purchase Agreement, or the actual gross proceeds resulting from those sales. We may not have access
to the full amount available under the Purchase Agreement with Tumim.**
****
On November 30, 2023, we entered
into the Purchase Agreement with Tumim, pursuant to which Tumim committed to purchase up to $30.0 million in shares of our Class A Common
Stock, at our direction from time to time after the date of this prospectus, subject to the satisfaction of the conditions in the Purchase
Agreement. Sales of Class A Common Stock by us to Tumim, if any, will be subject to certain limitations, and may occur from time-to-time
in our sole discretion, over the period commencing once certain customary conditions are satisfied, including securing effectiveness of
the resale registration statement with the Commission and ending on the first day of the month following the 24-month anniversary of the
date on which the resale registration statement is declared effective by the Commission.
Sales of our Class A Common Stock to Tumim under
the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to
Tumim all or a portion of the shares of our Class A Common Stock that may be available pursuant to the Purchase Agreement or decide to
not sell to Tumim any shares of our Class A Common Stock that may be available for us to sell to Tumim pursuant to the Purchase Agreement.
Because the purchase price
per share to be paid by Tumim for the shares of our Class A Common Stock that we may elect to sell to Tumim under the Purchase Agreements
will fluctuate based on the market prices of our Class A Common Stock during the applicable purchase valuation period for each purchase,
it is not possible for us to predict, the number of shares of our Class A Common Stock that we will sell to Tumim, the purchase price
per share that Tumim will pay for shares purchased from us, or the aggregate gross proceeds that we will receive from those purchases
by Tumim under the Purchase Agreement.
Any issuance and sale by us
under the Purchase Agreement of a substantial amount of shares of our Class A Common Stock that are being registered for resale by Tumim
could cause additional substantial dilution to our stockholders. The number of shares of our Class A Common Stock ultimately offered for
resale by Tumim is dependent upon the number of shares of our Class A Common Stock we ultimately sell to Tumim under the Purchase Agreement.
Our inability to access a
portion or the full amount available under the Purchase Agreement, in the absence of any other financing sources, could have a material
adverse effect on our business. The extent to which we rely on Tumim as a source of funding will depend on a number of factors including
the prevailing market price of our Class A Common Stock and the extent to which we are able to secure working capital from other sources.
If obtaining sufficient funding from Tumim were to prove unavailable or prohibitively dilutive, we may need to secure another source of
funding in order to satisfy our working capital needs. Even if we were to receive all $30.0 million in gross proceeds under the Purchase
Agreement, we may still need additional capital to fully implement our business, operating and development plans. Should the financing
we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, there could be a material
adverse effect on our business, operating results, financial condition and prospects.
24
**Investors who buy shares at different times will likely pay different
prices.**
Pursuant to the Purchase Agreement,
we will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to Tumim. If and when we do
elect to sell shares of our Class A Common Stock to Tumim under the Purchase Agreement, after Tumim has acquired such shares, Tumim may
resell all or a portion of such shares from time to time in its discretion and at different prices. As a result, investors who purchase
shares from Tumim at different times will likely pay different prices for those shares, and so may experience different levels of dilution
and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value
of the shares they purchase from Tumim as a result of future sales made by us to Tumim at prices lower than the prices such investors
paid for their shares.
****
**If securities or industry analysts do not
publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price
and trading volume could decline.**
We will have to be obtain
research coverage by securities and industry analysts; if coverage is not maintained, the market price for our stock may be adversely
affected. Our stock price also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business
model or our stock performance, or if our operating results fail to meet analysts expectations. If one or more analysts cease coverage
of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price
or trading volume to decline and possibly adversely affect our ability to engage in future financings.
****
**We do not intend to pay cash dividends for
the foreseeable future.**
We currently intend to retain
our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends
in the foreseeable future. We intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our
common shares. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future
appreciation in the market price of our common shares. There is no assurance that our common shares will appreciate in price. Any future
determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results
of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such
other factors as our board of directors deems relevant.
****
**Our shares will be subordinate to all of
our debts and liabilities, which increases the risk that you could lose your entire investment.**
Our shares are equity interests
that will be subordinate to all of our current and future indebtedness with respect to claims on our assets. In any liquidation, all of
our debts and liabilities must be paid before any payment is made to our shareholders. The amount of any debt financing we incur creates
a substantial risk that in the event of our bankruptcy, liquidation or reorganization, we may have no assets remaining for distribution
to our shareholders after payment of our debts.
**Our board of directors may designate and
issue shares of new classes of stock, including the issuance of up to 16,108,500 additional shares of Class B common stock, that could
be superior to or adversely affect you as a holder of our Class A common stock. Although a majority of our board of directors are independent,
our non-independent directors, officers, and their affiliates control approximately 98.0%of the voting power of our outstanding
common stock.**
Our board of directors has
the power to designate and issue shares of classes of stock, including preferred stock that have voting powers, designations, preferences,
limitations and special rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights without
further shareholder approval which could adversely affect the rights of the holders of our Class A Common Stock. In addition, our board
could authorize the issuance of a series of preferred stock that has greater voting power than our Class A Common Stock or that is convertible
into our Class A Common Stock, which could decrease the relative voting power of our Class A Common Stock or result in dilution to our
existing common stockholders. Although a majority of our board of directors are independent, our non-independent directors, officers,
and their affiliates control approximately 98.0% of the voting power of our outstanding common stock. Our non-independent directors, officers
and their affiliates may, through their control of over a significant portion of the voting power of our outstanding common stock, could
influence the Company to take corporate actions or engage in transactions that may be at odds with the interests of other investors in
our Class A common stock.
Any of these actions could
significantly adversely affect the investment made by holders of our Class A Common Stock. Holders of common stock could potentially not
receive dividends that they might otherwise have received. In addition, holders of our Class A Common Stock could receive less proceeds
in connection with any future sale of the Company, whether in liquidation or on any other basis.
Our articles of incorporation authorize the issuance of four million (4,000,000) shares of Class A common stock, twenty million (20,000,000)
shares of Class B common stock, and fifty million (50,000,000) shares of preferred stock. We currently have 1,176,059, 3,020,750 and 0
shares of Class A common stock, Class B common stock and Series A preferred stock, respectively, issued and outstanding. The Class B common
stock is identical to the Class A common stock, except that each share of Class B common stock entitles the holder of such share 25 votes
per share and is convertible into one share of Class A common stock. If our board of directors determined to issue the remaining 16,979,250
unissued Class B shares, such shares would represent an additional 424,481,250 votes and non-affiliated investors in our Class A Common
Stock would have voting power of less than 1%.
25
Charles Stith Keiser, our
director, the holder of 2,150,000 shares of our Class B common stock and 10 shares of our Class A common stock, controls approximately
69.8% of the voting power of the outstanding common stock of the Company.
Our directors Messrs. Carr,
Keiser, and Lau hold a combined 3,020,750 shares of our Class B common stock and 41 shares of our Class A common stock, control approximately
98.0% of the voting power of the outstanding common stock prior to the issuance of any additional shares. See Security Ownership
of Certain Beneficial Owners and Management.
Because we do not expect any
single holder or entity to hold more than 50% of the outstanding voting power of the Company, we do not believe we will qualify as a controlled
company under the Nasdaq listing rules. See We may be deemed a controlled company within the meaning
of the rules of Nasdaq and, as a result, may qualify for, but do not intend to rely on, exemptions from certain corporate governance requirements.
However, any future issuance
of Class A common stock or Class B common stock will result in substantial dilution in the percentage of our Class A Common Stock held
by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock
for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors
and might have an adverse effect on any trading market for our Class A Common Stock.
**The trading price of our Class A common
stock is volatile, which could result in substantial losses toinvestors.**
The trading price of our Class
A common stock is volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry
factors, including the performance and fluctuation of the market prices of other companies with business operations located outside of
the United States. In addition to market and industry factors, the price and trading volume for our Class A common stock may be highly
volatile for factors specific to our own operations, including thefollowing:
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the potential delisting of our common stock from The Nasdaq Capital Market (as more fully described below); | |
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variations in our revenues, earnings and cash flow; | |
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announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; | |
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announcements of new offerings, solutions and expansions by us or our competitors; | |
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changes in financial estimates by securities analysts; | |
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detrimental adverse publicity about us, our brand, our services or our industry; | |
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additions or departures of key personnel; | |
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sales of additional equity securities;and | |
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potential litigation or regulatory investigations. | |
Any of these factors may result
in large and sudden changes in the volume and price at which our Class A common stock willtrade.
In the past, shareholders of public companies have
often brought securities class action suits against those companies following periods of instability in the market price of their securities.
If we were involved in a class action suit, it could divert a significant amount of our managements attention and other resources
from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations.
Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future.
In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse
effect on our financial condition and results ofoperations.
26
**The sale or availability for sale of substantial
amounts of our Class A common stock could adversely affect their marketprice.**
Sales of substantial amounts
of our Class A common stock in the public market, or the perception that these sales could occur, could adversely affect the market price
of our Class A common stock and could materially impair our ability to raise capital through equity offerings in the future. The sale
of a significant number of shares being offered could depress the market price of the Companys common stock.
Such volatility, including
any stock-run up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult
for prospective investors to assess the rapidly changing value of our stock. Furthermore, the stock market in general experiences price
and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us. Volatility or
a lack of positive performance in the price of our shares of Class A common stock may also adversely affect our ability to retain key
employees.
In addition, the stock market,
in general, or the market for stocks in our industry, in particular, may experience broad market fluctuations, which may adversely affect
the market price or liquidity of our common shares. Any sudden decline in the market price of our common shares could trigger securities
class-action lawsuits against us. If any of our shareholders were to bring such a lawsuit against us, we could incur substantial costs
defending the lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be
subject to damages claims if we are found to be at fault in connection with a decline in our stock price.
**We are an emerging growth company
and a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies and a smaller reporting companies will make our Class A Common Stock less attractive to investors.**
We are an emerging
growth company, as defined in the JOBS Act, and we expect to take advantage of certain exemptions and relief from various reporting
requirements that are applicable to other public companies that are not emerging growth companies. In particular, while we are an emerging
growth company: we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act
of 2002, or the Sarbanes-Oxley Act; we will be exempt from any rules that could be adopted by the Public Company Accounting Oversight
Board requiring mandatory audit firm rotations or a supplement to the auditors report on financial statements; we will be subject
to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and we will not be required
to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
In addition, while we are
an emerging growth company we 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 take advantage of this extended transition period and, as a result, our operating results and
financial statements may not be comparable to the operating results and financial statements of companies who have adopted the new or
revised accounting standards.
We may remain an emerging
growth company until as late as December 31, 2026, though we may cease to be an emerging growth company earlier under certain circumstances,
including if (i)we have more than $1.235 billion in annual revenue in any fiscal year, (ii)the market value of our Class A
Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal
quarter or (iii)we issue more than $1.0 billion of non-convertible debt over a three-year period.
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, among other things, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, presenting only the two most recent fiscal years of audited financial statements
in our Annual Report on Form 10-K and reduced disclosure obligations regarding executive compensation in this prospectus and our periodic
reports and proxy statements.
27
Investors may find our Class
A Common Stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our
Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock and our stock
price may decline or become more volatile.
**We may be deemed a controlled company
within the meaning of the rules of Nasdaq and, as a result, may qualify for, but do not intend to rely on, exemptions from certain corporate
governance requirements.**
Charles Stith Keiser, our
director and the holder of 2,150,000 shares of our Class B common stock and 10 shares of our Class A common stock, controls approximately
69.8% of the voting power of the Company as of the date of this prospectus. However, if Mr. Keiser were to control greater than 50% of
the voting power of our Class A Common Stock, the Company may be deemed a controlled company within the meaning of the corporate
governance standards of Nasdaq. Under the rules of Nasdaq, a company of which more than 50% of the outstanding voting power is held by
an individual, group or another company is a controlled company and may elect not to comply with certain stock exchange
corporate governance requirements, including the requirement that a majority of the board of directors consists of independent directors,
have a nominating and governance committee and compensation committee that is composed entirely of independent directors and the requirement
for an annual performance evaluation of the nominating and governance committee and compensation committee.
We do not intend to rely on
these exemptions and instead intend to comply with all of the corporate governance requirements imposed by state and federal law, the
rules and regulations of the Securities and Exchange Commission and Nasdaq.
**Sales of a significant number of shares
of our Class A Common Stock in the public markets, or the perception that such sales could occur, could depress the market price of our
Class A Common Stock.**
Sales of a substantial number
of shares of our Class A Common Stock in the public markets could depress the market price of our Class A Common Stock and impair our
ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our Class
A Common Stock would have on the market price of our Class A Common Stock.
**Item
1b. unresolved staff comments**
None.
**ITEM 1C. CYBERSECURITY**
The Company engages a third-party
provider to maintain our systems and management participates in the assessment to identify any risks from cybersecurity threats. Our third-party
provider monitors our firewall, network, system security and internal and external backups and reports any issues to the Company.
The Companys Board,
together with management, is engaged in our cybersecurity monitoring managed by our third-party provider and it is constantly changing.
Any issues are appropriately addressed timely.
To date, we have not experienced any cybersecurity
incidents that materially affected our business strategy, results of operations or financial condition.
The Company recognizes the
critical importance of cybersecurity in safeguarding sensitive information, maintaining operational resilience, and protecting stakeholders
interests. This cybersecurity policy is designed to establish a comprehensive framework for identifying, assessing, mitigating, and responding
to cybersecurity risks across the organization.
28
The Company is in the process
of establishing a cybersecurity policy which implement protocols to evaluate, recognize, and address significant risks, including those
posed by cybersecurity threats. This strategy encompasses the utilization of standard traffic monitoring tools, educating personnel to
identify and report abnormal activities, and partnering with reputable service providers capable of upholding security standards equivalent
to or exceeding our own.
These measures are to be seamlessly
integrated into our broader operational risk management framework aimed at minimizing exposure to unnecessary risks across our operations.
For cybersecurity, we collaborate with expert consultants and third-party service providers to implement industry-standard strategies
aimed at identifying and mitigating potential threats or vulnerabilities within our systems. Additionally, the policy strategy will have
a comprehensive cyber crisis response plan to manage high severity security incidents, ensuring efficient coordination across the organization.
Cybersecurity threats havent
significantly impacted our operations, and we dont anticipate such risks materially affecting our business, strategy, financial
condition, or results of operations. However, given the escalating sophistication of cyber threats, our preventive measures may not always
suffice. Despite well-designed controls, we acknowledge the inability to foresee all security breaches, including those stemming from
third-party misuse of AI technologies, and the potential challenges in implementing timely preventive measures. Please refer to Item 1A:
Risk Factors for further insights into cyber attack-related risks.
The Chief Financial Officer
will oversees our information security programs, including cybersecurity initiatives, and is integrated into our Cybersecurity Incident
response process. The Audit committee oversees cybersecurity risk management activities, supported by Company management, the Board of
Directors, and external consultants. We assess and prioritize risks based on potential impact, implement technical controls, and monitor
third-party vendors security practices.
**Item
2. properties**
With a decentralized leadership
team, our company does not have a physical headquarters, but rather, has a distributed leadership team working from home offices across
several states.
****
**Chiefland Animal Hospital (CAH)**
The real estate underlying Chiefland
Animal Hospital is located at 2630 North Young Boulevard, Chiefland, Florida, and is owned by IVP FL Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $279,500 and was financed by WealthSouth, a division of Farmers National Bank (WealthSouth).
The material terms of the WealthSouth loan are summarized below.
**Pets & Friends Animal Hospital
LLC (P&F)**
The real estate underlying Pets &
Friends Animal Hospital is located at 3625 Baltimore Ave, Pueblo, Colorado, and is owned by IVP CO Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $216,750 and was financed by WealthSouth. The material terms of the WealthSouth loan are
summarized below.
****
**Advanced Veterinary Care of Pasco, LLC (AVCP)**
The real estate underlying our Advanced
Veterinary Care of Pasco facility, located at 12116 Cobble Stone Drive, Hudson, Florida, is leased from Remappa Family Limited Partnership
for one year with two additional possible three-year renewals. The initial rent in the first year of the lease is $2,350 per month increasing
in annual increments for a total of 0.75% over ten years. The lease consists of 2,442 square feet of commercial space zoned to permit
the provision of veterinary services.
****
29
****
**Lytle Veterinary Clinic, Inc. (LVC)**
The real estate underlying Lytle Veterinary
Clinic is located at 63245 Texas State Highway 132, Lytle, Texas, and is owned by IVP TX Properties, LLC, a 100%-owned subsidiary of the
Company. The property was purchased for $780,000 and financed by WealthSouth. The material terms of the WealthSouth loan are summarized
below.
****
**Southern Kern Veterinary Clinic, Inc. (SKVC)**
The real estate underlying Southern
Kern Veterinary Clinic is located at 4455 West Rosamond Boulevard, Rosamond, California, and is owned by IVP CA Properties, LLC, a 100%-owned
subsidiary of the Company. The property was purchased for $500,000 and financed by WealthSouth. The material terms of the WealthSouth
loan are summarized below.
**Bartow Animal Hospital**
The real estate underlying Bartow Animal
Hospital is located at 1515 US Highway 17 South, Bartow, Florida, and is owned by IVP FL Properties, LLC, a 100%-owned subsidiary of the
Company. The property was purchased for $350,000 and financed by WealthSouth. The material terms of the WealthSouth loan are summarized
below.
****
**Dietz Family Pet Hospital**
The real estate underlying Dietz Family
Pet Hospital is located at 7002 Hand Road, Richmond, Texas, and is leased from Clarence and Erna Thielemann for a one-year term, with
optional monthly renewals thereafter. The rent is $2,000 per month. The lease consists of 1,880 square feet of commercial space zoned
to permit the provision of veterinary services.
****
**Aberdeen Veterinary Clinic**
The real estate underlying Aberdeen
Veterinary Clinic is located at 728 South Philadelphia Boulevard, Aberdeen, Maryland, and is leased from H R Fritz LLC for a five-year
term, with three additional optional 5-year renewals. The rent is $4,167 per month, increasing 3% annually. The lease consists of 2,653
square feet of commercial space zoned to permit the provision of veterinary services.
****
**All Breed Pet Care**
The real estate underlying the All Breed
Pet Care facility is located at 7501 Peachwood Drive, Newburgh, Indiana, and is owned by IVP IN Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $1,200,000 and was financed by WealthSouth. The material terms of the WealthSouth loan
are summarized below.
**The Pony Express Veterinary Hospital**
The real estate underlying The Pony
Express Veterinary Hospital is located at 893 Lower Bellbrook Road, Xenia, Ohio and is owned by IVP TX Properties, LLC, a 100%-owned subsidiary
of the Company. The property was purchased for $500,000 and was financed by WealthSouth. The material terms of the WealthSouth loan are
summarized below.
30
**The Old 41 Animal Hospital**
****
The real estate underlying The Old 41
Animal Hospital facility is located at 27551 Old 41 Road, Bonita Springs, Florida and 27567 Old 41 Road, Bonita Springs, Florida, and
is owned by IVP FL Properties, LLC, a 100%-owned subsidiary of the Company. The property was purchased for $800,000 and was financed by
WealthSouth. The material terms of the WealthSouth loan are summarized below.
**Valley Veterinary Services**
The real estate underlying Valley Veterinary
Services facility is located 408 Grace Lane, Rostraver Township, Pennsylvania 15012 (Parcel Nos. 56-12-00-0-148 and 56-12-00-0-144) and
is owned by IVP PA Properties, LLC, a 100%-owned subsidiary of the Company. The property was purchased for $590,000 and was financed by
WealthSouth. The material terms of the WealthSouth loan are summarized below.
**WealthSouth Real Estate Loans**
****
Each WealthSouth loan bears
a variable interest rate charged on all sum outstanding equal to the New York Prime Rate plus 0.50%, however, such rate can never be less
than 3.57% per annum.
****
**item
3. legal proceedings**
We are not aware of any pending
legal proceedings to which we are a party, or to which any director, officer or affiliate of our Company, or any owner of record or beneficially
of more than 5% of any class of our voting securities, is a party adverse to us or has a material interest adverse to us.
**item
4. mine safety disclosures.**
Not applicable.
31
**part
II**
**item
5. market for registrants common equity, related stockholder matters and issuer purchases OF EQUITY SECURITIES**
**Market Information**
Our Class A Common Stock is
listed on Nasdaq under the symbol IVP.
****
**Holders**
As of the date of this Annual
Report, there were 41 stockholders of record for our Class A common stock, 3 stockholders of record for our Class B common stock and 0
stockholders of record for our Series A preferred stock.
****
**Dividend Policy**
****
We do not anticipate declaring
or paying, in the foreseeable future, any cash dividends on our capital stock. We intend to retain all available funds and future earnings,
if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.
Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors
and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements,
business prospects and other factors our board of directors may deem relevant.
**Nasdaq Deficiency Notice**
Class A Common Stock currently
trades on The Nasdaq Capital Market (Nasdaq). On December 16, 2024, we received a staff determination from Nasdaq to delist
the Companys securities from the Nasdaq Capital Market, based upon the closing bid price of the Companys Class A Common
Stock. For 30 consecutive business days the Company was not in compliance with the minimum bid price requirement ofNasdaq Listing
Rule 5550(a)(2)(the Minimum Bid Price Requirement). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company
was provided a grace period of 180 days, or until June 16, 2025, to regain compliance with the Minimum Bid Price Requirement.
**Securities Authorized for Issuance under Equity Compensation Plans**
****
Effective October 18, 2022,
shareholders of Company approved the Companys 2022 Equity Incentive Plan (the Plan). The Plan provides for the award
of stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees and consultants
who provide services to the Company.
Under the plan, the capital
stock available for issuance under the Plan are the shares of the Companys authorized but unissued common stock. The number of
shares issued may not exceed, at any given time, ten percent (10%) of the total of: (a) the issued and outstanding shares of the Companys
common stock, and (b) all shares common stock issuable upon conversion or exercise of any outstanding securities of the Company which
are convertible or exercisable into shares of common stock.
The Board may terminate the
Plan at any time. Unless sooner terminated, the Plan will terminate ten years after the effective date of the Plan. The number of shares
of common stock covered by each outstanding stock right, and the number of shares of common stock which have been authorized for issuance
under the Plan as well as the price per share of common stock (or cash, as applicable) covered by each such outstanding option or stock
appreciation rights, shall be proportionately adjusted for any increases or decrease in the number of issued shares of common stock resulting
from a stock split, reverse stock split, stock dividend, combination or reclassification, or any other increase or decrease in the number
of issued shares of common stock effected without receipt of consideration by the Company.
****
**Outstanding Equity Awards**
No equity awards to our named
executive officers were outstanding as of December 31, 2024 or as of the date of this Annual Report.
****
32
**Executive Incentive Compensation Recovery Policy**
We have adopted an executive
incentive compensation recovery policy(the Executive Incentive Compensation Recovery Policy) pursuant to Section 10D
of the Exchange Act, Rule 10D-1 promulgated under the Exchange Act (Rule 10D-1), and Listing Rule 5608 adopted by Nasdaq
(the Listing Standards). The purpose of the Executive Incentive Compensation Recovery Policy is to provide for the recovery
of certain incentive-based compensation in the event of an accounting restatement. In the event of an accounting restatement, it is the
Companys policy to recover reasonably promptly the amount of any erroneously awarded compensation received during the recovery
period. An accounting restatement involves a restatement of the Companys financial statements due to material noncompliance with
any financial reporting requirement under the federal securities laws, including any required accounting restatement to correct an error
in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period.
The amount of erroneously
awarded compensation generally means the amount of incentive-based compensation (compensation that is granted, earned, or vested
based wholly or in part upon the attainment of a financial reporting measure) received by a covered executive that exceeds the amount
of incentive-based compensation on that otherwise would have been received had it been determined based on the restated financial statements.
The Company need not recover any erroneously awarded compensation if and to the extent that the Compensation Committee or
a majority of the independent members of the Board determines that such recovery is impracticable and not required under Rule 10D-1 and
the Listing Standards, including if the Compensation Committee or a majority of the independent members of the Board determines that:
(i) the direct expense paid to a third party to assist in enforcing the policy would exceed the amount to be recovered after making a
reasonable attempt to recover, or (ii) recovery would likely cause an otherwise tax-qualified broad-based retirement plan to fail the
requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and regulations thereunder.
The policy is administered
by our Compensation Committee, except that the Board may decide to act as the administrator in lieu of the Compensation Committee or designate
another committee of the Board (including a special committee) to act as the administrator other than the determination that recovery
of erroneously awarded compensation is impracticable and not required (as described above).
The following table provides information regarding
our equity compensation plan as of December 31, 2024.
|
Plan Category | |
(a) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | | |
(b) Weighted- average Exercise Price of Outstanding Options, Warrants and Rights | | |
(c) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | |
|
Equity compensation plans approved by security holders: | |
| | |
| | |
| | |
|
2022 Plan | |
| 4,747 | | |
$ | 2.50 | | |
| 112,859 | | |
|
Total equity compensation plans approved by stockholders | |
| | | |
$ | | | |
| | | |
|
Equity compensation plans not approved by security holders | |
| - | | |
| - | | |
| - | | |
**Recent Sales of Unregistered Securities**
Except as set forth below,
there were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and
were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the Company.
The issuances of the shares
described above were exempt from registration under Section 4(a)(2) under the Securities Act, as transactions by an issuer not involving
any public offering.
**Issuer Purchases of Equity Securities**
None.
**Item
6. [Reserved]**
None.
****
33
****
**item
7. managements discussion and analysis of financial condition and results of operations**
*The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the
related notes appearing elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward-looking
statements that involve risks, uncertainties and assumptions. See Forward-looking Statements for a discussion of the uncertainties
and assumptions associated with these statements. Our actual results may differ materially from those discussed below.*
**Overview**
Inspire Veterinary is a corporation originally
incorporated in the state of Delaware in 2020. On June 29, 2022, the Company converted into a Nevada corporation. The Company completed
its initial public offering on August 31, 2023 and its shares of Class A Common Stock are quoted on The Nasdaq Capital Market under the
symbol IVP. The Company owns and operates veterinary hospitals throughout the United States. The Company specializes in
small animal general practice hospitals which serve all manner of companion pets, emphasizing canine and feline breeds. As the Company
expands, additional modalities are expected to become a part of the offerings at its hospitals. With the acquisition of The Pony Express
Veterinary Hospital, Inc. including equine care and emergency and specialty services and intends to continue to expand such services.
With thirteen clinics located in nine states as
of the date of this filing, Inspire Veterinary purchases existing hospitals which have the financial track record, marketplace advantages
and future growth potential which make them worthy acquisition targets. Because the Company leverages a leadership and support structure
which is distributed throughout the United States, acquisitions are not centralized to one geographic area. The Company operates its business
as one operating and one reportable segment.
The Company is the managing member of IVP Practice
Holdings Co., LLC (Holdco), a Delaware limited liability company, which is the managing member of IVP CO Holding, LLC (CO
Holdco), a Delaware limited liability company, IVP FL Holding Co., LLC (FL Holdco), a Delaware limited liability
company, IVP Texas Holding Company, LLC (TX Holdco), a Delaware limited liability company, KVC Holding Company, LLC (KVC
Holdco), a Hawaii limited liability company, and IVP CA Holding Co., LLC (CA Holdco), a Delaware limited liability
company, IVP MD Holding Company, LLC (MD Holdco), a Delaware limited liability company, IVP OH Holding (OH Holdco),
Co, LLC, a Delaware limited liability company, IVP IN Holding Co., LLC (IN Holdco), a Delaware limited liability company,
IVP MA Managing Co., LLC, a Delaware limited liability company (MA Holdco), and IVP PA Holding Company, LLC, a Delaware
limited liability company (PA Holdco). The Company through Holdco, operates and controls all business and affairs of CO
Holdco, FL Holdco, TX Holdco, KVC Holdco, CA Holdco, and MD Holdco. Holdco, OH Holdco, IN Holdco, MA Holdco and PA Holdco are used to
acquire hospitals in various states and jurisdictions.
The Company is the managing member of IVP Real
Estate Holding Co., LLC (IVP RE), a Delaware limited liability company, which is the managing member of IVP CO Properties,
LLC (CO RE), a Delaware limited liability company, IVP FL Properties, LLC (FL RE), a Delaware limited liability
company, IVP TX Properties, LLC (TX RE), a Delaware limited liability company, KVC Properties, LLC, (KVC RE),
a Hawaii limited liability company, IVP CA Properties, LLC (CA RE), a Delaware limited liability company, IVP MD Properties,
LLC (MD RE), a Delaware limited liability company, IVP OH Properties, LLC (OH RE), a Delaware limited liability
company, IVP IN Properties, LLC (IN RE), a Delaware limited liability company, and IVP PA Properties, LLC (PA RE),
a Delaware limited liability company. The Company through IVP RE operates and controls all business and affairs of CO RE, FL RE, TX RE,
KVC RE, CA RE, MD RE, OH RE, IN RE and PA RE. IVP RE are used to acquire real property in various states and jurisdictions.
****
**Our Business Model**
Services provided at owned hospitals include preventive
care for companion animals consisting of annual health exams which include: parasite control; dental health; nutrition and body condition
counseling; neurological examinations; radiology; bloodwork; skin and coat health and many breed specific preventive care services. Surgical
offerings include all soft tissue procedures such as spays and neuters, mass removals, splenectomies and can also include gastropexies,
orthopedic procedures and other types of surgical offerings based on a doctors training. In many locations additional means of
care and alternative procedures are also offered such as acupuncture, chiropractic and various other health and wellness offerings.
With acquisitions serving as one key driver of
growth, the Company has developed metrics and processes for assessing, valuing, acquiring and integrating new hospitals into its network.
With a focus in its early years on general practice, small companion animal hospitals, the Company selects hospitals in markets with large
addressable pet populations, but not necessarily in city/urban centers. The Company recently entered the equine care, or the care of horses,
sector with the addition of the Pony Express Veterinary Hospital into the Companys small-animal-only mix of locations.
34
Growth strategies and expansion plans call for
the Company to enter emergency care and mixed animal (such as bovine and additional equine care) in future years of growth. Staffing,
ownership transition plans, demographics, quality of medicine, financial performance and quality of existing leadership are some of the
many factors that are analyzed before a pending acquisition is offered a letter of intent. The Company uses a field support structure
that is nationally distributed and therefore the targets for acquisition can be in most states within the United States, taking special
care with more complex states which have very specific veterinary practice ownership and operations guidelines.
Risks to the ability to swiftly acquire and integrate
new hospitals include: (i) national staffing shortages of veterinarians and technicians which pre-existed the current market conditions
which make finding credentialed talent even more difficult; (ii) costs and time associated with finding suitable targets and performing
due diligence; and (iii) difficulties in achieving growth targets post purchase which ensure hospitals grow revenue and earnings in the
years post purchase.
Post purchase pressures include rising talent
acquisition and staffing costs in addition to challenges in achieving productivity and average patient charges necessary to achieve growth
and profitability.
**Results of Operations**
**Acquisition and Growth Strategy**
With an emphasis on general practice hospitals
in its first seven to eight quarters, the Company expanded into purchase of mixed animal hospitals in late 2022, adding equine care to
its mix. In 2025 and beyond, the Company intends to continue to conduct the due diligence necessary to strategically acquire existing
general practices, specialty hospitals, and/or expand existing locations to include emergency care and more complex surgeries, holistic
care and comprehensive diagnostics which allow it to offer more complex surgeries and internal medicine work ups.
The Company has plans to seek multi-unit practices
with regional presence to facilitate growth for the Company and also to move more swiftly into being a prime provider in select markets.
While purchases of individual clinics will remain a focus for the Company, these opportunities to acquire hospitals in clusters of 2 to
6 will significantly increase our pace of growth and provide numerous internal benefits such as internal case referrals and career pathing
for clinicians and leadership.
We account for acquisitions under the acquisition
method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing
date. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair
value of the acquired assets and assumed liabilities. Below is a summary of the acquisitions that closed from the inception of the Company
through December 31, 2024, and the related transaction price.
|
Name |
|
Closing Date |
|
Transaction
Value1 |
| |
|
Kauai Veterinary Clinic3,6 |
|
January 2021 |
|
$ |
1,505,000 |
| |
|
Chiefland Animal Hospital2 |
|
August 2021 |
|
$ |
564,500 |
| |
|
Pets & Friends Animal Hospital2 |
|
October 2021 |
|
$ |
630,000 |
| |
|
Advanced Veterinary Care of Pasco3 |
|
January 2022 |
|
$ |
1,014,000 |
| |
|
Lytle Veterinary Clinic2 |
|
March 2022 |
|
$ |
1,442,469 |
| |
|
Southern Kern Veterinary Clinic2 |
|
March 2022 |
|
$ |
2,000,000 |
| |
|
Bartow Animal Clinic3,4 |
|
May 2022 |
|
$ |
1,405,000 |
| |
|
Dietz Family Pet Hospital2 |
|
June 2022 |
|
$ |
500,000 |
| |
|
Aberdeen Veterinary Clinic3 |
|
July 2022 |
|
$ |
574,683 |
| |
|
All Breed Pet Care Veterinary Clinic2 |
|
August 2022 |
|
$ |
2,152,000 |
| |
|
Pony Express Veterinary Hospital, Inc.2 |
|
October 2022 |
|
$ |
3,108,652 |
| |
|
Williamsburg Animal Clinic3 |
|
December 2022 |
|
$ |
850,000 |
| |
|
The Old 41 Animal Hospital2 |
|
December 2022 |
|
$ |
1,465,000 |
| |
|
Valley Veterinary Services3,5 |
|
November 2023 |
|
$ |
1,790,000 |
| |
|
1. |
The transaction value is the amount of consideration paid for the acquisition of the veterinary practice (and as denoted the real estate operations) that was accounted for as a single business combination, in accordance with ASC Topic 805. | |
|
2. |
Acquisition includes both the veterinary practice and related assets and the real estate operations in the transaction value. | |
35
|
3. |
Acquisition was for the veterinary practice and related assets only. | |
|
4. |
Acquisition includes the purchase of personal goodwill of $105,000 that was included in the purchase price of the veterinary practice and related assets. The total transaction value is made up of $955,000 for the veterinary practice and related assets and $350,000 for the real estate operations. | |
|
5. |
The transaction value excludes $200,000 for the Holdback Agreement associated with the acquisition. | |
**
|
6. |
The veterinary practice was sold on September 20, 2024. | |
**
*Kauai Veterinary Clinic Acquisition*
On January 25, 2021, the Company acquired Kauai
Veterinary Clinic, Inc., located in Lihue, Hawaii on the island of Kauai providing regional and local veterinary services for $1,505,000
dollars through the Companys wholly-owned subsidiary, IVP Practice Holding Company, LLC. Simultaneously to the closing of KVC,
the Company acquired the underlying real estate from a third party in exchange for $1,300,000 through the Companys wholly-owned
subsidiary, IVP Real Estate Holding Co., LLC. These acquisitions were financed with threes loans provided by First Southern National Bank
for a total of $2,383,400.
On September 20, 2024, the Company completed the
divestiture of its Kauai Veterinary Clinic (KVC) to Kauai RE Holdings LLC for $2.0 million, in notes payable assumed by
the buyer, with no cash consideration. The agent for the sale was Gregory Armstrong, a current shareholder of the Company and a member
of Kauai RE. Charles Keiser, DVM, is a member of Kauai RE and the father of our board member Charles Stith Keiser, who is the Companys
largest shareholder through his entity Wilderness Trace Veterinary Partners, LLC. The divestiture resulted in a gain of $467,049 in fiscal
year 2024, which was recorded in Gain on sale of business in the Statements of Operations. As a result of the transaction,
the Company disposed of $125,508 of goodwill based on the relative fair value of KVC. The estimated fair value of KVC less estimated costs
to sell exceeded it carrying amount as of the transaction date. As the sale of KVC was not considered, a significant disposal or a strategic
shift that would have a major effect on the Companys operations or financial results, it was not reported as discontinued operations.
*Chiefland Animal Hospital Acquisition*
On August 20, 2021, the Company acquired the veterinary
practice and related assets of Chiefland Animal Hospital from Polycontec, Inc. for $285,000 through the Companys wholly-owned subsidiary,
IVP Practice Holding Company, LLC. Simultaneously, the Company the real estate operations, consisting of land and buildings, utilized
by the Chiefland practice for $279,500 through the Companys wholly-owned subsidiary, IVP Real Estate Holding Co., LLC. These acquisitions
were financed with two loans provided by Farmers National Bank of Danville for a total of $469,259.
*Pets & Friends Animal Hospital Acquisition*
On October 7, 2021, the Company acquired the veterinary
practice and related assets of the Pets & Friends Animal Hospital from Pets& Friends Animal Hospital, LLC for $375,000 through
the Companys wholly-owned subsidiary, IVP Practice Holding Company, LLC. Simultaneously, the Company the real estate operations,
consisting of land and buildings, utilized by the Pets & Friends practice for $255,000 through the Companys wholly-owned subsidiary,
IVP Real Estate Holding Co., LLC. These acquisitions were financed with two loans provided by Farmers National Bank of Danville for a
total of $535,500.
*Advanced Veterinary Care of Pasco*
On January 14, 2022, the Company acquired the
veterinary practice and related assets of Advanced Veterinary Care of Pasco in Hudson, Florida from Advanced Veterinary Care of Pasco,
LLC for $1,014,000 through the Companys wholly-owned subsidiary, IVP FL Holding Company, LLC. This acquisition was financed by
a loan provided by Farmers National Bank of Danville for a total of $817,135.
36
*Lytle Veterinary Clinic*
On March 15, 2022, the Company acquired the veterinary
practice and related assets of Lytle Veterinary Clinic in Texas from Lytle Veterinary Clinic, Inc. for $662,469 through the Companys
wholly-owned subsidiary IVP Texas Holding Company, LLC and its wholly-owned subsidiary, IVP Texas Managing Co., LLC. Simultaneously, the
Company acquired the real estate operations, consisting of land and buildings, utilized by the Lytle practice for $780,000 from the Lytle
practice through the Companys wholly-owned subsidiary, IVP Texas Properties, LLC. This acquisition was financed by two loans provided
by Farmers National Bank of Danville for a total of $1,141,098.
*Southern Kern Veterinary Clinic*
On March 22, 2022, the Company acquired the veterinary
practice and related assets of Southern Kern Veterinary Clinic in California from Southern Kern Veterinary Clinic, Inc. for $1,500,000
through the Companys wholly-owned subsidiary IVP CA Holding Co., LLC and its wholly-owned subsidiary, IVP Texas Managing Co., LLC.
Simultaneously, the real estate operations, consisting of land and buildings,) utilized by the Kern practice was purchased for $500,000
through the Companys wholly-owned subsidiary, IVP CA Properties, LLC. This acquisition was financed by two loans provided by Farmers
National Bank of Danville for a total of $1,700,000.
*Bartow Animal Clinic*
On May 18, 2022, the Company acquired the veterinary
practice and related assets of Bartow Animal Clinic in Bartow, Florida from Winter Park Veterinary Clinic, Inc. for $1,055,000 through
the Companys wholly-owned subsidiary IVP FL Holding Company LLC. Simultaneously, the real estate operations, consisting of land
and buildings, utilized by the Bartow practice was purchased for $350,000 through the Companys wholly-owned subsidiary, IVP CA
Properties, LLC. This acquisition was financed by two loans provided by Farmers National Bank of Danville for a total of $969,000.
*Dietz Family Pet Hospital*
On June 15, 2022, the Company acquired the veterinary
practice and related assets of Dietz Family Pet Hospital in Richmond, Texas from Dietz Family Pet Hospital, P.A. for $500,000 through
the Companys wholly-owned subsidiary IVP Texas Holding Company LLC and its wholly-owned subsidiary, IVP Texas Managing Co. LLC.
This acquisition was financed by a loan provided by Farmers National Bank of Danville for a total of $382,500.
*Aberdeen Veterinary Clinic*
On July 29, 2022, the Company acquired the veterinary
practice and related assets of Aberdeen Veterinary Clinic in Aberdeen, Maryland from Fritz Enterprises, Inc. for $574,683 through the
Companys wholly-owned subsidiary IVP MD Holding Company LLC. This acquisition was financed by a loan provided by Farmers National
Bank of Danville for a total of $445,981.
37
*All Breed Pet Care Veterinary Clinic*
On August 12, 2022, the Company acquired the veterinary
practice and related assets of All Breed Pet Care veterinary clinic in Newburgh, Indiana from Tejal Rege for $952,000 through the Companys
wholly-owned subsidiary IVP IN Holding Company LLC. Simultaneously, the real estate operations, consisting of land and buildings, utilized
by the All Breed practice was purchased for $1,200,000 through the Companys wholly-owned subsidiary, IVP IN Properties, LLC. This
acquisition was financed by three loans provided by Farmers National Bank of Danville for a total of $1,945,450.
**
*Pony Express Veterinary Hospital*
**
On October 31, 2022, the Company acquired the
veterinary practice and related assets of the Pony Express Veterinary Hospital, Inc. in Xenia, Ohio from Pony Express Veterinary Hospital,
Inc. for $2,608,652 through the Companys wholly-owned subsidiary IVP OH Holding Company, LLC. Simultaneously, the real estate operations,
consisting of land and buildings, utilized by the Pony Express Veterinary Hospital practice was purchased for $500,000 through the Companys
wholly-owned subsidiary, IVP OH Properties, LLC. This acquisition was financed by three loans provided by First Southern National Bank
for a total of $2,853,314.
**
*Williamsburg Animal Clinic*
On December 9, 2022, the Company acquired the
veterinary practice and related assets of Williamsburg Veterinary Clinic in Williamsburg, MA from Williamsburg Animal Clinic, LLC for
$850,000 through the Companys wholly owned subsidiary, IVP MA Holding Company, LLC. This acquisition was financed by a loan provided
by Farmers National Bank of Danville for a total of $637,500.
**
*The Old 41 Animal Hospital*
On December 16, 2022, the Company acquired the
veterinary practice and related assets of The Old 41 Veterinary Clinic in Bonita Springs, FL from The Old 41 Animal Hospital, LLC for
$665,000 through the Companys wholly owned subsidiary, IVP FL Holding Company, LLC. Simultaneously, the real estate operations
consisting of land and building utilized by the Old 41 practice for $800,000 from Scott A. Gregory DVM, LLC through the Companys
wholly owned subsidiary, IVP FL Properties, LLC. This acquisition was financed by two loans provided by First Southern National Bank for
a total of $1,208,000.
**
*Valley Veterinary Service Acquisition*
On November 8, 2023, the Company acquired the
animal hospital and related assets of Valley Veterinary Service, Inc in Rostraver Township, Pennsylvania for $800,000 in cash, a holdback
agreement for $200,000 in cash that may be paid out at the end of the two year period following the acquisition based on continued employment
by the two former owners and revenue targets for year 1 and year 2 following the effective date of the acquisition, which is not included
in the consideration transferred, and issuance of restricted shares of the Companys Class A common stock equal to $400,000 through
the Companys wholly owned subsidiary IVP PA Holding Company, LLC. Simultaneously, the real estate operations consisting of land
and building utilized by Valley Veterinary Services, Inc animal hospital for $590,000 from the owners of Valley Veterinary Services, Inc
through the Companys wholly owned subsidiary, IVP PA Properties, LLC. This acquisition was financed by one loan provided by First
Southern National Bank for $375,000 and one loan provided by Farmers National Bank of Danville for $850,000.
38
**Comparability of Our Results of Operations**
*The Companys consolidated results of
operations for the years ended December 31, 2024 compared to December 31, 2023 were significantly impacted by acquisitions.*
*Results of Operations for the years ended December
31, 2024 and 2023:*
**Summary of Results of Operations**
|
| |
Year Ended December 31, | | |
For the Year Ended | | |
|
| |
2024 | | |
2023 | | |
$ Change | | |
% Change | | |
|
Service revenue | |
$ | 12,188,526 | | |
$ | 11,879,934 | | |
| 308,592 | | |
| 3 | % | |
|
Product revenue | |
| 4,403,583 | | |
| 4,795,459 | | |
| (391,876 | ) | |
| -8 | % | |
|
Total revenue | |
| 16,592,109 | | |
| 16,675,393 | | |
| (83,284 | ) | |
| 0 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
|
Cost of service revenue (exclusive of depreciation and amortization, shown separately below) | |
| 9,736,282 | | |
| 9,700,963 | | |
| 35,319 | | |
| 0 | % | |
|
Cost of product revenue (exclusive of depreciation and amortization, shown separately below) | |
| 3,563,279 | | |
| 3,420,515 | | |
| 142,764 | | |
| 4 | % | |
|
General and administrative expenses | |
| 11,421,352 | | |
| 9,476,287 | | |
| 1,663,815 | | |
| 18 | % | |
|
Depreciation and amortization | |
| 1,308,619 | | |
| 1,252,539 | | |
| 56,080 | | |
| 4 | % | |
|
Impairment expense | |
| 56,664 | | |
| - | | |
| 56,664 | | |
| 100 | % | |
|
Gain on sale of business | |
| (467,049 | ) | |
| - | | |
| (467,049 | ) | |
| 100 | % | |
|
Total operating expenses | |
| 25,619,147 | | |
| 23,850,304 | | |
| 1,768,843 | | |
| 7 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Loss from operations | |
| (9,027,038 | ) | |
| (7,174,911 | ) | |
| (1,852,127 | ) | |
| 26 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Other income (expenses): | |
| | | |
| | | |
| | | |
| | | |
|
Interest income | |
| 53 | | |
| 21 | | |
| 32 | | |
| 152 | % | |
|
Interest expense | |
| (3,098,290 | ) | |
| (2,538,710 | ) | |
| (559,580 | ) | |
| 22 | % | |
|
Loss on debt extinguishment | |
| - | | |
| (16,105 | ) | |
| 16,105 | | |
| -100 | % | |
|
Loss on debt modification | |
| (2,134,218 | ) | |
| (927,054 | ) | |
| (1,207,164 | ) | |
| 130 | % | |
|
Beneficial conversion feature | |
| - | | |
| (4,137,261 | ) | |
| 4,137,261 | | |
| -100 | % | |
|
Other income (expenses) | |
| (4,768 | ) | |
| 1,134 | | |
| (5,902 | ) | |
| -520 | % | |
|
Total other expenses | |
| (5,237,223 | ) | |
| (7,617,975 | ) | |
| 2,380,752 | | |
| -31 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Loss before income taxes | |
| (14,264,261 | ) | |
| (14,792,886 | ) | |
| 528,625 | | |
| -4 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Benefit for income taxes | |
| - | | |
| - | | |
| - | | |
| 0 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Net loss | |
| (14,264,261 | ) | |
| (14,792,886 | ) | |
| 528,625 | | |
| -4 | % | |
|
Dividend on convertible series A preferred stock | |
| (220,850 | ) | |
| (271,245 | ) | |
| 50,395 | | |
| -19 | % | |
|
Net loss attributable to class A and B common stockholders | |
$ | (14,485,111 | ) | |
$ | (15,064,131 | ) | |
| 579,020 | | |
| -4 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Net loss per Class A and B common shares: | |
| | | |
| | | |
| | | |
| | | |
|
Basic and diluted | |
$ | (2.61 | ) | |
$ | (3.50 | ) | |
| | | |
| | | |
|
Weighted average shares outstanding per Class A and B common shares: | |
| | | |
| | | |
| | | |
| | | |
|
Basic and diluted | |
| 5,550,959 | | |
| 4,309,796 | | |
| | | |
| | | |
****
39
**Revenue**
The following table presents the breakdown of
revenue between products and services:
|
| |
For the Year Ended December 31, | | |
December 31, 2024 vs. December 31, 2023 | | |
|
| |
2024 | | |
2023 | | |
$
Change | | |
%
Change | | |
|
Revenue: | |
| | |
| | |
| | |
| | |
|
Service Revenue | |
$ | 12,188,526 | | |
$ | 11,879,934 | | |
$ | 308,592 | | |
| 3 | % | |
|
Percentage of revenue | |
| 73 | % | |
| 71 | % | |
| | | |
| | | |
|
Product Revenue | |
| 4,403,583 | | |
| 4,795,459 | | |
| (391,876 | ) | |
| -8 | % | |
|
Percentage of revenue | |
| 27 | % | |
| 29 | % | |
| | | |
| | | |
|
Total | |
$ | 16,592,109 | | |
$ | 16,675,393 | | |
$ | (83,284 | ) | |
| 0 | % | |
|
| |
AverageDailyServiceRevenue
for the Year Ended | | |
December 31, 2024 vs.
December 31, 2023 | | |
|
Animal Hospital & Clinics | |
December 31,
2024 | | |
December 31,
2023 | | |
$
Change | | |
%
Change | | |
|
Kauai Veterinary Clinic1 | |
$ | 2,830 | | |
$ | 4,134 | | |
$ | (1,304 | ) | |
| -32 | % | |
|
Chiefland Animal Hospital | |
| 1,606 | | |
| 1,631 | | |
| (25 | ) | |
| -2 | % | |
|
Pets & Friends Animal Hospital | |
| 3,602 | | |
| 2,676 | | |
| 926 | | |
| 35 | % | |
|
Advanced Veterinary Care of Pasco | |
| 1,887 | | |
| 1,888 | | |
| (1 | ) | |
| 0 | % | |
|
Lytle Veterinary Clinic | |
| 1,761 | | |
| 1,759 | | |
| 1 | | |
| 0 | % | |
|
Southern Kern Veterinary Clinic | |
| 3,564 | | |
| 2,809 | | |
| 755 | | |
| 27 | % | |
|
Bartow Animal Clinic | |
| 1,835 | | |
| 2,350 | | |
| (515 | ) | |
| -22 | % | |
|
Dietz Family Pet Hospital | |
| 1,497 | | |
| 1,804 | | |
| (307 | ) | |
| -17 | % | |
|
Aberdeen Veterinary Clinic | |
| 1,176 | | |
| 1,718 | | |
| (542 | ) | |
| -32 | % | |
|
All Breed Pet Care Veterinary Clinic | |
| 2,747 | | |
| 2,838 | | |
| (90 | ) | |
| -3 | % | |
|
Pony Express Veterinary Hospital | |
| 3,559 | | |
| 4,070 | | |
| (511 | ) | |
| -13 | % | |
|
Williamsburg Animal Clinic | |
| 2,223 | | |
| 2,252 | | |
| (29 | ) | |
| -1 | % | |
|
Old 41 Animal Hospital | |
| 1,341 | | |
| 2,227 | | |
| (886 | ) | |
| -40 | % | |
|
Valley Veterinary Services Animal Hospital | |
| 3,673 | | |
| 2,699 | | |
| 974 | | |
| 100 | % | |
|
Total Daily Service Revenue | |
$ | 33,302 | | |
$ | 34,855 | | |
$ | (1,553 | ) | |
| | | |
|
1. |
The veterinary practice was sold effective September 20, 2024. | |
40
|
| |
AverageDailyProductRevenue
for the Year Ended | | |
December 31, 2024 vs.
December 31, 2023 | | |
|
Animal Hospital & Clinics | |
December 31,
2024 | | |
December 31,
2023 | | |
$
Change | | |
%
Change | | |
|
Kauai Veterinary Clinic1 | |
$ | 991 | | |
$ | 1,810 | | |
$ | (819 | | |
| -45 | % | |
|
Chiefland Animal Hospital | |
| 1,017 | | |
| 1,033 | | |
| (15 | ) | |
| -1 | % | |
|
Pets & Friends Animal Hospital | |
| 1,063 | | |
| 911 | | |
| 152 | | |
| 17 | % | |
|
Advanced Veterinary Care of Pasco | |
| 510 | | |
| 816 | | |
| (307 | ) | |
| -38 | % | |
|
Lytle Veterinary Clinic | |
| 902 | | |
| 914 | | |
| (12 | ) | |
| -1 | % | |
|
Southern Kern Veterinary Clinic | |
| 744 | | |
| 530 | | |
| 214 | | |
| 40 | % | |
|
Bartow Animal Clinic | |
| 950 | | |
| 1,027 | | |
| (77 | ) | |
| -7 | % | |
|
Dietz Family Pet Hospital | |
| 596 | | |
| 853 | | |
| (258 | ) | |
| -30 | % | |
|
Aberdeen Veterinary Clinic | |
| 485 | | |
| 573 | | |
| (88 | ) | |
| -15 | % | |
|
All Breed Pet Care Veterinary Clinic | |
| 811 | | |
| 1,287 | | |
| (476 | ) | |
| -37 | % | |
|
Pony Express Veterinary Hospital | |
| 1,436 | | |
| 1,815 | | |
| (379 | ) | |
| -21 | % | |
|
Williamsburg Animal Clinic | |
| 691 | | |
| 744 | | |
| (53 | ) | |
| -7 | % | |
|
Old 41 Animal Hospital | |
| 449 | | |
| 648 | | |
| (199 | ) | |
| -31 | % | |
|
Valley Veterinary Services Animal Hospital | |
| 1,386 | | |
| 1,219 | | |
| 167 | | |
| 100 | % | |
|
Total Daily Product Revenue | |
$ | 12.032 | | |
$ | 14,180 | | |
$ | (2,149 | ) | |
| | | |
|
1. |
The veterinary practice was sold effective September 20, 2024. | |
**Revenue in General:**The Company believes the breakdown
of gross revenue into service revenue and product revenue categories produces meaningful measures to Company management and the Companys
investors in light of the Companys objective to protect the service channel and derive the majority of its revenue from services
and expertise which are not capable of disruption from other channels. To achieve this objective, the Company seeks to match the industry
target metric of 70% to 80% of gross revenue being derived from services: examination fees, diagnostics fees, laboratory work, surgery
and other veterinary services. The Company believes these service revenue sources require veterinary professionals to preside over care
delivery and, unlike some veterinary care products, cannot be replaced or sold by other non-veterinary hospital channels such as retail
(including over-the-counter and online). Accordingly, the Company views products such as parasite controls, veterinary nutrition products
and additives as important, but the Company does not rely on product revenue to account for more than 20% to 30% of gross revenue. Medications
and therapeutics which only a licensed veterinary doctor or licensed technician can administer, while still making up part of the 20%
to 30% of gross revenue, are less easily diverted to non-veterinary hospital channels as they require licensed professionals to prescribe
or utilize them.
The Company uses these percentages in concert
with metrics such as Revenue Per Patient Per day (RPP) and Average Patient Charge (APC) to analyze the comprehensive
nature of diagnostics and services provided by each veterinary hospital. Sometimes referred to quality medicine metrics
within the veterinary service industry, the Company uses RPP and APC to determine how a doctors time is being utilized (inclusive
of all diagnostics and therapies). RPP and APC metrics are consolidated into the presentation of average daily service revenue and average
daily product revenue. The Company believes these analyses helps the Company ensure that its caseload is revenue positive to avoid clinicians
spending time on patient work which underutilizes their time and erodes labor profitability. The Company also believes these metrics are
useful to investors and potential investors to compare the Companys service-to-product revenue mix against generally accepted industry
targets and specific veterinary care service provider competitors.
The services revenue and product revenue metrics
are measured in dollars as calculated by the practice management software we provide to each of our clinics to track medical notes, treatment
plans, services and products prescribed and provided, as well as to manage invoicing related to all of the above. Reports are generated
which allow Company management to view each of these as line-items as well as measure the ratio of service revenue versus product revenue
within our revenue mix.
41
The Company believes the ratio metric is useful
for the management and its investors for several reasons:
|
|
|
The Company and its medical leadership teach and enable its medical staff to provide comprehensive medical care which is appropriate for each animal patient. For example, charges to a client which skew too heavily toward products and do not include necessary services may be an indicator that medical cases are not being fully diagnosed using an appropriate standard of available and appropriate diagnostics and care. This broad analysis can indicate more questions should be asked about how cases are managed by certain providers, particularly if patterns emerge; | |
|
|
|
Comprehensive care for pets means physical exams, dental care, blood work and many other service related line-items. An overreliance on product revenue alone (which products may be available over-the-counter outside of the veterinary channel) leaves veterinary clinics susceptible to sales transfer to other channels. In addition, appropriate veterinary care (as defined by market practice and some state licensing boards) does not include prescribing products without the delivery of diagnostic and care services. | |
|
|
|
Advancements in veterinary care within the last decade such as anesthetic protocols, pain management, fear free medicine and other services have shown great efficacy for the betterment of patients and their recovery from illness or surgeries. The absence of certain services and procedures within, for instance, a surgery package for a patient, would indicate an opportunity to improve outcomes for a patient and extend life expectancy. These are positive outcomes for clients and, therefore, of interest and value to the Company and our investors. | |
**Service Revenues:**The Company recognizes
service revenue from health exams, pet grooming, veterinary care, and certain other services performed at our animal hospitals or clinics
and is recognized once the service is completed, as this is when the customer has the ability to direct the use of and obtain the benefits
of the services. Payment terms are at the point of sale but may also occur upon completion of the service. Service revenue increased $
308,592 or 3%, to $12,188,526 for the year ended December 31, 2024 as compared to $11,879,934 for the year ended December 31, 2023. The
increase was driven primarily by the acquisition of animal hospital in Q4 2023 and an increase in the price of our services slightly offset
by the sale of the KVC practice in the third quarter of 2024.
**Product Revenues:**Product revenue
is recognized when control passes, which occurs at a point in time when the customer completes a transaction at our animal hospitals or
clinics and receives the product. Product revenue decreased $391,876, or 8%, to $4,403,583 for the year ended December 31, 2024 as compared
to $4,795,459 for the year ended December 31, 2023. The overall decrease was a result of customers purchasing less products per visit
and by the sale of the KVC practice in the third quarter of 2024.
**Cost of revenue**
****
|
| |
For the Year Ended | | |
December 31, 2024 vs. 2023 | | |
|
| |
December 31,
2024 | | |
December 31,
2023 | | |
Variance in
Dollars | | |
Variance in
Percent | | |
|
Cost of services revenue | |
$ | 9,736,282 | | |
$ | 9,700,963 | | |
$ | 35,319 | | |
| 0 | % | |
|
Cost of product revenue | |
| 3,563,279 | | |
| 3,420,515 | | |
| 142,764 | | |
| 4 | % | |
|
Total cost of revenues (exclusive of depreciation and amortization, shown separately below) | |
$ | 13,299,561 | | |
$ | 13,121,478 | | |
$ | 178,083 | | |
| 1 | % | |
**Cost of service revenue (exclusive of depreciation and amortization):**Cost
of service revenue consists of cost directly related to the animal services provided at the Companys veterinary clinics and animal
hospitals, which primarily includes personnel-related compensation costs of the employees at the Companys veterinary clinics or
animal hospitals, laboratory costs, pet supply costs, third-party veterinarian contractors, office rent, utilities, supplies, and other
cost arising as a result of the services being performed, excluding depreciation and amortization. Cost of service revenue increased $35,319,
or 0%, to $9,736,282 for the year ended December 31, 2024 as compared to $9,700,963 for the year ended December 31, 2023. The increase
in cost of service revenue sold excluding depreciation and amortization was driven primarily by the acquisition of Valley Veterinary animal
hospital and increase to service costs slightly offset by the sale of the KVC practice in the third quarter of 2024.
42
**Cost of product revenue (exclusive of depreciation
and amortization):**Cost of product revenue consists of cost directly related to the product sales at the Companys veterinary
clinics and animal hospitals, which primarily includes personnel-related compensation costs of the employees at the Companys veterinary
clinics or animal hospitals, purchase price of the medication we dispense, and purchase price of product sold, excluding depreciation
and amortization. Cost of product revenue increased $142,764, or 4%, to $3,563,279 for the year ended December 31, 2024 as compared to
$3,420,515 for the year ended December 31, 2023. The increase in cost of product revenue was driven primarily by the acquisition of Valley
Veterinary animal hospital, an increase to payroll costs and increase in product cost slightly offset by the sale of the KVC practice
in the third quarter of 2024.
**General and Administrative
Expense:**General and administrative expenses include personnel-related compensation costs for corporate employees, such as management,
accounting, legal, acquisition related and non-recurring expenses, insurance and other expenses used to operate the business. General
and administrative expenses increased $1,945,065, or 21% to $11,421,352 for the year ended December 31, 2024 as compared to $9,476,287
for the year ended December 31, 2023. The increase was primarily due to the expenses generated by the Valley Veterinary practice acquisition,
the IR agency contracts, marketing agreements and consulting contracts the Company entered into during the first quarter of 2024 following
the February 2024 public offering and in the third quarter following the July 2024 public offering.
****
**Depreciation and Amortization Expense:**Depreciation
and amortization expenses mainly relate to the assets used in generating revenue. Depreciation and amortization increased $56,060, or
4%, to $1,308,619 for the year ended December 31, 2024 as compared to $1,252,539 for the year ended December 31, 2023. The increase was
primarily due to the acquisition of depreciable or amortizable assets as part of the Valley Veterinary acquisition.
**Other Expenses:**Other expenses are
composed primarily of interest expenses and small denomination bank fee charges. Other expenses decreased $2,380,752, or 31%, to $5,237,223
for the year ended December 31, 2024 as compared to $7,617,975 for the year ended December 31, 2023. The decrease was primarily due to
the decrease in the beneficial conversion offset by the financing arrangements to fund working capital at a very high effective interest
rate as compared to the Companys term loans.
**Net Loss:** Net Loss
decreased $528,625, or 5%, to $14,264,261 for the year ended December 31, 2024 as compared to $14,792,886 for the year ended December
31, 2023. The decrease in net loss is primarily due to the gain on sale of KVC practice during the year and omission of any beneficial
conversion feature during the year ended December 31, 2024.
****
**Liquidity and Capital Resources**
Since inception, we have financed
our operations from a combination of:
|
|
|
issuance and sale of senior convertible notes; | |
|
|
|
issuance of convertible debentures; | |
|
|
|
borrowings under other debt consisting of: (i) a principal lending relationship with Farmers National Bank of Danville; (ii)a principal lending relationship with First Southern National Bank; (iii) short term financing arrangements under merchant cash advance agreement; | |
|
|
|
common stock purchase agreement with Tumim Stone Capital LLC, | |
|
|
|
proceeds from issuance of equity; and | |
|
|
|
cash generated from operations. | |
The Company has experienced
operating losses since its inception and had a total accumulated deficit of $36,350,281 as of December 31, 2024. The Company expects to
incur additional costs and require additional capital as the Company continues to acquire additional veterinary hospitals, clinics and
practices. For the year ended December 31, 2024, the Companys cash used in operations was $10,005,866.
43
The Companys primary short-term cash requirements
are to fund working capital, lease obligations and short-term debt, including current maturities of long-term debt. Working capital requirements
can vary significantly from period to period, particularly as a result of additional business acquisitions. The Companys medium-term
to long-term cash requirements are to service and repay debt, to expand through acquisitions, and to invest in facilities and equipment
for growth initiatives.
The Companys ability to fund its cash needs
will depend, in part, on its ability to generate cash in the future, which depends on future financial results. The Companys future
results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control.
The Companys future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors,
including capital market liquidity and overall economic conditions.
These financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred recurring losses and as of December 31, 2024, had an accumulated deficit of $36,350,281.
For the year ended December 31, 2024, the Company sustained a net loss of $14,264,261. These factors, among others, raise substantial
doubt about the Companys ability to continue as a going concern for the next twelve months from the date these financial statements
were issued. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.
The Companys continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue
and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through debt or
equity financing during the next twelve months. Management believes that actions presently being taken to obtain additional funding provide
the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these
objectives.
We cannot be sure that future funding will be
available to us on acceptable terms, or at all. Due to often volatile nature of the financial markets, equity and debt financing may be
difficult to obtain.
We may seek to raise any necessary additional
capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements
and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements
or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights or
future revenue streams on terms that may not be favorable to us. If we raise additional capital through private or public equity offerings,
the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect our stockholders rights. If we raise additional capital through debt financing, we may be subject
to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends.
As of the date of this filing, the Company was
in compliance with all covenants and restrictions associated with our debt agreements. The Company is not aware of any instances of breaches
or non-compliance with its covenants and commitments under its debt agreements.
**Master Lending and Credit Facility**
On June 25, 2021, the Company entered into a master
line of credit loan agreement (MLOCA) with Wealth South a division of Farmers National Bank of Danville, Kentucky (FNBD).
The MLOCA provides for a $2,000,000revolving secured credit facility (Revolving Line) to be drawn for the initial
purchase of veterinary clinical practices (Practices) and a $8,000,000closed end line of credit (Closed End
Line) to be disbursed as individual loans (Term Loans) to paydown draws on the Revolving Line and to provide longer term financing
of the purchase of Practices. Each draw on the Revolving Line shall be repaid with a Term Loan out of the Closed End Line within one hundred
and twenty (120) days of the draw on the Revolving Line. Each draw on the Revolving Line and the Closed End Line shall not exceed eighty-five
(85%) percent of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen (15%) percent
of the initial purchase price of a Practice as long as any draw on the Revolving Line or a Term Loan remains unpaid with FNBD. The Revolving
Line has an interest rate equal to the New York Prime Rate plus0.50% that shall never be less than3.57%. Each Term Loan issued
under the Closed End Line shall have a fixed interest rate of3.98% for the first five years of the loan. Immediately following the
fixed rate period, the rate of interest rate will equal to the New York Prime Rate plus0.65% that shall never be less than3.57%.
Each Practice to be acquired must have a minimum projected debt-service coverage ratio (DSCR) of1.0x, defined as earnings
before interest depreciation and amortization (EBIDA)/Annual Debt Service Requirement.
44
Under the MLOCA the Term Loans to acquire a Practice shall not exceed10years.
The first twelve months of the Term Loan may be interest only. Thereafter, the Loan will convert to an amortizing loan with monthly principal
and interest payments. For Practice only Term Loans (Practice Term Loans), after the initial twelve-month interest only
period, the balance will amortize over9years. For Loans made to purchase real property (RE Term Loans), after
the initial twelve-month interest only period, the balance will amortize over a19-year period.
There is no prepayment penalty on payments on
the Revolving Line. The Term Loans are subject to a refinance fee of2% of the then outstanding principal balance of the Term Loan
if paid within two years of entering into the Term Loan and1% of the then outstanding principal balance of the Term Loan if paid
within three to five years of entering into the Term Loan. The refinance fee is due only if the Term Loan is paid off by refinancing.
Borrowing under the MLOCA are guaranteed by Kimball Carr, CEO & President of the Company.
OnAugust 18, 2022the MLOCA was amended
and restated to terminate the revolving feature on the Revolving Line and convert the line of credit to a closed end draw note (Closed
End Draw Note) that mature on August 18, 2024. Each draw on the Closed End Draw Note shall not exceed eighty-five (85%) percent
of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen (15%) percent of the initial
purchase price of a Practice as long as any draw on the Closed End Draw Note or a Term Loan remains unpaid with FNBD. The interest rate
charge on all sums advance under the amended and restated MLOCA shall be5.25% for the first five years of the loan. Immediately
following the fixed rate period, the rate of interest will be equal to the New York Prime Rate plus0.65% that shall never be less
than4.75%. Each Practice to be acquired must have a minimum projected DSCR of 1.0x, defined as EBIDA/Annual Debt Service Requirement.
Notes payable to FNBD as of December 31, 2024
and 2023 consisted of the following:
|
Original | | |
| |
| |
| |
| | |
December 31, | | |
December 31, | | |
Issuance | | |
|
Principal | | |
Acquisition | |
Entered | |
Maturity | |
Interest | | |
2024 | | |
2023 | | |
Cost | | |
|
$ | 237,272 | | |
CAH | |
12/27/2021 | |
12/27/2041 | |
| 3.98 | % | |
$ | 219,975 | | |
$ | 228,785 | | |
$ | 6,108 | | |
|
| 231,987 | | |
CAH | |
12/27/2021 | |
12/27/2031 | |
| 3.98 | % | |
| 187,461 | | |
| 210,161 | | |
| 6,108 | | |
|
| 216,750 | | |
P&F | |
12/27/2021 | |
12/27/2041 | |
| 3.98 | % | |
| 200,949 | | |
| 208,997 | | |
| 5,370 | | |
|
| 318,750 | | |
P&F | |
12/27/2021 | |
12/27/2031 | |
| 3.98 | % | |
| 257,571 | | |
| 288,761 | | |
| 5,370 | | |
|
| 817,135 | | |
Pasco | |
1/14/2022 | |
1/14/2032 | |
| 3.98 | % | |
| 667,050 | | |
| 746,733 | | |
| 3,085 | | |
|
| 478,098 | | |
Lytle | |
3/15/2022 | |
3/15/2032 | |
| 3.98 | % | |
| 398,275 | | |
| 444,593 | | |
| 1,898 | | |
|
| 663,000 | | |
Lytle | |
3/15/2022 | |
3/15/2042 | |
| 3.98 | % | |
| 621,020 | | |
| 645,392 | | |
| 11,875 | | |
|
| 425,000 | | |
Kern | |
3/22/2022 | |
3/22/2042 | |
| 3.98 | % | |
| 398,089 | | |
| 413,713 | | |
| 7,855 | | |
|
| 1,275,000 | | |
Kern | |
3/22/2022 | |
3/22/2032 | |
| 3.98 | % | |
| 1,062,126 | | |
| 1,185,648 | | |
| 4,688 | | |
|
| 246,500 | | |
Bartow | |
5/18/2022 | |
5/18/2042 | |
| 3.98 | % | |
| 232,428 | | |
| 241,429 | | |
| 5,072 | | |
|
| 722,500 | | |
Bartow | |
5/18/2022 | |
5/18/2032 | |
| 3.98 | % | |
| 613,737 | | |
| 683,262 | | |
| 2,754 | | |
|
| 382,500 | | |
Dietz | |
6/15/2022 | |
6/15/2032 | |
| 3.98 | % | |
| 328,026 | | |
| 364,708 | | |
| 1,564 | | |
|
| 445,981 | | |
Aberdeen | |
7/19/2022 | |
7/29/2032 | |
| 3.98 | % | |
| 386,120 | | |
| 428,747 | | |
| 1,786 | | |
|
| 1,020,000 | | |
All Breed | |
8/12/2022 | |
8/12/2042 | |
| 3.98 | % | |
| 971,173 | | |
| 1,008,039 | | |
| 8,702 | | |
|
| 519,527 | | |
All Breed | |
8/12/2022 | |
8/12/2032 | |
| 3.98 | % | |
| 453,984 | | |
| 503,471 | | |
| 3,159 | | |
|
| 225,923 | | |
All Breed | |
8/12/2022 | |
8/12/2032 | |
| 5.25 | % | |
| 198,905 | | |
| 219,347 | | |
| 3,159 | | |
|
| 637,500 | | |
Williamsburg | |
12/8/2022 | |
12/8/2032 | |
| 5.25 | % | |
| 580,834 | | |
| 637,500 | | |
| 2,556 | | |
|
| 850,000 | | |
Valley Vet | |
11/8/2023 | |
11/8/2033 | |
| 5.25 | % | |
| 843,796 | | |
| 850,000 | | |
| 3,315 | | |
|
$ | 9,713,423 | | |
| |
| |
| |
| | | |
$ | 8,621,519 | | |
$ | 9,309,286 | | |
$ | 84,424 | | |
The Company amortized $6,206and $7,152of
issuance cost in the aggregate during the year ending December 31, 2024 and 2023, respectively, for the FNBD notes payable.
45
**FSB Commercial Loans**
The Company entered into three separate commercial
loans with First Southern National Bank (FSB) as part of the acquisition. The first commercial loan in the amount of $1,105,000
has a fixed interest rate of 4.35% and a maturity date of January 25, 2024. The fixed rate loan has monthly payments of $6,903 and a full
payoff of the remaining principal balance at maturity. The commercial loan had issuance costs of $13,264 that was capitalized and is being
amortized straight line over the life of the loan. The Company entered into a Forbearance Agreement that extended the maturity date to
August 31, 2024 and required the lender to make monthly payments of $9,016 and increased the interest rate to 8.15% per annum. On September
20, 2024, this loan was assumed by Kauai RE Holdings LLC in the sale of Kauai Veterinary Clinic (KVC).
The second commercial loan with FSB entered into
on January 11, 2021 in the amount of $1,278,400 has a fixed interest rate of 4.35% and a maturity date of January 25, 2024. The fixed
rate loan has monthly payments of $13,157 and a full payoff of the remaining principal balance at maturity. The commercial loan had issuance
costs of $10,085 that was capitalized and is being amortized straight line over the life of the loan. The Company entered into a Forbearance
Agreement that extended the maturity date to August 31, 2024 and required the lender to make monthly payments of $14,898 and increased
the interest rate to 8.15% per annum. On September 20, 2024, this loan was assumed by Kauai RE Holdings LLC in the sale of Kauai Veterinary
Clinic (KVC).
The third commercial loan with FSB entered into
on January 11, 2021 in the amount of $450,000has a fixed interest rate of5.05% and a maturity date of September 11, 2021.
The commercial loan was modified on August 25, 2021 to extend the maturity date toFebruary 25, 2023and increase the principal
amount to $469,914. The fixed rate loan has monthly payments of $27,164and was fully paid off on the maturity date. The commercial
loan had issuance costs of $753 that was capitalized and is being amortized straight line over the life of the loan. This loan was paid
in full in February 2023.
On October 31, 2022 the company entered into three separate commercial
loans with FSB as part of the Pony Express Practice acquisition. The first loan with FSB that was entered into on October 31, 2022, was
in the amount of $2,086,921. The loan has a fixed interest rate of5.97% and a maturity date ofOctober 31, 2025. The fixed
rate loan has monthly payments of $23,138except for a final monthly payment of $1,608,530. The commercial loan had issuance costs
of $25,575 that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered into
on October 31, 2022, was in the amount of $400,000. The loan has a fixed interest rate of5.97% and a maturity date ofOctober
31, 2042. The fixed rate loan has monthly payments of $2,859. The commercial loan had issuance costs of $3,277that was capitalized
and is being amortized straight line over the life of the loan.
The third loan with FSB that was entered into
on October 31, 2022, was in the amount of $700,000. The loan has a fixed interest rate of6.75% and a maturity date ofOctober
31, 2025. The fixed rate loan has monthly payments of $6,903except for a final monthly payment of $423,278. The commercial loan
didnot have any issuance costs that were capitalized.
On December 16, 2022, the company entered into
two separate commercial loans with FSB as part of the Old 41 Practice acquisition. The first loan with FSB that was entered into on December
16, 2022, was in the amount of $568,000. The loan has a fixed interest rate of6.50% and a maturity date ofDecember 16, 2025.
The fixed rate loan has monthly payments of $4,772 and a full payoff of the remaining principal balance at maturity. The loan had issuance
costs of $4,531that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered into
December 16, 2022, was in the amount of $640,000. The loan has a fixed interest rate of6.50% and a maturity date ofDecember
16, 2025. The fixed rate loan has twelve monthly payments of approximately $2,830, followed by monthly payments of $7,443. and the interest
rate is6.50%. The loan had issuance costs of $5,077 that was capitalized and is being amortized straight line over the life of the
loan.
****
46
****
On November 8, 2023, the Company entered into
a commercial loan with FSB as part of the Valley Vet practice acquisition. The loan with FSB was entered into on November 8, 2022 for
$375,000. The loan has a fixed interest rate of 8.5%. The loan had issuance costs of $5,077 that was capitalized and is being amortized
straight line over the life of the loan.
The FSB commercial loans are
guaranteed by Kimball Carr, Chief Executive Officer and President and Charles Stith Keiser, our director and former Chief Operating Officer.
Notes payable to FSB as of
December 31, 2024 and 2023 consisted of the following:
|
Original | | |
| |
| |
| |
| | |
December31, | | |
December31, | | |
Issuance | | |
|
Principal | | |
Acquisition | |
Entered | |
Maturity | |
Interest | | |
2024 | | |
2023 | | |
Cost | | |
|
$ | 1,105,000 | | |
KVC | |
1/25/2021 | |
2/25/2041 | |
| 4.35 | % | |
$ | - | | |
$ | 997,010 | |
$ | 13,264 | | |
|
| 1,278,400 | | |
KVC | |
1/25/2021 | |
1/25/2031 | |
| 4.35 | % | |
| - | | |
| 960,849 | | |
| 10,085 | | |
|
| 469,914 | | |
KVC | |
1/25/2021 | |
2/25/2023 | |
| 5.05 | % | |
| - | | |
| - | | |
| 753 | | |
|
| 2,086,921 | | |
Pony Express | |
10/31/2022 | |
10/31/2025 | |
| 5.97 | % | |
| 1,733,807 | | |
| 1,902,452 | | |
| 25,575 | | |
|
| 400,000 | | |
Pony Express | |
10/31/2022 | |
10/31/2042 | |
| 5.97 | % | |
| 375,943 | | |
| 387,433 | | |
| 3,277 | | |
|
| 700,000 | | |
Pony Express | |
10/31/2022 | |
8/16/2023 | |
| 7.17 | % | |
| - | | |
| - | | |
| - | | |
|
| 568,000 | | |
Old 41 | |
12/16/2022 | |
12/16/2025 | |
| 6.50 | % | |
| 470,227 | | |
| 520,697 | | |
| 4,531 | | |
|
| 640,000 | | |
Old 41 | |
12/16/2022 | |
12/16/2025 | |
| 6.50 | % | |
| 406,641 | | |
| 623,861 | | |
| 5,077 | | |
|
| 375,000 | | |
Valley Vet | |
11/8/2023 | |
11/8/2024 | |
| 8.50 | % | |
| 375,000 | | |
| 375,000 | | |
| 6,877 | | |
|
$ | 7,623,235 | | |
| |
| |
| |
| | | |
$ | 3,361,618 | | |
$ | 5,767,302 | | |
$ | 69,439 | | |
The Company amortized $19,053and $14,611of
issuance cost in the aggregate during the year ended December 31, 2024 and 2023, respectively, for the FSB notes payable.
Notes payable as of December 31, 2024 and 2023 consisted of the following:
|
| |
December31, | | |
December31, | | |
|
| |
2024 | | |
2023 | | |
|
FNBD Notes Payable | |
$ | 8,621,519 | | |
$ | 9,309,286 | | |
|
FSB Notes Payable | |
| 3,361,618 | | |
| 5,767,302 | | |
|
Total notes payable | |
| 11,983,137 | | |
| 15,076,588 | | |
|
Unamortized debt issuance costs | |
| (81,909 | ) | |
| (124,170 | ) | |
|
Notes payable, net of issuance cost | |
| 11,901,228 | | |
| 14,952,418 | | |
|
Less current portion | |
| (3,410,465 | ) | |
| (1,469,043 | ) | |
|
Long-term portion | |
$ | 8,490,763 | | |
$ | 13,483,375 | | |
Notes payable repayment requirements as of December 31, 2024, in the
succeeding years are summarized as follows:
|
2025 | |
$ | 3,416,965 | | |
|
2026 | |
| 1,203,521 | | |
|
2027 | |
| 872,072 | | |
|
2028 | |
| 909,759 | | |
|
2029 | |
| 950,587 | | |
|
Thereafter | |
$ | 4,630,233 | | |
47
**Bridge Notes**
In December 2021, the Company entered into two
bridge loans in the aggregate of $2,500,000 with Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund as short term secured
convertible notes (Bridge Note). The Bridge Note was convertible into the Companys common stock, at the time of a
successful initial public offering (IPO) at the noteholders option, at a 35% discount to the IPO price. The Bridge
Note had a face value of $2,500,000 with an original issue discount (OID) of 12% and had a maturity date of January 24,
2023. The OID of $300,000 was amortized over the life of the loan. If the Company had not issued the Companys common stock in an
initial public offering pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission
(SEC) and the listing of the common stock on a national securities exchange as defined in Section 6 of the
Securities Exchange Act of 1934, as amended (Qualified financing) by January 24, 2023 the conversion price will be set at
a 40% discount to the IPO price. The Bridge Note was funded in two installments of net proceeds of $1,100,000 in December 2021 and the
second installment January 2022. The Bridge Loan had issuance costs of $70,500 for the first installment and $54,000 for the second installment
that is amortized straight line over the life of the loan. The Company amortized $0 of issuance cost for the year ended December 31, 2024
and 2023.
In conjunction with the Bridge Note the Company
issued warrants on January 24, 2022 to Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund (collectively the Bridge
Lenders). The warrants entitled the Bridge Lenders to purchase the Companys Class A common stock, at a purchase price equal
to the per share price in an IPO. The quantity of the Companys common stock of subject to purchase upon exercise of the warrants
is equal to 50% of the face value of the Bridge Note, divided by the per-share price in the Qualified Financing, unless a Qualified Financing
had not been completed by January 24, 2023 in which case the quantity of Class A common stock subject to purchase upon exercise of the
warrants will be an amount equal to 75% of the face value of the Bridge Note divided by the per-share price in the Qualified Financing.
If a Qualified Financing has not consummated or the Bridge Note had not been repaid in full on or before January 24, 2027, then the quantity
of common stock subject to purchase upon exercise of the warrants will be an amount equal to 100% of the face value divided by the per-share
price equal to the fair market value of one share of Class A common stock as mutually agreed by the Holder and the Company. The warrants
were exercisable through the fifth anniversary of the issuance date. The warrants could be redeemed at the option of the Company at any
time following a Qualified Financing if the Companys common stock trade on a national securities exchange at a price equal to the
purchase price of the Companys common stock in the Qualified Financing multiplied by 2 for a period of ten consecutive trading
days.
On November 18, 2022, the Company entered into
an Original Issue Discount Secured Convertible Note loan (bridge loan) with Target Capital 1, LLC for $1,136,364. The note
is issued at an original issue discount of 12% with an maturity date on the earlier of March 31, 2023 (Initial Maturity Date)
or the Companys sale of its Common Stock in an initial public offering pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission and the listing of the Common Stock on a national securities exchange
as defined in Section 6 of the Securities Exchange Act of 1934, as amended (Qualified Financing or the Maturity Date).
The note bears an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic Extension,
this note shall commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of the Automatic
Extension until the note is converted or is paid in full. The Company may pay the full principal amount of this note, and all accrued
but unpaid interest at any time prior to the Maturity Date without the prior written consent of the Holder in the principal amount of
$1,136,364, plus all accrued but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required to pay this
note in cash at the on or after the Initial Maturity Date due to, upon the closing date of a Qualified Financing, the Company shall pay
to the Holder $1,136,364, plus all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation of an
Event of Default, until the Event of Default is cured, or the Note is repaid in full, Company will pay 20% of its total gross revenues
(including that of all its subsidiaries) monthly, which shall be applied to payment of principal and interest under this this note. The
conversion price (the Conversion Price) shall be equal to the price paid by the public in the Companys Qualified
Financing multiplied by 0.65 (or 0.60, from and after any Automatic Extension).
In conjunction with the Original Issue Discount
Secured Convertible Note with Target Capital 1, LLC the company issued the holder 412 shares of Class A Common Stock and equity classified
warrants that entitle the holder to purchase the Companys common stock at a purchase price equal to the per share price in an IPO.
The quantity of the Companys common stock of subject to purchase upon exercise of the warrants is equal to 75% of the face value
of the Bridge Note, divided by the per-share price in the Qualified Financing.
48
On November 18, 2022, the Company entered into
an Original Issue Discount Secured Convertible Note with 622 Capital LLC for $568,182. The note is issued at an original issue discount
of 12% with an maturity date on the earlier of January 24, 2023 (Initial Maturity Date) or the Companys sale of its
Common Stock in an initial public offering pursuant to a registration statement filed with and declared effective by the Securities and
Exchange Commission and the listing of the Common Stock on a national securities exchange as defined in Section 6 of the
Securities Exchange Act of 1934, as amended (Qualified Financing or the Maturity Date). If the Company has
filed its Form S-1 Registration Statement with the SEC on or prior to the Initial Maturity Date but the Qualified Financing has not closed
by such date (Automatic Extension) then all principal and accrued interest under this Note shall become due and payable
in cash on July 24, 2023 (the Final Maturity Date) or such earlier date as this Note is required be repaid. The note bears
an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic Extension, this note shall
commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of the Automatic Extension until
the note is converted or is paid in full. The Company may pay the full principal amount of this note and all accrued but unpaid interest
at any time prior to the Maturity Date without the prior written consent of the Holder in the principal amount of $568,182, plus all accrued
but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required to pay this note in cash at the on or
after the Initial Maturity Date due to, upon the closing date of Qualified Financing, the Company shall pay to the Holder $568,182, plus
all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation of an Event of Default, until the Event
of Default is cured or the Note is repaid in full, Company will pay 20% of its total gross revenues (including that of all its subsidiaries)
monthly, which shall be applied to payment of principal and interest under this this note. The conversion price (the Conversion
Price) shall be equal to the price paid by the public in the Companys Qualified Financing multiplied by 0.65 (or 0.60, from
and after any Automatic Extension).
In conjunction with the Original Issue Discount
Secured Convertible Note with 662 Capital LLC the company issued the holder equity classified warrants that entitle the holder to purchase
the Companys common stock at a purchase price equal to the per share price in an IPO. The quantity of the Companys common
stock of subject to purchase upon exercise of the warrants is equal to 50% of the face value of the Bridge Note, divided by the per-share
price in the Qualified Financing, unless a Qualified Financing has not been completed by March 31, 2023 in which case the quantity of
Class A common stock subject to purchase upon exercise of the warrants will be an amount equal to 75% of the face value of the Bridge
Note divided by the per-share price in the Qualified Financing.
The warrants were deemed legally detachable from
the Bridge Note and were fair valued using the Black Scholes Method to determine the relative fair values of the Bridge Note and the detachable
warrants. The significant inputs for the Black Scholes calculation included the exercise price and common share price of $0.44, volatility
rate of 27% and risk-free rate of 1.53% with a 5-year term. The proceeds received for the Bridge Note were allocated to the detached warrants
based on the relative fair values. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount on debt is $429,284;
this is amortized to interest expense on a straight-line basis over the term of the loan.
A roll forward of the bridge note for
the year ended December 31, 2023, is below:
|
Bridge notes, December 31, 2021 | |
| 1,031,917 | | |
|
Issued for cash | |
| 2,600,000 | | |
|
Amortization of original issue discount | |
| 386,245 | | |
|
Warrant discount | |
| (429,284 | ) | |
|
Amortization of warrant discount | |
| 303,309 | | |
|
Debt issuance costs | |
| (164,000 | ) | |
|
Amortization of debt issuance costs | |
| 170,969 | | |
|
Bridge notes, December 31, 2022 | |
| 3,899,156 | | |
|
Amortization of original issue discount | |
| 116,656 | | |
|
Amortization of warrant discount | |
| 125,975 | | |
|
Amortization of debt issuance costs | |
| 62,758 | | |
|
Extinguishment of bridge notes in exchange for Series A preferred stock upon IPO on August 31, 2023 | |
| (4,204,545 | ) | |
|
Bridge notes, December 31, 2023 | |
$ | - | | |
49
On June 30, 2023, the Company entered into exchange
agreements (the Exchange Agreements) with each of the Companys Bridge Note lenders, pursuant to which the lenders
exchanged their existing Bridge Notes for 299 shares, 3,528 shares, and 598 shares, respectively, of Convertible Series A preferred stock
(4,425 shares of Convertible Series A Preferred stock in total) (the Exchange). The Exchange Agreements will be deemed rescinded
and the former Bridge Notes will be deemed reinstated if the Company doesnt complete an initial public offering by September 1,
2023. Upon the IPO completing on August 31, 2023, the Company recognized the extinguishment of the Bridge Notes pursuant to ASC 470 and
recognized a debt extinguishment loss of $16,105. The Company recognized a beneficial conversion feature of $2,567,866 for the issuance
of the Series A preferred stock on the date of the IPO due to the $4 (Pre-Reverse Split) offering price related to the IPO being known
as of that date.
**Convertible Debenture**
Between March 18 and December 28, 2021, the Company
issued $2,102,500 in aggregate principal amount of 6.00% subordinated convertible promissory note (Convertible Debenture).
During the year ending December 31, 2022 the Company issued $1,612,000 in aggregated principal amount of the 6.00% Convertible Debenture.
In March 2023 the Company issued an additional $650,000 in aggregate principal amount of 6.00% Convertible Debenture notes to five (5)
separate holders. The Convertible Debenture is convertible into the Companys Class A Common Stock upon the Companys offering
for sale its shares in a public offering (IPO). At the holders election, the accrued interest and principal may be
paid in cash or Class A Common Stock (such number of shares reflecting a twenty-five percent (25%) discount of the opening price per share
of Class A Common Stock). The Convertible Debenture mature 5 years from the date of issuance to each holder. Prior to the maturity date,
the holder is entitled to convert the Convertible Note into Class A Common Stock upon the Companys IPO. Upon an IPO the accrued
and unpaid interest is due and payable in cash on the first business day of the following month of March for any balance not elected to
be converted into the Class A Common Stock. The Convertible Debenture principal balance was $100,000 and $3,714,500 as of December 31,
2023 and 2022. The Convertible Debenture incurred issuance cost of $40,000 that is amortized straight line over the life of the Convertible
Debenture. The Company amortized $0 and $7,996 for the years ended December 31, 2024 and 2023.
Upon the Companys IPO closing on August
31, 2023, the majority of Convertible Debenture holders elected convert an aggregate of $4,014,500 of principal and $399,818 of accrued
interest into 598 shares of Class A common stock at a conversion price of $3.00 per share. The Company recorded a beneficial conversion
feature as of the date of the conversion of $1,569,395 based on the PO price of $10,000 per share minus the principal and accrued interest
of the Convertible Debenture balance converted into common stock. Four holders of the Convertible Debenture with an aggregate principal
balance of $250,000 elected to be paid back in cash and one investor with a principal balance of $100,000 elected to be paid on February
28, 2024 including accrued interest through the date of payment at 6%.
****
**Loan Payable**
On May 30, 2023, the Company entered into a Merchant
Cash Advance Agreement for gross proceeds of $1,050,000with an unrelated third-party financial institution. Under the terms of the
agreement, the Company must pay $57,346each week for26 weekswith the first payment being dueJune 6, 2023. The
financing arrangement has an effective interest rate of49%. The financing arrangement includes an original issuance discount (OID)
of $441,000and issuance costs of $50,000. The OID and issuance cost associated with the financing arrangement are presented in the
balance sheets as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest
method.
On August 10, 2023, the Company amended the financing
arrangement to borrow an additional $507,460resulting in the weekly repayments increasing to $76,071to be paid over28weeks.
This amendment decreased the effective interest rate to41%. The refinancing resulted in a loss on debt modification of $441,618.
On November 28, 2023, the Company amended the
financing arrangement to borrow an additional $531,071 resulting in the weekly payments to decrease to $56,800 to be paid over 40 weeks.
This amendment increased the effective rate to 49%. The refinancing resulted in a loss on debt modification of $485,436.
50
On January 18, 2024, the Company amended the financing
arrangement to borrow an additional $549,185 resulting in the weekly payments to increase to $86,214 to be paid over 43 weeks. This amendment
increased the effective interest rate to 52%. The refinancing resulted in a loss on debt modification of $728,278.
On May 7, 2024, the Company amended the financing
arrangement to borrow an additional $518,750 resulting in the weekly payments to increase to $90,229 to be paid over 48 weeks. This amendment
decreased the effective interest rate to 49%. The refinancing resulted in a loss on debt modification of $859,584.
On December 24, 2024, the Company amended the
financing arrangement to borrow an additional $513,650 resulting in the weekly payments to increase to $71,995 to be paid over 41 weeks.
This amendment decreased the effective interest rate to 43%. The refinancing resulted in a loss on debt modification of $546,356.
On April 4, 2024, the Company entered into a new
financing agreement for gross proceeds of $420,000 with a different unrelated third-party financial institution. Under the terms of the
agreement, the Company must pay $21,600 each week for 28 weeks with the first payment being due April 8, 2024. The financing arrangement
has an effective interest rate of 51%. The financing arrangement includes an original issuance discount (OID) of $184,800
and issuance costs of $20,000. The OID and issuance cost associated with the financing arrangement are presented in the balance sheets
as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest method.
During the year ended December 31, 2024, the Company
amortized $1,624,333 OID and issuance cost included in interest expense on the statement of operations. During the year ended December
31, 2024, the Company made $4,509,147in payments on the loan payable. The outstanding balance of the loan payable as of December
31, 2024, is $2,340,020. The financing arrangement is secured by an interest in virtually all assets of the Company with a first security
interest in accounts receivable. The financing arrangement is guaranteed by the Companys CEO.
During the year ended December 31, 2023, the Company
amortized $671,719 of OID and issuance cost included in interest expense on the statement of operations. During the year ended December
31, 2023, the Company made $1,923,474in payments on the loan payable. The outstanding balance of the loan payable as of December
31, 2023, is $2,063,058. The financing arrangement is secured by an interest in virtually all assets of the Company with a first security
interest in accounts receivable. The financing arrangement is guaranteed by the Companys CEO.
**Convertible Notes Payable**
On March 26, 2024, Inspire entered into a securities
purchase agreement (the Purchase Agreement) with a certain investor. Pursuant to the Purchase Agreement, Inspire issued
to investors Increasing OID Senior Note (Convertible Note Payable) for $500,000. The Convertible Note Payable has a maturity
date of the earlier of December 26, 2024 or the consummation of a capital raise (the Maturity Date).
On June 11, 2024, Inspire entered into a securities
purchase agreement (the Purchase Agreement) with two investors. Pursuant to the Purchase Agreement, Inspire issued to investors
Increasing OID Senior Note (Convertible Note Payable) for $250,000 each. The Convertible Note Payable has a maturity date
of the earlier of February 11, 2025 or the consummation of a capital raise (the Maturity Date).
The Convertible Notes Payable contain an original
issue discount (OID) which shall be: (i) fifteen percent (15%) if the Convertible Notes Payable is satisfied and paid in
full on or before the forty-fifth (45th) day after the Original Issue Date (as such term is defined in the Notes), (ii) twenty percent
(20%) if the Convertible Notes Payable is satisfied and paid in full after such 45th day but on or before the ninetieth (90th) day after
the Original Issue Date, and (iii) thirty percent (30%) after such 90th day. The Convertible Notes Payable can be prepaid at any time
prior to the Maturity Date without any penalties.
The Convertible Notes Payable must be repaid in
full from any future capital raises (debt, equity or any other form of capital raise) of Inspire. All of the funds raised must be used
to repay the Convertible Notes Payable until the Convertible Notes Payable are repaid in full.
51
The Convertible Notes Payable are convertible
into shares of common stock of Inspire, in full or in part, at any time after issuance at the discretion of the noteholder at a fixed
conversion price of $0.75per share (the Fixed Conversion Price).
If the Convertible Notes Payable is not repaid
by the Maturity Date the default provisions are as follow: (i) The Face Value (as such term is defined in the Convertible Notes Payable)
of the Convertible Notes Payable will increase by20% (to a50% OID -- $1,000,000Face Value); (ii) the conversion price
of the Convertible Notes Payable will become convertible at the lower of (a) the Fixed Conversion Price or (b)20% discount to a
3-Day volume-weighted average price (the Default Conversion Price).
As of December 31, 2024 the balance of the convertible
notes payable was $0. During the year ended December 31, 2024 the Company paid off $392,857 of the notes payable and accrued interest
and converted $1,357,143 into 226,249 shares of class A common stock.
**Operating leases**
The future minimum lease payments required under leases as of December
31, 2024, were as follows:
|
Fiscal Year | |
Operating
Leases | | |
|
2025 | |
$ | 333,200 | | |
|
2026 | |
| 312,299 | | |
|
2027 | |
| 316,369 | | |
|
2028 | |
| 323,311 | | |
|
2029 | |
| 336,045 | | |
|
Thereafter | |
| 1,332,102 | | |
|
Undiscounted cash flows | |
| 2,953,326 | | |
|
Less: imputed interest | |
| (825,858 | ) | |
|
Lease liability | |
$ | 2,127,468 | | |
**Cash Flows for The Year Ended December 31,
2024 and 2023**
The following table provides detailed information
about our net cash flows for the periods indicated:
|
| |
Year Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Net cash used in operating activities | |
$ | (10,005,866 | ) | |
$ | (3,820,771 | ) | |
|
Net cash used in investing activities | |
| (237,983 | ) | |
| (1,869,530 | ) | |
|
Net cash provided by financing activities | |
| 10,588,578 | | |
| 5,625,009 | | |
|
Net increase (decrease) in Cash, cash equivalents and restricted cash | |
$ | 344,729 | | |
$ | (65,292 | ) | |
*Operating Activities*
Our primary source of cash
from operating activities is the revenue generated from our animal hospitals and clinics. Our primary uses of cash from operating activities
are the funding of our payroll and veterinary animal hospital and clinic related cost as well as the costs of supplied used in providing
veterinary services. For the year ended December 31, 2024 cash flow from operations included a $14.3 million net loss, an increase of
$529 thousand compared to 2023, non-cash add-backs to net loss of $6.6 million, and a $2.4 million increase in cash flows from changes
in operating assets and liabilities, driven primarily by decreased outstanding accounts payable and accrued expenses and an increase to
prepaid expenses offset by an increase to loans payable. Such activity, along with the timing of cash payments, are the primary drivers
of the year over year changes in net cash used in operating activities.
52
*Investing Activities*
Our uses of cash for investing activities are
capital expenditures for purchases of property and equipment for our animal hospital and clinics.
*Financing Activities*
Our primary sources of cash from financing activities
are the proceeds of issuance of class A common stock and warrants, proceeds of issuance of class A common stock and pre-funded warrants,
repurchase and cancellation of the class B common stock, proceeds from loans payable, payments from loans payable, proceeds from issuance
of convertible series A preferred stock, proceeds from convertible note payable, payments from convertible note payable, repayment of
note payable, proceeds from exercise of warrants, and repayment of convertible debentures.
**Quantitative and Qualitative Disclosures About Market Risk**
We are exposed to market risks
in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates, regulatory,
and inflation.
**Interest Rate Risk**
Our credit facilities bear
interest at a floating rate, generally equal to the New York Prime Rate plus an applicable margin. As a result, we are exposed to fluctuations
in interest rates to the extent of our net borrowings under the Master Lending and Credit Facility, which were $11,983,137 as of December
31, 2024. The exposure to interest rate fluctuations for the Company is considered minimal. The Companys term loans issued under
the Master Lending and Credit Facility have a fixed interest rate for the initial five years followed by a variable interest rate. The
Company has not used any financial instruments to hedge potential fluctuations in interest rates.
As interest rates rise, there
is risk in the form of more expensive loans which would negatively impact the valuation and profitability of each hospital which is purchased.
****
**Inflation Risk**
We do not believe that inflation
has had a material effect on our business, financial condition or results of operations. If our costs become subject to significant inflationary
pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm
our business, financial condition, and operating results.
**Critical Accounting Policies and Significant
Judgments and Estimates**
A summary of our significant
accounting policies is included in Note 2 of our audited consolidated financial statements included in this Form 10-K. The preparation
of consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Our estimates and assumptions are based on historical experiences and changes in the business
environment. However, actual results may differ from estimates under different conditions, sometimes materially. Critical accounting
policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results of operations
and require management judgment. Our critical accounting policies and estimates are described below.
**Acquisitions**
The Company enters into acquisitions
primarily with existing veterinary hospitals throughout the United States. When we acquire a business or assets that are determined to
meet the definition of a business, we allocate the purchase consideration paid to acquire the business to the assets and liabilities acquired
based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets
acquired recorded as goodwill. If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive
additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown
to us, we make the appropriate adjustments to the purchase price allocation in the reporting period that the amounts are determined.
53
**Goodwill**
Goodwill represents the excess
of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment
at a reporting unit level on an annual basis or when an event occurs, or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Events or changes in circumstances that may trigger interim impairment reviews
include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that
the carrying amount may not be recoverable, among other factors.
The Company may first assess
qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair
value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment test is necessary,
the Company will estimate the fair value of its related reporting units. If the carrying value of a reporting unit exceeds its fair value,
the goodwill of that reporting unit is determined to be impaired, and the Company will proceed with recording an impairment charge equal
to the excess of the carrying value over the related fair value.
****
**Intangible Assets**
Intangible assets consist
of client list, trademark and non-compete intangibles that result from the acquisition of veterinary hospitals or practices. Client list
intangible represent the value of the long-term client relationship from the veterinary hospitals and practices. Trademark intangible
assets represent the value associated with the brand names in place at the date of the acquisition. Non-compete intangible assets represent
the value associated with non-compete agreements for former employees and owners in place at the date of the acquisition. The client lists
and trademark are included in other intangibles, net reported in the balance sheet which are being amortized over a 5-year term based
on the estimated economic useful life of the client list and trademark. The non-compete intangible asset included in other intangibles,
net is amortized over a 2-year term based on the estimated useful life of the asset. The amortization of the intangible asset is computed
using the straight-line method. The intangibles are evaluated for impairment on an annual basis or more frequently whenever events or
circumstances occur indicating that the carrying amount may not be recoverable.
The Company uses the Multi-Period
Excess Earnings Method (MPEEM), a form of the income approach to determine the fair market value of the client list (customer
relationship) intangible assets acquired as part of the acquisitions of veterinary hospitals or practices. The principle behind the MPEEM
is that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable only to the
subject intangible asset after deducting contributory asset charges (CAC).
The principle behind a contributory
asset charge is that an intangible asset rents or leases from a hypothetical third party all the assets it
requires to produce the cash flows resulting from its development, that each project rents only those assets it needs (including elements
of goodwill) and not the ones that it does not, and that each project pays the owner of the assets a fair return on (and of, when appropriate)
the fair value of the rented assets. Thus, any net cash flows remaining after such charges are attributable to the subject intangible
asset being valued. The incremental aftertax cash flows attributable to the subject intangible asset are then discounted to their
present value. CACs generally reflect an estimate of the amount a typical market participant would have to pay to use these contributory
assets to generate income with the intangible asset.
The most significant assumptions
used in our application of the MPEEM and in the valuation analysis of acquired client lists are:
|
|
|
A useful life of 15 years where after 10 years the remaining customer base results in small positive cash flows and no terminal value was calculated. | |
|
|
|
A discount rate of 19.6% was selected to calculate the present value of the prospective aftertax cash flows associated with the customer base and business development relationships. | |
|
|
|
We utilized an annual Company sales retention rate of 74.0% (Veterinary Services industry rate) for the Customer Base. | |
|
|
|
The contributory asset charges are based on returns (8.3% to 19.7%) for Net Working Capital (normalized); Fixed Assets; Assembled Workforce; Trade Name; and Non-Competes. | |
54
As of December 31, 2024 our intangible assets and
goodwill balances were as follows:
|
| |
December31, | | |
|
| |
2024 | | |
|
Client List | |
$ | 1,916,444 | | |
|
Noncompete Agreement | |
| 398,300 | | |
|
Trademark | |
| 1,047,792 | | |
|
Other Intangible Assets | |
| 45,836 | | |
|
Goodwill | |
| 8,022,082 | | |
|
| |
$ | 11,430,454 | | |
Our valuations of the intangible assets apart
of our veterinary clinics and animal hospital acquisitions has a relatively small value allocated to the client list (customer relationship)
due to our use of the Veterinary Services industry rate of 74% for the retention rate in our valuations. An increase in the rate by 6%
to 80% in our valuation would result in an increase of approximately $100 thousand to the client list and a decrease of approximately
$100 thousand to goodwill. We have elected to use the industry standard as our Company has minimal historical operations with less than
3 years of revenue producing activities through December 31, 2023. The company acquired Valley Veterinary Services on November 8, 2023.
Management continues to evaluate the inputs used in our valuations based on quantitative and qualitative information available to the
Company. The Company did not make any acquisitions during the year ended December 31, 2024.
**Off-Balance Sheet Arrangements**
We do not have any off-balance
sheet arrangements.
**item
7a. quantitative and qualitative disclosures about market risk**
As a smaller reporting company,
we are not required to provide the information required by this item.
**item
8. financial statements and supplementary data**
The information for this Item
8 is included following the Index to Financial Statements on page F-1 of this Annual Report.
**item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**
None.
**item
9a. controls and Procedures**
**Evaluation of Disclosure Controls and Procedures**
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate,
to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of December 31, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that, as of December 31, 2024, our disclosure controls and procedures were effective.
55
**Managements Annual Report on Internal Control over Financial
Reporting**
Management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2024, based on the framework established in Internal
Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the
assessment, management has determined that our internal control over financial reporting as of December 31, 2023, was not effective due
to material weaknesses in internal controls over financial reporting.
**Material Weaknesses
in Internal Control Over Financial Reporting**
A material weakness in
internal controls over financial reporting is a deficiency, or a combination of deficiencies, in internal controls over financial reporting,
such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements
will not be prevented or detected on a timely basis.
The review, testing and
evaluation of key internal controls over financial reporting completed by the Company resulted in the Companys principal executive
officer and principal financial officer concluding that as of December 31, 2024, material weaknesses existed in the Companys internal
controls over financial reporting. Specifically, in connection with our:
|
(i) | entity-level controls - Controls are not in place with respect to the five components of
entity-level controls: Control Environment, Risk Assessment, Monitoring, Information and Communication, and Control Activities;
and | |
|
(ii) | information technology general controls and segregation of duties - Lack of proper segregation of duties
related to journal entries. The accounting software does not require approval before a journal entry is posted to the general ledger.
Thus, an unapproved journal entry can be easily input into the system without the knowledge of senior management; and | |
The Company has continued
to address the material weaknesses described above through the following actions:
|
- | Assessing finance and accounting resources to identify the areas and functions that lack sufficient personnel
and recruiting for experienced personnel to assume these roles; | |
|
- | Further centralization of key accounting processes to enable greater segregation of duties; | |
|
- | Developing further training on segregation of duties; and | |
|
- | Designing and implementing additional compensating controls where necessary. | |
While we continue working
diligently to remediate these material weaknesses, there is no assurance that these material weaknesses will be fully remediated by December
31, 2025.
**Item
9b. Other information**
None.
**Item
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**
Not applicable.
56
****
**part
iii**
**Item
10. Directors, Executive Officers and corporate governance**
Below
are the names of and certain information regarding the Companys current executive officers and directors:
|
Name |
|
Age |
|
|
Position | |
|
Kimball Carr |
|
54 |
|
|
President and Chief Executive Officer | |
|
Richard Paul Frank |
|
56 |
|
|
Chief Financial Officer | |
|
Larry Alexander |
|
44 |
|
|
Director | |
|
Charles Stith Keiser |
|
40 |
|
|
Director | |
|
Phillip Balatsos |
|
48 |
|
|
Director | |
|
Anne Murphy |
|
58 |
|
|
Director | |
|
Erinn Thomas-Mackey, DVM |
|
38 |
|
|
Director | |
|
Timothy Watters |
|
62 |
|
|
Director | |
**Executive Officers**
****
**Kimball Carr**
Mr. Carr has served as our President and Chief Executive Officer since February 2021. Mr. Carr has over a varied 30-year career
in many roles with private and public business entities. With early education in journalism and continuing education at the University
of Virginias Darden Business School, Mr. Carrs leadership career includes elevated roles for Starbucks Coffee Company, Mars
Incorporated and Trupanion Medical Insurance. From March 2018 through the present, Mr. Carr served as President of Ocean 35 Inc., owner
of retail brands focused on the sports of surfing and skateboarding as well as education and support of youth participation in the sports.
From March 2018, Mr. Carr was the owner and founder of Grom Coast Surf & Skate, a regional commercial surf shop (subsequently closed).
From December 2019 through February 2021, Mr. Carr was the director of learning and development of Blue Heron Consulting, offering comprehensive
operational, financial, and medical team coaching for veterinarians and animal health care industry professionals across the country.
During his tenure as a business leader, he has built multi-year growth strategies, led teams of over 2,000 professionals and delivered
collective revenues in excess of $1 billion. He brings deep experience in veterinary and field operations, start-up processes, leadership
development, growth strategies and turn arounds. He has led the acquisition and de novo opening of hundreds of company units over the
course of his career and has built highly effective field leadership teams which have delivered industry-leading results. His connection
to the pet care industry is highlighted by deep relationships he has across the sector, providing access to talent which IVP intends to
leverage. Mr. Carrs volunteer work includes service as President of the Banfield Associate Relief fund, an employee assistance
program founded in relation to his role in the recovery for Banfield associates from Hurricane Sandy in the Northeast United States. Mr.
Carr is not obligated to dedicate all of his time or resources or any specific portion of his time exclusively to the Company. Mr. Carr
attended Tidewater Community College in October 1991 and attended the University of Virginia Darden Business School executive masters
of business administration from 2004 to 2006. We believe Mr. Carr is qualified to serve on the board due to his extensive background in
retail business, his demonstrated success in entrepreneurial enterprises and his more than a decade of expertise in the veterinary medicine
services industry.
**Richard Paul Frank**
Mr. Frank is our Chief Financial Officer whose appointment as Chief Financial Officer became effective upon the listing of the Companys
Class A common stock on The Nasdaq Capital Market. From 2021 through the present, Mr. Frank has been Chief Executive Officer of Purcell
Flanagan Hay & Greene, a law firm based in Jacksonville, Florida. From 2020 through 2021, he served as Chief Financial Officer of
Skygeek.com, an aviation parts e-commerce company. From 2019 to 2020, he was an independent consultant with PKF OConnor Davies,
an accounting and advisory firm. Mr. Frank also served as Chief Operating Officer and Chief Financial Officer of Beval Saddlery, LLC,
a private equity owned multi-location retailer/wholesaler and e-commerce company from 2014 through 2019. Earlier in his career he was
engaged in senior management positions with Blue Chip Farms, LLC, the largest equine breeding farm in New York State, Medical Recruitment
Solutions, Inc., private equity owned medical staffing start-up enterprise, Indotronix International Corporation, an information technology
staffing company, Microcast, Inc., a video streaming start-up enterprise, and Factset Research Systems, Inc., a SaaS financial information
company with operations in the United Kingdom, Australia and Japan. He has over twenty years of experience directing all aspects of enterprise-wide
finance, operations, business development, marketing, administration and customer service, including experienced in private equity owned
companies, start-ups and companies with greater than $100 million per year in revenue. Mr. Frank graduated with a Bachelor of Science
in Finance in 1992 from Mercy College in Yorktown, New York.
57
**Directors**
**Larry Alexander**
Mr. Alexander is a Director whose appointment became effective upon the listing of the Companys Class A common stock on
The Nasdaq Capital Market. He is currently the Vice President of Operations for CarepathRx, holding that role since January2022.
Previously, Mr. Alexander servedas Managing Directorof First Financial Bank from September 2017through December 2021.Earlier
in his career, he worked for McKesson Corporation from June 2002 through 2017, most recently asVice President, Strategic Solutions
and National Accounts from January 2010through August 2017. Mr. Alexander brings over 20 years of experience, serving insenior
leadership positions in Fortune 5, private equity, non-profit, and privately held companies, with an outstanding record of business growth
and profitability across multiple industries. His career has focused on developing people and his engaged and high performing teams.Alexanders
proven results and leadership experience include leading multi-billion dollar negotiations, facilitating M&A engagements, and new
business development. He has revived and started new businesses, with a deep focus on culture and growth.He gives generously
of his time by serving many worthy organizations; chairing capital campaigns in his community; instituting college scholarship programs;
leading hurricane disaster relief efforts; guest lecturing at universities; and has served on several boards of directors. Mr. Alexander
graduated with a Bachelor of Science Degree in Industrial Distribution in May 2002 from Texas A&M University. We believe Mr. Alexander
is qualified to serve on the board in light of his decades of experience in business operations in public and private enterprises across
multiple industries,
****
**Charles Stith Keiser**
Mr. Keiser has served as our Director since early January 1, 2022. He has served as Chief Executive Officer of Blue Heron Consulting,
a veterinary consulting company serving hospitals of all sizes and specialties across North America, since March 2015. Earlier in his
career, he served as Director of Student Programs for the American Animal Hospital Association from September of 2011 through March of
2015. He grew up in veterinary medicine as the son of a practice owning veterinarian and has spent his entire career in the industry.
In addition to his employment, Mr. Keiser continues to volunteer as a facilitator and lecturer for professional skills curriculum at veterinary
schools across the country. Mr. Keiser continues to develop and deliver professional development content as an adjunct faculty member
at several U.S. veterinary schools. Mr. Keisers volunteer experience includes serving as Chair of VetCAN (Veterinary Career Advisory
Network), terms as President of VetPartners Career Development and Practice Management Special Interest Groups, participation in
Washington State Universitys CVM Diagnostic Challenge and a seat on the AVMAs Economics Advisory Research
Council Financial Literacy task force. Mr. Keiser has served in the veterinary profession since his graduation from Hope College with
a degree in Business, Management and Accounting in 2008. Mr. Keiser is not obligated to dedicate all of his time or resources or any specific
portion of his time exclusively to the Company. We believe Mr. Keiser is qualified to serve on the board due to his substantial experience
in the practice of veterinary medicine and his leadership roles teaching and serving in veterinary schools and industry groups.
**Anne Murphy**
Ms. Murphy is Director whose appointment became effective upon the listing of the Companys Class A common stock on The
Nasdaq Capital Market. Currently, Ms. Murphy serves as Vice President, Business Solutions and Applications at American Electric Power
since January 2021. Previously, Ms. Murphy served as the Chief Information Officer for Best Buy Health and Greatcall, Inc., from November
2017 through March 2020, and Chief Information Officer for Banfield Pet Hospital from 2015 through 2017. Earlier in her career, Ms. Murphy
served as Technology Vice President/Senior Director at Target Corporation from 2008-2014. Ms. Murphy is the owner and president of a consulting
company, Claro Vista LLC since 2014. Ms. Murphy brings over 30 years of technology and transformational leadership experience in public,
private, and private equity companies supporting utility, retail, direct to consumer and veterinary sectors. Ms. Murphys volunteer
work includes serving asBoard Trustee and Operations Committee Chair at United Through Reading since 2018, Board member for Banfield
Foundation in 2017, Habitat for Humanity Womens Build 2013-2014 and Ordway Circle of Stars Board member 2008-2010. Ms. Murphy graduated
from University of St. Thomas in 2004 with a Masters of Business of Administration, and graduated from Metropolitan State University
in 1998 with a Bachelor of Science in Business Administration. We believe Ms. Murphy is qualified to serve on the board due to her multiple
decades in business administration and technology leadership roles in a variety of industries, including veterinary services and her demonstrated
commitment to public service.
58
**Erinn Thomas-Mackey,
DVM** Dr. Erinn Thomas-Mackey is Director whose appointment became effective upon the listing of the Companys Class
A common stock on The Nasdaq Capital Market. She was the Founder and Managing Member of SeaPath Advisory LLC from 2022 to present, Managing
Member and Founder for Thomas-Mackey Veterinary Service from 2021 to present, and Managing Member and Founder or TwoMacks Properties LLC
from 2019 to present. Earlier in Dr. Thomas-Mackeys career she was employed as an Associate Emergency Veterinarian at Animal Emergency
Service, a privately owned emergency veterinary practice in Long Island, NY from August 2017 to October 2021 and as an Associate General
Practice Veterinarian at Assisi Veterinary Hospital, a privately owned Veterinary practice in Malverne, NY from June 2015 to June 2017.
While working as full-time veterinarian, Dr. Thomas-Mackey started her pre-diem veterinary business and real estate investment company.
She brings years of hands-on experience in both emergency veterinary medicine and general veterinary practice along with the unique understanding
of the day-to-day needs and challenges of both veterinary doctors and practice owners alike. In addition, Dr. Thomas-Mackey has successfully
navigated everyday issues practice owners face around staffing needs, optimizing practice flow, and driving revenue to increase profit
margins. She also has hands-on experience with negotiating real estate deals, property evaluation, and property management. Dr. Thomas-Mackey
graduated from the Tuskegee University College of Agriculture, Environment and Nutrition Sciences in 2010 with a Bachelor of Science in
Biology and a Bachelor of Animal, Poultry, and Veterinary Science, and from the Tuskegee University College of Veterinary Medicine in
2014 with a Doctor of Veterinary Medicine. We believe Dr. Thomas-Mackeys broad experience in both the practice of veterinary medicine
and ownership and management of veterinary practices and veterinary practice real estate, as well as her demonstrated educational and
professional excellence, qualifies her to serve on the board.
**Timothy Watters**
Mr. Watters is Director whose appointment became effective upon the listing of the Companys Class A common stock on The
Nasdaq Capital Market. Mr. Watters currently serves as Chief Financial Officer of North Fork Native Plants, a wholesale plant nursery
serving the Intermountain West and Pacific Northwest, a position he has held since July 2019. Previously, Mr. Watters served as Chief
Operating Officer of North Fork Native Plants from May 2008 through June 2019. Earlier in his career, Mr. Watters owned a wholesale camping
business, SKI International, Inc. from June 1994 through January 2008. He also worked in finance serving as Vice President of A.G. Edwards
and Sons in St. Louis, Missouri from January 1990 through May 1994 and Vice President at PNC Financial Corp in Philadelphia, PA from September
1985 through September 1990. Mr. Watters brings over 38 years of experience in finance and small business ownership. Mr. Watters volunteer
work includes service as Board Chair of the Community Foundation of Teton Valley, Board Chair of the Teton Valley Community School, Treasurer
of Friends of the Teton River and Chair of the Teton County Planning and Zoning Commission. Mr. Watters graduated from Denison University
in June of 1985 with a Bachelor of Arts in Economics. We believe Mr. Watters is qualified to serve on the board in light of his many decades
of leadership of multiple commercial businesses and financial services firms.
**Phillip Balatsos**Since
August2022, Mr.Balatsos has served as the Vice President of Foreign Exchange Emerging Markets Rates Sales/Trading with XP
Investments US Inc. for which Mr.Balatsos provides coverage and execution of currency trading in emerging markets as well as commodity
and fixed income products and derivatives for global macro hedge funds. In September2018 Mr.Balatsos founded LAPH Hospitality
where he served as an Operator until to August of 2022. During his time with LAPH Hospitality, Mr.Balatsos operated a multi-locationcaf/catering
business. Mr.Balatsos previously served as a Director member on the board for Sadot Group Inc. and sat on the audit and finance
committees during his term. Prior to his tenure in hospitality, Mr.Balatsos held various positions on Wall Street including Vice
President, Foreign Exchange Sales/Trading for Credit Suisse; Director, Foreign Exchange Hedge Fund Sales for Barclays Capital and Financial
Advisor for Stifel Nicolaus& Co. Mr.Balatsos graduated from Skidmore College with a Bachelor of Science in Business Administration
and from Institute of Culinary Education. We believe Mr.Balatsos is qualified to serve on the board due to his vast experience in
the financial industry and his deep understanding of emerging markets.
59
****
**Committees of the Board of Directors**
**Audit Committee**
The Audit Committee is composed
of three independent directors: Timothy Watters and Phillip Balatsos, with Mr. Wattersserving as Chair. Each member of the Audit
Committee is an independent director as defined by the rules of the Commission and Nasdaq. The Audit Committee has the sole authority
and responsibility to select, evaluate and engage independent auditors for the Company. The Audit Committee reviews with the auditors
and with the Companys financial management all matters relating to the annual audit of the Company.
The Audit Committee monitors the integrity of our
financial statements, monitors the independent registered public accounting firms qualifications and independence, monitors the
performance of our internal audit function and the auditors, and monitors our compliance with legal and regulatory requirements. The Audit
Committee also meets with our auditors to review the results of their audit and review of our annual and interim financial statements.
The Audit Committee meets
at least on a quarterly basis to discuss with management the annual audited financial statements and quarterly financial statements and
meets from time to time to discuss general corporate matters.
**Audit Committee Financial Expert**
Our Board determined that
Mr. Watters is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the Commission, in compliance
with the Sarbanes-Oxley Act of 2002.
**Compensation Committee**
The Compensation Committee,
which currently consists of Anne Murphy, Phillip Balatsos and Larry Alexander, each of whom meets the independence requirements of all
other applicable laws, rules and regulations as defined by the rules of the Commission and Nasdaq, as determined by the Board, with Ms.
Murphy serving as Chair. Among other things, the Compensation Committee reviews, recommends and approves salaries and other compensation
of the Companys executive officers, and administers the Companys equity incentive plans (including reviewing, recommending
and approving stock option and other equity incentive grants to executive officers).
The Compensation Committee
meets in executive session to determine the compensation of the Chief Executive Officer of the Company. In determining the amount, form,
and terms of such compensation, the Committee considers the annual performance evaluation of the Chief Executive Officer conducted by
the Board in light of company goals and objectives relevant to Chief Executive Officer compensation, competitive market data pertaining
to Chief Executive Officer compensation at comparable companies, and such other factors as it deems relevant, and is guided by, and seeks
to promote, the best interests of the Company and its shareholders.
In addition, subject to existing
agreements, the Compensation Committee determines the salaries, bonuses, and other matters relating to compensation of the executive officers
of the Company using similar parameters. It sets performance targets for determining periodic bonuses payable to executive officers. It
also reviews and makes recommendations to the Board regarding executive and employee compensation and benefit plans and programs generally,
including employee bonus and retirement plans and programs (except to the extent specifically delegated to a Board appointed committee
with authority to administer a particular plan). In addition, the Compensation Committee approves the compensation of non-employee directors
and reports it to the full Board.
60
The Compensation Committee
also reviews and makes recommendations with respect to stockholder proposals related to compensation matters. The committee administers
the Companys equity incentive plans, including the review and grant of stock options and other equity incentive grants to executive
officers and other employees and consultants.
The Compensation Committee
may, in its sole discretion and at the Companys cost, retain or obtain the advice of a compensation consultant, legal counsel or
other adviser. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation
consultant, legal counsel and other adviser retained by the committee.
*Compensation Committee Interlocks and Insider
Participation*
Our Compensation Committee
was established upon the consummation of our initial public offering on August 31, 2023. Prior to that date, no current members of our
Compensation Committee served as members of our Board. Accordingly, during the fiscal year ended December 31, 2024 (our last completed
fiscal year), no member of our Compensation Committee:
|
|
|
was an officer or employee of the Company, | |
|
|
|
| |
|
|
|
had or will have any relationships with the Company of the type that is required to be disclosed under Item 404 of Regulation S-K. | |
None of our executive officers
serves or has served as a member of the board of directors or managers, compensation committee or other committee performing equivalent
functions of any entity that has one or more executive officers serving as one of our Directors or members of our Compensation Committee.
****
**Governance and Nominating Committee**
The Governance and Nominating
Committee consists of Larry Alexander and Timothy Watters, each of whom meets the independence requirements of all other applicable laws,
rules and regulations as defined by the rules of the Commission and Nasdaq, as determined by the Board, with Mr. Alexander serving as
Chair.
The Governance and Nominating
Committee identifies individuals qualified to become members of the Board, consistent with criteria approved by the Board; recommends
to the Board the director nominees for the next annual meeting of stockholders or special meeting of stockholders at which directors are
to be elected; recommends to the Board candidates to fill any vacancies on the Board; develops, recommends to the Board, and reviews the
corporate governance guidelines applicable to the Company; and oversees the evaluation of the Board and management.
In recommending director nominees
for the next annual meeting of stockholders, the Governance and Nominating Committee ensures the Company complies with its contractual
obligations, if any, governing the nomination of directors. It considers and recruits candidates to fill positions on the Board, including
as a result of the removal, resignation or retirement of any director, an increase in the size of the Board or otherwise. The Committee
conducts, subject to applicable law, any and all inquiries into the background and qualifications of any candidate for the Board and such
candidates compliance with the independence and other qualification requirements established by the Committee. The Committee also
recommends candidates to fill positions on committees of the Board.
In selecting and recommending
candidates for election to the Board or appointment to any committee of the Board, the Committee does not believe that it is appropriate
to select nominees through mechanical application of specified criteria. Rather, the Committee shall consider such factors at it deems
appropriate, including, without limitation, the following: personal and professional integrity, ethics and values; experience in corporate
management, such as serving as an officer or former officer of a publicly-held company; experience in the Companys industry; experience
as a board member of another publicly-held company; diversity of expertise and experience in substantive matters pertaining to the Companys
business relative to other directors of the Company; practical and mature business judgment; and composition of the Board (including its
size and structure).
61
The Committee develops and
recommends to the Board a policy regarding the consideration of director candidates recommended by the Companys stockholders and
procedures for submission by stockholders of director nominee recommendations.
In appropriate circumstances,
the Committee, in its discretion, will consider and may recommend the removal of a director, in accordance with the applicable provisions
of the Companys articles of incorporation and bylaws. If the Company is subject to a binding obligation that requires director
removal structure inconsistent with the foregoing, then the removal of a director shall be governed by such instrument.
The Committee oversees the
evaluation of the Board and management. It also develops and recommends to the Board a set of corporate governance guidelines applicable
to the Company, which the Committee shall periodically review and revise as appropriate. In discharging its oversight role, the Committee
is empowered to investigate any matter brought to its attention.
****
**Board Leadership Structure**
Kimball Carr serves as our
director, President and Chief Executive officer and regularly communicates with other members of management, the Board and Company counsel.
**Board Risk Oversight**
The Companys risk management
function is overseen by the Board. The Companys management keeps the Board apprised of material risks and provides its directors
access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect us, and how management
addresses those risks. Kimball Carr, our President and Chief Executive Officer, works closely together with the other members of the Board
when material risks are identified on how to best address such risks. If the identified risk poses an actual or potential conflict with
management, the Companys independent directors may conduct the assessment. Presently, the primary risk affecting us are our liquidity
and the lack of material revenue.
**Family Relationships**
None of our directors or officers
have any known family relationships with other directors or officers of the Company.
**Involvement in Legal Proceedings**
We are not aware of any of
our directors or officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency,
criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401(f) of
Regulation S-K.
**Code of Ethics**
The Board has adopted a Code
of Business Conduct and Ethics (the Code of Ethics) that applies to all of the Companys employees, including the
Companys Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to the Companys
directors. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest
and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships,
full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations and the prompt reporting of
illegal or unethical behavior, and accountability for adherence to the Code of Ethics.
62
**item 11. Executive Compensation**
This section discusses the
material components of the executive compensation program for our directors and our Named Executive Officers who are named in the 2024
and 2023 Summary Compensation Table below. In 2024, our directors and Named Executive Officers and their positions
were as follows:
|
|
|
Kimball Carr, President and Chief Executive Officer; | |
|
|
|
Richard Frank, Chief Financial Officer; and | |
|
|
|
Alexandra Quatri, DVM, Vice President of Medical Operations. | |
This discussion may contain
forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation
programs. Actual compensation programs that we adopt may differ materially from the currently planned programs summarized in this discussion.
**2024 and 2023 Summary Named Executive Officer
Compensation Table**
****
The following table sets forth
information concerning the compensation of our named executive officers and directors for the years ended December 31, 2024 and 2023.
|
Name and Principal Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Option Awards ($) | | |
Non-Equity Incentive Plan Compensation ($) | | |
All Other Compensation ($)(1) | | |
Total | | |
|
Kimball Carr (1) | |
| 2024 | | |
| 250,000 | | |
| - | | |
| - | | |
| - | | |
| 16,486 | | |
| 266,486 | | |
|
President and Chief Executive Officer | |
| 2023 | | |
| 233,630 | | |
| - | | |
| - | | |
| - | | |
| 17,061 | | |
| 249,753 | | |
|
Richard Frank | |
| 2024 | | |
| 194,783 | | |
| - | | |
| - | | |
| - | | |
| 12,274 | | |
| 207,057 | | |
|
Chief Financial Officer | |
| 2023 | | |
| 191,781 | | |
| - | | |
| - | | |
| - | | |
| 10,103 | | |
| 180,860 | | |
|
Alexandra Quatri, DVM | |
| 2024 | | |
| 198,240 | | |
| - | | |
| - | | |
| - | | |
| 11,766 | | |
| 210,005 | | |
|
Vice President of Medical Operations | |
| 2023 | | |
| 194,272 | | |
| - | | |
| - | | |
| - | | |
| 10,078 | | |
| 204,351 | | |
|
Laura Johnson(2) | |
| | | |
| 45,230 | | |
| - | | |
| - | | |
| | | |
| 2,317 | | |
| 47,547 | | |
|
Vice President of Operations | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Lynley Kees | |
| | | |
| 180,000 | | |
| - | | |
| - | | |
| | | |
| 14,386 | | |
| 207,057 | | |
|
Vice President of Human Resources | |
| | | |
| 131,539 | | |
| - | | |
| - | | |
| | | |
| 11,765 | | |
| 180,860 | | |
|
(1) |
All Other Compensation ($) consists of Company contributions to medical benefit premiums. | |
|
|
| |
|
(2) |
Employment began September 23, 2024, represents pro-rata annual salary of $210,000. | |
63
**Employment Agreements**
****
*Kimball Carr Employment*
**
The Company entered into an
employment agreement (the Employment Agreement) with Kimball Carr, the Companys President and Chief Executive
Officer, on July 8, 2021. The Employment Agreement provides for a three-year term with the ability to renew, upon the affirmative vote
of the board of directors (with Mr. Carr abstaining) for successive one-year terms.
Pursuant to the Employment
Agreement, Mr. Carrs duties consist of devoting as much time as is necessary to perform the duties and services required under
the Employment Agreement and as may be designated by the Board, and devoting his best efforts to the business and affairs of Inspire and
promoting the interests of Inspire. Mr. Carr is barred from directly or indirectly, engaging in any other business that could reasonably
be expected to detract from his ability to apply his best efforts in the performance of his duties to Inspire.
*Base salary*
Mr. Carrs base salary under the Employment
Agreement is tied to annual revenue targets, as follows:
|
Annual Revenue |
|
Base Salary |
| |
|
Up to $7,500,000 |
|
$175,000 |
| |
|
$7,500,000 |
|
$225,000 |
| |
|
$15,000,000 |
|
$250,000 |
| |
|
$20,000,000 |
|
$300,000 |
| |
|
$25,000,000 |
|
Tobe negotiated by the parties |
| |
Mr. Carr is eligible for annual bouses under the
Employment Agreement is tied to annual revenue targets, as follows:
*Annual Revenue Bonus*
|
Actual Revenue Compared to Revenue Target |
|
Revenue Bonus |
| |
|
110% or greater |
|
125% of Revenue Bonus Target |
| |
|
100-109% |
|
100% of Revenue Bonus Target |
| |
|
95-99% |
|
95% of Revenue Bonus Target |
| |
|
90-94% |
|
90% of Revenue Bonus Target |
| |
|
Below 90% |
|
No Revenue Bonus |
| |
*Profit Bonus*
|
Actual Profit Compared to Profit Target |
|
Profit Bonus |
| |
|
110% or greater |
|
125% of Profit Bonus Target |
| |
|
100-109% |
|
100% of Profit Bonus Target |
| |
|
95-99% |
|
95% of Profit Bonus Target |
| |
|
90-94% |
|
90% of Profit Bonus Target |
| |
|
Below 90% |
|
No Profit Bonus |
| |
*Stock Bonus*
****
The Board may, in its sole
discretion, determine with additional bonus in the form of shares of Class A or Class B common stock may be awarded, taking into account
the Companys performance for the calendar year based on the revenue bonus targets and profit targets. If the Board determines that
a stock bonus is warranted, the value of the shares will be equal to between 10% and 14% of Mr. Carrs base salary for such calendar
year.
*Benefits*
Mr. Carr is entitled to participate
in the employee benefit plans offered to the Companys employees on the same terms and conditions as other employees.
****
64
*Covenants*
The Employment Agreement contains
certain non-disclosure and confidentiality provisions applicable to Mr. Carr for the benefit of the Company. Mr. Carr has also agreed,
during the term of his employment and for a two-year period following the termination of his employment not to solicit for employment
any employee or any person who was employed by the Company within the prior six months. Mr. Carr is also barred from soliciting any client
or certain former clients for a period of two years following the termination of his employment with the Company.
*Termination*
The Company may terminate
Mr. Carrs employment immediately for cause includes:
|
|
|
his death; | |
|
|
|
his mental or physical incapacity that prevents him, with or without reasonable accommodation, from performing his essential duties for a period of 60 consecutive days or longer; | |
|
|
|
disloyalty or dishonesty towards the Company; | |
|
|
|
gross or intentional neglect of in the performance of his duties and services or material failure to perform his duties and services; | |
|
|
|
his violation of any law, rule, or regulation (other than minor traffic violations) related to his duties; | |
|
|
|
his material breach of any provision of the Employment Agreement or any written Inspire policy, if such breach is not cured within 10 days after written notice; and | |
|
|
|
any other act or omission which harms or may reasonably be expected to harm the reputation or business interests of the Company. | |
Mr. Carr may terminate the
Employment Agreement immediately for good reason, which is defined to include:
|
|
|
a material breach of the Employment Agreement by the Company, if such breach is not cured within 10 days after written notice; | |
|
|
|
a material reduction in his duties or responsibilities without his consent, if such breach is not cured within 10 days after written notice; | |
|
|
|
a relocation of his office to a location more than 30 miles from Virginia Beach, Virginia without his consent, if such relocation is not reversed within 10 days after written notice; and | |
|
|
|
a change in control of the Company, provided that he gives notice of termination based on such change in control within six months. | |
*Miscellaneous*
Mr. Carr is entitled to severance
payments in certain circumstances. The Employment Agreement is governed by the laws of the Commonwealth of Virginia.
On
July 24, 2024, our Board of Directors and Mr. Carr agreed to a six-month extension of Mr. Carrs Employment Agreement. The agreement
featured a term of the three years, which was completed on July 8, 2024. Pursuant to the extension, which by agreement shall be deemed
legally effective as of July 8, 2024, Mr. Carrs continuing service as Chief Executive Officer will be governed by the terms of
the Agreement through February 1, 2025. The Company and Mr. Carr are currently negotiating an updated employment agreement.
65
**Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder matters**
**Security Ownership of Certain Beneficial Owners
and Management**
The following table lists,
as of January 29, 2025, the number of shares of common stock beneficially owned by:
|
|
(i) |
each of our Named Executive Officers; | |
|
|
|
| |
|
|
(ii) |
each of our directors; | |
|
|
|
| |
|
|
(iii) |
all executive officers and directors as a group; and | |
|
|
|
| |
|
|
(iv) |
each person, entity or group (as that term is used in Section 13(d)(3) of the Exchange Act) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock. | |
Information relating to beneficial
ownership of common stock by our principal stockholders and management is based upon information furnished by each person using beneficial
ownership concepts under the rules of the Commission. Under these rules, a person is deemed to be a beneficial owner of a security
if that person directly or indirectly 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 dispose or direct the disposition 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 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 interest.
The calculations of the applicable percentage of
beneficial ownership are based on:
|
|
|
1,513,679 shares of Class A Common Stock; | |
|
|
|
3,020,750 shares of Class B common stock; and | |
|
|
|
0 shares of Series A
preferred stock issued andoutstanding as of January 29,
2025. | |
The calculations of the applicable
percentage of voting power include the beneficial ownership and also includes:
|
|
|
the voting power of 3,020,750 shares of Class B Common Stock outstanding as of the date of this prospectus (each share of Class B common stock entitles the holder of record to twenty-five (25) votes on all matters submitted to a vote of stockholders). | |
66
Except as otherwise indicated,
all shares are owned directly. Each indicated holder has sole voting power and sole investment power over the shares indicated in the
table below:
|
Name and Address of
Beneficial Owner (1) |
|
Title |
|
|
Class of
Voting Stock
Beneficially
Owned |
|
Number of
Shares
Beneficially
Owned |
|
|
% Owned |
|
|
Total Combined% Voting |
| |
|
NAMED EXECUTIVE OFFICERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Kimball Carr |
|
|
|
|
Class A common |
|
|
31 |
(2) |
|
|
* |
|
|
|
10.8 |
% | |
|
|
|
|
|
|
Class B common |
|
|
333,250 |
|
|
|
11.0 |
% |
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Richard Frank |
|
|
|
|
Class A common |
|
|
- |
|
|
|
* |
|
|
|
* |
| |
|
|
|
|
|
|
Class B common |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Alexandra Quatri |
|
|
|
|
Class A common |
|
|
- |
|
|
|
* |
|
|
|
* |
| |
|
|
|
|
|
|
Class B common |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
DIRECTORS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Lawrence Alexander |
|
Director |
|
|
Class A common |
|
|
1 |
|
|
|
* |
|
|
|
* |
| |
|
|
|
|
|
|
Class B common |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Charles Stith Keiser |
|
Director |
|
|
Class A common |
|
|
10 |
|
|
|
* |
|
|
|
69.8 |
% | |
|
|
|
|
|
|
Class B common |
|
|
2,150,000 |
(3) |
|
|
71.2 |
% |
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Peter Lau(5) |
|
Former Director |
|
|
Class A common |
|
|
- |
|
|
|
* |
|
|
|
17.4 |
% | |
|
|
|
|
|
|
Class B common |
|
|
537,500 |
|
|
|
17.8 |
% |
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dr.Thomas-Mackey |
|
Director |
|
|
Class A common |
|
|
5,600 |
|
|
|
* |
|
|
|
* |
| |
|
|
|
|
|
|
Class B common |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
John Suprock(6) |
|
Former Director |
|
|
Class A common |
|
|
- |
|
|
|
* |
|
|
|
* |
| |
|
|
|
|
|
|
Class B common |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Timothy Watters |
|
Director |
|
|
Class A common |
|
|
- |
|
|
|
* |
|
|
|
* |
| |
|
|
|
|
|
|
Class B common |
|
|
- |
|
|
|
* |
|
|
|
|
| |
|
|
|
|
|
|
Preferred |
|
|
- |
|
|
|
* |
|
|
|
|
| |
67
|
Name and Address of Beneficial Owner (1) | |
Title | |
Class of Voting Stock Beneficially Owned | |
Number of Shares Beneficially Owned | | |
% Voting | | |
Total Combined% Voting | | |
|
5% OWNERS | |
| |
| |
| | | |
| | | |
| | | |
|
Wilderness Trace Veterinary Partners, LLC (4) | |
| |
Class A common | |
| - | | |
| * | | |
| 69.8 | % | |
|
| |
| |
Class B common | |
| 2,150,000 | | |
| 71.2 | % | |
| | | |
|
| |
| |
Series A preferred | |
| - | | |
| * | | |
| | | |
|
* |
Represents ownership of less than 1%. | |
|
|
| |
|
(1) |
Unless otherwise indicated, the business address of each of the individuals is 780 Lynnhaven Parkway, Suite 400, Virginia Beach, Virginia 23452 | |
|
|
| |
|
(2) |
Includes a warrant for 50,000 shares of Class A common stock. The warrant was issued effective as of January 1, 2023 and is exercisable at any time and from time to time by the holder for a period of five (5) years from January 1, 2023 at an exercise price per share equal to $6,000.00, subject to adjustment for subsequent stock splits, stock combinations, stock dividends, and recapitalizations. | |
|
|
| |
|
(3) |
Beneficially owned by Wilderness
Trace Veterinary Partners, LLC, which is controlled by Charles Stith Keiser, the Companys director. | |
|
|
| |
|
(4) |
Wilderness Trace Veterinary
Partners, LLC is 100% owned and controlled by Charles Stith Keiser, the Companys director. | |
|
|
| |
|
(5) |
Mr. Lau declined to stand for re-election at the annual meeting of stockholders of the Company held on October 9, 2024. | |
|
|
| |
|
(6) |
Mr. Suprock declined to stand for re-election at the annual meeting of stockholders of the Company held on October 9, 2024. | |
**Change-in-Control Agreements**
Other than a provision in
the Employment Agreement with Mr. Carr, our President and Chief Executive Officer, which provides that Mr. Carr may terminate his employment
with the Company within six-months following a change in control of the Company, the Company does not have any change-in-control agreements
with any of its executive officers.
68
**Item 13. Certain relationships
and related transactions, and director independence**
**Operating Leases with Related Parties**
****
The Company has intercompany
leases between its subsidiaries, and these transactions and balance have been eliminated in the consolidated financial statements.
**Item
14. Principal accounting fees and services**
**Audit Fees**
The following table sets forth
the fees billed to us by a member firm of Kreit & Chiu CPA LLP, our independent registered public accounting firm for professional
services rendered for the fiscal years ended December 31, 2023 and December 31, 2024.
|
Services | |
2024 | | |
2023 | | |
|
Audit fees (1) | |
$ | 276,150 | | |
$ | 292,400 | | |
|
Audit related fees (2) | |
| | | |
| - | | |
|
Tax fees (3) | |
| - | | |
| - | | |
|
All other fees (4) | |
| | | |
| 28,130 | | |
|
Total fees | |
$ | 276,150 | | |
$ | 320,530 | | |
|
(1) |
Audit fees consist of fees for professional services rendered for the audit of our annual financial statements and initial public offering. | |
|
(2) |
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our financial statements but are not reported under Audit fees. | |
|
(3) |
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning and tax advice. | |
|
(4) |
All other fees consist of fees billed for services not associated with audit or tax. | |
**Audit Committees Pre-Approval Practice**
Prior to our engagement of
our independent auditor, such engagement was approved by our board of directors. The services provided under this engagement may include
audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Pursuant
our requirements, the independent auditors and management are required to report to our board of directors at least quarterly regarding
the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed
to date. Our board of directors may also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and
other fees incurred by us were approved by our board of directors.
**Pre-Approval
of Audit and Permissible Non-Audit Services**
The Companys Audit
Committee approves our audit and non-audit services. The auditors engaged for these services are required to provide and uphold estimates
for the cost of services to be rendered. The percentage of hours expended on Malone Baileys engagement to audit our financial statements
for the most recent fiscal year that were attributed to work performed by persons other than the principal accountants full-time,
permanent employees was 0%.
69
**Part
IV**
**Item
15. exhibits, financial statement schedules**
****
|
Exhibit
Number |
|
Description | |
|
3.1(a) |
|
Amended and Restated Articles of Incorporation of Inspire Veterinary Partners, Inc.(1) | |
|
3.2(a) |
|
Articles of Conversion to Nevada corporation, dated as of June 29, 2022 | |
|
3.3(b) |
|
Second Amended and Restated By-Laws of Inspire Veterinary Partners, Inc. | |
|
3.4(c) |
|
Certificate of Designations relating to Series A preferred stock of Veterinary Partners, Inc. | |
|
3.5(d) |
|
First Amendment to Certificate of Designations relating to Series A preferred stock of Veterinary Partners, Inc. | |
|
3.6(l) |
|
Second Amendment to the Certificate of Designation relating to the Series A preferred Stock of Veterinary Partners, Inc. | |
|
3.7(o) |
|
Certificate of Amendment to Articles of Incorporation | |
|
4.1(a) |
|
Warrant of Kimball Carr dated as of January 1, 2023 | |
|
4.2(c) |
|
New Warrant of Target Capital 1 LLC dated June 30, 2023 | |
|
4.3(c) |
|
New Warrant of Dragon Dynamic Catalytic Bridge SAC Fund dated June 30, 2023 | |
|
4.4(c) |
|
New Warrant of 622 Capital LLC dated June 30, 2023 | |
|
4.5(g) |
|
IPO Warrant of Spartan Capital Securities, LLC dated as of August 30, 2023 | |
|
4.6(e) |
|
Registration Rights Agreement, dated November 30, 2023, between Inspire Veterinary Partners, Inc. and Tumim Stone Capital LLC | |
|
4.7(h) |
|
Form of Pre-Funded Warrant in the Best-Efforts Offering | |
|
4.8(o) |
|
Form of Pre-Funded Warrant | |
|
4.9(n) |
|
Form of Common Warrant | |
|
10.1(e) |
|
Common Stock Purchase Agreement, dated November 30, 2023, between Inspire Veterinary Partners, Inc. and Tumim Stone Capital LLC | |
|
10.2(a) |
|
Form of Master Lending and Credit Facility Agreement with WealthSouth, a division of Farmers National Bank of Danville Kentucky | |
|
10.3(a) |
|
Notice And Consent To Modification And Confirmation Of Guaranty By Guarantor with First Southern National Bank | |
|
10.4(a) |
|
Employment Agreement of Kimball Carr | |
|
10.5(a) |
|
Equity Incentive Plan of the Company | |
|
10.6(a) |
|
Form of Asset Purchase Agreement of the Company | |
|
10.7(a) |
|
Form of Real Estate Purchase Agreement of the Company | |
|
10.8(a) |
|
Consulting Agreement between the Company and Alchemy Advisory LLC dated as of December 1, 2021 | |
|
10.9(a) |
|
Amendment to Consulting Agreement between the Company and Alchemy Advisory LLC dated as of November 15, 2022 | |
|
10.10(a) |
|
Capital Market Advisory Agreement between the Company and Exchange listing, LLC, dated as of December 28, 2021 | |
|
10.11(a) |
|
Consulting Agreement between the Company and Blue Heron Consulting, dated as of June 24, 2021 | |
|
10.12(a) |
|
Financial Consulting Agreement with Star Circle Advisory Group, LLC dated as of August 2, 2022 | |
|
10.13(f) |
|
Merchant Cash Advance Agreement with Cedar Advance, LLC | |
|
10.14(g) |
|
Executive Incentive Compensation Recovery Policy | |
|
10.15(h) |
|
Letter Agreement, dated January 19, 2024, between Inspire Veterinary Partners, Inc. and Tumim Stone Capital LLC | |
|
10.16(g) |
|
Subscription Agreement, dated January 2, 2024, between Inspire Veterinary Partners, Inc. and Target Capital 1 LLC | |
|
10.17(h) |
|
Form of Securities Purchase Agreement between Inspire Veterinary Partners, Inc. and purchasers | |
|
10.18(d) |
|
Asset Purchase Agreement, dated October 27, 2023, by and among the Company, IVP PA Holding Company, LLC, Valley Veterinary Service, Inc., Michelle Bartus, VMD and Peter Nelson, VMD | |
|
10.19(h) |
|
Form of Placement Agent Agreement between Inspire Veterinary Partners, Inc. and Spartan Capital Securities, LLC | |
70
|
10.20(i) |
|
Services Agreement, dated August 1, 2023, between Inspire Veterinary Partners, Inc. and TraqDigital Marketing Group | |
|
10.21(j) |
|
Employment Agreement of Richard Frank | |
|
10.22(k) |
|
Consulting Agreement, dated March 6, 2024, between Inspire Veterinary Partners, Inc. and Charles Chuck Keiser, DVM | |
|
10.23(k) |
|
General Release Agreement, dated March 6, 2024, between Inspire Veterinary Partners, Inc. and the Releasors party thereto. | |
|
10.24 (l) |
|
Form
of Securities Purchase Agreement dated March 28, 2024 | |
|
10.25 (l) |
|
Form of Increasing OID Senior Note | |
|
10.26 (n) |
|
Form of Securities Purchase Agreement | |
|
31.1* |
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
31.2* |
|
Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
32.1* |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
32.2* |
|
Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
14.1(a) |
|
Code of Business Conduct and Ethics | |
|
21.1(i) |
|
List of Subsidiaries | |
|
23.1(i) |
|
Consent of Kreit & Chiu CPA LLP | |
|
101.INS* |
|
Inline XBRL Instance Document. | |
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. | |
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. | |
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
|
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
|
* |
Filed herewith. | |
|
|
Bank account information or the addresses of certain officers has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and the type of information that the registrant treats as private or confidential. An unredacted copy of the exhibit will be furnished supplementally to the SEC upon request. | |
|
(a) |
Incorporated by reference to Registration Statement on Form S-1/A filed May 23, 2023. | |
|
(b) |
Incorporated by reference to Registration Statement on Form S-1/A filed August 2, 2023. | |
|
(c) |
Incorporated by reference to Registration Statement on Form S-1/A filed July 14, 2023. | |
|
(d) |
Incorporated by reference to Current Report on Form 8-K filed November 8, 2023. | |
|
(e) |
Incorporated by reference to Current Report on Form 8-K filed December 6, 2023. | |
|
(f) |
Incorporated by reference to Registration Statement on Form S-1/A filed August 23, 2023. | |
|
(g) |
Incorporated by reference to Registration Statement on Form S-1 filed January 4, 2024. | |
|
(h) |
Incorporated by reference to Registration Statement on Form S-1/A filed January 26, 2024. | |
|
(i) |
Incorporated by reference to Registration Statement on Form S-1 filed January 31, 2024. | |
|
(j) |
Incorporated by reference
to Current Report on Form 8-K filed February 16, 2024. | |
|
(k) |
Incorporated by reference to Current Report on Form 8-K filed March 12, 2024. | |
|
(l) |
Incorporated by reference to the Current Report on Form 8-K filed on April 4, 2024. | |
|
(m) |
Incorporated by reference to the Form 10-K filed on April 8, 2024. | |
|
(n) |
Incorporated by reference to the Form S-1 filed on June 14, 2024. | |
|
(o) |
Incorporated by reference to the Form S-1/A filed on June 24, 2024. | |
****
|
|
* |
Filed herewith | |
|
|
** |
Furnished herewith | |
|
|
+ |
Management contract or compensatory plan or arrangement | |
**ITEM 16. FORM 10-K SUMMARY**
None.
71
**SIGNATURES**
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
INSPIRE VETERINARY PARTNERS, INC. | |
|
|
|
|
| |
|
Date: March 31, 2025 |
By: |
/s/ Kimball Carr | |
|
|
|
Name: |
Kimball Carr | |
|
|
|
Title: |
President and Chief Executive Officer | |
|
|
|
|
(Principal Executive Officer) | |
|
|
|
|
| |
|
Date: March 31, 2025 |
By: |
/s/ Richard Frank | |
|
|
|
Name: |
Richard Frank | |
|
|
|
Title: |
Chief Financial Officer | |
|
|
|
|
(Principal Financial Officer) | |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
|
Name |
|
Position |
|
Date | |
|
|
|
|
|
| |
|
/s/ Kimball Carr |
|
President and Chief Executive Officer |
|
March 31, 2025 | |
|
Kimball Carr |
|
(Principal Executive Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Richard Frank |
|
Chief Financial Officer |
|
March 31, 2025 | |
|
Richard Frank |
|
(Principal Financial Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Larry Alexander |
|
Director |
|
March 31, 2025 | |
|
Larry Alexander |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Charles Stith Keiser |
|
Director |
|
March 31, 2025 | |
|
Charles Stith Keiser |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Phillip Balatsos |
|
Director |
|
March 31, 2025 | |
|
Phillip Balatsos |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Anne Murphy |
|
Director |
|
March 31, 2025 | |
|
Anne Murphy |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Erinn Thomas-Mackey, DVM |
|
Director |
|
March 31, 2025 | |
|
Erinn Thomas-Mackey, DVM |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Timothy Watters |
|
Director |
|
March 31, 2025 | |
|
Timothy Watters |
|
|
|
| |
72
**INDEX TO THE INSPIRE VETERINARY PARTNERS, INC
AND SUBSIDIARIES FINANCIAL STATEMENTS**
| | | Page | |
| Index | | | |
| | | | |
| Report of the Independent Public Accounting Firm on the Consolidated Financial Statements (Firm ID # 6651) | | F-2 | |
| | | | |
| Consolidated Balance Sheets as of December 31, 2024 and 2023 | | F-3 | |
| | | | |
| Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 | | F-4 | |
| | | | |
| Consolidated Statements of Changes in Shareholders Deficit for the Years Ended December 31, 2024 and 2023 | | F-5 | |
| | | | |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 | | F-6 | |
| | | | |
| Notes to the Consolidated Financial Statements | | F-7 | |
F-1
**Report
of Independent Registered Public Accounting Firm**
Board of Directors and Shareholders
Inspire Veterinary Partners, Inc.
**Opinion on the Financial Statements**
We have audited the accompanying consolidated balance sheets of Inspire
Veterinary Partners, Inc. (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations,
changes in stockholders equity (deficit), and cash flows for each of the two years in the period ended December 31, 2024, and the
related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the consolidated financial position of Inspire Veterinary Partners, Inc. as of December 31,
2024 and 2023, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December
31, 2024, in conformity with accounting principles generally accepted in the United States of America.
**Explanatory Paragraph Going Concern**
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully described in Note 3 to the financial statements, the Company has incurred
recurring losses and at December 31, 2024, had an accumulated deficit of $36,350,281 and a working capital deficit of $6,176,268. For
the year ended December 31, 2024, the Company sustained a net loss of $14,264,261 and used $10,005,866 in operations. These conditions
raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these
matters are also described in Note 3. The financial statements do not include any adjustments that might become necessary should the Company
be unable to continue as a going concern.
**Basis for Opinion**
**
These financial statements are the responsibility
of the entitys management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 Inspire Veterinary Partners, Inc. 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 audits 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 financial
statements are free of material misstatement, whether due to error or fraud. Inspire Veterinary Partners, Inc. is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, 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 entitys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the 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 financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Kreit & Chiu CPA LLP
We have served as Inspire Veterinary Partners,
Inc.s auditor since 2021.
Los Angeles, California
March 31, 2025
****
F-2
**Inspire Veterinary Partners,
Inc. and Subsidiaries**
**Consolidated Balance Sheets**
|
| |
Year Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Assets | |
| | |
| | |
|
Current assets: | |
| | |
| | |
|
Cash and cash equivalents | |
$ | 523,690 | | |
$ | 178,961 | | |
|
Accounts receivable, net | |
| 40,675 | | |
| 28,573 | | |
|
Due from former owners | |
| - | | |
| 32,519 | | |
|
Inventory | |
| 516,650 | | |
| 571,512 | | |
|
Refundable income tax | |
| - | | |
| 151,796 | | |
|
Prepaid expenses and other current assets | |
| 942,456 | | |
| 388,759 | | |
|
Total current assets | |
| 2,023,471 | | |
| 1,352,120 | | |
|
| |
| | | |
| | | |
|
Restricted cash - non-current | |
| 200,000 | | |
| 200,000 | | |
|
Property and equipment, net | |
| 6,382,788 | | |
| 7,949,144 | | |
|
Right-of-use assets | |
| 1,879,729 | | |
| 1,616,198 | | |
|
Other intangibles, net | |
| 1,633,927 | | |
| 2,513,028 | | |
|
Goodwill | |
| 8,022,082 | | |
| 8,147,590 | | |
|
Other assets | |
| 53,997 | | |
| 12,895 | | |
|
Total assets | |
$ | 20,195,994 | | |
$ | 21,790,975 | | |
|
| |
| | | |
| | | |
|
Liabilities and Stockholders Deficit | |
| | | |
| | | |
|
Current liabilities: | |
| | | |
| | | |
|
Accounts payable | |
$ | 1,979,503 | | |
$ | 3,206,594 | | |
|
Accrued expenses | |
| 285,770 | | |
| 858,334 | | |
|
Cumulative Series A preferred stock dividends payable | |
| - | | |
| 92,322 | | |
|
Operating lease liabilities | |
| 183,981 | | |
| 141,691 | | |
|
Loans payable, net of discount | |
| 2,340,020 | | |
| 1,713,831 | | |
|
Convertible debentures, net of issuance costs | |
| - | | |
| 100,000 | | |
|
Notes payable, net of discount | |
| 3,410,465 | | |
| 1,469,043 | | |
|
Total current liabilities | |
| 8,199,739 | | |
| 7,581,815 | | |
|
| |
| | | |
| | | |
|
Operating lease liabilities, non-current | |
| 1,943,487 | | |
| 1,514,044 | | |
|
Notes payable - noncurrent | |
| 8,490,763 | | |
| 13,483,375 | | |
|
Total liabilities | |
| 18,633,989 | | |
| 22,579,234 | | |
|
| |
| | | |
| | | |
|
Commitments and Contingencies (Note 15) | |
| | | |
| | | |
|
| |
| | | |
| | | |
|
Stockholders Equity (Deficit) | |
| | | |
| | | |
|
Common stock - Class A, $0.0001 par value, 4 million shares authorized, 1,176,059 and 2,817 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively. | |
| 117 | | |
| - | | |
|
Common stock - Class B, $0.0001 par value, 20 million shares authorized, 3,020,750 and 3,891,500 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively. | |
| 302 | | |
| 389 | | |
|
Convertible series A preferred stock, $0.0001 par value, 1 million shares authorized, 0 and 403,640 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively. | |
| - | | |
| 40 | | |
|
Additional paid in capital | |
| 37,911,867 | | |
| 20,426,569 | | |
|
Accumulated deficit | |
| (36,350,281 | ) | |
| (21,215,257 | ) | |
|
Total stockholders equity (deficit) | |
| 1,562,005 | | |
| (788,259 | ) | |
|
Total liabilities and stockholders equity (deficit) | |
$ | 20,195,994 | | |
$ | 21,790,975 | | |
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
**Inspire Veterinary Partners, Inc.
and Subsidiaries**
**Consolidated Statements of Operations**
|
| |
Year Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Service revenue | |
$ | 12,188,526 | | |
$ | 11,879,934 | | |
|
Product revenue | |
| 4,403,583 | | |
| 4,795,459 | | |
|
Total revenue | |
| 16,592,109 | | |
| 16,675,393 | | |
|
| |
| | | |
| | | |
|
Operating expenses | |
| | | |
| | | |
|
Cost of service revenue (exclusive of depreciation and amortization, shown separately below) | |
| 9,736,282 | | |
| 9,700,963 | | |
|
Cost of product revenue (exclusive of depreciation and amortization, shown separately below) | |
| 3,563,279 | | |
| 3,420,515 | | |
|
General and administrative expenses | |
| 11,421,352 | | |
| 9,476,287 | | |
|
Depreciation and amortization | |
| 1,308,619 | | |
| 1,252,539 | | |
|
Impairment expense | |
| 56,664 | | |
| - | | |
|
Gain on sale of business | |
| (467,049 | ) | |
| - | | |
|
Total operating expenses | |
| 25,619,147 | | |
| 23,850,304 | | |
|
| |
| | | |
| | | |
|
Loss from operations | |
| (9,027,038 | ) | |
| (7,174,911 | ) | |
|
| |
| | | |
| | | |
|
Other income (expenses): | |
| | | |
| | | |
|
Interest income | |
| 53 | | |
| 21 | | |
|
Interest expense | |
| (3,098,290 | ) | |
| (2,538,710 | ) | |
|
Loss on debt extinguishment | |
| - | | |
| (16,105 | ) | |
|
Loss on debt modification | |
| (2,134,218 | ) | |
| (927,054 | ) | |
|
Beneficial conversion feature | |
| - | | |
| (4,137,261 | ) | |
|
Other income (expenses) | |
| (4,768 | ) | |
| 1,134 | | |
|
Total other expenses | |
| (5,237,223 | ) | |
| (7,617,975 | ) | |
|
| |
| | | |
| | | |
|
Loss before income taxes | |
| (14,264,261 | ) | |
| (14,792,886 | ) | |
|
| |
| | | |
| | | |
|
Benefit for income taxes | |
| - | | |
| - | | |
|
| |
| | | |
| | | |
|
Net loss | |
| (14,264,261 | ) | |
| (14,792,886 | ) | |
|
Dividend on convertible series A preferred stock | |
| (220,850 | ) | |
| (271,245 | ) | |
|
Net loss attributable to class A and B common stockholders | |
$ | (14,485,111 | ) | |
$ | (15,064,131 | ) | |
|
| |
| | | |
| | | |
|
Net loss per Class A and B common shares: | |
| | | |
| | | |
|
Basic and diluted | |
$ | (2.61 | ) | |
$ | (3.50 | ) | |
|
Weighted average shares outstanding per Class A and B common shares: | |
| | | |
| | | |
|
Basic and diluted | |
| 5,550,959 | | |
| 4,309,796 | | |
****
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
**Inspire Veterinary Partners, Inc. and Subsidiaries**
**Consolidated
Statements of Changes in Stockholders Equity (Deficit)**
|
| |
ConvertibleSeriesA
Preferred Stock | | |
Class
A
Common Stock | | |
Class
B
Common Stock | | |
Additional | | |
Accumulated | | |
Stockholders
(Deficit) | | |
|
| |
No.
of Shares | | |
Amount | | |
No.
of Shares | | |
Amount | | |
No.
of Shares | | |
Amount | | |
Paid-in
Capital | | |
Deficit
(AsRestated) | | |
Equity
(As Restated) | | |
|
Balance
as of December 31, 2022 | |
| - | | |
$ | - | | |
| 388 | | |
$ | - | | |
| 4,300,000 | | |
$ | 430 | | |
$ | 1,107,537 | | |
$ | (6,243,448 | ) | |
$ | (5,135,481 | ) | |
|
Issuance
of warrants to CEO | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,701 | | |
| - | | |
| 2,701 | | |
|
Issuance
of convertible series A preferred stock in exchange for bridge note | |
| 442,459 | | |
| 44 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,440,644 | | |
| - | | |
| 4,440,688 | | |
|
Issuance
of class A common stock in connection with initial public offering, net of issuance costs | |
| - | | |
| - | | |
| 640 | | |
| - | | |
| - | | |
| - | | |
| 5,439,571 | | |
| - | | |
| 5,439,571 | | |
|
Conversion
of convertible debentures into class A common stock | |
| - | | |
| - | | |
| 598 | | |
| - | | |
| - | | |
| - | | |
| 4,414,317 | | |
| - | | |
| 4,414,317 | | |
|
Conversion
of class B common stock into class A common stock | |
| - | | |
| - | | |
| 163 | | |
| - | | |
| (408,500 | ) | |
| (41 | ) | |
| 41 | | |
| - | | |
| - | | |
|
Conversion
of convertible series A preferred stock into class A common stock | |
| (56,711 | ) | |
| (6 | ) | |
| 792 | | |
| - | | |
| - | | |
| - | | |
| 6 | | |
| - | | |
| - | | |
|
Convertible
series A preferred stock cumulative dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (92,322 | ) | |
| - | | |
| (92,322 | ) | |
|
Convertible
series A preferred stock dividend | |
| 17,892 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 178,921 | | |
| (178,923 | ) | |
| - | | |
|
Issuance
of common stock in connection with business acquisition | |
| - | | |
| - | | |
| 163 | | |
| - | | |
| - | | |
| - | | |
| 400,000 | | |
| | | |
| 400,000 | | |
|
Issuance
of common stock for services | |
| - | | |
| - | | |
| 72 | | |
| - | | |
| - | | |
| - | | |
| 397,892 | | |
| | | |
| 397,892 | | |
|
Beneficial
conversion feature on convertible debentures | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| 1,569,395 | | |
| - | | |
| 1,569,395 | | |
|
Beneficial
conversion feature on convertible series A preferred stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,567,866 | | |
| - | | |
| 2,567,866 | | |
|
Net
Loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (14,792,886 | ) | |
| (14,792,886 | ) | |
|
Balance
as of December 31, 2023 | |
| 403,640 | | |
$ | 40 | | |
| 2,817 | | |
$ | - | | |
| 3,891,500 | | |
$ | 389 | | |
$ | 20,426,569 | | |
$ | (21,215,257 | ) | |
$ | (788,259 | ) | |
|
Issuance
of Class A common stock and pre-funded warrants in connection with commitment shares | |
| - | | |
| - | | |
| 486 | | |
| - | | |
| - | | |
| - | | |
| 600,000 | | |
| - | | |
| 600,000 | | |
|
Issuance
of class A common stock and pre-funded warrants, net of issuance costs | |
| - | | |
| - | | |
| 73,144 | | |
| 7 | | |
| - | | |
| - | | |
| 5,227,032 | | |
| - | | |
| 5,227,039 | | |
|
Issuance
of class A common stock and warrants, net of issuance costs | |
| - | | |
| - | | |
| 5,859 | | |
| 1 | | |
| - | | |
| - | | |
| 5,459,999 | | |
| - | | |
| 5,460,000 | | |
|
Issuance
of class A common stock for services | |
| - | | |
| - | | |
| 18,705 | | |
| 2 | | |
| - | | |
| - | | |
| 376,694 | | |
| - | | |
| 376,696 | | |
|
Issuance
of class A common stock in connection with general release agreement | |
| - | | |
| - | | |
| 98 | | |
| - | | |
| - | | |
| - | | |
| 20,000 | | |
| - | | |
| 20,000 | | |
|
Issuance
of convertible series A preferred stock | |
| 20,000 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 199,998 | | |
| - | | |
| 200,000 | | |
|
Conversion
of convertible notes payable | |
| - | | |
| - | | |
| 226,249 | | |
| 22 | | |
| - | | |
| - | | |
| 1,357,121 | | |
| - | | |
| 1,357,143 | | |
|
Conversion
of convertible series A preferred stock into class A common stock | |
| (445,725 | ) | |
| (44 | ) | |
| 24,767 | | |
| 3 | | |
| - | | |
| - | | |
| 41 | | |
| - | | |
| - | | |
|
Convertible
series A preferred stock cumulative dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,250 | ) | |
| - | | |
| (2,250 | ) | |
|
Convertible
series A preferred stock dividend | |
| 22,085 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 223,098 | | |
| (220,850 | ) | |
| 2,250 | | |
|
Exercise
of class A common stock warrants | |
| - | | |
| - | | |
| 240,000 | | |
| 24 | | |
| - | | |
| - | | |
| 3,999,976 | | |
| - | | |
| 4,000,000 | | |
|
Exercise
of pre-funded warrants | |
| - | | |
| - | | |
| 583,934 | | |
| 58 | | |
| - | | |
| - | | |
| (58 | ) | |
| - | | |
| - | | |
|
Repurchase
and cancellation of the class B common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| (870,750 | ) | |
| (87 | ) | |
| - | | |
| (649,913 | ) | |
| (650,000 | ) | |
|
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 23,647 | | |
| - | | |
| 23,647 | | |
|
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (14,264,261 | ) | |
| (14,264,261 | ) | |
|
Balance
as of December 31, 2024 | |
| - | | |
| - | | |
| 1,176,059 | | |
| 117 | | |
| 3,020,750 | | |
| 302 | | |
| 37,911,867 | | |
| (36,350,281 | ) | |
| 1,562,005 | | |
F-5
**Inspire Veterinary Partners, Inc.
and Subsidiaries**
**Consolidated Statements of Cash Flows**
****
|
| |
Year Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Cash flows from operating activities: | |
| | |
| | |
|
Net loss | |
$ | (14,264,261 | ) | |
$ | (14,792,886 | ) | |
|
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
|
Depreciation and amortization | |
| 1,337,723 | | |
| 1,252,540 | | |
|
Amortization of debt issuance costs | |
| 15,825 | | |
| 128,583 | | |
|
Amortization of debt discount | |
| 2,275,594 | | |
| 864,350 | | |
|
Amortization of operating right of use assets | |
| 329,878 | | |
| 162,298 | | |
|
Stock-based compensation | |
| 23,647 | | |
| - | | |
|
Issuance of warrants to CEO | |
| - | | |
| 2,701 | | |
|
Issuance of class A common stock for services | |
| 376,696 | | |
| 397,892 | | |
|
Debt extinguishment loss | |
| - | | |
| 16,105 | | |
|
Loss on debt modification | |
| 2,134,218 | | |
| 927,054 | | |
|
Issuance of class A common stock in connection with general release agreement | |
| 20,000 | | |
| - | | |
|
Issuance of Class A common stock and pre-funded warrants in connection with commitment shares | |
| 600,000 | | |
| - | | |
|
Bad debt provision | |
| - | | |
| 123,513 | | |
|
Beneficial conversion feature | |
| - | | |
| 4,137,261 | | |
|
Gain on disposal of business | |
| (467,049 | ) | |
| - | | |
|
Impairment expense | |
| 56,664 | | |
| - | | |
|
Changes in operating assets and liabilities, net of effect of acquisitions: | |
| | | |
| | | |
|
Accounts receivable | |
| (12,102 | ) | |
| (152,086 | ) | |
|
Due from former owners | |
| 32,519 | | |
| 237,364 | | |
|
Inventory | |
| 12,418 | | |
| 84,912 | | |
|
Refundable income tax | |
| 151,796 | | |
| 40,343 | | |
|
Prepaid expenses and other current assets | |
| (553,697 | ) | |
| (134,964 | ) | |
|
Other assets | |
| (41,102 | ) | |
| - | | |
|
Accounts payable | |
| (1,227,091 | ) | |
| 2,187,663 | | |
|
Accrued expenses | |
| (593,544 | ) | |
| 813,144 | | |
|
Cumulative Series A preferred stock dividends payable | |
| (92,322 | ) | |
| - | | |
|
Other assets, net | |
| - | | |
| 16,561 | | |
|
Operating lease liabilities | |
| (121,676 | ) | |
| (133,119 | ) | |
|
Net cash used in operating activities | |
| (10,005,866 | ) | |
| (3,820,771 | ) | |
|
| |
| | | |
| | | |
|
Cash flows from investing activities: | |
| | | |
| | | |
|
Purchase of property and equipment | |
| (237,983 | ) | |
| (383,730 | ) | |
|
Payment for acquisition of businesses | |
| - | | |
| (1,485,800 | ) | |
|
Net cash used in investing activities | |
| (237,983 | ) | |
| (1,869,530 | ) | |
|
| |
| | | |
| | | |
|
Cash flows from financing activities: | |
| | | |
| | | |
|
Proceeds from issuance of class A common stock and warrants, net of issuance costs | |
| 5,460,000 | | |
| 5,439,571 | | |
|
Proceeds from issuance of class A common stock and pre-funded warrants, net of issuance costs | |
| 5,227,039 | | |
| - | | |
|
Repurchase and cancellation of the class B common stock | |
| (650,000 | ) | |
| - | | |
|
Net proceeds from loans payable | |
| 1,981,585 | | |
| 2,038,531 | | |
|
Payments on loans payable | |
| (5,113,947 | ) | |
| (1,923,474 | ) | |
|
Proceeds from issuance of convertible series A preferred stock | |
| 200,000 | | |
| - | | |
|
Proceeds from convertible note payable | |
| 1,000,000 | | |
| 650,000 | | |
|
Payments on convertible note payable | |
| (294,118 | ) | |
| (250,000 | ) | |
|
Repayment of note payable | |
| (1,121,981 | ) | |
| (329,620 | ) | |
|
Proceeds from exercise of warrants | |
| 4,000,000 | | |
| - | | |
|
Repayment of convertible debentures | |
| (100,000 | ) | |
| - | | |
|
Net cash provided by financing activities | |
| 10,588,578 | | |
| 5,625,009 | | |
|
| |
| | | |
| | | |
|
Net increase (decrease) in Cash, cash equivalents and restricted cash | |
| 344,729 | | |
| (65,292 | ) | |
|
Cash, cash equivalents and restricted cash, beginning of period | |
| 378,961 | | |
| 444,253 | | |
|
Cash, cash equivalents and restricted cash, end of period | |
$ | 723,690 | | |
$ | 378,961 | | |
|
| |
| | | |
| | | |
|
Supplemental Disclosure of Cash Flow Information | |
| | | |
| | | |
|
Interest payments during the year | |
$ | 1,552,313 | | |
$ | 188,952 | | |
|
Income tax refund | |
$ | 151,796 | | |
$ | - | | |
|
| |
| | | |
| | | |
|
Noncash investing and financing activity | |
| | | |
| | | |
|
Series A Preferred Stock Dividend | |
$ | 220,850 | | |
$ | 271,245 | | |
|
Acquisition of assets through operating leases | |
| 593,409 | | |
| 1,031,523 | | |
|
Issuance of class A common stock for conversion of convertible notes payable | |
| 1,357,143 | | |
| - | | |
|
Issuance of common stock in connection with business acquisition | |
| - | | |
| 400,000 | | |
|
Issuance of convertible series A preferred stock due to conversion of bridge note | |
| - | | |
| 4,440,688 | | |
|
Issuance of class A common stock due to conversion of convertible debentures | |
| - | | |
| 4,414,317 | | |
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
**Inspire Veterinary Partners, Inc. and Subsidiaries**
**Notes to Consolidated Financial Statements**
**December 31, 2024**
|
1. |
Description of Business | |
**Business Description**
Inspire Veterinary Partners, Inc. (the
Company or Inspire) is a C-corporation which incorporated in the state of Delaware on December 2, 2020. On
June 29, 2022, the Company converted into a Nevada C-corporation (Conversion). The Conversion did not result in any change
in the corporate name, business, management, fiscal year, accounting, location of the principal executive officer, capitalization structure,
or assets or liabilities of the Company. The Company owns and operates veterinary hospitals throughout the United States. The Company
specializes in small animal general practice hospitals which serve all manner of companion pets, emphasizing canine and feline breeds.
As we expand, additional modalities
are becoming a part of the services offered at our hospitals, including equine care. With 13 clinics located in 9 states as of the date
of this filing, Inspire purchases existing hospitals which have the financial track record, marketplace advantages and future growth potential
to make them worthy acquisition targets. Because the Company leverages a leadership and support structure which is distributed throughout
the United States, acquisitions are not centralized to one geographic area. The Company operates its business as one operating and one
reportable segment.
Services provided at owned hospitals
include preventive care for companion animals consisting of annual health exams which include: parasite control; dental health; nutrition
and body condition counseling; neurological examinations; radiology; bloodwork; skin and coat health and many breed specific preventive
care services. Surgical offerings include all soft tissue procedures such as spays and neuters, mass removals, splenectomies and can also
include gastropexies, orthopedic procedures and other types of surgical offerings based on a doctors training. In many locations
additional means of care and alternative procedures are also offered such as acupuncture, chiropractic and various other health and wellness
offerings.
The Company is the managing member of
IVP Practice Holdings Co., LLC (Holdco), a Delaware limited liability company, which is the managing member of IVP CO Holding,
LLC (CO Holdco), a Delaware limited liability company, IVP FL Holding Co., LLC (FL Holdco), a Delaware limited
liability company, IVP Texas Holding Company, LLC (TX Holdco), a Delaware limited liability company, KVC Holding Company,
LLC (KVC Holdco), a Hawaii limited liability company, and IVP CA Holding Co., LLC (CA Holdco), a Delaware
limited liability company, IVP MD Holding Company, LLC (MD Holdco), a Delaware limited liability company, IVP OH Holding
(OH Holdco), Co, LLC, a Delaware limited liability company, IVP IN Holding Co., LLC (IN Holdco), a Delaware
limited liability company, IVP MA Managing Co., LLC, a Delaware limited liability company (MA Holdco), and IVP PA Holding
Company, LLC, a Delaware limited liability company (PA Holdco). The Company through Holdco, operates and controls all business
and affairs of CO Holdco, FL Holdco, TX Holdco, KVC Holdco, CA Holdco, MD Holdco. Holdco, OH Holdco, IN Holdco, MA Holdco and PA Holdco
are used to acquire hospitals in various states and jurisdictions.
F-7
The Company is the managing member of
IVP Real Estate Holding Co., LLC (IVP RE), a Delaware limited liability company, which is the managing member of IVP CO
Properties, LLC (CO RE), a Delaware limited liability company, IVP FL Properties, LLC (FL RE), a Delaware
limited liability company, IVP TX Properties, LLC (TX RE), a Delaware limited liability company, KVC Properties, LLC, (KVC
RE), a Hawaii limited liability company, IVP CA Properties, LLC (CA RE), a Delaware limited liability company, IVP
MD Properties, LLC (MD RE), a Delaware limited liability company, IVP OH Properties, LLC (OH RE), a Delaware
limited liability company, IVP IN Properties, LLC (IN RE), a Delaware limited liability company, and IVP PA Properties,
LLC (PA RE), a Delaware limited liability company. The Company through IVP RE operates and controls all business and affairs
of CO RE, FL RE, TX RE, KVC RE, CA RE, MD RE, OH RE, IN RE and PA RE. IVP RE are used to acquire real property in various states and jurisdictions.
*
**Initial Public Offering**
On August 31, 2023, we closed our IPO of 640 shares of class A common
stock, at a public price of $1,000.00 per share. The total net proceeds we received in the IPO were approximately $5.4 million after deducting
underwriting discounts and commissions of $512,000 and offering expenses of $448,429. The Companys class A common shares are traded
on the Nasdaq Capital Market (NASDAQ) under the symbol IVP.
|
2. |
RETROSPECTIVE ADJUSTMENTS | |
On May 8, 2024, the Company effected
a 100-for-1 reverse stock split (Reverse Split) of the Companys authorized and outstanding shares of Class A common
stock. All information included in these financial statements has been adjusted, on a retrospective basis for all periods presented to
reflect the Reverse Split, unless otherwise stated.
On January 27, 2025, the Company effected
a 25-for-1 reverse stock split (Reverse Split) of the Companys authorized and outstanding shares of Class A common
stock. All information included in these financial statements has been adjusted, on a retrospective basis for all periods presented to
reflect the Reverse Split, unless otherwise stated.
|
3. |
Significant Accounting Policies and Basis of Presentation | |
**Basis of Presentation**
The accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting principles in the United States of America (GAAP).
Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification
(ASC) and as amended by Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).
F-8
**Going Concern**
These financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred recurring losses and as of December 31, 2024, had an accumulated deficit of $36,350,281. For the
year ending December 31, 2024, the Company sustained a net loss of $14,264,261. These factors, among others, raise substantial doubt about
the Companys ability to continue as a going concern for the next twelve months from the date these financial statements were issued.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. The
Companys continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue
and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through debt or
equity financing during the next twelve months from the date of issuance of these financial statements. Management believes that actions
presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There is no
guarantee the Company will be successful in achieving these objectives.
**Principles of Consolidation**
****
The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
****
**Use of Estimates**
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.
**Cash and Cash Equivalents**
****
The Company considers all highly liquid
investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2024
and 2023 the Company had no cash equivalents.
Financial instruments that potentially
subject the Company to a significant concentration of credit risk consist of cash. Cash is deposited in checking accounts at accredited
financial institutions with high credit-quality and is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, which
at times, may exceed federally insured limits. The excess amounts as of December 31, 2024 and 2023, were $473,690 and $114,080, respectively.
Management believes that these financial institutions are financially sound, and, accordingly, minimal credit risk exists with respect
to these high-quality financial institutions.
**Restricted Cash**
Restricted Cash consisted of cash designated
to settle a holdback agreement related to our acquisition of Valley Veterinary Services, Inc. to be settled by February 8, 2026 if specific
contingencies are met (see note 12 for more information).
**Accounts Receivable and Allowance for Expected Credit
Losses**
Accounts receivable consist of amounts
due from veterinary customers. The Company records an allowance for current expected credit losses for estimated losses inherent in its
trade accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted for current
market conditions, the financial condition of the customer, the amount of receivables in dispute, and the current receivables aging and
payment patterns. The Company does not have any off-balance sheet credit exposure related to its customers. The allowance for current
expected credit losses was $2,892 and $123,513 as of December 31, 2024 and 2023, respectively. During the years ended December 31, 2024
and 2023, the company wrote-off $89,725 and $0 from the allowance for current expected credit losses, respectively.
F-9
**Due from Former Owners**
The Company enters into asset purchase
agreements related to the acquisitions of veterinary hospitals and as part of these agreements contractually obligates the former owners
of the veterinary hospitals to reimburse the Company for any monies collected by the former owners for revenues earned subsequent to the
closing date of the acquisition, less monies paid by the former owner on behalf of the Company for expenses incurred subsequent to the
closing date of the acquisition. Any adjustments relating to pre-acquisition amounts will be reflected in goodwill.
**Inventory**
Inventory is recorded at the lower of
cost or net realizable value. Cost is using the weighted average method. Inventory consists of inventoriable supplies used for veterinary
care and services.
**Leases**
The Company reviews all arrangements
for potential leases, and at inception, determines whether a lease is an operating or finance lease. Lease assets and liabilities, which
generally represent the present value of future minimum lease payments over the term of the lease, are recognized as of the commencement
date. Leases with an initial lease term of twelve months or less are classified as short-term leases and are not recognized in the balance
sheets unless the lease contains a purchase option that is reasonably certain to be exercised.
Lease term, discount rate, variable
lease costs and future minimum lease payment determinations require the use of judgment and are based on the facts and circumstances related
to the specific lease. Lease terms are generally based on their initial non-cancellable terms, unless there is a renewal option that is
reasonably certain to be exercised. Various factors, including economic incentives, intent, past history and business needs are considered
to determine if a renewal option is reasonably certain to be exercised. The implicit rate in a lease agreement is used when it can be
determined to value the lease obligation. Otherwise, the Companys incremental borrowing rate, which is based on information available
as of the lease commencement date, including applicable lease terms and the current economic environment, is used to determine the value
of the lease obligation.
**Property and Equipment**
Property and equipment are recorded
at cost, less accumulated depreciation. Depreciation of property and equipment is determined using the straight line method over the estimated
useful lives of the related assets up to the salvage value. Expenditures for repairs and maintenance are charged to expense as incurred,
and expenditures for betterments and major Improvements are capitalized and depreciated over the remaining useful lives of the assets.
The carrying amount of the assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal, with
resulting gains or losses included in operations.
Estimated useful lives are as follows for major
classes of property and equipment:
|
Computers and equipment | |
| 3 7 years | | |
|
Furniture and fixtures | |
| 5 7 years | | |
|
Automobile | |
| 5 7 years | | |
|
Leasehold improvements | |
| 5 15 years | | |
|
Buildings | |
| 5 15 years | | |
**Acquisitions**
****
The Company enters into acquisitions
primarily with existing veterinary hospitals throughout the United States. When we acquire a business or assets that are determined to
meet the definition of a business, we allocate the purchase consideration paid to acquire the business to the assets and liabilities acquired
based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets
acquired recorded as goodwill. If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive
additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown
to us, we make the appropriate adjustments to the purchase price allocation in the reporting period that the amounts are determined.
F-10
****
**Goodwill**
Goodwill represents the excess of the
cost of an acquired business over the fair value assigned to its net assets. Goodwill is not amortized but is tested for impairment at
a reporting unit level on an annual basis or when an event occurs, or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Events or changes in circumstances that may trigger interim impairment reviews
include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that
the carrying amount may not be recoverable, among other factors.
The Company may first assess qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value of the
reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment test is necessary, the
Company will estimate the fair value of its related reporting units. If the carrying value of a reporting unit exceeds its fair value,
the goodwill of that reporting unit is determined to be impaired, and the Company will proceed with recording an impairment charge equal
to the excess of the carrying value over the related fair value.
The Company has recorded Goodwill in
connection with business acquisitions during the year ended December, 31 2023 (see Note 5). During the years ended December 31, 2024 and
2023, the Company recorded no impairment of Goodwill.
****
**Intangible Assets**
Intangible assets consist of client
list, trademark and non-compete intangibles that result from the acquisition of veterinary hospitals or practices. Client list intangible
assets represent the value of the long-term client relationship from the veterinary hospitals and practices. Trademark intangible assets
represent the value associated with the brand names in place at the date of the acquisition. Non-compete intangible assets represent the
value associated with non-compete agreements for former employees and owners in place at the date of the acquisition. The client lists
and trademarks are included in intangible assets reported in the balance sheet which are being amortized over a 5-year term based
on the estimated economic useful life of the client list and trademark. The non-compete intangible asset included in other intangibles,
net is amortized over a 2-year term based on the estimated useful life of the asset. The amortization of the intangible asset is computed
using the straight-line method. The intangibles are evaluated for impairment on an annual basis or more frequently whenever events or
circumstances occur indicating that the carrying amount may not be recoverable.
****
**Revenue Recognition**
The Company recognizes service revenue
from veterinary care services once the service is completed, as this is when the customer has the ability to direct the use of and obtain
the benefits of the service. Payment terms are typically at the point of sale but may also occur upon completion of the service. The Companys
service contracts are primarily with veterinary customers. Product revenue is recognized when control passes, which occurs at a point
in time when the customer completes a transaction at our animal hospitals or clinics and receives the product. A performance obligation
is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition.
A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance
obligation is satisfied. The Companys performance obligations are the delivery of veterinary services at the estimated net realizable
amount for those services and goods. The Companys accounting methodologies and processes include an evaluation of the historical
collection and consideration of whether contractual allowances are necessary based on historical experience. Revenue is reported net of
sales discounts and excludes sales taxes.
F-11
**Cost of service revenue (exclusive of depreciation and
amortization)**
****
Cost of service revenue consists of
cost directly related to the animal services provided at the Companys veterinary clinics and animal hospitals, which primarily
includes personnel-related compensation costs of the employees at the Companys veterinary clinics or animal hospitals, laboratory
costs, pet supply costs, third-party veterinarian contractors, office rent, utilities, supplies, and other cost arising as a result of
the services being performed, excluding depreciation and amortization.
****
**Cost of product revenue (exclusive
of depreciation and amortization)**
****
Cost of product revenue consists of
cost directly related to the product sales at the Companys veterinary clinics and animal hospitals, which primarily includes personnel-related
compensation costs of the employees at the Companys veterinary clinics or animal hospitals, purchase price of the medication we
dispense, and purchase price of product sold, excluding depreciation and amortization.
****
**General and administrative expenses**
****
General and administrative expenses
include personnel-related compensation costs for corporate employees, such as management, accounting, legal, acquisition related and non-recurring
expenses, insurance and other expenses used to operate the business.
**Depreciation and Amortization Expense**
****
Depreciation and amortization expenses
mainly relate to the assets used in generating revenue.
**Convertible Instruments**
****
The Company evaluates and accounts for
conversion options embedded in convertible instruments in accordance with ASC 815 Derivatives and Hedging Activities.
Applicable GAAP requires companies to
bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according
to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes
in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument.
The Company accounts for convertible
instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows:
The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt
to their stated date of redemption. The Company recognized a beneficial conversion feature of $1,569,395 during the year ended December
31, 2023.
The Company records a discount to convertible notes and convertible
preferred stock for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair
value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the
note, if applicable. Debt discounts under these arrangements are amortized to noncash interest expense using the effective interest rate
method over the term of the related debt to their date of maturity.
F-12
**Debt Issuance Costs**
****
Debt issuance costs are specifically
identifiable costs associated with issuance of a new debt instrument. Debt issuance costs are reported on the consolidated balance sheet
as a direct deduction from the face amount of the related debt. Debt issuance costs are amortized to interest expense over the term of
the related debt.
****
**Advertising Costs**
The Company expenses advertising costs
as they are incurred. Advertising expenses were $181,473 and $107,766 for the years ending December 31, 2024 and 2023, respectively. These
costs are included in General and administrative expenses in the accompanying consolidated statements of operations.
**Stock Warrants**
****
Certain warrants that were granted by
the Company for lenders through convertible bridge loans transactions (see also Note 8 Debt - Bridge Note) are classified as a component
of permanent equity since they are freestanding financial instruments that are legally detachable and separately exercisable, do not embody
an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of shares of common stock
upon exercise for a fixed exercise price and thus, are considered as indexed to the Companys own stock. In addition, the warrants
must require physical settlement and may not provide any guarantee of value or return. We present the allocated value for the warrants
within additional paid-in capital in our consolidated balance sheet. The value assigned to the warrants was determined based on a relative
fair value allocation between the warrants and related debt. The fair value of the warrants was determined using a Black Scholes valuation
and applying a discount for the lack of marketability for the warrants.
**Income Tax**
The Company and its U.S. subsidiaries
file a consolidated federal income tax return and is taxed as a C-Corporation, whereby it is subject to federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability
approach for financial accounting and reporting for income taxes and established for all the entities a minimum threshold for financial
statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based
upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred
income taxes represent the tax effects of differences between the financial reporting and tax basis of the Companys assets and
liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the
recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the
deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged
upon an audit and cause changes to previous estimates of tax liability. In managements opinion, adequate provisions for income
taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves
may be necessary.
****
**Stock-Based Compensation**
****
The stock-based payments are accounted
for in accordance with the provisions of ASC 718, Compensation Stock Compensation. The Company measures the estimated fair value
of the stock-based award on the date of grant using the Black-Scholes-Merton option pricing model (Black-Scholes Model)
and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective
award. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average
risk-free interest rate, and the vesting period in determining the fair value of stock-based awards. The expected term is based on the
simplified method, due to the Companys limited stock award history. Under this method, the term is estimated using
the weighted average of the service vesting period and contractual term of the option award. As the Company Class A common stock has a
limited history in the public markets, the Company has identified several public entities of similar size, complexities and industry and
calculates historical volatility based on the volatilities of these companies. Although the Company believes its assumptions used to calculate
stock-based compensation expenses are reasonable, these assumptions can involve complex judgments about future events, which are open
to interpretation and inherent uncertainty. In addition, significant changes to our assumptions could significantly impact the amount
of expense recorded in a given period. The Company accounts for forfeitures in the period in which they occur, rather than estimate expected
forfeitures.
F-13
****
**Basic and Diluted Net Loss Per Share**
****
Basic net loss per common share is computed
by dividing net loss by the weighted-average number of common shares outstanding during each period. Diluted net loss per share of common
shares includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, share options and
warrants, which would result in the issuance of incremental shares of common shares. For diluted net loss per share, the weighted-average
number of common shares is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are
not included in the calculation as the impact is anti-dilutive. For all periods presented, basic and diluted net loss per share are the
same, as any additional share equivalents would be anti-dilutive.
The following outstanding potentially
dilutive Common Shares equivalents were excluded from the computation of diluted net loss per share for the periods presented because
including them would have been antidilutive:
|
|
Year ended | | |
|
| |
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Warrants | |
$ | 1,142 | | |
$ | 384 | | |
|
Convertible Series A Preferred Shares | |
| - | | |
| 6,458 | | |
|
Stock Options | |
| 4,747 | | |
| - | | |
|
Total | |
$ | 5,889 | | |
$ | 6,842 | | |
**Recently Adopted Accounting Pronouncements**
****
On November 27, 2023, the FASB issued
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires incremental disclosures
related to an entitys reportable segments, effective for annual periods beginning after December 15, 2023. The Company adopted ASU 2023-07
on December 31, 2024, which resulted in additional disclosures in the notes to our consolidated financial statements that we applied retrospectively
to all prior periods presented. See Note 16. Segment Information.
The FASB and other entities issued new
or modifications to, or interpretations of, existing accounting guidance during 2024. Management has carefully considered the new pronouncements
that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material
impact on the Companys reported financial position or operations in the near term.
****
**Emerging Growth Company Status**
The Company is an Emerging Growth Company,
as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our Business Startups Act of 2012 (JOBS
Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to
the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended
transition period for complying with new or revised accounting standards that have different effective dates for public and private companies
until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the
extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies
that comply with the new or revised accounting pronouncements as of public company effective dates.
F-14
|
4. |
Property and equipment | |
As of December 31, 2024 and
2023, property and equipment, net, consisted of the following:
|
| |
Year Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Land | |
$ | 1,333,810 | | |
$ | 1,983,810 | | |
|
Buildings | |
| 3,951,512 | | |
| 4,607,874 | | |
|
Computers and equipment | |
| 1,403,400 | | |
| 1,425,774 | | |
|
Furniture and fixtures | |
| 129,204 | | |
| 143,874 | | |
|
Automobile | |
| 80,219 | | |
| 101,269 | | |
|
Leasehold improvements | |
| 713,733 | | |
| 499,310 | | |
|
| |
| 7,611,878 | | |
| 8,761,911 | | |
|
Less - accumulated depreciation | |
| (1,229,090 | ) | |
| (812,767 | ) | |
|
Property and Equipment, net | |
$ | 6,382,788 | | |
$ | 7,949,144 | | |
Depreciation expense was $559,380 and
$503,477 for the years ended December 31, 2024 and 2023, respectively.
|
5. |
Goodwill and Intangible Assets | |
The following table shows the changes
in the carrying amount of goodwill for the years ended December 31, 2024 and 2023:
|
Goodwill as of December 31, 2022 | |
$ | 7,614,553 | | |
|
Acquisitions | |
| 533,037 | | |
|
Goodwill as of December 31, 2023 | |
| 8,147,590 | | |
|
Disposals | |
| (125,508 | ) | |
|
Goodwill as of December 31, 2024 | |
$ | 8,022,082 | | |
There was no goodwill impairment recognized
in the years ended December 31, 2024 and 2023.
The following summarizes the Companys
intangibles assets not including goodwill as of December 31, 2024 and 2023:
|
| |
Year Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Client List | |
$ | 1,916,444 | | |
$ | 2,071,000 | | |
|
Noncompete Agreement | |
| 398,300 | | |
| 398,300 | | |
|
Trademark | |
| 1,047,792 | | |
| 1,117,200 | | |
|
Other Intangible Assets | |
| 45,836 | | |
| 45,836 | | |
|
Accumulated amortization | |
| (1,774,445 | ) | |
| (1,119,308 | ) | |
|
| |
$ | 1,633,927 | | |
$ | 2,513,028 | | |
F-15
Amortization expenses were $778,343
and $749,062 for the years ended December 31, 2024 and 2023, respectively.
Expected future amortization expense
of intangible assets as of December 31, 2024 is as follows:
|
2025 | |
$ | 608,025 | | |
|
2026 | |
| 575,259 | | |
|
2027 | |
| 368,079 | | |
|
2028 | |
| 82,564 | | |
|
2029 | |
| - | | |
|
| |
$ | 1,633,927 | | |
|
6. |
Business acquisitions | |
****
**Valley Veterinary Service**
On November 8, 2023, the Company acquired
the animal hospital and related assets of Valley Veterinary Service, Inc., a Pennsylvania corporation (Valley Vet Practice)
by entering into an Asset Purchase Agreement (Valley Vet APA) with Michelle Bartus, VMD and Peter Nelson, VMD (Valley
Vet) in exchange for the payment of $800,000 in cash, issuance of restricted shares of the Companys Class A common stock
equal to the quotient obtained by dividing $400,000 by the official closing price of one share of Class A common stock as reported by
the Nasdaq Capital Market on the trading date immediately prior to the closing and a holdback agreement for $200,000 in cash that may
be paid out at the end of the two year period following the acquisition based on continued employment by the two former owners and revenue
targets for year 1 and year 2 following the effective date of the acquisition, which is not included in the consideration transferred
through the Companys wholly owned subsidiary IVP PA Holding Company, LLC. Simultaneously, the real estate operations (land and
building) utilized by the Valley Vet animal hospital were purchased through a Real Estate Purchase Agreement in exchange for $590,000
from Valley Vet through the Companys wholly owned subsidiary, IVP PA Properties, LLC.
The total consideration paid for the
combined acquisitions from the Valley Vet animal hospital in the amount of $1,790,000 was accounted for as single business combinations,
in accordance with ASC Topic 805. The Company will record the assets acquired and liabilities assumed at their respective fair values
as of the acquisition date. Due to the timing of the acquisition, the Companys purchase accounting related to the valuation of
the inventory, fixed assets, intangible assets, goodwill and liabilities assumed is not yet complete and subject to revision.
| Consideration: | | | | |
| Cash paid prior to the time of closing | | $ | 1,390,000 | | |
| Consideration paid in Common Stock | | | 400,000 | | |
| Acquisition costs included in general and administrative | | | 39,535 | | |
| | | | | | |
| Recognized amounts of identifiable assets acquired | | | | | |
| Inventory | | | 74,405 | | |
| Building | | | 445,786 | | |
| Land | | | 144,214 | | |
| Furniture, fixtures & equipment | | | 64,058 | | |
| Trademark (5-year life) | | | 264,500 | | |
| Non-compete agreement (2-year life) | | | 44,000 | | |
| Client list (5-year life) | | | 220,000 | | |
| Total identifiable net assets assumed | | | 1,256,963 | | |
| Goodwill | | | 533,037 | | |
| Total | | $ | 1,790,000 | | |
****
F-16
****
**Pro-Forma Financial Information (Unaudited)**
The following unaudited pro forma information
presents the consolidated results of Valley Vet Practice included in the Companys consolidated statement of operations for the
year end December 31, 2023, as if the acquisitions were made on January 1, 2023. The unaudited pro forma information is presented for
illustrative purposes only. It is not necessarily indicative of the results of operations of future periods, or the results of operations
that actually would have been realized had the entities been a single company during the periods presented or the results that the combined
company will experience after the acquisition. The unaudited pro forma information does not give effect to the potential impact of current
financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with
the acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs
that the companies may incur related to the acquisition as part of combining the operations of the companies. As a result of the adjustment,
$23,220 of amortization expense for the acquired intangible assets was applied in calculating the Net Loss, for the years ended December
31, 2023.
Theunaudited pro forma consolidated
results of revenue and net loss, assuming the acquisitions had occurred on January 1, 2023, is as follows:
|
| |
Year Ended | | |
|
| |
December31, 2023 | | |
|
Revenue | |
$ | 18,438,565 | | |
|
Net loss | |
$ | (14,840,964 | ) | |
|
7. |
Business disposal | |
On September 20, 2024, the Company completed
the divestiture of its Kauai Veterinary Clinic (KVC) to Kauai RE Holdings LLC for $2.0 million, in notes payable assumed
by the buyer, with no cash consideration. The agent for the sale was Gregory Armstrong, a current shareholder of the Company and a member
of Kauai RE. Charles Keiser, DVM, is a member of Kauai RE and the father of our board member Charles Stith Keiser, who is the Companys
largest shareholder through his entity Wilderness Trace Veterinary Partners, LLC. The divestiture resulted in a gain of $467,049 in fiscal
year 2024, which was recorded in Gain on sale of business in the Statements of Operations. As a result of the transaction,
the Company disposed of $125,508 of goodwill based on the relative fair value of KVC. The estimated fair value of KVC less estimated costs
to sell exceeded it carrying amount as of the transaction date. As the sale of KVC was not considered a significant disposal or a strategic
shift that would have a major effect on the Companys operations or financial results, it was not reported as discontinued operations.
F-17
|
8. |
Debt | |
**Master Lending and Credit Facility**
On June 25, 2021, the Company entered
into a master line of credit loan agreement (MLOCA) with Wealth South a division of Farmers National Bank of Danville, Kentucky
(FNBD). The MLOCA provides for a $2,000,000 revolving secured credit facility (Revolving Line) to be drawn
for the initial purchase of veterinary clinical practices (Practices) and a $8,000,000 closed end line of credit (Closed
End Line) to be disbursed as individual loans (Term Loans) to paydown draws on the Revolving Line and to provide longer term financing
of the purchase of Practices. Each draw on the Revolving Line shall be repaid with a Term Loan out of the Closed End Line within one hundred
and twenty (120) days of the draw on the Revolving Line. Each draw on the Revolving Line and the Closed End Line shall not exceed eighty-five
(85%) percent of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen (15%) percent
of the initial purchase price of a Practice as long as any draw on the Revolving Line or a Term Loan remains unpaid with FNBD. The Revolving
Line has an interest rate equal to the New York Prime Rate plus 0.50% that shall never be less than 3.57%. Each Term Loan issued under
the Closed End Line shall have a fixed interest rate of 3.98% for the first five years of the loan. Immediately following the fixed rate
period, the rate of interest rate will equal to the New York Prime Rate plus 0.65% that shall never be less than 3.57%. Each Practice
to be acquired must have a minimum projected debt-service coverage ratio (DSCR) of 1.0x, defined as earnings before interest
depreciation and amortization (EBIDA)/Annual Debt Service Requirement.
Under the MLOCA the Term Loans to acquire
a Practice shall not exceed 10 years. The first twelve months of the Term Loan may be interest only. Thereafter, the Loan will convert
to an amortizing loan with monthly principal and interest payments. For Practice only Term Loans (Practice Term Loans),
after the initial twelve-month interest only period, the balance will amortize over 9 years. For Loans made to purchase real property
(RE Term Loans), after the initial twelve-month interest only period, the balance will amortize over a 19-year period.
There is no prepayment penalty on payments on the Revolving
Line. The Term Loans are subject to a refinance fee of 2% of the then outstanding principal balance of the Term Loan if paid within two
years of entering into the Term Loan and 1% of the then outstanding principal balance of the Term Loan if paid within three to five years
of entering into the Term Loan. The refinance fee is due only if the Term Loan is paid off by refinancing. Borrowing under the MLOCA are
guaranteed by Kimball Carr, CEO & President of the Company.
On August 18, 2022 the MLOCA was amended
and restated to terminate the revolving feature on the Revolving Line and convert the line of credit to a closed end draw note (Closed
End Draw Note) that mature on August 18, 2024. Each draw on the Closed End Draw Note shall not exceed eighty-five (85%) percent
of the purchase price of the Practice. The Company shall contribute and maintain equity of a minimum of fifteen (15%) percent of the initial
purchase price of a Practice as long as any draw on the Closed End Draw Note or a Term Loan remains unpaid with FNBD. The interest rate
charge on all sums advance under the amended and restated MLOCA shall be 5.25% for the first five years of the loan. Immediately following
the fixed rate period, the rate of interest will be equal to the New York Prime Rate plus 0.65% that shall never be less than 4.75%. Each
Practice to be acquired must have a minimum projected DSCR of 1.0x, defined as EBIDA/Annual Debt Service Requirement. The MLOCA has been
fully drawn against, see the notes payable for the individual notes payable to FNDB for further detail below.
Notes payable to FNBD as of December
31, 2024 and 2023 consisted of the following:
| Original | | | | | | | | | | | | December 31, | | | December 31, | | | Issuance | | |
| Principal | | | Acquisition | | Entered | | Maturity | | Interest | | | 2024 | | | 2023 | | | Cost | | |
| $ | 237,272 | | | CAH | | 12/27/2021 | | 12/27/2041 | | | 3.98 | % | | $ | 219,975 | | | $ | 228,785 | | | $ | 6,108 | | |
| | 231,987 | | | CAH | | 12/27/2021 | | 12/27/2031 | | | 3.98 | % | | | 187,461 | | | | 210,161 | | | | 6,108 | | |
| | 216,750 | | | P&F | | 12/27/2021 | | 12/27/2041 | | | 3.98 | % | | | 200,949 | | | | 208,997 | | | | 5,370 | | |
| | 318,750 | | | P&F | | 12/27/2021 | | 12/27/2031 | | | 3.98 | % | | | 257,571 | | | | 288,761 | | | | 5,370 | | |
| | 817,135 | | | Pasco | | 1/14/2022 | | 1/14/2032 | | | 3.98 | % | | | 667,050 | | | | 746,733 | | | | 3,085 | | |
| | 478,098 | | | Lytle | | 3/15/2022 | | 3/15/2032 | | | 3.98 | % | | | 398,275 | | | | 444,593 | | | | 1,898 | | |
| | 663,000 | | | Lytle | | 3/15/2022 | | 3/15/2042 | | | 3.98 | % | | | 621,020 | | | | 645,392 | | | | 11,875 | | |
| | 425,000 | | | Kern | | 3/22/2022 | | 3/22/2042 | | | 3.98 | % | | | 398,089 | | | | 413,713 | | | | 7,855 | | |
| | 1,275,000 | | | Kern | | 3/22/2022 | | 3/22/2032 | | | 3.98 | % | | | 1,062,126 | | | | 1,185,648 | | | | 4,688 | | |
| | 246,500 | | | Bartow | | 5/18/2022 | | 5/18/2042 | | | 3.98 | % | | | 232,428 | | | | 241,429 | | | | 5,072 | | |
| | 722,500 | | | Bartow | | 5/18/2022 | | 5/18/2032 | | | 3.98 | % | | | 613,737 | | | | 683,262 | | | | 2,754 | | |
| | 382,500 | | | Dietz | | 6/15/2022 | | 6/15/2032 | | | 3.98 | % | | | 328,026 | | | | 364,708 | | | | 1,564 | | |
| | 445,981 | | | Aberdeen | | 7/19/2022 | | 7/29/2032 | | | 3.98 | % | | | 386,120 | | | | 428,747 | | | | 1,786 | | |
| | 1,020,000 | | | All Breed | | 8/12/2022 | | 8/12/2042 | | | 3.98 | % | | | 971,173 | | | | 1,008,039 | | | | 8,702 | | |
| | 519,527 | | | All Breed | | 8/12/2022 | | 8/12/2032 | | | 3.98 | % | | | 453,984 | | | | 503,471 | | | | 3,159 | | |
| | 225,923 | | | All Breed | | 8/12/2022 | | 8/12/2032 | | | 5.25 | % | | | 198,905 | | | | 219,347 | | | | 3,159 | | |
| | 637,500 | | | Williamsburg | | 12/8/2022 | | 12/8/2032 | | | 5.25 | % | | | 580,834 | | | | 637,500 | | | | 2,556 | | |
| | 850,000 | | | Valley Vet | | 11/8/2023 | | 11/8/2033 | | | 5.25 | % | | | 843,796 | | | | 850,000 | | | | 3,315 | | |
| $ | 9,713,423 | | | | | | | | | | | | | $ | 8,621,519 | | | $ | 9,309,286 | | | $ | 84,424 | | |
F-18
The Company amortized $6,206 and $7,152
of issuance cost in the aggregate during the years ended December, 2024 and 2023, respectively, for the FNBD notes payable.
**FSB Commercial Loans**
The Company entered into three separate
commercial loans with First Southern National Bank (FSB) as part of the acquisition. The first commercial loan in the amount
of $1,105,000 has a fixed interest rate of 4.35% and a maturity date of January 25, 2024. The fixed rate loan has monthly payments of
$6,903 and a full payoff of the remaining principal balance at maturity. The commercial loan had issuance costs of $13,264 that was capitalized
and is being amortized straight line over the life of the loan. The Company entered into a Forbearance Agreement that extended the maturity
date to August 31, 2024 and required the lender to make monthly payments of $9,016 and increased the interest rate to 8.15% per annum.
On September 20, 2024, this loan was assumed by Kauai RE Holdings LLC in the sale of Kauai Veterinary Clinic (KVC), refer
to Note 7 Business disposal for further detail.
The second commercial loan with FSB
entered into on January 11, 2021 in the amount of $1,278,400 has a fixed interest rate of 4.35% and a maturity date of January 25, 2024.
The fixed rate loan has monthly payments of $13,157 and a full payoff of the remaining principal balance at maturity. The commercial loan
had issuance costs of $10,085 that was capitalized and is being amortized straight line over the life of the loan. The Company entered
into a Forbearance Agreement that extended the maturity date to August 31, 2024 and required the Company to make monthly payments of $14,898
and increased the interest rate to 8.15% per annum. On September 20, 2024, this loan was assumed by Kauai RE Holdings LLC in the sale
of Kauai Veterinary Clinic (KVC), refer to Note 7 Business disposal for further detail.
The third commercial loan with FSB entered
into on January 11, 2021 in the amount of $450,000 has a fixed interest rate of 5.05% and a maturity date of September 11, 2021. The commercial
loan was modified on August 25, 2021 to extend the maturity date to February 25, 2023 and increase the principal amount to $469,914. The
fixed rate loan had monthly payments of $27,164 and was fully paid off on the maturity date. The commercial loan had issuance costs of
$753 that was capitalized and is being amortized straight line over the life of the loan. This loan was paid in full in February 2023.
On October 31, 2022 the Company entered
into three separate commercial loans with FSB as part of the Pony Express Practice acquisition. The first loan with FSB that was entered
into on October 31, 2022, was in the amount of $2,086,921. The loan has a fixed interest rate of 5.97% and a maturity date of October
31, 2025. The fixed rate loan has monthly payments of $23,138 except for a final monthly payment of $1,608,530. The commercial loan had
issuance costs of $25,575 that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered
into on October 31, 2022, was in the amount of $400,000. The loan has a fixed interest rate of 5.97% and a maturity date of October 31,
2042. The fixed rate loan has monthly payments of $2,859. The commercial loan had issuance costs of $3,277 that was capitalized and is
being amortized straight line over the life of the loan.
F-19
The third loan with FSB that was entered
into on October 31, 2022, was in the amount of $700,000. The loan has a fixed interest rate of 6.75% and a maturity date of April 1, 2023.
The fixed rate loan has monthly payments of $6,903 except for a final monthly payment of $423,278. The commercial loan did not have any
issuance costs that were capitalized.
On December 16, 2022, the Company entered
into two separate commercial loans with FSB as part of the Old 41 Practice acquisition. The first loan with FSB that was entered into
on December 16, 2022, was in the amount of $568,000. The loan has a fixed interest rate of 6.50% and a maturity date of December 16, 2025.
The fixed rate loan has monthly payments of $4,772 and a full payoff of the remaining principal balance at maturity. The loan had issuance
costs of $4,531 that was capitalized and is being amortized straight line over the life of the loan.
The second loan with FSB that was entered
into December 16, 2022, was in the amount of $640,000. The loan has a fixed interest rate of 6.50% and a maturity date of December 16,
2025. The fixed rate loan has twelve monthly payments of approximately $2,830, followed by monthly payments of $7,443. and the interest
rate is 6.50%. The loan had issuance costs of $5,077 that was capitalized and is being amortized straight line over the life of the loan.
On November 8, 2023, the Company entered
into a commercial loan with FSB as part of the Valley Vet acquisition. The loan with FSB was entered into on November 8, 2023, in the
amount of $375,000. The loan has a fixed rate of 8.5% and a maturity date of November 8, 2024. The fixed rate loan has monthly payments
of $3,255, except one final payment of the outstanding principal balance on the note, including any accrued and unpaid interest. The loan
had issuance costs of $6,877 for the year ended December 31, 2023, that was capitalized and is being amortized straight line over the
life of the loan.
The FSB commercial loans are guaranteed
by Kimball Carr, the Companys Chief Executive Officer and President and Charles Stith Keiser, the Companys director and
Chief Operating Officer.
Notes payable to FSB as of
December 31, 2024 and 2023 consisted of the following:
| Original | | | | | | | | | | | | December 31, | | | December 31, | | | Issuance | | |
| Principal | | | Acquisition | | Entered | | Maturity | | Interest | | | 2024 | | | 2023 | | | Cost | | |
| $ | 1,105,000 | | | KVC | | 1/25/2021 | | 2/25/2041 | | | 4.35 | % | | $ | - | | | $ | 997,010 | | | $ | 13,264 | | |
| | 1,278,400 | | | KVC | | 1/25/2021 | | 1/25/2031 | | | 4.35 | % | | | - | | | | 960,849 | | | | 10,085 | | |
| | 469,914 | | | KVC | | 1/25/2021 | | 2/25/2023 | | | 5.05 | % | | | - | | | | - | | | | 753 | | |
| | 2,086,921 | | | Pony Express | | 10/31/2022 | | 10/31/2025 | | | 5.97 | % | | | 1,733,807 | | | | 1,902,452 | | | | 25,575 | | |
| | 400,000 | | | Pony Express | | 10/31/2022 | | 10/31/2042 | | | 5.97 | % | | | 375,943 | | | | 387,433 | | | | 3,277 | | |
| | 700,000 | | | Pony Express | | 10/31/2022 | | 8/16/2023 | | | 7.17 | % | | | - | | | | - | | | | - | | |
| | 568,000 | | | Old 41 | | 12/16/2022 | | 12/16/2025 | | | 6.50 | % | | | 470,227 | | | | 520,697 | | | | 4,531 | | |
| | 640,000 | | | Old 41 | | 12/16/2022 | | 12/16/2025 | | | 6.50 | % | | | 406,641 | | | | 623,861 | | | | 5,077 | | |
| | 375,000 | | | Valley Vet | | 11/8/2023 | | 11/8/2024 | | | 8.50 | % | | | 375,000 | | | | 375,000 | | | | 6,877 | | |
| $ | 7,623,235 | | | | | | | | | | | | | $ | 3,361,618 | | | $ | 5,767,302 | | | $ | 69,439 | | |
The Company amortized $19,053 and $14,611
of issuance cost in the aggregate for the years ended December 31, 2024 and 2023 respectively, for the FSB notes payable.
Notes payable as of December 31, 2024 and 2023 consisted
of the following:
|
| |
December 31, | | |
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
FNBD Notes Payable | |
$ | 8,621,519 | | |
$ | 9,309,286 | | |
|
FSB Notes Payable | |
| 3,361,618 | | |
| 5,767,302 | | |
|
Total notes payable | |
| 11,983,137 | | |
| 15,076,588 | | |
|
Unamortized debt issuance costs | |
| (81,909 | ) | |
| (124,170 | ) | |
|
Notes payable, net of issuance cost | |
| 11,901,228 | | |
| 14,952,418 | | |
|
Less current portion | |
| (3,410,465 | ) | |
| (1,469,043 | ) | |
|
Long-term portion | |
$ | 8,490,763 | | |
$ | 13,483,375 | | |
F-20
Notes payable repayment requirements as of December 31, 2024,
in the succeeding years are summarized as follows:
|
2025 | |
$ | 3,416,965 | | |
|
2026 | |
| 1,203,521 | | |
|
2027 | |
| 872,072 | | |
|
2028 | |
| 909,759 | | |
|
2029 | |
| 950,587 | | |
|
Thereafter | |
| 4,630,233 | | |
|
Total | |
$ | 11,983,137 | | |
**Bridge Note**
In December 2021, the Company entered
into two bridge loans in the aggregate of $2,500,000 with Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund as short
term secured convertible notes (Bridge Note). The Bridge Note was convertible into the Companys common stock, at
the time of a successful initial public offering (IPO) at the noteholders option, at a 35% discount to the IPO price.
The Bridge Note had a face value of $2,500,000 with an original issue discount (OID) of 12% and had a maturity date of January
24, 2023. The OID of $300,000 was amortized over the life of the loan. If the Company had not issued the Companys common stock
in an initial public offering pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission
(SEC) and the listing of the common stock on a national securities exchange as defined in Section 6 of the
Securities Exchange Act of 1934, as amended (Qualified financing) by January 24, 2023 the conversion price will be set at
a 40% discount to the IPO price. The Bridge Note was funded in two installments of net proceeds of $1,100,000 in December 2021 and the
second installment January 2022. The Bridge Loan had issuance costs of $70,500 for the first installment and $54,000 for the second installment
that is amortized straight line over the life of the loan. The Company amortized $0 of issuance cost for the year ended December 31, 2024
and 2023.
In conjunction with the Bridge Note
the Company issued warrants on January 24, 2022 to Target Capital 1, LLC and Dragon Dynamic Catalytic Bridge SAC Fund (collectively the
Bridge Lenders). The warrants entitled the Bridge Lenders to purchase the Companys Class A common stock, at a purchase
price equal to the per share price in an IPO. The quantity of the Companys common stock of subject to purchase upon exercise of
the warrants is equal to 50% of the face value of the Bridge Note, divided by the per-share price in the Qualified Financing, unless a
Qualified Financing had not been completed by January 24, 2023 in which case the quantity of Class A common stock subject to purchase
upon exercise of the warrants will be an amount equal to 75% of the face value of the Bridge Note divided by the per-share price in the
Qualified Financing. If a Qualified Financing has not consummated or the Bridge Note had not been repaid in full on or before January
24, 2027, then the quantity of common stock subject to purchase upon exercise of the warrants will be an amount equal to 100% of the face
value divided by the per-share price equal to the fair market value of one share of Class A common stock as mutually agreed by the Holder
and the Company. The warrants were exercisable through the fifth anniversary of the issuance date. The warrants could be redeemed at the
option of the Company at any time following a Qualified Financing if the Companys common stock trade on a national securities exchange
at a price equal to the purchase price of the Companys common stock in the Qualified Financing multiplied by 2 for a period of
ten consecutive trading days.
F-21
On November 18, 2022, the Company entered
into an Original Issue Discount Secured Convertible Note loan (bridge loan) with Target Capital 1, LLC for $1,136,364. The
note is issued at an original issue discount of 12% with an maturity date on the earlier of March 31, 2023 (Initial Maturity Date)
or the Companys sale of its Common Stock in an initial public offering pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission and the listing of the Common Stock on a national securities exchange
as defined in Section 6 of the Securities Exchange Act of 1934, as amended (Qualified Financing or the Maturity Date).
The note bears an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic Extension,
this note shall commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of the Automatic
Extension until the note is converted or is paid in full. The Company may pay the full principal amount of this note, and all accrued
but unpaid interest at any time prior to the Maturity Date without the prior written consent of the Holder in the principal amount of
$1,136,364, plus all accrued but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required to pay this
note in cash at the on or after the Initial Maturity Date due to, upon the closing date of a Qualified Financing, the Company shall pay
to the Holder $1,136,364, plus all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation of an
Event of Default, until the Event of Default is cured, or the Note is repaid in full, Company will pay 20% of its total gross revenues
(including that of all its subsidiaries) monthly, which shall be applied to payment of principal and interest under this this note. The
conversion price (the Conversion Price) shall be equal to the price paid by the public in the Companys Qualified
Financing multiplied by 0.65 (or 0.60, from and after any Automatic Extension).
In conjunction with the Original Issue
Discount Secured Convertible Note with Target Capital 1, LLC the company issued the holder 412 shares of Class A Common Stock and equity
classified warrants that entitle the holder to purchase the Companys common stock at a purchase price equal to the per share price
in an IPO. The quantity of the Companys common stock of subject to purchase upon exercise of the warrants is equal to 75% of the
face value of the Bridge Note, divided by the per-share price in the Qualified Financing.
On November 18, 2022, the Company entered
into an Original Issue Discount Secured Convertible Note with 622 Capital LLC for $568,182. The note is issued at an original issue discount
of 12% with an maturity date on the earlier of January 24, 2023 (Initial Maturity Date) or the Companys sale of its
Common Stock in an initial public offering pursuant to a registration statement filed with and declared effective by the Securities and
Exchange Commission and the listing of the Common Stock on a national securities exchange as defined in Section 6 of the
Securities Exchange Act of 1934, as amended (Qualified Financing or the Maturity Date). If the Company has
filed its Form S-1 Registration Statement with the SEC on or prior to the Initial Maturity Date but the Qualified Financing has not closed
by such date (Automatic Extension) then all principal and accrued interest under this Note shall become due and payable
in cash on July 24, 2023 (the Final Maturity Date) or such earlier date as this Note is required be repaid. The note bears
an interest rate of 12% per annum by means of the original issue discount. Upon the occurrence of an Automatic Extension, this note shall
commence to accrue interest at an interest rate of 12% percent per annum on the date of the commencement of the Automatic Extension until
the note is converted or is paid in full. The Company may pay the full principal amount of this note and all accrued but unpaid interest
at any time prior to the Maturity Date without the prior written consent of the Holder in the principal amount of $568,182, plus all accrued
but unpaid interest, multiplied by 120%. In addition, and to the extent the Company is required to pay this note in cash at the on or
after the Initial Maturity Date due to, upon the closing date of Qualified Financing, the Company shall pay to the Holder $568,182, plus
all accrued unpaid interest, multiplied by 120%. Upon the occurrence and during the continuation of an Event of Default, until the Event
of Default is cured or the Note is repaid in full, Company will pay 20% of its total gross revenues (including that of all its subsidiaries)
monthly, which shall be applied to payment of principal and interest under this this note. The conversion price (the Conversion
Price) shall be equal to the price paid by the public in the Companys Qualified Financing multiplied by 0.65 (or 0.60, from
and after any Automatic Extension).
In conjunction with the Original Issue
Discount Secured Convertible Note with 662 Capital LLC the company issued the holder equity classified warrants that entitle the holder
to purchase the Companys common stock at a purchase price equal to the per share price in an IPO. The quantity of the Companys
common stock of subject to purchase upon exercise of the warrants is equal to 50% of the face value of the Bridge Note, divided by the
per-share price in the Qualified Financing, unless a Qualified Financing has not been completed by March 31, 2023 in which case the quantity
of Class A common stock subject to purchase upon exercise of the warrants will be an amount equal to 75% of the face value of the Bridge
Note divided by the per-share price in the Qualified Financing.
F-22
The warrants were deemed legally detachable
from the Bridge Note and were fair valued using the Black Scholes Method to determine the relative fair values of the Bridge Note and
the detachable warrants. The significant inputs for the Black Scholes calculation included the exercise price and common share price of
$0.44, volatility rate of 27% and risk-free rate of 1.53% with a 5-year term. The proceeds received for the Bridge Note were allocated
to the detached warrants based on the relative fair values. Pursuant to ASC 470 the relative fair value of the warrants attributable to
a discount on debt is $429,284; this is amortized to interest expense on a straight-line basis over the term of the loan.
A roll forward of the bridge note for
the year ended December 31, 2023, is below:
|
Bridge notes, December 31, 2021 | |
| 1,031,917 | | |
|
Issued for cash | |
| 2,600,000 | | |
|
Amortization of original issue discount | |
| 386,245 | | |
|
Warrant discount | |
| (429,284 | ) | |
|
Amortization of warrant discount | |
| 303,309 | | |
|
Debt issuance costs | |
| (164,000 | ) | |
|
Amortization of debt issuance costs | |
| 170,969 | | |
|
Bridge notes, December 31, 2022 | |
| 3,899,156 | | |
|
Amortization of original issue discount | |
| 116,656 | | |
|
Amortization of warrant discount | |
| 125,975 | | |
|
Amortization of debt issuance costs | |
| 62,758 | | |
|
Extinguishment of bridge notes in exchange for Series A preferred stock upon IPO on August 31, 2023 | |
| (4,204,545 | ) | |
|
Bridge notes, December 31, 2023 | |
$ | - | | |
On June 30, 2023, the Company entered
into exchange agreements (the Exchange Agreements) with each of the Companys Bridge Note lenders, pursuant to which
the lenders exchanged their existing Bridge Notes for 299 shares, 3,528 shares, and 598 shares, respectively, of Convertible Series A
preferred stock (4,425 shares of Convertible Series A Preferred stock in total) (the Exchange). The Exchange Agreements
will be deemed rescinded and the former Bridge Notes will be deemed reinstated if the Company doesnt complete an initial public
offering by September 1, 2023. Upon the IPO completing on August 31, 2023, the Company recognized the extinguishment of the Bridge Notes
pursuant to ASC 470 and recognized a debt extinguishment loss of $16,105. The Company recognized a beneficial conversion feature of $2,567,866
for the issuance of the Series A preferred stock on the date of the IPO due to the $4 (Pre-Reverse Split) offering price related to the
IPO being known as of that date.
**Convertible Debenture**
Between March 18 and December 28, 2021,
the Company issued $2,102,500 in aggregate principal amount of 6.00% subordinated convertible promissory note (Convertible Debenture).
During the year ending December 31, 2022 the Company issued $1,612,000 in aggregated principal amount of the 6.00% Convertible Debenture.
In March 2023 the Company issued an additional $650,000 in aggregate principal amount of 6.00% Convertible Debenture notes to five (5)
separate holders. The Convertible Debenture is convertible into the Companys Class A Common Stock upon the Companys offering
for sale its shares in a public offering (IPO). At the holders election, the accrued interest and principal may be
paid in cash or Class A Common Stock (such number of shares reflecting a twenty-five percent (25%) discount of the opening price per share
of Class A Common Stock). The Convertible Debenture mature 5 years from the date of issuance to each holder. Prior to the maturity date,
the holder is entitled to convert the Convertible Note into Class A Common Stock upon the Companys IPO. Upon an IPO the accrued
and unpaid interest is due and payable in cash on the first business day of the following month of March for any balance not elected to
be converted into the Class A Common Stock. The Convertible Debenture principal balance was $100,000 and $3,714,500 as of December 31,
2023 and 2022. The Convertible Debenture incurred issuance cost of $40,000 that is amortized straight line over the life of the Convertible
Debenture. The Company amortized $0 and $7,996 for the years ended December 31, 2024 and 2023.
F-23
Upon the Companys IPO closing
on August 31, 2023, the majority of Convertible Debenture holders elected convert an aggregate of $4,014,500 of principal and $399,818
of accrued interest into 598 shares of Class A common stock at a conversion price of $3.00 per share. The Company recorded a beneficial
conversion feature as of the date of the conversion of $1,569,395 based on the PO price of $10,000 per share minus the principal and accrued
interest of the Convertible Debenture balance converted into common stock. Four holders of the Convertible Debenture with an aggregate
principal balance of $250,000 elected to be paid back in cash and one investor with a principal balance of $100,000 elected to be paid
on February 28, 2024 including accrued interest through the date of payment at 6%.
**Loan Payable**
On May 30, 2023, the Company entered
into a Merchant Cash Advance Agreement for gross proceeds of $1,050,000 with an unrelated third-party financial institution. Under the
terms of the agreement, the Company must pay $57,346 each week for 26 weeks with the first payment being due June 6, 2023. The financing
arrangement has an effective interest rate of 49%. The financing arrangement includes an original issuance discount (OID)
of $441,000 and issuance costs of $50,000. The OID and issuance cost associated with the financing arrangement are presented in the balance
sheets as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest method.
On August 10, 2023, the Company amended
the financing arrangement to borrow an additional $507,460 resulting in the weekly repayments increasing to $76,071 to be paid over 28
weeks. This amendment decreased the effective interest rate to 41%. The refinancing resulted in a loss on debt modification of $441,618.
On November 28, 2023, the Company amended
the financing arrangement to borrow an additional $531,071 resulting in the weekly payments to decrease to $56,800 to be paid over 40
weeks. This amendment increased the effective rate to 49%. The refinancing resulted in a loss on debt modification of $485,436.
On January 18, 2024, the Company amended
the financing arrangement to borrow an additional $549,185 resulting in the weekly payments to increase to $86,214 to be paid over 43
weeks. This amendment increased the effective interest rate to 52%. The refinancing resulted in a loss on debt modification of $728,278.
On May 7, 2024, the Company amended
the financing arrangement to borrow an additional $518,750 resulting in the weekly payments to increase to $90,229 to be paid over 48
weeks. This amendment decreased the effective interest rate to 49%. The refinancing resulted in a loss on debt modification of $859,584.
On December 24, 2024, the Company amended
the financing arrangement to borrow an additional $513,650 resulting in the weekly payments to increase to $71,995 to be paid over 41
weeks. This amendment decreased the effective interest rate to 43%. The refinancing resulted in a loss on debt modification of $546,356.
On April 4, 2024, the Company entered
into a new financing agreement for gross proceeds of $420,000 with a different unrelated third-party financial institution. Under the
terms of the agreement, the Company must pay $21,600 each week for 28 weeks with the first payment being due April 8, 2024. The financing
arrangement has an effective interest rate of 51%. The financing arrangement includes an original issuance discount (OID)
of $184,800 and issuance costs of $20,000. The OID and issuance cost associated with the financing arrangement are presented in the balance
sheets as a direct deduction from the carrying amount of the financing arrangement and is amortized using the effective interest method.
During the year ended December 31, 2024,
the Company amortized $1,624,333 of OID and issuance cost included in interest expense on the statement of operations. During the year
ended December 31, 2024, the Company made $4,509,147 in payments on the loan payable. The outstanding balance of the loan payable as of
December 31, 2024, is $2,340,020. The financing arrangement is secured by an interest in virtually all assets of the Company with a first
security interest in accounts receivable. The financing arrangement is guaranteed by the Companys CEO.
F-24
During the year ended December 31, 2023,
the Company amortized $671,719 of OID and issuance cost included in interest expense on the statement of operations. During the year ended
December 31, 2023, the Company made $1,923,474 in payments on the loan payable. The outstanding balance of the loan payable as of December
31, 2023, is $2,063,058. The financing arrangement is secured by an interest in virtually all assets of the Company with a first security
interest in accounts receivable. The financing arrangement is guaranteed by the Companys CEO.
**Convertible Notes Payable**
On March 26, 2024, Inspire entered into
a securities purchase agreement (the Purchase Agreement) with a certain investor. Pursuant to the Purchase Agreement, Inspire
issued to investors Increasing OID Senior Note (Convertible Note Payable) for $500,000. The Convertible Note Payable has
a maturity date of the earlier of December 26, 2024 or the consummation of a capital raise (the Maturity Date).
On June 11, 2024, Inspire entered into
a securities purchase agreement (the Purchase Agreement) with two investors. Pursuant to the Purchase Agreement, Inspire
issued to investors Increasing OID Senior Note (Convertible Note Payable) for $250,000 each. The Convertible Note Payable
has a maturity date of the earlier of February 11, 2025 or the consummation of a capital raise (the Maturity Date).
The Convertible Notes Payable contain
an original issue discount (OID) which shall be: (i) fifteen percent (15%) if the Convertible Notes Payable is satisfied
and paid in full on or before the forty-fifth (45th) day after the Original Issue Date (as such term is defined in the Notes), (ii) twenty
percent (20%) if the Convertible Notes Payable is satisfied and paid in full after such 45th day but on or before the ninetieth (90th)
day after the Original Issue Date, and (iii) thirty percent (30%) after such 90th day. The Convertible Notes Payable can be prepaid at
any time prior to the Maturity Date without any penalties.
The Convertible Notes Payable must be
repaid in full from any future capital raises (debt, equity or any other form of capital raise) of Inspire. All of the funds raised must
be used to repay the Convertible Notes Payable until the Convertible Notes Payable are repaid in full.
The Convertible Notes Payable are convertible
into shares of common stock of Inspire, in full or in part, at any time after issuance at the discretion of the noteholder at a fixed
conversion price of $0.75per share (the Fixed Conversion Price).
If the Convertible Notes Payable is
not repaid by the Maturity Date the default provisions are as follow: (i) The Face Value (as such term is defined in the Convertible Notes
Payable) of the Convertible Notes Payable will increase by20% (to a50% OID -- $1,000,000Face Value); (ii) the conversion
price of the Convertible Notes Payable will become convertible at the lower of (a) the Fixed Conversion Price or (b)20% discount
to a 3-Day volume-weighted average price (the Default Conversion Price).
As of December 31, 2024 the balance
of the convertible notes payable was $0. During the year ended December 31, 2024 the Company paid off $392,857 of the notes payable and
accrued interest and converted $1,357,143 into 226,249 shares of class A common stock.
|
9. |
Related Party Transactions | |
**Blue Heron**
The Company entered into a consulting
agreement with Blue Heron Consulting (BHC) on June 24, 2021, pursuant to which BHC will consult with the Company on an on-going
basis in connection with the Companys acquisition of veterinary practices throughout the United States and will serve as the Companys
business and financial advisor with respect to its acquisition strategy and in connection with specific acquisition targets. The Companys
director and Chief Operating Officer Charles Stith Keiser is the Chief Operating Officer of BHC, and the Companys director Dr.
Charles Chuck Keiser is the Chief Visionary Officer of BHC.
F-25
Under the Consulting Agreement, BHC
is entitled to a monthly fee for on-going services including:
|
|
|
the preparation of valuation packages of potential acquisitions (including the gathering of pertinent information, financial and background data, completion of deal packets and financial projection worksheets used by the Company to calculate practice values); | |
|
|
|
| |
|
|
|
the institution of turnover protocols and procedures of hospitals immediately post-purchase; systems reporting; the formulation of individual hospital goals and targets; | |
|
|
|
| |
|
|
|
on-going monthly support of hospital units (including medical and operational coaching, business growth projections, establishment of financial targets and margin improvements, growth milestones) and recruiting support. | |
During the fourth quarter of 2023 management
terminated the service agreement with Blue Heron. The Company continues to use BHC for ad hoc services following the termination of the
agreement that is billed based on services provided. The Company has incurred $83,168 and $907,866 in expenses for the years ended December
31, 2024, and 2023, respectively. These expenses are recorded as a component of General and administrative expenses in the
accompanying consolidated statement of operations.
**Star Circle Advisory**
The Company entered into a consulting
agreement with Star Circle Advisory Group, LLC (Star Circle) on August 2, 2022, to serve as financial consultant, on a non-exclusive
basis, to assist with arranging bridge financing and the initial public offering of the Company. Star Circle is owned and controlled by
Kimball Carr, Chief Executive Officer (CEO), Peter Lau, former Interim Chief Financial Officer and Director, James Coleman,
Director, and Richard Marten, Director. Star Circle is entitled to a monthly fee of $33,000, payable monthly. Each party is responsible
for its own ordinary office and personnel expenses; however, Star Circle is entitled, with prior written consent from the Company, for
reimbursement for required extraordinary expenses including air travel, lodging, and Company filing fees. The consulting agreement will
terminate on August 1, 2024, unless terminated earlier by mutual agreement of the parties or by either party upon 30 days written notice.
The consulting agreement may also be extended by mutual agreement. Prior to the formal agreement between the Company and Star Circle,
Star Circle provided the same services under a verbal agreement that was memorialized by the consulting agreement. During the fourth quarter
of 2023 management terminated the service agreement with Star Circle Advisory. The Company has incurred $0 and $284,900 in expenses for
the years ended December 31, 2024 and 2023. These expenses are recorded as a component of General and administrative expenses
in the accompanying consolidated statement of operations.
**Chief Executive Officers Warrant**
On January 1, 2023, the board of directors
issued 500 warrants of Class A common stock issuable upon cashless exercise of a warrant granted to Kimball Carr, our CEO, in consideration
for his personal guaranty of the Company loans. The warrant expires on January 1, 2028. The Warrant is fully paid and nonassessable shares
of Class A common stock at a purchase price per share equal of $4. The warrants were measured at fair value using the Black Scholes Method
to determine the fair value of warrants issued to the CEO. The significant inputs for the Black Scholes calculation included the exercise
price and common share price of $1.73, volatility rate of 27.13% and risk-free rate of 3.94% with a 5-year term. The warrants were valued
at $2,701 at the time of issuance and the entire amount was recorded as an expense in General and administrative expenses in the accompanying
consolidated statement of operations for the year ended December 31, 2023.
F-26
**Sale of KVC**
On September 20, 2024, KVC sold Kauai
Veterinary Clinic (KVC) to Kauai RE Holdings LLC. The agent for the sale was Gregory Armstrong, a current shareholder of
the Company and a member of Kauai RE. Charles Keiser, DVM, is a member of Kauai RE and the father of our board member Charles Stith Keiser,
who is the Companys largest shareholder through his entity Wilderness Trace Veterinary Partners, LLC, refer to Note 7 Business
disposal for further detail.
|
10. |
Stockholders Equity | |
The Company is authorized to issue 25,000,000
shares, of which 4,000,000 shares are designated as Class A common stock, with a par value of $0.0001 per share (the Class A Common
Stock), 20,000,000 shares are designated as Class B common stock, with a par value of $0.0001 per share (the Class B Common
Stock), and 1,000,000 shares are designated as Preferred Stock, with a par value of $0.0001 per share (the Preferred Stock).
Each outstanding share of Class A Common
Stock is entitled to vote on each matter on which the stockholders of the Company is entitled to vote, and each holder of Class A Common
Stock is entitled to one (1) vote for each share of Class A Common Stock held by such holder.
Each outstanding share of Class B Common
Stock is entitled to vote on each matter on which the stockholders of the Company is entitled to vote, and each holder of Class B Common
Stock is entitled to twenty-five (25) votes for each share of Class B Common Stock held by such holder.
All shares of Class A Common Stock and
Class B Common Stock (collectively Common Stock) will be identical and will entitle the holders thereof to the same rights
and privileges, except as otherwise provided above.
On November 15, 2022, the Company amended the consulting
agreement with Alchemy Advisory, LLC until June 30, 2023. The contract amendment stipulates an additional fee of $40,000 as well as 33
restricted shares of the Companys Class A Common Stock. The Company recorded the $144,168 fair value of the common stock with $0
and $108,126 expensed during the years ended December 31, 2024 and 2023, respectively. The Company amortizes the cost of the common stock
issued over the life of the agreement.
On November 15, 2022, the Company entered
into a consulting agreement with 662 Capital LLC. The contract stipulates the Company will issue 17 restricted shares of the Companys
Class A Common Stock for services rendered. The Company recorded the $72,084 fair value of the common stock with $0 and $54,063 expensed
during the years ended December 31, 2024 and 2023, respectively. The Company amortizes the cost of the common stock issued over the life
of the agreement.
****
**Convertible Series A preferred stock**
On June 30, 2023, the Company amended
its articles of incorporation by the filing of a certificate of designation for the Series A preferred stock. One million shares of the
Series A Preferred stock are authorized under the Series A Certificate of Designation, with each such having a stated value of $10.00
per share, with a par value of $0.0001. The Series A preferred stock earns a dividend rate equal to 12% of the stated rate per annum,
which such dividend may be payable either in cash or in-kind at the sole option of the Company.
Holders of shares of the Series A preferred
stock are entitled to a liquidation preference in the event of any dissolution, liquidation or winding up of the Company equal to the
stated value plus any accrued and unpaid dividends on such stock. Holders of shares of Series A preferred stock are also entitled to convert
such shares at any time and from time, at the option of such holder, into a number of shares of Class A common stock equal to the stated
value divided by a conversion price. The conversion price is equal to 60% of the dollar volume-weighted average price for shares for the
Companys Class A common stock for the three trading days immediately preceding the date of the conversion. However, the conversion
price can never be less than 50% of the per-share price for shares of Class A common stock during the Companys initial public offering.
For any conversion during the Companys initial three days of market trading, the conversion price will be equal to 60% of the price
for the Companys underwritten initial public offering.
F-27
On November 7, 2023, the Company amended
its article of incorporation to increase the total authorized preferred stock by 2,000,000 shares.
The conversion price of the convertible
series A preferred stock to be no less than $1.00 per share, as adjusted for any stock dividend, stock split, stock combination, reclassification
or similar transaction conducted after the date of the series A preferred stock amendment.
The holders of the Series A preferred
stock have the right to vote on all matters submitted to a vote of shareholders on an as-if-converted basis together with the holders
of shares of the Companys Class A and Class B common stock, voting together as a single class.
On June 30, 2023, the Company issued
442 shares of Series A preferred stock to the holders of the Bridge Notes in exchange for the Bridge Notes (the Exchange).
In connection with the Exchange, the
Company also issued warrants (the New Warrants) to purchase additional shares of Class A common stock. The New Warrants
were issued in exchange for the existing warrants held by the former Bridge Note holders. The exercise price of the shares to be issued
pursuant to the New Warrants is the price of the shares of Class A common stock to be issued in this offering. The number of shares to
be issued upon exercise of the New Warrants is equal to the quotient of 75% of the outstanding Series A preferred stock value divided
by the exercise price. Also, in connection with the Exchange, the Company entered into new registration rights agreements (the New
Registration Rights Agreements) with each of holders, pursuant to which the Company has agreed to register the public resale of
the shares of Class A common stock issuable upon conversion of the Series A preferred stock and upon exercise of the under the New Warrants.
The New Registration Rights Agreements supersede in their entirety the prior registration rights agreements with the former senior secured
lenders. If the Company does not close this offering on or before September 1, 2023, the Exchange Agreements will be deemed rescinded,
and the former Bridge Notes will be deemed reinstated. As the offering was outside the control of the Company the Company did not recognize
the full extinguishment of the Bridge Notes until the IPO was completed on August 31, 2023.The Company recognized a beneficial
conversion feature of $2,567,866 for the issuance of the Series A preferred stock on the date of the IPO due to the $4 offering price
related to the IPO being known as of that date.
As of December 31, 2024 all of the convertible
Series A preferred stock has been converted and there are no remaining shares outstanding.
|
11. |
Stock Compensation | |
Effective October 18, 2022, the Board
of Directors of Inspire Veterinary Partners adopted the 2022 Equity Incentive Plan, (the 2022 Plan). The plan provides for
the award of stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees
and consultants who provide services to the Company. The number of shares issued may not exceed, at any given time, ten percent (10%)
of the total of: (a) the issued and outstanding shares of the Companys common stock, and (b) all shares common stock issuable upon
conversion or exercise of any outstanding securities of the Company which are convertible or exercisable into shares of common stock.
The Stock Option Plan expires on October 18, 2032.
The Company recognizes stock-based compensation
expense from stock-based payments using the grant date fair-value, including for stock options. The fair value of options awarded to employees
is measured on the grant date using the Black-Scholes option-pricing model and is recognized as an expense over the requisite service
period on a straight-line basis.
All stock options are exercisable
into class A common stock.
F-28
The following is a summary
of outstanding stock options as of December 31, 2024 and 2023:
| | | Numberof Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Life(years) | | | Aggregate Intrinsic Value | | |
| | | | | | | | | | | | | | |
| Options outstanding as of December 31, 2022 | | | - | | | $ | - | | | | - | | | $ | - | | |
| Issued | | | - | | | | - | | | | - | | | | - | | |
| Expired and forfeited | | | - | | | | - | | | | - | | | | - | | |
| Exercised | | | - | | | | - | | | | - | | | | - | | |
| Options outstanding as of December 31, 2023 | | | - | | | $ | - | | | | - | | | $ | - | | |
| Options exercisable as of December 31, 2023 | | | - | | | $ | - | | | | - | | | | - | | |
| Options outstanding as of December 31, 2023 | | | - | | | $ | - | | | | - | | | $ | - | | |
| Issued | | | 236,469 | | | | 1.36 | | | | 10.0 | | | | - | | |
| Expired and forfeited | | | - | | | | - | | | | - | | | | - | | |
| Exercised | | | - | | | | - | | | | - | | | | - | | |
| Options outstanding as of December 31, 2024 | | | 236,469 | | | $ | 1.36 | | | | 9.74 | | | $ | - | | |
| Options exercisable as of December 31, 2024 | | | 236,469 | | | $ | 1.36 | | | | 9.74 | | | $ | - | | |
The following is the vesting terms associated with
those shares:
| Tranche | | Shares Granted | | | Vesting Method | | Vesting Terms | |
| Tranche 1 | | | 236,469 | | | Straight-line | | The vesting date is immediate and is fully vested on the grant date | |
| Total | | | 236,469 | | | | | | |
The Black-Scholes option-pricing model
includes the following weighted average assumptions to determine the grant share-based awards:
|
| |
| Years
Ended December 31, | | |
|
| |
| 2024 | | |
| 2023 | | |
|
Assumptions: | |
| | | |
| | | |
|
Risk-free interest
rate | |
| 3.49-3.55 | % | |
| - | % | |
|
Expected
dividend yield | |
| - | % | |
| - | % | |
|
Expected
volatility | |
| 51.14-52.38 | % | |
| - | % | |
|
Expected
life (in years) | |
| 5.00-5.46 | | |
| - | | |
During the years ended December 31,
2024 and 2023, the Company recognized stock-based compensation from options of $23,647 and $0, respectively. As of December 31, 2024,
there was $0 in unrecognized stock-based compensation related to unvested stock options.
F-29
|
12. |
Retirement Plan | |
During the year ending December 31,
2022, the Company implemented a qualified 401(K) retirement plan. The Company offers eligible domestic full-time employees participation
in certain 401K plans. The plans provide for a discretionary annual company contribution. In addition, employees may contribute a portion
of their salary to the plans, which certain of the 401K plans, is partially matched by the Company. The plans may be amended or terminated
at any time. The Company contributed and expensed approximately $148,207 and $124,166 during the years ended December 31, 2024 and 2023,
respectively.
|
13. |
Income Taxes | |
The Company estimated NOL carry-forwards
for Federal and State income tax purposes of $30,078,801 and $23,232,961 as of December 31, 2024, respectively, and $14,924,318 for both
federal and state as of December 31, 2023. No tax benefit was reported with respect to these NOL carry-forwards in the accompanying financial
statements because the Company believes the realization of the Companys deferred tax assets was not considered more likely than
not to be realized and accordingly, the potential tax benefits of the deferred tax assets are fully offset by a full valuation allowance.
The Companys deferred tax assets and liabilities as of December 31, 2024 and 2023 are as follows:
|
| |
Year ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Deferred tax assets: | |
| | |
| | |
|
Net Operating Loss Carryforwards | |
$ | 7,388,670 | | |
$ | 3,684,694 | | |
|
Accrued Expenses | |
| 76,922 | | |
| 112,936 | | |
|
Stock Based Compensation | |
| 5,667 | | |
| 98,625 | | |
|
Charitable Contribution Carryforward | |
| 600 | | |
| 621 | | |
|
ROU Asset | |
| (450,486 | ) | |
| (400,605 | ) | |
|
Lease Liability | |
| 509,858 | | |
| 410,405 | | |
|
R&D Sec 174 | |
| 1,376 | | |
| 1,830 | | |
|
Total deferred tax assets | |
| 7,532,607 | | |
| 3,908,505 | | |
|
| |
| | | |
| | | |
|
Deferred tax liabilities: | |
| | | |
| | | |
|
Amortization/Depreciation | |
| 60,469 | | |
| 89,165 | | |
|
Total deferred tax liabilities | |
| 60,469 | | |
| 89,165 | | |
|
| |
| | | |
| | | |
|
Valuation allowance | |
| (7,472,138 | ) | |
| (3,819,340 | ) | |
|
Net deferred Tax Assets (Liabilities) | |
$ | - | | |
| - | | |
The differences between the total calculated income tax (benefit)
provision and the expected income tax computed using the U.S. federal income tax rate are as follows:
|
| |
2024 | | |
2023 | | |
|
Tax benefit at statutory tax rate | |
| (2,933,037 | ) | |
| (2,872,031 | ) | |
|
State benefit, net of federal benefit | |
| (511,292 | ) | |
| (210,273 | ) | |
|
Beneficial conversion feature | |
| - | | |
| 868,825 | | |
|
Other permanent differences | |
| 27,484 | | |
| 3,713 | | |
|
Valuation allowance | |
| 3,652,798 | | |
| 2,209,897 | | |
|
Prior Period Adj | |
| (235,953 | ) | |
| (131 | ) | |
|
| |
$ | - | | |
$ | - | | |
Income tax benefit consists of the following for the years
ending December 31, 2024 and 2023:
|
| |
December31 2024 | | |
December31 2023 | | |
|
Current income benefit expense | |
| | |
| | |
|
Federal | |
$ | - | | |
$ | - | | |
|
State | |
| - | | |
| - | | |
|
| |
$ | - | | |
$ | - | | |
F-30
|
14. |
Leases | |
Accounting for Leases as
Lessee*
The Company determines if an arrangement
is a lease at inception. Operating leases are included in right-of-use assets (ROU), operating lease liabilities, and operating
lease liabilities, non-current. Lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at commencement date. None of the leases entered into have an implicit rate, the Company uses its incremental borrowing
rate based on the information available at lease commencement date in determining the present value of future payments. Incremental borrowing
rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments
where the leased asset is located. The ROU assets also include any prepaid lease payments made and initial direct costs incurred and exclude
lease incentives. The Companys lease terms may include options to extend or terminate the lease, which is recognized when it is
reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company has operating leases for
real estate. The Company has certain intercompany leases between its subsidiaries, and these transactions and balances have been eliminated
in consolidation and are not reflected in the tables and information presented below.
The components of lease expense included on the Companys
consolidated statements of operations were as follows:
|
| |
Expense Classification | |
For the Year Ended December 31, | | |
|
Operating lease expense: | |
| |
2024 | | |
2023 | | |
|
Amortization of ROU asset | |
General and administrative | |
$ | 215,231 | | |
$ | 132,138 | | |
|
Accretion of Operating lease liability | |
General and administrative | |
| 45,613 | | |
| 25,667 | | |
|
Total operating lease expense | |
| |
$ | 260,844 | | |
$ | 157,805 | | |
|
| |
| |
| | | |
| | | |
|
Other lease expense | |
General and administrative | |
| 61,408 | | |
| 28,012 | | |
|
Total | |
| |
$ | 322,252 | | |
$ | 185,817 | | |
Other information related to leases
is as follows:
| | | As of December 31, | | |
| | | 2024 | | | 2023 | | |
| Remaining lease term: | | | | | | | |
| Operating leases (in years) | | | 8.77 | | | | 9.29 | | |
| Discount rate: | | | | | | | | | |
| Operating leases | | | 7.25 | % | | | 7.03 | % | |
Amounts relating to leases were presented
on the consolidated balance sheets as of December 31, 2024 and 2023 in the following line items:
| | | Balance Sheet Classification | | Year Ended December 31, | | |
| Assets: | | | | 2024 | | | 2023 | | |
| Operating lease assets | | Right-of-use assets | | $ | 1,879,729 | | | $ | 1,616,198 | | |
| | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | |
| Operating lease liabilities | | Operating lease liabilities | | | 183,981 | | | | 141,691 | | |
| Operating lease liabilities | | Operating lease liabilities, non-current | | | 1,943,487 | | | | 1,514,044 | | |
| Total lease liabilities | | | | $ | 2,127,468 | | | $ | 1,655,735 | | |
F-31
The future minimum lease payments required under
leases as of December 31, 2024, were as follows:
|
Fiscal Year | |
Operating
Leases | | |
|
2025 | |
$ | 333,200 | | |
|
2026 | |
| 312,299 | | |
|
2027 | |
| 316,369 | | |
|
2028 | |
| 323,311 | | |
|
2029 | |
| 336,045 | | |
|
Thereafter | |
| 1,332,102 | | |
|
Undiscounted cash flows | |
| 2,953,326 | | |
|
Less: imputed interest | |
| (825,858 | ) | |
|
Lease liability | |
$ | 2,127,468 | | |
|
15. |
Commitments and Contingencies | |
As of December 31, 2024, substantially
all of the Companys assets were pledged as collateral for the Companys credit facilities.
**Common Stock Purchase Agreement**
On November 30, 2023, the Company entered
into a common stock purchase agreement with a 3rd party investor (the Investor), to which the investor committed
to purchase up to $30 million of the Companys Class A common stock.
Under the terms and subject to the conditions
of the Purchase Agreement, the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to
purchase, shares of Class A Common Stock in an amount up to $30 million. Such sales of Class A Common Stock by the Company, if any, will
be subject to certain limitations, and may occur from time-to-time in the Companys sole discretion, over the period commencing
once certain customary conditions are satisfied, including the filing and effectiveness of a resale registration statement with the U.S.
Securities and Exchange Commission (the Commission) with respect to the shares to be sold to the Investor under the Purchase
Agreement and ending on the first day of the month following the 24-month anniversary of the date on which the resale registration statement
is declared effective by the Commission. The Investor has no right to require the Company to sell any shares of Class A Common Stock to
the Investor, but the Investor is obligated to purchase shares of Class A Common Stock pursuant to a valid purchase notice delivered by
the Company, subject to certain conditions and limitations.
Purchase Price
The shares of Class A Common Stock to
be issued by the Company and purchased by the Investor will be sold at a purchase price equal to 95% of the lowest daily volume-weighted
average price of the Class A Common Stock on the Nasdaq Capital Market (or any eligible substitute exchange) during the three consecutive
trading days immediately following the trading date on which a valid purchase notice is delivered to the Investor by the Company. Such
purchase price will be adjusted for reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar
transaction by the Company with respect to its Class A Common Stock.
F-32
Actual sales of shares of Class A Common
Stock to the Investor will depend on a variety of factors to be determined by the Company from time-to-time, including, among other things,
market conditions, the trading price of the Companys Class A Common Stock, and the working capital needs, if any, of the Company.
The net proceeds from sales, if any,
under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of Class A Common
Stock to the Investor. the Company expects that any proceeds received by the Company from such sales to the Investor will be used for
working capital and general corporate purposes.
Purchase Limits
Pursuant to the Purchase Agreement,
the Company may not require the Investor to purchase, and the Investor will have no obligation to purchase, shares of Class A Common Stock
in excess of a number equal to the lowest of (i) 100% of the average daily trading volume of the Class A Common Stock on the Nasdaq Capital
Market (or any other eligible national stock exchange, as applicable) for the five consecutive trading days immediately prior to the trading
date on which a valid purchase notice is delivered to the Investor, (ii) a 30% discount to the daily trading volume in the Class A Common
Stock on the Nasdaq Capital Market (or any other eligible national stock exchange, as applicable), and (iii) $2 million divided by the
volume-weighted average price for the Class A Common Stock on the trading day immediately prior to the trading date on which a valid purchase
notice is delivered to the Investor.
Consistent with certain applicable Nasdaq
rules, the Company may not issue to the Investor more than 12,143 shares of its Class A Common Stock (the Exchange Cap)
under the Purchase Agreement, which number of shares is equal to 19.99% of the shares of the Companys Class A Common Stock issued
and outstanding immediately prior to the execution of the Purchase Agreement, unless the Company obtains stockholder approval to issue
shares of its Class A Common Stock in excess of such limit in accordance with applicable rules of Nasdaq or any other applicable national
stock exchange.
Fees
As consideration for the Investors
irrevocable commitment to purchase shares of Class A Common Stock, upon execution of the Purchase Agreement, the Company became obligated
to issue to the Investor a number of shares of Class A Common Stock equal to $600,000 divided by the average daily volume-weighted average
price for the Class A Common Stock on the Nasdaq Capital Market during the five consecutive trading days ending on the trading date immediately
prior to the Companys filing of an initial registration statement pursuant to the Registration Rights Agreement described below.
In certain circumstances, the Company may become obligated to pay to the Investor a cash fee equal to $600,000 in lieu of issuing such
shares of Class A Common Stock, under the terms and subject to the conditions described more fully in the Purchase Agreement.
Certain Representations, Warranties
and Covenants
The Purchase Agreement contains customary
representations, warranties, conditions, and indemnification obligations of each of the Company and the Investor. Pursuant to the Purchase
Agreement, the Investor has agreed not to enter into or effect, in any manner whatsoever, directly or indirectly, any short sales of the
Companys Class A Common Stock or hedging transaction which establishes a net short position with respect to the Class A Common
Stock. In addition, the Company has covenanted, among other things, through the 24-month anniversary of the signing of the Purchase Agreement,
to not effect or enter into any agreement to issue any shares of Class A Common Stock or securities convertible into or exercisable or
exchangeable into shares of Class A Common Stock except in limited circumstances.
F-33
The Company has the right to terminate
the Purchase Agreement at any time following the satisfaction of certain conditions precedent relating to the initial sale of shares to
the Investor, subject to the Company paying all documented fees and amounts to the Investors legal counsel and, if the agreement
is terminated prior to effectiveness of the resale registration statement, the Company paying the $600,000 cash commitment fee to the
Investor or, if the agreement is terminated after such effectiveness, the Company issuing all commitment shares of Class A Common Stock
to the Investor.
The Purchase Agreement will automatically
terminate on (i) the 24-month anniversary of the effective date of the initial resale registration statement filed with the Commission,
(ii) the date when the Investor purchases the Total Commitment, (iii) the date when the shares of Class A Common Stock are no longer listed
on the Nasdaq Capital Market or another eligible national stock exchange, or (iv) when the Company is subject to a voluntary or involuntary
bankruptcy or insolvency proceeding.
In addition, the Investor may terminate
the Purchase Agreement upon (i) the occurrence of an event constituting a material adverse effect (as defined in the Purchase Agreement),
(ii) the occurrence of a change of control transaction of the Company, (iii) the failure by the Company to file a registration statement
by the applicable deadline set forth in the Registration Rights Agreement, (iv) the lapse of the effectiveness, or unavailability of,
a registration statement filed by the Company pursuant to the Registration Rights Agreement in certain other circumstances set forth in
the Purchase Agreement, (v) the suspension of trading of the Class A Common Stock for a period of three (3) consecutive trading days,
or (vi) the material breach of the Purchase Agreement by the Company, which breach is not cured within the 10 trading days after receipt
of notice of such breach.
****
On December 28, 2023, the Company amended
the agreement to provide that, if the number of commitment shares required to be issued by the Company to the Investor and its affiliates
(as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 promulgated thereunder) pursuant
to the Purchase Agreement would result in the beneficial ownership by the Investor of more than 4.99% of the outstanding shares of Class
A common stock of the Company, then the Company shall be obligated to deliver to the Investor: (i) the number of shares of Class A common
stock that, after giving effect to the issuance thereof to the Investor, would result in the Investor and its affiliates beneficially
owning one (1) share less than 4.99% of the outstanding shares of Class A common stock of the Company, and (ii) a warrant to purchase
shares of Class A common stock (such warrant, the Warrant and the shares issuable upon exercise thereof, the Warrant
Shares), granting the Investor the right to purchase, at an exercise price of $0.0001 per Warrant Share, up to that number of Warrant
Shares equal to the difference between (x) the number of shares that would be required to be issued to the Investor as commitment shares
but-for the 4.99% ownership limitation, and (y) the number of shares of Class A common stock to be issued to the Investor as commitment
shares.
The amendment further provided that,
if the issuance of the total number of commitment shares of Class A common stock and Warrant Shares by the Company to the Investor would
cause the beneficial ownership of the Investor and its affiliates to exceed19.99% of the outstanding shares of Class A common stock
of the Company.
On February 14, 2024, the Company issued
486 shares of Class A Common stock to an Investor. In addition, the Company, on February 13, 2024, issued a prefunded warrant to purchase
up to 662 shares of Class A common stock of the Company to the Investor. The Company issued the shares and the warrant in fulfilment to
its obligation to issue commitment shares to the Investor upon its entry into the purchase agreement. The Company issued
the shares and warrant to the Investor exempt from registration pursuant to Rule 506(b) of Regulation D under the Securities Act of 1933.
The Company did not receive any proceeds with respect to the issuance of the Commitment Shares or the Warrant and does not expect to receive
any material proceeds from the Investors exercise, if any, of Warrant for the purchase of Warrant shares.
F-34
**Holdback Agreement**
As part of the Valley Veterinary Services,
Inc. acquisition in November 2023, a portion of the purchase price in the amount of $200,000 as part of the Holdback Agreement classified
as restricted cash in the accompanying consolidated balance sheet. The Holdback Agreement dictates that $80,000 is contingent upon both
former owners (now employees of the Company) still being employed by the Company as of November 8, 2025 and the Valley Vet Practices
gross revenue exceeding 105% of the target gross revenue. The remaining $120,000 is contingent upon both former owners (now employees
of the Company) still being employed by the Company as of November 8, 2025 and the Valley Vet Practices gross revenue exceeding
110% of the target gross revenue.
As the contingent consideration arrangement
in which the Holdback amounts are automatically forfeited if the employment of the former owners (now employees of the Company) terminates
is accounted for as compensation for post combination services. The Company will recognize the contingent consideration from the Holdback
Agreement when probable.
As of the year ended December 31, 2024,
the Company determined that the first milestone of the Holdback Agreement had been met, as the Valley Vet Practices gross revenue
exceeded 105% of the target and both former owners remained employed. As a result, the Company released and paid out the $80,000 holdback
amount in accordance with the agreement in January 2025.
**Lawsuit Against Former Employee**
****
The Company is addressing a situation
where a former animal clinic and hospital violated their non-compete agreement post-employment. Quantifying the resulting harm is complex
and ongoing. Legal action has been initiated in Ohio State Court against the former owner, with efforts underway to fulfill court requirements
for service. The Companys claim is straightforward, with no counterclaims. It anticipates a favorable judgment, likely resulting
in compensation below a certain threshold.
|
16. |
Segment Information | |
Management evaluates the Companys veterinary
clinics as a single reportable segment as a result of aggregating multiple operating segments, because all of the Companys veterinary
clinics have similar economic characteristics and provide similar services to similar types of customers. Our single reportable segment
comprises the structure used by our Chief Executive Officer, who collectively have been determined to be our Chief Operating Decision
Maker (CODM), to make key operating decisions and assess performance. Our CODM evaluates our single reportable segments operating
performance based on individual veterinary clinic net income (loss) before interest expense, income tax expense, depreciation and amortization,
corporate general and administrative expense, loss on debt modification, gain of sale, interest and other income, and gains or losses
on sales of clinic (Adjusted Clinic EBITDA). Our single reportable segments assets are consistent with total assets included
in the Companys consolidated balance sheets.
F-35
The following table includes revenue,
significant veterinary clinic and hospital operating expenses, and Adjusted Clinic EBITDA for the Companys clinics, reconciled
to the consolidated amounts included in the Companys consolidated statements of operations:
|
| |
For the year ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Revenue | |
| | |
| | |
|
Service revenue | |
$ | 12,188,526 | | |
$ | 11,879,934 | | |
|
Product revenue | |
| 4,403,583 | | |
| 4,795,459 | | |
|
Total Clinics level revenue | |
| 16,592,109 | | |
| 16,675,393 | | |
|
| |
| | | |
| | | |
|
Operating expenses | |
| | | |
| | | |
|
Cost of service revenue (exclusive of depreciation and amortization, shown separately below) | |
| 9,736,282 | | |
| 9,700,963 | | |
|
Cost of product revenue (exclusive of depreciation and amortization, shown separately below) | |
| 3,563,279 | | |
| 3,420,515 | | |
|
General and administrative expenses | |
| 2,688,157 | | |
| 3,056,702 | | |
|
Total Clinics level expenses | |
| 15,987,718 | | |
| 16,178,180 | | |
|
Adjusted Clinics EBITDA | |
$ | 604,391 | | |
$ | 497,213 | | |
|
| |
| | | |
| | | |
|
Reconciliation of Adjusted Clinics EBITDA to net loss | |
| | | |
| | | |
|
Depreciation and amortization | |
| 1,308,619 | | |
| 1,252,539 | | |
|
Gain on sale of business | |
| (467,049 | ) | |
| - | | |
|
Loss on debt extinguishment | |
| - | | |
| 16,105 | | |
|
Interest expense | |
| 3,098,237 | | |
| 2,538,710 | | |
|
Loss on debt modification | |
| 2,134,218 | | |
| 927,054 | | |
|
Beneficial conversion feature | |
| - | | |
| 4,137,261 | | |
|
Other income (expenses) | |
| 4,768 | | |
| (1,134 | ) | |
|
Corporate general and administrative | |
| 8,733,195 | | |
| 6,419,585 | | |
|
Impairment expense | |
| 56,664 | | |
| - | | |
|
Net Loss | |
$ | (14,264,261 | ) | |
$ | (14,792,907 | ) | |
|
17. |
Subsequent Events | |
The Company follows the guidance in
FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements
were issued and determined the Company had the following subsequent events:
**Animal Hospital and Clinic Acquisition**
On February 26, 2025, Inspire Veterinary
Partners Inc entered a non-binding Letter of Intent (LOI) with an animal hospital and clinic (Practice) to
purchase substantially all of the properties and assets of the Practice. Management has evaluated the LOI and has determined that the
acquisition is not a significant transaction.
**Common Stock & Pre-Funded Warrants**
OnMarch 25, 2025, Inspire Veterinary
Partners (the Company) entered into a securities purchase agreement (the Purchase Agreement) with an institutional
investor, pursuant to which the Company agreed to issue and sell to the investor in a registered direct offering (the Offering)
207,896 shares (the Shares) of Class A Common Stock (the Common Stock), pre-funded warrants (the Pre-Funded
Warrants) to purchase up to 885,000 shares of Common Stock, five-year warrants (the Series A Warrants) to purchase
up to 1,092,896 shares of Common Stock and eighteen-month warrants (the Series B Warrants and, together with the Series
A Warrants, the Common Warrants) to purchase up to 1,092,896 shares of Common Stock.Gross proceeds from the Offering,
before deducting the placement agents fees and other offering expenses, were $2,000,000.
F-36