Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
An
investment in the Company’s common stock involves a number of very significant risks. You should carefully consider the risk factors
included in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with
the SEC on March 30, 2021, in addition to other information contained in our reports and in this quarterly report in evaluating the Company
and its business before purchasing shares of our common stock. Except as set forth below, there have been no material changes to our
risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020. The Company’s business, operating
results and financial condition could be adversely affected due to any of those risks. In addition:
We
will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
As
our business strategies develop, we must add additional managerial, operational, financial and other personnel. Future growth will impose
significant added responsibilities on members of management, including:
●
identifying,
recruiting, integrating, maintaining, and motivating additional personnel;
●
managing
our internal development efforts effectively, while complying with our contractual obligations to contractors and other third parties;
and
●
improving
our operational, financial, and management controls, reporting systems, and procedures.
Our
future financial performance will depend, in part, on our ability to effectively manage any future growth, and our management may also
have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of
time to managing these growth activities. This lack of long-term experience working together may adversely impact our senior management
team’s ability to effectively manage our business and growth.
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We
currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors,
and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors,
and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition,
if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants
is compromised for any reason, we may not be able to advance our business. There can be no assurance that we will be able to manage our
existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all. If we are
not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may
not be able to successfully implement the tasks necessary to further develop our business initiatives and, accordingly, may not achieve
our research, development, and commercialization goals.
While
all filed securities class action lawsuits were voluntarily dismissed, there is potential to be subject to additional securities class
action lawsuits, which could require significant management time and attention and significant legal expenses and could result in an
unfavorable outcome, which could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
We
are subject to securities class action lawsuits, which may require significant management time and attention and significant legal expenses
and may result in an unfavorable outcome, which could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
We
have been named as defendants in an Americans with Disabilities class action lawsuit that alleges that our www.rexmd.com website
violates: (i) the Americans with Disabilities Act, 42 U.S.C. § 12181 et seq.; (ii) the New York State Human Rights Law (NYSHRL),
N.Y. Exec. Law §§ 292 and 296; and (iii) the New York City Human Rights Law (NYCHRL), §§ 8-102 and 8-107, by containing
barriers making it inaccessible to the visually impaired needing the assistance of screen-reading software. While we believe that we
have substantial legal and factual defenses to the claims in the class action and intend to vigorously defend this case, this lawsuit
could divert management’s attention from our ordinary business operations, the outcome of the pending litigation is difficult to
predict and quantify, and the defense against the underlying claims could be costly. The ultimate resolution of this matter could result
in payments of monetary damages or other costs, materially and adversely affect our business, financial condition, results of operations
and cash flows, or adversely affect our reputation, and consequently, could negatively impact the trading price of our common stock.
In
addition, there is the potential for additional future litigation, and we could be materially and adversely affected by such matters.
We
have insurance policies related to the risks associated with our business, including directors’ and officers’ liability insurance
policies. However, there is no assurance that our insurance coverage will be sufficient or that our insurance carriers will cover all
claims in any future litigation. If we are not successful in our defense of potential claims asserted in any future litigation and those
potential future claims are not covered by insurance or exceed our insurance coverage, we could have to pay damage awards, indemnify
our officers from damage awards that could be entered against them and pay the costs and expenses incurred in defense of, or in any settlement
of, such potential future claims.
We
may be subject to claims that we are engaged in the corporate practice of medicine or that our contractual arrangements with affiliated
physician groups constitute unlawful fee splitting.
We
have begun to contract with physician owned professional corporations or professional associations to facilitate the delivery of telehealth
services to their patients. We enter into management services agreements with these physician owned professional corporations pursuant
to which we provide them with a comprehensive set of non-clinical management and administrative services. The physician owned professional
corporations are solely responsible for practicing medicine and all clinical decision-making. These professional corporations will pay
us for our management services from the fees they will collect from patients and third-party payors. Our relationships with these physician
owned professional corporations are subject to various state laws that prohibit fee splitting or the practice of medicine by lay entities
or persons. Corporate practice of medicine laws and enforcement varies by state. In some states, decisions and activities such as contracting
with third party payors, setting rates and the hiring and management of non-clinical personnel may implicate the restrictions on the
corporate practice of medicine.
In
addition, corporate practice of medicine restrictions are subject to broad powers of interpretation and enforcement by state regulators.
Some of these requirements may apply to us even if we do not have a physical presence in a state, solely because we provide management
services to a provider licensed in the state or facilitate the provision of telehealth to a resident of the state. State medical practice
boards, other regulatory authorities, or other parties, including the physicians or other providers with whom we contract, may assert
that, despite these arrangements, we are engaged in the corporate practice of medicine or that our contractual arrangements with affiliated
physician groups constitute unlawful fee splitting. In this event, failure to comply could lead to adverse judicial or administrative
action against us and/or our providers, civil or criminal penalties, receipt of cease-and-desist orders from state regulators, loss of
provider licenses, the need to make changes to the terms of engagement with providers that interfere with our business and other materially
adverse consequences.