We are a holding company focused on investing in and building a network of subsidiaries engaged in diagnostic testing, the franchising of Chiropractic USA branded chiropractic clinics, providing practice development training and assistance to chiropractors, and offering franchise support and related services to franchisees. We currently have fifty-one employees including three in management, forty-three in diagnostic testing, four in franchise sales and support operations, and one administration.
Diagnostic USA . Diagnostic USA is our diagnostic testing business, offering Nerve Conduction Velocity (“NCV”) testing through our franchisees and health care professionals to their patients. NCV testing measures the transmission of nerve impulses through the body, identifies problems in the nervous system, and helps to substantiate the benefit and cost of treatment to patients and their insurers. We offer NCV testing through doctors and chiropractors.
Diagnostic USA sets up blocks of patient testing appointments and then arranges for one of our certified neurological technicians to bring test equipment to the doctors’ offices and perform the scheduled tests. The business, which is based in Boca Raton, Florida, performs approximately ten thousand tests annually and has forty-three employees.
To enter the diagnostic testing business, on May 25, 2005 we purchased all of the stock of Nationwide Diagnostic Solutions, Inc., an Arizona corporation based in Tempe, Arizona (“Nationwide”), from Dr. Jeff and Constance Rebarcak (the “Rebarcaks”), the founders, sole shareholders and operators of Nationwide for $700,000. Prior to the closing, the accounts receivable of Nationwide were assigned to the Rebarcaks. We transferred the remaining asset of Nationwide, the patronage of its customer base, to our new subsidiary Southern Diagnostics, Inc., a Colorado corporation (“Southern”). Southern contributed the customer accounts to Premier SD, LLC, an Alaska limited liability company based in Boca Raton, Florida for 30% of all fees collected by Premier SD, LLC subject to certain adjustments under an operating agreement between Southern and Premier Health Services, LLC, a Delaware limited liability company, that manages Premier’s diagnostic testing business.
We recently decided to purchase substantially all of the outstanding equity securities of the constituent entities of Premier’s diagnostic testing business, Premier Medical Group, Inc., Premier Imaging, LLC and Premier Health Services, LLC, (hereinafter collectively referred to as “Premier”), from Dr. Brad Goldstein (“Dr. Goldstein”) the founder, owner and operator of Premier. As a result of the acquisition, all of the assets and liabilities of the business have been transferred to us. See Certain Relationships and Related Transactions – Premier Acquisition. The source of funds for the acquisition was the securities purchase agreement described herein in Certain Relationships and Related Transactions – Securities Purchase Agreements – 2006 Securities Purchase Agreement.
Premier has also developed the VT3000, an NCV testing device. The Food and Drug Administration granted Premier marketing approval for the VT3000 on October 27, 2005. We intend to arrange with third parties to manufacture the device and to market it to physicians and chiropractors. With the VT3000 installed in their offices, doctors can perform NCV testing when the patient is at their office without scheduling a visit from our technicians. Board certified neurologists, physiatrists, and our technicians will be able to supervise the testing via the Internet and telephone. We believe that this protocol will increase the number of tests we can perform and related testing revenue. Beta or field-testing of the VT3000 began in April 2006. We plan to manufacture and market the VT3000 by the end of 2006.
Competition and Regulation in NCV Testing. It is estimated that approximately two million nerve conduction studies are performed on patients annually in the United States. This includes traditional nerve conduction studies such as electromyography (EMG) performed by neurologists and a relatively small number of point-of-service tests performed by primary care physicians, such as those we offer. The number of nerve conduction studies could increase with the development of more economical and convenient point-of-services test systems such as the VT3000.
We expect to encounter substantial competition from a testing system developed by Neurometrix, Inc. that has reportedly been used on more than 500,000 patients during the past few years and is currently used in more than 3,300 physicians’ offices. Neurometrix reported for fiscal 2005 revenue of $34.3 million. We also expect to encounter indirect competition with manufacturers of traditional testing systems who typically market their equipment to neurologists, including Viasys Healthcare, Inc., Cadwell Laboratories, Inc. and Xltec, Inc. Other companies not presently in the market may decide to enter our market.
All of the companies mentioned have extensive experience in the design, development, manufacture and marketing of nerve conduction study systems and possess far greater financial, technological and human resources greater than ours. In consideration of this and of barriers to entry into the market created by government regulation and the medical community’s preference for established systems, these companies have a competitive advantage over us.
The FDA regulates the development, testing, manufacture and marketing of medical devices, including NCV test equipment. Under FDA regulations, all manufacturers of medical devices are required to register with the FDA and to adhere to certain good manufacturing practices and good laboratory practices, which prescribe recordkeeping procedures and provide for the unscheduled inspection of facilities. Manufacturers of new medical devices must comply with FDA pre-marketing testing, analysis and approval requirements. Proof of safety and effectiveness in the form of extensive clinical data must be submitted to and pre-market approval granted by the FDA prior to general marketing. A new pre-market approval application or supplement may be required if the device is modified or for changes to its labeling, intended use or manufacturing process.
We anticipate that revenue in the NCV testing segment will depend on reimbursement of the cost incurred by patients by third party payers to the doctors. Third party payers include private insurance companies, managed care organizations, and government programs such as Medicare and Medicaid. Their coverage and reimbursement policies will affect our ability to sell our products and services. From time to time third party payers limit and restrict NCV testing. Current policy is that NCV testing may be performed only by medical doctors or doctors of osteopathic medicine. Third party payers may deny reimbursement should they determine that NCV testing is not medically necessary or appropriate. Managed care organizations often require pre-approval of patient testing. Reimbursement is based on an authorization code that is submitted to insurers; these codes may be changed to adversely affect us. There can be no assurance that our NCV testing will continue to be reimbursed by third party payers.
Chiropractic USA. There are approximately 80,000 chiropractors in the United States and Canada. Approximately 2,000 new graduates enter the field each year. An estimated 20,000,000 Americans are expected to visit a chiropractor each year, and expenses for the treatment of lower back pain are expected to exceed approximately $50 billion. The aging of the population, continued population growth, advanced chiropractic treatments, increased health care, and greater health consciousness are trends that assure the chiropractic industry a future of expanding services. Despite the size and potential of the chiropractic market, there had been no national brand.
Management believes these factors have created a unique and significant business opportunity: to establish the first nationally franchised brand in the burgeoning chiropractic market and to provide ancillary services to chiropractors. Chiropractic USA was formed to develop and franchise Chiropractic USA brand chiropractic clinics throughout North America under the Chiropractic USA trademark and uniform operating systems and practices.
We have embarked on two main development strategies: direct marketing of franchises and recruiting area developers to increase the number of franchises in exclusive territories. In the middle of 2003, we completed development of our uniform franchise offering materials and began the rollout of our franchising program through direct marketing to existing practitioners and chiropractic students.
We are developing our network of franchised clinics through conversion of established practices to franchised Chiropractic USA brand clinic locations and franchising new practitioners. Established practices that convert receive a corporate identity – logos, banners, name recognition, marketing capability, a uniform operating and business format, practice development services, and other services available through us. These conversions will establish a strong basis for our operations and enable us to build up our brand rapidly. We have also been marketing to new practitioners and recently graduated chiropractic students. As additional services to new practitioners, we offer site selection consultation, lease negotiation, practice design and other services.
We have entered into eighty-seven franchise agreements. Our franchise agreements provide for payment of percentage royalties, contribution to a national advertising fund, and charges for additional services selected by the franchisee. New practitioners pay a franchise fee in addition to these charges. Some franchise agreements cover more than one location.
We recruit area developers from all regions of the country. An area developer is responsible for increasing the number of Chiropractic USA locations within an exclusive territory. An area developer receives a portion of the percentage royalty we collect from the territory. We have entered into fifteen area representative agreements in twenty states. Typically, an area developer enters into one or more franchise agreements.
During the latter half of 2002, we acquired a chain of three clinics in Louisiana, which were re-branded under Chiropractic USA. This allowed us to implement our practice methods in our own clinics and commence the chain/brand building segment of our business plan. These clinics served as a flagship or role model for the Chiropractic USA chain. See Certain Relationships and Related Transactions – Acquisition of Corporate Clinics.
On April 8, 2005, we signed an agreement effective December 31, 2004 to sell the three clinics for $1,000,000 to LSI Group, LLC, a Louisiana limited liability company. As payment, LSI assumed $175,493 of the liabilities associated with the business and issued us a promissory note for $824,507 payable in equal monthly installments of principal and interest at 5% for ten years beginning September 1, 2005. The note is secured by substantially all of the assets of the business. LSI is current in paying its obligations under this note.
In December 2002, we entered into an agreement in principle with recognized Chiropractic Coach Dr. CJ Mertz to assist us with the development of our franchising. Dr. Mertz has operated The Waiting List Practice Chiropractic Training Organization (www.teamwlp.com) and its predecessors for approximately 20 years. According to Team WLP, Dr. Mertz has trained with thousands of chiropractors and has visited over one thousand private practices worldwide, Team WLP has successfully built more practices profitably than any other coaching program and Dr. Mertz has received numerous awards from the chiropractic profession. We utilize Team WLP in our franchise system to encourage maximum potential for our franchisees. Additionally, Dr. Mertz will have a significant role in the growth of our network as well as strategic planning and execution. Under the agreement Dr. Mertz owns a minority interest in our subsidiary Chiropractic USA and up to one-quarter of our royalties on franchises he introduces to us.
On May 7, 2001, Banyan Corporation entered into three contracts with our Chief Executive Officer and our Chief Financial Officer in connection with the repositioning of our business into the chiropractic market: an Offer to Purchase (Intellectual Property), an Offer to Purchase Franchise Support Network, Inc. and, Management Agreements with each of these officers (the “Management Agreements”). See Management – Directors and Executive Officers; Executive Compensation; and, Certain Relationships and Related Transactions – Chiropractic USA and Franchise Support Network Acquisitions.
Franchise Support Network. Franchise Support Network (“FSN”) is intended to be a dedicated support unit to assist the needs of practitioners who would like to be Chiropractic USA franchisees. It will offer such support services as business plan formulation, franchise agreement review and negotiation, assistance in site selection, lease review and negotiation, local marketing assistance, accounting services, and other ongoing services. We intend that Franchise Support Network will establish relationships with business consultants and accountants across North America in order to establish itself as a network of one-stop franchise consultants. Franchise Support Network has its principal place of business in Calgary, Alberta. As of the date hereof, significant operations have not commenced.
Diagnostic USA . Diagnostic USA is our diagnostic testing business, offering Nerve Conduction Velocity (“NCV”) testing through our franchisees and health care professionals to their patients. NCV testing measures the transmission of nerve impulses through the body, identifies problems in the nervous system, and helps to substantiate the benefit and cost of treatment to patients and their insurers. We offer NCV testing through doctors and chiropractors.
Diagnostic USA sets up blocks of patient testing appointments and then arranges for one of our certified neurological technicians to bring test equipment to the doctors’ offices and perform the scheduled tests. The business, which is based in Boca Raton, Florida, performs approximately ten thousand tests annually and has forty-three employees.
To enter the diagnostic testing business, on May 25, 2005 we purchased all of the stock of Nationwide Diagnostic Solutions, Inc., an Arizona corporation based in Tempe, Arizona (“Nationwide”), from Dr. Jeff and Constance Rebarcak (the “Rebarcaks”), the founders, sole shareholders and operators of Nationwide for $700,000. Prior to the closing, the accounts receivable of Nationwide were assigned to the Rebarcaks. We transferred the remaining asset of Nationwide, the patronage of its customer base, to our new subsidiary Southern Diagnostics, Inc., a Colorado corporation (“Southern”). Southern contributed the customer accounts to Premier SD, LLC, an Alaska limited liability company based in Boca Raton, Florida for 30% of all fees collected by Premier SD, LLC subject to certain adjustments under an operating agreement between Southern and Premier Health Services, LLC, a Delaware limited liability company, that manages Premier’s diagnostic testing business.
We recently decided to purchase substantially all of the outstanding equity securities of the constituent entities of Premier’s diagnostic testing business, Premier Medical Group, Inc., Premier Imaging, LLC and Premier Health Services, LLC, (hereinafter collectively referred to as “Premier”), from Dr. Brad Goldstein (“Dr. Goldstein”) the founder, owner and operator of Premier. As a result of the acquisition, all of the assets and liabilities of the business have been transferred to us. See Certain Relationships and Related Transactions – Premier Acquisition. The source of funds for the acquisition was the securities purchase agreement described herein in Certain Relationships and Related Transactions – Securities Purchase Agreements – 2006 Securities Purchase Agreement.
Premier has also developed the VT3000, an NCV testing device. The Food and Drug Administration granted Premier marketing approval for the VT3000 on October 27, 2005. We intend to arrange with third parties to manufacture the device and to market it to physicians and chiropractors. With the VT3000 installed in their offices, doctors can perform NCV testing when the patient is at their office without scheduling a visit from our technicians. Board certified neurologists, physiatrists, and our technicians will be able to supervise the testing via the Internet and telephone. We believe that this protocol will increase the number of tests we can perform and related testing revenue. Beta or field-testing of the VT3000 began in April 2006. We plan to manufacture and market the VT3000 by the end of 2006.
Competition and Regulation in NCV Testing. It is estimated that approximately two million nerve conduction studies are performed on patients annually in the United States. This includes traditional nerve conduction studies such as electromyography (EMG) performed by neurologists and a relatively small number of point-of-service tests performed by primary care physicians, such as those we offer. The number of nerve conduction studies could increase with the development of more economical and convenient point-of-services test systems such as the VT3000.
We expect to encounter substantial competition from a testing system developed by Neurometrix, Inc. that has reportedly been used on more than 500,000 patients during the past few years and is currently used in more than 3,300 physicians’ offices. Neurometrix reported for fiscal 2005 revenue of $34.3 million. We also expect to encounter indirect competition with manufacturers of traditional testing systems who typically market their equipment to neurologists, including Viasys Healthcare, Inc., Cadwell Laboratories, Inc. and Xltec, Inc. Other companies not presently in the market may decide to enter our market.
All of the companies mentioned have extensive experience in the design, development, manufacture and marketing of nerve conduction study systems and possess far greater financial, technological and human resources greater than ours. In consideration of this and of barriers to entry into the market created by government regulation and the medical community’s preference for established systems, these companies have a competitive advantage over us.
The FDA regulates the development, testing, manufacture and marketing of medical devices, including NCV test equipment. Under FDA regulations, all manufacturers of medical devices are required to register with the FDA and to adhere to certain good manufacturing practices and good laboratory practices, which prescribe recordkeeping procedures and provide for the unscheduled inspection of facilities. Manufacturers of new medical devices must comply with FDA pre-marketing testing, analysis and approval requirements. Proof of safety and effectiveness in the form of extensive clinical data must be submitted to and pre-market approval granted by the FDA prior to general marketing. A new pre-market approval application or supplement may be required if the device is modified or for changes to its labeling, intended use or manufacturing process.
We anticipate that revenue in the NCV testing segment will depend on reimbursement of the cost incurred by patients by third party payers to the doctors. Third party payers include private insurance companies, managed care organizations, and government programs such as Medicare and Medicaid. Their coverage and reimbursement policies will affect our ability to sell our products and services. From time to time third party payers limit and restrict NCV testing. Current policy is that NCV testing may be performed only by medical doctors or doctors of osteopathic medicine. Third party payers may deny reimbursement should they determine that NCV testing is not medically necessary or appropriate. Managed care organizations often require pre-approval of patient testing. Reimbursement is based on an authorization code that is submitted to insurers; these codes may be changed to adversely affect us. There can be no assurance that our NCV testing will continue to be reimbursed by third party payers.
Chiropractic USA. There are approximately 80,000 chiropractors in the United States and Canada. Approximately 2,000 new graduates enter the field each year. An estimated 20,000,000 Americans are expected to visit a chiropractor each year, and expenses for the treatment of lower back pain are expected to exceed approximately $50 billion. The aging of the population, continued population growth, advanced chiropractic treatments, increased health care, and greater health consciousness are trends that assure the chiropractic industry a future of expanding services. Despite the size and potential of the chiropractic market, there had been no national brand.
Management believes these factors have created a unique and significant business opportunity: to establish the first nationally franchised brand in the burgeoning chiropractic market and to provide ancillary services to chiropractors. Chiropractic USA was formed to develop and franchise Chiropractic USA brand chiropractic clinics throughout North America under the Chiropractic USA trademark and uniform operating systems and practices.
We have embarked on two main development strategies: direct marketing of franchises and recruiting area developers to increase the number of franchises in exclusive territories. In the middle of 2003, we completed development of our uniform franchise offering materials and began the rollout of our franchising program through direct marketing to existing practitioners and chiropractic students.
We are developing our network of franchised clinics through conversion of established practices to franchised Chiropractic USA brand clinic locations and franchising new practitioners. Established practices that convert receive a corporate identity – logos, banners, name recognition, marketing capability, a uniform operating and business format, practice development services, and other services available through us. These conversions will establish a strong basis for our operations and enable us to build up our brand rapidly. We have also been marketing to new practitioners and recently graduated chiropractic students. As additional services to new practitioners, we offer site selection consultation, lease negotiation, practice design and other services.
We have entered into eighty-seven franchise agreements. Our franchise agreements provide for payment of percentage royalties, contribution to a national advertising fund, and charges for additional services selected by the franchisee. New practitioners pay a franchise fee in addition to these charges. Some franchise agreements cover more than one location.
We recruit area developers from all regions of the country. An area developer is responsible for increasing the number of Chiropractic USA locations within an exclusive territory. An area developer receives a portion of the percentage royalty we collect from the territory. We have entered into fifteen area representative agreements in twenty states. Typically, an area developer enters into one or more franchise agreements.
During the latter half of 2002, we acquired a chain of three clinics in Louisiana, which were re-branded under Chiropractic USA. This allowed us to implement our practice methods in our own clinics and commence the chain/brand building segment of our business plan. These clinics served as a flagship or role model for the Chiropractic USA chain. See Certain Relationships and Related Transactions – Acquisition of Corporate Clinics.
On April 8, 2005, we signed an agreement effective December 31, 2004 to sell the three clinics for $1,000,000 to LSI Group, LLC, a Louisiana limited liability company. As payment, LSI assumed $175,493 of the liabilities associated with the business and issued us a promissory note for $824,507 payable in equal monthly installments of principal and interest at 5% for ten years beginning September 1, 2005. The note is secured by substantially all of the assets of the business. LSI is current in paying its obligations under this note.
In December 2002, we entered into an agreement in principle with recognized Chiropractic Coach Dr. CJ Mertz to assist us with the development of our franchising. Dr. Mertz has operated The Waiting List Practice Chiropractic Training Organization (www.teamwlp.com) and its predecessors for approximately 20 years. According to Team WLP, Dr. Mertz has trained with thousands of chiropractors and has visited over one thousand private practices worldwide, Team WLP has successfully built more practices profitably than any other coaching program and Dr. Mertz has received numerous awards from the chiropractic profession. We utilize Team WLP in our franchise system to encourage maximum potential for our franchisees. Additionally, Dr. Mertz will have a significant role in the growth of our network as well as strategic planning and execution. Under the agreement Dr. Mertz owns a minority interest in our subsidiary Chiropractic USA and up to one-quarter of our royalties on franchises he introduces to us.
On May 7, 2001, Banyan Corporation entered into three contracts with our Chief Executive Officer and our Chief Financial Officer in connection with the repositioning of our business into the chiropractic market: an Offer to Purchase (Intellectual Property), an Offer to Purchase Franchise Support Network, Inc. and, Management Agreements with each of these officers (the “Management Agreements”). See Management – Directors and Executive Officers; Executive Compensation; and, Certain Relationships and Related Transactions – Chiropractic USA and Franchise Support Network Acquisitions.
Franchise Support Network. Franchise Support Network (“FSN”) is intended to be a dedicated support unit to assist the needs of practitioners who would like to be Chiropractic USA franchisees. It will offer such support services as business plan formulation, franchise agreement review and negotiation, assistance in site selection, lease review and negotiation, local marketing assistance, accounting services, and other ongoing services. We intend that Franchise Support Network will establish relationships with business consultants and accountants across North America in order to establish itself as a network of one-stop franchise consultants. Franchise Support Network has its principal place of business in Calgary, Alberta. As of the date hereof, significant operations have not commenced.
