Company Quick10K Filing
Quick10K
Spine Injury Solutions
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-11-13 Earnings, Exhibits
8-K 2018-10-30 Shareholder Vote
8-K 2018-09-05 Enter Agreement, Officers
8-K 2018-08-15 Earnings, Exhibits
8-K 2018-05-14 Earnings, Exhibits
LVS Las Vegas Sands 52,670
GRMN Garmin 16,630
Y Alleghany 9,260
IPI Intrepid Potash 508
TRC Tejon Ranch 462
BCOM B Communications 73
NTRP Neurotrope 73
PLX Protalix Biotherapeutics 65
EVGN Evogene 60
TWX Time Warner 0
SPIN 2018-09-30
Part I Financial Information
Item 1. Financial Statements
Note 1. Description of Business
Note 2. Going Concern Considerations
Note 3. Critical Accounting Policies
Note 4. Accounts Receivable
Note 5. Due To Related Parties
Note 6. Stockholders' Equity
Note 7. Notes Payable
Note 8. Line of Credit
Note 9. Income Taxes
Item 2. Management'S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.7 ex_129133.htm
EX-10.8 ex_129544.htm
EX-10.9 ex_129134.htm
EX-31.1 ex_129078.htm
EX-31.2 ex_129079.htm
EX-32.1 ex_129080.htm
EX-32.2 ex_129081.htm

Spine Injury Solutions Earnings 2018-09-30

SPIN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 spineinj20180930_10q.htm FORM 10-Q spineinj20180930_10q.htm

 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

☒ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2018.

 

☐ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)
For the transition period from _______ to _______.

 

Commission file number: 000-27407

 

SPINE INJURY SOLUTIONS, INC.
(Name of Registrant in Its Charter)

 

Delaware 

98-0187705

(State or Other Jurisdiction of Incorporation or

(I.R.S. Employer Identification No.)

Organization)

  

 

5225 Katy Freeway
Suite 600

Houston, Texas   77007
(Address of Principal Executive Offices)

 

(713) 521-4220
(Issuer's Telephone Number, Including Area Code)

 

 

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 (§232.405 of this chapter) 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. 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

As of November 13, 2018, there were 20,240,882 shares of the registrant’s common stock outstanding (the only class of voting common stock).

 

 

FORM 10-Q

 

TABLE OF CONTENTS

 

Note About Forward-Looking Statements

   
       

PART I

FINANCIAL INFORMATION

   
       

Item 1.

Condensed Consolidated Financial Statements

   
       
 

Condensed Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017 

 

4

       
 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (Unaudited)

 

5

       
 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited)

 

6

       
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

       

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

15

       

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

17

       

Item 4.

Controls and Procedures

 

17

       

PART II

OTHER INFORMATION

   
       

Item 1A.

Risk Factors

 

18

       

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

18

       

Item 6.

Exhibits

 

18

       
 

Signatures

 

20

  

 

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including without limitation, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and in our Annual Report on Form 10-K for the year ended December 31, 2017, and in particular, the risks discussed in our Form 10-K under the caption “Risk Factors” in Item 1A therein, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, risks associated with service demands and acceptance, our ability to expand, changes in healthcare practices, changes in technology, economic conditions, the impact of competition and pricing, government regulation and approvals and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

As used herein, the “Company,” “we,” “our,” and similar terms include Spine Injury Solutions, Inc. and its subsidiaries and predecessors, unless the context indicates otherwise.

 

 

 

 

 

 

 

 

PART I  FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

 

SPINE INJURY SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

  

   

SEPTEMBER 30,

   

DECEMBER 31,

 
   

2018 

   

2017

 

ASSETS

 

(Unaudited)

         
                 

Current assets:

               

 Cash

  $ 47,588     $ 77,843  

Accounts receivable, net

    1,103,984       1,078,184  

Prepaid expenses

    20,546       9,250  

Inventories

    221,915       200,825  
                 

Total current assets

    1,394,033       1,366,102  
                 

Accounts receivable, net of allowance for doubtful accounts

of $51,209 and $106,443 at September 30, 2018 and

December 31, 2017, respectively

    2,524,753       2,405,837  

Property and equipment, net

    28,439       43,164  

Intangible assets and goodwill

    170,200       170,200  
                 

Total assets

  $ 4,117,425     $ 3,985,303  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               

Line of credit

  $ 1,490,000     $ 1,325,000  

Notes payable

    90,000       225,000  

Accounts payable and accrued liabilities

    101,186       79,205  

Deferred Revenue

    22,935       -  

Due to related parties

    21,307       27,910  
                 

Total current liabilities

    1,725,428       1,657,115  
                 

Commitments and contingencies

               
                 

Stockholders' equity:

               

Common stock: $0.001 par value, 50,000,000 shares authorized,  20,240,882 shares issued and outstanding at September 30, 2018 and 20,215,882 at December 31, 2017

    20,241       20,216  

Additional paid-in capital

    19,869,511       19,864,536  

Accumulated deficit

    (17,497,755 )     (17,556,564 )
                 

         Total stockholders' equity

    2,391,997       2,328,188  
                 

       Total liabilities and stockholders’ equity

  $ 4,117,425     $ 3,985,303  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

SPINE INJURY SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

   

FOR THE THREE MONTHS ENDED

SEPTEMBER 30,

   

FOR THE NINE MONTHS ENDED

SEPTEMBER 30,

 
   

2018

   

2017

   

2018

   

2017

 

Net revenue

  $ 561,706     $ 565,202     $ 1,800,842     $ 1,492,429  
                                 

Cost of providing services, including amounts

                               

Billed by a related party of

                               

Third party providers

    139,994       22,605       253,019       41,477  

Related party providers

    70,107       142,745       358,335       421,260  
                                 

Total cost of providing services

    210,101       165,350       611,354       462,737  
                                 

Gross profit

    351,605       399,852       1,189,488       1,029,692  
                                 

Research and development expenses

    -       -       -       12,203  

Operating, general and administrative expenses

    394,539       378,063       1,090,357       1,177,558  
                                 

Income (loss) from operations

    (42,934 )     21,789       99,131       (160,069

)

                                 

Other income and (expense):

                               

Other income

    5,608       666       7,448       4,237  

Interest expense

    (16,790

)

    (14,866

)

    (47,770

)

    (41,497

)

                                 

Total other income and (expense)

    (11,182

)

    (14,200

)

    (40,322

)

    (37,260

)

                                 

Net (loss) income

  $ (54,116 )   $ 7,589     $ 58,809     $ (197,329

)

                                 

Net (loss) income per common share:

                               

Basic and diluted

  $ 0.00     $ 0.00     $ 0.00     $ (0.01

)

                                 

Weighted average number of common shares outstanding:

                               

Basic and diluted

    20,222,775       20,161,317       20,236,211       20,151,230  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

SPINE INJURY SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

FOR THE NINE MONTHS ENDED

SEPTEMBER 30,

 
   

2018

   

2017

 

Cash flows from operating activities:

               

Net income (loss)

  $ 58,809     $ (197,329 )

Adjustments to reconcile net income (loss) to net cash

 used in operating activities:

               

Provision for bad debt

    215,000       170,000  

Stock based compensation

    5,000       10,900  

Depreciation and amortization expense

    14,725       14,183  

Changes in operating assets and liabilities:

               

Accounts receivable, net

    (359,716

)

    (76,421 )

Inventories

    (21,090

)

    6,987  

Prepaid expenses and other assets

    (11,296

)

    (9,250 )

Deferred Revenue

    22,935       -  

Due to related party

    (6,603 )     10,396  

Accounts payable and accrued liabilities

    21,981       (16,457 )
                 

Net cash used in operating activities

    (60,255 )     (86,991 )
                 

Cash flows from investing activities:

               

 Purchase of equipment

    -       (3,614 )
                 

Net cash used in investing activities

    -       (3,614 )
                 

Cash flows from financing activities:

               

Payment of notes payable and long-term debt

    (135,000

)

    (50,000 )

Proceeds from line of credit, net

    165,000       25,000  
                 

Net cash provided by (used) in financing activities

    30,000       (25,000 )
                 

Net decrease in cash and cash equivalents

    (30,255

)

    (115,605 )
                 

Cash and cash equivalents at beginning of period

    77,843       256,263  

Cash and cash equivalents at end of period

  $ 47,588     $ 140,658  
                 

Supplementary cash flow information:

               

Interest paid

  $ 47,770     $ 41,497  

Taxes paid

  $ -     $ -  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

NOTE 1. DESCRIPTION OF BUSINESS

 

Spine Injury Solutions Inc. was incorporated under the laws of Delaware on March 4, 1998.  We changed our name from Spine Pain Management Inc. to Spine Injury Solutions, Inc. on October 1, 2015.

 

We are a technology, marketing, management, billing, and collection company facilitating diagnostic services for patients who have sustained spine injuries resulting from traumatic accidents.  We deliver turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary and appropriate treatment of musculo-skeletal spine injuries resulting from automobile and work-related accidents.  Our goal is to become a leader in providing management services to spine and orthopedic surgeons and other healthcare providers to facilitate proper treatment of their injured clients.  By pre-funding the providers’ accounts receivable, which includes diagnostic testing and non-invasive surgical care, patients are not unnecessarily delayed or prevented from obtaining needed treatment.  By facilitating early treatment through affiliated doctors, we believe that health conditions can be prevented from escalating and injured victims can be quickly placed on the road to recovery.  Through our affiliate system, we facilitate spine surgeons, orthopedic surgeons and other healthcare providers to provide reasonable, necessary, and appropriate treatments to patients with musculo-skeletal spine injuries. We assist the centers that provide the spine diagnostic injections and treatment and pay the doctors a fee for the medical procedures they performed. After a patient is billed for the procedures performed by the affiliated doctor, we take control of the patients’ unpaid bill and oversee collection. In most instances, the patient is a plaintiff in an accident case, where the patient is represented by an attorney. Typically, the defendant (and/or the insurance company of the defendant) in the accident case pays the patient’s bill upon settlement or final judgment of the accident case. The payment to us is made through the attorney of the patient. In most cases, we must agree to the settlement price and the patient must sign off on the settlement. Once we are paid, the patient’s attorney can receive payment for his or her legal fee.

 

We currently are affiliated with four spine injury diagnostic centers in the United States, which are located in Houston, Texas; Odessa, Texas; Tyler, Texas and Las Cruces, New Mexico. We are seeking additional funding for expansion by way of reasonable debt financing to accelerate future development.  In connection with this strategy, we plan to open additional diagnostic centers in new market areas that are attractive under our business model, assuming adequate funds are available.

 

We own a patented device and process by which a video recording system is attached to a fluoroscopic x-ray machine, the “four camera technology,” which we have refined through research and development, resulting in a fully commercialized Quad Video Halo System 3.0.  Using this technology, diagnostic and treatment procedures are recorded from four separate video feeds that capture views from both inside and outside the body, and a video is made which is given to the patient’s representative to verify the treatment received. We believe the Quad Video Halo (“QVH”) can attract additional physicians and patients and provide us with additional revenue streams using our new programs designed to assist in treatment documentation.   Additionally, we anticipate independent medical representatives will sell QVH units to new hospitals and clinics.

 

In September 2014, we created a wholly owned subsidiary, Quad Video Halo, Inc.  The purpose of this entity is to hold certain company assets in connection with the QVH units.  

 

NOTE 2. GOING CONCERN CONSIDERATIONS

 

Since our inception in 1998, until commencement of our spine injury diagnostic operations in August, 2009, our expenses substantially exceeded our revenue, resulting in continuing losses and an accumulated deficit from operations of $15,004,698 as of December 31, 2009.  Since that time, our accumulated deficit has increased $2,493,057 to $17,497,755 as of September 30, 2018. We plan to increase our operating expenses as we increase our service development, marketing efforts and brand building activities. We also plan to increase our general and administrative functions to support our growing operations. We will need to generate significant revenues to achieve our business plan. Our continued existence is dependent upon our ability to successfully execute our business plan, as well as our ability to increase revenue from services and obtain additional capital from borrowing and selling securities, as needed, to fund our operations. There is no assurance that additional capital can be obtained or that it can be obtained on terms that are favorable to us and our existing stockholders.  Any expectation of future profitability is dependent upon our ability to expand and develop our healthcare services business, of which there can be no assurances.

 

 

NOTE 3. CRITICAL ACCOUNTING POLICIES

 

The following are summarized accounting policies considered to be critical by our management:

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Nevertheless, we believe that the disclosures are adequate to make the information presented not misleading. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2017 Annual Report as filed on Form 10-K. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position with respect to the interim condensed consolidated financial statements and the results of its operations for the interim period ended September 30, 2018, have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year.

 

Basis of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Spine Injury Solutions, Inc. and its wholly owned subsidiary, Quad Video Halo, Inc. All material intercompany balances of transactions have been eliminated upon consolidation.

 

Accounting Method

 

Our financial statements are prepared using the accrual basis of accounting in accordance with U.S. GAAP.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our condensed consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of our financial position and results of operations.

 

Revenue Recognition

 

Our net revenues include service and product revenues. Service revenues arise from the delivery of medical diagnostic services provided to the patient by medical professionals at the spine injury diagnostic centers, only after the patient completes and signs required medical and financial paperwork. Service revenues are recorded as net patient service revenues based on variable consideration elements further described in Note 4. Product sales arise from the sale and transfer of control of the Company’s QVH units to a consumer. QVH services sales arise when a customer requests use of a QVH unit along with video processes and storage. The services are provided on a monthly basis satisfying the performance obligation. The Company did not have material product sales or service sales related to the QVH units included during the three and nine months ended September 30, 2018 and September 30, 2017. However, for the three and nine months  ended September 30,2018 or 2017,  the Company recorded $22,935 and $0 in deferred revenue related to a QVH services contract beginning in the fourth quarter 2018. As such, for the purposes of the condensed consolidated financial statements, there is no material disaggregation of revenues as the material portion of revenues consisted of the service revenues.

 

Our credit policy has been established based upon extensive experience by management in the industry and has been determined to ensure that collectability is reasonably assured.  Payment for services are primarily made to us by a third party and the credit policy includes terms of net 240 days for collections; however, collections occur upon settlement or judgment of cases (see Note 4). As of September 30, 2018, and 2017, there were no material contract assets, contract liabilities, or deferred contract costs recorded on the condensed consolidated financial statements.

 

 

Fair Value of Financial Instruments

 

Cash, accounts receivable, accounts payable and accrued liabilities, and notes payable, as reflected in the condensed consolidated financial statements, approximates fair value.  Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of liquid investments with original maturities of three months or less.  Cash equivalents are stated at cost, which approximates fair value.  We maintain cash and cash equivalents in banks, which at times may exceed federally insured limits. We have not experienced any losses on these deposits.

 

Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method, whereas market is based on the net realizable value. All inventories at September 30, 2018 and December 31, 2017 are classified as finished-goods and consist of our Quad Video Halo units.

 

Property and Equipment

 

Property and equipment are carried at cost.  When retired or otherwise disposed of, the related carrying cost and accumulated depreciation are removed from the respective accounts, and the net difference, less any amount realized from the disposition, is recorded in operations.  Maintenance and repairs are charged to operating expenses as incurred. Costs of significant improvements and renewals are capitalized.

 

Property and equipment consists of computers and equipment and are depreciated over their estimated useful lives of three to five years, using the straight-line method.

 

Intangible Assets and Goodwill

 

Intangible assets acquired are initially recognized at cost. Intangible assets acquired in a business combination are recognized at their estimated fair value at the date of acquisition. Intangibles with a finite life are amortized, ratably, based on the contractual terms of the associated agreements.

 

Goodwill recognized in a business combination is subjective and represents the value of the excess amount given to the acquired company above the estimated fair market value of the identifiable net assets on the acquisition date. The goodwill amount is tested for impairment when events or circumstances indicate the asset might be impaired, but at least annually. Impairment occurs when the original amount of goodwill exceeds the value of the expected future net cash flows from the business acquired.  As of September 30, 2018 and December 31, 2017, no impairment to the asset was determined to have occurred.

 

Long-Lived Assets

 

We periodically review and evaluate long-lived assets such as intangible assets, when events and circumstances indicate that the carrying amount of these assets may not be recoverable. In performing our review for recoverability, we estimate the future cash flows expected to result from the use of such assets and its eventual disposition. If the sum of the expected undiscounted future operating cash flows is less than the carrying amount of the related assets, an impairment loss is recognized in the consolidated statements of operations. Measurement of the impairment loss is based on the excess of the carrying amount of such assets over the fair value calculated using discounted expected future cash flows. At September 30, 2018 and December 31, 2017, no impairment of the long-lived assets was determined to have occurred.

 

 

Concentrations of Credit Risk

 

Assets that expose us to credit risk consist primarily of cash and accounts receivable. Our accounts receivable are from a diversified customer base and, therefore, we believe the concentration of credit risk is minimal. We evaluate the creditworthiness of customers before any services are provided.  We record a discount based on the nature of our business, collection trends, and an assessment of our ability to fully realize amounts billed for services.  Additionally, we have established an allowance for doubtful accounts in the amount of $51,209 and $106,443, at September 30, 2018 and December 31, 2017, respectively.

  

Stock Based Compensation

 

We account for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values.  Under authoritative guidance issued by the Financial Accounting Standards Board (“FASB”), companies are required to estimate the fair value or calculated value of share-based payment awards on the date of grant using an option-pricing model.  The value of awards that are ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of operations.  We use the Black-Scholes Option Pricing Model to determine the fair-value of stock-based awards.  During the nine months ended September 30, 2018 and 2017, we recognized compensation expense for issuances of our common stock in exchange for services of $5,000 and $10,900, respectively. During the three months ended September 30, 2018 and 2017, we recognized compensation expense for issuances of our common stock in exchange for services of $5,000 and $5,800, respectively.

 

Income Taxes

 

We account for income taxes in accordance with the liability method. Under the liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.

 

Uncertain Tax Positions

 

Accounting Standards Codification “ASC” Topic 740-10-25 defines the minimum threshold a tax position is required to meet before being recognized in the financial statements as “more likely than not” (i.e., a likelihood of occurrence greater than fifty percent). Under ASC Topic 740-10-25, the recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained.

 

We are subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, we will adjust tax expense to reflect our ongoing assessments of such matters which require judgment and can materially increase or decrease our effective rate, as well as impact operating results.

 

Under ASC Topic 740-10-25, only the portion of the liability that is expected to be paid within one year is classified as a current liability. As a result, liabilities expected to be resolved without the payment of cash (e.g. resolution due to the expiration of the statute of limitations) or are not expected to be paid within one year are not classified as current. We estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense. For the nine months ended September 30, 2018 and 2017, we recognized no estimated interest or penalties as income tax expense.

 

Legal Costs and Contingencies

 

In the normal course of business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation and other matters. We expense these costs as the related services are received.

 

If a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss.

 

 

Earnings (Loss) per Share

 

Basic and diluted earnings (loss) per common share is presented in accordance with ASC Topic 260, “Earnings per Share,” for all periods presented. During the nine months ended September 30, 2018 and 2017, common stock equivalents from outstanding stock options, warrants and convertible debt have been excluded from the calculation of the diluted earnings (loss) per share in the statements of operations, because all such securities were anti-dilutive.  The earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares outstanding during the periods.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This ASU is designed to create greater comparability for financial statement users across industries and jurisdictions.  The provisions of ASU No. 2014-09 include a five-step process by which entities will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which an entity expects to be entitled in exchange for those goods or services.  The standard also will require enhanced disclosures, provide more comprehensive guidance for transactions such as service revenue and contract modifications, and enhance guidance for multiple-element arrangements.  In July 2015, the FASB issued ASU No. 2015-14 which delayed the effective date of ASU No. 2014-09 by one year (effective for annual periods beginning after December 15, 2017).  Early adoption is not permitted.  We have adopted the provisions within this ASU and it did not have a material impact on the financial statements other than the required disclosures included here-in.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU No. 2016-02, lessor accounting is largely unchanged. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018 with early application permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management has determined that based on current accounting and lease contract information, the adoption of ASU No. 2016-02 is not expected to have a significant impact on the Company’s consolidated financial position, results of operations and disclosures. However, management is continually evaluating the future impact of ASU No. 2016-02 based on changes in the Company’s consolidated financial statements through the period of adoption.

 

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU No. 2016-12 provides narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. The amendment also provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers and are expected to reduce the judgment necessary to comply with Topic 606. The effective date and transition requirements for ASU No. 2016-12 are the same as the effective date and transition requirements for ASU No. 2014-09. We have adopted the provisions within this ASU and it did not have a material impact on the financial statements other than the required disclosures included here-in.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 eliminates the probable initial recognition threshold in current generally accepted accounting principles (“GAAP”) and, instead, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU No. 2016-13 is effective for annual periods beginning after December 15, 2020, with early application permitted in annual periods beginning after December 15, 2018. The amendments of ASU No. 2016-13 should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Management is currently evaluating the future impact of ASU No. 2016-13 on the Company’s consolidated financial position, results of operations and disclosures.

 

 

In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. ASU No. 2016-20 allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and require entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. The amendment also clarifies narrow aspects of ASC 606, including contract modifications, contract costs, and the balance sheet classification of items as contract assets versus receivables, or corrects unintended application of the guidance. The effective date and transition requirements for ASU No. 2016-20 are the same as the effective date and transition requirements for ASU No. 2016-09. We have adopted the provisions within this ASU and it did not have a material impact on the financial statements other than the required disclosures included here-in.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business or as acquisitions (or disposals) of assets. ASU No. 2017-01 is effective for annual periods beginning after December 15, 2018, with early adoption permitted under certain circumstances. The amendments of ASU No. 2017-01 should be applied prospectively as of the beginning of the period of adoption. Management is currently evaluating the future impact of ASU No. 2017-01 on the Company’s consolidated financial position, results of operations and disclosures.

 

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. The amendments in this update relate to disclosures of the impact of recently issued accounting standards. The SEC staff’s view is that a registrant should evaluate ASC updates that have not yet been adopted, to determine the appropriate financial disclosures about the potential material effects of the updates on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact of an update, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact. The staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies expected to be applied compared to current accounting policies. Also, the registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments specifically addressed recent ASC amendments to ASU No. 2016-13, Financial Instruments – Credit Losses, ASU No. 2016-02, Leases, and ASU No. 2014-09, Revenue from Contracts with Customers, although the amendments apply to any subsequent amendments to guidance in the ASC. ASU No. 2017-03 is effective upon issuance and did not have a significant impact on the Company’s consolidated financial position, results of operations and disclosures.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this update provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. ASU No. 2017-09 is effective for annual periods, including interim periods, beginning after December 15, 2017, with early adoption permitted for interim periods of public business entities within reporting periods for which financial statements have not yet been issued. The amendments of ASU No. 2017-09 should be applied prospectively as of the beginning of the period of adoption. Management has adopted the provisions of this ASU, January 1, 2018 and there were no significant effects on the consolidated financial statements or disclosures.

 

NOTE 4. ACCOUNTS RECEIVABLE

 

Our net revenues include service and product revenues. Service revenues arise from the delivery of medical diagnostic services provided to the patient by medical professionals at the spine injury diagnostic centers, only after the patient completes and signs required medical and financial paperwork. Service revenues are recorded as net patient service revenues based on variable consideration elements described below. Product sales arise from the sale and transfer of control of our QVH units to a consumer. We did not have material sales of QVH units included in our condensed consolidated financial statements.

 

We manage certain spine injury diagnostic centers where independent healthcare providers perform medical services for patients. We pay the healthcare providers a fixed rate for medical services performed. The patients are billed based on Current Procedural Terminology (“CPT”) codes for the contract’s performance obligation, i.e. the medical procedure performed. CPT codes are numbers assigned to every task and service a medical practitioner may provide to a patient including medical, surgical and diagnostic services. CPT codes are developed, maintained and copyrighted by the American Medical Association. Patients are billed at the normal billing amount, based on national averages, for a particular CPT code procedure. We take control of the patients’ unpaid bills.

 

 

Our revenue and corresponding accounts receivable are recognized by reference to “net revenue” and “accounts receivable, net” due to variable consideration elements within the contract allowing for settlement for less than billed amounts. We have elected to use the expected value method for estimating the variable consideration elements within the service revenue contracts and use the sum of probability weighted amounts or collectability percentages as applied to the gross amounts billed using CPT codes. While we do collect 100% of the accounts on some patients, our estimated variable consideration method is used to calculate the carrying balance of the accounts receivable and the estimated revenue to be recorded. A variable consideration discount rate of 48%, based on the expected value method, was used to reduce revenue to 52% of CPT code billings (“gross revenue”) during the three and nine months ended September 30, 2018 and 2017.

 

The patients who receive medical services at the diagnostic centers are typically plaintiffs in accident lawsuits. The timing of collection of receivables is dependent on the timing of a settlement or judgment of each individual case associated with these patients. Historical experience, through 2017, demonstrated that the collection period for individual cases may extend for two years or more. Accordingly, we have classified receivables as current or long term based on our experience, which indicates that as of September 30, 2018 and December 31, 2017, 30% of cases will be subject to a settlement or judgment within one year of a medical procedure.

 

In addition to the variable consideration discount as described above, we maintain an allowance for doubtful accounts for net accounts receivable in which management has determined factors leading to possible uncollectability, such as resignation of patient legal counsel, stale cases, or other credit deteriorations. As of September 30, 2018 and December 31, 2017, we have $51,209 and $106,443 recorded as an allowance for doubtful accounts, respectively. For the three months ended September 30, 2018 and 2017, we recorded $115,000 and $50,000 in bad debt expense, respectively. For the nine months ended September 30, 2018 and 2017, we recorded $215,000 and $170,000 in bad debt expense, respectively. For the three months ended September 30, 2018 and 2017, we recorded $43,220 and $0 in recoveries associated with previously written off receivables, respectively. For the nine months ended September 30, 2018 and 2017, we recorded $63,145 and $0 in recoveries associated with previously written off receivables, respectively.

 

NOTE 5. DUE TO RELATED PARTIES

 

We have an agreement with North Shore Orthopedics (“NSO”), which is 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as our independent contractor at the Houston and Odessa spine injury diagnostic centers. For the nine months ended September 30, 2018 and 2017 we expensed $358,335 and $421,260 related to services provided by NSO. For the three months ended September 30, 2018 and 2017 we recorded $139,944 and $142,745 related to services provided by NSO. As of September 30, 2018 and December 31, 2017, we had balances payable to NSO of $21,307 and $27,910, respectively. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule. We do not directly pay Dr. Donovan (in his individual capacity as a physician) any fees in connection with NSO. However, Dr. Donovan is the sole owner of NSO, and we pay NSO under the terms of our agreement.  

 

NOTE 6. STOCKHOLDERS’ EQUITY

 

In July 2018 we issued 25,000 shares of common stock to a consultant for services, valued at $.20 per share. In January 2017, we issued 10,000 shares of common stock to a consultant for services, valued at $0.21 per share. In May 2017, we issued 10,000 shares of common stock to a consultant for services, valued at $0.30 per share. For the three months ended September 30, 2018 and 2017 we recorded $5,000 and $0 in compensation expense related to these issuances. For the nine months ended September 30, 2018 and 2017 we recorded a total of $5,000 and $10,900 in compensation expense related to these issuances.

 

NOTE 7. NOTES PAYABLE

 

Convertible and secured notes payable

 

On August 29, 2012, we issued Peter Dalrymple, a director of the Company, a $1,000,000 three-year secured promissory note bearing interest at 12% per year, with thirty-five monthly payments of interest commencing on September 29, 2013, and continuing thereafter on the 29th day of each successive month throughout the term of the promissory note.  Under the terms of the secured promissory note, the holder received a detachable warrant to purchase 333,333 shares of our common stock at the price of $1.60 per share that was to expire on August 29, 2015; however, the promissory note was extended as described below.  This promissory note is secured by $3,000,000 in gross accounts receivable.  On the maturity date, one balloon payment of the entire outstanding principal amount plus any accrued and unpaid interest is due.

 

 

On August 20, 2014, we entered into a Financing Agreement with Mr. Dalrymple whereby, he agreed to assist us in obtaining financing in the form of a $2,000,000 revolving line of credit (see Line of Credit below) from a commercial lender and provide a personal guaranty of the line of credit. Under the terms of the Financing Agreement, upon finalization of the line of credit with Wells Fargo Bank on September 8, 2014, we (i) extended the term of the $1,000,000 promissory note, discussed above, by one year to mature on August 29, 2016, (ii) reduced the interest rate on the promissory note to 6%, (iii) extended the expiration date on the warrants issued in connection with the promissory note by one year to an expiration date of August 29, 2016 and (iv) used $500,000 of advances under the line of credit as payment of principal and interest on the promissory note. In August 2016, the note and associated warrant were amended to extend the maturity date to August 29, 2018. And in September 2017, we extended the maturity date of the promissory note to September 8, 2018. In connection with the extension of the Wells Fargo line of credit discussed in Note 8, on September 5, 2018 we entered into a Financing Agreement with Mr. Dalrymple  and an Amendment to Amended and Restated Secured Promissory Note, under which we extended the maturity date of the promissory note originally entered into with Mr. Dalrymple in August 2012 to be due and payable on September 8, 2019. We will continue to provide collateral to Mr. Dalrymple in an amount of $3,000,000 in our gross accounts receivable to secure payment of both his promissory note with us and his obligations in connection with the line of credit with Wells Fargo.  As of September 30, 2018 and December 31, 2017, the note had a principle balance of $90,000 and $225,000, respectively. For the three months ended September 30, 2018 and 2017, we recorded $2,005 and $3,750, respectively, in interest expense related to this note. For the nine months ended September 30, 2018 and 2017, we recorded $8,255 and $12,36, respectively, in interest expense related to this note.

 

NOTE 8. LINE OF CREDIT

 

On September 3, 2014, we entered into a $2,000,000 revolving line of credit agreement with Wells Fargo Bank, N.A. Outstanding principal on the line of credit bears interest at the 30-day London Interbank Offered Rate (“LIBOR”) plus 2.0%, resulting in an effective rate of 4.0% at September 30, 2018.  In September 2017, the line of credit agreement was amended, whereby the outstanding principle was due and payable in full on August 31, 2018 and the maximum amount we can borrow under the line of credit is $1,750,000. On September 7, 2018 we entered into an Amended and Restated Revolving Line of Credit Note to extend our revolving line of credit facility, whereby the outstanding principal is now due and payable in full on August 31, 2019. The maximum amount we can borrow under the line of credit remains $1,750,000.  The line of credit also remains guaranteed by Peter L. Dalrymple, a member of our Board of Directors, and is secured by a first lien interest in certain of his assets.  As of September 30, 2018 and December 31, 2017, outstanding borrowings under the line of credit totaled $1,490,000 and $1,325,000 respectively. For the three months ended September 30, 2018 and 2017, we recorded $14,758 and $13,518, respectively, in interest expense related to this note. For the nine months ended September 30, 2018 and 2017, we recorded $39,515 and $24,730, respectively, in interest expense related to this note.

 

NOTE 9. INCOME TAXES

 

We have not made a provision for (benefit from) income taxes for the three and nine months ended September 30, 2018 or 2017, which reflects our valuation allowance established against our benefits from net operating loss carryforwards.

 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to the financial statements included in this Form 10-Q.

 

Critical Accounting Policies

 

See Note 3 of the accompanying notes to unaudited condensed consolidated financial statements, which note is incorporated herein by reference.

 

Management Overview

 

We are a technology, marketing, management, billing, and collection company facilitating diagnostic services for patients who have sustained spine injuries resulting from traumatic accidents.  We deliver turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary and appropriate treatment of musculo-skeletal spine injuries resulting from automobile and work-related accidents.  Our goal is to become a leader in providing management services to spine and orthopedic surgeons and other healthcare providers to facilitate proper treatment of their injured clients.  By pre-funding the providers’ accounts receivable, which includes diagnostic testing and non-invasive surgical care, patients are not unnecessarily delayed or prevented from obtaining needed treatment.  By facilitating early treatment through affiliated doctors, we believe that health conditions can be prevented from escalating and injured victims can be quickly placed on the road to recovery.  Through our affiliate system, we facilitate spine surgeons, orthopedic surgeons and other healthcare providers to provide reasonable, necessary, and appropriate treatments to patients with musculo-skeletal spine injuries. We assist the centers that provide the spine diagnostic injections and treatment and pay the doctors a fee for the medical procedures they performed. After a patient is billed for the procedures performed by the affiliated doctor, we take control of the patients’ unpaid bills and oversee collection. In most instances, the patient is a plaintiff in an accident case, where the patient is represented by an attorney. Typically, the defendant (and/or the insurance company of the defendant) in the accident case pays the patient’s bill upon settlement or final judgment of the accident case. The payment to us is made through the attorney of the patient. In most cases, we must agree to the settlement price and the patient must sign off on the settlement. Once we are paid, the patient’s attorney can receive payment for his or her legal fee.

 

We continue to further refine and market our Quad Video Halo System 3.0 (“QVH”). We anticipate that we will begin recognizing additional revenue from sales and subscriptions of the QVH during the fourth quarter of 2018.

 

Results of Operations

 

The unaudited financial statements for the three and nine months ended September 30, 2018 and 2017 have been prepared in accordance with U.S. GAAP for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2018 and the results of operations and cash flows for the three and nine months ended September 30, 2018 and 2017. The results for the nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2018.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2017, as included in our previously filed report on Form 10-K.

 

As noted earlier in the description of the business in Note 1 of the Notes to Condensed Consolidated Financial Statements, we own a video recording system known as the (“QVH”).

 

Comparison of the three-month period ended September 30, 2018 with the three-month period ended September 30, 2017.

 

We recorded $1,228,754 in gross revenue for the three months ended September 30, 2018, offset by $667,048 of the expected settlement discount resulting in net revenue of $561,706. We recorded $876,774 in gross revenue for the three months ended September 30, 2017, offset by $311,572 of the expected settlement discount resulting in net revenue of $565,202.    For the three months ended September 30, 2018, we worked with four spine injury diagnostic centers: Houston, Texas; Tyler, Texas, Odessa, Texas and Las Cruces New Mexico. The increase in gross revenue and associated service cost is attributable to the higher case volume in New Mexico and Odessa.

 

 

During the three months ended September 30, 2018, we incurred $394,539 of operating, general and administrative expenses compared to $378,063 for the same period in 2017. The increase is due mainly to collection of receivables of $43,000 previously written off, decreases of travel and entertainment expense of $21,000, coupled with an increase of investor relations costs of $10,000, bad debt of $65,000 and other expense increases netting out to $5,000.

 

As a result of the foregoing, we had a net loss of $54,116 for the three months ended September 30, 2018, compared to a net income of $7,589 for the three months ended September 30, 2017.

 

Comparison of the nine-month period ended September 30, 2018 with the nine-month period ended September 30, 2017.

 

We recorded $3,340,943 in gross revenue for the nine months ended September 30, 2018, offset by $1,540,101 of the expected settlement discount resulting in net revenue of $1,800,842.  We recorded $2,438,988 in gross revenue for the nine months ended September 30, 2017, offset by $946,559 of the expected settlement discount resulting in net revenue of $1,492,429.  Revenue was positively affected by the addition of the New Mexico locations.

 

Service cost was $611,354 for the nine months ended September 30, 2018 compared to $462,737 for the same period in 2017.  The increase in service cost is attributable to higher case volume in New Mexico.

 

During the nine months ended September 30, 2018, we incurred $1,090,357 of operating, general and administrative expenses compared with the $1,177,558 for the same period in 2017. The decrease is due mainly to collection of receivables of $63,000 previously written off, decreases in payroll and consulting costs of $59,000, marketing costs of $5,500, website planning of $9,000, travel and entertainment expense of $13,000, coupled with an increase of investor relations costs of $20,000, increase in bad debt expense of $45,000 and other expense decreases netting out to $13,000.  During the nine months ended September 30, 2017, we incurred $12,203 of research and development expenses compared with $0 for the same period in 2018.  

 

As a result of the foregoing, we had net income of $58,809 for the nine months ended September 30, 2018, compared to a net loss of $197,329 for the nine months ended September 30, 2017.

 

For the nine months ended September 30, 2018, cash used in operations was $60,257 which primarily included uses of cash from operating sources due to a decrease in related party payables of $6,603, increases in accounts receivable of $359,716, prepaid expenses of $11,296, inventory of $21,090, and increases in cash from operating sources including an increase of accounts payable of $21,981 and deferred revenue of $22,935. For the same period in 2017 cash used in operations was $86,991 which primarily included decreases in cash flows from operating sources attributable to increases in accounts receivable of $76,421, increases in prepaid expenses of $9,250, offset by increases in cash flows from operating sources due to a decrease in accounts payable of $16,457, and an increase in related party payables of $10,396. We used no cash in investing activities for the nine months ended September 30, 2018 and we used cash to purchase $3,614 in fixed assets for the nine months ended September 30, 2017.

 

The deferred revenue consists of the first three months of a subscription agreement with our Quad Video Halo subsidiary and a healthcare provider at an out of state location. The revenue will be recognized beginning in October 2018.

 

Cash used in financing activities for the nine months ended September 30, 2018 and 2017 consisted of repayments on our notes payable in the amount of $135,000 and $50,000, respectively, and net draws on our line of credit of $165,000 and $25,000, respectively.

 

Going Concern Considerations

 

Since our inception in 1998, until commencement of our spine injury diagnostic operations in August 2009, our expenses substantially exceeded our revenue, resulting in continuing losses and an accumulated deficit from operations of $15,004,698 as of December 31, 2009. Since that time, our accumulated deficit has increased $2,493,057 to $17,497,755 as of September 30, 2018. Successful business operations and our transition to positive cash flows from operations are dependent upon obtaining additional financing and achieving a level of collections adequate to support our cost structure. Considering the nature of our business, we are not generating immediate liquidity and sufficient working capital within a reasonable period of time to fund our planned operations and strategic business plan through September 30, 2019. The company is seeking to increase revenue from services and obtain additional capital from borrowings and selling securities as needed to fund our operations. There can be no assurances that there will be adequate financing available to us. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Our principal executive officer and principal financial officer are responsible for establishing and maintaining our disclosure controls and procedures. Such officers have concluded (based upon their evaluation of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including our principal executive and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer have also indicated that, upon evaluation, there were no changes in our internal control over financial reporting or other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

 

 

PART II OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, one should carefully consider the discussion of various risks and uncertainties contained in Part I, Item 1A, “Risk Factors” in our 2017 Annual Report on Form 10-K.  We believe the risk factors presented in this filing and those presented on our 2017 Form 10-K are the most relevant to our business and could cause our results to differ materially from any forward-looking statements made by us.  


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In July 2018, we issued 25,000 shares of common stock to a consultant as consideration for consulting services. The securities were issued under the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder.  The issuance of securities did not involve a “public offering” based upon the following factors: (i) the issuance of securities was an isolated private transaction; (ii) a limited number of securities were issued to a single purchaser; (iii) there were no public solicitations; (iv) the investment intent of the purchaser; and (v) the restriction on transferability of the securities issued.

 

ITEM 6. EXHIBITS

 

Exhibit No.

 

Description

3.1

 

Articles of Incorporation dated March 4, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *

 

 

 

3.2

 

Amended Articles of Incorporation dated April 23, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *

 

 

 

3.3

 

Amended Articles of Incorporation dated January 4, 2002. (Incorporated by reference from Form 10KSB filed with the SEC on May 21, 2003.) *

 

 

 

3.4

 

Amended Articles of Incorporation dated December 19, 2003. (Incorporated by reference from Form 10-KSB filed with the SEC on May 20, 2004.) *

 

 

 

3.5

 

Amended Articles of Incorporation dated November 4, 2004. (Incorporated by reference from Form 10-KSB filed with the SEC on April 15, 2005) *

 

 

 

3.6

 

Amended Articles of Incorporation dated September 7, 2005. (Incorporated by reference from Form 10-QSB filed with the SEC on November 16, 2005) *

 

 

 

3.7

 

Certificate of Amendment to Certificate of Incorporation (Incorporated by reference from Form 8-K filed with the SEC on October 7, 2015.) *

 

 

 

3.8

 

By-Laws dated April 23, 1998. (Incorporated by reference from Form 10K-SB filed with the SEC on January 5, 2000.) *

 

 

 

10.1

 

Employment Agreement with William F. Donovan, M.D. dated September 18, 2014 (Incorporated by reference from Form 8-K filed with the SEC on September 22, 2014) *

 

 

 

10.2

 

Financing Agreement with Peter Dalrymple (Incorporated by reference from Form 8-K filed with the SEC on August 26, 2014) *

 

 

 

10.3

 

Wells Fargo Loan Documentation (Incorporated by reference from Form 10-Q filed with the SEC on May 13, 2015) *

 

 

 

10.4

 

Letter agreement between Spine Injury Solutions, Inc. and Jeffrey Cronk (Incorporated by reference from Form 8-K filed with the SEC on September 7, 2017) *

 

 

 

 

 

10.5

 

Amended and Restated Revolving Line of Credit Note and Amended and Restated Credit Agreement with Wells Fargo Bank dated August 17, 2017 (Incorporated by reference from Form 10-Q filed with the SEC on November 13, 2017) *

 

 

 

10.6

 

Financing Agreement, Amended and Restated Secured Promissory Note and Amended Security Agreement with Peter Dalrymple dated September 8, 2017 (Incorporated by reference from Form 10-Q filed with the SEC on November 13, 2017) *

 

 

 

10.7

 

Amended and Restated Revolving Line of Credit Note and Amended and Restated Credit Agreement with Wells Fargo Bank dated September 7, 2018

 

 

 

10.8   Amended and Restated Continuing Guaranty from Peter Dalrymple dated September 7, 2018
     

10.9

 

Financing Agreement and Amended and Restated Secured Promissory Note with Peter Dalrymple dated September 5, 2018

 

 

 

31.1

 

Certification of principal executive officer required by Rule 13a – 14(1) 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 officer required by Rule 13a – 14(1) 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 Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.

 

 

 

32.2

 

Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definitions Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

* Incorporated by reference from our previous filings with the SEC

 

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

  

Spine Injury Solutions, Inc.

  

  

  Date: November 13, 2018

By: /s/ William F. Donovan, M.D.

  

William F. Donovan, M.D.

  

Chief Executive Officer (Principal Executive Officer)

  

  

  

  

 

  Date: November 13, 2018

By: /s/ John Bergeron

  

John Bergeron

  

Chief Financial Officer (Principal Financial Officer)

  

  

  

  

 

 

 

20