Attached files
| file | filename |
|---|---|
| EX-32.1 - EX-32.1 - Spine Injury Solutions, Inc | ex32-1.htm |
| EX-31.1 - EX-31.1 - Spine Injury Solutions, Inc | ex31-1.htm |
| EX-32.2 - EX-32.2 - Spine Injury Solutions, Inc | ex32-2.htm |
| EX-31.2 - EX-31.2 - Spine Injury Solutions, Inc | ex31-2.htm |
| XML - IDEA: XBRL DOCUMENT - Spine Injury Solutions, Inc | R9999.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2015.
o 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 PAIN MANAGEMENT, INC.
(Name of Registrant in Its Charter)
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Delaware
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98-0187705
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.)
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Organization)
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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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 13, 2015, there were 19,630,882 shares of the registrant’s common stock outstanding (the only class of voting common stock).
FORM 10-Q
TABLE OF CONTENTS
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PART I
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FINANCIAL INFORMATION
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Item 1.
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3 | |
| 3 | ||
| 4 | ||
| 5 | ||
| 6 | ||
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Item 2.
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14 | |
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Item 3.
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15 | |
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Item 4.
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15 | |
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PART II
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OTHER INFORMATION
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Item 1A.
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16 | |
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Item 2.
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16 | |
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Item 6.
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16 | |
| 18 |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPINE PAIN MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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JUNE 30,
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DECEMBER 31,
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|||||||
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2015
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2014
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|||||||
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(Unaudited)
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||||||||
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash
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$ | 169,976 | $ | 358,052 | ||||
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Accounts receivable, net
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1,330,512 | 1,288,315 | ||||||
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Prepaid expenses
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252,966 | 336,996 | ||||||
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Other assets
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61,816 | 15,393 | ||||||
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Total current assets
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1,815,270 | 1,998,756 | ||||||
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Accounts receivable, net of allowance for doubtful accounts
of $415,374 and $342,084
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3,576,161 | 3,864,944 | ||||||
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Intangible assets and goodwill, net
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170,200 | 179,200 | ||||||
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Other assets
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51,083 | 43,944 | ||||||
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Total assets
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$ | 5,612,714 | $ | 6,086,844 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts payable and accrued liabilities
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$ | 66,515 | $ | 129,995 | ||||
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Current portion of long-term debt, net
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- | 350,000 | ||||||
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Total current liabilities
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66,515 | 479,995 | ||||||
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Line of credit
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1,025,000 | 500,000 | ||||||
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Notes payable and long-term debt
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550,000 | 550,000 | ||||||
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Total liabilities
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1,641,515 | 1,529,995 | ||||||
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Commitments and contingencies
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Stockholders' equity:
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Common stock: $0.001 par value, 50,000,000 shares authorized,
19,630,882 and 19,340,882 shares issued and outstanding at
June 30, 2015 and December 31, 2014, respectively
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19,631 | 19,341 | ||||||
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Additional paid-in capital
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19,884,709 | 19,874,599 | ||||||
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Accumulated deficit
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(15,933,141 | ) | (15,337,091 | ) | ||||
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Total stockholders' equity
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3,971,199 | 4,556,849 | ||||||
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Total liabilities and stockholders’ equity
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$ | 5,612,714 | $ | 6,086,844 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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FOR THE THREE MONTHS ENDED
JUNE 30,
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FOR THE SIX MONTHS ENDED
JUNE 30,
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|||||||||||||||
| 2015 |
2014
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2015 |
2014
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Net revenue
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$ | 568,173 | $ | 859,860 | $ | 984,471 | $ | 1,194,548 | ||||||||
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Cost of providing services
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Third party providers
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86,000 | 338,994 | 141,188 | 439,883 | ||||||||||||
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Related party providers
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146,541 | 84,657 | 272,319 | 128,920 | ||||||||||||
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Total cost of providing services
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232,541 | 423,651 | 413,507 | 568,803 | ||||||||||||
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Gross profit
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335,632 | 436,209 | 570,964 | 625,745 | ||||||||||||
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Research and Development expenses
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93,530 | 6,558 | 175,998 | 12,468 | ||||||||||||
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Operating, general and administrative expenses
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479,236 | 526,400 | 961,249 | 1,099,563 | ||||||||||||
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Loss from operations
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(237,134 | ) | (96,749 | ) | (566,283 | ) | (486,286 | ) | ||||||||
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Other income and (expense):
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Other income
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1,892 | 7,648 | 6,488 | 14,396 | ||||||||||||
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Interest expense
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(14,942 | ) | (64,144 | ) | (36,255 | ) | (161,642 | ) | ||||||||
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Total other income and (expense)
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(13,050 | ) | (56,496 | ) | (29,767 | ) | (147,246 | ) | ||||||||
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Net loss
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$ | (250,184 | ) | $ | ( 153,245 | ) | $ | (596,050 | ) | $ | (633,532 | ) | ||||
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Net loss per common share:
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Basic
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
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Diluted
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
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Weighted average number of common shares outstanding:
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Basic
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19,506,791 | 18,715,822 | 19,409,049 | 18,715,822 | ||||||||||||
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Diluted
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19,506,791 | 18,715,822 | 19,409,049 | 18,715,822 | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
SPINE PAIN MANAGEMENT, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED
JUNE 30,
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2015
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2014
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Cash flows from operating activities:
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Net loss
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$ | (596,050 | ) | $ | (633,532 | ) | ||
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Adjustments to reconcile net loss to net cash
used in operating activities:
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Provision for bad debt
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120,000 | 120,000 | ||||||
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Interest expense related to warrant amortization
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- | 18,445 | ||||||
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Stock based compensation
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98,733 | 192,359 | ||||||
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Accretion of debt discount on long-term debt
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- | 48,199 | ||||||
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Depreciation and amortization expense
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14,885 | 11,800 | ||||||
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Changes in operating assets and liabilities:
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Accounts receivable, net
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126,586 | 39,756 | ||||||
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Prepaid expenses and other assets
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(50,726 | ) | (15,519 | ) | ||||
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Due to related party
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- | 374 | ||||||
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Accounts payable and accrued liabilities
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(63,480 | ) | 14,102 | |||||
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Net cash used in operating activities
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(350,052 | ) | (204,016 | ) | ||||
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Cash flows from investing activities:
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Purchase of equipment
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(13,024 | ) | (4,793 | ) | ||||
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Net cash used in investing activities
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(13,024 | ) | (4,793 | ) | ||||
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Cash flows from financing activities:
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Payment of notes payable and long-term debt
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(350,000 | ) | - | |||||
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Net proceeds from line of credit
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525,000 | - | ||||||
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Payment of related party payable
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- | (90,000 | ) | |||||
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Net cash provided by (used in) financing activities
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175,000 | (90,000 | ) | |||||
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Net decrease in cash and cash equivalents
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(188,076 | ) | (298,809 | ) | ||||
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Cash and cash equivalents at beginning of period
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358,052 | 687,549 | ||||||
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Cash and cash equivalents at end of period
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$ | 169,976 | $ | 388,740 | ||||
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Supplementary cash flow information:
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Interest paid
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$ | 36,255 | $ | 95,000 | ||||
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Taxes paid
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$ | - | $ | - | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Spine Pain Management Inc. was incorporated under the laws of Delaware on March 4, 1998.
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 and 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 three spine injury diagnostic centers in the United States, which are located in Houston, Texas; Odessa, Texas; and San Antonio, Texas. In January 2014 we made the decision to discontinue doing business in Florida and McAllen, Texas (see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below). 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 device and process by which a video recording system is attached to a fluoroscopic x-ray machine, the “four camera technology,” that we believe can attract additional physicians and patients, expedite settlements and provide us with additional revenue streams. During 2014 and continuing in 2015, we have refined the technology, through further research and development resulting in a fully commercialized Quad Video Halo System 3.0 (the “QVH”). Using this technology, diagnostic 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 video will expedite the settlement process. As of June 30, 2015 the QVH is undergoing tests by a third party testing organization to verify that the QVH meets the United Laboratories (UL) requirements for medical equipment to be used in hospitals, surgery centers and other healthcare facilities.
In September 2014, we created a wholly owned subsidiary, Quad Video Halo, Inc. The purpose of this entity is to hold certain company assets affiliated with the QVH units. As of June 30, 2015 the subsidiary held no assets or liabilities.
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 $928,443 to $15,933,141 as of June 30, 2015. 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.
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 2014 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 our operations for the interim period ended June 30, 2015, 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 Pain Management, Inc. and its wholly owned subsidiaries, Quad Video Halo, Inc. and Gleric Holdings, LLC. 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 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 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
Revenues are recognized in accordance with SEC staff accounting bulletin, Topic 13, Revenue Recognition, which specifies that only when persuasive evidence for an arrangement exists; the fee is fixed or determinable; and collection is reasonably assured can revenue be recognized.
Persuasive evidence of an arrangement is obtained prior to services being rendered when the patient completes and signs the medical and financial paperwork. Delivery of services is considered to have occurred when medical diagnostic services are provided to the patient. The price and terms for the services are considered fixed and determinable at the time that the medical services are provided and are based upon the type and extent of the services rendered. 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).
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED 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.
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. Each year, during the fourth quarter, the goodwill amount is reviewed to determine if any impairment has occurred. Impairment occurs when the original amount of goodwill exceeds the value of the expected future net cash flows from the business acquired. As of June 30, 2015 and December 31, 2014, 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 condensed 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 June 30, 2015 and December 31, 2014, 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 $415,374 and $342,084, at June 30, 2015 and December 31, 2014, respectively.
Stock Based Compensation
We account for the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors and consultants, 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 condensed consolidated statements of operations. We use the Black-Scholes Option Pricing Model to determine the fair-value of stock-based awards. During the quarter ended June 30, 2015 and 2014, we recognized compensation expense related to our stock options of $0 and $62,110, respectively. For the six months ended June 30, 2015 and 2014, we recognized $0 and $134,110 in compensation expense associated with stock options. We also recognized compensation and consulting expense for issuances of our common stock in exchange for services of $98,733 and $52,830 during the six months ended June 30, 2015 and 2014, respectively, and $47,900 and $16,000 for the three months ended June 30, 2015 and 2014, respectively.
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 record estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense. For the three and six months ended June 30, 2015 and 2014, 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. If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable. As of June 30, 2015 and December 31, 2014 we recognized no estimated or contingent losses.
Net Loss per Share
Basic and diluted net loss per common share is presented in accordance with ASC Topic 260, “Earnings per Share,” for all periods presented. During the three and six months ended June 30, 2015 and 2014, common stock equivalents from outstanding stock options, warrants and convertible debt have been excluded from the calculation of the diluted loss per share in the condensed consolidated statements of operations, because all such securities were anti-dilutive. The net loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the periods.
Recent Accounting Pronouncements
In May 2014, the 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 good 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. Early adoption is not permitted. We are currently reviewing the effect of ASU No. 2014-09 on our revenue recognition. In July 2015, the FASB announced that public companies will apply the new standards effective for annual reporting periods after December 15, 2017 (January 1, 2018 for us).
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period. This new accounting guidance under ASC 718, Compensation – Stock Compensation, provides explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a non-vesting condition that affects the grant-date fair value of an award. The guidance will become effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-12 is not expected to have a significant impact on the condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting entity will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an entity’s management with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by entities today in the financial statement footnotes. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a significant impact on the condensed consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplified Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income statement – Extraordinary and Unusual Items, requires that an entity separately classify, present and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments of ASU No. 2015-01 can be applied prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The adoption of ASU No. 2015-01 is not expected to have a significant impact on the Company’s condensed consolidated financial position, results of operations or disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 are intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU No. 2015-03 is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-03 is not expected to have a significant impact on the Company’s condensed consolidated financial position, results of operations or disclosures.
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. ACCOUNTS RECEIVABLE
We recognize revenue and accounts receivable in accordance with SEC staff accounting bulletin, Topic 13, “Revenue Recognition”, which requires persuasive evidence that a sales arrangement exists; the fee is fixed or determinable; and collection is reasonably assured before revenue is recognized. 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 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.
Revenue and corresponding accounts receivable are recognized by reference to “net revenue” and “accounts receivable, net” which is defined as gross amounts billed using CPT codes less account discounts that are expected to result when individual cases are ultimately settled. A discount rate of 52%, based on settled patient cases, was used to reduce revenue to 48% of CPT code billings (“gross revenue”) during the three and six months ended June 30, 2015 and 2014.
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 2014, 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 June 30, 2015 and December 31, 2014 that 27% and 25%, respectively, of cases will be subject to a settlement or judgment within one year of a medical procedure.
We take the following steps to establish an arrangement between all parties and facilitate collection upon settlement or final judgment of cases:
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·
|
The patient completed and signed medical and financial paperwork, which included an acknowledgement of the patient’s responsibility of payment for the services provided. Additionally, the paperwork should include an assignment of benefits derived from any settlement or judgment of the patient’s case.
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|
·
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The patient’s attorney issued the healthcare provider a Letter of Protection designed to guarantee payment for the medical services provided to the patient from proceeds of any settlement or judgment in the accident case. This Letter of Protection also should preclude any case settlement without providing for payment of the patient’s medical bill.
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|
·
|
Most of the patients who received medical services at the diagnostic centers have typically been previously referred to a doctor from a plaintiff’s attorney, who performed the initial two to four months of conservative treatment. The doctor then typically refers the patient to one of our healthcare providers for an evaluation because of continuing symptoms. Patients are only accepted if the initial referral was from a reputable plaintiff’s attorney with adequate experience in personal injury lawsuits. Before referring a patient, the attorney is expected to have evaluated the patient’s accident case, including the conditions that gave rise to the patient’s injuries and the extent and quality of general liability insurance held by the defendant. The attorney is also responsible for determining that a settlement favorable to the patient/plaintiff is expected.
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NOTE 5. STOCKHOLDERS’ EQUITY
Common Stock
During the six months ended June 30, 2015, we issued an aggregate 290,000 shares of common stock in connection with consulting agreements and a financing agreement to assist us in obtaining a line of credit. The shares were valued at $0.30 per share, totaling approximately $85,400, which was recognized as compensation and consulting expense and included in operating, general and administrative expenses in the accompanying condensed consolidated statements of operations. During the three months ended June 30, 2015, an aggregate of 165,000 shares, totaling $47,900, was issued in connection with these agreements. At June 30, 2015, unrecognized expense associated with these agreements totaled $217,500.
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
We recognized $0 and $62,110 in compensation expense, associated with stock options, in operating, general and administrative expenses in the Statements of Operations for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014 we recognized $0 and $134,110 in compensation expense associated with stock options. As of June 30, 2015, there was no additional unamortized stock option compensation expense.
NOTE 6. RELATED PARTY TRANSACTIONS
We have an agreement with 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 quarter ended June 30, 2015 and 2014, we expensed $146,541 and $84,657 related to services provided by NSO. For the six months ended June 30, 2015 and 2014 we expensed $272,319 and $128,920, respectively. As of June 30, 2015 and December 31, 2014, no balances were outstanding related to NSO. 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.
During the three and six months ended June 30, 2015, we issued 100,000 and 200,000 shares of our common stock to Peter Dalrymple, our director, under the terms of a financing agreement to assist us in obtaining a line of credit. We recognized consulting expense of $30,000 and $60,000 during the three and six months ended June 30, 2015 in connection with the agreement.
NOTE 7. NOTES PAYABLE
On June 27, 2012, we issued a $500,000 convertible promissory note bearing interest at 12% per year with an initial maturity date of March 27, 2014, which was extended to March 27, 2015. In December 2014, we made a principal payment of $200,000 on this note and in March 2015 we paid the remaining $300,000. For the three months ended June 30, 2015 and 2014, we recorded $0 and $15,000 in interest expense related to this note. For the six months ended June 30, 2015 and 2014, we recorded $8,600 and $30,000 in interest expense related to this note.
In June 2013, we renewed a $50,000, 10% debenture originally due June 30, 2013 to a maturity date of June 30, 2015 in exchange for 50,000 warrants at $0.45 per share. Interest is payable quarterly and the full principal amount is due upon maturity. In June 2015, we repaid this debt in accordance with the provisions of the note. For the six months ended June 30, 2015 and 2014, we recorded interest expense of $2,500, in both periods.
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%, resulting in an effective rate of 2.18% at June 30, 2015. The line of credit matures on August 31, 2017 and is personally guaranteed by Peter Dalrymple, a director of the Company. As of June 30, 2015 and December 31, 2014, outstanding borrowings under the line of credit totaled $1,025,000 and $500,000, respectively. For the three and six months ended June 30, 2015, we recorded interest expense of $4,941 and $7,205, respectively. There was no interest expense related to this note for the three and six months ended June 30, 2014.
SPINE PAIN MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES
We have not made provision for income taxes for the three and six months ended June 30, 2015 and 2014, since we have net operating loss carryforwards to offset any current taxable income.
Deferred tax assets consist of the following at June 30, 2015 and December 31, 2014:
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June 30,
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December 31
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|||||||
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2015
|
2014
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|||||||
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Benefit from net operating loss carryforwards
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$ | 2,693,856 | $ | 2,516,117 | ||||
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Allowance from doubtful accounts
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141,227 | 116,309 | ||||||
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Less: valuation allowance
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(2,835,083 | ) | (2,632,426 | ) | ||||
| $ | - | $ | - | |||||
Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred income tax asset. Based on management’s assessment, utilizing an effective combined tax rate for federal and state taxes of approximately 34%, we have determined that it is not currently likely that a deferred income tax asset of approximately $2,835,083 and $2,632,426 attributable to the future utilization of the approximate $7,923,106 and $7,400,344 in eligible net operating loss carryforwards as of June 30, 2015 and December 31, 2014, respectively, will be realized. We will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards will begin to expire in varying amounts from year 2018 to 2035.
Current income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, amounts available to offset future taxable income may be limited under Section 382 of the Internal Revenue Code.
Following is a reconciliation of the benefit for federal income taxes as reported in the accompanying Condensed Consolidated Statements of Operations to the expected amount at the 34% federal statutory rate:
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Six Months Ended June 30,
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||||||||
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2015
|
2014
|
|||||||
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Income tax benefit at the 34% statutory rate
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$ | 202,657 | $ | 215,401 | ||||
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Non-deductible interest expense
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- | (66,643 | ) | |||||
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Other
|
- | (3,021 | ) | |||||
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Less change in valuation allowance
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(202,657 | ) | (145,737 | ) | ||||
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Income tax benefit
|
$ | - | $ | - | ||||
We are subject to taxation in the United States and certain state jurisdictions. Our tax years for 2003 and forward are subject to examination by the United States and applicable state tax authorities due to the carryforwards of unutilized net operating losses and the timing of tax filings.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The unaudited condensed consolidated financial statements as of June 30, 2015 and for the three and six months ended June 30, 2015 and 2014 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2015 and the results of operations and cash flows for the periods ended June 30, 2015 and 2014. The financial data and other information disclosed in these notes to the interim condensed consolidated financial statements related to these periods are unaudited. The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2015.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited consolidated financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2014 as included in our previously filed report on Form 10-K.
Comparison of the three month period ended June 30, 2015 with the three month period ended June 30, 2014.
We recorded $1,083,138 in gross revenue for the three months ended June 30, 2015, offset by $514,965 of the expected settlement discount resulting in net revenue of $568,173. For the same period in 2014, gross revenue was $1,767,599, offset by $907,939 of the expected settlement discount, resulting in net revenue of $859,860. We are currently affiliated with three spine injury diagnostic centers in the United States, which are located in Houston, Texas; Odessa, Texas; and San Antonio, Texas. We had two large surgical procedures in the second quarter of 2014 that generated $148,000 in revenue that were not duplicated in 2015.
Service cost was $232,541 for the three months ended June 30, 2015 compared to $423,651 for the same period in 2014. The decrease is due mainly to lower volume.
During the three months ended June 30, 2015, we incurred $479,236 of operating, general and administrative expenses compared with the $526,400 for the same period in 2014. The decrease is attributable to decreases in (i) directors and officer compensation of approximately $62,000, (ii) marketing costs of approximately $30,000, (iii) payroll of approximately $14,000, (iv) bad debt expenses of approximately $15,000 and (v) legal expenses of approximately $12,000, coupled with an increase of (i) approximately $56,000 in consulting costs, (ii) travel costs of approximately $21,000, (iii) rent expense of approximately $6,000, and (iv) other net general and administrative expenses of approximately $3,000.
During the three months ended June 30, 2015, we incurred $93,530 of research and development expenses compared with the $6,558 for the same period in 2014. The increase is attributable to the engineering and testing fees paid to verify the Quad Video Halo (“QVH”) meets the United Laboratories (UL) requirements for medical equipment to be used in hospitals, surgery centers, and other healthcare facilities. We believe without this testing currently being performed, the QVH will not be accepted into certain healthcare markets.
As a result of the foregoing, we had net loss of $250,184 for the three months ended June 30, 2015, compared to a net loss of $153,245 for the three months ended June 30, 2014.
Comparison of the six month period ended June 30, 2015 with the six month period ended June 30, 2014.
We recorded $1,960,370 in gross revenue for the six months ended June 30, 2015, offset by $975,899 of the expected settlement discount resulting in net revenue of $984,471. For the same period in 2014, gross revenue was $2,425,730, offset by $1,231,182 of the settlement discount, resulting in net revenue of $1,194,548. Revenue was negatively affected by lower case volume in 2015 due to two main factors. We diverted our cash to the development of the QVH instead of funding additional cases, coupled with the fact that we had two large surgical procedures in the second quarter of 2014 that were not duplicated in 2015.
Service cost was $413,507 for the six months ended June 30, 2015 compared to $568,803 for the same period in 2014. The decrease in service cost is attributable to the lower case volume in the first quarter of 2015.
During the six months ended June 30, 2015, we incurred $961,249 of operating, general and administrative expenses compared with the $1,099,563 for the same period in 2014. The decrease is attributable to decreases in (i) directors and officer compensation of approximately $134,000, (ii) marketing costs of approximately $59,000, (iii) payroll of approximately $9,000 and (iv) legal expenses of approximately $64,000, coupled with an increase of (i) approximately $88,000 in consulting costs, (ii) travel costs of approximately $11,000, (iii) computer expenses of approximately $6,000, (iv) rent expense of approximately $15,000, and (v) increases of other net general and administrative expenses of approximately $8,000.
During the six months ended June 30, 2015, we incurred $175,998 of research and development expenses compared with the $12,468 for the same period in 2014. The increase is attributable to the engineering and testing fees paid to verify the QVH meets the United Laboratories (UL) requirements for medical equipment to be used in hospitals, surgery centers, and other healthcare facilities. We believe without this testing currently being performed, the QVH will not be accepted into certain healthcare markets.
As a result of the foregoing, we had net loss of $596,050 for the six months ended June 30, 2015, compared to a net loss of $633,532 for the six months ended June 30, 2014.
Liquidity and Capital Resources
For the six months ended June 30, 2015, cash used in operations was $350,052, which primarily included a net loss of $596,050, increases in prepaid expenses of $50,726, a decrease in accounts receivable of $126,586, an decrease in accounts payable of $63,480, offset by adjustments to reconcile net income to cash used in operating activities including bad debt expense, interest expense related to warrant amortization, stock based compensation, debt discount accretion and depreciation totaling $233,618. For the six months ended June 30, 2014, cash used in operations was $204,016, which primarily included a net loss of $633,532, increases in prepaid expenses of $15,519, a decrease in accounts receivable of $39,756, an increase in accounts payable of $14,102 and due to related parties of $374, offset by adjustments to reconcile net income to cash used in operating activities including bad debt expense, interest expense related to warrant amortization, stock based compensation, debt discount accretion and depreciation totaling $390,803. For the six months ended June 30, 2015 cash provided by financing activities was $175,000 which included amounts borrowed from the line of credit totaling $725,000, partially offset by repayments on notes payable and long-term debt of $550,000. For the six months ended June 30, 2014 cash used in financing activities was $90,000 which was used to pay related party debt
During the three months ended June 30, 2015 and 2014, we collected $717,082 and $609,421 in settlements, respectively. For the six months ended June 30, 2015 and 2014 we collected $1,113,556 and $1,232,371 in settlements, respectively.
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 2014 Annual Report on Form 10-K. We believe the risk factors presented in this filing and those presented on our 2014 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 April, 2015, we issued 40,000 restricted shares of common stock to a former consultant in connection with consulting services she provided. 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.
In June 2014 we issued 25,000 restricted shares of common stock to a consultant 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
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Exhibit No.
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Description
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3.1
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Articles of Incorporation dated March 4, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
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|
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3.2
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Amended Articles of Incorporation dated April 23, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
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|
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3.3
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Amended Articles of Incorporation dated January 4, 2002. (Incorporated by reference from Form 10-KSB filed with the SEC on May 21, 2003.) *
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|
|
3.4
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Amended Articles of Incorporation dated December 19, 2003. (Incorporated by reference from Form 10-KSB filed with the SEC on May 20, 2004.) *
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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.) *
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|
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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.) *
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|
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3.7
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By-Laws dated April 23, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
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|
|
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) *
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10.2
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Employment Agreement with John Bergeron dated November 30, 2012 (Incorporated by reference from Form 8-K filed with the SEC on December 13, 2012.) *
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|
|
10.3
|
Financing Agreement with Peter Dalrymple (Incorporated by reference from Form 8-K filed with the SEC on August 26, 2014) *
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|
10.4
|
Wells Fargo Loan Documentation (Incorporated by reference from Form 10-Q filed with the SEC on May 13, 2015) *
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31.1
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||
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31.2
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||
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32.1
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||
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32.2
|
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101.INS
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XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
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|
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definitions Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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* Incorporated by reference from our previous filings with the SEC
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.
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Spine Pain Management, Inc.
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|
|
Date: August 13, 2015
|
By: /s/ William F. Donovan, M.D.
|
|
William F. Donovan, M.D.
|
|
|
Chief Executive Officer (Principal Executive Officer)
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Date: August 13, 2015
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By: /s/ John Bergeron
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John Bergeron
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|
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Chief Financial Officer (Principal Financial Officer)
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18