Spine Injury Solutions, Inc - FORM 10-Q - May 12, 2016

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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 March 31, 2016.
☐ 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 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  ☒    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  ☒

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 May 12, 2016, there were 20,105,882 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.
    
       
   
4
       
   
5
       
   
6
       
   
7
       
Item 2.
  
14
       
Item 3.
  
15
       
Item 4.
  
16
       
PART II
OTHER INFORMATION
    
       
Item 1A.
  
17
       
Item 2.
  
17
       
Item 6.
  
17
       
   
19

 

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, 2015, 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.



  




3
 
PART I   FINANCIAL INFORMATION
 
ITEM 1.   FINANCIAL STATEMENTS
SPINE INJURY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
MARCH 31,
    
DECEMBER 31,
  
   
2016
    
2015
  
ASSETS
  
(Unaudited)
        
             
Current assets:
            
    Cash
  
$
127,052
    
$
173,647
  
Accounts receivable, net
    
1,601,413
      
1,301,124
  
Prepaid expenses
    
157,000
      
159,250
  
Inventories
    
78,376
      
75,460
  
                 
Total current assets
    
1,963,841
      
1,709,481
  
                 
               
Accounts receivable, net of allowance for doubtful accountsof $548,690 and $503,477 at March 31, 2016 and December 31, 2015, respectively
    
3,187,940
      
3,399,896
  
Property and equipment, net
    
74,118
      
78,937
  
Intangible assets and goodwill, net
    
170,200
      
170,200
  
                 
Total assets
  
$
5,396,099
    
$
5,358,514
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities:
                
Accounts payable and accrued liabilities
  
$
67,447
    
$
100,457
  
Due to related parties
    
57,336
      
29,400
  
Current portion of  long-term debt, net
    
550,000
      
500,000
  
                 
Total current liabilities
    
674,783
      
629,857
  
                 
 Line of credit
    
1,125,000
      
1,145,000
  
 Notes payable and long-term debt, net of discount
    
-
      
50,000
  
                 
Total liabilities
    
1,799,783
      
1,824,857
  
                 
Commitments and contingencies
                
Stockholders' equity:
                
Common stock: $0.001 par value, 50,000,000 shares authorized, 19,905,882 and 19,780,882 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
    
19,906
      
19,781
  
Additional paid-in capital
    
19,917,945
      
19,908,571
  
Accumulated deficit
    
(16,341,535
)
    
(16,394,695
)
                 
         Total  stockholders' equity
    
3,596,316
      
3,533,657
  
                 
       Total liabilities and stockholders’ equity
  
$
5,396,099
      
5,358,514
  

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
  
   
MARCH 31,
  
   
2016
    
2015
  
             
Net revenue
  
$
667,264
    
$
416,298
  
Cost of providing services, including amounts billed by a related party of $170,238 and $125,778 during the three months ended March 31, 2016 and 2015, respectively
    
228,310
      
180,966
  
                 
Gross profit
    
438,954
      
235,332
  
                 
Operating, general and administrative expenses
    
366,513
      
482,013
  
Research and development
    
6,149
      
82,468
  
                 
Income (loss) from operations
    
66,292
      
(329,149
)
                 
Other income and (expense):
                
Other income
    
2,297
      
4,596
  
Interest expense
    
(15,430
)
    
(21,313
)
                 
Total other income and (expense)
    
(13,133
)
    
(16,717
)
                 
Net income (loss)
  
$
53,159
    
$
(345,866
)
                 
Basic and diluted earnings (loss) per common share
  
$
0.00
    
$
(0.02
)
                 
Shares used in earnings (loss) per common share:
                
Basic
    
19,843,382
      
19,465,882
  
    Diluted
    
19,843,382
      
19,465,882
  
 
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 THREE MONTHS ENDED
MARCH 31,
  
   
2016
    
2015
  
Cash flows from operating activities:
            
Net income (loss)
  
$
53,159
    
$
(345,866
)
Adjustments to reconcile net loss to net cash
used in operating activities:
                
Bad debt expense
    
66,200
      
75,000
  
Stock based compensation
    
39,500
      
50,833
  
Depreciation and amortization expense
    
4,819
      
7,389
  
Changes in operating assets and liabilities:
                
Accounts receivable, net
    
(154,533
)
    
(19,824
)
Inventories
    
(2,916
)
    
(12,900
)
Prepaid expenses and other assets
    
(27,750
)
    
(13,454
)
Due to related party
    
27,936
      
36,215
  
Accounts payable and accrued liabilities
    
(33,010
)
    
(8,150
)
                 
Net cash used in operating activities
    
(26,595
)
    
(230,757
)
                 
Cash flows from investing activities:
                
Purchase of equipment
    
-
      
(10,847
)
                 
Net cash used in investing activities
    
-
      
(10,847
)
                 
Cash flows from financing activities:
                
Payment of notes payable and long-term debt
    
-
      
(300,000
)
Net proceeds from line of credit
    
(20,000
)
    
525,000
  
                 
Net cash (used in) provided by financing activities
    
(20,000
)
    
225,000
  
                 
Net decrease in cash and cash equivalents
    
(46,595
)
    
(16,604
)
                 
Cash and cash equivalents at beginning of period
    
173,647
      
358,052
  
                 
Cash and cash equivalents at end of period
  
$
127,052
    
$
341,448
  
                 
Supplementary disclosure of cash flow information:
                
     Interest paid
  
$
15,430
    
$
21,213
  
     Taxes paid
    
-
      
-
  
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
SPINE INJURY SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.  DESCRIPTION OF BUSINESS

Spine Injury Solutions Inc. (the “Company”, “we” or “us”) was incorporated under the laws of Delaware on March 4, 1998. We changed our name to Spine Injury Solutions Inc. on September 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 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 four spine injury diagnostic centers in the United States, which are located in Houston, Texas; Odessa, Texas; Tyler, Texas and San Antonio, Texas. We are seeking additional funding for expansion by way of reasonable debt financing to accelerate this 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.  We have refined the technology, through research and development resulting in a fully commercialized Quad Video Halo System 3.0.  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.  Additionally, with regulatory approval (if necessary) we anticipate independent medical representatives will sell Quad Video Halo units to outside 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 affiliated with the Quad Video Halo 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 $1,336,837 to $16,341,535 as of March 31, 2016. 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 INJURY SOLUTIONS, 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 2015 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 March 31, 2016, 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
 
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).

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.
 
 
SPINE INJURY SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
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. 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 March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, 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 $548,690 and $503,477, at March 31, 2016 and December 31, 2015, 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 quarters ended March 31, 2016 and 2015, we recognized compensation expense related to our stock options of $0 and $72,000, respectively. We also recognized compensation expense for issuances of our common stock in exchange for services of $39,500 and $50,833 during the quarters ended March 31, 2016 and 2015, 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.

 
SPINE INJURY SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
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 have recently adopted a policy of recording estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense. For the three months ended March 31, 2016 and 2015, we recognized no estimated interest or penalties as income tax expense.

With few exceptions, the Company is no longer subject to federal or state income tax examinations for years before 2012.

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.
 
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 three months ended March 31, 2016 and 2015, 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 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.  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 are currently reviewing the effect of ASU No. 2014-09 on our revenue recognition and have not yet determined the method with which we will adopt the standard in 2018.
 
SPINE INJURY SOLUTIONS, 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 did not  have a significant impact on the 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 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 did not have a significant impact on the Company’s consolidated financial position, results of operations or disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. ASU No. 2015-02 focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification TM and improves current GAAP by: (1) Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met; (2) Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity; and (3) Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or variable interest entities. ASU No. 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU No. 2015-02 did not have a significant impact on the Company’s consolidated financial position, results of operations and 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 did not have a significant impact on the Company’s consolidated financial position, results of operations or disclosures.

 
SPINE INJURY SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
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 accounted for leases expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently evaluating the future impact of ASU No. 2016-02 on the Company’s consolidated financial position, results of operations and disclosures.

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 48% and 52%, respectively, based on settled patient cases, was used to reduce revenue to 52% and 48%, respectively, of CPT code billings (“gross revenue”) during the three months ended March 31, 2016 and 2015.

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 2015, 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 March 31, 2016 and December 31, 2015 that 30% 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:
 
 
·
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.

 
·
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.

 
·
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.

 
SPINE INJURY SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 5.  DUE TO RELATED PARTIES

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 quarters ended March 31, 2016 and 2015, we expensed $170,238 and $125,778 related to services provided by NSO. As of March 31, 2016 and December 31, 2015, we had balances payable to NSO of $57,336 and $29,400, 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

During the three months ended March 31, 2016, 100,000 shares of common stock vested to Peter Dalrymple, a director of the Company, pursuant to a Financing Agreement whereby he assisted in helping us obtain a revolving line of credit. The shares were valued at $0.30 per share resulting in recognition of expense of $30,000 for the three months ended March 31, 2016.

In February, 2016, we issued 25,000 shares of common stock to a consultant, valued at $0.38 per share, totaling $9,500, which was recognized as compensation expense during the three months ended March 31, 2016.

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 quarters ended March 31, 2016 and 2015, we recorded $0 and $8,600 in interest expense related to this note.

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.  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, in connection with a Financing Agreement with Mr. Dalrymple, the promissory note was amended to extend the term by one year to mature on August 29, 2016 and the interest rate was reduced to 6%.  Additionally, $500,000 of advances under the line of credit with Wells Fargo (as described below) was used as payment of principal and interest on the promissory note.  As of March 31, 2016, the note has a principal balance of $500,000.  For each of the quarters ended March 31, 2016 and 2015, we recorded $7,500 in interest expense related to this note.

In June 2013, we extended the maturity date of a $50,000 third party note originally due March 9, 2015 to a maturity date of March 9, 2017 in exchange for warrants to purchase 50,000 shares at $0.45 per share. For each of the quarters ended March 31, 2016 and 2015, we recorded $1,250 in interest expense related to this note.

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 2.43% at March 31, 2016.  The line of credit matures on August 31, 2017 and is personally guaranteed by Peter Dalrymple, a director of the Company. As of March 31, 2016 and December 31, 2015, outstanding borrowings under the line of credit totaled $1,125,000 and $1,145,000, respectively. For the quarters ended March 31, 2016 and 2015, we recorded $6,680 and $2,714 in interest expense related to this note.

NOTE 8.  INCOME TAXES

We have not made a provision for (benefit from) income taxes for the three months ended March 31, 2016 or 2015, 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 provide turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary, reasonable and appropriate treatment for musculo-skeletal spine injuries. Moving forward, our main focus will be on expansion through new affiliations with spine surgeons, orthopedic surgeons and other healthcare providers across the nation.
We continue to further refine our Quad Video Halo. We anticipate that we will begin recognizing revenue from sales of the QVH during the second quarter of 2016.
Results of Operations
The unaudited financial statements as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 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 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 March 31, 2016 and the results of operations and cash flows for the three months ended March 31, 2016 and 2015. The results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2016.
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 financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2015 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 Quad Video Halo System 3.0 (“QVH”).  We have expended funds in this quarter for further development and marketing of this system.  We anticipate that we will begin recognizing revenue from sales of the QVH during the second quarter of 2016.
Comparison of the three month period ended March 31, 2016 with the three month period ended March 31, 2015.
We recorded $1,162,621, in gross revenue for the three months ended March 31, 2016, offset by $495,357 of the expected settlement discount resulting in net revenue of $667,264.  For the same period in 2015, gross revenue was $877,231, offset by $460,933 of standard allowance for discount, resulting in net revenue of $416,298.  Revenue was positively affected by higher revenue collection percentage of 52% vs 48% last year and more volume in 2016 due to the Tyler location not being open in the first quarter of 2015. For the three months ended March 31, 2016, we managed four spine injury diagnostic centers: Houston, Texas; San Antonio, Texas; Tyler, Texas and Odessa, Texas.  Service cost was $228,310 for the three months ended March 31, 2016 compared to $180,966 for the same period in 2015. The increase in service cost is attributable to the higher case volume since we added the Tyler location in 2016.
 
During the three months ended March 31, 2016, we incurred $366,513 of operating, general and administrative expenses compared with the $482,013 for the same period in 2015.  Operating, general and administrative expenses were lower for the 2016 quarter compared to 2015 primarily because of a reduction in legal expenses, payroll expenses, consulting fees, and marketing expenses totaling approximately $122,000. The higher costs for the quarter ended March 31, 2015 were mostly incurred in connection with the commercialization of the QVH. We also spent $6,149 in research and development costs as compared to $82,468 in 2015.  Overall, we had $110,519 in non-cash operating charges in 2016 compared to $132,222 in non-cash operating expenses for the three months ended March 31, 2015.

As a result of the foregoing, we had net income of $53,159 for the three months ended March 31, 2016, compared to $345,866 of net loss for the three months ended March 31, 2015.
Liquidity and Capital Resources
For the three months ended March 31, 2016, cash used in operations was $26,595, which primarily included increases in accounts receivable of $154,533, inventories of $2,916, prepaid expenses of $27,750, and a decrease in accounts payable of $33,010, partially offset by net income of $53,159 and an increase of $27,936 in due to related party.  For the same period in 2015, cash used in operations was $230,757, which primarily included a net loss of $345,866 coupled with increases in accounts receivable of $19,824, prepaid expense of $13,454, inventory of $12,900, and a decrease in accounts payable of $8,150, partially offset by an increase of $36,215 in due to related party.  We used no cash in investing activities for the three months ended March 31, 2016. Cash used in investing activities for the three months ended March 31, 2015 included a purchase of equipment totaling $10,847.
Cash used in financing activities for the three months ended March 31, 2016 consisted of a repayment on our line of credit in the amount of $175,000, coupled with draws of $155,000, resulting in net pay downs of $20,000.

We collected $512,729 and $396,473 in settlements during the three months ended March 31, 2016 and 2015, 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 $1,336,837 to $16,341,535 as of March 31, 2016. During the three months ended March 31, 2016, we realized net revenue of $667,264 and net income of $53,159. Successful business operations and our transition to positive cash flows from operations to achieve our business plan are dependent upon obtaining additional financing and achieving a level of collections adequate to support our growing operations.  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 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 2015 Annual Report on Form 10-K.  We believe the risk factors presented in this filing and those presented on our 2015 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 February, 2016, 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
 
Employment Agreement with John Bergeron dated November 30, 2013 (Incorporated by reference from Form 8-K filed with the SEC on December 13, 2013) *
 
 
 
10.3
 
Financing Agreement with Peter Dalrymple (Incorporated by reference from Form 8-K filed with the SEC on August 26, 2014) *
 
 
 
10.4
 
Wells Fargo Loan Documentation (Incorporated by reference from Form 10-Q filed with the SEC on May 13, 2015) *

31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
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: May 12, 2016
By: /s/ William F. Donovan, M.D.
 
William F. Donovan, M.D.
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
 

  Date: May 12, 2016
By: /s/ John Bergeron
 
John Bergeron
 
Chief Financial Officer (Principal Financial Officer)
 
 
 
 

19
 

Spine Injury Solutions, Inc Reports