Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the OTC Markets under the symbol, “SPIN.”
Record Holders
As of March 26, 2021, there were approximately 63 stockholders of record of our common stock, and we estimate that there were approximately 500 additional beneficial stockholders who hold their shares in “street name” through a brokerage firm or other institution. As of March 26, 2021, we have a total of 20,240,882 shares of common stock issued and outstanding. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
Equity Compensation Plan Information
As of December 31, 2020, we do not have any compensation plans under which our equity securities are authorized for issuance.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited consolidated financial statements and the related notes to the consolidated financial statements included in this Form 10-K.
Management Overview
At the end of 2008, we launched our new business concept of medical services and technology that delivers turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary, reasonable and appropriate treatment for musculo-skeletal spine injuries.
During the fourth quarter of 2018, the decision was made to discontinue funding future medical procedures due to our cash position, which also hampers our ability to pay back existing debt to a current director and shareholder. We did not fund any procedures in 2020 and will not do so in the future unless we can access additional capital. The service revenue we have funded has resulted in longer settlement times, which has created a slowdown in cash collections. Additionally, our efforts to establish a market for the Quad Video Halo has not met our expectations and we have cut back its development and operations. In late 2018, however, we were able to sell certain contracts to customers for the use of our QVH units along with image processing services.
There can be no guarantee of us continuing as a going concern if we cannot find additional capital. We continue to explore opportunities to raise additional capital to fund our operations. We are also actively seeking a private company with which to enter into a strategic business transaction, including without limitation a merger.
Results of Operations
For the years ended December 31, 2020 versus 2019:
We recorded $95,941 in QVH lease revenue for the year ended December 31, 2020 coupled with $76,078 relating to excess collections for previously funded procedures, resulting in revenue of $172,019. For the same period in 2019, we recorded $73,046 in QVH lease revenue coupled with $136,327 relating to excess collections for previously funded procedures bringing total revenue to $209,373. For the year ended December 31, 2020, our collections of previously funded procedures decreased as we are no longer funding new procedures and previously funded procedures are in run-off.
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There were no service costs in 2020. For the year ended December 31, 2019 service cost was $115,235 which consisted of inventory obsolescence write downs for the period.
Expenses
For the years ended December 31, 2020 versus 2019:
Operating, general and administrative expenses for the year ended December 31, 2020 were $507,397 as compared to $1,643,803 for the year ended December 31, 2019. Operating expenses decreased due to decreases in bad debt expenses, investor relations expenses, payroll, consulting, insurance, computer expenses, factoring expense, goodwill impairment, depreciation and amortization, and rent expense.
Bad debt expense, net of recoveries, included in operating, general and administrative expenses, totaled $0 and $538,577, respectively, for the years ended December 31, 2020 and 2019. The decrease in bad debt expense is primarily attributable to our assessment of active cases that have aged greater than historic norms. While we continue to pursue all amounts owed, we increased the allowance for bad debt minimally to encompass those receivables in which collection is doubtful.
Other income (expense) for the year ended December 31, 2020 was other income, net of $37,984 as compared to other expense, net of $62,904 for the year ended December 31, 2019. For the year ended December 31, 2020, other income, net consisted primarily of the forgiveness of our Paycheck Protection Program (“PPP”) loan as further described below, partially offset by $26,646 of interest expense.. For the year ended December 31, 2019 the other expense, net consisted of $2,399 of income coupled with $65,303 of interest expense.
On April 22, 2020 we received an SBA loan in the amount of $64,097 under the federal PPP which helps businesses keep their workforce employed during the Coronavirus crisis. The PPP is part of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act signed into law in March of 2020. The PPP is a loan designed to provide direct incentive for small businesses to keep their workers on the payroll, which will be forgiven if all employees are kept on the payroll for eight weeks and the money is used for the sole purpose of payroll, rent, mortgage interest, or utilities, subject to the provisions in the program. The loan carries an interest rate of 1% and is due in two years, April 22, 2022. There is no collateral and no personal guarantees. In December 2020, we applied for forgiveness of our PPP loan and subsequently received a notice of approval. Accordingly, we removed the PPP loan amount from our consolidated balance sheet and recognized a gain on forgiveness of debt.
Net Loss
For the years ended December 31, 2020 versus 2019:
Net loss for the year ended December 31, 2020 was $297,394 compared to net loss of $1,612,569 for the year ended December 31, 2019. The main reason for the decrease is that we did not take as large bad debt expense, as well as no expense related to writing off obsolete inventory, factoring expense, nor impairment of goodwill, coupled with other operating expenses being lower.
Liquidity and Capital Resources
For the year ended December 31, 2020 versus 2019:
During 2020, cash provided by operating activities was $446,971 as compared to $635,908 in 2019. The decrease in cash provided by operations was mainly due to a decrease in collections of outstanding receivables.
Cash used in financing activities totaled $515,903 for the year ended December 31, 2020, consisting of payments on our note payable totaling $110,000 and $470,000 in payments on our line of credit, partially offset by proceeds received from a PPP loan of $64,097. Cash used in financing activities totaled $585,000 for the year ended December 31, 2019, consisting of $90,000 in payments on our note and $495,000 in payments on our line of credit.
Income Tax Expense (Benefit)
We have experienced losses and as a result have net operating loss carryforwards available to offset future taxable income.
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Critical Accounting Policies
In Note 3 to the audited consolidated financial statements for the years ended December 31, 2020 and 2019 included in this Form 10-K, we discuss those accounting policies that are considered to be significant in determining the results of operations and our financial position. The following critical accounting policies and estimates are important in the preparation of our financial statements:
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate estimates. We base our estimates on historical experience and other facts and circumstances that we believe to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition and Accounts Receivable
The Company’s accounting for revenues is governed by two accounting standards. The Company’s service and product sale revenue are accounted for under ASC 606, Revenue from Contracts with Customers. Additionally, the Company’s QVH rental revenues are accounted for under ASC 842, Leases.
Service and Product Sale Revenue Recognition
Historically, our net revenues included service revenues that arose from the delivery of medical diagnostic services provided to patients by medical professionals at spine injury diagnostic centers, only after the patients completed and signed required medical and financial paperwork. Service revenues were recorded as net patient service revenues based on variable consideration elements further described below. While we did collect 100% of the accounts on certain patients, our historical collection rate was used to estimate the variable consideration expected and is reflected in the carrying balance of accounts receivable and service revenue recorded. A discount rate of 48%, based on payment history, was used to reduce revenue to 52% of Current Procedural Terminology code rates (“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 were billed at the normal billing amount, based on national averages, for a particular CPT code procedure during the year ended December 31, 2018 and prior years. We recorded no revenue related to medical diagnostic services provided during the years ended December 31, 2020 and 2019 and revenue presented represents adjustments of variable consideration received for procedures performed in years prior to 2019.
Service 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 (“gross revenue”) less account discounts that are expected to result when individual cases are ultimately settled, which is the variable consideration associated with this revenue stream.
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. As of December 31, 2020 and 2019, there were no material contract assets, contract liabilities, or deferred contract costs recorded in the consolidated financial statements.
Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.
Lease Revenues
Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. For the QVH Leases, rental related services revenues for support, maintenance and video processing, delivery, and installation are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. As of the year ended December 31, 2020, the Company’s leases consisted solely of operating leases.
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Accounting Standards Updates
In Note 3 to the audited consolidated financial statements for the years ended December 31, 2020 and 2019 included in this Form 10-K, we discuss those recent accounting pronouncements that may be considered to be significant in determining current and/or future results of operations and our financial position.
Going Concern
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 $5,134,184 to $20,138,182 as of December 31, 2020. During the year ended December 31, 2020, we recorded net revenue of $183,342 and a net loss of $297,394. Successful business operations and our transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support our cost structure. Considering the nature of the business, we are not generating immediate liquidity and sufficient working capital within a reasonable period of time to fund our planned operations and strategic business plan through the period of one year from the issuance of this report. There can be no assurances that there will be adequate financing available to us.
Additionally, during the fourth quarter of 2018, the decision was made to discontinue funding future medical procedures due to our cash position, which also hampered our ability to pay back existing debt to a current director and shareholder (see Note 6—Notes Payable in the Notes to Consolidated Financial Statements). We did not fund any procedures in 2020 and will not do so unless we can access additional capital. The service revenue we have funded has resulted in longer settlement times, which has created a slowdown in cash collections. Additionally, our efforts to establish a market for the Quad Video Halo has not met our expectations and we have cut back its development and operations. If we are unable to access additional capital in the near future, these recent developments could have a material negative impact on our financial performance and could have a material adverse effect on our results of operations and financial condition. We are also actively seeking a private company with which to enter into a strategic business transaction, including without limitation a merger. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.