| /s/ Ham, Langston & Brezina, LLP We have served as the Company’s auditor since 2010. Houston, Texas March 31, 201529, 2018 |
SPINE PAIN MANAGEMENT,SPINE INJURY SOLUTIONS, INC.CONSOLIDATED BALANCE SHEETS December 31, 2014 and 2013
| | December 31, | | | December 31, | | | | 2017 | | | 2016 | | | | | | | | | ASSETS | | | | | | | | | | | | | | Current assets: | | | | | | | Cash and Cash equivalents | | $ | 77,843 | | | $ | 256,263 | | Accounts receivable, net | | | 1,078,184 | | | | 1,395,200 | | Prepaid expenses | | | 9,250 | | | | 9,250 | | Inventories | | | 200,825 | | | | 183,898 | | | | | | | | | | | Total current assets | | | 1,366,102 | | | | 1,844,611 | | | | | | | | | | | Accounts receivable, net of allowance for doubtful accounts of $106,443 and $958,185 at December 31, 2017 and 2016, respectively | | | 2,405,837 | | | | 2,297,283 | | Property and equipment, net | | | 43,164 | | | | 58,641 | | Intangible assets and goodwill | | | 170,200 | | | | 170,200 | | | | | | | | | | | Total assets | | $ | 3,985,303 | | | $ | 4,370,735 | | | | | | | | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | Line of credit | | $ | 1,325,000 | | | $ | 1,275,000 | | Notes payable | | | 225,000 | | | | 300,000 | | Accounts payable and accrued liabilities | | | 79,205 | | | | 82,523 | | Due to related parties | | | 27,910 | | | | - | | | | | | | | | | | Total current liabilities | | | 1,657,115 | | | | 1,657,523 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | Stockholders’ equity: | | | | | | | | | Common stock: $0.001 par value, 50,000,000 shares authorized, 20,215,882 and 20,135,882 shares issued and outstanding at December 31, 2017 and 2016, respectively | | | 20,216 | | | | 20,136 | | Additional paid-in capital | | | 19,864,536 | | | | 19,843,716 | | Accumulated deficit | | | (17,556,564 | ) | | | (17,150,640 | ) | | | | | | | | | | Total stockholders’ equity | | | 2,328,188 | | | | 2,713,212 | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 3,985,303 | | | $ | 4,370,735 | |
The accompanying notes are an integral part of the consolidated financial statements ASSETS | | 2014 | | | 2013 | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accounts receivable, net of allowance for doubtful accounts of $342,084 and $352,615, respectively | | | | | | | | | Intangible assets and goodwill, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | | | | | | | | | | | | | | | | | Current portion of long-term debt, net | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt, including convertible note payable and secured note payable, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock: $0.001 par value, 50,000,000 shares authorized; 19,340,882 and 18,715,882 shares issued and outstanding at December 31, 2014 and 2013, respectively | | | | | | | | | Additional paid-in capital | | | | | | | | | | | | | | | | | | | | | | | | | | | Total stockholders’ equity | | | | | | | | | | | | | | | | | | Total liabilities and stockholders' equity | | | | | | | | |
SPINE INJURY SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2017 and 2016 | | 2017 | | | 2016 | | | | | | | | | Net revenue | | $ | 1,855,615 | | | $ | 2,117,078 | | | | | | | | | | | Cost of providing services, including amounts billed by a related party of $534,886 and $544,159 during the years ended December 31, 2017 and 2016, respectively | | | 571,769 | | | | 689,101 | | | | | | | | | | | Gross profit | | | 1,283,846 | | | | 1,427,977 | | | | | | | | | | | Research and Development | | | 15,688 | | | | 45,661 | | Operating, general and administrative expenses | | | 1,624,717 | | | | 2,087,266 | | | | | | | | | | | Loss from operations | | | (356,559 | ) | | | (704,950 | ) | | | | | | | | | | Other income and (expense): | | | | | | | | | Other income | | | 6,357 | | | | 7,057 | | Interest expense | | | (55,722 | ) | | | (58,052 | ) | | | | | | | | | | Total other income and (expense) | | | (49,365 | ) | | | (50,995 | ) | | | | | | | | | | Net loss | | $ | (405,924 | ) | | $ | (755,945 | ) | | | | | | | | | | Net loss per common share: | | | | | | | | | Basic/ diluted | | $ | (0.02 | ) | | $ | (0.04 | ) | | | | | | | | | | Weighted average shares used in loss per common share: | | | | | | | | | Basic/ diluted | | | 20,158,594 | | | | 20,127,246 | |
The accompanying notes are an integral part of the consolidated financial statements. SPINE INJURY SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the Years Ended December 31, 2017 and 2016 | | Common Stock | | | Additional | | | Accumulated | | | Total Stockholders’ | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | Balances, December 31, 2015 | | | 19,780,882 | | | $ | 19,781 | | | $ | 19,908,571 | | | $ | (16,394,695 | ) | | $ | 3,533,657 | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock options for compensation of officers | | | - | | | | - | | | | 6,200 | | | | - | | | | 6,200 | | Issuance of common stock for debt restructuring with an officer | | | 300,000 | | | | 300 | | | | (300 | ) | | | - | | | | - | | Issuance of common stock for consulting services | | | 55,000 | | | | 55 | | | | 19,245 | | | | - | | | | 19,300 | | Cancellation of common stock issued for prepaid services | | | | | | | | | | | (90,000 | ) | | | | | | | (90,000 | ) | Net loss | | | - | | | | - | | | | - | | | | (755,945 | ) | | | (755,945 | ) | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2016 | | | 20,135,882 | | | | 20,136 | | | | 19,843,716 | | | | (17,150,640 | ) | | | 2,713,212 | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for consulting services | | | 20,000 | | | | 20 | | | | 5,080 | | | | - | | | | 5,100 | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for compensation of officers | | | 60,000 | | | | 60 | | | | 15,740 | | | | - | | | | 15,800 | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | - | | | | (405,924 | ) | | | (405,924 | ) | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2017 | | | 20,215,882 | | | $ | 20,216 | | | $ | 19,864,536 | | | $ | (17,556,564 | ) | | $ | 2,328,188 | |
The accompanying notes are an integral part of the consolidated financial statements. SPINE INJURY SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2017 and 2016 | | 2017 | | | 2016 | | Cash flows from operating activities: | | | | | | | Net loss | | $ | (405,924 | ) | | $ | (755,945 | ) | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | | | | Provision for bad debts | | | 270,000 | | | | 683,339 | | Issuance of common stocks for services | | | 5,100 | | | | 19,300 | | Issuance of stock based compensation | | | 15,800 | | | | 6,200 | | Amortization of prepaid stock based compensation | | | - | | | | 60,000 | | Loss from disposal of property and equipment | | | - | | | | 1,108 | | Depreciation and amortization expense | | | 19,091 | | | | 19,188 | | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable, net | | | (61,538 | ) | | | 325,198 | | Inventories | | | (16,927 | ) | | | (108,438 | ) | Accounts payable and accrued liabilities | | | (3,318 | ) | | | (17,934 | ) | Due to related party | | | 27,910 | | | | (29,400 | ) | | | | | | | | | | Net cash (used in) provided by operating activities | | | (149,806 | ) | | | 202,616 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Purchase of equipment | | | (3,614 | ) | | | - | | | | | | | | | | | Net cash used in investing activities | | | (3,614 | ) | | | - | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Repayments on notes payable | | | (75,000 | ) | | | (250,000 | ) | Net Proceeds from line of credit | | | 50,000 | | | | 130,000 | | | | | | | | | | | Net cash used in financing activities | | | (25,000 | ) | | | (120,000 | ) | | | | | | | | | | (Decrease) increase in cash and cash equivalents | | | (178,420 | ) | | | 82,616 | | | | | | | | | | | Cash and cash equivalents at beginning of period | | | 256,263 | | | | 173,647 | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 77,843 | | | $ | 256,263 | | | | | | | | | | | Supplementary disclosure of cash flow information: | | | | | | | | | Interest paid | | $ | 54,661 | | | $ | 58,052 | | Taxes paid | | $ | - | | | $ | - | | | | | | | | | | | Supplementary disclosure of non-cash investing and financing activities: | | | | | | | | | Cancellation of common stock issued for prepaid services | | $ | - | | | $ | 90,000 | |
The accompanying notes are an integral part of the consolidated financial statements. SPINE PAIN MANAGEMENT, INC.CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2014 and 2013
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of providing services, including amounts billed by a related party of $373,914 and $719,270 during the years ended December 31, 2014 and 2013, respectively | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating, general and administrative expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other income and (expense): | | | | | | | | | | | | | | | | | | (Loss) gain from debt extinguishment | | | | | | | | | | | | | | | | | | | | | | | | | | | Total other income and (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares used in loss per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
SPINE PAIN MANAGEMENT, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2014 and 2013
| Common Stock | | | Additional | | | Accumulated | | | Total Stockholders' | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | Balances, December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock options for compensation of officers | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for consulting services | | | | | | | | | | | | | | | | | | | | | Detachable warrants issued with convertible debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock options for compensation of officers | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for debt restructuring with an officer | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for consulting services | | | | | | | | | | | | | | | | | | | | | Detachable warrants issued with convertible debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2014 | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
SPINE PAIN MANAGEMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2014 and 2013
| | 2014 | | | 2013 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | Loss (gain) from debt extinguishment | | | | | | | | | Interest expense related to warrant amortization | | | | | | | | | Accretion of debt discount on long term debt | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | | | | | | | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | Prepaid expenses and other assets | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Repayments on long-term debt | | | | | | | | | Proceeds from draws on line of credit | | | | | | | | | Repayments on related party payable | | | | | | | | | | | | | | | | | | Net cash used in financing activities | | | | | | | | | | | | | | | | | | Net decrease in cash and cash equivalents | | | | | | | | | | | | | | | | | | Cash and cash equivalents at beginning of period | | | | | | | | | | | | | | | | | | Cash and cash equivalents at end of period | | | | | | | | | | | | | | | | | | Supplementary disclosure of cash flow information: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Supplementary disclosure of non-cash investing and financing activities: | | | | | | | | | Common stock issued to restructure debt | | | | | | | | | Common stock issued for prepaid services | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
NOTENOTE 1. DESCRIPTION OF BUSINESS
Spine Pain Management,Injury Solutions Inc., (the “Company,”“Company”, “we” or “us”), was incorporated inunder the laws of Delaware on March 4, 19981998. We changed our name to acquire interests in variousSpine Injury Solutions Inc. on October 1, 2015. We have two wholly-owned subsidiaries, Quad Video Halo, Inc. which holds certain assets associated with our Quad Video Halo (“QVH”) business, operations and assist in their development.
At the end of December 2008, we began moving forward to launch our new business concept of delivering turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary and appropriate treatment of musculo-skeletal spine injuries. We currently have three affiliated spine injury diagnostic centers within the United States,Gleric Holdings, LLC which are located in Houston, Texas; Odessa, Texas; and San Antonio, Texas.holds certain intangible assets.
We are a medical servicestechnology, marketing, billing, and technologycollection company facilitating diagnostic services for patients who have sustained spine injuries. In addition, we are developing QVH programs to assist surgeons and other healthcare providers with treatment documentation in specialized areas, such as spine injuries resulting from traumatic accidents.and regenerative medicine. We deliver turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers that provide necessarywho treat spine injuries. Our goal is to become a leader in providing technology and appropriate treatment of musculo-skeletalmonetizing services to spine injuries resulting from automobile and work-related accidents. Our management services help reduce the financial burden on healthcare providers that provide patients with early-stage diagnostic testing and non-invasive surgical care, preventing many patients from being unnecessarily delayed or inhibited from obtaining needed treatment.
Through our management system, we affiliate with spine surgeons, orthopedic surgeons and other healthcare providers who diagnose and treatproviders. By monetizing the providers’ accounts receivable, patients with musculo-skeletal spine injuries. We assist the centers that provide the spine diagnostic injections and treatment and the doctors are paid a fixed rate for the medical procedures they performed.not unnecessarily delayed or prevented from obtaining needed treatment. After a patient is billed for the procedures performed 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.
The clinic facilities where theWe currently are providing technology and/or collection services to four spine injury diagnostic centers operatein the United States, which are owned or leasedlocated in Houston, Texas; Odessa, Texas; Tyler, Texas; and Las Cruces, New Mexico (which affiliation was added in the fourth quarter 2017). We are seeking additional funding for expansion by third parties.way of reasonable debt financing to accelerate future development. In connection with this strategy, we plan to offer our technology to additional diagnostic centers in new market areas that are attractive under our business model, assuming adequate funds are available.
We own a patented device and process by which a video recording system is attached to a fluoroscopic x-ray machine, the “four camera technology,” which we believe can attract additional physicians and patients, and provide us with additional revenue streams with our new programs designed to assist in treatment documentation. We have no ownership interestrefined the technology, through research and development, resulting in these clinic facilitiesa fully commercialized Quad Video Halo System 3.0. Using this technology, diagnostic and have no responsibilities towards building or operatingtreatment procedures are recorded from four separate video feeds that capture views from both inside and outside the clinic facilities.body, and a video is made which is given to the patient’s representative to verify the treatment received. Additionally, we anticipate independent medical representatives will sell Quad Video Halo units to additional hospitals and clinics. 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 $332,393$2,551,866 to $15,337,091$17,556,564 as of December 31, 2014. During the year ended December 31, 2014,2017. We plan to increase our operating expenses as we realized net revenue of $2,046,977increase our service development, marketing efforts and a net loss of $1,692,658. Successful business operationsbrand building activities. We also plan to increase our general and our transition to sustained positive cash flows from operations are dependent upon obtaining additional financing and achieving a level of collections adequateadministrative functions to support our cost structure. Considering the nature ofgrowing operations. We will need to generate significant revenues to achieve our business we are not generating immediate liquidityplan. 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 sufficient workingobtain additional capital within a reasonable period of timefrom borrowing and selling securities, as needed, to fund our planned operationsoperations. There is no assurance that additional capital can be obtained or that it can be obtained on terms that are favorable to us and strategicour existing stockholders. Any expectation of future profitability is dependent upon our ability to expand and develop our healthcare services business, plan through December 31, 2015. Thereof which 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.assurances. NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Spine Pain ManagementInjury Solutions and its wholly owned subsidiary,subsidiaries, Quad Video Halo, Inc. and Gleric Holdings, LLC. All material intercompany transactions have been eliminated upon consolidation. At December 31, 2014, Quad Video Halo, Inc. had no assets or liabilities.
Accounting Method Our consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.America (“U.S. GAAP”). Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.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 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 SECSecurities and Exchange Commission’s (“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 5)4). Fair Value of Financial Instruments Cash, accounts receivable, accounts payable, and accrued liabilities, and notes payable as reflected in the 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 the estimates. Cash and Cash Equivalents
Cash and cash equivalents consist of liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. We maintain cash and cash equivalents in banks which at times may exceed federally insured limits. We have not experienced any losses on these deposits.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method, whereas market is based on the net realizable value. All inventories at December 31, 2017 and 2016 are classified as finished-goods and consist of our Quad Video Halo.
Property and Equipment
Property and equipment are carried at cost. When retired or otherwise disposed of, the related carrying cost and accumulated depreciation are removed from the respective accounts, and the net difference, less any amount realized from the disposition, is recorded in operations. Maintenance and repairs are charged to operating expenses as incurred. Costs of significant improvements and renewals are capitalized.
Property and equipment consists of computers and equipment and are depreciated over their estimated useful lives of three to five years, using the straight-line method. Intangible Assets and Goodwill
Intangible assets acquired are initially recognized at cost. Intangible assets acquired in a business combination are recognized at their estimated fair value at the date of acquisition. Intangibles with a finite life are amortized, ratably, based on the contractual terms of the associated agreements. As of December 31, 2017 and 2016 the Company’s balance of intangible assets consisted solely of goodwill totaling $170,200.
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. At December 31, 20142017 and 2013,2016, no impairment to the asset was determined to have occurred. Research and Development
Research and development projects and costs are expensed as incurred. These costs consist of direct costs associated with the design of new products. Research and development expenses incurred during the years ended December 31, 2017 and 2016, were $15,688 and $45,661, respectively.
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 December 31, 20142017 and 2013,2016, 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. Our sales are within a certain region of the United States of America, specifically the state of Texas. Changes in legal or economic factors within Texas may affect the Company’s operating results. 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, based on management’s estimates, we have established an allowance for doubtful accounts in the amount of $342,084$106,443 and $352,615,$958,185, at December 31, 20142017 and 2013,2016, 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 years ended December 31, 20142017 and 2013,2016, we recognized compensation expense related to our stock optionsbased compensation of $171,110$15,800 and $288,000,$6,200, respectively. We also recognized compensation expense for issuances of our common stock in exchange for services of $180,500$5,100 and $228,667$19,300 during the years ended December 31, 20142017 and 2013,2016, respectively. During the years ended December 31, 2017 and 2016, we amortized $0 and $60,000, respectively, in compensation expense for issuance of common stock out of prepaid expenses.
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 bases.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 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. As of and forFor the yearyears ended December 31, 20142017 and 2013,2016, we recognized no estimated interest or penalties as income tax expense.
We have not made any provisions for federal and state income tax liabilities or interest and penalties that may result from the uncertainty that arose as a result of filing our U.S. federal and applicable state tax returns in 2010 related to tax years 2004 to 2009. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions include the United States and various states. Because U.S. federal and applicable state tax returns for years 2004 to 2009 were filed in 2010, management believes that all of these years of returns were subject to audit through 2013.
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. 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 years ended December 31, 20142017 and 2013,2016, 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 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 February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new accounting guidance under Accounting Standards Codification ("ASC") 220, Comprehensive Income, provides an improvement on the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income by component either on the income statement or in the notes to the financial statements. The guidance will become effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-02 did not have a significant impact on the consolidated financial statements.
In May 2014, the FASB issued ASUAccounting 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 will be effectiveby one year (effective for U.S. public companies for annual reporting periods beginning after December 15, 2016, including interim reporting periods (January 1, 2017 for us)2017). Early adoption is not permitted. We are currently reviewingadopted the effectprovisions of this ASU No. 2014-09 on our revenue recognition.January 1, 2018 and applied a modified retrospective approach which did not have a significant impact on the Company’s revenues or their timing.
In June 2014,February 2016, the FASB issued ASU 2014-12, AccountingNo. 2016-02, Leases, which requires lessees to recognize the following for Share-Based Payments Whenall leases (with the Termsexception 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 Award Provide Thatasset that represents the lessee’s right to use, or control the use of, a Performance Target Could be Achieved afterspecified asset for the Requisite Service Period. This newlease term. Under ASU No. 2016-02, lessor 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 nonvesting condition that affects the grant-date fair value of an award. The guidance will becomeis largely unchanged. ASU No. 2016-02 is effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2015. Early adoption is2018 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 has determined that based on current accounting and lease contract information the adoption of ASU 2014-12No. 2016-02 is not expected to have a significant impact on the Company’s consolidated financial statements.position, results of operations and disclosures. However, management is continually evaluating the future impact of ASU No. 2016-02 based on changes in the Company’s consolidated financial statements through the period of adoption.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU No. 2016-12 provides narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. The amendment also provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers and are expected to reduce the judgment necessary to comply with Topic 606. The effective date and transition requirements for ASU No. 2016-12 are the same as the effective date and transition requirements for ASU No. 2014-09. We adopted the provisions of this ASU on January 1, 2018 and applied a modified retrospective approach which did not have a significant impact on the Company’s revenues or their timing.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 eliminates the probable initial recognition threshold in current US GAAP and, instead, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU No. 2016-13 is effective for annual periods beginning after December 15, 2020, with early application permitted in annual periods beginning after December 15, 2018. The amendments of ASU No. 2016-13 should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Management is currently evaluating the future impact of ASU No. 2016-13 on the Company’s consolidated financial position, results of operations and disclosures.
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. ASU No. 2016-20 allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and require entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. The amendment also clarifies narrow aspects of ASC 606, including contract modifications, contract costs, and the balance sheet classification of items as contract assets versus receivables, or corrects unintended application of the guidance. The effective date and transition requirements for ASU No. 2016-20 are the same as the effective date and transition requirements for ASU No. 2016-09. We adopted the provisions of this ASU on January 1, 2018 and applied a modified retrospective approach which did not have a significant impact on the Company’s revenues or their timing.
NOTE 4. INTANGIBLE ASSETS AND GOODWILLIn January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business or as acquisitions (or disposals) of assets. ASU No. 2017-01 is effective for annual periods beginning after December 15, 2018, with early adoption permitted under certain circumstances. The amendments of ASU No. 2017-01 should be applied prospectively as of the beginning of the period of adoption. Management is currently evaluating the future impact of ASU No. 2017-01 on the Company’s consolidated financial position, results of operations and disclosures.
Intangible assets consistIn January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. The amendments in this update relate to disclosures of non-compete agreementsthe impact of recently issued accounting standards. The SEC staff’s view that a registrant should evaluate ASC updates that have not yet been adopted to determine the appropriate financial disclosures about the potential material effects of the updates on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact of an update, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact. The staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies expected to be applied compared to current accounting policies. Also, the registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments specifically addressed recent ASC amendments to ASU No. 2016-13, Financial Instruments – Credit Losses, ASU No. 2016-02, Leases, and ASU No. 2014-09, Revenue from Contracts with Customers, although, the amendments apply to any subsequent amendments to guidance in the ASC. ASU No. 2017-03 is effective upon issuance and did not have a significant impact on the Company’s consolidated financial position, results of operations and disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update relate to the impairment test performed annually or interim. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a costzero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of $54,000 expiringthe goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments of ASU No. 2017-04 should be applied prospectively as of the beginning of the period of adoption. Management is currently evaluating the future impact of ASU No. 2017-04 on the Company’s consolidated financial position, results of operations and disclosures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in 2015. During both the years ended December 31, 2014 and 2013, we recorded amortization expense of $18,000 relatedthis update provide guidance on determining which changes to the non-compete agreements resulting in a remaining balanceterms and conditions of $9,000share-based payment awards require an entity to apply modification accounting under Topic 718. ASU No. 2017-09 is effective for annual periods, including interim periods, beginning after December 15, 2017, with early adoption permitted for interim periods of public business entities within reporting periods for which financial statements have not yet been issued. The amendments of ASU No. 2017-09 should be applied prospectively as of the beginning of the period of adoption. Management is currently evaluating the future impact of ASU No. 2017-09 on the Company’s consolidated financial position, results of operations and $27,000, respectively. At December 31, 2014 and 2013, goodwill totaled $170,200.disclosures.
NOTE 5.4. ACCOUNTS RECEIVABLE
We recognize revenue and accounts receivable in accordance with SEC staff accounting bulletin, Topic 13, “Revenue Recognition,”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 assist certain spine injury diagnostic centers where affiliated healthcare providers perform medical services for patients. Healthcare providers are paid a fixed rate for medical services performed. The patients are billed by the healthcare provider 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. The patientsPatients 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. While we do collect 100% of the accounts on some patients, our historical collection rate is used to calculate the carrying balance of the accounts receivable and the estimated revenue to be recorded. A discount rate of 52%48%, based on settled patient cases,payment history, was used to reduce revenue to 48%52% of CPT code billings (“gross revenue”) during 2014the years ended December 31, 2017 and 2013.2016.
The patients who receive medical services at the diagnostic centers are typically plaintiffspatients involved in accident lawsuits.auto accidents or work injuries. The patient completes and signs medical and financial paperwork, which includes an acknowledgement of the patient’s responsibility of payment for the services provided. Additionally, the paperwork should include an assignment of benefits. The timing of collection of receivables is dependentvaries depending on the timingpatient sources of a settlement or judgment of each individual case associated with these patients.payment. Historical experience, through 2014,2017, demonstrated that the collection period for individual cases may extend for two years or more. Accordingly, we have classified receivables as current or long term based on our experience, which indicates that as of December 31, 20142017 and 20132016 that 25%30% of cases will be subject to a settlement or judgmentcollected within one year of a medical procedure.
We take the following steps to establish an arrangement among all parties and facilitate collection upon settlement or final judgment of cases:NOTE 5. PROPERTY AND EQUIPMENT
· | 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 affiliated diagnostic centers have already received two to four months of conservative treatment. The treating doctor then typically refers the patient to one of our affiliated healthcare providers for an evaluation of continuing symptoms. Appropriate, reasonable, and necessary treatment programs are ordered by the affiliate doctor. |
NOTE 6. DUE TO RELATED PARTIES
Due to related parties consistsProperty and equipment consisted of the following at December 31:31, 2017 and 2016:
| | 2017 | | | 2016 | | | | | | | | | Computers and equipment | | $ | 98,169 | | | $ | 94,555 | | Less: accumulated depreciation | | | (55,005 | ) | | | (35,914 | ) | | | $ | 43,164 | | | $ | 58,641 | |
Depreciation expense totaling $19,091 and $19,118, respectively, was charged to operating, general and administrative expenses during the years ended December 31, 2017 and 2016.
| | 2014 | | | 2013 | | | | | | | | | Due to Northshore Orthopedics Associates | | | | | | | | | Due to Chief Executive Officer | | | | | | | | | Due to Spine Injury Physicians (formerly Wellness Works LLC) | | | | | | | | | | | | | | | | | |
Amounts due to Northshore Orthopedics, Assoc. (“NSO”,During 2017 and 2016 we incurred a company owned by our Chief Executive Officer)loss from disposal on property and our Chief Executive Officer are non-interest bearing, due on demandequipment totaling $0 and do not follow any specific repayment schedule. We used the amounts received to meet our working capital requirements.
Amounts due to Spine Injury Physicians (“SIP”), a company owned by our former Chief Technology Officer formerly known as Wellness Works, LLC) are non-interest bearing and are due by the 15th of the month following the month in which they were billed.$1,108, respectively.
NOTE 7.6. NOTES PAYABLE AND LONG TERM DEBT
Debentures and third party note payable
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 2013, we also extended the maturity date of a $50,000 third party note originally due March 9, 2015 for two additional years maturingto a maturity date of March 9, 2017 in exchange for warrants to purchase 50,000 shares at $0.45 per share.
The weighted-average estimated fair value of the 100,000 warrants issued was $0.21 per share using the Black-Sholes pricing model with the following assumptions:
During the twelve months ended December 31, 2014 and 2013, In March 2017 we recorded $18,444 and $44,662 in interest expense, respectively, related to the amortization of warrants associated with the debenture andrepaid this third party note. In June 2013, we repaid other debentures totaling $350,000,note in full based on the stated contractual terms. Associated warrants have also expired and are no longer exercisable.
Convertible and secured notes payable
On June 27, 2012, we issued a $500,000 convertible promissory note bearing interest at 12% per year which was to originally mature on March 27, 2014. This note was extended for one year on February 6, 2014 with the same provisions for quarterly interest payments with the principal due upon maturity as extended, March 27, 2015. As consideration for the extension, we issued an additional 69,445 warrants to purchase our common stock for $0.43 that expire on February 6, 2015. The holder of the note also has the right to convert into common stock, at $1.50 per share, up to 50% of the principal amount after twelve months and up to 100% of the principal amount for the twelve months following the extension date. In December 2014, we paid $200,000 principal on this note with the remaining $300,000 due in March 2015.
On August 29, 2012, we issued Peter Dalrymple, a director of the company,Company, a $1,000,000 three-year secured promissory note bearing interest at 12% per year, with thirty-five monthly payments of interest commencing on September 29, 2013, and continuing thereafter on the 29th day of each successive month throughout the term of the promissory note. Under the terms of the secured promissory note, the holder received a detachable warrant to purchase 333,333 shares of our common stock at the price of $1.60 per share that expireswere originally to expire on August 29, 2015.2015, however were extended as described below. This promissory note is secured by $3,000,000 in gross accounts receivable. On the maturity date, one balloon payment of the entire outstanding principal amount plus any accrued and unpaid interest is due.
On August 20, 2014, we entered into a Financing Agreement with Mr. Dalrymple whereby, he agreed to assist us in obtaining financing in the form of a $2,000,000 revolving line of credit (see Line of Credit below) from a commercial lender and provide a personal guaranty of the line of credit. Under the terms of the Financing Agreement, upon finalization of the line of credit with Wells Fargo Bank on September 8, 2014, we (i) extended the term of the $1,000,000 promissory note, described above, by one year to mature on August 29, 2016, (ii) reduced the interest rate on the promissory note to 6%, (iii) extended the expiration date on the warrants issued in connection with the promissory note by one year to an expiration date of August 29, 2016, (iv) granted Mr. Dalrymple 200,000 restricted shares of common stock, and (iv)(v) used $500,000 of advances under the line of credit as payment of principal and interest on the promissory note.
Upon our consideration In August 2016, the note and associated warrants were amended to extend the maturity date to August 29, 2018. As of this change in termsDecember 31, 2017 and 2016, the note had a principal balance of $225,000, and $250,000, respectively. During the $1,000,000 promissory note with Mr. Dalrymple, we determined the terms significantly changed. Based on ASC-470-50-40-10, we determined the discounted cash flows using the original effective interest rate of 24% of the revised cash flows amounted to a change greater than 10% of the carrying amount of the debt. As a result, the transaction was determined to be an extinguishment of debt resulting in the Company recording $56,078 was recognized during the yearyears ended December 31, 2014.
Additionally, as consideration for agreeing to extend2017 and 2016 the promissory noteCompany recorded $15,000 and reduce the$25,000 in interest rate, we issued to Mr. Dalrymple 200,000 unvested and restricted shares of common stock that vested upon finalization of the line of credit with Wells Fargo Bank on September 8, 2014.
In accordance with ASC 470-20, Debt with Conversion and Other Options, the proceeds received from the convertible note issued in June 2012 were allocated between the convertible note and the detachable warrant based on the fair value of the convertible note without the warrant and the warrant. The portion of the proceeds allocated to the warrant was recognized as additional paid-in capital and a debt discount. The debt discountexpense related to the warrant is accreted into interest expense through the maturity of the convertiblethis note. The effective conversion price of the common stock did not exceed the stated conversion rate; therefore, there is no beneficial conversion feature associated with the convertible note. Similarly, the proceeds received from the secured note were allocated between the secured note and the detachable warrant based on the fair value of the secured note without the warrant and the warrant. The portion of the proceeds allocated to the warrant was recognized as additional paid-in capital and a debt discount. The debt discounts related to the warrants are accreted into interest expense over the lives of the notes.
The weighted-average estimated fair value of the 69,445 and 333,333 warrants issued with the convertible and secured notes, respectively was $0.62 and $0.81 per share, respectively, using the Black-Sholes pricing model with the following assumptions:
| | Convertible | | | Secured | | Description | | Note | | | Note | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides an analysis of activity related to the convertible and secured notes for the year ended December 31, 2013:
| | Convertible | | | Secured | | Description | | Note | | | Note | | Proceeds received on issuance of notes in 2012 | | | | | | | | | Discount allocated to warrants | | | | | | | | | Note balances after discount | | | | | | | | | Accretion of discount to interest expense | | | | | | | | | Note balances at December 31, 2013 | | | | | | | | | Total allocated to additional paid in capital | | | | | | | | | Unamortized discount at December 31, 2013 | | | | | | | | | Contractual interest expense for 12 months ended at December 31, 2013 | | | | | | | | | Effective interest rate on notes | | | | | | | | |
During the year ended December 31, 2014, we recognized the remaining $11,679 of discount on the convertible note and $36,520 of discount on the secured note as interest expense. During the year ended December 31, 2014, the remaining $56,078 of discount on the secured note was recognized as a loss on extinguishment of debt in connection with the restructuring of the debt as previously discussed.
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 2.16%3.57% at December 31, 2014.2017. On September 8, 2017 we entered into an Amended and Restated Revolving Line of Credit Note and an Amended and Restated Credit Agreement to extend our revolving line of credit facility with Wells Fargo Bank, whereby the outstanding principal is now due and payable in full on August 31, 2018 and the maximum amount we can borrow under the line of credit, as amended is $1,750,000. The line of credit matures on August 31, 2017remains guaranteed by Peter L. Dalrymple, a member of our Board of Directors, and is personally guaranteedsecured by Mr. Dalrymple.a first lien interest in certain of his assets. As of December 31, 2014,2017 and 2016, outstanding borrowings under the line of credit totaled $500,000. $1,325,000 and $1,275,000, respectively. During the years ended December 31, 2017 and 2016 the Company recorded $39,736 and $28,052 in interest expense related to this note.
Under the terms of the financing agreementFinancing Agreement previously discussed,described, we also granted 800,000 unvested and restricted shares of common stock to Mr. Dalrymple with 100,000 shares vesting upon finalization of the line of credit agreement on September 8, 2014, and the remaining shares vesting quarterly in 100,000 share increments quarterly so long asthrough the revolving credit remains in effect.earlier of August 31, 2018 (the maturity date) or when cancellation or refinance of the debt by either the us or a financial institution (all of which shares are presently vested). During the yearyears ended December 31, 2014,2017 and 2016, we recorded $0 and $60,000, respectively, as compensation expense related to this stock issuance.
The following table provides a listing As of the future contractual maturities of long-term debt at December 31, 2014. 2017 and 2016, there was no unrecognized expense associated with the financing agreement.
NOTE 8.7. STOCKHOLDERS’ EQUITY
Common Stock
During the years ended December 31, 20142017 and 2013,2016, we issued common stock to compensate officers, employees, directors and outside professionals, to make an acquisition and to settle a lawsuit.professionals. The stock issuances were valued based on the quoted market price of our common stock on the respective measurement dates. Following is an analysis of common stock issuances during the years ended December 31, 20142017 and 2013:2016:
In September 2013,During the year ended December 31, 2017 we issued an aggregate of 300,000 restricted80,000 shares of common stock valued at $0.32$20,900 to two consultants and one officer. We issued 10,000 shares each to two consultants, for services, at $0.26 per share totaling $96,000, in connection with the engagementand 60,000 shares to Mr. Cronk, our new Chief Operating Officer, as a part of his compensation agreement, at a business development consultant. During the years ended December 31, 2014 and 2013, westock price of $0.26 per share. We recognized compensation expense of $64,000 and $18,667, respectively, related to$20,900 during the agreement. Atyear ended December 31, 2014, unrecognized compensation expense was $13,333 which will be expensed in 2015.2017.
On August 20, 2014, we entered into a Financing Agreement with Peter Dalrymple, our director, which provides for Mr. Dalrymple to assist us in obtaining financing in the form of a $2,000,000 revolving line of credit from a commercial lender, including providing a personal guaranty on the line of credit.
Under the terms of the financing agreement discussed in Note 7, we granted 800,000 unvested and restricted shares of common stock to Mr. Dalrymple. The stock vested as follows: (i) upon finalization of the line of credit with Wells Fargo on September 8, 2014, 100,000 shares vested, and (ii) thereafter, so long as the revolving line of credit remains in effect, 100,000 shares will vest at the end of each subsequent three-month period. Additionally, as consideration for agreeing to extend the promissory note and reduce the interest rate, we issued to Mr. Dalrymple 200,000 unvested and restricted shares of common stock, which stock also vested upon finalization of the line of credit with Wells Fargo on September 8, 2014. All shares are valued at $0.30 per share totaling $300,000.
All together we granted Mr. Dalrymple 1,000,000 shares of stock of which 400,000 shares were vested and issued during 2014. During the year ended December 31, 2014,2016, we recognized compensation expenseissued 350,000 shares of $120,000 related to thesecommon stock, respectively, valued at $0.28 and $0.35 per share, grants. Atrespectively, in connection with employment agreements and consulting agreements. During the twelve months ended December 31, 2014,2016, we expensed $13,100, respectively, in connection with these agreements which are included in operating, general and administrative expenses in the accompanying condensed consolidated statements of operations. As of December 31, 2016, there was no unrecognized compensation expense was $180,000 and will be recognized as expense as the shares vest through September 8, 2016.associated with these agreements.
In September 2014 we entered into an agreement with a consultant to assist us with the development of our Quad Video Halo. We granted him 400,000 unvested shares valued at $0.30 per share, totaling $120,000, with the shares to be vested and issued quarterly with 25,000 shares the first four quarters, 50,000 shares the following four quarters, and 25,000 shares the final four quarters ended September 2017. During the year ended December 31, 2014, we recognized2016 the Company canceled certain consulting agreements based on performance resulting in a cancellation of prepaid share based compensation expense of $7,500 related to these share grants. At December 31, 2014, unrecognized compensation expense was $112,500 and will be recognized as the shares vest.
In December 2014, we issued an aggregate of 200,000 restricted shares of common stock, valued at $0.27 per share, totaling $53,000, which was recognized as compensation expense during 2014, in connection with the engagement of a business consultant.$90,000.
Warrants
The following summarizes outstanding warrants and their respective exercise prices at December 31, 2014:
| | Shares | | | | | | | Remaining | | | Underlying | | | Exercise | | Dates of | | Contractual | Description | | Warrants | | | Price | | Expiration | | Term (in years) | Warrants issued for loan extension | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Convertible Note Warrants | | | | | | | | | | | |
On June 27, 2012, we issued a $500,000 convertible promissory note bearing interest at 12% per year which originally matured on March 27, 2014. Interest only is due and payable quarterly with the principle balance and unpaid accrued interest due and payable on the maturity date in one lump sum payment. The holder of the note has the right to convert into common stock, at $1.50 per share, up to 100% of the principal amount. Under the original terms of the convertible note, the holder received a detachable warrant to purchase 69,445 shares of our common stock at the price of $1.80 per share that expired on June 27, 2014. This note was extended for one year on February 6, 2014 and now matures on March 27, 2015. As consideration for the extension, we issued an additional 69,445 warrants to purchase our common stock for $0.43 that expire on February 6, 2015. This note was paid in full on March 27, 2015.
The weighted-average estimated fair value of the 69,445 warrants issued, on February 6, 2014 was $0.19 per share using the Black-Sholes pricing model with the following assumptions:
We currently have four series of outstanding warrants. Series B and Series C warrants were issued prior to 2013 with the debentures that have expired. During the year ended December 31, 2013, we issued 100,000 warrants in connection with the renewal of a third party note payable and debenture as described further in Note 7.
During 2012, as described in Note 7, we issued 333,333 warrants in conjunction with the secured note payable. The warrants have an exercise price of $1.60 per share and expire in August 2018.
Interest expense related to Series DDuring 2013, we issued 50,000 warrants in conjunction with a third party note payable. The warrants have an exercise price of $0.21 per share and expired in March 2017.
During 2015, we issued in 2011 of $0 and $55,786 was recognized in the consolidated statements of operations50,000 warrants as a consideration for consulting performed for the years ended December 31, 2014Company. The warrants have an exercise price of $0.50 per share and 2013, respectively. The unamortized portion of the debt issuance cost asset is $0 at December 31, 2014.expired in November 2016.
A summary of the warrant activity for the years ended December 31, 20142017 and 20132016 follows: | | | | | | | Weighted- | | | | | | | | | Weighted- | | Average | | Aggregate | | | | Shares | | | Average | | Remaining | | Intrinsic | | | | Underlying | | | Exercise | | Contractual | | Value | | Description | | Warrants | | | Price | | Term (in years) | | (In-the-Money) | | | | | | | | | | | | | | | | | | | | | | | | Outstanding and exerciseable at December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Warrants issued with long-tern Notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | Warrants expired (Series B and C) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding and exerciseable at December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Warrants expired (Series D) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding and exerciseable at December 31, 2014 | | | | | | | | | | | | | |
| | | | | | | | Weighted- | | | | | | | | | | Weighted- | | | Average | | | Aggregate | | | | Shares | | | Average | | | Remaining | | | Intrinsic | | | | Underlying | | | Exercise | | | Contractual | | | Value | | Description | | Warrants | | | Price | | | Term (in years) | | | (In-the-Money) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding and exercisable at December 31, 2015 | | | 433,333 | | | $ | 1.80 | | | | 0.6 | | | | N/A | | | | | | | | | | | | | | | | | | | Warrants expired (Series D) | | | (50,000 | ) | | | 0.24 | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding and exercisable at December 31, 2016 | | | 383,333 | | | | 1.60 | | | | 0.6 | | | | N/A | | | | | | | | | | | | | | | | | | | Warrants expired | | | (50,000 | ) | | | 0.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding and exercisable at December 31, 2017 | | | 333,333 | | | $ | 1.60 | | | | 0.6 | | | | N/A | |
Stock Options
We recognize compensation expense related to stock options in accordance with the Financial Accounting Standards Board (“FASB”)FASB standard regarding share-based payments, and as such, have measured the share-based compensation expense for stock options granted during the years ended December 31, 20142017 and 20132016 based upon the estimated fair value of the award on the date of grant and recognizes the compensation expense over the award’s requisite service period. The weighted average fair values were calculated using the Black Scholes option pricing model.
Details of stock option activity for the years ended December 31, 20142017 and 20132016 follows: | | | | | | | | Weighted- | | | | | | | | | | | | | Average | | | Aggregate | | | | Shares | | | Weighted | | | Remaining | | | Intrinsic | | | | Underlying | | | Average | | | Contractual | | | Value | | Description | | Options | | | Exercise Price | | | Term (Years) | | | (In-the-Money) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at December 31, 2015 | | | 1,150,000 | | | $ | 0.65 | | | | 1.1 | | | | - | | Options granted in 2016 | | | 500,000 | | | | 0.40 | | | | 4.5 | | | | | | Options expired in 2016 | | | (600,000 | ) | | | | | | | | | | | | | Outstanding at December 31, 2016 | | | 1,050,000 | | | | 0.47 | | | | 2.8 | | | | - | | Options expired in 2017 | | | (1,030,000 | ) | | | | | | | | | | | | | Outstanding at December 31, 2017 | | | 20,000 | | | $ | 0.40 | | | | 3.5 | | | | - | |
| | | | | | | Weighted- | | | | | | | | | | | Average | | Aggregate | | | | Shares | | | Weighted | | Remaining | | Intrinsic | | | | Underlying | | | Average | | Contractual | | Value | | Description | | Options | | | Exercise Price | | Term (Years) | | (In-the-Money) | | | | | | | | | | | | | Outstanding at December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at December 31, 2014 | | | | | | | | | | | | | |
The following summarizes outstanding stock options and their respective exercise prices at December 31, 2014:2017: | | Shares | | | | | | | | | | Remaining | | | | Underlying | | | Exercise | | | | Dates of | | | Contractual | | Description | | Options | | | Price | | | | Expiration | | | Term (in years) | | | | | | | | | | | | | | | | Employee Options | | | 20,000 | | | $ | 0.40 | | | | Aug 2021 | | | | 3.5 | | | | | | | | | | | | | | | | | | | | | | 20,000 | | | | | | | | | | | | | |
| | Shares | | | | | | Remaining | | | Underlying | | Exercise | | Dates of | | Contractual | Description | | Options | | Price | | Expiration | | Term (in years) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The weighted-average estimated fair value of the 500,000 options issued during 2016 was valued using the Black-Sholes pricing model with the following assumptions:
Expected volatility | | | 194.60 | % | Risk-free interest rate | | | 0.88 | % | Expected life | 3 years | | Dividend yield | | | 0 | % |
For the year ended December 31, 2014, 50,000 director2017, no options were issued and 1,030,000 options expired and 50,000 employeeleaving 20,000 options were forfeited due to resignation. No options were granted or forfeited forthat expire in August 2021. For the year ended December 31, 2013.2016, 500,000 options were granted and 600,000 options expired. We recorded $171,110$0 and $288,000$6,200 in compensation expense in operating, general and administrative expenses in the accompanying consolidated statements of operations for the years ended December 31, 20142017 and 2013,2016, respectively. As of December 31, 2014,2017, all unrecognized compensation expense related to non-vested stock option awards has been recognized.
NOTE 9.8. RELATED PARTY TRANSACTIONS
We have an agreement with NSO,Northshore Orthopedics, Assoc. (“NSO”), which is 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as our independent contractor. As of December 31, 20142017 and 2013,2016, we had balances payable to NSO of $0$27,910 and $10,406,$0, 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.
As shown in Note 6, at December 31, 2014 and 2013, we had balances of $0 and $135,699, respectively, due to Dr. Donovan, in his individual capacity, for working capital advances and payments made on our behalf. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule.
Also, as shown in Note 6, we had an agreement with Spine Injury Physicians, (formerly Wellness Works LLC) a company 100% owned by Eric Groteke, D.C., who was our Chief Technology Officer through November 2014 (See Note 4), to provide medical services as our independent contractor in Florida. SIP is paid for services on a monthly basis dependent upon the services provided. At December 31, 2014 and 2013, $0 and $18,188 respectively, was owed to SIP. For the year ended December 31, 2013, SIP billed us $352,302 as a third-party for service costs. During the year ended December 31, 2014, we no longer engaged the services of Eric Groteke.
As further described in Note 7, during 2012 we borrowed $1,000,000 from Peter Dalrymple, a director of the Company, under a secured promissory note. The outstanding balance of the note was $500,000$225,000 and $1,000,000 as of$250,000 at December 31, 20142017 and 2013,2016, respectively.
See also Item 13 “Certain Relationships and Related Transactions” in this Annual Report on Form 10-K. NOTE 10.9. INCOME TAXES
We have not made provision for income taxes for the years ended December 31, 20142017 or 2013,2016, since we have net operating loss carryforwards to offset current taxable income.
On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the decrease in the corporate income tax rate, we revalued our ending net deferred tax assets at December 31, 2017, but did not recognize any incremental income tax expense in 2017 due to the revaluation of the valuation allowance.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. We have provisionally recognized the incremental tax impacts related to the revaluation of deferred tax assets and liabilities and our reassessment of uncertain tax positions and valuation allowances and included these amounts in our Consolidated Financial Statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional technical analysis including changes in interpretations and assumptions we have made with respect to the Tax Act. The accounting is expected to be complete by the fourth quarter of 2018.
Deferred tax assets consist of the following at December 31:
| | 2014 | | 2013 | | | | | | | | | Benefit from net operating loss carryforwards | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts | | | | | | | | | | | | | | | | | | Less: valuation allowance | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | | 2016 | | | | | | | | | Benefit from net operating loss carryforwards | | $ | 1,998,057 | | | $ | 3,089,339 | | | | | | | | | | | Allowance for doubtful accounts | | | 22,353 | | | | 325,782 | | | | | | | | | | | Less: valuation allowance | | | (2,020,410 | ) | | | (3,415,121 | ) | | | | | | | | | | | | $ | - | | | $ | - | |
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 37%34%, we have determined that it is not currently more likely than not that we will realize aour deferred income tax assets of approximately $2,632,426$2,020,410 and $2,160,972$3,415,121 attributable predominantly to the future utilization of the approximate $7,400,344$9,621,000 and $6,003,185$9,486,000 in eligible net operating loss carryforwards, and the allowance for doubtful accounts, as of December 31, 20142017 and December 31, 2013,2016, respectively. 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 2034.2036. 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 (provision) benefit for federal income taxes as reported in the accompanying consolidated statements of operations, to the expected amount at the 34% federal statutory rate:
| | 2014 | | | 2013 | | | | | | | | | Income tax benefit at the 34% statutory rate | | | | | | | | | Effect of state income taxes | | | | | | | | | Non-deductible interest expense | | | | | | | | | Non-deductible wage expense | | | | | | | | | Loss on extinguishment of debt | | | | | | | | | Expiration and adjustment of net operating loss carryforwards available | | | | | | | | | Non-deductible meals and entertainment | | | | | | | | | Less change in valuation allowance | | | | | | | | | | | | | | | | | | Income tax (provision) benefit | | | | | | | | |
For the years ended December 31, 2017 and 2016, the reasons for the difference between the statutory federal rate of 34% and the effective tax rate were as follows:
| | 2017 | | | 2016 | | | | | | | Percentage | | | | | | Percentage | | | | | | | of Pre-Tax | | | | | | of Pre-Tax | | | | Amount | | | Income | | | Amount | | | Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | Benefit for income tax at federal statutory rate | | $ | 138,014 | | | | 34.0 | % | | $ | 257,021 | | | | 34.0 | % | | | | | | | | | | | | | | | | | | Benefit for state income tax | | | 12,178 | | | | 3.0 | % | | | 22,678 | | | | 3.0 | % | Non-deductible expenses | | | (11,170 | ) | | | (2.8 | %) | | | (10,325 | ) | | | (1.4 | %) | Effect of change in enacted tax rate | | | (1,250,730 | ) | | | (308.1 | %) | | | - | | | | - | | Change in available NOLs | | | (283,003 | ) | | | (69.7 | %) | | | - | | | | - | | Change in valuation allowance | | | 1,394,711 | | | | 343.6 | % | | | (259,519 | ) | | | (34.3 | %) | Other | | | - | | | | - | | | | (9,855 | ) | | | (1.3 | %) | | | | | | | | | | | | | | | | | | Total | | $ | - | | | | - | % | | $ | - | | | | - | % |
NOTE 11.10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space under an operating lease expiringthat expired in 2017. FutureJanuary 2017 with minimum lease payments at December 31, 2014 are as follows:
2017 totaling $6,000. The Company has not renewed its lease and is currently on a month to month basis.
ITEMITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEMITEM 9A. CONTROLS AND PROCEDURES
William Donovan, M.D., our President and Chief Executive Officer, is our principal executive officer and John Bergeron, our Chief Financial Officer, is our principal financial officer.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2014.2017. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our principal executive officer and principal financial officer, in a manner that allowed for timely decisions regarding disclosure.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that: | (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; | | (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements; and | | (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized transactions. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework and Internal Control over Financial Reporting – Guidance for Smaller Public Companies.
Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2014.2017. Based on this evaluation, our management concluded that, as of December 31, 2014,2017, we maintained effective internal control over financial reporting. Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the year ended December 31, 20142017 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 its disclosure controls or 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’s override of the control. The design of any systems of controls 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. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.
ITEMITEM 9B. OTHER INFORMATION
None.
PART III
ITEMITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors and executive officers are as follows:
Name | | Age | | Position(s) and Office(s) | | | | 75 | | Chief Executive Officer, President and Director | Chairman | | | 61 | | Chief Financial Officer and Director | | | | 74 | | | | | | 65 | | | Jeffrey Cronk | | 56 | | Chief Operating officer and Director | |
William F. Donovan, M.D. – Dr. Donovan has served as our Chief Executive Officer since January 2009 and as our President since May 2010. He has served as one of our directors since April 2008. He is a Board Certified Orthopedic Surgeon, and has been involved with venture funding and management for over 25 years. He was the co-founder of DRCA (later known as I.O.I) and became Chairman of this company that went from the pink sheets, to NASDAQ and then to the AMEX before being acquired by a subsidiary of the Bass Family. He was a founder of “I Need A Doc,” later changed to IP2M that was acquired by Dialog Group, a publicly traded company. He was the Chairman of House of Brussels, an international chocolate company and president of ChocoMed, a specialized confectionery company combining Nutraceuticals with chocolate bars. Dr. Donovan has been practicing as a physician in Houston, Texas since l975. Throughout his career as a physician, he has been involved in projects with both public and private enterprises. He received his Orthopedic training at Northwestern University in Chicago. He was a Major in the USAF for 2 years at Wright Patterson Air Force base in Dayton, Ohio. He established Northshore Orthopedics in 1975 and continues in active practice in Houston, specializing in Orthopedic Surgery. John Bergeron, CPA – Mr. Bergeron has served as our Chief Financial Officer since October 2011 and as one of our directors since July 2010. From May 2008 through September 2014,2012, he served as President of Jolpeg Inc., a private firm that consults on financial matters in service industries. From May 2002 until May 2008, Mr. Bergeron served as Divisional Controller of Able Manufacturing, a division of NCI Group, Inc, where his responsibilities included financial reporting, budgeting and Sarbanes-Oxley Act compliance. Prior to that, Mr. Bergeron worked as controller of different internet companies and as an accounting manager for several other private firms. He has also worked as an auditor for Arthur Andersen. Mr. Bergeron has more than thirty yearsyears’ experience in financial management and corporate development of manufacturing and service industry companies. He has extensive experience in financial reporting of public companies, risk management, business process re-engineering, structuring and implementing accounting procedures and internal control programs for Sarbanes-Oxley Act compliance. Mr. Bergeron is a Certified Public Accountant. He received a Bachelor of Business Administration in Accounting from Lamar University in 1979. He is also currently the President of the Montgomery County MUD #83.
Jerry Bratton, J.D., MBA – Mr. Bratton has served as one of our directors since July 2010. He has served as President of Bratton Steel, L.P. since 2006 and previously with Bratton Steel, Inc. (its predecessor) since 1991. Bratton Steel is a structural steel fabricating company. As President, Mr. Bratton has grown the company from a startup to a company that employs up to approximately 75 employees. He has significant experience in overseeing sales, estimating, project management and contracting. Mr. Bratton served as President of the Texas Structure Steel Institute from 2007 to 2008. He is also a member of the American Institute of Steel Construction. Mr. Bratton has business and investment background in medical software, personal medical information records storage, RFID security products and energy ventures. Mr. Bratton is a licensed attorney in the State of Texas and previously served as an assistant general counsel in the construction industry. Mr. Bratton earned Juris Doctorate and Master of Business Administration degrees from Texas Tech University in 1977.
Peter L. Dalrymple – Mr. Dalrymple joined our Board of Directors in August 2014. Since July 2012, he has served as General Partner of LPD Investments Ltd. and Manager of DLD Oil & Gas LLC. Prior to that, he was one of the co-founders and owners of the Royal Purple Synthetic Lubricants Company, which at the time of its sale in 2012, was one of the largest synthetic lubricants companies in North America. While with Royal Purple, he was in charge of Sales and Marketing. After the company was sold to Calumet Specialty Products Partner, a New York Stock Exchange company, in July of 2012, Mr. Dalrymple became a very active investor in several companies. He is also a trustee of Norwich University, from which he holds a Bachelor of Science Degree in Engineering Management. He previously served as a Lieutenant with the United States Army Corp. of Engineers. Jeffrey A. Cronk, D.C. – Dr. Cronk has served as our Chief Operating Officer since August 2017, and he joined our Board of Directors in November 2015. Since 2010 he has been the CEO and owner of Biocybernetics Inc; DBA American Spinal Injury and Impairment Consultants, which provides spinal injury and impairment educational programs for doctors, attorneys, case managers, insurers and allied healthcare providers, the purpose of which is to improve diagnostic accuracy, improve treatment results, improve documentation procedures and reduce costs. From 2010 to present, he is the Director of Education for Spinal Kinetics LLC, a company that provides assessment services of spinal soft-tissue injuries. Prior to this, he was the owner of National Injury Diagnostics from 2005 to 2010. Dr. Cronk graduated from Palmer College of Chiropractic with a Bachelor’s Degree in General Sciences and a Doctorate Degree in Chiropractic in 1988. That same year he became a Licensed Doctor of Chiropractic. In 2013 he completed his law degree with a special emphasis on personal injury law.
Franklin A. Rose, M.D. – Dr. Rose has served as one of our directors since July 2010. He is a Board Certified plastic and reconstructive surgeon. He has been in private practice since 1984 and currently has hospital affiliations in Houston, Texas with First Street Surgical Center, Woman’s Hospital of Texas, Memorial Hermann Hospital-Northwest and Twelve Oaks Hospital. Dr. Rose is an experienced surgeon, well acquainted with various surgical and medical procedures. He has also been involved in investing with multiple micro-cap medical companies. Dr. Rose earned a Doctor of Medicine degree from the University of Colorado in 1977, and a Bachelor of Science degree from the University of Wisconsin, Madison in 1973. He is a member of the American Medical Association, the American Society of Plastic Surgeons, the Lipolysis Society of North America and the American Society of North America. He is also the attending plastic surgeon to The Texas Institute of Plastic Surgery.
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent of our common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Based solely upon a review of Forms 3, 4 and 5 furnished to us during the fiscal year ended December 31, 2014,2017, we believe that the directors, executive officers, and greater than ten percent beneficial owners have complied with all applicable filing requirements during the fiscal year ended December 31, 2014,2017, except for (i) a Form 4 that was filed late by William Donovan,Jeffrey Cronk, our Chief Executive Officer, (ii) a Form 3 and two Form 4s that were filed late by Peter Dalrymple, a Director, and (iii) a Form 3 and Form 4 that were filed late by LPD Investments, Ltd, a beneficial owner of more than 10% of our common stock over which Mr. Dalrymple has voting and investment authority.Operating Officer.
Code of Ethics
We have adopted a code of ethics that applies to our directors, principal executive officers, principal financial officers, principal accounting officer or controller, and persons performing similar functions. The Code of Ethics for Directors and Executive Officers can be found on our website at www.spinepaininc.com/investor-information.spineinjurysolutions.com/corporate-governance/. Further, we undertake to provide by mail to any person without charge, upon request, a copy of such code of ethics if we receive the request in writing by mail to: Spine Pain Management,Injury Solutions, Inc., 5225 Katy Freeway, Suite 600, Houston, Texas 77007.
Procedures for Stockholders to Recommend Nominees to the Board
There have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors since we last provided disclosure regarding this process in the proxy statement material we sent to stockholders on or around September 22, 201421, 2017 for our Annual Meeting held October 16, 2014.24, 2017.
Audit Committee We have establishedmaintain a separately-designated standing audit committee. The Audit Committee currently consists of our two independent Directors,Peter Dalrymple, Jerry Bratton and Franklin Rose, M.D., and Peter Dalrymple, who is not deemedJeffrey A. Cronk. Although the Charter of the Audit Committee provides for a majority of the Audit Committee to be independent, presently only Mr. Bratton is independent. A majority of the Audit Committee was independent until August 2017 when Dr. Cronk was appointed Chief Operating Officer and is no longer deemed independent. We anticipate that Dr. Cronk will remain on the Audit Committee until we appoint or elect an additional independent member of the Board who can join the Audit Committee. If we are unable to appoint or elect an additional independent member of the Board, we will consider amending the Charter of the Audit Committee.
Mr. Bratton is the Chairman of the Audit Committee, and the Board of Directors has determined that he is an audit committee financial expert as defined in Item 5(d)(5) of Regulation S-K. The primary purpose of the Audit Committee reviews, actsis to oversee our accounting and financial reporting processes and audits of our financial statements on and reports tobehalf of the Board of DirectorsDirectors. The Audit Committee meets privately with respect to various auditingour management and with our independent registered public accounting matters, includingfirm and evaluates the recommendations and performance of independent auditors, the scope of the annual audits, fees to be paidresponses by our management both to the facts presented and to the judgments made by our outside independent auditors, and internalregistered public accounting and financial control policies and procedures.firm.
ITEMITEM 11. EXECUTIVE COMPENSATION
The following table provides summary information for the years 20142017 and 20132016 concerning cash and non-cash compensation paid or accrued to or on behalf of certain executive officers (“named executive officers”).
Summary Executive Compensation Table
Name and Principal Position | | | | Salary ($) | | Bonus ($) | | Stock Awards ($) | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Nonqualified Deferred Compensation ($) | | All Other Compensation ($) | | Total ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Change in | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value | | | | | | | | | | | | | | | | | | | | | | | | | Non-Equity | | | and | | | | | | | | | | | | | | | | | | | | | | | | | Incentive | | | Nonqualified | | | | | | | | Name and | | | | | | | | | | | | | | Option | | | Plan | | | Deferred | | | All Other | | | | | Principal | | | | | Salary | | | Bonus | | | Stock | | | Awards | | | Compensation | | | Compensation | | | Compensation | | | Total | | Position | | | | | ($) | | | ($) | | | Awards ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | William Donovan, M.D. | | 2017 | | | $ | 120,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 120,000 | | CEO and President | | 2016 | | | | 120,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 120,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John Bergeron | | 2017 | | | | 110,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 110,000 | | CFO | | 2016 | | | | 110,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 110,000 | | Jeffery Cronk, D.C | | 2017 | | | | 15,000 | | | | - | | | | 15,800 | | | | - | | | | - | | | | - | | | | - | | | | 30,800 | | COO | | 2016 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
(1) | On June 6, 2011, we granted Dr. Donovan stock options to purchase 600,000 shares of common stock at an exercise price of $0.77 per share. We granted the options as consideration for his employment as Chief Executive Officer and President. The options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. The fair value of the options was $432,000, of which $62,110 and $144,000 in compensation expense was recognized in the Statement of Operations for the years ended December 31, 2014 and December 31, 2013, respectively. (See Note 8 of the accompanying financial statements) | | | (2) | On November 30, 2012 we granted to Mr. Bergeron 200,000 unvested stock options to purchase shares of common stock at an exercise price of $0.54 per share. The stock options will expire on December 1, 2017, and 50,000 of the stock options will vest and become exercisable every six months during the term of the agreement. If at any time during the term of the agreement Mr. Bergeron’s employment with us should end, all unvested stock options will be relinquished. |
Employment Agreements
On September 16, 2014, we entered into an2017, our employment agreement with our President and Chief Executive Officer, William F. Donovan, M.D. The contract providesexpired. Since that we will pay Dr. Donovantime, he has worked for us on an at-will basis and presently receives an annual base salary of $120,000. The agreement also provides that we may grant Dr. Donovan performance bonuses from time to time at the discretion of the Board of Directors. The agreement has a confidentiality provision and provides that Dr. Donovan cannot compete with us for a period upon termination of the agreement.
Mr. Bergeron’s employment contract expired onOn November 30, 2014.2014, our employment agreement with John Bergeron expired. Since that time, he has worked for us on an at-will basis and presently receives an annual salary of $110,000.
Outstanding Equity Awards at Fiscal Year End
The following table details all outstandingThere are no equity awards held by our named executive officersoutstanding at December 31, 2014:
| | Option Awards | | Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | | Option Expiration Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | On June 6, 2011, we granted Dr. Donovan stock options to purchase 600,000 shares of common stock at an exercise price of $0.77 per share. We granted the options as consideration for his employment as Chief Executive Officer and President. The options vested and became exercisable in twelve quarterly periods for the first three years of the five-year life of the options. Dr. Donovan exercised 50,000 of the options on September 9, 2012. | | (2) | On November 30, 2012, we granted Mr. Bergeron stock options to purchase 200,000 shares of common stock at an exercise price of $0.54 per share. We granted the options as consideration for his employment as Chief Financial Officer. The options vested and became exercisable in four six month periods for the first two years of the five-year life of the options. | | (3) | In addition to the options detailed in the table, Mr. Bergeron also holds certain option that we granted to him as consideration for serving on the Board of Directors, including stock options to purchase 25,000 shares of common stock at an exercise price of $1.15 per share that expire in June 2015 and stock options to purchase 25,000 shares of common stock at an exercise price of $0.77 per share that expired in June 2014. | 2017. Compensation of Directors
In May 2013, we adopted a director compensation policy pursuant to which each outside Board member received a director fee of $300 for each Board or committee meeting that he attended. In November 2014, however, the Board elected to discontinue this policy, and currentlyCurrently, Board members are not compensated for attending meetings nor do they receive any other form of compensation in their capacity as Board members.members of the Board. We anticipate the Board willmay revisit the issue of Board member compensation at a later date. Compensation to directors during the year ended December 31, 2014 was as follows:
Summary Director Compensation Table
Name | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation Policies and Practices as they Relate to Risk Management
We attempt to make our compensation programs discretionary, balanced and focused on the long term. We believe goals and objectives of our compensation programs reflect a balanced mix of quantitative and qualitative performance measures to avoid excessive weight on a single performance measure. Our approach to compensation practices and policies applicable to employees and consultants is consistent with that followed for its executives. Based on these factors, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 30, 2015,29, 2018, concerning, except as indicated by the footnotes below, (i) each person whom we know beneficially owns more than 5% of our common stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our directors and executive officers as a group. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. Applicable percentage ownership is based on 19,465,88220,215,882 shares of common stock outstanding at March 30, 2015.29, 2018. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to stock options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 30, 2015.29, 2018. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise noted, stock options and warrants referenced in the footnotes below are currently fully vested and exercisable.
Name and Address of Beneficial Owner | | Number of Common Shares Beneficially Owned | | Percent of Class | | | Number of Common Shares Beneficially Owned | | | Percent of Class | | William F. Donovan, M.D. (1) | | 4,357,427 | (2) | | 21.91% | | | | 3,872,427 | (2) | | | 19.16 | % | Franklin A. Rose, M.D. (1) | | 200,000 | (3) | | 1.03% | | | Jeffrey Cronk, D.C.(1) | | | | 85,000 | (3) | | | 0.42 | % | John Bergeron (1) | | 385,000 | (4) | | 1.97% | | | | 160,000 | (4) | | | 0.78 | % | Jerry Bratton (1) | | 1,581,100 | (5) | | 8.16% | | | | 1,556,100 | (5) | | | 7.70 | % | Peter L. Dalrymple (1) | | 2,820,609 | (6) | | 14.34% | | | | 2,987,276 | (6) | | | 14.54 | % | All Directors and named executive officers as a group (5 persons) | | 9,344,136 | | 45.58% | | | | 8,660,803 | | | | 42.84 | % |
| (1) | The named individual is one of our executive officers or directors. His address is c/o Spine Pain Management,Injury Solutions, Inc., 5225 Katy Freeway, Suite 600, Houston, Texas 77007. |
| (2) | Includes 557,486 shares of common stock held indirectly through NorthShore Orthopedics, Assoc. (of which Dr. Donovan is the sole shareholder and has voting and investment authority) and 3,249,9413,314,941 shares held directly by Dr. Donovan. Also includes 550,000 |
(3) | Includes 85,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable.stock. |
| (3) | Includes 175,000 shares of common stock and 25,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable. |
| (4) | Includes 160,000 shares of common stock and 225,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable.stock. |
| (5) | Includes 1,556,100 shares of common stock held by Mr. Bratton, of which Mr. Bratton has sole voting and investment authority of 320,000 shares and shared voting and investment authority with his spouse of 1,236,100 shares. Also includes 25,000 shares of common stock issuable upon exercise of options held by Mr. Bratton that are fully vested and exercisable. |
| (6) | Includes (a) securities held individually by Peter L. Dalrymple, including (i) 500,000 shares of common stock, and (ii) warrants that are exercisable into 333,3331,000,000 shares of common stock; and (b) 1,987,276 shares of common stock held by LPD Investments Ltd. (“LPD”). Mr. Dalrymple is General Partner of LPD and has voting and investment authority over shares held by it. He is also a Limited Partner of LPD with the other Limited Partners being his wife and three trusts, of which he is trustee and his children are beneficiaries. |
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of December 31, 2014:2017: Plan Category | | (a) Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | (b) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights ($) | | | (c) Common Shares Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | | (a) Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | | (b) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights ($) | | | (c) Common Shares Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | Equity compensation plans approved by our stockholders | | | | | | | | | | | | -- | | | | -- | | | | -- | | Equity compensation plans not approved by our stockholders (1) | | | | | | | | | | | Equity compensation plans not approved by security holders | | | | 20,000 | (1) | | | 0.40 | | | | -- | | | | | | | | | | | | | | | 20,000 | | | | 0.40 | | | | -- | |
(1) | Consists of common shares to be issued upon exercise of outstanding stock options as follows: · In June 2011, we granted our CEO stock options to purchase a total of 600,000 shares of common stock at an exercise price of $0.77 per share. The options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. A total of 550,000 of these options remain outstanding and unexercised
· In June 2012, we granted five of our Directors stock options to purchase a total of 150,000 shares of common stock at an exercise price of $1.15 per share. The three-year options vested and became exercisable immediately.
· In November 2012, we granted three of our employees stock options to purchase 600,000 shares of common stock at an exercise price of $.54 per share. The five year options vest every six months at 50,000 options per period. One employee left the company and lost his 50,000 of his options which did not vest.
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ITEMITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have an agreement with Northshore Orthopedics, Assoc. ("NSO"(“NSO”), which is 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as our independent contractor. As of December 31, 20132017 and 2012,2016, we had balances payable to NSO of $0$27,910 and $10,406,$0 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.
Additionally, as shown in Note 6 of the accompanying financial statements, at December 31, 2014 and 2013, we had balances of $0 and $135,699, respectively, due to Dr. Donovan, in his individual capacity, for working capital advances and payments made on behalf of us. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule.
On August 29, 2012, we issued Peter Dalrymple, a director of the Company, a $1,000,000 three-year secured promissory note bearing interest at 12% per year, with thirty-five monthly payments of interest commencing on September 29, 2013, and continuing thereafter on the 29th day of each successive month throughout the term of the promissory note. Under the terms of the secured promissory note, the holder received a detachable warrant to purchase 333,333 shares of our common stock at the price of $1.60 per share that expireswas to expire on August 29, 2015.2015, however was extended as described below. This promissory note is secured by $3,000,000 in gross accounts receivable. On the maturity date, one balloon payment of the entire outstanding principal amount plus any accrued and unpaid interest is due.
On August 20, 2014, we entered into a Financing Agreement with Mr. Dalrymple whereby, he agreed to assist us in obtaining financing in the form of a $2,000,000 revolving line of credit (see lineLine of creditCredit below) from a commercial lender and personallyprovide a personal guaranty of the line of credit. Under the terms of the Financing Agreement, upon finalization of the line of credit with Wells Fargo Bank on September 8, 2014, we (i) extended the term of the $1,000,000 promissory note, described above, by one year to mature on August 29, 2016, (ii) reduced the interest rate on the promissory note to 6%, (iii) extended the expiration date on the warrants issued in connection with the promissory note by one year to an expiration date of August 29, 2016, (iv) granted Mr. Dalrymple 200,000 restricted shares of common stock, and (iv)(v) used $500,000 of advances under the line of credit as payment of principal and interest on the promissory note.
Additionally, as consideration for agreeing In August 2016, the note and associated warrants were amended to extend the promissorymaturity date to August 29, 2018. As of December 31, 2017 and 2016, the note had a principal balance of $225,000, and reduce the interest rate, we issued to Mr. Dalrymple 200,000 unvested and restricted shares of common stock, which stock vested upon finalization of the line of credit with Wells Fargo Bank on September 8, 2014.$250,000, respectively.
On September 3, 2014, we entered into a $2,000,000 revolving line of credit agreement with Wells Fargo Bank, that is personally guaranteed by Mr. Dalrymple. Under the terms of the financing agreement previously discussed, we granted 800,000 unvested and restricted shares of common stock to Mr. Dalrymple with 100,000 shares vesting upon finalization ofN.A. Outstanding principal on the line of credit agreement onbears interest at the 30 day London Interbank Offered Rate (“LIBOR”) plus 2%, resulting in an effective rate of 3.57% at December 31, 2017. On September 8, 2014,2017 we entered into an Amended and Restated Revolving Line of Credit Note and an Amended and Restated Credit Agreement to extend our revolving line of credit facility with Wells Fargo Bank, whereby the outstanding principal is now due and payable in full on August 31, 2018 and the remaining shares vesting, in 100,000 share increments, quarterly so longmaximum amount we can borrow under the line of credit, as the revolvingamended is $1,750,000. The line of credit remains guaranteed by Peter L. Dalrymple, a member of our Board of Directors, and is secured by a first lien interest in effect.certain of his assets. As of December 31, 2017 and 2016, outstanding borrowings under the line of credit totaled $1,325,000 and $1,275,000, respectively.
Director Independence
We currently have twoone independent Directorsdirector on our Board, Jerry Bratton and Franklin A. Rose, M.D.Bratton. The definition of “independent” used herein is arbitrarily based on the independence standards of The NASDAQ Stock Market LLC. The Board performed a review to determine the independence of Franklin A. Rose, M.D. and Jerry Bratton and made a subjective determination as to each of these Directorsdirectors that no transactions, relationships or arrangements exist that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Directordirector of Spine Pain Management,Injury Solutions, Inc. In making these determinations, the Board reviewed information provided by these Directorsdirectors with regard to each Director’sindividual’s business and personal activities as they may relate to us and our management. ITEMITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees paid or accrued by us for the audit and other services provided or to be provided by our principal independent accountants during the years ended December 31, 20142017 and 2013.2016. | | 2014 | | 2013 | | | 2017 | | | 2016 | | | | | | | | | | | $ | 64,000 | | | $ | 67,000 | | | | | | | | | | - | | | | - | | | | | | | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | $ | 64,000 | | | $ | 67,000 | |
(1) | Audit Fees: This category represents the aggregate fees billed for professional services rendered by the principal independent accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years. |
(2) | Audit Related Fees: This category consists of the aggregate fees billed for assurance and related services by the principal independent accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” |
(3) | Tax Fees: This category consists of the aggregate fees billed for professional services rendered by the principal independent accountant for tax compliance, tax advice, and tax planning. |
Pre-Approval of Audit and Non-Audit Services
All above audit services, audit-related services and tax services, for the fiscal years ended December 31, 20142017 and 2013,2016, were pre-approved by our Audit Committee, which concluded that the provision of such services was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s outside auditor independence policy provides for pre-approval of all services performed by the outside auditors.
PART IV
Exhibit No. | | Description | 3.1 | | | | | | 3.2 | | | | | | 3.3 | | | | | | 3.4 | | | | | | 3.5 | | | | | | 3.6 | | | | | | 3.7 | | | | | | 3.8 | | | | | | 10.1 | | | | | | 10.2 | | Employment | | | | 10.3 | | |
14.1 | | Code of Ethics (Incorporated by reference from our website. It can be found at: www.spinepaininc.com/investor-information)spineinjurysolutions.com/corporate-governance/) * | | | |
21.1 | | | | | | 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
In accordance with the requirements of Section 13 of 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2015.29, 2018. | Spine Pain Management,Injury Solutions, Inc. | | | | /s/ William F. Donovan, M.D. | | By: William F. Donovan, M.D. | | Chief Executive Officer |
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons in the capacities and on the dates indicated: Signature | | Title | | Date | | | | | | /s/ William F. Donovan, M.D. | | | | March 31, 201529, 2018 | William F. Donovan, M.D. | | Chief Executive Officer (Principal Executive Officer), President and Director | | | | | | | | /s/ John Bergeron | | | | March 31, 201529, 2018 | John Bergeron | | Chief Financial Officer (Principal Financial and Accounting Officer) and Director | | | | | | | | /s/ Jerry Bratton | | | | March 31, 201529, 2018 | Jerry Bratton | | Director | | | | | | | | /s/ Franklin Rose, M.D.Jeffrey Cronk, D.C. | | | | March 31, 201529, 2018 | Franklin Rose, M.D.Jeffrey Cronk, D.C. | | Director | | | | | | | | /s/ Peter Dalrymple | | | | March 31, 201529, 2018 | Peter Dalrymple | | Director | | |
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