Spine Injury Solutions' (SPIN) CEO Dr. William Donovan on Q3 2016 Results - Earnings Call Transcript

| About: Spine Injury (SPIN)

Spine Injury Solutions, Inc. (OTCQB:SPIN) Q3 2016 Results Earnings Conference Call November 14, 2016 4:20 PM ET

Executives

Dr. William Donovan - Chairman, President & CEO

John Bergeron - CFO

Analysts

Unidentified Company Representative

[Call Starts Abruptly] to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements.

Such factors include general, economic, and business conditions, the ability to acquire and develop specific projects, the ability to fund operations, healthcare service, demands, change in healthcare practices, government regulation, and other factors of which the Company has little or no control. The Company does not intend and is not obligated to update publicly any forward-looking statements. The contents of this presentation should be considered in conjunction with the warnings and cautionary statements contained in the Company’s recent filings with the SEC.

Dr. William Donovan

Good afternoon. Welcome to our Q3 conference call for Spine Injury Solutions.

Our goal today is to address three main issues: Number one, review the financial numbers with our CFO, John Bergeron; number two, discuss several new marketing initiatives; number three, answer some questions sent to the Company by our investors. John Bergeron and myself will handle this conference today. Dr. Matt DeGaetano was called out of the country for a family emergency situation last evening and is not able to be on the call. David Spencer, President of Quad Video HALO is returning today from out of tow following a meeting and stem cell workshop over the weekend Dallas.

I will ask John Bergeron, CFO, to review the financial numbers for Q3.

John Bergeron

Thank you, Dr. Donovan. If you look on the snapshot end of the Q3 2016, we had $1.83 million of current assets; we have $1.74 million in current liabilities. That’s an increase, great increase, and the reason is that line of credit is due in August of 2017 from Wells Fargo, which makes out less than a year, so we have to reclassify that as current liability. Together, we had cash and borrowing ability at the end of 9/30 of $805,000. So, cash should not be a problem in the next quarter. If you look on there, we have $10.2 million of gross receivables out there. Of course those are netted in the financial statements. You can read the rest of the stuff.

Turn to next slide, please.

For the three months of 2016, our revenue was down just a little bit from 512 to 458. And the main reason is that San Antonio was no longer an affiliate with us. Maybe we can get it back, but for now, we don’t. One of the thing you’ll notice and the gross margin is much higher in 2016 versus 2015. And one, it has to do with the sales mix, but the main driver of this increase in the margin is that when we book our revenue, we book it at 52% of the gross billings while Tim Donovan was pulling in some 60% and 62% and 64% collection rate. So, any time you have an amount, a collected amount is greater than the booked amount, it’s going to go as augment to revenue. So that’s why you’ll see that our gross margin is much higher.

Research and development is basically -- we’re still working a little bit on some development of the Quad Video HALO. Our research and development was a little bit more -- we spend a little bit more on marketing with the Quad Video HALO in this Boston BioLife that did cost us a little bit. The bad debt expenses is about the same. The legal fees were a little bit higher but I think -- I expect that number to come down in the fourth quarter. We may decide to accrue a little bit more for bad debt but we have not made any decisions on yet. At the end of the quarter, we had $178,000 loss compared to $219,000 loss in the quarter three of 2015.

Next slide, please?

If you look at the condensed balance sheet at Q3 2016 versus year end 2015, the current assets are up about $100,000. The total assets are down about $350,000. You will notice also that the difference in the current liabilities as we discussed, the Wells Fargo line of credit is due in August. So, we have to reclassify it as a short-term; that coupled with the shareholders loan of $250,000 that also was due in August. Basically our -- we have 20 million, a little over 20 million shares of stock outstanding; we’ve got total shareholders’ equity of 3,251,927 for total liabilities of $5,1,908.

Next slide, please?

Okay. I am going to hand this back to -- no, I’ll go ahead and take it. Basically what this does is tries to show you the cumulative cash that we’ve collected since inception. We’ve taken a little over $15,381,000 on 2,471 cases; there has been 173 cases that had zero settlement for us which cost us around $442,000 in cash. Okay.

And with that, I will turn it over to Dr. Donovan.

Dr. William Donovan

Next slide?

We’ve all seen this particular slide many times and we’ve talked about the use of the HALO, the transparency in the clinics and where do we feel with the hospitals. It is for this reason, we’re looking to expand both, laterally and vertical. And for this reason, we had Dr. Matt DeGaetano join us.

Next slide?

As I said earlier, Dr. Matt could not make it. So, he has sent a short letter to SPIN shareholders. Please accept my regrets and apologies for not being able to participate in today’s conference call live due to an immediate personal family issue outside the country. I hope you will accept this short note as a substitute for now.

But, we have been working with Matt. And when he joined the Company, we knew that his strong experience in the entry market with a large number of customers, but we wanted to talk about how do we expand the QVH. And here as Matt says in this letter, he is learning the opportunities in half a dozen or so even larger markets than the entry market. As our market potential expands, so does the requirement to be able to properly address each of the markets. And the example, expand in the markets laterally into other medical companies or other specialties such as regenerative medicines. So that’s more of a lateral expansion.

And then he talks about a vertical expansion into hospitals and ASCs, the Ambulatory Surgery Centers. We are looking for these entities, especially the hospitals and the ASCs are looking for ways to reduce their liability risk, as well as compiling instantly accessible case data bases for teaching. And we have a product that we’re now developing through the QVH Rx. And once again, he felt there is some disappointment, no additional sales have been finalized. And then he goes into, to-date, we have been learning our new and expanding market with one-on-one sales calls, and we’ve been compiling that information base of pros and cons from doctors and hospitals. Please remember, this is not an inexpensive unit and aside from maybe its use in entry cases, it is not something that is going to generate income for practitioners.

What we are selling is three-fold. Number one, risk management and the vision that eventually will save or at least mitigate the inevitable significant loss due to fraudulent liability lawsuits against practitioners and hospitals. Number two, under new and tighter financial controls by Medicare, Medicaid and private third-party payers, we can show evidence, the procedures were actually done. And number three, a cloud-based video and data platform to compile information from procedures ultimately worldwide for education and even more importantly provide instant information to assist real time costly life saving procedures.

We have decided that we now have the prospective market size and knowledge base to revisit and attract outside independent medical rep firms to represent QVH and QVH Rx. We have recently posted solicitations and interest for firms to represent our products on a non-exclusive basis on several specialty websites and fully expect our offerings to be well-received; we’ll keep you posted. Again, I apologize, for not being able to attendant in person, but I’m receptive to being contacted by email.

I think when we deal with risk management and hospitals and ASCs, yesterday, CMS that’s the government, 2017, have come out with centers for Medicare, Medicaid services that’s the CMS, released 2017 hospital Outpatient Prospective Payment System; it’s OPPS, and Ambulatory Surgery Center ASC. What the government has basically said and especially with spine surgery, they are going to be pushing more and more of the cases from hospitals to ASCs to reduce the cost. Well, when you start doing large types of spine surgeries and ASCs, your number one issue you’re going to have to worry about is risk management and risk mitigation. Other words, there is going to bigger cases done in ASCs like never before.

Next slide?

So, as this slide shows, we initially thought we were going to be just the documentation tool, but in reality, we’re a defensive tool. And we feel that this is going to provide us with some nice opportunities. The teaching and the cadaver labs is a big opportunity.

Now, I am going to show you a couple of slides here. It’s hard to read but basically we’re talking about risk management dealing with lawsuits, and we’re dealing with what causes lawsuits, next slide, and how do you protect against it, and it’s document, document, documentation.

Next slide?

We’re having a disconnect here. Now, obviously when -- what causes the lawsuits? Well, when you start looking at the list here, you’ll understand when bigger cases are being pushed into ASCs, it’s going to be significant.

Next slide?

So, how do we penetrate this market? Well, we have the tools, the QVH 3.0, QVH Rx. We knew the value of the QVH 3.0 but we weren’t sure of the potential for the QVH Rx. And we’re now going after the market as we just described. And if you notice the bottomline, we began our efforts through specialty medical device placement websites.

Next slide?

And here is what we’re actually showing to potential independent reps. And we’re going to show you two or three slides dealing with the Quad Video HALO.

Next slide?

Once again, this is all with the Quad Video HALO.

Unidentified Company Representative

I think we should leave them up for a few moment, Dr. Donovan, because this is a video on the replay.

Dr. William Donovan

Well, this will -- oh, it isn’t -- because it will be on the website.

Unidentified Company Representative

But as a video.

Dr. William Donovan

Well, the printed stuff will be on the website. So, what we’ve done is we’ve broken down the various components. Next slide. And this is with the Rx. And I think when -- if you look at -- go to the website and you can read, but this is what we’re sending out to these independent rep groups. So, we have given everybody a quick study. Next slide? It’s a quick study on how we can use the QVH and the QVH Rx. And I think that we’re opening a larger market. And we need outside help, 1099 help. So, we’re going to provide these independent reps and companies with the information to help us.

Next slide?

So, as we look to our future value, we want to leverage both the QVH technology and the Rx. And we’re interested in regenerative medicine for several reasons. Number one, it’s all -- mostly, it’s being done by interventional pain docs. And interventional pain doctors is our key market for the QVH. And so, these doctors are interested in looking for new revenue centers with regenerative medicine. And it’s a way -- a backdoor way for us to meet the progressive interventional pain docs. I believe, we need to expand the marketing efforts into hospitals and ambulatory -- ASCs.

The liability issue is significant and it’s going to increase, because of this new CMS reg that just came out yesterday. We feel there are strong margins with the proprietary QVH and the Rx. We’ve used the Rx here in Houston on a several surgical cases and we have a couple of more coming up, which we’re using different types of components, one of them is 360 degree video camera which is pretty slick. We’ve been to three regenerative meetings and we’re meeting with industry leaders in this field. Regenerative medicine is going to be -- it's going to be very large.

Now, you know, we have the patent for the QVH and the CE mark, and we’ve also done continuing patents on the original patent, because we’ve added a lot of things that were not on the original patent, such as the interface module, that was never part of the original patent, but we’re also -- have filed papers for the EU. And I guess I have to do the UK now -- we’re not sure what is going to be there. And then, we have to concentrate on adding some new SPIN entry affiliates.

Next slide?

So, here is our goals. We have to get more locations for the core business. We need to do both, the vertical and the lateral expansion, and we’ve met with the hospitals, cadaver labs and so forth. And I think risk mitigation and risk management is going to just become more important. We obviously have to increase cash flow. We’ve had a lot of expenses on the QVH side but we’re working to get those under a reasonable control. And we’re making some remote motors. We’re working on some new issues with the QVH video cameras, smaller ones, somewhat motors on it, so forth. And we have to continue third-party sales and develop the video tele-share feature, that’s going to be helpful. They just announced today in Houston that Methodist Hospital and the Houston Texans are setting up video technology across remote Texas for the schools where the athletes can be evaluated over telemedicine. I think there is a significant opportunity there.

So what I want to do now, as I said earlier, we had a large list of questions sent to us…

Unidentified Company Representative

Bill, David, I noticed just came online. I don’t know if he is going to have access but he just showed up. So, he may have landed. David, are you on there? Maybe not, it appears he showed up.

Question-and-Answer Session

A - Dr. William Donovan

We received questions from shareholders, which is terrific. That means they’re obviously interested in what we’re doing and they want more information. Now, when we get the list of questions or single questions, we would love to but we can’t respond to individual shareholders because of the thing called Regulation FD under the Securities and Exchange Act of 1934. It’s the fair disclosure, which prohibits companies like us from selectively disclosing material non-public information to analyst, investors and others without concurrently making widespread public disclosure.

So, what I wanted to do is to go over some of the questions, and they dealt with different areas of things. An example, dealing with the QVH patent. I think we got some nice questions on there. And then, one of them was, have we obtained or determine evaluation for the patent. And the answer is no, there is no need unless the Board of Directors decides to sell either the patent or the company. What we do know is about what do our patent attorneys think about the patent. We have it in writing, and this was part of a press release somewhere where that Patent Counsel feels it is very strong and very broad. As I mentioned earlier, we have a patent pending in Europe and then, we have an expansion of the original patent. Those were couple of questions dealing with the patent.

A question came up, has the Company had any departures of key personnel over the last 90 days? The answer is no.

There is another question, I think it’s really good. What do each of the Board of Director members bring to the table and what is the current natural scope of their current involvement? We have some terrific Board members. Our outside directors provide advice, oversight, financial advice and assistance, represents you our shareholders and in addition to myself hold over 45% of the SPIN shares. So, the Board of Directors are doing a good job. And I’m very proud of our Board.

There is a question about me. What percent of my time is spent on SPIN as compared to my personal practice? Well, I’ve stopped taking outside patients a couple of years ago. A 100% of my time is now SPIN related, either as CEO of the Company or affiliate.

Obviously, people have questions about me and the Company. There is one here. Some shareholders believe, the Company is being run too much like a family business. I don’t know who this is, but they would be wrong. I have no idea where such a thought would come from. But, if I wanted this to be a family business, I would have never put in a public company, nor have personally invested over $3 million putting my average cost per share close to $1. Instead, I would have kept it private and generated the same over $15 million in collections, saved $1 million a year in public company overhead. Need I remind the shareholders, there has never been an outside equity financing for SPIN, only me.

There is some questions on Dr. DeGaetano. Why was he brought in and why was he not considered for more senior position than Senior VP? Matt was referred to us by one of our Board of Directors. Dr. Matt has been in the entry business for eight or nine years. He’s a very large number of clients. We thought that Matt could talk to these clients and to provide information about QVH with the hopes that his clients would then help us identify interventional pain doctors, ASCs, hospitals that would be interested in our variety of products. And I think that this is something that we’re working on and will continue working to develop.

Here is a question. What is the Board of Directors’ position concerning selling the Company’s legacy business? There is no interest whatsoever.

Is the cost of development and marketing of the QVH negatively impacting the developed marketing growth of the legacy business including its funding? Yes, it is including funding.

What evidence can you point to that demonstrators there is an actual demand for the legacy business that SPIN offers? Well, we’ve collected $15 million.

What are the three main factors? Why the legacy business has not significantly grown in 2016? The three main factors are cash, cash and cash. What is the Board of Directors’ position concerning all or a portion of QVH side of the business? Everything is for sale at a price.

Okay. Please list the date each of the Board of Directors members and officers last purchased SPIN shares on the open market. I personally purchased 25,000 shares two months ago. I am not aware of others in the past.

How does the Company including Board of Directors and the officers feel concerning current stock price of $0.16? Is the Company taking or is the Company planning to take steps to attract new investors? Well, obviously, no one is happy with the current stock price. Every share of the several million I’ve purchased is at a higher price. Once we get the hopeful traction on QVH, it hopefully would benefit other ways to expand the audience for SPIN shares. But for now, our top priority is to ramp up sales.

Here is another on me. What is Dr. Donovan’s average cost of shares at SPIN that he has purchased in the open market? That can be calculated from Form-4 filings. But don’t just ignore the 550,000 shares I bought at a $1.87 in exchange for debt owed by the Company.

Why does the Company believe that anyone should buy its stock? And if so, what does the Company believe should be their expectations? It is not for the Company to believe or not if an investor should buy our stock. As a larger shareholder, I look at SPIN as my public legacy. My personal plan for this legacy is to hopefully make it successful. Obviously, it’s been playing out slower than I initially imagined. And I hope that things will get better.

Do you have some more questions there moderator?

Unidentified Company Representative

Yes, we do. And by the way, if you have any other questions, go to your console on the right hand side and type your question in there and we’ll answer. In the meantime, I do have a couple of queued up. Tom Keller [ph] asks, is your Northeast rep still working with the Company?

Dr. William Donovan

As of two days ago, I was in communication with him. So, he has a HALO in his house. So, we were talking about some specific things two days ago. So, I assume he’s still working and follow-up with how is he accomplishing. I can’t read so small print over here. I think this is maybe a European that wrote this thing for some reason. Anyway, Mr. Keller, please ask that question again?

Here is another one from William Taylor. [Ph] Do I remember correct that the letter of credit is guaranteed by a director? I guess here is the CFO.

John Bergeron

Will you please repeat the question?

Dr. William Donovan

Do I remember correct that the letter of credit is guaranteed by a director?

John Bergeron

That is correct. Peter Dalrymple has guaranteed the note at Wells Fargo. Even though the note is in Spine Pain Management’s net.

Dr. William Donovan

Okay. And he is the second largest shareholder of the company if I remember correctly.

John Bergeron

That is correct.

Dr. William Donovan

Okay. Well, we have a pretty quiet crowd over here today unless something is wrong with the system. Let me verify here.

John Bergeron

Let me -- I find a couple of more questions. Okay?

Dr. William Donovan

Okay.

John Bergeron

Is the Board of Directors proactive in the Company? Yes, they do attend Board of Director meetings and make their opinions known. We have far from a boilerplate Board of Directors and for good reason. The three largest SPIN shareholders are on the Board of Directors holding some 45% of the stock. Here is one, another question I went across. Has any question been raised concerning the validity of any of the patents on any basis whatsoever by any third-party? No.

Unidentified Company Representative

Got the question back from Tom Keller. Basically, he just wanted to know whether the rep up in the Northeast has found anything particular that’s happened from his meetings I guess that is unique.

John Bergeron

He has met with doctors, consultants, attorneys and he has significant interest, I know from one particular doctor that we’ve met in a meeting and he is waiting to move into a new office where he would have the actual space for the C-Arm and HALO. Right now, this doctor goes to three or four small offices and none of those offices have the capabilities. So, we’re hoping something can happen.

Unidentified Company Representative

Okay. We have a question here from Herr Barman. [Ph] Our new affiliate, what part of current cash flow can we dedicate to a new affiliate? Is there anything positive to report on that front? Last quarter, you promised us another affiliate open in a few years that we’ve lost one instead of adding one. The core of business doesn’t really seem to bring much and it seems to be -- to me that you’ve invested in the product in the last two years which nobody wants. Want to address that? I am sorry, we have two separate questions. The first is -- two separate people. I am sorry. Our new affiliate, what part of recurring cash flow can we dedicate to a affiliate?

Dr. William Donovan

Let me give that to John, the CFO. Would you please ask the question again? Our new affiliate, what part of current cash flow can we dedicate to open that affiliate?

John Bergeron

Well, I mean we have $800,000 available. The question comes in is what we’re going to do in August when we have that big note payable due to us. We could renegotiate the note, but we’d be hesitant to do that to be a little bit more conservative because the last thing we want to do is not stiff or break our debt covenants. Does that kind of answer your question?

Unidentified Company Representative

Stiff or break our debt covenants. Okay. Let’s go back to this, second person here. Walter Eger [ph]. It’s a very long question. Is there anything positive to report? Last quarter you promised another affiliate opening; it appears we’ve lost one. I think we confused them earlier. San Antonio facility has been closed since three months -- three quarters ago. Anyway, it appears that we lost one instead of adding one. The core business doesn’t seem to be bringing much -- I am sorry people over here, I am using a very small monitor and I am going blind in my old age. Pretty much it seems to me you invested in a product the last two years that nobody wants. Could you please comment on that?

Dr. William Donovan

There is a need for the product and there is people that wanting that. And we thought we had additional affiliates that would have been reported on but they’ve been delayed. Is there a need for this, yes. As the changes in medicine occur affecting doctors’ revenue, many doctors are going to be looking for new revenue centers. So, we’re moving ahead and the system works and it really works. And if it didn’t work, how would you ever collect $15 million? So, we need to expand it. Remember, I answered one of those questions earlier. What are the three things holding this back on the legacy cash, cash and cash.

Unidentified Company Representative

Do you see any in the near horizon opening?

Dr. William Donovan

I hope so. I hope so.

Unidentified Company Representative

Okay. From the Le Gao [ph], HALO and legacy business, do you plan -- okay. The stock price is so low; is Dr. D is still as optimistic as he was about HALO and Legacy business? Do you plan to buy more? Why aren’t other insiders buying?

Dr. William Donovan

I can’t speak for other people. And when I have available money, I’ve been buying stock for a long time.

Unidentified Company Representative

Okay. Herr Berman, is the -- let’s see -- is the use of cash flow for HALO impacting the cash available?

Dr. William Donovan

Oh, sure. We’re working on getting the expenses down on the QVH side. And hopefully that will release a little more money that we can use on the legacy side. And if we can get some units sold, that will help. The whole idea, we sell QVH units and we use that money to fund the legacy.

Unidentified Company Representative

Okay. And Mr. Walter Eger is back again. I don’t think it’s interesting to shareholders to hear that you’ve collected $15 million in the past. What I as a shareholder see is a net loss in almost every quarter in last two years, no revenue growth and no QVH sales?

Dr. William Donovan

He is correct. We’ve had one sale and our cash collections have really improved, but the revenue has not improved. We have to do a better job.

Unidentified Company Representative

Any more questions? Here is one. Any idea what fourth quarter is looking like?

Dr. William Donovan

No. The only thing I know in the fourth quarter is we have the shareholders meeting Tuesday after Thanksgiving.

Unidentified Company Representative

Okay. All right. I guess that probably ends all our calls. Would you like to sign off, Dr. Donovan.

Dr. William Donovan

Yes. Both, John and myself want to thank you guys for -- and ladies for taking time to listen. And it’s -- the sales of QVH have been challenging. But we’re working as best as we can with ourselves and other people to resolve this challenging situation. And we’re going to continue to work because it’s needed and it’s good for the patients, it’s good for doctors, it’s going to protect hospitals, going to protect ASCs. And in this day and age, everybody expects the police to be wearing video cameras. It’s changing in medicine very quickly. Could not have said that a year ago but it’s absolutely changing. The public is demanding transparency. And I hope that we’re going to be able to provide and help what the public needs and is asking for.

So, I thank everybody. And hopefully we’ll see you by proxy at the annual meeting. Thank you very much.

Unidentified Company Representative

And we’re signing off.

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