umiak-If I might add...
You will find that management here, while not into "stock promotions" and such, is very pro-active in maintaining strong shareholder relations so the quick response back should not be surprising. After all, while none of top management and directors take any salary or retainer, they are all stockholders of the Company. And since this is a Reporting Company under SEC rules, you know none have sold stock or they would have had to report it. Plus, as you would note from Dr. Donovan’s bio, this is not his first successful public company startup.
If I may expand a bit on the COO's response to you; The Company's growth in adding new centers is only constrained by one thing; cash available. Since they quickly buy the receivables from their affiliated centers early the following month of the procedures at a significant discount, they have to wait, in some cases quickly both others as long as a year before the case settles and they collect on the receivable. Let me give you a hypothetical.
Let’s say a good center generates $300k in case billable injections a month. Purchasing those receivables might require the company to send around 60k in cash to that center each month. As in the case of most medical billing companies, they know that on average, ultimately, they will not collect all of the billings. As you can see from their SEC filings, they report a top line which is called "Net Revenues", (not the gross revenues that more conventional companies report, but the gross number is reported in the Management Discussions section). For filing purposes, I believe their auditors only allow them to report net revenues of around 52%. So in the case of the clinic that bills $300k, while the Company certainly strives to collect as much of that as possible, they only top line "book" on their filings around 156k.
OK, so now they have a good receivable accruing each month of 156k, so at the end of say 6 months, they have receivables of just under a million dollars, but during those six months they Company has had to pay out $360k in cash. (and of course this payout keeps continuing past the six months)By the sixth month cash should have started coming in on those receivable. But realistically, it might take nine months before cash flow from the older cases settling equals the ongoing monthly payout for new cases (but of course, each subsequent month past the nine, the cash flow continues to grow so higher then the say 60k. So now that centers excess cash flow can subsidize new centers.
Last year, the Company only had two centers which became seasoned enough to generate strong excess cash flow. This cash flow, along with advances of over a million dollars (no interest) from the Company CEO, Dr. Donovan, plus a small $400k straight debt financing allowed them to open a new center, first quarter of this year in Tampa (Feb) and another in Orlando at the end of last quarter . Base on just this organic growth, they spoke of hopefully being able to open another clinic this current third quarter and one in the fourth quarter. However, if they can arrange some debt financing, they feel they can considerably accelerate openings of new centers. There is currently a waiting list of Spine medical practices who want to join the program.
As of now, the Company has some $8 million in gross receivable on their books. In a normal business, these would be likely “bankable”. But do to the uniqueness of this business whereby the receivables have no tangible asset other then the settlement of a lawsuit backing it, normal banking channels are not available. (can’t file a UCC against the outcome of a lawsuit) Though ironically, at least at a discounted level, these type of receivables are gold, since the lawyer cannot by law agree too and settle a suit without the Company signing off with the courts.
As the Company mentioned in its CC, due to the large amount of receivables accruing and strong and ever increasing cash flow from older cases, there now are new avenues of straight high yield debt appearing.
So, long story short. IMO, they will likely open two more centers this year without any additional financing and probably six to eight next year. BUT, if you see them announce a financing or credit facility of a few million dollars, then center openings should be expected to significantly exceed existing projections.
No question, this is an awesome business as proven by the continued profits in every month since inception. But as simple as it sounds, don’t make the assumption that just anyone can start this type of business. What SPIN has that is so unique is the perfect match up of Dr. D, who for decades has been a sought after “Expert Witness” in over 500 Spine PI cases, and the COO, John Talamas who through prior businesses is one of the top media marketing consultants for both PI attorneys and Medical Specialists. So between the two of them, they “know” all the right people Nationwide to make this work.
Hope this gives some better insight.
