NOTE 5 – ACCOUNTS RECEIVABLE

We recognize revenue and accounts receivable in accordance with SEC staff accounting bulletin, Topic 13, “Revenue Recognition”, which requires persuasive evidence that a sales arrangement exists; the fee is fixed or determinable; and collection is reasonably assured before revenue is recognized. We manage certain spine injury diagnostic centers where we engage healthcare providers as our independent contractors to perform medical services for patients. We pay the healthcare providers a fixed rate for medical services performed. The patients are billed based on Current Procedural Terminology (“CPT”) codes for the medical procedure performed. CPT codes are numbers assigned to every task and service a medical practitioner may provide to a patient including medical, surgical and diagnostic services. CPT codes are developed, maintained and copyrighted by the American Medical Association. The healthcare providers working as our third-party independent service providers bill patients the normal billing amount, based on national averages for a particular CPT code procedure. We assume ownership of the account and bill the patient the unpaid balance.

Revenue is recognized by reference to “net revenue,” which is gross amounts billed using CPT codes less account discounts that are expected to result when individual cases are ultimately settled. A discount rate of 50% and 48%, based on settled patient cases, was used to reduce revenue to 50% and 52% of CPT code billings (“gross revenue”) during the nine months ended September 30, 2012 and 2011, respectively.

The patients who receive medical services at the diagnostic centers are typically plaintiffs in accident lawsuits. The timing of collection of receivables is dependent on the timing of a settlement or judgment of each individual case associated with these patients. Collections experience, which we review annually and is currently based on cases settled through December 31, 2011, 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 currently indicates that 49% of cases will be subject to a settlement or judgment within one year of a medical procedure.

We take the following steps to establish an arrangement between all parties and facilitate collection upon settlement or final judgment of cases:

Accounts Receivable Factoring

During the nine months ended September 30, 2012, we factored $17,165 of gross receivables to a third party (the “factor”) for cash consideration of $5,150 or 30% of the gross receivable. During the third and fourth quarters of 2011, we factored $217,662 and $791,116, respectively, of gross receivables with a factor for cash consideration of $302,633 or 30% of the total gross receivable.

In the event the factor does not receive at least 30% of the gross receivable purchased, we will transfer additional accounts receivable to the factor at no charge until the factor collects monies in the aggregate of the original gross receivables purchased.