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EXCEL - IDEA: XBRL DOCUMENT - Spring Creek Healthcare Systems, Inc.Financial_Report.xls
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

 
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the Quarter Ended September 30, 2011
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File Number: 814-00783
 
 
SPRING CREEK HEALTHCARE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
  

     
Nevada
 
98-0496750
(State or other jurisdiction of
 incorporation or organization)
 
(I.R.S. Employer
 Identification No.)
   
120 Wall Street
Suite 2401
New York, N.Y.
 
10005
(Address of principal executive office)
 
(Zip Code)
 
(646) 896-3050
(Registrant’s telephone number, including area code)
 
 (Former name, former address and former fiscal year, if changed since last report) 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    x      No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer   ¨
 
Accelerated filer   ¨
  
Non-accelerated filer   o
  
Smaller Reporting Company   x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes   ¨     No   o
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of November 21, 2011 was 43,770,421.
 
 
 
 
1

 
 
 
SPRING CREEK HEALTHCARE SYSTEMS, INC.
  
TABLE OF CONTENTS
 

PART I
   
     
Item 1.
Financial Statements
3
     
 
Condensed Consolidated Balance Sheet of Spring Creek Healthcare Systems, Inc. at September 30, 2011 (unaudited) and December 31, 2010
3
     
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 and for the period from inception (May 11, 2006) to September 30, 2011 (unaudited)
4
     
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 and for the period from inception (May 11, 2006) to September 30, 2011 (unaudited)
5
     
 
Condensed Consolidated Statement of Stockholders’ Equity for the period from inception (May 11, 2006) to September 30, 2011 (unaudited)
6
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13
     
Item 3. 
Quantitative and Qualitative Disclosures about Market Risk
17
     
Item 4.
Controls and Procedures
17
     
PART II
   
     
Item 1.
Legal Proceedings
18
     
Item 1A.
Risk Factors
18
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18
     
Item 3.
Defaults Upon Senior Securities
18
     
Item 4
(Removed and Reserved)
18
     
Item 5.
Other Information
18
     
Item 6.
Exhibits
18
     
Signatures 
  19
     
 
 
 
2

 
 

SPRING CREEK HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY COMPANY
 
(A Development Stage Company)
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
             
Cash
 
$
         -
   
$
1,083
 
Prepaid expenses
   
43,778
     
4,301
 
  Total current assets
   
43,778
     
5,384
 
                 
Available for sale securities
   
40,000
     
60,000
 
Intangibles
   
306,000
     
352,157
 
                 
TOTAL ASSETS
 
$
389,778
   
$
417,541
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
 
$
501,726
   
$
308,952
 
Notes payable - related party - net of discount of  $3,558 (2010)
   
653,227
     
581,132
 
                 
Notes payable
   
       -
     
40,500
 
Liability for unissued shares
   
107,800
     
81,858
 
  Total current liabilities
   
1,262,753
     
1,012,442
 
                 
                 
STOCKHOLDERS' DEFICIENCY
               
Common stock, par value $.001 per share; 75,000,000
               
   shares authorized and 43,770,421  and 36,240,714
               
   issued and outstanding
   
43,770
     
36,241
 
Additional paid-in capital
   
5,697,956
     
4,734,275
 
Accumulated deficit during the development stage
   
(6,294,701
)
   
(5,065,417
)
Accumulated other comprehensive loss
   
(320,000
)
   
(300,000
)
  Total stockholders' deficiency
   
(872,975
)
   
(594,901
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
 
$
389,778
   
$
417,541
 
 
See notes to consolidated financial statements
 
 
3

 
 
 
SPRING CREEK HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY COMPANIES
 (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
   
From inception
(May 11, 2006)
to September 30,
 
   
2011
   
2010
   
2011
   
2010
   
2011
 
Costs and Expenses
                             
General and administrative
 
$
93,474
   
$
182,130
   
$
1,068,384
   
$
2,645,834
   
$
4,335,836
 
Impairment of intangibles
   
82,157
             
82,157
             
82,157
 
Interest
   
22,393
     
15,642
     
63,392
     
56,198
     
145,988
 
Amortization of debt discount
   
    -
     
47,593
     
3,558
     
155,228
     
267,537
 
Finance costs
   
3,172
     
24,400
     
11,793
     
24,400
     
1,836,637
 
Total expenses
   
201,196
     
269,765
     
1,229,284
     
2,881,660
     
6,668,155
 
                                         
Other expense/( income)- related to affiliated companies
   
-
     
(359,583)
     
-
     
(360,054)
     
(373,454)
 
                                         
Net income/(loss)
 
$
(201,196
)
 
$
89,818
   
$
(1,229,284
)
 
$
(2,521,606
)
 
$
(6,294,701
)
                                         
Net income/(loss) per share – basic and diluted
 
$
(0.00
)
 
$
0.00
   
$
(0.03
)
 
$
(0.07
)
       
                                         
Weighted average shares outstanding
   
42,412,426
     
35,162,120
     
39,002,850
     
34,463,901
         
 
See notes to consolidated financial statements
 
 
 
 
4

 
 
 
 
 
SPRING CREEK HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY COMPANIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) 
 
                   
               
From inception
 
   
Nine months ended
   
(May 11, 2006)
 
   
September 30,
   
to September
 
   
2011
   
2010
     
30, 2011
 
Cash Flows Used in Operating Activities
                   
Net Loss
 
$
(1,229,284
)
 
$
(2,521,606
)
 
$
(6,294,701
)
Adjustments to reconcile net loss to net cash
                       
used in operating activities:
                       
Amortization of debt discount
   
3,558
     
155,228
     
267,537
 
Accrued interest payable -related party
   
62,606
     
52,362
     
152,032
 
Services - noncash charges
   
832,729
     
2,232,908
     
3,065,637
 
Finance costs
   
11,750
     
24,400 
     
1,836,379
 
Write-off of Intangibles
   
82,157
             
82,157
 
Amortization of deferred compensation
           
9,340
     
13,450
 
Equity in losses of subsidiaries
           
34,989
     
34,989
 
Gain on exchange of minority interest in BioCube, Inc.
           
(365,043) 
     
(365,043
)
Accrued interest
           
2,016 
     
6,300
 
Accrued fees from affiliates
           
(33,658
)
   
(33,658
)
Changes in operating assets and liabilities:
                       
Prepaid expenses
   
(14,270)
     
12,415
     
(18,571
)
Accounts payables and accrued expenses
   
202,071
     
163,471
     
543,558
 
Net Cash Used in Operating Activities
   
(48,683
)
   
(233,178
)
   
(709,934
)
                         
Cash Flows Used in Investing Activities
                       
Loans to affiliated companies
   
-
     
(38,500
)
   
(78,445
)
Net Cash Used in Investing Activities
   
-
     
(38,500
)
   
(78,445
)
                         
Cash Flows Provided By (Used In) Financing Activities
                       
Loans from related party
   
47,600
     
142,310
     
591,879
 
Loans
   
-
     
130,000
     
130,000
 
Loan - prepayment
   
-
     
(9,500
)
   
(9,500
)
Issuance of common stock
   
-
     
5,000 
     
126,000
 
Repayment of related party loan
   
-
     
-
     
(50,000
)
Net Cash Provided by Financing Activities
   
47,600
     
267,810
     
788,379
 
Net Decrease in Cash
   
(1,083
)
   
(3,868
)
   
       -
 
Cash at beginning of period
   
1,083
     
4,187
     
-
 
Cash at end of period
 
$
-
   
$
319
   
$
-
 
                         
                         
Supplemental Disclosures
                       
                         
Non-cash investing and financing activities
                       
                         
Common stock, including common stock to be issued, in connection with:
                       
Acquisition of intangibles
 
$
36,000
   
$
270,000
   
$
306,00
 
Services
   
192,000
     
517,200
     
709,200
 
Settlement of liabilities - net of loss of  $11,750 and $102,000, in 2011and 2010, respectively,
   
104,774
     
222,429
     
327,202
 
                         
Issuance of options                                                                                                                  
    638,437       1,633,850       2,272,287  
Issuance of warrants inconneciton with:
                       
Services                     13,450  
Finance costs                     1,723,000  
                                                                                                                                                     
See notes to consolidated financial statement
 
 
 
5

 
 
 
SPRING CREEK HEALTHCARE SYSTEMS, INC AND SUBSIDIARY COMPANIES
 (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
 
                           
Accumulated
   
Deficit
Accumulated
       
               
Additional
         
Other
   
During
   
Total
 
   
Common Stock
   
Paid -in
   
Deferred
   
Comprehensive
   
Development
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Compensation
   
Income/(loss)
   
Stage
   
Deficiency
 
Shares issued to founders at $.01 per share
   
30,000,000
   
$
30,000
     
-
                     
$
30,000
 
Net loss for period
   
-
     
-
     
-
               
$
(30,000
)
   
(30,000
)
Balance - December 31, 2006
   
30,000,000
     
30,000
     
-
                 
(30,000
)
   
-
 
Net loss for period
   
-
     
-
     
-
                 
(23,655
)
   
(23,655
)
Balance - December 31, 2007
   
30,000,000
     
30,000
     
-
                 
(53,655
)
   
(23,655
)
Shares issued at $.033 per share
   
2,880,000
     
2,880
   
$
93,120
                 
-
     
96,000
 
Net loss for period
   
-
     
-
     
-
                 
(72,845
)
   
(72,845
)
Balance - December 31, 2008
   
32,880,000
     
32,880
     
93,120
                 
(126,500
)
   
(500
)
Shares issued in settlement of payables
   
850,000
     
850
     
27,200
                         
28,050
 
Warrants issued in connection with:
                                                   
  Consulting fees
   
-
     
-
     
13,450
   
$
(13,450
)
                 
-
 
  Finance Costs
                   
1,723,000
                           
1,723,000
 
  Indebtedness
                   
231,537
                           
231,537
 
Amortization of deferred compensation
   
-
                     
4,110
                   
4,110
 
Net loss for period
   
-
     
-
     
-
     
-
           
(2,251,795
)
   
(2,251,795
)
Balance - December 31, 2009
   
33,730,000
     
33,730
     
2,088,307
     
(9,340
)
         
(2,378,295
)
   
(265,598
)
Issuance of common stock in connection with:
                                                     
  Exercise of warrants
   
500,000
     
500
     
4,500
                           
5,000
 
 Indebtedness
   
785,714
     
786
     
221,643
                           
222,429
 
 Services - Board
   
250,000
     
250
     
132,250
                           
132,500
 
 Services – other
   
675,000
     
675
     
384,025
                           
384,700
 
 Acquisition of intangibles
   
300,000
     
300
     
269,700
                           
270,000
 
Issuance of options to:
Board and Officers
                   
1,245,313
                           
1,245,313
 
Consulting fees
                   
388,537
                           
388,537
 
Amortization of deferred compensation
                           
9,340
                   
9,340
 
Net loss for period
                                         
(2,687,122
)
   
(2,687,122
)
Unrealized loss on investments
                                   
(300,000
)
           
(300,000
)
Total comprehensive loss
                                                   
(2,987,122
)
Balance – December 31, 2010
   
36,240,714
   
$
36,241
   
$
4,734,275
   
$
-
   
$
(300,000
)
 
$
(5,065,417
)
 
$
(594,901
)
Issuance of shares in connection with:
    Settlement of  indebtedness
   
3,629,707
     
3,629
     
101,144
                             
104,773
 
Acquisition of intangibles
   
300,000
     
300
     
35,700
                             
36,000
 
Services – Board and others
   
3,600,000
     
3,600
     
188,400
                             
192,000
 
Issuance of options to Board and others
                   
638,437
                             
638,437
 
                                                         
Net loss for period
                                           
(1,229,284
)
   
 (1,229,284
)
Unrealized loss on investments available for sale
                                   
  (20,000
)
           
(20,000) 
 
Total comprehensive loss
                                                   
(1249,284
)
Balance – September 30, 2011
   
43,770,421
   
$
43,770
   
$
5,697,956
   
$
-
   
$
(320,000
)
 
$
(6,294,701
)
 
$
(872,975
)
 

See notes to consolidated financial statements

 
6

 
 
SPRING CREEK HEALTHCARE SYSTEMS, INC.  AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 

Note 1.  Organization and Basis of Preparation

Spring Creek Healthcare Systems, Inc. (formerly Spring Creek Capital Corp.) (“Spring Creek” or the “Company”) is a healthcare company whose business plan is to distribute inovativel solutions for the medical, pharmaceutical and healthcare markets to resellers and consumers worldwide. Spring Creek actively pursues emerging opportunities in the healthcare industry by selecting innovative products and services to market through the distribution network of its principal subsidiary, Stratis Healthcare, Inc. (“Stratis”).

Spring Creek was a closed-end management investment company which in April 2009 elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).  The Company was originally formed in May 2006 to engage in the exploration of mineral properties for copper and other metals; however, as a result of the April 2009 change in business plan to be a specialty investment company, the mining operations were discontinued.  The Company conducted operations as a BDC from April 23, 2009 through December 31, 2009.  During this time, Spring Creek acquired or established its initial interests in healthcare companies by acquiring equity stakes in or starting development stage companies in this industry. The Company also completed two minority equity investments in companies that it believed to be strategic to its mission.
 
In February 2010, our Board of Directors and the holders of a majority of our outstanding shares of common stock authorized management to withdraw the election to be regulated as a BDC.  This decision was in part prompted by the actuality that the majority of the Company’s resources were allocated to managing the operating activities of its holdings and, in addition, management found that the Company may not have been in compliance with certain BDC provisions of the 1940 Act.  On July 7, 2010, the Company filed an Information Statement with the SEC providing notice of shareholder action in lieu of a Meeting of Shareholders, taken pursuant to the written consent of certain shareholders, referred to as the consenting shareholders.  Specifically, the consenting shareholders approved the withdrawal of the Company’s election to be a BDC.  This action became effective on August 17, 2010 when the Company filed the applicable Notice concerning the withdrawal with the Securities and Exchange Commission.  Further, in recognition of the change in its operations, the Company changed its name to Spring Creek Healthcare Systems, Inc., effective as of September 30, 2010.
 
As a result of the decision to withdraw the Company’s election to be treated as a BDC and become an operating company, the fundamental nature of the Company’s business changed from that of investing in a portfolio of securities with the goal of achieving gains on appreciation and dividend income, to that of being actively engaged in the ownership and management of a holding company with the goal of generating income from the operations of those businesses.  The decision to withdraw the Company’s election as a BDC under the 1940 Act necessitated a significant change in the Company’s method of accounting.  The Company formerly utilized the BDC financial statement presentation and that accounting utilized the value method of accounting used by investment companies, which allows BDCs to recognize income and value their investments at market value as opposed to historical cost.  As an operating company, the Company was required to adopt the financial statement presentation and accounting for securities held which provides for either fair value or historical cost methods of accounting, depending on the classification of the investment and the Company’s intent with respect to the period of time it intends to hold the investment.  This change in the Company’s method of accounting could impact the market value of its investments in privately held companies by eliminating the Company’s ability to report an increase in the value of its holdings as the increase occurs.  As an operating company, the Company, effective December 31, 2009, consolidated its financial statements with its controlled subsidiaries, thus eliminating the portfolio company reporting benefits available to BDCs.
 
The Company intends to distribute and market products and technologies in the healthcare sector.  Spring Creek’s principal subsidiary is Stratis, whose primary business is to distribute products to resellers and customers worldwide either directly, through distributors or through multi-channel resources.  Stratis will utilize strategic partnerships to warehouse, provide inventory control/monitoring, and distribute new Spring Creek products on a global basis.  Systems and processes will be designed to be efficient and repeatable so as to allow Spring Creek to implement cost-effective solutions for the distribution of healthcare products throughout its portfolio.   In 2010, the Company incorporated 2 new subsidiaries that are 51%-owned by the Company to market the products obtained through licensing arrangements for an oral spray technology for delivery of over-the-counter and prescription medications, including oral insulin through the buccal mucosa, and a topical therapy treatment for open wounds such as venous statis or decubitus ulcers.  In March 2011, the Company agreed to license the rights to market the ReVersital® family of microdermabrasion products and all of its proprietary line extensions.  Once the Company begins its commercialization of these rights, the Company will terminate the development stage presentation for its consolidated financial statements.
 
 
 
 
7

 

 
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern.  This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. The Company since its formation has not generated any significant revenues. The Company has not as yet attained a level of operations which allows it to meet its current overhead and may not attain profitable operations within its first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved.  The Company is dependent upon obtaining additional financing adequate to fund its operations. While the Company has funded its initial operations with private placements and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company.   The Company’s ability to continue as a going concern is also dependent on many events outside of its direct control, including, among other things, improvement in the economic climate.  The 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.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.
  
Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full year.

The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

These interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes for the period ended December 31, 2010 filed with the Securities and Exchange Commission on Form 10-K on April 15, 2011.

Note 2.  Significant Accounting Policies
 
Consolidation
 
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of the dates and for the fiscal years indicated.  All intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry and any other parameters used in determining these estimates, could cause actual results to differ. 
 
Concentration of Credit Risk

The Company may place its cash with various financial institutions and, at times, cash held in depository accounts at such institutions may exceed the Federal Deposit Insurance Corporation insured limit.
 
 
8

 
 
 
Securities Held for Sale

The company's investments in marketable equity securities are held for an indefinite period and thus are classified as available for sale. Unrealized holding gains or losses on such securities are charged to or credited to other comprehensive income.
 
Income Taxes
 
The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities (commonly known as the asset and liability method).  In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 
The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year.   The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
 
As of December 31, 2010, the Company has approximately $5.1million of net operating loss carry-forwards available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry- forwards and temporary differences as realization of the asset is not assured.

Revenue Recognition
 
Upon initiation of active operations, the Company will recognize revenues when persuasive evidence of an arrangement exists, product has been delivered or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue will be recognized net of estimated sales returns and allowances.
 
Per Share Information
 
Basic earnings per share are calculated using the weighted average number of common shares outstanding for the period presented. Diluted loss per share is the same as basic loss per share, as the effect of potentially dilutive securities (options and warrants to acquire 18,475,000 and 2,490,000 shares of common stock, respectively at September 30, 2011) are anti-dilutive, and has no impact on the consolidated results of operations presented.
 
Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation.

New Accounting Pronouncements

In December 2010, The Financial Accounting Standards Board (“FASB”) adopted new disclosure guidance for supplementary pro forma information related by a public entity that enters into business combinations that are material on an individual or aggregate basis.   The guidance specifies that if the public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.  In addition, the guidance expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this did not have a material effect on the Company’s operations or financial condition.

In June 2011, the FASB issued an update to ASC 220, Comprehensive Incomes. The update to ASC 220 establishes standards for the reporting and presentation of comprehensive income. The update will become effective for the Company as of January 1, 2012. The Company is currently evaluating the potential impact of the update on its financial position, results of operations, and cash flows.
  
Note 3.  Available for Sale Securities
 
On July 12, 2010, the Company exchanged its minority interest in BioCube, Inc. ("Old BioCube") for 2 million shares of common stock of Alliance Network Communications, Inc. ("Alliance") in connection with a transaction in which BioCube became a wholly-owned subsidiary of Alliance. Alliance subsequently merged with its subsidiary and changed its name to BioCube, Inc. (“New BioCube”). The Company accounted for its investment in New BioCube in accordance with FASB ASC Topic 320 - Investments and accordingly classified the investment as available for sale and recorded the investment at its fair value as of the acquisition date ($360,000), which resulted in a gain of $365,000.  Adjustments to the carrying value for subsequent changes in fair value are recorded as unrealized gains or losses in other comprehensive income in the consolidated statement of stockholders’ deficiency.  As a result of the decrease in the fair value during the period subsequent to July 12, 2010 through September 30, 2011, the Company recorded an unrealized loss of $320,000, of which $20,000 was recorded in the three and nine month periods ended September 30, 2011 and $120,000 in the three and nine months ended September 30, 2010.
 
 
 
9

 
 
 
Note 4.  Intangibles

Intangibles as of September 30 2011 consist of the following:
 
License for an oral spray technology for delivery of medications through the buccal mucosa
  $
270,000
 
License for the market rights to ReVersital 3-in-1 Microderma Stick
   
36,000
 
Total
 
$
306,000
 
 
On March 11, 2011, the Company pursuant to a ten-year licensing agreement acquired the right to market the ReVersital® family of microdermabrasion products and all of its proprietary line extensions. The license is exclusive for the United States mass consumer market. The licensor received as consideration for the license 300,000 shares of the Company’s common stock valued at $36,000 based upon the fair value of the shares to be issued as of the date of the agreement; a 49% interest in a subsidiary of the Company which will hold the marketing rights to any products developed utilizing the license and a royalty of 5 % of net sales.

On May 21, 2010, the Company exchanged its minority interest in Eco-Blends, Inc. (“Eco-Blends”) for a fully paid, royalty-free, perpetual, transferrable license to use all of the formulations set forth in the pending application for a patent under the name “Insect Repellent Composition Containing Essential Oils”.  Additionally, the Company forgave all amounts due for management fees, loans, interest and all other amounts due from Eco-Blends.  As a result, the Company recorded an intangible of $82,000 by transferring the following amounts which had been previously recorded as advances and investments in Eco-Blends:
 
Advances:
     
Loans
 
$
65,000
 
Management fees
   
30,000
 
Interest
   
4,000
 
Equity in losses
   
(17,000
)
   
$
82,000
 

During the quarter ended September 30, 2011, The Company decided to discontinue its efforts to market this product and recorded an impairment in the valuation of its investment in the intangible rights with a charge of $82,000 to operations for the period.

On April 27 and May 19, 2010, the Company entered into licensing agreements with McCoy Enterprise, LLC (the “licensor”), whereby the Company exclusively licensed (i) an oral spray technology for delivery of over-the-counter and prescription medications, including oral insulin through the buccal mucosa and (ii) a topical therapy treatment for open wounds such as venous statis or decubitus ulcers.  The exclusive licenses include world-wide rights in perpetuity.  The licensor received as consideration for each license a 49% interest in each of 2 subsidiaries of the Company, which will hold the marketing rights to any products developed utilizing each license.  In addition, the licensor received 300,000 shares of the Company’s common stock in connection with the buccal mucosa license.  The Company recorded the buccal mucosa license right as an Intangible valued at $270,000 based upon the fair value of the shares issued.  In September 2011, the licensor transferred the oral spray technology patents to the Company in return for a royalty interest in the revenues to be derived from the sales of related products. In addition, the licensor agreed to terminate the license agreement, dated April 27, 2011 and returned the 49% interest in the Company’s subsidiary set up to market the licensed rights.

Note 5.  Notes Payable - Related Party

The Company’s transactions with LeadDog Capital LP for the nine months ended September 30, 2011 were as follows:
 
Balance at beginning of period
 
$
581,132
 
New borrowings at 16% interest rate
   
47,600
 
Interest accrued                                                                  
   
62,606
 
Redemption of  indebtedness ($30,000 principal and $11,669 accrued interest) by the issuance of 1,914,2028 shares of common stock  
   
(41,669
)
Accretion of discount
   
3,558
 
Balance at end of period                                                     
 
$
653,227
 

           At September 30, 2011, notes and interest payable to related party includes unpaid interest of $129,031.   The notes are payable within one year the origination date of the notes or under extensions through September 30, 2012, as a result of an extension entered into in October 2011 (see Note 9)..
 
 
 
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Note 6.  Liability for Unissued Shares

  As of September 30, 2011, the liability for unissued shares consists of shares issuable in accordance with:
 
Terminated agreement for services
 
$
80,300
 
Marketing services agreement
   
27,500
 
   
$
107,800
 

 In March 2011, the Company engaged a marketing company to provide marketing and branding services in order to increase the distribution of the Company’s products. The agreement is for 12 months, automatically renewable for 12 months, and provides for monthly payments of $5,000. Additional consideration includes 500,000 shares of common stock of which half was issued at the time of the closing and the balance is due after 6 months. The Company also agreed to pay commissions on sales directly attributed to the services of the marketing company.

In February 2010, the Company entered into a letter of engagement with an investor relations firm to develop and implement a financial communications program designed to increase investor awareness of the Company in the investment community.  The initial term of the agreement was ninety days and may be terminated by either party upon thirty days’ notice.   Pursuant to the agreement, the Company is to issue up to 660,000 shares of our common stock in monthly installments of 55,000 during the first year of the agreement unless the agreement is terminated before the completion of the first year of the contract causing the monthly installments to end as of the termination date.   On November 9, 2010, the Company terminated the agreement and has not issued the balance of the shares due for a portion of the period prior to termination.

NOTE 7: Shareholders’ Deficiency

In May 2011, the Board of Directors awarded non-cash compensation awards for services rendered to the officers, directors and certain consultants in the form of 3 million shares of common stock and options to purchase an aggregate of 15.4 million shares of common stock at a $0.05 per share exercise price.   In addition, the Board approved a compensation plan for the directors in which all directors were awarded 500,000 options to purchase common stock at an exercise price of $.05 except the Chairman who received options to purchase 125,000 shares as well as 250,000 shares of common stock.  As of the time of issuance of the shares and options, the Company recorded non-cash compensation charges of $801,000 as all grants were immediately vested.  The options have a term of 5 years.
 
The fair value of option grants were estimated on the date of grant in May 2011using the Black-Scholes option-pricing model with the following assumptions:
  
Expected volatility
   
100
%
Expected dividends
   
0
%
Expected term
 
5years
 
Risk-free rate  
   
1.95
%

During 2011, the holder of a note payable amounting to $40,500 from the Company, agreed to redeem the note for 1,512,500 shares of the Company’s common stock. The Company recorded a loss on the transaction of $11,875 based upon the fair value of the shares.  Also in May 2011, the Company settled amounts due to a consultant by issuing 200,000 shares of common stock.  The Company recorded a gain of $3,102 as a result of the settlement based upon the fair value of the shares issued.  See also Note 5 Notes Payable – Related Party as to the issuance of additional common shares to redeem outstanding indebtedness.

In September 2011, The Board of Directors awarded 100,000 shares of common stock to a consultant for administrative and other services and recorded a charge to operations of $2,000 based upon the fair market value of the shares issued.

NOTE 8: Fair Value Measurements
 
Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
 
Level 1 — Quoted prices in active markets for identical assets or liabilities.
 
Level 2 — Observable inputs other than quoted prices included in Level 1. We value assets and liabilities included in this level using dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.
 
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
 
 
 
 
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Recurring Fair Value Measurements
 
In accordance with accounting principles generally accepted in the United States, certain assets and liabilities are required to be recorded at fair value on a recurring basis. For our Company, the only assets and liabilities that are adjusted to fair value on a recurring basis is the Company investment which was classified as available for sale and valued using Level 1 inputs (see Note 3.)
  
Note 9.  Subsequent Events
 
Subsequent to September 30, 2011, the Company, though November 21, 2011, borrowed an additional $7,625 from LeadDog Capital LP with interest payable at 16% per year.  In addition, in October 2011, LeadDog Capital LP extended the due date to September 30, 2011 on indebtedness amounting to $430,000 which was past due as of the date of the extension and to December 31, 2012 for $20,000 of indebtedness that had due dates through December 31, 2011 in return for a three year warrant to purchase 1 million shares of the Company’s common stock at $.001 per share.
 
On November 8, 2011, the Company’s Board of Directors approved the repricing of the exercise price for all outstanding options to $.01 per share from their original terms of $0.53 and $0.05 per share.  No other terms related to the outstanding options were altered.
 
 
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under ‘Risk Factors’ in our annual report on Form 10-K, filed with SEC April 15, 2011.
 
OVERVIEW
 
Spring Creek Healthcare Systems, Inc. (formerly Spring Creek Capital Corp.) (“Spring Creek” or the “Company”) is a healthcare company whose business plan is to distribute innovative solutions for the medical, pharmaceutical and healthcare markets to resellers and consumers worldwide. Spring Creek actively pursues emerging opportunities in the healthcare industry by selecting innovative products and services to market through the distribution network of its principal subsidiary, Stratis Healthcare, Inc. (“Stratis”).

Spring Creek was a closed-end management investment company which in April 2009 elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).  The Company was originally formed in May 2006 to engage in the exploration of mineral properties for copper and other metals; however, as a result of the April 2009 change in business plan to be a specialty investment company, the mining operations were discontinued.  The Company conducted operations as a BDC from April 23, 2009 through December 31, 2009.  During this time, Spring Creek acquired or established its initial interests in healthcare companies by acquiring equity stakes in or starting development stage companies in this industry. The Company also completed two minority equity investments in companies that it believed to be strategic to its mission.
 
In February 2010, our Board of Directors and the holders of a majority of our outstanding shares of common stock authorized management to withdraw the election to be regulated as a BDC.  This decision was in part prompted by the actuality that the majority of the Company’s resources were allocated to managing the operating activities of its holdings and, in addition, management found that the Company may not have been in compliance with certain BDC provisions of the 1940 Act.  On July 7, 2010, the Company filed an Information Statement with the SEC providing notice of shareholder action in lieu of a Meeting of Shareholders, taken pursuant to the written consent of certain shareholders, referred to as the consenting shareholders.  Specifically, the consenting shareholders approved the withdrawal of the Company’s election to be a BDC.  This action became effective on August 17, 2010 when the Company filed the applicable Notice concerning the withdrawal with the Securities and Exchange Commission.  Further, in recognition of the change in its operations, the Company changed its name to Spring Creek Healthcare Systems, Inc., effective as of September 30, 2010.
 
As a result of the decision to withdraw the Company’s election to be treated as a BDC and become an operating company, the fundamental nature of the Company’s business changed from that of investing in a portfolio of securities with the goal of achieving gains on appreciation and dividend income, to that of being actively engaged in the ownership and management of a holding company with the goal of generating income from the operations of those businesses.  The decision to withdraw the Company’s election as a BDC under the 1940 Act necessitated a significant change in the Company’s method of accounting.  The Company formerly utilized the BDC financial statement presentation and that accounting utilized the value method of accounting used by investment companies, which allows BDCs to recognize income and value their investments at market value as opposed to historical cost.  As an operating company, the Company was required to adopt the financial statement presentation and accounting for securities held which provides for either fair value or historical cost methods of accounting, depending on the classification of the investment and the Company’s intent with respect to the period of time it intends to hold the investment.  This change in the Company’s method of accounting could impact the market value of its investments in privately held companies by eliminating the Company’s ability to report an increase in the value of its holdings as the increase occurs.  As an operating company, the Company, effective December 31, 2009, consolidated its financial statements with its controlled subsidiaries, thus eliminating the portfolio company reporting benefits available to BDCs.
  
Business Plan

Our core strategy is to acquire or develop innovative solutions in the field of healthcare and to grow our business. To accomplish this, we will:
 
*        Actively pursue emerging opportunities in the healthcare sector with high growth potential;
 
*        Exploit our global marketing and distribution infrastructure to reach our target markets;

*        Establish trust in our brands in the minds of consumers;
*        Schedule the launch of our products and services to coincide with the most opportune periods; and

*        Increase our cash flow and profits.
 
 
 
 
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In addition, we will need capital sufficient to maintain operations and complete acquisitions in order to advance our objectives.
 
We believe that, through the experience of our management and directors, we have solid channels from which we may distribute our products and substantial resources to potentially generate a number of new opportunities for our Company. However, there can be no guarantee such relationships will lead to the origination of new products, acquisitions, or investments.  Our product lines include:
 
The Company has acquired the patents to a proprietary drug delivery technology for the transmucosal (the cavity between the cheek and gum) administration of large molecule drugs as a liquid dispersion, e.g., peptides like insulin, monoclonal, antibodies, hormones, vaccines and other proteins.  Currently, these macro-molecular drugs cannot be administered orally, and are instead injected, usually with a needle and syringe or by intravenous infusion. Utilizing this innovative delivery system, the Company can provide better stability and may reduce the side effects seen with certain nasal delivery and inhalation methods. Two initial product lines are planned based on the Company’s patented IP portfolio. The first is the buccal delivery of insulin and the second is for treatment of osteoporosis pain management with fentanyl citrate.

The Company has licensed a patent pending drug product which represents a fundamentally new combination approach to the topical treatment of open wounds such as diabetic foot ulcers, venous stasis or decubitus ulcers (bed sores). The product can be developed as a prescription drug for the treatment of bed sores but has potential in other clinical indications, even in over-the-counter concentrations that could treat wounds, burns and various skin irritations, including rashes and insect bites.
 
In March 2011, the Company made its initial foray into the “Health and Beauty” segment of the healthcare market and formed a partially owned subsidiary, Sashiel Beauty, Inc.  Sashiel will specialize in developing premium cosmetic skincare products for effective skincare with a value-oriented approach.  Sashiel currently licenses two consumer products sold under the brand ReVersital® - Microderma Stick® Face, Throat, Dйcolletй, and Microderma Stick® Body, Elbows, Feet. Microderma Stick® is a microdermabrasion resurfacing stick with active moisturizers made to cleanse, exfoliate, and moisturize all in one dial-up application.  It is portable, easy to hold, and can reduce observable fine lines, wrinkles, acne scars, age spots, damage from UVA/UVB rays, skin discoloration and dry skin. The introductory product lines include a 2oz. resurfacing stick for sensitive and normal skin types and a 3oz. resurfacing stick for all skin types.
 
Current Economic Environment
 
              The U.S. economy is currently in a recession. Consumer confidence continued to deteriorate and unemployment figures continued to increase during 2010.  However, in recent months, certain economic indicators have shown modest improvements. The generally deteriorating economic situation, together with the limited availability of debt and equity capital, including through bank financing, will likely have a disproportionate impact on the micro-cap companies.  As a result, we may not be able to execute our business plan as a result of inability to raise sufficient capital and/or be able to develop a customer base for our planned products. 

Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company 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.  Since our formation, we have not generated any revenues. The Company has not as yet attained a level of operations that allows us to meet our current overhead and may not attain profitable operations within its first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The Company is dependent upon obtaining additional financing adequate to fund its operations. While we have funded our initial operations with private placements and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to us.   Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, improvement in the economic climate.  The 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.
 
 
 
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Results of Operations

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010
 
Expenses during the three months ended September 30, 2011 aggregated $201,000 versus $270.000 in the prior year period.

            Our primary expenses include the payment of:  (i) payroll and consulting fees under arrangements to fund costs related to personnel, advisors as well as other administrative expenses; (ii) interest on borrowings; and (iii) professional services including legal, accounting and transfer agent.  Each year was impacted by non-cash charges as follows: $82,000 (2011) in connection with the recording of an impairment in the value of intangible assets; $48,000 (2010) related to amortization of debt discount for the issuance of warrants in connection with indebtedness, $3,000 (2011) and ($24,000) loss on conversion of indebtedness; and $16,000 (2011) related to non-cash compensation. The non-cash compensation charges principally relate to fair value accounting for the stock and option awards.  The decrease in cash used in operations was the result of a reduction in the use of consultants and professionals in the 2011 period as the Company was developing a new business plan as a result of its recent rights acquisitions as well as extension of credit by the vendors.

Other income during the 2010 period principally relates to the gain ($365,000) recorded related to the exchange of our interest in BioCube, Inc. for 2 million shares of Alliance Networks Communications Holdings, Inc. ( subsequently renamed BioCube, Inc.). There was no other income in the 2011 three month period.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010
 
Expenses during the nine months ended September 30, 2011 aggregated $1.2 million versus $2.9 million in the prior year period.

            Our primary expenses include the payment of:  (i) payroll and consulting fees under arrangements to fund costs related to personnel, advisors as well as other administrative expenses; (ii) interest on borrowings; and (iii) professional services including legal, accounting and transfer agent.  Each year was impacted by non-cash charges as follows:  $82,000 (2011) in connection with the recording of an impairment in the value of intangible assets; $4,000 (2011) and $155,288(2010) related to amortization of debt discount for the issuance of warrants in connection with indebtedness, and $833,000 (2011); $12,000 (2011) and ($24,000) loss on conversion of indebtedness;  and $2.2 million (2010) related to non-cash compensation. The non-cash compensation charges principally relate to fair value accounting for the stock and option awards. 

Other income during the 2010 period principally relates to the gain ($365,000) recorded related to the exchange of our interest in BioCube, Inc. for 2 million shares of Alliance Networks Communications Holdings, Inc. ( subsequently renamed BioCube, Inc.). There was no other income in the 2011 three month period.


LIQUIDITY AND CAPITAL RESOURCES
 
            As of September 30, 2011, the Company had a negative working capital of $1.1 million and a stockholders’ deficiency of $873,000. Since inception, we generated net cash proceeds of $126,000 from equity placements and borrowed $542,000 from a related party (net of a repayment of $50,000) and from others $120,000 (net of repayment of $10,000). The Company has not as yet attained a level of operations that allows it to meet its current overhead and may not attain profitable operations within the next few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The Company is dependent upon obtaining additional financing adequate to fund the development of our new product lines. The report of our auditors on our financial statements for the year ended December 31, 2010 includes a reference to going concern risks.  While the Company has funded its initial operations with private placements, became a publicly owned entity and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company.  Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate.  The 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.

 Cash Flows

The Company’s cash on hand at September 30, 2011 and December 31, 2010 was approximately none and $1,100, respectively.

Operating cash flows:   We had no operating sources of cash in 2011 and 2010.  The decrease in the cash used in operations in 2011 versus the prior year principally relates to the reduction in the expenses related to use of consultants and professionals in the 2011 period as the Company was developing a new business plan as a result of its recent rights acquisitions and the related increase in the deferral of current amounts due the consultants and professionals as reflected in the increase in accounts payable.

Investing cash flows:   The Company had no investing activity in the 2011 period and used cash of $39,000 in connection with its affiliated companies in the prior year period.

Financing cash flows:   Net cash generated from financing in 2011 share consisted of $48,000 from loans from a related party.  Net cash provided by financing activities for the prior year was $268,000, which represents proceeds from loans from a related party of $142,000 and from others of $121,000, net of a repayment of $10,000.
 
 
 
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Off-Balance Sheet Arrangements
 
As of September 30, 2011, we have no off-balance sheet arrangements.
 
Related Parties
  
Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report on Form 10-Q. 
  
Critical Accounting Policies
 
The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
  
The Company uses the equity method of accounting for its investments in entities in which it has significant influence; generally, this represents an ownership interest of between 20% and 50%. The Company uses the cost method of accounting for investments in equity securities in which it has a less than 20% equity interest and virtually no influence over the investee's operations.

Application of the cost method requires the Company to periodically review its investments in order to determine whether to maintain the current carrying value or to write off some or all of the investment. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company's management. These judgments include assessments of the likelihood of the investments to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments, the Company must also attempt to anticipate trends in the industries as well as in the general economy. There can be no guarantee that the Company will be accurate in its assessments and judgments. To the extent that the Company is not correct in its conclusion, it may decide to write down all or part of the investment.

The Company has recorded as intangibles amounts representing the rights we have obtained to technology, know-how, trademarks and etc. based upon the amounts the Company had previously recorded for the assets exchanged for the rights or the market value of its common stock given as consideration.  In the opinion of management the valuation of the assets given in exchange for the rights are representative of the value as the assets and based upon the Company’s current plans for these rights there has been no diminution in their value.

            We used the Black-Scholes option pricing model to determine the fair value of stock options in connection with stock based compensation charges as well as certain finance cost charges when we issued warrants in connection with the issuance of indebtedness. The determination of the fair value of stock-based payment awards or warrants on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.
 
Due to our limited history as a public company, we have estimated expected volatility based on the historical volatility of certain companies as determined by management. The risk-free rate for the expected term of each option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on our intent not to issue a dividend as a dividend policy. Due to our limited operating history, management estimated the term to equal the contractual term.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models may not necessarily provide a reliable single measure of the fair value of its employee stock options.
 
The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities (commonly known as the asset and liability method). In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 
 
 
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The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year.   The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. 
 
Item 3.  
Quantitative and Qualitative Disclosures about Market Risk.
 
Not applicable.

Item 4. 
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company is in the process of implementing disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.
 
As of September 30, 2011, the Chief Executive Officer and Chief Financial Officer carried out an assessment, of the effectiveness of the design and operation of our disclosure controls and procedure and concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2011, because of the material weakness described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
 
The material weakness identified during management's assessment was the lack of sufficient resources with SEC, generally accepted accounting principles (GAAP) and tax accounting expertise. This control deficiency did not result in adjustments to the Company’s interim financial statements. However, this control deficiency could result in a material misstatement of significant accounts or disclosures that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures in the Quarterly Report on Form 10-Q, to ensure that the Company’s Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2011 there were no changes in our system of internal controls over financial reporting.
 
 
 
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PART II. OTHER INFORMATION
 
Item 1.  
Legal Proceedings
 
We are not currently subject to any material pending legal proceedings.
 
Item 1A. 
Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
 
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
 
During August 2011, the holder of a note payable amounting to $15,500 from the Company, agreed to redeem the note for 775,000 shares of the Company’s common stock. In addition, LeadDog Capital LP redeemed a note amounting to $20,000 from the Company and accrued interest of $8, 548 for 1,586,000 shares.

In October 2011, LeadDog Capital LP extended the due date to September 30, 2011 on indebtedness amounting to $430,000 which was past due as of the date of the extension and to December 31, 2012 for $20,000 of indebtedness that had due dates through December 31, 2011 in return for a three year warrant to purchase 1 million shares of the Company’s common stock at $.001.

Each of these securities were issued without registration under the Securities Act of 1933, as amended, as transactions not involving a public offering, pursuant to Section 4 (2) of that Act.

Item 3. 
Defaults Upon Senior Securities
 
None.
 
Item 4.  
(Removed and Reserved)
 
Item 5.   
Other Information
 
None.
 
Item 6.   
Exhibits
 
(a) Exhibits
 
31.1
 
Certification of Chief Executive Officer
   
31.2
 
Certification of Chief Financial Officer
   
32.1
 
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
     
101
 
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i)  Condensed Consolidated Balance Sheets at September 30, 2011, and December 31,2010 , (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and for the period from inception (May 11, 2006) to September 30, 2011, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and for the period from inception (May 11, 2006) to September 30, 2011, and (iv) the Notes to Condensed Consolidated Financial Statements.  In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this quarterly report on form 10-Q shall be deemed to be “furnished” and not “filed.”
 
 
 
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November  21, 2011.
 
 
 
Spring Creek Healthcare Systems, Inc.
 
       
 
By:
/s/ Kelly T. Hickel  
 
   
Kelly T. Hickel
 
   
Chief Executive Officer
 
       
     
       
 
By:
/s/ Jan E. Chason 
 
   
Jan E. Chason
 
   
Chief Financial Officer
 
       


 
 
 
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