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EX-32.1 - EXHIBIT 32.1 - Spine Pain Management, Incv326161_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Spine Pain Management, Incv326161_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - Spine Pain Management, Incv326161_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Spine Pain Management, Incv326161_ex31-1.htm

 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q
(Mark One)

 

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2012.

 

¨ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)
For the transition period from _______ to _______.

 

Commission file number: 000-27407

 

SPINE PAIN MANAGEMENT, INC.
(Name of Registrant in Its Charter)

 

Delaware 98-0187705
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)  

 

5225 Katy Freeway
Suite 600
Houston, Texas 77007
(Address of Principal Executive Offices)

 

(713) 521-4220
(Issuer's Telephone Number, Including Area Code)

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock ($0.001 Par Value)

(Title of Each Class)

 

 

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 (or for such shorter period that the registrant was required to file such reports), 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨    Accelerated filer  ¨

Non-accelerated filer  ¨    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

 

As of November 9, 2012, there were 18,365,882 shares of the registrant’s common stock outstanding (the only class of voting common stock).

 

 

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 
 

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION
     
Item 1. Financial Statements  
     
  Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011 3
     
  Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited) 4
     
  Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited) 5
     
  Notes to Financial Statements (Unaudited) 6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3. Quantitative and Qualitative Disclosure About Market Risk 19
     
Item 4. Controls and Procedures 19
     
PART II OTHER INFORMATION 19
     
Item 1A. Risk Factors 19
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
Item 6. Exhibits 21
     
  Signatures 22

 

 

2
 

 

 

SPINE PAIN MANAGEMENT, INC.

CONDENSED BALANCE SHEETS

 

   SEPTEMBER 30,   DECEMBER 31, 
   2012   2011 
ASSETS  (Unaudited)     
           
Current assets:          
Cash and cash equivalents  $1,221,894   $54,582 
Accounts receivable, net   3,422,260    2,876,848 
          Prepaid expenses   342,976    99,083 
Debt issuance costs   83,686    - 
           
Total current assets   5,070,816    3,030,513 
           
Non-current portion of accounts receivable, net of allowance for doubtful accounts of $21,972 and $40,000 at September 30, 2012 and December 31, 2011, respectively   3,539,972    2,954,269 
Intangible assets   219,700    - 
Debt issuance costs   -    167,386 
Note receivable from a related party   -    163,703 
Other assets   6,417    - 
           
Total assets  $8,836,905   $6,315,871 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current liabilities:          
Accounts payable and accrued liabilities  $431,973   $923,665 
Due to related parties   363,895    1,330,899 
Current portion of notes payable and long-term debt   356,706    - 
           
Total current liabilities   1,152,574    2,254,564 
           
Notes payable and long-term debt, net of discount   1,304,026    314,280 
           
Total liabilities   2,456,600    2,568,844 
           
Stockholders' equity:          
Common stock: $0.001 par value, 50,000,000 shares          
authorized; 18,365,882 and 17,088,396  shares issued          
and outstanding at September 30, 2012 and          
               December 31, 2011, respectively   18,366    17,088 
Additional paid-in capital   18,750,267    16,318,083 
Accumulated deficit   (12,388,328)   (12,588,144)
           
Total stockholders’ equity   6,380,305    3,747,027 
           
Total liabilities and stockholders' equity  $8,836,905   $6,315,871 
           

The accompanying notes are an integral part of these condensed financial statements.

 

3
 

 

 

 

SPINE PAIN MANAGEMENT, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

 

   FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
   FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
 
   2012   2011   2012   2011 
                 
 Net revenue  $946,614   $1,770,508   $3,149,905   $3,863,003 
Cost of providing services                    
Third party providers   110,700    519,400    616,299    981,200 
Related party providers   258,596    158,800    599,897    518,600 
                     
Total cost of providing services   369,296    678,200    1,216,196    1,499,800 
                     
Gross profit   577,318    1,092,308    1,933,709    2,363,203 
                     
Operating, general and administrative expenses   484,082    349,776    1,329,962    1,137,495 
                     
Income from operations   93,236    742,532    603,747    1,225,708 
                     
Other income and (expense):                    
Other income   7,233    4,860    24,344    17,278 
Litigation settlement expense   -    -    (326,650)   - 
Gain from debt extinguishment   95,568    -    95,568    150,562 
Interest expense   (91,661)   (24,277)   (197,192)   (65,381)
                     
Total other income and (expense), net   11,140    (19,417)   (403,930)   102,459 
                     
Net income  $104,376   $723,115   $199,817   $1,328,167 
                     
Net income per common share                    
basic and diluted  $.01   $0.04   $0.01   $0.08 
                     
Weighted average number of common shares outstanding:                    
Basic   18,215,556    17,384,810    17,814,087    17,397,133 
Diluted   19,046,500    17,384,810    18,624,936    17,397,133 

 

The accompanying notes are an integral part of these condensed financial statements.

 

4
 

  

SPINE PAIN MANAGEMENT, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

 

 

   FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
 
   2012   2011 
Cash flows from operating activities:          
Net income  $199,817   $1,328,167 
Adjustments to reconcile net income to net cash          
used in operating activities:          
Provision for bad debts   180,000    - 
Gain from debt extinguishment   (95,568)   - 
Interest expense related to warrant amortization   126,126    37,737 
Accretion of debt discount on long-term debt   13,340    - 
Stock based compensation   422,680    117,585 
Common stock issued in settlement of litigation   326,650    - 
Depreciation and amortization   5,083    - 
Changes in operating assets and liabilities:          
Accounts receivable, net   (1,311,116)   (2,521,124)
Related party receivable   163,703    (140,106)
Due to related party   36,696    - 
Prepaid expenses   (70,475)   87,375 
Accounts payable and accrued liabilities   (396,124)   428,702 
           
Net cash used in operating activities   (399,188)   (661,664)
           
Cash flows from financing activities:
Proceeds from issuance of common stock
   -    77,000 
Proceeds from issuance of notes payable and long-term debt   1,550,000    200,000 
Proceeds from related party payable   261,000    525,354 
Repayments of related party payable   (244,500)   (312,753)
           
Net cash provided by financing activities   1,566,500    489,601 
           
Net increase in cash and cash equivalents   1,167,312    (172,063)
           
Cash and cash equivalents at beginning of period   54,582    177,203 
           
Cash and cash equivalents at end of period  $1,221,894   $5,140 
           
Supplementary disclosure of non-cash investing activities:          
Common stock issued to acquire Gleric Holdings, LLC  $231,200   $- 
           
Supplementary disclosure of non-cash financing activities:          
Common stock issued in conversion of related party payable  $1,020,200   $- 
Common stock issued for consulting services  $315,000   $- 
Cancelation of common stock in settlement of legal dispute  $-   $65 

 

5
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

Spine Pain Management, Inc., (the “Company” “we” or “us”) formerly known as Versa Card, Inc., was incorporated in Delaware on March 4, 1998 to acquire interests in various business operations and assist in their development. In November 2009, we changed our name from Versa Card, Inc. to Spine Pain Management, Inc. and our trading symbol from “IGLB” to “SPIN.”

  

Spine Pain Management Inc. is a medical services and technology company facilitating diagnostic services for patients who have sustained spine injuries resulting from traumatic liability accidents. We deliver turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers that provide necessary and appropriate treatment of musculo-skeletal spine injuries resulting from automobile and work-related accidents. Our care management services help reduce the financial burden on healthcare providers that provide patients with early-stage diagnostic testing and non-invasive surgical care, preventing many patients from being unnecessarily delayed or inhibited from obtaining needed treatment. We believe that our patient advocacy will be rewarding to patients who obtain needed relief from painful conditions.

 

We currently manage eight affiliated spine injury diagnostic centers within the United States, which are located in Houston, Texas; McAllen, Texas; the Tampa Bay Area of Florida; Orlando, Florida (opened in June 2011); Jacksonville, Florida (opened in August 2011); Sarasota, Florida (opened in December 2011); and Lakeland, Florida and Brandon, Florida (both opened in July 2012). We are also evaluating the expansion of our services through additional affiliated spine injury diagnostic centers in multiple markets across the United States.

 

Through our care management system, we engage spine surgeons, orthopedic surgeons and other healthcare providers to operate as our independent contractors to diagnose and treat patients with musculo-skeletal spine injuries. We manage the centers that provide the spine diagnostic injections and treatment and pay the doctors a fixed rate for the medical procedures they perform. After the doctor bills a patient for the procedures performed, we take control of the patient’s unpaid bill and oversee collection. In most instances, the patient is a plaintiff in an accident case, for which the patient is represented by an attorney. Typically, the defendant (and/or the insurance company of the defendant) in the accident case pays the patient’s bill upon settlement or final judgment of the accident case. The payment to us is made through the patient’s attorney. In most cases, we must agree to the settlement price and the patient must sign off on the settlement. We receive payment prior to the payment of the patient’s attorney legal fees.

 

The clinic facilities in which the spine injury diagnostic centers operate are owned or leased by third parties. We have no ownership interest in these clinic facilities and we have no responsibilities towards building or operating the clinic facilities.

 

 

NOTE 2 – GOING CONCERN CONSIDERATIONS

 

From our inception in 1998, until commencement of our spine injury diagnostic operations in August, 2009, our expenses substantially exceeded our revenue, resulting in continuing losses and an accumulated deficit from operations of $15,004,698 as of December 31, 2009. Since that time, we have been able to reduce our accumulated deficit, which is $12,388,328 as of September 30, 2012. During the nine months ended September 30, 2012, we realized net revenue of $3,149,905 and net income of $199,817. Success of our business operations and a transition to positive cash flows from operations are dependent upon our ability to obtain additional financing and achieve a level of collections adequate to support our cost structure. Due to the extended collection period for receivables that is inherent in our business, we are not currently generating adequate liquidity and sufficient working capital to fund our planned operations and strategic business plan through September 30, 2013. There can be no assurances that adequate financing will be available to us. The accompanying financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. The 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.

 

 

6
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 3 – CRITICAL ACCOUNTING POLICIES

 

The following are summarized accounting policies considered to be critical by our management:

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Nevertheless, we believe that the disclosures are adequate to make the information presented not misleading. These interim condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2011 Annual Report as filed on Form 10-K. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position with respect to the interim financial statements and the results of its operations for the interim period ended September 30, 2012, have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year.

 

Accounting Method

 

Our financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of our financial position and results of operations.

 

Reclassifications

 

Certain items in the 2011 financial statements have been classified to conform to the 2012 financial statement presentation. Such reclassifications had no effect on our financial position, results of operations or cash flows.

 

Revenue Recognition

 

Revenues are recognized in accordance with SEC staff accounting bulletin, Topic 13, Revenue Recognition, which specifies that only when persuasive evidence for an arrangement exists; the fee is fixed or determinable; and collection is reasonably assured can revenue be recognized.

 

Persuasive evidence of an arrangement is obtained prior to services being rendered when the patient completes and signs the medical and financial paperwork.  Delivery of services is considered to have occurred when medical diagnostic services are provided to the patient.  The price and terms for the services are considered fixed and determinable at the time that the medical services are provided and are based upon the type and extent of the services rendered.  Our credit policy has been established based upon extensive experience by management in the industry and has been determined to ensure that collectability is reasonably assured.  Payment for services are primarily made to us by a third party and the credit policy includes terms of net 240 days for collections; however, collections occur upon settlement or judgment of cases (see Note 5).

 

 

7
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Fair Value of Financial Instruments

 

Cash, accounts receivable, accounts payable and accrued expenses, and notes payable as reflected in the financial statements, approximates fair value.  Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

Cash and Cash Equivalents

 

Cash equivalents consist of liquid investments with original maturities of three months or less.  Cash equivalents are stated at cost, which approximates fair value.

 

Concentrations of Credit Risk

 

Assets that expose us to credit risk consist primarily of cash and accounts receivable. Our accounts receivable are from a diversified customer base and, therefore, we believe the concentration of credit risk is minimal. We evaluate the creditworthiness of customers before any services are provided. We record a discount based on the nature of our business, collection trends, current economic conditions, the age of accounts receivable, and an assessment of our ability to fully realize amounts billed for services. We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts receivable. We maintain an allowance for potential credit losses and the balance of the allowance for doubtful accounts was $21,972 and $40,000, at September 30, 2012 and December 31, 2011, respectively.

 

Stock Based Compensation

 

We account for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values.  Under authoritative guidance issued by the Financial Accounting Standards Board (“FASB”), companies are required to estimate the fair value or calculated value of share-based payment awards on the date of grant using an option-pricing model.  The value of awards that are ultimately expected to vest is recognized as expense over the requisite service periods in our statements of income.  We use the Black-Scholes Option Pricing Model to determine the fair-value of stock-based awards. We recognized stock based compensation cost of $422,680 and $117,585 during the nine months ended September 30, 2012 and 2011, respectively.

 

Income Taxes

 

We account for income taxes in accordance with the liability method. Under the liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.

 

Net Income per Share

 

Basic and diluted net income per common share is presented in accordance with ASC Topic 260, “Earnings per Share”, for all periods presented. During the nine months ended September 30, 2012, outstanding stock options and warrants have been included in the calculation of the diluted income per share in the statement of operations, because all such securities were dilutive. During the nine months ended September 30, 2011, the outstanding stock options and warrants have been excluded from the calculation of the diluted income per share in the statement of operations, because these securities were anti-dilutive. The net income per share is calculated by dividing the net income by the weighted average number of shares outstanding during the periods.

 

 

8
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Recent Accounting Pronouncements

 

During the year ended December 31, 2011, the FASB amended the guidance for goodwill impairment tests. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the existing two-step goodwill impairment test. An entity is not required to perform the two-step goodwill impairment test unless it determines that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for us for annual and interim goodwill impairment tests performed on or after January 1, 2013, and early adoption is permitted. The adoption is not expected to have a material impact on the consolidated financial statements.

During the year ended December 31, 2011, the FASB issued guidance that provides two alternatives for the presentation of other comprehensive income, either (i) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income or (ii) present items of other comprehensive income in a separate statement immediately following the statement of net income. Under either presentation method, totals for net income, other comprehensive income, and comprehensive income are required to be presented. This guidance does not change the items that are reported in net income and other comprehensive income or the calculation of earnings per share. During the nine months ended September 30, 2012, the FASB issued guidance to defer the requirement to present amounts reclassified from other comprehensive income to net income on the face of the statements. The guidance is effective for us on January 1, 2013, and retrospective application is required for all years presented. Early adoption is permitted. The adoption is not expected to have a material impact on our financial statements. 

 

NOTE 4 – ACQUISITIONS

 

On May 9, 2012, we entered into a Membership Interest Purchase Agreement (the “Agreement”), whereby we purchased 100% of Gleric Holdings, LLC (“Gleric”) from Dr. Eric K. Groteke and Dr. Glen C. Pettersen for aggregate consideration of 170,000 restricted shares of our common stock. Gleric owns a patent-pending technology and process, known at the Quad Video Halo system, involving a video and accessory apparatus for a video fluoroscopy unit. The accessory apparatus is designed for the purpose of maintaining a sterile environment during video fluoroscopy procedures in order to video and audio document medical procedures that utilize this type of equipment. The Quad Video Halo system is designed to provide greater transparency and impartial evidence to medical, legal, and insurance companies. The system is used to create a quad-screen multi-media view of the treatment process, which is incorporated into the patient’s medical records and provides a clear video of the overall procedure to further support claim review. The evidence provided by the video is tamper-proof and provides a candid reality of what the patient experienced.

 

We performed an internal valuation based upon analysis performed by our CEO on the value of the potential sales of the patent-pending video fluoroscopy units to other health care providers coupled with the incentive to employ Dr. Groteke as our Chief Technology Officer, who was hired on May 9, 2012. Gleric’s sole asset was the video camera they had assembled with the total material cost approximating $7,000 and no other assets or liabilities were assumed in the transaction. The $231,200 consideration given (170,000 shares of our common stock at $1.36 per share based on the quoted closing price on the date of the transaction), was assigned to the assets acquired as follows:

 

Description  Amount 
      
Incentive to hire Dr. Groteke as Chief Technology     
    officer coupled with non-compete agreements for     
both Dr. Groteke and Dr. Pettersen   $54,000 
Quad Video Halo system equipment   7,000 
Goodwill   170,200 
Total acquisition cost of Gleric Holdings, LLC  $231,200 

 

 

9
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

  

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:

 

  · The patient must have completed and signed medical and financial paperwork, which includes an acknowledgement of the patient’s responsibility for payment for the services provided. Additionally, the paperwork should include an assignment of benefits derived from any settlement or judgment of the patient’s case.

 

  · The patient’s attorney must issue us a Letter of Protection designed to assign payment for the medical services provided to the patient from proceeds of any settlement or judgment in the accident case. This Letter of Protection will also preclude any case settlement without providing for payment of the patient’s medical bill.

 

  · Most of the patients who received medical services at the diagnostic centers have typically been previously referred to a doctor who performed the initial two to four months of conservative treatment. The doctor then typically refers the patient to one of our healthcare providers for an evaluation because of continuing symptoms. Patients are only accepted if the initial referral was from a reputable plaintiff’s attorney with adequate experience in personal injury lawsuits. Before referring a patient, the attorney is expected to have evaluated the patient’s accident case, including the conditions that gave rise to the patient’s injuries and the extent and quality of general liability insurance held by the defendant. The attorney is also responsible for determining that a settlement favorable to the patient/plaintiff is expected.

 

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.

 

 

10
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets acquired are initially recognition at cost. Intangible assets acquired in a business combination are recognized at their estimated fair value at their date of acquisition. Intangible assets related to the non-compete agreements for both parties included in the Gleric acquisition were valued, as discussed in Note 4 above, and will be amortized over the thirty-six month term of the non-compete agreements.

 

Goodwill recognized in a business combination is subjective and represents the value of the excess amount given to the acquired company above the estimated fair market value of the assets on the balance sheet and the value assignment given for Dr. Groteke’s employment as Chief Technology Officer. Each year the goodwill amount will be reviewed to determine if any impairment has occurred. Impairment occurs when the original amount of goodwill exceeds the value of the expected future net cash flows from the business acquired.

  

NOTE 7 – DUE TO RELATED PARTIES

 

Due to related parties consists of the following at:

 

   September 30,
2012
   December 31,
2011
 
           
 Due to Northshore Orthopedics Associates  $16,500   $1,020,200 
           
 Due to Chief Executive Officer   310,699    310,699 
           
 Due to Wellness Works, LLC   36,696    - 
           
   $363,895   $1,330,899 

 

Amounts due to Northshore Orthopedics Associates (“NSO”, a company owned by our Chief Executive Officer) and our Chief Executive Officer are non-interest bearing, due on demand and do not follow any specific repayment schedule. In February 2012, we converted into common stock $1,020,200 of outstanding debt owed to NSO (see Note 10 for further details of this conversion). For the nine months ended September 30, 2012 and 2011, NSO billed us $261,000 and $518,600 as a related party medical services provider.

 

Amounts due to Wellness Works, LLC (“Wellness”, a company owned by our Chief Technology Officer) are non-interest bearing and are due by the 15th of the month following the month in which they were billed. See Note 10 for further information on the amounts due to Wellness.

 

NOTE 8 – NOTES PAYABLE AND LONG-TERM DEBT

 

Debentures

 

In February 2011, two investors subscribed to purchase an aggregate of $200,000 of debentures and warrants from us. The debentures have an aggregate principal amount of $200,000 and bear interest at 10% per year. The entire principal amount of the debentures is due in one lump sum on September 30, 2013. The debentures were issued with three sets of detachable warrants as follows: (i) Series A Warrants to purchase an aggregate of 100,000 shares of common stock at the price of $1.50 per share that expire on December 31, 2012, (ii) Series B Warrants to purchase an aggregate of 50,000 shares of common stock at the price of $3.00 per share that expire on December 31, 2013, (iii) Series C Warrants to purchase an aggregate of 50,000 shares of common stock at the price of $5.00 per share that expire on December 31, 2013.

 

Between October and December 2010, three investors subscribed to purchase an aggregate of $200,000 of debentures and warrants from us. The debentures have an aggregate principal amount of $200,000 and bear interest at 10% per year. The entire principal amount of the debentures is due in one lump sum on September 30, 2013. The debentures were issued with three sets of detachable warrants as follows: (i) Series A Warrants to purchase an aggregate of 100,000 shares of common stock at the price of $1.50 per share that expire on December 31, 2012, (ii) Series B Warrants to purchase an aggregate of 50,000 shares of common stock at the price of $3.00 per share that expire on December 31, 2013 (iii) Series C Warrants to purchase an aggregate of 50,000 shares of common stock at the price of $5.00 per share that expire on December 31, 2013.

 

11
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Following is an analysis of debentures payable at September 30, 2012 and December 31, 2011:

 

   September 30,   December 31, 
   2012   2011 
           
Stated value of debentures payable  $400,000   $400,000 
Less unamortized value of warrants issued   (43,294)   (85,720)
           
   $356,706   $314,280 

 

Third-party note payable

 

On March 9, 2012, we entered into a note payable with a third party for $50,000. The note is due March 9, 2015 and bears interest at 10% per year. Interest is payable quarterly and the full principal amount is due upon maturity. The note payable balance was $50,000 and $0 at September 30, 2012 and December 31, 2011, respectively.

 

Third-party convertible and secured notes payable

 

On June 27, 2012 we issued a $500,000 two-year convertible promissory note bearing interest at 12% per year, with nine quarterly interest payments of interest commencing on September 27, 2012, and continuing thereafter on each successive December 27, March 27, June 27, and September 27 throughout the term of the promissory note. Under the terms of the convertible note, the holder received a detachable warrant to purchase 69,445 shares of our common stock at the price of $1.80 per share that expires on September 27, 2014. The holder of the note also has the right to convert into common stock, at $1.50 per share, up to 50% of the principal amount after twelve months and up to 100% of the principal amount after fifteen months from the original issue date.

 

In accordance with ASC 470-20, Debt with Conversion and Other Options, the proceeds received from the convertible note were allocated between the convertible note and the detachable warrant based on the fair value of the convertible note without the warrant and the warrant itself. The portion of the proceeds allocated to the warrant was recognized as additional paid-in capital and a debt discount. The debt discount related to the warrant is accreted into interest expense through the maturity of the convertible note. The effective conversion price of the common stock did not exceed the stated conversion rate; therefore, there is no beneficial conversion feature associated with the convertible note. Similarly, the proceeds received from the secured note were allocated between the secured note and the detachable warrant based on the fair value of the secured note without the warrant and the warrant. The portion of the proceeds allocated to the warrant was recognized as additional paid-in capital and a debt discount. The debt discount related to the warrant is accreted into interest expense through the maturity of the secured note.

 

The weighted-average estimated fair value of the warrant issued with the convertible note was $0.62 per share using the Black-Sholes pricing model with the following assumptions:

 

Description  Amount 
 
     
 Expected volatility   128%
 Risk-free interest rate   0.31%
 Expected life   2 years 
 Dividend yield   0%

 

 

12
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

The following table provides an analysis of activity related to the convertible note for the nine months ended September 30, 2012:

 

Description  Amount 
Proceeds received on issuance of convertible note in 2012  $500,000 
Discount allocated to warrant   (46,716)
Convertible note after discount   453,284 
Accretion of discount to interest expense   (5,840)
Convertible note at September 30, 2012  $447,444 
Total allocated to additional paid in capital  $46,716 
Unamortized discount at September 30, 2012  $40,876 
Contractual interest expense for the nine months ended September 30, 2012  $15,000 
Effective interest rate on convertible note   16.7%

 

On August 29, 2012 we issued a $1,000,000 three-year secured promissory note bearing interest at 12% per year, with thirty-five monthly payments of interest commencing on September 29, 2012, and continuing thereafter on the 29th day of each successive month throughout the term of the promissory note. Under the terms of the secured promissory note, the holder received a detachable warrant to purchase 333,333 shares of our common stock at the price of $1.60 per share that expires on August 29, 2015. This promissory note is secured by $3,000,000 in gross accounts receivable of the Company. On the maturity date, the Company shall pay the holder one balloon payment of the entire outstanding principal amount plus any accrued and unpaid interest thereon.

 

The weighted-average estimated fair value of the warrant issued with the convertible note was $0.81 per share using the Black-Sholes pricing model with the following assumptions:

 

Description  Amount 
 
     
 Expected volatility   133%
 Risk-free interest rate   0.36%
 Expected life   3 years 
 Dividend yield   0%

  

The following table provides an analysis of activity related to the secured note for the nine months ended September 30, 2012:

 

Description  Amount 
Proceeds received on issuance of secured note in 2012  $1,000,000 
Discount allocated to warrant   (212,598)
Convertible note after discount   787,402 
Accretion of discount to interest expense   (7,500)
Convertible note at September 30, 2012  $779,902 
Total allocated to additional paid in capital  $212,598 
Unamortized discount at September 30, 2012  $205,098 
Contractual interest expense for nine months ended at September 30, 2012  $10,000 
Effective interest rate on convertible note   19.1%
      

  

NOTE 9 – STOCK OPTIONS

 

We recognized compensation expense related to stock options during the nine months ended September 30, 2012 and 2011 in accordance with the Financial Accounting Standards Board (“FASB”) standard regarding share-based payments, and as such, has measured the share-based compensation expense for stock options granted based upon the estimated fair value of the award on the date of grant and recognizes the compensation expense over the award’s requisite service period. The weighted average fair values for the stock options granted during the second quarter of 2011 were calculated using the Black-Scholes option pricing model.

 

13
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

On June 6, 2011, we granted 975,000 stock options to directors and officers as follows:

 

  · Options to purchase up to a total of 75,000 shares of common stock were granted to three members of the Board of Directors. These options vested and became exercisable immediately. The weighted-average estimated fair value of the stock options granted was $0.65 per share using the Black-Scholes model with the following assumptions:

 

Description  Amount 
      
Expected volatility   165%
Risk-free interest rate   0.74%
Expected life   3 years 
Dividend yield   0%

  

  · Options to purchase up to a total of 900,000 shares of common stock were granted to two executive officers. These options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. The weighted-average estimated fair value of the stock options granted was $0.72 per share using the Black-Scholes model with the following assumptions:

 

Description  Amount 
      
Expected volatility   165%
Risk-free interest rate   1.60%
Expected life   5 years 
Dividend yield   0%

 

On June 28, 2012, we granted 150,000 stock options to directors as follows:

 

·Options to purchase up to a total of 150,000 shares of common stock to certain members of the Board of Directors as director compensation. These options vested and became exercisable immediately resulting in a charge of $132,000. The weighted-average estimated fair value of the stock options granted was $0.88 per share using the Black-Scholes model with the following assumptions:

 

Description  Amount 
      
Expected volatility   136%
Risk-free interest rate   0.40%
Expected life   3 years 
Dividend yield   0%

 

The total weighted-average estimated fair value of the options granted during the nine months ended September 30, 2012 and 2011 was $132,000 and $696,750, respectively. Compensation expense recognized in operating, general and administrative expenses in the Statements of Operations for the nine months ended September 30, 2012 and 2011 was $264,000 and $117,585, respectively. At September 30, 2012 and December 31, 2011, the total unrecognized compensation expense related to non-vested stock option awards was $242,110 and $525,165, respectively. The remaining $242,110 in unrecognized compensation expense, at September 30, 2012, will be recognized at $36,000 per quarter with the final $26,110 being recognized in the quarter ending September 30, 2014.

  

NOTE 10 – RELATED PARTY TRANSACTIONS

 

Due to Related Parties

 

We have an agreement with NSO, a company 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as an independent contractor. As of September 30, 2012 and December 31, 2011, we had balances payable to NSO of $16,500 and $1,020,200, respectively. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule. We do not directly pay Dr. Donovan (in his individual capacity as a physician) any fees in connection with NSO. However, Dr. Donovan is the sole owner of NSO, and we pay NSO under the terms of our agreement. In February 2012, NSO agreed to convert the outstanding debt balance as of December 31, 2011 of $1,020,200 owed by us to NSO into common stock at the price of $1.83 per share. This resulted in us issuing 557,486 restricted shares of common stock to NSO. There were no shares issued to NSO for conversion of outstanding debt during the year ended December 31, 2011.

 

14
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

As shown in Note 7, at September 30, 2012 and December 31, 2011, we had an outstanding balance of $310,699 due to Dr. Donovan, in his individual capacity, for working capital advances and payments made on behalf of us. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule.

 

Also, as shown in Note 7, we have an agreement with Wellness, a company 100% owned by, Eric Groteke, D.C., who became our Chief Technology Officer on May 9, 2012 (See Note 4), to provide medical services as our independent contractor in Florida. Wellness is paid for services on a monthly basis dependent upon the services provided. At September 30, 2012, $36,696 was owed to Wellness. At December 31, 2011, we owed Wellness $115,500 of the $923,665 of the accounts payable and accrued liabilities balance as a third-party medical services provider. For the nine months ended September 30, 2012, Wellness billed us for service costs in the amount of $338,897 as a related party and $296,299 as a third-party. During the same period in 2011, Wellness billed us $481,100 as a third-party for service costs.

 

Note Receivable from a Related Party

 

We entered into a promissory note with a major stockholder (a beneficial owner of over 5% of our common stock) on June 30, 2011 as part of a transaction where we recorded a liability for legal expenses from 2008 for which both the stockholder and we were held jointly and severally liable. We reached a settlement with the law firm to which the legal fees were due on September 30, 2012, and the law firm provided us with a full release. Accordingly, we cancelled the promissory note with the stockholder at that date. See Note 12.

 

NOTE 11 – INCOME TAXES

 

We have recognized no income tax provision for the nine months ended September 30, 2012 or the year ended December 31, 2011, since we have net operating loss carryforwards to offset current taxable income.

 

Deferred tax assets consist of the following at September 30, 2012 and December 31, 2011:

 

   September 30,   December 31, 
Description  2012   2011 
           
Benefit from net operating loss carryforwards  $1,734,803   $2,218,568 
Allowance for doubtful accounts   7,470    - 
Less valuation allowance   (1,742,273)   (2,218,568)
           
   $-   $- 

  

Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred income tax asset. Based on our assessment, we have determined that it is not currently more likely than not that deferred income tax assets of approximately $1,735,000 and $2,219,000 attributable to the future utilization of the approximate $5,103,000 and $6,525,000 in net operating loss carryforwards as of September 30, 2012 and December 31, 2011, respectively, will be realized. We will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards will begin to expire in varying amounts from year 2018 to 2031.

 

 

15
 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Current income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, amounts available to offset future taxable income may be limited under Section 382 of the Internal Revenue Code.

 

Following is a reconciliation of the (provision) benefit for federal income taxes as reported in the accompanying Statements of Operations, to the expected amount at the 34% federal statutory rate:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2012   2011   2012   2011 
                 
Income tax (provision) benefit at
                    
    the 34% statutory rate  $(35,488)  $(245,859)  $(67,938)  $(451,577)
Miscellaneous permanent                    
    differences   (2,021)   -    (7,862)   (1,344)
Effect of state income taxes   (3,132)   (21,694)   (5,995)   (39,845)
Non-deductible stock-based                    
    litigation settlement expense,                    
    compensation expense, and                    
    interest expense   (39,282)   (7,000)   (394,500)   (12,830)
Less change in valuation allowance   79,923    274,553    476,295    505,596 
                     
Income tax (provision) benefit  $-   $-   $-   $- 

 

We are subject to taxation in the United States and certain state jurisdictions. Our tax years for 2002 and forward are subject to examination by the United States and applicable state tax authorities due to the carryforwards of unutilized net operating losses and the timing of tax filings.

 

NOTE 12 – GAIN ON DEBT EXTINGUISHMENT

 

During the quarter ended September 30, 2012, we recognized a gain on extinguishment of debt of $95,568. We were able to negotiate an accounts payable balance of $429,521 to a reduced amount of $363,703. As a result, at September 30, 2012, we removed $229,521 in accounts payable and the $163,703 related party note receivable, realizing a gain of $65,818 on extinguishment of debt. We also determined that a certain account payable for legal services was no longer being pursued for payment and had passed the statute of limitations. This payable, in the amount of $29,750, is also included in the gain on extinguishment of debt. We are currently assessing all old accounts payable and hope to resolve additional balances for reduced amounts.

  

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our condensed financial statements and the related notes to the financial statements included in this Form 10-Q.

 

FORWARD LOOKING STATEMENT AND INFORMATION

 

We are including the following cautionary statement in this Form 10-Q to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by us or on behalf of us. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Certain statements in this Form 10-Q are forward-looking statements. Words such as "expects," "believes," "anticipates," "may," and "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, service demands and acceptance, our ability to expand, changes in healthcare practices, changes in technology, economic conditions, the impact of competition and pricing, government regulation and approvals and other risks and uncertainties set forth below. Our expectations, beliefs and projections are expressed in good faith and we believe that they have a reasonable basis, including without limitation, our examination of historical operating trends, data contained in our records and other data available from third parties. There can be no assurance that our expectations, beliefs or projections will result, be achieved, or be accomplished.

 

Management Overview

 

At the end of 2008, we launched our new business strategy of delivering turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary, reasonable and appropriate treatment for musculo-skeletal spine injuries. To further this business strategy, we are now focusing on geographic expansion through new affiliations with spine surgeons, orthopedic surgeons and other healthcare providers across the nation.

 

Results of Operations

 

The unaudited financial statements as of September 30, 2012 and for the three months and nine months ended September 30, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2012 and the results of operations and cash flows for the periods ended September 30, 2012 and 2011. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2012.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2011 as included in our previously filed report on Form 10-K.

  

Comparison of the three month period ended September 30, 2012 with the three month period ended September 30, 2011.

 

We reported gross revenue of $1,925,138 for the three months ended September 30, 2012, which was offset by $978,524 of standard allowance for discount, resulting in net revenue of $946,614. For the three months ended September 30, 2011, gross revenue was $3,294,928, which was offset by $1,524,420 of standard allowance for discount, resulting in net revenue of $1,770,508. The lower revenue level was due to a decrease in patient referrals to our affiliated centers in Texas and Florida during the quarter ended September 30, 2012. Management is assessing the causes for the decline in referrals, but believes our flexible pricing model and competitive edge provided by our patent pending Halo system will renew revenue growth. We also intend to accelerate our expansion plans into other regions of Texas and other states. Our net revenue of $946,614 for the three months ended September 30, 2012 was, however, a $27,218 increase over net revenue of $919,396 for the three month period ended June 30, 2012.

 

17
 

  

We incurred service cost of $369,296 or 19 percent of gross revenue for the three months ended September 30, 2012. This compares to $678,200 or 21 percent of gross revenue for the same period in 2011. The decrease in service costs is the result of lower case volume.

 

Operating, general and administrative costs were $484,082 for the three month period ended September 30, 2012, which included non-cash charges of $59,500 for directors’ and officers’ compensation and $63,350 for consulting expense. This compares to $349,776 for the same period in 2011, which included $59,625 for directors’ and officers’ compensation and $26,000 for consulting expense.

 

Net income for the three months ended September 30, 2012 was $104,376. This compares to net income of $723,115 for the three months ended September 30, 2011. Lower revenue, higher consulting charges, increased personnel costs, and higher interest costs are the main drivers of decreased net income for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011.

 

Cash received for case settlements for the three month period ended September 30, 2012 by our Texas locations was $369,553 and by our Florida locations was $189,127. This compares to cash received from case settlements for the comparable period in 2011 of $377,406 by Texas locations and $20,500 in Florida. We anticipate Florida collections to continue to grow as cases are now beginning to settle.

 

In September 2012, we recorded a write-off for doubtful accounts of $198,028 to reflect our assessment that certain cases that lost legal representation were unlikely to reach settlement.

 

Comparison of the nine month period ended September 30, 2012 with the nine month period ended September 30, 2011.

 

We recorded $6,556,340 in gross revenue for the nine months ended September 30, 2012, offset by $3,406,435 of standard allowance for discount, resulting in net revenue of $3,149,905. For the same period in 2011, gross revenue was $7,353,567 offset by $3,490,564 of standard allowance for discount, resulting in net revenue of $3,863,003. The decrease in revenue for the nine month period ended September 30, 2012 compared to the same period in 2011 is attributable to reduced referrals experienced by our affiliated centers in Texas and Florida. 

 

Service costs were $1,216,196 or 19 percent of gross revenue for the nine months ended September 30, 2012 compared to $1,499,800 or 20 percent of gross revenue for the same period in 2011.

 

During the nine months ended September 30, 2012, we incurred $1,329,962 of operating, general and administration expenses, which included $342,000 of non-cash charges for directors’ and officers’ compensation and $80,680 for consulting expense. This compares to costs of $1,137,495 for the same period in 2011, which included $134,460 for directors’ and officers’ compensation and $78,000 for consulting expense.

 

We had net income of $199,817 for the nine months ended September 30, 2012, compared to $1,328,167 for the nine months ended September 30, 2011. Lower revenue, higher personnel counts, increased non-cash charges for options and warrants, the lawsuit settlement in the second quarter, coupled with higher interest costs, have lead to the decrease in net income for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

 

Cash received for case settlements for the nine month period ended September 30, 2012 by our Texas locations was $1,371,778 and by our Florida locations was $459,435. This compares to cash received from case settlements for the comparable period in 2011 of $1,184,896 by Texas locations and $32,500 in Florida.

  

Liquidity and Capital Resources

 

For the nine months ended September 30, 2012, cash used in operations was $399,188, which was primarily due to an increase in accounts receivable of $1,311,116 and a decrease in accounts payable and accrued liabilities of $396,124 partially offset by non-cash charges of $1,073,879 and net income of $199,817. For the same period in 2011, cash used in operations was $661,664, which was primarily due to an increase in accounts receivable of $2,521,124 and an increase in the related party receivable of $140,106 partially offset by an increase in accounts payable and accrued liabilities of $428,702 and net income from operations of $1,328,167.

 

There was no cash provided by or used in investing activities for the nine months ended September 30, 2012 and 2011.

 

Cash provided by financing activities totaled $1,566,500 for the nine months ended September 30, 2012, consisting of proceeds from the issuance of a note payable of $50,000, a convertible promissory note of $500,000, a secured note payable of $1,000,000 and related party payables of $261,000, which were offset by the repayment of a related party payable of $244,500. For the same period in 2011, cash provided by financing activities totaled $489,601 consisting of proceeds from the issuance of debentures of $200,000, common stock of $77,000 and a related party payable of $525,354, which were offset by the repayment of a related party payable of $312,753.

 

18
 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

  

ITEM 4. CONTROLS AND PROCEDURES

 

Our principal executive officer and principal financial officer are responsible for establishing and maintaining our disclosure controls and procedures. Such officers have concluded (based upon their evaluation of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including our principal executive and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer have also indicated that, upon evaluation, there were no changes in our internal control over financial reporting or other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

 

Our future revenues may be affected by a variety of factors, many of which are outside our control, including the success of implementing our healthcare services business and trends and changes in the healthcare industry.  As a result of our limited operating history and the emerging nature of our business plan, it is difficult to forecast revenues or earnings accurately, which may fluctuate significantly from quarter to quarter. Our business model involves the creation of accounts receivables for which our patients have a contractual obligation to pay; however, there is no guaranty that patients will have sufficient resources to honor their commitment if they do not receive adequate cash from a settlement or judgment to do so. As a result, our cash flow is greatly dependent on third party professionals’ ability to negotiate settlements and/or successfully obtain judgments sufficient to satisfy our accounts receivable balances within reasonable time periods.

 

In addition to the other information set forth in this report, one should carefully consider the discussion of various risks and uncertainties contained in Part I, Item 1A,  “Risk Factors” in our 2011 Annual Report on Form 10-K.  We believe the risk factors presented in this filing and those presented on our 2011 Form 10-K are the most relevant to our business and could cause our results to differ materially from any forward-looking statements made by us.  

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In July 2012, we issued 15,000 restricted shares of common stock in connection with the engagement of an investor relations consultant. We issued the securities under the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder. The issuance of securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a single offeree; (iii) there was no public solicitation; (iv) the investment intent of the offeree; and (v) the restriction on transferability of the securities issued.

 

In August 2012, we issued an aggregate of 300,000 restricted shares of common stock in connection with an 18-month agreement with a business development consultant. We issued the securities under the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder. The issuance of securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a limited number of offerees; (iii) there was no public solicitation; (iv) the investment intent of the offerees; and (v) the restriction on transferability of the securities issued.

 

In August 2012, we issued to an investor a $1,000,000 three-year promissory note bearing interest at 12% per year. In connection with the issuance of the note, we issued the investor a detachable warrant to purchase up to 333,333 shares of our common stock at the price of $1.60 per share, which warrant expires in August 2015. We received aggregate consideration of $1,000,000 for the note and warrant. We issued the securities under the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder. The issuance of securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a single offeree; (iii) there was no public solicitation; (iv) the offeree was an “accredited investor”; (v) the investment intent of the offeree; and (vi) the restriction on transferability of the securities issued.

 

20
 

 

ITEM 6. EXHIBITS

 

Exhibit No.   Description
3.1   Articles of Incorporation dated March 4, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
     
3.2   Amended Articles of Incorporation dated April 23, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
     
3.3   Amended Articles of Incorporation dated January 4, 2002. (Incorporated by reference from Form 10KSB filed with the SEC on May 21, 2003.) *
     
3.4   Amended Articles of Incorporation dated December 19, 2003. (Incorporated by reference from Form 10-KSB filed with the SEC on May 20, 2004.) *
     
3.5   Amended Articles of Incorporation dated November 4, 2004. (Incorporated by reference from Form 10-KSB filed with the SEC on April 15, 2005) *
     
3.6   Amended Articles of Incorporation dated September 7, 2005. (Incorporated by reference from Form 10-QSB filed with the SEC on November 16, 2005) *
     
3.7   By-Laws dated April 23, 1998. (Incorporated by reference from Form 10K-SB filed with the SEC on January 5, 2000.) *
     
10.1   The 2003 Benefit Plan of Delta Capital Technologies, Inc. dated August 20, 2003 (Incorporated by reference from Form S-8 filed with the SEC on August 26, 2003) *
     
10.2   Amendment to Employment Agreement with William F. Donovan, M.D. dated February 20, 2012 (Incorporated by reference from Form 8-K filed with the SEC on February 21, 2012) *
     
10.3   Employment Agreement with John Bergeron dated September 20, 2011 (Incorporated by reference from Form 8-K filed with the SEC on September 20, 2011) *
     
10.4   Employment Agreement with Eric K. Groteke dated May 9, 2012 (Incorporated by reference from Form 8-K filed with the SEC on May 15, 2012) *
     
14.1   Code of Ethics (Incorporated by reference from our website.  It can be found at: www.spinepaininc.com/investor-information)
     
16.1   Letter from Jewett, Schwartz, Wolfe & Associates to the SEC dated September 14, 2010 (Incorporated by reference from Form 8-K filed with the SEC on September 14, 2010) *
     
31.1   Certification of principal executive officer required by Rule 13a – 14(1) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of principal financial officer required by Rule 13a – 14(1) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
     
32.2   Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.

 

101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definitions Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

* Incorporated by reference from our previous filings with the SEC

 

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SIGNATURES

 

Pursuant to the requirements 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.

 

  Spine Pain Management, Inc.
   
  Date: November 12, 2012 /s/ William F. Donovan, M.D.
  By: William F. Donovan, M.D.
  Chief Executive Officer (Principal Executive Officer)

 

 

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