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 March 31, 2013.

 

¨ 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)

 

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 May 14, 2013, there were 18,415,882 shares of the registrant’s common stock outstanding (the only class of voting common stock).  

 

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012	3
	Statements of Operations for the three months ended March 31, 2013 and 2012 (Unaudited)	4
	Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (Unaudited)	5
	Notes to Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	13
Item 4.	Controls and Procedures	13
PART II	OTHER INFORMATION
Item 1A.	Risk Factors	14
Item 6.	Exhibits	14
	Signatures	15

 

 

SPINE PAIN MANAGEMENT, INC.

BALANCE SHEETS

 

		MARCH 31,				DECEMBER 31,
		2013				2012
		(Unaudited)
ASSETS
Current assets:
Cash		$	910,807			$	1,017,755
Accounts receivable, net			3,433,605				3,209,191
Prepaid expenses			208,392				257,684
Debt cost			27,886				55,786
Total current assets			4,580,690				4,540,416
Accounts receivable, net of allowance for doubtful accounts of $112,268 and $52,268 at March 31, 2013  and December 31, 2012, respectively			3,409,083				3,287,552
Intangible assets, net			210,700				215,200
Other assets			9,417				10,417
Total assets		$	8,209,890			$	8,053,585
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	216,098			$	183,950
Due to related parties			316,375				352,909
Current portion of notes payable and long-term debt, net			856,273				371,088
Total current liabilities			1,388,746				907,947
Notes payable and long-term debt, net of discount			889,902				1,332,365
Total liabilities			2,278,648				2,240,312
Commitments and contingencies
Stockholders' equity:
Common stock: $0.001 par value, 50,000,000 shares authorized, 18,415,882 shares issued and outstanding at March 31, 2013 and December 31, 2012			18,416				18,416
Additional paid-in capital			18,885,219				18,813,219
Accumulated deficit			(12,972,393	)			(13,018,362	)
Total  stockholders' equity			5,931,242				5,813,273
Total liabilities and stockholders’ equity		$	8,209,890			$	8,053,585

 

The accompanying notes are an integral part of the unaudited condensed financial statements

 

 

SPINE PAIN MANAGEMENT, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

 

		FOR THE THREE MONTHS ENDED
		MARCH 31,
		2013				2012
Net revenue		$	1,043,201			$	1,283,895
Cost of providing services			386,761				461,400
Gross profit			656,440				822,495
Operating, general and administrative expenses			490,692				297,251
Income from operations			165,748				525,244
Other income and (expense):
Other income			7,092				8,466
Interest expense			(126,871	)			(52,390	)
Total other income and (expense)			(119,779	)			(43,924	)
Net income		$	45,969			$	481,320
Basic income per common share		$	0.00			$	0.03
Diluted income per common share		$	0.00			$	0.03
Shares used in income per common share:
Basic			18,415,882				17,315,066
Diluted			18,415,882				17,595,381

 

The accompanying notes are an integral part of the unaudited condensed financial statements

 

 

SPINE PAIN MANAGEMENT, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

 

		FOR THE THREE MONTHS ENDED MARCH 31,
		2013				2012
Cash flows from operating activities:
Net income		$	45,969			$	481,320
Adjustments to reconcile net income to net cash used in operating activities:
Bad debt expense			60,000				60,000
Interest expense related to warrant amortization			42,282				42,102
Stock based compensation			124,500				100,458
Accretion of debt discount on long term debt			28,339				-
Depreciation and amortization expense			5,500				-
Changes in operating assets and liabilities:
Accounts receivable, net			(405,945	)			(640,004	)
Prepaid expenses			(3,208	)			3,750
Due to related party			8,467				-
Accounts payable and accrued liabilities			32,148				(94,176	)
Net cash used in operating activities			(61,948	)			(46,550	)
Cash flows from financing activities:
Proceeds from issuance of note payable			-				50,000
Proceeds from related party payable			-				128,600
Repayments on related party payable			(45,000	)			(57,002	)
Net cash (used in) provided by financing activities			(45,000	)			121,598
Net (decrease) increase in cash and cash equivalents			(106,948	)			75,048
Cash and cash equivalents at beginning of period			1,017,755				54,582
Cash and cash equivalents at end of period		$	910,807			$	129,630
Supplementary disclosure of non-cash financing activities:
Issuance of common stock for conversion of related party payable		$	-			$	1,020,200

 

The accompanying notes are an integral part of the unaudited condensed financial statements

 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 1. DESCRIPTION OF BUSINESS

 

As used herein, the terms “Company,” “we,” “our”, and “us” refer to Spine Pain Management, Inc. (formerly known as Versa Card, Inc.), a Delaware corporation and its subsidiaries and predecessors, unless the context indicates otherwise.  We were incorporated on March 4, 1998.

 

Since inception, we have engaged in and contemplated several ventures and acquisitions, many of which were not consummated. In December 2008, we began moving forward to launch our new business concept of delivering turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary and appropriate treatment of musculo-skeletal spine injuries. Our first spine injury diagnostic center opened in Houston, Texas in August 2009. We currently manage a total of six spine injury diagnostic centers in the United States. We are also evaluating the expansion of our services through additional spine injury diagnostic centers in multiple markets across the country.

 

We are a medical marketing, management, billing and collection company facilitating diagnostic services for patients who have sustained spine injuries resulting from traumatic accidents. We deliver turnkey solutions to spine surgeons, orthopedic surgeons and other health care providers for necessary and appropriate treatment of musculo-skeletal spine injuries resulting from automobile and work-related accidents. Our goal is to become a leader in providing care management services to spine and orthopedic surgeons and other healthcare providers to facilitate proper treatment of their injured clients.  By pre-funding diagnostic testing and non-invasive and surgical care, patients are not unnecessarily delayed or prevented from obtaining needed treatment.  By providing early treatment, we believe that health conditions can be prevented from escalating and injured victims can be quickly placed on the road to recovery.  

 

Through our care management system, we engage spine surgeons, orthopedic surgeons and other healthcare providers to operate as independent contractors and 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 performed. After a patient is billed for the procedures performed, we take control of the patients’ unpaid bill and oversee collection. In most instances, the patient is a plaintiff in an accident case, where 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 attorney of the patient. In most cases, we must agree to the settlement price and the patient must sign off on the settlement. Once we are paid, the patient’s attorney can receive payment for his or her legal fee.

 

We currently manage six spine injury diagnostic centers in the United States, which are located in Houston, Texas; McAllen, Texas; San Antonio, Texas; Orlando, Florida; Sarasota, Florida and the Tampa Bay Area of Florida. In March 2013, we ceased managing a center in Jacksonville, Florida when the affiliation with our healthcare provider there ended. We are also currently evaluating the development of additional spine injury diagnostic centers across the United States in major metropolitan cities.  We are seeking additional funding for this expansion by way of reasonable debt financing to combine with increased cash flow to accelerate this future development. In connection with this strategy, we plan to open additional diagnostic centers in new market areas that are attractive under our business model, assuming adequate funds are available.

 

In May 2012, we acquired Gleric Holdings, LLC which owns a device and process by which a video recording system is attached to a fluoroscopic x-ray machine, the “four camera technology,” that we believe can attract additional physicians and patients, expedite settlements and provide us with additional revenue streams. During the last half of 2012, through additional research and development, we have refined the technology into the fully commercialized Quad Video Halo System 2.0. Using this technology, diagnostic procedures are recorded from four separate video feeds that capture views from both inside and outside the body, and a video is made which is given to the plaintiff’s attorney to verify the treatment received. We believe the video will expedite the settlement process. Each of our affiliated centers can lease the hardware from us. Additionally, independent medical representatives will sell Quad Video Halo units to outside hospitals and clinics.

 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 2. GOING CONCERN CONSIDERATIONS

 

Since 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 deficit, and our accumulated deficit is $12,972,393 as of March 31, 2013. During the three months ended March 31, 2013, we realized net revenue of $1,043,201 and net income of $45,969. Successful business operations and our transition to positive cash flows from operations are dependent upon obtaining additional financing and achieving a level of collections adequate to support our cost structure. Considering the nature of our business, we are not generating immediate liquidity and sufficient working capital within a reasonable period of time to fund our planned operations and strategic business plan through March 31, 2014. There can be no assurances that there will be adequate financing 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.

 

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 2012 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 March 31, 2013, 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.

 

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.

 

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 4).

 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Recent Accounting Pronouncements

 

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides an improvement on the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income by component either on the income statement or in the notes to the financial statements. The guidance will become effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-02 is not expected to have a significant impact on the financial statements.

 

NOTE 4. 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. Patients are billed at the normal billing amount, based on national averages, for a particular CPT code procedure. We take control of the patients’ unpaid bills.

 

Revenue and corresponding accounts receivable are recognized by reference to “net revenue” and “accounts receivable, net” which is defined as gross amounts billed using CPT codes less account discounts that are expected to result when individual cases are ultimately settled. A discount rate of 52% and 50%, based on settled patient cases, was used to reduce revenue to 48% and 50% of CPT code billings (“gross revenue”) during the three months ended March 31, 2013 and 2012, 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. Historical experience, through 2012, 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 completed and signed medical and financial paperwork, which included an acknowledgement of the patient’s responsibility of 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 issued the healthcare provider a Letter of Protection designed to guarantee payment for the medical services provided to the patient from proceeds of any settlement or judgment in the accident case. This Letter of Protection also should 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.

 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 5. DUE TO RELATED PARTIES

 

Due to related parties consists of the following:

 

		March 31,				December 31,
		2013				2012
Due to Northshore Orthopedics Associates		$	34,216			$	4,400
Due to Chief Executive Officer			245,699				290,699
Due to Wellness Works			36,460				57,810
		$	316,375			$	352,909

 

Amounts due to Northshore Orthopedics, Assoc. (“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. Amounts due to Wellness Works, LLC (“Wellness”, a company owned by our Chief Technology Officer) are non-interest bearing and are due by the 15^th of the month following the month in which they were billed. See Note 7 for further information on the amounts due to Wellness.

 

NOTE 6. STOCKHOLDERS’ EQUITY

 

Stock Options

 

We recognized $72,000 and $54,000 in compensation expense in operating, general and administrative expenses in the Statements of Operations for the three months ended March 31, 2013 and 2012, respectively. At March 31, 2013, there was approximately $410,110 of total unrecognized compensation expense related to non-vested stock option awards. The remaining $410,110 in compensation expense will be recognized at $72,000 per quarter with the final $122,110 being recognized in the last three quarters ending December 31, 2014.

 

NOTE 7. RELATED PARTY TRANSACTIONS

 

Due to Related Parties

 

We have an agreement with NSO, which is 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as our independent contractor. As of March 31, 2013 and December 31, 2012, we had balances payable to NSO of $34,216 and $4,400, 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

 

As shown in Note 5, at March 31, 2013 and December 31, 2012, we had balances of $245,699 and $290,699, respectively, due to Dr. Donovan, in his individual capacity, for working capital advances and payments made on our behalf. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule.

 

Also, as shown in Note 5, 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, 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 March 31, 2013 and December 31, 2012, $36,460 and $57,810, respectively, was owed to Wellness.

 

 

SPINE PAIN MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOTE 8. INCOME TAXES

 

We have not made provision for income taxes for the three months ended March 31, 2012 or the year ended December 31, 2012, since we have net operating loss carryforwards to offset current taxable income.

 

Deferred tax assets consist of the following at March 31, 2013 and December 31, 2012:

 

		March 31				December 31
		2013				2012
Benefit from net operating loss carryforwards		$	2,218,573			$	2,279,261
Allowance from doubtful accounts			38,171				-
Less:  valuation allowance			(2,256,744	)			(2,279,261	)
		$	-			$	-

 

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 management’s assessment, utilizing an effective combined tax rate for federal and state taxes of approximately 37%, we have determined that it is not currently likely that a deferred income tax asset of approximately $2,256,744 and $2,279,261 attributable to the future utilization of the approximate $7,007,882 and $7,043,430 in eligible net operating loss carryforwards as of March 31, 2013 and December 31, 2012, 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.

 

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 March 31,
		2013				2012
Income tax (provision) benefit at the 34% statutory rate		$	(15,629	)		$	(163,649	)
Effect of state income taxes			(1,379	)			(1,112	)
Non-deductible interest expense			(43,680	)			(3,526	)
Other			38,171				(15,578	)
Less change in valuation allowance			22,517				183,865
Income tax (provision) benefit		$	-			$	-

 

We are subject to taxation in the United States and certain state jurisdictions. Our tax years for 2003 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.

 

 

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.

 

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 2012 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 March 31, 2013, 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.

 

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.

 

 

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 4).

 

Recent Accounting Pronouncements

 

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides an improvement on the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income by component either on the income statement or in the notes to the financial statements. The guidance will become effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-02 is not expected to have a significant impact on the financial statements.

 

Management Overview

 

At the end of 2008, we launched our new business concept of delivering turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary, reasonable and appropriate treatment for musculo-skeletal spine injuries. Moving forward, our main focus will be on 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 March 31, 2013 and for the three months ended March 31, 2013 and 2012 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 March 31, 2013 and the results of operations and cash flows for the periods ended March 31, 2013 and 2012. 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 ended March 31, 2013 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2013.

 

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, 2012 as included in our previously filed report on Form 10-K.

 

 

Comparison of the three month period ended March 31, 2013 with the three month period ended March 31, 2012.

 

We recorded $2,102,929, in gross revenue for the three months ended March 31, 2013, offset by $1,059,728 of standard allowance for discount resulting in net revenue of $1,043,201. For the same period in 2012, gross revenue was $2,618,862, offset by $1,334,967 of standard allowance for discount, resulting in net revenue of $1,283,895. We currently manage six spine injury diagnostic centers in the United States, which are located in Houston, Texas; McAllen, Texas; San Antonio, Texas; Orlando, Florida; Sarasota, Florida and the Tampa Bay Area of Florida. In March 2013, we ceased managing a center in Jacksonville, Florida when the affiliation with our healthcare provider there ended. Revenue was negatively affected by lower case volume in 2013. Our affiliated healthcare providers accepted fewer patient cases from certain attorneys whose cases had a history of low returns. Additionally, in 2013 because of the low returns we have experienced on cases of patients with minimal coverage limits, our diagnostic centers performed fewer of the medically-necessary procedures needed by these patients.

 

Service cost was $386,761 for the three months ended March 31, 2013 compared to $461,400 for the same period in 2012. The decrease in service cost is attributable to the lower case volume.

 

During the three months ended March 31, 2013, we incurred $490,692 of operating, general and administrative expenses compared with the $297,251 for the same period in 2012. The increase is attributable to increases in payroll expenses of approximately $55,000, consulting and professional fees of approximately $91,000, travel expenses of approximately $35,000, and other net general and administrative expenses of approximately $12,000.

 

As a result of the foregoing, we had net income of $45,969 for the three months ended March 31, 2013, compared to $481,320 for the three months ended March 31, 2012.

 

Liquidity and Capital Resources

 

For the three months ended March 31, 2013, cash used in operations was $61,948, which primarily included an increase in accounts receivable of $405,945 and a decrease in accounts payable of $32,148 partially offset by net income of $45,969. For the same period in 2012, cash used in operations was $46,550, which primarily included an increase in accounts receivable of $640,004 and partially offset by net income from operations of $481,320.  

 

There was no cash provided by or used in investing activities for the three months ended March 31, 2013 or 2012.

 

Cash used in financing activities for the three months ended March 31, 2013 consisted of a repayment on related party payables in the amount of $45,000. For the same period in 2012, cash provided by financing activities totaled $121,598, consisting of proceeds from issuance of debentures and warrants of $50,000, proceeds from related party payables of $128,600, offset by a repayment on related party payables of $57,002.

 

We collected $643,450 and $634,951 in settlements during the three months ended March 31, 2013 and 2012, respectively.

 

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

 

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 2012 Annual Report on Form 10-K.  We believe the risk factors presented in this filing and those presented on our 2012 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.  

 

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		Amendment to Employment Agreement with William F. Donovan, M.D. dated February 16, 2012 (Incorporated by reference from Form 8-K filed with the SEC on February 21, 2012) *
10.2		Employment Agreement with John Bergeron dated November 30, 2012 (Incorporated by reference from Form 8-K filed with the SEC on December 13, 2012) *
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

 

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: May 14, 2013	/s/ William F. Donovan, M.D.
	By: William F. Donovan, M.D.
	Chief Executive Officer (Principal Executive Officer)