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