ITEM 1. BUSINESS
History
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.
Spine Pain Management, Inc.
We are a medical services, technology, 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 management services to spine and orthopedic surgeons and other healthcare providers to facilitate proper treatment of their injured clients. By pre-funding the providers accounts receivable, which includes 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 management system, we facilitate spine surgeons, orthopedic surgeons and other healthcare providers to provide reasonable, necessary, and appropriate treatments to patients with musculo-skeletal spine injuries. We assist 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 2013, through additional research and development, we have refined the technology into the fully commercialized Quad Video Halo System 3.0. 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. Each of our affiliated centers can lease the hardware from us. Additionally, we plan to use independent medical representatives to sell Quad Video Halo units to outside hospitals and clinics.
Market
The market trends in treatment of musculo-skeletal injury all point to increased costs to the American public, government and the insurance carriers for the foreseeable future. We believe this creates a major opportunity under our business model.
Business Model
We plan to address this market by:
· Continuing our plan of rolling out spinal diagnostic services to spine surgeons, orthopedic surgeons, and other healthcare providers.
· Employing contract management services at regional, state and local levels.
· Identifying and targeting key spinal healthcare providers who handle accident-type cases.
Management Strategy
Our management program was developed by William Donovan, M.D., our Chief Executive Officer and Director. Our management program generally begins with rehabilitation therapy. If there is no improvement in a patient’s condition following sufficient amounts of rehabilitation therapy, the patient is referred for diagnostic imaging, pain management and if medically necessary, surgery.
We believe that our management program improves the medical outcomes for injured victims by assisting doctors who provide medically necessary, appropriate and reasonable treatment of injuries and facilitates the settlement of the injured victim's case by completing required medical treatment and providing clear and consistent medical records.
Billing and Operations
We work with an independent medical contractor who performs the medical services for patients and the independent contractor bills a fixed fee for the services. The patient is billed for the procedures performed, and we take control of the patient’s 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, the healthcare providers must agree to the settlement price and the patient must sign off on the settlement. Once the healthcare providers are paid, the patient’s attorney can receive payment for his or her legal fee.
The clinic facilities where our spine injury diagnostic centers operate are owned or leased by a medical affiliate or third party. We have no ownership interest in these clinic facilities, nor do we have any responsibilities towards building or operating the clinic facilities. Each of our independent contractors performs services for us (in the form of providing medical diagnostic services for patients) pursuant to a medical services agreement.
Marketing
Direct contact with key spine surgeons, orthopedic surgeons and other healthcare providers who are highly visible in their communities is an important step in targeting appropriate referral sources. Additional marketing to spine surgeons is done at national medical meetings and trade shows. We intend to continue expanding our spine injury diagnostic business operations to additional areas across the United States, of which there can be no assurance.
Governmental Regulation
All of the medical diagnostic procedures offered at the clinics are performed by independent medical contractors, who are subject to regulation by a number of governmental entities at the federal, state, and local levels. We are subject to laws and regulations relating to business corporations in general. In recent years, Congress and state legislatures have introduced an increasing number of proposals to make significant changes in the healthcare system. Changes in law and regulatory interpretations could reduce our revenue and profitability.
Corporate Practice of Medicine and Other Laws
We are not licensed to practice medicine. Every state in which our business operates or in which we anticipate it will operate limits the practice of medicine to licensed individuals or professional organizations comprised of licensed individuals. Business corporations generally may not exercise control over the medical decisions of physicians. Many states also limit the scope of business relationships between business entities and medical professionals, particularly with respect to fee splitting. Most state fee-splitting laws only prohibit a physician from sharing medical fees with a referral source, but some states have interpreted certain management agreements between business entities and physicians as unlawful fee-splitting. Statutes and regulations relating to the practice of medicine, fee-splitting, and similar issues vary widely from state to state. Because these laws are often vague, their application is frequently dependent on court rulings and attorney general opinions.
Under the affiliate doctor agreements, the doctors retain sole responsibility for all medical decisions, developing operating policies and procedures, implementing professional standards and controls, and maintaining malpractice insurance. We attempt to structure all our health services operations, including arrangements with our doctors, to comply with applicable state statutes regarding corporate practice of medicine, fee-splitting, and similar issues. However, there can be no assurance:
· that private parties, or courts or governmental officials with the power to interpret or enforce these laws and regulations, will not assert that we are in violation of such laws and regulations;
· that future interpretations of such laws and regulations will not require us to modify the structure and organization of our business; or
· that any such enforcement action, which could subject us and our affiliated professional groups to penalties or restructuring or reorganization of our business, will not adversely affect our business or results of operations.
HIPAA Administrative Simplification Provisions-Patient Privacy and Security
The Health Insurance Portability and Accountability Act of 1996, commonly known as “HIPAA,” requires the adoption of standards for the exchange of health information in an effort to encourage overall administrative simplification and to enhance the effectiveness and efficiency of the healthcare industry. Pursuant to HIPAA, the Secretary of the Department of Health and Human Services has issued final rules concerning the privacy and security of health information, the establishment of standard transactions and code sets, and the adoption of a unique employer identifier and a national provider identifier. Noncompliance with the administrative simplification provisions can result in civil monetary penalties up to $100 per violation as well as criminal penalties that include fines and imprisonment. The Department of Health and Human Services Office of Civil Rights is charged with implementing and enforcing the privacy standards, while the Centers for Medicare and Medicaid Services are responsible for implementing and enforcing the security standards, the transactions and code sets standards, and the other HIPAA administrative simplification provisions.
The HIPAA requirements only apply to “covered entities,” such as health plans, healthcare clearinghouses, and healthcare providers, which transmit any health information in electronic form. Our business is likely considered a “covered entity” under HIPAA.
Of the HIPAA requirements, the privacy standards and the security standards have the most significant impact on our business operations. The privacy standards require covered entities to implement certain procedures to govern the use and disclosure of protected health information and to safeguard such information from inappropriate access, use, or disclosure. Protected health information includes individually identifiable health information, such as an individual’s medical records, transmitted or maintained in any format, including paper and electronic records. The privacy standards establish the different levels of individual permission that are required before a covered entity may use or disclose an individual’s protected health information, and establish new rights for the individual with respect to his or her protected health information.
The final security rule establishes security standards that apply to covered entities. The security standards are designed to protect health information against reasonably anticipated threats or hazards to the security or integrity of the information, and to protect the information against unauthorized use or disclosure. The security standards establish a national standard for protecting the security and integrity of medical records when they are kept in electronic form.
The administrative simplification provisions of HIPAA require the use of uniform electronic data transmission standards for healthcare claims and payment transactions submitted or received electronically. We believe that we are in substantial compliance with the transaction and code set standards. The transaction standards require us to use standard code sets when we transmit health information in connection with certain transactions, including health claims and health payment and remittance advice.
In addition, the Secretary of the Department of Health and Human Services issued a final rule that requires each healthcare provider to adopt a standard unique health identifier, the National Provider Identifier (“NPI”). The NPI will identify healthcare providers in the electronic transactions for which the Secretary has already adopted standards (the “standard transactions”). These transactions include claims, eligibility inquiries and responses, claim status inquiries and responses, referrals, and remittance advices. All health plans and all healthcare clearinghouses must accept and use NPIs in standard transactions.
Other Privacy and Confidentiality Laws
In addition to the HIPAA requirements described above, numerous other state and federal laws regulate the privacy of an individual’s health information. These laws specify how an individual’s health information may be used internally, the persons to whom health information may be disclosed, and the conditions under which such uses and disclosures may occur. Many states have requirements relating to an individual’s right to access his or her own medical records, as well as requirements relating to the use and content of consent or authorization forms. Also, because of employers’ economic interests in paying medical bills for injured employees and in the timing of the injured employees’ return to work, many states have enacted special confidentiality laws relating to disclosures of medical information in workers’ compensation claims. These laws limit employer access to such information. Many states have also passed laws that regulate the notification process to individuals when a security breach involving an individual’s personally identifiable information, such as social security number or date of birth, occurs. To the extent that state law affords greater protection of an individual’s health information than that provided under HIPAA, the state law will control.
We anticipate that there will be more regulation in the areas of privacy and confidentiality, particularly with respect to medical information. We regularly monitor the privacy and confidentiality requirements that relate to our business, and we anticipate that we may have to modify our operating practices and procedures in order to comply with these requirements.
Environmental
Although we currently contract with independent contractor medical providers, who are responsible for compliance with environmental laws, our operations may be subject to various federal, state, and local laws and regulations relating to the protection of human health and the environment, including those governing the management and disposal of infectious medical waste and other waste generated and the cleanup of contamination. If an environmental regulatory agency finds any of our facilities to be in violation of environmental laws, penalties and fines may be imposed for each day of violation and the affected facility could be forced to cease operations. The responsible party could also incur other significant costs, such as cleanup costs or claims by third parties, as a result of violations of, or liabilities under, environmental laws. Although we believe that our independent medical providers’ environmental practices, including waste handling and disposal practices, will be in material compliance with applicable laws, future claims or violations, or changes in environmental laws, could have an adverse effect on our business.
Competition
The market to provide healthcare pain diagnostic services is highly competitive and fragmented. Our primary competitors are typically independent physicians, chiropractors, hospital emergency departments, and hospital-owned or hospital-affiliated medical facilities. As managed care techniques continue to gain acceptance in the automobile accident marketplace, we believe that our competitors will increasingly consist of nationally-focused care management service companies providing their service to insurance companies and litigation defense experts.
Because the barriers to entry in our geographic markets have a low threshold and our diagnostic centers’ patients have the flexibility to move easily to new healthcare service providers, the addition of new competitors may occur relatively quickly. Some of our affiliated physicians and other healthcare providers may elect to compete with us by offering their own products and services to patients. If competition within our industry intensifies, our ability to assist patients or associated physicians, or maintain or increase our revenue growth, price flexibility and control over medical costs, trends, and marketing expenses, may be compromised.
In order to mitigate the effects of intensifying competition, we will make careful study of population trends and demographic growth patterns in determining the best locations to compete. Moreover, we will endeavor to have all of our physicians under strict contract to avoid unnecessary attrition and loss of skilled personnel.
Research and Development
During the years ended December 31, 2013 and 2012, we spent $33,666 and $18,488, respectively in design fees for our Quad Video Halo system. These costs do not reflect the marketing and other associated costs with the development of the Quad Video Halo system.
Employees
We currently have six full time employees, including three officers and three other employees at our corporate headquarters. We expect to continue to use independent contractors, consultants, attorneys and accountants as necessary, to complement services rendered by our employees.
ITEM 1A.
ITEM 1A. RISK FACTORS
Our future operating results are highly uncertain. Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this annual report. If any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.
Risks Related to Our Company
Our limited history in the healthcare services business makes an evaluation of us and our future extremely difficult, and profits are not assured.
We have a limited operating history, having begun development of our healthcare services business at the end of December 2008 and having opened our first spine injury diagnostic center in August 2009. There can be no assurance that we will be profitable in the future or that investors’ investments in us will be returned to them in full, or at all, over time. In view of our limited history in the healthcare industry, an investor must consider our business and prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stages. There can be no assurance that we will be successful in undertaking any or all of the activities required for successful commercial operations. Our failure to undertake successfully such activities could materially and adversely affect our business, prospects, financial condition and results of operations. There can be no assurance that our business operations will generate significant revenues, that we will generate additional positive cash flow from our operations or that we will be able to achieve or sustain profitability in any future period.
Our auditor has indicated that certain factors raise substantial doubt about our ability to continue as a going concern, and our continued existence is dependent upon our ability to successfully execute our business plan.
The financial statements included with this report are presented under the assumption that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. We had a net loss of approximately $626,071 for the year ended December 31, 2013 and an accumulated deficit in aggregate of approximately $13.6 million at year end. We are not generating sufficient operating cash flows to support continuing operations.
In our financial statements for the year ended December 31, 2013, our auditor indicated that certain factors raised substantial doubt about our ability to continue as a going concern. These factors included our accumulated deficit of $13.6 million as of December 31, 2013, as well as the fact that we were not generating sufficient cash flows to meet our regular working capital requirements. Our ability to continue as a going concern is dependent upon our ability to successfully execute our business plan, obtain additional financing and achieve a level of cash flows from operations adequate to support our cost structure. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We are dependent on key personnel.
We depend to a large extent on the services of certain key management personnel, including our executive officers and other key consultants, the loss of any of which could have a material adverse effect on our operations. Specifically, we rely on William Donovan, M.D., Director, Chief Executive Officer and President, to maintain our strategic direction. Although Dr. Donovan serves under an employment agreement, there is no assurance that he will continue to be employed by us. We do currently maintain $1,000,000 in key-man life insurance with respect to Dr. Donovan.
We may experience potential fluctuations in results of operations.
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 management services business and trends and changes in the healthcare industry. We have no control on how long it takes cases to settle, making it difficult to forecast cash flow. 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.
We had a history of significant operating losses prior to the opening of our first diagnostic center in August, 2009.
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 $13,644,433 as of December 31, 2013. We plan to increase our operating expenses as we increase our service development, marketing efforts and brand building activities. We also plan to increase our general and administrative functions to support our growing operations. We will need to generate significant revenues to achieve our business plan. Our continued existence is dependent upon our ability to successfully execute our business plan, as well as our ability to increase revenue from services and obtain additional capital from borrowing and selling securities, as needed, to fund our operations. There is no assurance that additional capital can be obtained or that it can be obtained on terms that are favorable to us and our existing stockholders. Any expectation of future profitability is dependent upon our ability to expand and develop our healthcare services business, of which there can be no assurances.
If we are unable to manage growth, we may be unable to achieve our expansion strategy.
The success of our business strategy depends in part on our ability to expand our operations in the future. Our growth has placed, and will continue to place, increased demands on our management, our operational and financial information systems, and other resources. Further expansion of our operations will require substantial financial resources and management attention. To accommodate our past and anticipated future growth, and to compete effectively, we will need to continue to improve our management, to implement our operational and financial information systems, and to expand, train, manage, and motivate our workforce. Our personnel, systems, procedures, or controls may not be adequate to support our operations in the future. Further, focusing our financial resources and diverting management’s attention to the expansion of our operations may negatively impact our financial results. Any failure to improve our management, to implement our operational and financial information systems, or to expand, train, manage, or motivate our workforce may reduce or prevent our growth.
We may incur significant expenses as a result of being a publically traded company, which may negatively impact our financial performance.
We may incur significant legal, accounting and other expenses as a result of being a publically traded company. The Sarbanes-Oxley Act of 2002, as well as related rules implemented by the SEC, has required changes in corporate governance practices of public companies. We expect that compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as discussed in the following risk factor, may substantially increase our expenses, including our legal and accounting costs, and make some activities more time-consuming and costly. As a result, there may be a substantial increase in legal, accounting and certain other expenses in the future, which would negatively impact our financial performance and could have a material adverse effect on our results of operations and financial condition.
Our internal control over financial reporting may not be considered effective, which could result in a loss of investor confidence in our financial reports and in turn could have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, with our annual reports, we are required to furnish a report by our management on our internal control over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of the year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. If we are unable to assert that our internal control is effective, investors could be adversely affected.
Our healthcare services business model is unproven.
Our healthcare services business model depends upon our ability to implement and successfully execute our business and marketing strategy, which includes our ability to find and form relationships with spine surgeons, orthopedic surgeons and other healthcare providers, from whom we may obtain referrals for injured patients. If we are unable to find and form relationships with such healthcare providers, our business will likely fail.
If competition increases, our growth and profits may decline.
The market to provide healthcare services and solutions is highly fragmented and competitive. Currently, we believe the management solutions that we can provide to spine surgeons, orthopedic surgeons and other healthcare providers for necessary, reasonable and appropriate treatment for musculo-skeletal spine injuries resulting from automobile and work-related accidents, are somewhat unique in most geographic markets. However, if we achieve our goal of becoming a leader in providing care management services to spine surgeons, orthopedic surgeons and other healthcare providers to facilitate proper treatment of their injured clients, we believe that competition for our business model will substantially increase. Further, there are many alternatives to the care management services we can provide, that are currently available to surgeons and their injured patients. We can make no assurances that we will be able to effectively compete with the various care management services that are currently available or may become available in the future.
Because the barriers to entry in our geographic markets are not substantial and customers have the flexibility to move easily to new care management service providers, we believe that the addition of new competitors may occur relatively quickly. Some physicians and other healthcare providers may elect to compete with us by offering their own products and services to their clients and patients. In addition, significant merger and acquisition activity has occurred in our industry as well as in industries that will supply products to us, such as the hospital, physician, pharmaceutical, medical device, and health information systems industries. If competition within our industry intensifies, our ability to affiliate with new doctors and/or obtain physician referrals, or maintain or increase our revenue growth, pricing flexibility, control over medical cost trends, and marketing expenses may be compromised.
Future acquisitions and joint ventures may use significant resources or be unsuccessful.
As part of our business strategy, we may pursue acquisitions of companies providing services that are similar or complementary to those that we provide or plan to provide in our business, and we may enter into joint ventures to provide services at certain facilities. These acquisitions and joint venture activities may involve
· significant cash expenditures;
· additional debt incurrence;
· additional operating losses;
· increases in intangible assets relating to goodwill of acquired companies; and
· significant acquisition and joint venture related expenses,
any of which could have a material adverse effect on our financial condition and results of operations.
Additionally, a strategy of growth by acquisitions and joint ventures involves numerous risks, including:
· difficulties integrating acquired personnel and harmonizing distinct corporate cultures into our current businesses;
· diversion of our management’s time from existing operations; and
· potential losses of key employees or customers of acquired companies.
We cannot assure you that we will be able to identify suitable candidates or negotiate and consummate suitable acquisitions or joint ventures. Also, we cannot assure you that we will succeed in obtaining financing for any future acquisitions or joint ventures at a reasonable cost, or that such financing will not contain restrictive covenants that limit our operating flexibility or other unfavorable terms. Even if we are successful in consummating acquisitions or joint ventures, we may not succeed in developing and achieving satisfactory operating results for the acquired businesses or integrating them into our existing operations.
If lawsuits against us are successful, we may incur significant liabilities.
Although we are not a medical service provider, spine surgeons, orthopedic surgeons and other healthcare providers with whom we form relationships are involved in the delivery of healthcare and related services to the public. In providing these services, the physicians and other licensed providers in our affiliated professional groups are exposed to the risk of professional liability claims. Further, plaintiffs have proposed expanded theories of liability against managed care companies as well as against employers who use managed care in many cases that, if established and successful, could expose us to liability from such claims, and could adversely affect our operations.
Regulatory authorities or other parties may assert that, in conducting our business, we may be engaged in unlawful fee splitting or the corporate practice of medicine.
The laws of many states prohibit physicians from splitting professional fees with non-physicians and prohibit non-physician entities, such as us, from practicing medicine, self-referral and from employing physicians to practice medicine. The laws in most states regarding the corporate practice of medicine have been subjected to limited judicial and regulatory interpretation. We believe our current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicine as contemplated by these laws. There can be no assurance, however, that future interpretations of such laws will not require structural and organizational modification of our existing relationships with the practices. In addition, statutes in some states in which we do not currently operate could require us to modify our affiliation structure. If a court, payor or regulatory body determines that we have violated these laws, we could be subject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required to restructure our arrangements with our contracted physicians and other licensed providers.
We operate in an industry that is subject to extensive federal, state, and local regulation, and changes in law and regulatory interpretations could reduce our revenue and profitability.
The healthcare industry is subject to extensive federal, state, and local laws, rules, and regulations relating to, among other things:
· payment for services;
· conduct of operations, including fraud and abuse, anti-kickback, physician self-referral, and false claims prohibitions;
· operation of provider networks and provision of case management services;
· protection of patient information;
· business, facility, and professional licensure, including surveys, certification, and recertification requirements;
· corporate practice of medicine and fee splitting prohibitions;
· ERISA health benefit plans; and
· medical waste disposal and environmental protection.
In recent years, both federal and state government agencies have increased civil and criminal enforcement efforts relating to the healthcare industry. This heightened enforcement activity increases our potential exposure to damaging lawsuits, investigations, and other enforcement actions. Any such action could distract our management and adversely affect our business reputation and profitability.
In the future, different interpretations or enforcement of laws, rules, and regulations governing the healthcare industry could subject our current business practices to allegations of impropriety, self-referral or illegality or could require us to make changes in our facilities, equipment, personnel, services, and capital expenditure programs, increase our operating expenses, and distract our management. If we fail to comply with these extensive laws and government regulations, we could suffer civil and criminal penalties, or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resources to respond to an investigation or other enforcement action under these laws or regulations.
Changes in federal or state laws, rules, and regulations, including those governing the corporate practice of medicine, fee splitting, workers’ compensation, and insurance laws, rules, and regulations, may affect our ability to expand our operations into other states and, therefore, may reduce our profitability.
State laws, rules, and regulations relating to our business vary widely from state to state, and courts and regulatory agencies have seldom interpreted them in a way that provides guidance with respect to our business operations. Changes in these laws, rules, and regulations may adversely affect our profitability. In addition, the application of these laws, rules, and regulations may affect our ability to expand our operations into new markets.
Most states limit the practice of medicine to licensed individuals or professional organizations comprised of licensed individuals. Many states also limit the scope of business relationships between business entities like ours and licensed professionals and professional organizations, particularly with respect to fee splitting between a licensed professional or professional organization and an unlicensed person or entity. We operate our business by maintaining long-term administrative and management agreements with affiliated professional doctors. Through these agreements, we perform only non-medical administrative services. All control over medical matters is retained by the affiliated physicians or professional groups. Although we believe that our arrangements with physicians and the other affiliated licensed providers comply with applicable laws, regulatory authorities or other third parties may assert that we are engaged in the corporate practice of medicine or that our arrangements with the physicians or affiliated professional groups constitute fee-splitting or self-referral, or new laws may be introduced that would render our arrangements illegal. If this were to occur, we and/or the affiliated professional groups could be subject to civil or criminal penalties and/or we could be required to restructure these arrangements, all of which may result in significant cost to us and affect our profitability.
Confidentiality laws and regulations may increase the cost of our business, limit our service offerings, or create a risk of liability.
The confidentiality of individually identifiable health information, and the conditions under which such information may be maintained, included in our databases, used internally, or disclosed to third parties are subject to substantial governmental regulation. Legislation governing the possession, use, and dissemination of such protected health information and other personally identifiable information has been proposed or adopted at both the federal and state levels. Such laws and regulations may require us to implement new security measures. These measures may require substantial expenditures of resources or may limit our ability to offer some of our products or services, thereby negatively impacting the business opportunities available to us. If we are found to be responsible for any violation of applicable laws, regulations, or duties related to the use, privacy, or security of protected health information or other individually identifiable information, we could be subject to a risk of civil or criminal liability.
Risks Related to Our Common Stock
We may issue shares of common stock in the future, which could cause further dilution to all stockholders.
We may seek to raise equity or equity-related capital in the future. Any issuance of shares of our common stock will dilute the percentage ownership interest of all stockholders and may further dilute the book value per share of our common stock.
We do not anticipate paying any cash dividends.
We have never paid cash dividends on our common stock and do not anticipate doing so for the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our board of directors. We presently intend to retain all earnings, if any, to implement our business strategy; accordingly, we do not anticipate the declaration of any dividends in the foreseeable future.
The market for our stock is limited and our stock price may be volatile.
There is a limited market for our common stock and a stockholder may not be able to liquidate his or her shares regardless of the necessity of doing so. The prices of our shares are highly volatile. This could have an adverse effect on developing and sustaining the market for our securities. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly. In addition, the stock markets in general can experience considerable price and volume fluctuations.
The trading price of our common stock entails additional regulatory requirements, which may negatively affect such trading price.
Generally, the Securities and Exchange Commission defines a “penny stock” as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The trading price of our common stock is below $5.00 per share. As a result of this price level, our common stock is considered a penny stock and trading in our common stock is subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934. These rules require additional disclosure by broker-dealers in connection with any trades generally involving penny stocks subject to certain exceptions. Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must determine the suitability of the penny stock for the purchaser and receive the purchaser's written consent to the transaction before sale. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock. As a consequence, the market liquidity of our common stock could be severely affected or limited by these regulatory requirements.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2.
ITEM 2. PROPERTIES
We currently maintain our executive offices at 5225 Katy Freeway, Suite 600, Houston, Texas 77007. This office space encompasses approximately 1,948 square feet and was provided to us in 2013, on a month-to-month basis, at $5,000 per month by Northshore Orthopedics, Assoc. (“NSO”), a company owned by William Donovan, M.D., our Director and Chief Executive Officer. The rent includes the use of the telephone system, computer server, and copy machines.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol, “SPIN.” Trading in our common stock in the over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. The high and low sales prices for the common stock for each quarter of the fiscal years ended December 31, 2012 and 2013, according to nasdaq.com, were as follows:
Record Holders
As of March 25, 2014, there were approximately 77 stockholders of record of our common stock, and we estimate that there were approximately 611 additional beneficial stockholders who hold their shares in “street name” through a brokerage or other institution. As of March 25, 2014, we have a total of 18,715,882 shares of common stock issued and outstanding. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
Dividends
We have not declared any cash dividends since inception and do not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the board of directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally imposed by applicable state law.
Equity Compensation Plan Information
As of December 31, 2013, we do not have any compensation plans under which our equity securities are authorized for issuance.
Sales of Unregistered Securities
All equity securities that we have sold during the period covered by this report that were not registered under the Securities Act have previously been disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited financial statements and the related notes to the financial statements included in this Form 10-K.
Management Overview
At the end of 2008, we launched our new business concept of medical services and technology that delivers 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 the expansion and development of spine injury diagnostic centers across the nation.
Results of Operations
For the year ended December 31, 2013 versus 2012:
We recorded $3,299,928 in net revenues with $1,320,348 in costs of services and gross profit of $1,979,580 for the year ended December 31, 2013. For the year ended December 31, 2012, we recorded $3,459,231 in net revenues with $1,468,731 in costs of services and gross profit of $1,990,500. Revenue was down in 2013 due to multiple factors. We faced new competition in the McAllen and Florida locations resulting in lower case volume in 2013. Additionally in 2013, because of the low returns we have experienced on cases of patients with minimal insurance coverage limits, our affiliated diagnostic centers performed fewer of the medically-necessary procedures needed by these patients.
We recognize revenue by reference to “net revenue,” which is gross amounts billed using CPT (Current Procedural Terminology) codes less account discounts that are expected to result when individual cases are ultimately settled. A discount rate of 52%, based on settled patient cases, was used to determine net revenue during 2013 and 2012, respectively. Accordingly, we had gross revenues of $6,695,289 with net revenues of $3,299,928 for the year ended December 31, 2013, versus gross revenues of $7,865,542 with net revenues of $3,459,231 for the year ended December 31, 2012.
During the year ended December 31, 2013, our operations focused on continued development of our spine injury diagnostic business, coupled with the commercial development of our Quad Video Halo for sale to healthcare providers. We incurred charges in redesigning some of the equipment plus marketing costs for personnel and trade shows. During the year ended December 31, 2012, our operations focused on continued development of our spine injury diagnostic centers in Houston, McAllen, Tampa, Orlando, and Jacksonville.
Expenses
For the year ended December 31, 2013 versus 2012:
Operating, general and administrative expenses for the year ended December 31, 2013, were $2,270,230 as compared to $1,898,925 for the year ended December 31, 2012. The increase in operating expenses was primarily the result of additional overhead associated with opening new centers coupled with increased personnel staffing, bad debt provision, consulting costs and marketing costs for the Quad Video Halo. We increased the allowance for doubtful accounts as the age of the receivables is increasing.
Other income (expenses) for the year ended December 31, 2013 was an expense of $335,421 as compared to expense of $521,793 for the year ended December 31, 2012. For the year ended December 31, 2013, other income of $25,562 and gain on extinguishment of debt of $60,179 was offset by $421,162 in interest expense. For the same period in 2012, other income of $33,436 and gain on extinguishment of debt of $95,568 was offset by $324,147 of interest expense and a litigation settlement expense of $326,650.
Net Income or Loss
For the year ended December 31, 2013 versus 2012:
Net loss for the year ended December 31, 2013 was $626,071 compared to net loss of $430,218 for the year ended December 31, 2012. Lower revenue, coupled with additional personnel and non-cash charges (interest costs for stock options and stock warrants, consulting, and bad debt expense) resulted in net loss increasing in 2013 from 2012.
Liquidity and Capital Resources
For the year ended December 31, 2013 versus 2012:
During 2013, cash generated in operating activities was $184,145 as compared to $566,227 of cash used in 2012. The decrease in cash used in operations was due to the increased collections of our spine injury diagnostic centers, partially offset by increased personnel costs. Our settlement collections totaled $3,021,289 in 2013 compared to $2,597,000 in 2012.
During the year ended December 31, 2013 we purchased Quad Video Halo equipment totaling $9,354 versus a purchase of similar equipment of $5,000, resulting in cash used in investing activities, for the year ended December 31, 2012.
Cash flows used by financing activities totaled $505,000 for the year ended December 31, 2013, consisting of a payment of long term debt and warrants of $350,000, and repayments on related notes payable of $155,000. For the year ended December 31, 2012, cash flows provided by financing activities totaled $1,534,400, consisting of proceeds from issuance of long term debt and warrants of $1,550,000 and proceeds from related party notes payable of $296,300, offset by repayments on related notes payable of $311,900.
Capital Expenditures
We purchased a Quad Video Halo system at a cost of $9,354 in the year ended December 31, 2013. During the year ended December 31, 2012, we purchased a Quad Video camera system at a cost of $5,000. Both machines were used in the development of our latest 3.0 version of the Quad Video Halo.
Impact of Inflation
Management believes that inflation may have a negligible effect on future operations. Management also believes that it may be able to offset inflationary increases in the cost of sales by increasing sales and improving operating efficiencies.
Income Tax Expense (Benefit)
We have experienced losses and as a result have net operating loss carryforwards available to offset future taxable income.
Critical Accounting Policies
In Note 3 to the audited financial statements for the years ended December 31, 2013 and 2012 included in this Form 10-K, we discuss those accounting policies that are considered to be significant in determining the results of operations and our financial position. The following critical accounting policies and estimates are important in the preparation of our financial statements:
Preparation of Financial Statements
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate estimates. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
We conform to the guidance provided by SEC Staff Accounting Bulletin, Topic 13, “Revenue Recognition.” 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.
Accounting Standards Updates
In Note 3 to the audited financial statements for the years ended December 31, 2013 and 2012 included in this Form 10-K, we discuss those recent accounting pronouncements that may be considered to be significant in determining the results of operations and our financial position.
Going Concern
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 $13,644,433 as of December 31, 2013. During the year ended December 31, 2013, we realized net revenue of $3,299,928 and a net loss of $626,071. Successful business operations and our transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support our cost structure. Considering the nature of the 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 December 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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements for the fiscal years ended December 31, 2013 and 2012 are attached hereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Spine Pain Management, Inc.:
We have audited the accompanying balance sheets of Spine Pain Management, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Spine Pain Management, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has an accumulated deficit of $13,644,433 and working capital of $2,726,841 as of December 31, 2013. Additionally, the Company is not generating sufficient cash flows to meet its regular working capital requirements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We were not engaged to examine management's assertion about the effectiveness of Spine Pain Management, Inc.'s internal control over financial reporting as of December 31, 2013 and 2012 and, accordingly, we do not express an opinion thereon.
/s/ Ham, Langston & Brezina, LLP
Houston, Texas
March 31, 2014
SPINE PAIN MANAGEMENT, INC.
BALANCE SHEETS
December 31, 2013 and 2012
The accompanying notes are an integral part of the financial statements.
SPINE PAIN MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2013 and 2012
The accompanying notes are an integral part of the financial statements.
SPINE PAIN MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2013 and 2012
The accompanying notes are an integral part of the financial statements.
SPINE PAIN MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2013 and 2012
The accompanying notes are an integral part of the 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."
At the end of 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. We currently manage six spine injury diagnostic centers within 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 evaluating the expansion of our services through additional spine injury diagnostic centers in multiple markets across the United States.
We are a medical services and technology 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 healthcare providers that provide necessary and appropriate treatment of musculo-skeletal spine injuries resulting from automobile and work-related accidents. Our 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.
Through our management system, we affiliate with spine surgeons, orthopedic surgeons and other healthcare providers who diagnose and treat patients with musculo-skeletal spine injuries. We assist the centers that provide the spine diagnostic injections and treatment and the doctors are paid 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.
The clinic facilities where the spine injury diagnostic centers operate are owned or leased by third parties. We have no ownership interest in these clinic facilities and have no responsibilities towards building or operating the clinic facilities.
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 $13,644,433 as of December 31, 2013. During the year ended December 31, 2013, we realized net revenue of $3,299,928 and a net loss of $626,071. Successful business operations and our transition to sustained 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 December 31, 2013. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 5).
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued liabilties, 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 and cash equivalents consist of liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. We maintain cash and cash equivalents in banks which at times may exceed federally insured limits. We have not experienced any losses on these deposits.
Intangible Assets
Intangible assets acquired are initially recognized at cost. Intangible assets acquired in a business combination are recognized at their estimated fair value at the date of acquisition.
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. Each year, during the fourth quarter, the goodwill amount is 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. At December 31, 2013 and 2012, no impairment to the asset was determined to have occurred.
Long-Lived Assets
We periodically review and evaluate long-lived assets such as intangible assets, when events and circumstances indicate that the carrying amount of these assets may not be recoverable. In performing our review for recoverability, we estimate the future cash flows expected to result from the use of such assets and its eventual disposition. If the sum of the expected undiscounted future operating cash flows is less than the carrying amount of the related assets, an impairment loss is recognized in the statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount of such assets over the fair value calculated using discounted expected future cash flows.
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, and an assessment of our ability to fully realize amounts billed for services. Additionally, we have established an allowance for doubtful accounts in the amount of $352,615 and $52,628, at December 31, 2013 and 2012, 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 $516,666 and $474,084 during 2013 and 2012, 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.
Uncertain Tax Positions
Accounting Standards Codification “ASC” Topic 740-10-25 defines the minimum threshold a tax position is required to meet before being recognized in the financial statements as “more likely than not” (i.e., a likelihood of occurrence greater than fifty percent). Under ASC Topic 740-10-25, the recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained.
We are subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, we will adjust tax expense to reflect our ongoing assessments of such matters which require judgment and can materially increase or decrease our effective rate as well as impact operating results.
Under ASC Topic 740-10-25, only the portion of the liability that is expected to be paid within one year is classified as a current liability. As a result, liabilities expected to be resolved without the payment of cash (e.g. resolution due to the expiration of the statute of limitations) or are not expected to be paid within one year are not classified as current. We have recently adopted a policy of recording estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense.
We have not made any provision for federal and state income tax liabilities or interest and penalties that may result from this uncertainty that arose as a result of filing U.S. federal and applicable state tax returns in 2010 related to tax years 2004 to 2009. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions include the United States (including applicable states). Because U.S. federal and applicable state tax returns for years 2004 to 2009 were filed in 2010, management believes that all these years of returns will remain subject to audit until 2013.
Legal Costs and Contingencies
In the normal course of business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation and other matters. We expense these costs as the related services are received.
If a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable.
Net Income/Loss per Share
Basic and diluted net income/loss per common share is presented in accordance with ASC Topic 260, “Earnings per Share,” for all periods presented. During year ended December 31, 2013 and 2012, common stock equivalents from outstanding stock options, warrants and convertible debt have been excluded from the calculation of the diluted loss per share in the statement of operations, because all such 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.
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU 2012-02, 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, 2012. Early adoption is permitted. The adoption of ASU 2012-02 did not have a significant impact on the financial statements.
In July 2012, the FASB issued ASU No. 2012-02, Intangible - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more likely than not threshold is defined as having a likelihood of more than 50 percent. Under ASU No. 2012-02, an entity is not required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines it is more likely than not that its fair value is less than its carrying value. ASU No. 2013-02 is effective for annual periods beginning after September 15, 2012. The adoption of ASU 2012-02 did not have a significant impact on the financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2012-11 was issued to provide enhanced disclosures that will enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position. The amendments under ASU No. 2012-11 require enhanced disclosures by requiring entities to disclose both gross information and net information about both instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending arrangements. ASU No. 2011-11 is effective retrospectively for annual periods beginning on or after January 1, 2013, and interim periods within those periods. The adoption of ASU 2011-11 did not have a significant impact on our financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The guidance now requires the company to present the components of net income and other comprehensive income either in one continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of whether the company chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the company is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. ASU No. 2012-05 is effective retrospectively for fiscal years and interim reporting periods within these years beginning after December 15, 2011, with early adoption permitted. We adopted the pronouncement, on January 1, 2012, and it had no significant impact on our financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS"). This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 was effective for reporting periods beginning after December 15, 2011 with application on a prospective basis. We adopted the pronouncement, on January 1, 2012, and it had no significant 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:
During the year ended December 31, 2013 and 2012, we recorded amortization expense of $18,000 and $9,000 related to the non-compete agreements for both parties included in the Gleric acquisition.
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 assist certain spine injury diagnostic centers where affiliated healthcare providers perform medical services for patients. Healthcare providers are paid 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 patients are billed 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% based on settled patient cases, was used to reduce revenue to 48% of CPT code billings (“gross revenue”) during 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 2013, 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 indicates that as of December 31, 2013 and 2012 that 40% and 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 among 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 affiliated diagnostic centers have already have received two to four months of conservative treatment. The treating doctor then typically refers the patient to one of our affiliated healthcare providers for an evaluation of continuing symptoms. Appropriate, reasonable, and necessary treatment programs are ordered by the affiliate doctor.
Accounts Receivable Factoring
During the year ended December 31, 2013 the company did not enter into any factoring agreements. During the year ended December 31, 2012, we factored $17,165 of gross receivables to a third party (the “factor”) for cash consideration of $5,150 respectively, or 30% of the 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. At December 31, 2013, factored gross receivables totaling $65,582 remained subject to the provisions of the factoring terms noted above from accounts receivable factored during 2011.
NOTE 6. DUE TO RELATED PARTIES
Due to related parties consists of the following at December 31:
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. We used the amounts received to meet our working capital requirements (see Note 9).
Amounts due to Spine Injury Physicians (“SIP”), a company owned by our Chief Technology Officer formerly known as Wellness Works, LLC) are non-interest bearing and are due by the 15th of the month following the month in which they were billed. See Note 9 for further information on the amounts due to SIP.
NOTE 7. NOTES PAYABLE AND LONG TERM DEBT
Debentures and third party note payable
In June 2013, we renewed a $50,000, 10% debenture originally due June 30, 2013 to a maturity date of June 30, 2015 in exchange for 50,000 warrants at $0.45 per share. Interest is payable quarterly and the full principal amount is due upon maturity. In June 2013, we also extended the maturity date of a $50,000 third party note originally due March 9, 2015 for two additional years maturing March 9, 2017 in exchange for warrants to purchase 50,000 shares at $0.45 per share.
The weighted-average estimated fair value of the 100,000 warrants issued was $0.21 per share using the Black-Sholes pricing model with the following assumptions:
During the twelve months ended December 31, 2013 and 2012, we recorded $44,662 and $56,808 in interest expense, respectively, related to the amortization of warrants associated with the debentures and third party note. In June 2013, we repaid debentures totaling $350,000, based on the stated contractual terms.
Convertible and secured notes payable
On June 27, 2012, we issued a $500,000 convertible promissory note bearing interest at 12% per year which matures on March 27, 2014. This note provides for six quarterly payments of interest commencing on September 27, 2012, and continuing thereafter on December 27, March 27, June 27, and September 27 throughout the term of the promissory note. On the maturity date, a balloon payment of the entire outstanding principal plus any accrued but unpaid interest is due. 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 June 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. This note was extended for one year on February 6, 2014 with the same provisions for quarterly interest payments with the note now maturing March 27, 2015. As consideration for the extension, we issued another 69,445 warrants to purchase our common stock for $0.43 that expire on February 6, 2015. The holder of the note continues to retain the right to convert the debt at $1.50 per share for the additional twelve months.
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, 2013, 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. On the maturity date, one balloon payment of the entire outstanding principal amount plus any accrued and unpaid interest is due.
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. 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 discounts related to the warrants are accreted into interest expense over the lives of the notes.
The weighted-average estimated fair value of the 69,445 and 333,333 warrants issued with the convertible and secured notes, respectively was $0.62 and $0.81 per share, respectively, using the Black-Sholes pricing model with the following assumptions:
The following table provides an analysis of activity related to the convertible and secured notes for the year ended December 31, 2013:
The following table provides an analysis of activity related to the convertible and secured notes for the year ended December 31, 2012:
The following table provides a listing of the future maturities of long-term debt at December 31, 2013. (See note above about convertible note extension)
NOTE 8. STOCKHOLDERS’ EQUITY
Common Stock
During the years ended December 31, 2013 and 2012, we issued common stock to compensate officers, employees, directors and outside professionals, to make an acquisition and to settle a lawsuit. The stock issuances were valued based on the quoted market price of our common stock on the respective measurement dates. Following is an analysis of common stock issuances during the years ended December 31, 2013 and 2012:
In February 2012, we converted $1,020,200 of outstanding debt to Northshore Orthopedics into 557,486 shares of common stock valued at $1.83 per share. See Note 9.
In May 2012, we issued 170,000 shares of common stock valued at $1.36 per share to acquire Gleric Holdings, LLC. See Note 4.
In May 2012, we entered into a Settlement Agreement and Mutual General Release with James McKay and Celebrity Foods, Inc., which agreement settled and released all parties from claims in connection with the lawsuit originally filed on January 19, 2010 in the United States District Court, Eastern District of Pennsylvania. The terms of the agreement provide that Mr. McKay and Celebrity Foods will retain an aggregate of 448,000 shares of stock and be issued an aggregate of 135,000 additional restricted shares at $1.39 per share. All of the shares retained by and issued to Mr. McKay and Celebrity Foods are subject to a leak-out provision. We also agreed to pay certain attorney’s fees which included the issuance of 100,000 restricted shares valued at $1.39 per share of common stock to the attorney of Mr. McKay and Celebrity Foods, which shares are also subject to certain trading restrictions.
In July 2012 and December 2012, we issued 15,000 and 30,000 restricted shares of common stock valued at $1.14 and $0.54 per share, respectively, in connection with the engagement of an investor relations consultant.
In August 2012, we issued an aggregate of 300,000 restricted shares of common stock, valued at $1.05 per share, in connection with the engagement of a business development consultant.
In December 2012, we issued 10,000 restricted shares of common stock to two separate consultants for their work on various matters for a total of 20,000 shares of common stock valued at $0.54 per share.
In September 2013, we issued an aggregate of 300,000 restricted shares of common stock, valued at $0.32 per share, in connection with the engagement of a business development consult
Warrants
The following summarizes outstanding warrants and their respective exercise prices at December 31, 2013:
We currently have four series of outstanding warrants. Series B and Series C warrants were issued with the debentures that we sold to five investors during 2012 and 2010 and have expired. We issued 100,000 warrants in connection with the renewal of a third party note payable and debenture as described further in Note 7.
During 2012, as described in Note 7, we issued two warrants to investors (1) to purchase 69,445 shares of common stock in conjunction with the convertible note payable and (2) to purchase 333,333 shares of common stock in conjunction with the secured note payable.
During 2011, we issued 400,000 Series D warrants as compensation for the consultants who sold the debentures. The warrants were immediately exercisable. The weighted-average estimated fair value of the warrants issued ranged from $0.57-$0.74 per share using the Black-Scholes model with the following assumptions:
The fair value of the Series D warrants issued in 2011 was $279,000 and was recorded as a debt issuance cost asset which was amortized through June 13, 2013. The unamortized portion of the debt issuance cost asset is $0 at December 31, 2013. Interest expense related to these Series D warrants issued in 2011 of $55,786 and $111,600 was recognized in the Statements of Operations for the years ended December 31, 2013 and 2012, respectively.
A summary of the warrant activity for the years ended December 31, 2013 and 2012 follows:
Stock Options
The Company recognizes compensation expense related to stock options 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 during the years ended December 31, 2013 and 2012 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 were calculated using the Black Scholes option pricing model.
On June 28, 2012, we issued 150,000 stock options to directors as follows:
·
Options to purchase up to a total of 150,000 shares of common stock were granted to the certain 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 $1.15 per share using the Black-Scholes model with the following assumptions:
Expected volatility
136.00%
Risk-free interest rate
0.40%
Expected life
3 years
Dividend yield
0%
On December 1, 2012, we issued 600,000 stock options to officers as follows:
·
Options to purchase up to a total of 600,000 shares of common stock were granted to three officers as they each were given employment agreements which included the right to purchase 200,000 shares of common stock at the price of $0.54 per share for the next two years. These options vest evenly every six months over the first two years of the five-year life of the options. The weighted-average estimated fair value of the stock options granted was $0.46 per share using the Black-Scholes model with the following assumptions:
Expected volatility
130.21%
Risk-free interest rate
0.61%
Expected life
5 years
Dividend yield
0%
There were no options granted or forfeited for the year ended December 31, 2013.
Details of stock option activity for the years ended December 31, 2013 and 2012 follows:
The following summarizes outstanding stock options and their respective exercise prices at December 31, 2013:
No options were granted or forfeited for the year ended December 31, 2013. The fair value of the options granted during the years ended December 31, 2012 was $408,000. We recorded $288,000 and $300,000 in compensation expense in operating, general and administrative expenses in the Statements of Operations for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, there was approximately $194,110 of total unrecognized compensation expense related to non-vested stock option awards. The remaining $194,110 in compensation expense will be recognized during the year ended December 31, 2014.
NOTE 9. 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 December 31, 2013 and 2012, we had balances payable to NSO of $10,406 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. In February 2012, a $1,020,200 outstanding NSO balance payable was converted to stock at the price of $1.83 per share, which was the closing market price on February 17, 2012. This resulted in the issuance of 557,486 restricted shares of common stock.
As shown in Note 6, at December 31, 2013 and 2012, we had balances of $135,699 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 6, we have an agreement with Spine Injury Physicians, (formerly Wellness Works LLC) a company 100% owned by Eric Groteke, D.C., who became our Chief Technology Officer in May 2012 (See Note 4), to provide medical services as our independent contractor in Florida. SIP is paid for services on a monthly basis dependent upon the services provided. At December 31, 2013 and 2012, $18,188 and $57,810 respectively, was owed to SIP. For the year ended December 31, 2013, SIP billed us $352,302 as a third-party for service costs. For the year ended December 31, 2012, Wellness billed us for service costs in the amount of $459,532 as a related party and $296,299 as a third-party.
Note Receivable from a Related Party
We entered into the 6% promissory note with a major stockholder (a beneficial owner of over 5% of our common stock) on June 30, 2012, as part of a transaction where we recorded a liability for legal expenses that arose in 2008-2010 for which the stockholder and we were held jointly and severally liable. In September 2012, the legal expenses were settled with the law firm for a $200,000 cash payment. During the year ended December 31, 2012 we wrote off the promissory note with the shareholder and realized a net credit to other income of approximately $66,000.
NOTE 10. INCOME TAXES
We have not made provision for income taxes for the years ended December 31, 2013 or 2012, since we have net operating loss carryforwards to offset current taxable income.
Deferred tax assets consist of the following at December 31:
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 more likely than not that we will realize a deferred income tax assets of approximately $2,160,972 and $2,279,261 attributable to the future utilization of the approximate $6,003,185 and $7,043,430 in eligible net operating loss carryforwards, and the allowance for doubtful accounts, as of December 31, 2013 and December 31, 2012 respectively. 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:
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.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
William Donovan, M.D., our President and Chief Executive Officer, is our principal executive officer and John Bergeron, our Chief Financial Officer, is our principal financial officer.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2013. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our principal executive officer and principal financial officer, in a manner that allowed for timely decisions regarding disclosure.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized transactions.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework and Internal Control over Financial Reporting - Guidance for Smaller Public Companies.
Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2013. Based on this evaluation, our management concluded that, as of December 31, 2013, we maintained effective internal control over financial reporting.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the year ended December 31, 2013 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 its disclosure controls or 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’s override of the control. The design of any systems of controls 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. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors and executive officers are as follows:
William Donovan, M.D. - Dr. Donovan has served as our Chief Executive Officer since January 2009 and as our President since May 2010. He has served as one of our Directors since April 2008. He is a Board Certified Orthopedic Surgeon, and has been involved with venture funding and management for over 25 years. He was the co-founder of DRCA (later known as I.O.I) and became Chairman of this company that went from the pink sheets, to NASDAQ and then to the AMEX before being acquired by a subsidiary of the Bass Family. He was a founder of “I Need A Doc,” later changed to IP2M that was acquired by Dialog Group, a publicly traded company. He was the Chairman of House of Brussels, an international chocolate company and president of ChocoMed, a specialized confectionery company combining Nutraceuticals with chocolate bars. Dr. Donovan has been practicing as a physician in Houston since l975. Throughout his career as a physician, he has been involved in projects with both public and private enterprises. He received his Orthopedic training at Northwestern University in Chicago. He was a Major in the USAF for 2 years at Wright Patterson Air Force base in Dayton, Ohio. He established Northshore Orthopedics in 1975 and continues in active practice in Houston, Texas specializing in Orthopedic Surgery.
John Bergeron, CPA - Mr. Bergeron has served as our Chief Financial Officer since October 2011 and as one of our Directors since July 2010. He currently serves as President of Jolpeg Inc., a private firm that consults on financial matters in service industries, a position he has held since May 2008. Also since May 2008, he has worked as Controller of Christian Brothers Automotive Corporation, of which he also currently owns and operates a franchise. From May 2005 until May 2008, Mr. Bergeron served as Divisional Controller of Able Manufacturing, a division of NCI Group, Inc, where his responsibilities included financial reporting, budgeting and Sarbanes-Oxley Act compliance. Prior to that, Mr. Bergeron worked as controller of different internet companies and as an accounting manager for several other private firms. He has also worked as an auditor for Arthur Andersen. Mr. Bergeron has more than thirty years experience in financial management and corporate development of manufacturing and service industry companies. He has extensive experience in financial reporting of public companies, risk management, business process re-engineering, structuring and implementing accounting procedures and internal control programs for Sarbanes-Oxley Act compliance. Mr. Bergeron is a Certified Public Accountant. He received a Bachelor of Business Administration in Accounting from Lamar University in 1979. He is also currently the President of the Montgomery County MUD #83.
Jerry Bratton, J.D., MBA - Mr. Bratton has served as one of our Directors since July 2010. He has served as President of Bratton Steel, L.P. since 2006 and previously with Bratton Steel, Inc. (its predecessor) since 1991. Bratton Steel is a structural steel fabricating company. As President, Mr. Bratton has grown the company from a startup to a company that employs up to approximately 75 employees. He has significant experience in overseeing sales, estimating, project management and contracting. Mr. Bratton served as President of the Texas Structure Steel Institute from 2007 to 2008. He is also a member of the American Institute of Steel Construction. Mr. Bratton has business and investment background in medical software, personal medical information records storage, RFID security products and energy ventures. Mr. Bratton is a licensed attorney in the State of Texas and previously served as an assistant general counsel in the construction industry. Mr. Bratton earned Juris Doctorate and Master of Business Administration degrees from Texas Tech University in 1977.
Franklin A. Rose, M.D. - Dr. Rose has served as one of our Directors since July 2010. He is a Board Certified plastic and reconstructive surgeon. He has been in private practice since 1984 and currently has hospital affiliations in Houston, Texas with First Street Surgical Center, Woman’s Hospital of Texas, Memorial Hermann Hospital-Northwest and Twelve Oaks Hospital. Dr. Rose is an experienced surgeon, well acquainted with various surgical and medical procedures. He has also been involved in investing with multiple micro-cap medical companies. Dr. Rose earned a Doctor of Medicine degree from the University of Colorado in 1977, and a Bachelor of Science degree from the University of Wisconsin, Madison in 1973. He is a member of the American Medical Association, the American Society of Plastic Surgeons, the Lipolysis Society of North America and the American Society of North America. He is also the attending plastic surgeon to The Texas Institute of Plastic Surgery.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent of our common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Based solely upon a review of Forms 3, 4 and 5 furnished to us during the fiscal year ended December 31, 2013, we believe that the directors, executive officers, and greater than ten percent beneficial owners have complied with all applicable filing requirements during the fiscal year ended December 31, 2013.
Code of Ethics
We have adopted a code of ethics that applies to our directors, principal executive officers, principal financial officers, principal accounting officer or controller, and persons performing similar functions. The Code of Ethics for Directors and Executive Officers can be found on our website at www.spinepaininc.com/investor-information. Further, we undertake to provide by mail to any person without charge, upon request, a copy of such code of ethics if we receive the request in writing by mail to: Spine Pain Management, Inc., 5225 Katy Freeway, Suite 600, Houston, Texas 77007.
Procedures for Stockholders to Recommend Nominees to the Board
There have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors since we last provided disclosure regarding this process in the proxy statement material we mailed to stockholders on or around May 1, 2013 for our Annual Meeting held May 30, 2013.
Audit Committee
We have established a separately-designated standing audit committee. The Audit Committee consists of our two independent Directors, Jerry Bratton and Franklin Rose, M.D. Mr. Bratton is the Chairman of the Audit Committee, and the Board of Directors has determined that he is an audit committee financial expert as defined in Item 5(d)(5) of Regulation S-K. The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the recommendations and performance of independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, and internal accounting and financial control policies and procedures.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides summary information for the years 2013 and 2012 concerning cash and non-cash compensation paid or accrued to or on behalf of certain executive officers (“named executive officers”).
Summary Executive Compensation Table
(1)
On June 6, 2011, we granted Dr. Donovan stock options to purchase 600,000 shares of common stock at an exercise price of $0.77 per share. We granted the options as consideration for his employment as Chief Executive Officer and President. The options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. The fair value of the options was $432,000, of which $144,000 and $144,000 in compensation expense was recognized in the Statement of Operations for the years ended December 31, 2013 and December 31, 2012, respectively. (See Note 8 of the accompanying financial statements)
(2)
On November 30, 2012 we issued 200,000 unvested stock options to purchase shares of common stock at an exercise price of $0.61 per share. The stock options will expire on December 1, 2017, and 50,000 of the stock options will vest and become exercisable every six months during the term of the agreement. If at any time during the term of the agreement Mr. Bergeron’s employment with us should end, all unvested stock options will be relinquished.
Employment Agreements
On February 16, 2012, we entered into an employment agreement with our President and Chief Executive Officer, William F. Donovan, M.D. On February 20, 2012, the agreement was amended to eliminate certain stock award provisions. The employment agreement, as amended, (i) terminates and supersedes the previous employment agreement that we entered into with Dr. Donovan on or about May 17, 2010, which was to expire in May 2012 unless earlier terminated, (ii) has a term that ends on March 31, 2014, and (iii) provides that we will pay Dr. Donovan an annual base salary of $96,000. The agreement also provides that we may grant Dr. Donovan performance bonuses from time to time at the discretion of the Board of Directors. The termination of Dr. Donovan’s May 2010 employment agreement accordingly terminated his right under that agreement to receive 1,000,000 restricted shares of common stock if he is employed by us on June 30 of the calendar year in which we achieve an annual fully diluted earning per share of at least $0.01 as reflected in the audited financial statements filed with an annual report on Form 10-K filed with the SEC.
On November 30, 2012, we entered into a new employment agreement with John Bergeron, our Chief Financial Officer. His previous employment agreement expired on September 30, 2012. The terms of the new employment agreement include (i) a two-year term beginning on December 1, 2012, (ii) an annual salary of $90,000, and (iii) 200,000 unvested stock options to purchase shares of common stock at an exercise price of $0.54 per share. The stock options will expire on December 1, 2017, and 50,000 of the stock options will vest and become exercisable every six months during the term of the agreement. If at any time during the term of the agreement Mr. Bergeron’s employment with us should end, all unvested stock options will be relinquished.
Outstanding Equity Awards at Fiscal Year End
The following table details all outstanding equity awards held by our named executive officers at December 31, 2013:
(1)
On June 6, 2011, we granted Dr. Donovan stock options to purchase 600,000 shares of common stock at an exercise price of $0.77 per share. We granted the options as consideration for his employment as Chief Executive Officer and President. The options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. Dr. Donovan exercised 50,000 of the options on September 9, 2012.
(2)
On November 30, 2012, we granted Mr. Bergeron stock options to purchase 200,000 shares of common stock at an exercise price of $0.54 per share. We granted the options as consideration for his employment as Chief Financial Officer. The options vest and become exercisable in four six month periods for the first two years of the five-year life of the options.
(3)
In addition to the options detailed in the table, Mr. Bergeron also holds certain option that we granted to him as consideration for serving on the Board of Directors, including stock options to purchase 25,000 shares of common stock at an exercise price of $1.15 per share that expire in June 2015 and stock options to purchase 25,000 shares of common stock at an exercise price of $0.77 per share that expire in June 2014.
Compensation of Directors
In May 2013, we adopted a new director compensation policy pursuant to which each outside Board member will receive a director fee of $300 for each Board or committee meeting that he attends. If multiple Board or committee meetings are held in immediate succession, only one director fee will be paid to attending Board members, and Board members will receive no compensation for written consents to action. Board members that are also officers of the Company will not receive director fees for attendance of meetings. Compensation to directors during the year ended December 31, 2013 was as follows:
Summary Director Compensation Table
(1)
On January 22, 2014, Mr. Lawrence, a member of our Board of Directors, resigned from the Board for personal reasons.
Compensation Policies and Practices as they Relate to Risk Management
We attempt to make our compensation programs discretionary, balanced and focused on the long term. We believe goals and objectives of our compensation programs reflect a balanced mix of quantitative and qualitative performance measures to avoid excessive weight on a single performance measure. Our approach to compensation practices and policies applicable to employees and consultants is consistent with that followed for its executives. Based on these factors, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at March 25, 2014 with respect to the beneficial ownership of shares of common stock by (i) each person known to us who owns beneficially more than 5% of the outstanding shares of common stock (based upon reports which have been filed and other information known to us), (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our named executive officers and directors as a group. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to the shares shown. As of March 21, 2014, there were 18,715,882 shares of common stock outstanding.
(1)
The named individual is one of our executive officers or directors. Our business address is 5225 Katy Freeway, Suite 600, Houston, Texas 77007.
(2)
Includes 557,486 shares of common stock held indirectly through NorthShore Orthopedics, Assoc. (of which Dr. Donovan is the sole shareholder and has voting and investment control) and 3,171,941 shares held directly by Dr. Donovan. Also includes 500,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable.
(3)
Includes 175,000 shares of common stock and 25,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable.
(4)
Includes 160,000 shares of common stock and 150,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable.
(5)
Includes 1,556,100 shares of common stock held by Mr. Bratton, of which Mr. Bratton has sole voting power of 320,000 shares and shared voting power with his spouse of 1,236,100 shares. Also includes 50,000 shares of common stock issuable upon exercise of options that are fully vested and exercisable.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of December 31, 2013:
(1)
Consists of common shares to be issued upon exercise of outstanding stock options as follows:
· In June 2011, we granted three of our Directors stock options to purchase a total of 75,000 shares of common stock at an exercise price of $0.77 per share. The three-year options vested and became exercisable immediately. A total of 50,000 of these options remain unexercised.
· In June 2011, we granted our CEO stock options to purchase a total of 600,000 shares of common stock at an exercise price of $0.77 per share. The options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. A total of 550,000 of these options remain outstanding and unexercised
· In June 2012, we granted five of our Directors stock options to purchase a total of 150,000 shares of common stock at an exercise price of $1.15 per share. The three-year options vested and became exercisable immediately.
· In November 2012, we granted three of our employees stock options to purchase 600,000 shares of common stock at an exercise price of $.54 per share. The five year options vest every six months at 50,000 options per period.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have an agreement with Northshore Orthopedics, Assoc. ("NSO"), which is 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as our independent contractor. As of December 31, 2013 and 2012, we had balances payable to NSO of $10,406 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. In February 2012, however, NSO agreed to convert into common stock $1,020,200 of outstanding debt at the price of $1.83 per share, which was the closing market price on Friday, February 17, 2012. This resulted in us issuing to NSO 557,486 restricted shares of common stock on February 28, 2012.
Additionally, as shown in Note 6 of the accompanying financial statements, at December 31, 2013 and 2012, we had balances of $135,699 and $290,699, respectively, 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.
Director Independence
We currently have two independent Directors on our Board, Jerry Bratton and Franklin A. Rose, M.D. The definition of “independent” used herein is arbitrarily based on the independence standards of The NASDAQ Stock Market LLC. The Board performed a review to determine the independence of Franklin A. Rose, M.D. and Jerry Bratton and made a subjective determination as to each of these Directors that no transactions, relationships or arrangements exist that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director of Spine Pain Management, Inc. In making these determinations, the Board reviewed information provided by these Directors with regard to each Director’s business and personal activities as they may relate to us and our management.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees paid or accrued by us for the audit and other services provided or to be provided by our principal independent accountants during the years ended December 31, 2013 and 2012.
(1)
Audit Fees: This category represents the aggregate fees billed for professional services rendered by the principal independent accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years.
(2)
Audit Related Fees: This category consists of the aggregate fees billed for assurance and related services by the principal independent accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”
(3)
Tax Fees: This category consists of the aggregate fees billed for professional services rendered by the principal independent accountant for tax compliance, tax advice, and tax planning.
Pre-Approval of Audit and Non-Audit Services
All above audit services, audit-related services and tax services, for the fiscal years ended December 31, 2013 and 2012, were pre-approved by our Audit Committee, which concluded that the provision of such services was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s outside auditor independence policy provides for pre-approval of all services performed by the outside auditors.
PART IV
ITEM 15.
ITEM 15. 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, 2013) *
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, 2013) *
14.1
Code of Ethics (Incorporated by reference from our website. It can be found at: www.spinepaininc.com/investor-information) *
21.1
Subsidiaries
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
In accordance with the requirements of Section 13 of 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2014.
Spine Pain Management, Inc.
/s/ William F. Donovan, M.D.
By: William F. Donovan, M.D.
Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons in the capacities and on the dates indicated:
Signature
Title
Date
/s/ William F. Donovan, M.D.
March 31, 2014
William F. Donovan, M.D.
Chief Executive Officer (Principal Executive Officer), President and Director
/s/ John Bergeron
March 31, 2014
John Bergeron
Chief Financial Officer (Principal Financial and Accounting Officer) and Director
/s/ Jerry Bratton
March 31, 2014
Jerry Bratton
Director
/s/ Franklin Rose, M.D.
March 31, 2014
Franklin Rose, M.D.
Director