---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---

FORM 10-QSB



---



(Mark One)



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2003



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934)
|- |  | -----------------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number: 1-14160



PAINCARE HOLDINGS, INC.

(Exact name of small business issuer as specified in its charter)



|Florida                                                        |  | 06-1110906                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



37 N.
Orange Avenue, Orlando, Florida 32801

(Address of principal executive offices)



(407) 926-6615

(Issuers telephone number)



HelpMate Robotics Inc.

Shelter Rock Lane: Danbury, Connecticut 06810: (203) 798-8988

(Former name, former address and formal
fiscal year, if changed since last report)



Check whether the
issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ̈



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
DURING

THE PRECEDING FIVE YEARS



Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ̈No ̈



APPLICABLE ONLY TO CORPORATE ISSUERS



The number
of shares outstanding of the issuers common stock as of April 28, 2003 is 18,813,961 shares.



Transitional Small Business Disclosure Format (Check One) Yes ̈No x



---





---



PART I
FINANCIAL INFORMATION



|ITEM |  | 1.    FINANCIAL STATEMENTS
|---- |  | --------------------------



PainCare Holdings, Inc. and Subsidiaries



Consolidated Balance Sheet



As of March 31, 2003 and December 31, 2002



|                                                                                                                      |  | March 31, 2003 |            |   | December 31, 2002 |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ----------------- | -
|                                                                                                                      |  | (Unaudited)    |            |   | (Audited)         |  
|Assets                                                                                                                |  |                |            |   |                   |  
|Current Assets:                                                                                                       |  |                |            |   |                   |  
|Cash                                                                                                                  |  | $              | 2,504,620  |   |                   | $
|Accounts receivable                                                                                                   |  |                | 3,025,503  |   |                   |  
|Due from Shareholder                                                                                                  |  |                | 339,565    |   |                   |  
|Note receivable                                                                                                       |  |                | 79,000     |   |                   |  
|Deposits & prepaid expenses                                                                                           |  |                | 327,828    |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Total current assets                                                                                                  |  |                | 6,276,516  |   |                   |  
|Furniture and equipment, net                                                                                          |  |                | 3,190,685  |   |                   |  
|Goodwill, net                                                                                                         |  |                | 5,695,885  |   |                   |  
|Other Assets                                                                                                          |  |                | 66,081     |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Total assets                                                                                                          |  |                | 15,229,167 |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Liabilities and Stockholders Equity                                                                                  |  |                |            |   |                   |  
|Current liabilities:                                                                                                  |  |                |            |   |                   |  
|Accounts payable and accrued expenses                                                                                 |  |                | 340,003    |   |                   |  
|Current portion of notes payable                                                                                      |  |                | 61,503     |   |                   |  
|Current portion of convertible debenture                                                                              |  |                | 750,000    |   |                   |  
|Current portion of lease payable                                                                                      |  |                | 531,687    |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Total current liabilities                                                                                             |  |                | 1,683,193  |   |                   |  
|Notes payable, less current portion                                                                                   |  |                | 616,889    |   |                   |  
|Convertible debentures, less current portion                                                                          |  |                | 1,150,040  |   |                   |  
|Lease payable, less current portion                                                                                   |  |                | 2,061,131  |   |                   |  
|Shareholder loan                                                                                                      |  |                | 1,402      |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Total liabilities                                                                                                     |  |                | 5,512,655  |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Stockholders equity:                                                                                                 |  |                |            |   |                   |  
|Common stock, $.0001 par value. Authorized 75,000,000 shares; issued and outstanding
18,362,543 and 15,576,640 shares |  |                | 1,845      |   |                   |  
|Preferred stock, $.0001 par value. Authorized 10,000,000 shares; issued and
outstanding -0-  shares                   |  |                |           |   |                   |  
|Additional paid in capital                                                                                            |  |                | 8,856,109  |   |                   |  
|Retained earnings                                                                                                     |  |                | 879,776    |   |                   |  
|Cumulative translation adjustments                                                                                    |  |                | (21,218    | ) |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Total stockholders equity                                                                                            |  |                | 9,716,512  |   |                   |  
|                                                                                                                      |  |                |            |   |                   |  
|Total liabilities and stockholders equity                                                                            |  | $              | 15,229,167 |   |                   | $
|                                                                                                                      |  |                |            |   |                   |  



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



2



---



PainCare
Holdings, Inc.



Consolidated Statements of
Operations (unaudited)



For the Three
Months Ended



March 31, 2003 and 2002







|                                            |  | For the Three Months Ended March 31,
|------------------------------------------- |  | ------------------------------------
|                                            |  | 2003                                
|Total revenues:                             |  |                                     
|Patient services                            |  | $                                   
|Management fees                             |  |                                     
|                                            |  |                                     
|Total revenues                              |  |                                     
|Cost of sales                               |  |                                     
|                                            |  |                                     
|Gross profit                                |  |                                     
|Operating expenses:                         |  |                                     
|Selling, general and administrative         |  |                                     
|Depreciation expense                        |  |                                     
|                                            |  |                                     
|Operating income                            |  |                                     
|Interest expense                            |  |                                     
|Other income                                |  |                                     
|                                            |  |                                     
|Income before taxes                         |  |                                     
|Provision for income taxes                  |  |                                     
|                                            |  |                                     
|Net income                                  |  | $                                   
|                                            |  |                                     
|Basic earnings per share                    |  | $                                   
|                                            |  |                                     
|Basic weighted average shares outstanding   |  |                                     
|                                            |  |                                     
|Diluted earnings per share                  |  | $                                   
|                                            |  |                                     
|Diluted weighted average shares outstanding |  |                                     
|                                            |  |                                     



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



3



---



PainCare
Holdings, Inc.



Consolidated Statement of
Stockholders Equity (unaudited)



For
the Three Months ended March 31, 2003



|                                                            |  | Common Stock Shares |  | Common Stock Amount |       | Additional Paid in Capital |   | Retained Earnings |  | Cumulative Translation Adjustment |         |  | Total Stockholders Equity
|----------------------------------------------------------- |  | ------------------- |  | ------------------- | ----- | -------------------------- | - | ----------------- |  | --------------------------------- | ------- |  | -------------------------
|Balance at December 31, 2002                                |  | 15,576,640          |  | $                   | 1,557 |                            | $ | 7,019,246         |  | $                                 | 556,487 |  | $                        
|Common stock issued for conversion of convertible preferred |  | 455,913             |  |                     | 46    |                            |   | 219,496           |  |                                   |        |  |                          
|Common stock issued for earnout                             |  | 107,456             |  |                     | 11    |                            |   | 163,322           |  |                                   |        |  |                          
|Common stock issued for cash                                |  | 2,305,753           |  |                     | 231   |                            |   | 1,454,045         |  |                                   |        |  |                          
|Foreign currency translation                                |  |                    |  |                     |      |                            |   |                  |  |                                   |        |  |                          
|Net income                                                  |  |                    |  |                     |      |                            |   |                  |  |                                   | 323,289 |  |                          
|                                                            |  |                     |  |                     |       |                            |   |                   |  |                                   |         |  |                          
|Balance at March 31, 2003                                   |  | 18,445,762          |  | $                   | 1,845 |                            | $ | 8,856,109         |  | $                                 | 879,776 |  | $                        
|                                                            |  |                     |  |                     |       |                            |   |                   |  |                                   |         |  |                          



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



4



---



PainCare
Holdings, Inc.



Consolidated Statements of
Cash Flows (unaudited)



For the Three
Months ended March 31, 2003 and 2002





|                                                                              |  | 2003 |           |   | 2002 |  
|----------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | -
|Operating activities:                                                         |  |      |           |   |      |  
|Net income                                                                    |  | $    | 323,289   |   |      | $
|Adjustments to reconcile net income to net cash used in operating
activities: |  |      |           |   |      |  
|Depreciation and amortization                                                 |  |      | 85,154    |   |      |  
|Cumulative translation adjustments                                            |  |      | (21,218   | ) |      |  
|Change in operating assets and liabilities, net of assets acquired:           |  |      |           |   |      |  
|Accounts receivable                                                           |  |      | (244,409  | ) |      |  
|Prepaid expenses                                                              |  |      | (130,649  | ) |      |  
|Other assets                                                                  |  |      | 137,741   |   |      |  
|Accounts payable                                                              |  |      | (189,028  | ) |      |  
|                                                                              |  |      |           |   |      |  
|Net cash provided (used) in operating activities                              |  |      | (39,120   | ) |      |  
|                                                                              |  |      |           |   |      |  
|Investing activities:                                                         |  |      |           |   |      |  
|Purchase of furniture and equipment                                           |  |      | (178,070  | ) |      |  
|Payment of debentures                                                         |  |      | (350,000  | ) |      |  
|                                                                              |  |      |           |   |      |  
|Net cash used in investing activities                                         |  |      | (528,070  | ) |      |  
|                                                                              |  |      |           |   |      |  
|Financing activities:                                                         |  |      |           |   |      |  
|Proceeds from issuance of debentures                                          |  |      |          |   |      |  
|Proceeds from issuance of convertible preferred                               |  |      | 219,496   |   |      |  
|Proceeds from issuance of common stock                                        |  |      | 1,454,045 |   |      |  
|Capital lease obligations                                                     |  |      | (8,464    | ) |      |  
|Payment of notes receivable                                                   |  |      | (21,316   | ) |      |  
|Shareholder loans                                                             |  |      | 487       |   |      |  
|Notes payable                                                                 |  |      | (651,122  | ) |      |  
|                                                                              |  |      |           |   |      |  
|Net cash provided by financing activities                                     |  |      | 993,126   |   |      |  
|                                                                              |  |      |           |   |      |  
|Net increase (decrease) in cash and cash equivalents                          |  |      | 425,936   |   |      |  
|Cash and cash equivalents at beginning of period                              |  |      | 2,078,684 |   |      |  
|                                                                              |  |      |           |   |      |  
|Cash and cash equivalents at end of period                                    |  | $    | 2,504,620 |   |      | $
|                                                                              |  |      |           |   |      |  
|Supplementary disclosure of cash flow information:                            |  |      |           |   |      |  
|                                                                              |  |      |           |   |      |  
|Cash paid during period for interest                                          |  | $    | 133,281   |   |      | $
|                                                                              |  |      |           |   |      |  



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



5



---



PainCare
Holdings, Inc.



Notes to Consolidated
Financial Statements



Organization and Basis of Presentation



Organization



The Company was initially incorporated in State of
Connecticut in May, 1984 under the name of HelpMate Robotics, Inc. Prior to the sale of its business in December 1999, HelpMate was primarily engaged in the design, manufacture, and sale of HelpMates flagship product, the HelpMates
courier system, a trackless robotic courier used primarily in the health care industry to transport materials. On December 30, 1999, HelpMate sold substantially all of its assets to Pyxis Corporation (Pyxis).



Following the sale to Pyxis in December 1999, HelpMates
business plan was to effect a business combination with an operating business, which HelpMate believed to have the potential to increase stockholder value.



On December 20, 2001, HelpMate entered in an Agreement and Plan of Merger with PainCare, Inc., a Nevada corporation (the Merger
Agreement), which was consummated on July 17, 2002 (the Merger). Pursuant to the Merger, PainCare, Inc. became a wholly-owned subsidiary of HelpMate. In connection with the Merger, the shareholders of PainCare, Inc. received voting
common stock of HelpMate.



The Merger was
accounted for in accordance with accounting principles generally accepted in the United States. No goodwill or intangibles were recorded because the merger is essentially a recapitalization transaction and has been accounted for in a manner similar
to a reverse acquisition, identifying PainCare, Inc. as the accounting acquirer.



Holders of PainCare, Inc. common stock received shares of HelpMate common stock at a conversion rate of one (1) share of HelpMate common stock for each one share of PainCare, Inc. common stock
surrendered. As of the date the Merger was consummated there were 7,555,357 shares of PainCares common stock issued and outstanding. Holders of PainCare, Inc. options, warrants and other derivatives have the right to exercise those derivatives
for HelpMates common stock.



HelpMate had
900,122 shares of common stock outstanding as of the date of the Merger. There were no other shares of HelpMate capital stock or derivatives issued or outstanding.



In summary, PainCare, Inc. security holders received an aggregate of 11,789,816 shares of HelpMate common
stock in the merger, or approximately 93% of the issued and outstanding shares of HelpMate common stock, assuming the exercise or conversion of all issued and outstanding PainCare, Inc. stock options, warrants and convertible notes.



On December 12, 2002, the Company completed the acquisition of
the outstanding capital stock of Pain and Rehabilitation Network, Inc., a pain management physician practice headquartered in Orange Park, Florida. The capital stock was acquired from Andrea Trescot, M.D., the sole shareholder. The purchase price
consisted of $1,000,000 in cash and 1,000,000 shares of the Companys common stock valued at $1.00 per share. The Company may also make additional payments of up to $2,000,000 in cash and common stock if certain net earnings goals are achieved
in each of the first three fiscal years following the closing. The acquisition has been accounted for using the purchase method of accounting.



6



---



Common Stock



As of March 31, 2003, the Company had
75,000,000 shares of authorized common stock with a par value of $.0001 per share. As a result of the 22.19 to 1 reverse stock split of the Companys common stock which occurred on March 18, 2002, the merger with PainCare, Inc., which occurred
on July 17, 2002 and subsequent capital raises and acquisitions, the Company has 18,813,961 shares of its common stock issued and outstanding as of April 28, 2003. No preferred shares have been issued. All share and per share information herein has
been restated to reflect the effect of the split.



Principles of Interim Statements.



The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Rule
310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States. In the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have been included in the accompanying unaudited financial statements. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in the Companys annual report on Form 10-KSB for the year ended December 31, 2002, the
Companys Form S-4/A filed with the SEC on July 11, 2002 and the Companys Definitive Proxy Statement 14A filed September 27, 2002.



In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142), effective for fiscal years beginning after December 15, 2001. SFAS 142 requires that goodwill be allocated to reporting units and that goodwill and intangibles assets with indefinite useful lives not be amortized over
their useful lives, but rather be tested for impairment upon implementation of this standard and at least annually thereafter. The transitional impairment test should be completed in the first interim period (or in case of goodwill in the first six
months) of the fiscal year in which SFAS 142 is adopted, and any resulting impairment loss should be recognized as the effect of a change in accounting principle in accordance with Accounting Principles Board Opinion No. 20, Accounting Changes. Any
subsequent impairment losses resulting from events or circumstances that occur after the first day of the fiscal year in which SFAS 142 is adopted should be reported as a component of income from continuing or discontinued operations, as
appropriate. These statements apply to all business combinations that are initiated or completed after June 30, 2001 and the effective date of these pronouncements for the Company is January 1, 2002.



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

CONDITION.



The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear
elsewhere in this document.



This Report
includes forward-looking statements made based on current management expectations pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and actual
outcomes may differ materially from what is expressed or forecasted. Factors that could cause future results to differ from the Companys expectations include the factors described on page 9 of this Report under Special Note Regarding
Forward-Looking Statements as well as under Risk Factors beginning on page 14 of this Report.



7



---



Outlook



The Company has been reorganized for
the purpose of establishing a North American network of pain management, minimally invasive surgery and orthopedic rehabilitation centers. The Companys strategy is to rapidly grow by establishing a network of pain management, minimally
invasive spine surgery and orthopedic rehabilitation centers. The Company has developed its Three Pillar business approach to provide an integrated combination of products and services to patients seeking pain relief through Pain
Management technologies, Minimally Invasive Spine Surgery (MIS) and Orthopedic Rehabilitation. MIS or band-aid surgery is a specialized surgical technique based on currently available endoscopic technologies, which allows physicians to
provide the most technically advanced treatment of back and neck pain in an outpatient environment. Orthopedic Rehabilitation is a comprehensive program that advances functional restoration of the musculoskeletal system utilizing state of the art
computerized MedX medical exercise machines.



It
is the intention of management that the Companys Pain Management and Orthopedic Centers will specialize in the full spectrum of diagnosis and treatment of pain, with a concentration on chronic back and neck pain. Management believes that by
establishing a chain of Pain Management and Orthopedic Centers that provide minimally invasive spinal surgery and orthopedic rehabilitation services, it will generate significant revenues and will be profitable.



Significant Accounting Policies and Estimates



Managements Discussion and Analysis of Financial
Condition and Results of Operations discuss the Companys consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to marketing expenses, customer incentives, student attrition rates, bad debts, intangible assets,
income taxes, financing operations, contractual obligations, restructuring costs, retirement benefits, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.



Our significant accounting policies are more fully discussed in Form 10-KSB filed with the SEC on March 24, 2003. However, certain of our accounting policies are particularly important to the portrayal of our financial position and
results of operations and require the application of significant judgment by our management; as a result they are subject to an inherent degree of uncertainty. In applying those policies, our management uses its judgment to determine the appropriate
assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information
available from other outside sources, as appropriate. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.



Our critical accounting policies include:



·Revenue Recognition.    Revenue from management fees is recognized under the terms of the contract which is
as the services are performed. Patient service revenue is recognized at the time the service is performed at the estimated net realizable amounts from patients, third-party payors and others for services rendered. The Company is a provider under the
Medicare program and various



8



---

other third-party payor arrangements which provide for payments to the Company at amounts different from
its established rates. Provisions for estimated third-party payor settlements, if necessary, are provided in the period the related services are rendered.



·Financial Accounting Standards.    In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142), which establishes accounting standards
for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The changes in these rules may have a significant impact on our reported financial results. In June 2001, the FASB issued Statement of
Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No.142, Goodwill and Other Intangible Assets. These statements would continue to require recognition of goodwill as an asset but would not permit amortization of goodwill
as is currently required by Accounting Principles Board (APB) Opinion No. 17, Intangible Assets. Under the SFAS 142, goodwill would be separately tested for impairment using a fair-value-based approach when an event occurs indicating the potential
for impairment. Any required goodwill impairment charges would be presented as a separate line item within the operating section of the income statement. The change from an amortization approach to an impairment approach would apply to previously
recorded goodwill, as well as goodwill arising from acquisitions completed after the application of the new standard. The Company adopted SFAS No. 142 for its fiscal year beginning January 1, 2002 and as a result, the Company no longer amortized
goodwill.



Results of Operations



Set forth below is certain of our selected consolidated
financial and operating information for the three months ended March 31, 2003 and the comparable period in 2002, respectively. The selected consolidated financial information is derived from our consolidated financial statements for such periods.
The information set forth below should be read in conjunction with Managements Discussion and Analysis of Results of Operations and Financial Condition and our Consolidated Financial Statements and Notes thereto.



|                                    |  | Three Months ended March 31,                      
|----------------------------------- |  | --------------------------------------------------
|                                    |  | 2003                                              
|                                    |  | (in thousands, except share and per share amounts)
|Total revenue                       |  | $                                                 
|Gross profit                        |  |                                                   
|Net income                          |  |                                                   
|Earnings per share, basic           |  | $                                                 
|Earnings per share, diluted         |  | $                                                 
|Weighted average shares outstanding |  |                                                   
|Basic                               |  |                                                   
|Diluted                             |  |                                                   



|                     |  | At March 31, 2003
|-------------------- |  | -----------------
|Working Capital      |  | $                
|Total Current Assets |  |                  
|Total Assets         |  |                  
|Stockholders Equity |  |                  



9



---



COMPARISON OF THREE MONTHS
ENDED MARCH 31, 2003 AND 2002



Revenues
increased to $2,498,120 for the three months ended March 31, 2003 from $1,753,892 for the comparable 2002 period, representing an increase of 42.4%. This increase is primarily due to the revenues at company-owned physician practices, the acquisition
of Pain and Rehabilitation Network and the addition of four new MedX Direct rehabilitation centers.



Gross profit increased to $1,711,576 for the three months ended March 31, 2003 from $1,069,475 for the comparable 2002 period,
representing an increase of 60.0%. This increase is also attributed to growth at the existing centers, the acquisition of Pain and Rehabilitation Network and the opening of new rehabilitation centers.



Operating expenses increased by $384,205 to $1,038,217 for the
three months ended March 31, 2003 from $654,012 in the comparable 2002 period, representing an increase of 58.7%. The increase is primarily due to the additional costs of the acquisition of Pain and Rehabilitation Network and the staff and overhead
expense associated with the addition of a corporate business development office in Boca Raton, FL.



Interest expense increased by $75,826 as a result of an increase of MedX equipment leases.



As a result of the above changes, net income was $323,289 for
the three months ended March 31, 2003 compared with net income of $207,291 in the comparable 2002 period.



Actual revenues for the three months ended March 31, 2003 were $2,498,120 and were derived from the following sources:



|Government           |  | $ | 626,028 |  | 25.1 | %
|-------------------- |  | - | ------- |  | ---- | -
|Private Insurance    |  | $ | 459,651 |  | 18.4 | %
|Personal Injury      |  | $ | 272,295 |  | 10.9 | %
|Workers Compensation |  | $ | 212,340 |  | 8.5  | %
|Management Fees      |  | $ | 927,806 |  | 37.1 | %



LIQUIDITY AND CAPITAL
RESOURCES ON MARCH 31, 2003 AND 2002



Cash
amounted to $2,504,620 at March 31, 2003, compared to $194,533 at March 31, 2002. The net cash used in operations was $(39,120) for the three months ended March 31, 2003, compared to operations generating $115,903 for the comparable period in 2002.



Cash used in investing activities was $(528,070)
for the three months ended March 31, 2003 compared with a use of $(489,265) in the comparable 2002 period. This increase is primarily due to the payment of convertible debentures.



Cash provided from financing activities was $993,126 for the three months ended March 31, 20003 compared with
$223,240 from financing activities in the comparable 2002 period. The financing activity in 2003 was the result of the proceeds of a convertible preferred stock offering whose shares were subsequently converted to common stock and the proceeds from
the issuance of common stock through a private placement.



10



---



Management
believes the current cash position, together with the expected earnings of the Company will be sufficient to provide the Company with capital sufficient to fund working capital needs for 2003. However, it may be necessary, in order to expand the
business and consummate acquisitions that additional capital be raised. If the Company needs to raise additional capital, there can be no assurance that such funds will be available, or if available will be sufficient in the near term or that future
funds will be sufficient to meet growth. In the event of such developments, attaining financing under such conditions may not be possible, or even if such funds are available, the terms on such capital may be available but not commercially feasible
or advantageous.



11



---



RISK FACTORS



Special Note Regarding Forward-Looking Statements and
Risk Factors



Certain statements in this
Annual Report on Form 10-QSB contain forward-looking statements. Forward-looking statements are any statements other than statements of historical fact. Examples of forward-looking statements include projections of earnings, revenues or other
financial items, statements of the plans and objectives of management for future operations, and statements concerning proposed new products and services, and any statements of assumptions underlying any of the foregoing. In some cases, you can
identify forward-looking statements by the use of words such as may, will, expects, should, believes, plans, anticipates, estimates, predicts, potential, or continue, and any other words of similar meaning.



Statements regarding the Companys future financial
performance or results of operations, including expected revenue growth, EBITDA growth, future expenses, future operating margins and other future or expected performance are subject to the following risks: that projected operating efficiencies and
cost-reduction initiatives will not be achieved due to implementation difficulties or contractual spending commitments that cant be reduced; the acquisition of businesses or the launch of new lines of business, which could increase operating
expenses and dilute operating margins; the inability to attract new customers; increased competition, which could lead to negative pressure on the Companys pricing and the need for increased marketing; the inability to maintain, establish or
renew relationships with customers, whether due to competition or other factors; costs associated with the Companys initiatives to upgrade its technology platforms or the failure of the Company to successfully complete that initiative; and to
the general risks associated with the Companys businesses.



FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF SECURITIES



You should consider the risks described below before making an investment decision. We believe that the risks and uncertainties described below are the principal material risks facing our
company as of the date of this Form 10-QSB. In the future, we may become subject to additional risks that are not currently known to us. Our business, financial condition or results of operations could be materially adversely affected by any of the
following risks. The trading price of our common stock could decline due to any of the following risks.



THERE IS A LIMITED PUBLIC MARKET FOR OUR COMMON SHARES AND NO ASSURANCE THAT AN ACTIVE TRADING MARKET WILL BE DEVELOPED OR MAINTAINED.



There is a limited market for the Companys common
stock.There can be no assurance that an active trading market for the Companys common shares will be developed or maintained. Historically, the market prices for securities of development companies like the Company have been highly
volatile. In fact, during the last two (2) years, the Companys common stock price has ranged from a low of $0.12 to a high of $2.60 (as determined on a reverse-split basis). The market price of the shares could continue to be subject to
significant fluctuations in response to various factors and events, including the liquidity of the market for the shares, announcements of potential business acquisitions, and changes in general market conditions. The Company expects to continue to
file and be current in its Securities Exchange Act reporting requirements as it pursues its business objective. Accordingly, management of the Company anticipates that its stock will continue to be quoted in the near term on the OTC Bulletin Board.



12



---



WE HAVE RECENTLY BEEN
PROFITABLE BUT NO ASSURANCE CAN BE GIVEN THAT SUCH PROFITABILITY WILL CONTINUE



For the years ended December 31, 2001 and 2002, the Company realized net income of $345,804 and $705,034, respectively.



The Company expects to increase its spending significantly as it continues to expand its product and service
offerings and commercialization activities. The Company will be dependent, in part, on the return of the market for medical products and services. As a result, the Company will need to generate significant revenues in order to continue to grow its
business and remain profitable.



THE COMPANYS BUSINESS
PLAN MAY NOT BE SCALABLE OR COMMERCIALLY VIABLE AND AS A RESULT THE EXPECTED INCREASE IN THE COMBINED COMPANY VALUE MAY NOT BE REALIZED



There is no assurance that the Companys business plan will ever be scalable or commercially viable and no assurance can be given
that the Company will maintain its profitability. In addition, prospects for the Companys profitability will be affected by expenses, operational difficulties and other factors frequently encountered in the development of a business enterprise
in a competitive environment, many of which factors may be unforeseen and beyond the Companys control. Accordingly, the Company may never obtain the expected growth and the value that would otherwise be expected.



OUR LACK OF OPERATING HISTORY MAKES EVALUATING OUR FUTURE PERFORMANCE
DIFFICULT AND THE CHALLENGE OF OPERATING A PUBLIC COMPANY WITHOUT EXPERIENCE MAY CAUSE THE BUSINESS OPERATIONS AND FINANCIAL POSITION OF THE COMPANY TO BE ADVERSELY AFFECTED.



Because we have been operating only since August 2000, the market will have little basis to evaluate our
ability to develop, market and sell our products and services. Our ability to commercialize these products and services and generate operating profits and positive operating cash flow will depend principally upon our ability to:



attract and retain an adequate number of patients;



enter new markets and compete successfully in
them;



manage operating expenses;



raise additional capital to fund our capital expenditure
plans; and



attract and retain qualified
personnel.



The management of the Company will be
challenged with the aspects of operating a public company with the associated regulatory and compliance issues. The diversion of the attention of management, which has little experience in operating public companies, and any difficulties encountered
in the process of operating a public company could lead to possible unanticipated liabilities and costs and cause the disruption of, or a loss of momentum in, the business activities of the Company. This uncertainty may adversely affect the ability
of the Company to retain some of its key employees. As a consequence, we cannot assure you that we will successfully or profitably manage the Company.



13



---



WE MAY NOT BE ABLE TO KEEP
OUR TRADE SECRETS CONFIDENTIAL



The Company
relies significantly upon unpatented proprietary technology, information, processes and know-how. We seek to protect this information by confidentiality agreements with our employees, consultants and other third-party contractors as well as through
other security measures. These confidentiality agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.



THE LOSS OF KEY PERSONNEL COULD MAKE IT DIFFICULT TO COMPLETE
EXISTING PROJECTS AND UNDERTAKE NEW PROJECTS



The Companys success is dependent upon its ability to identify, hire and retain its employees, including its physicians and a significant component of the value of the business is in the know-how and experience of the Company
employees. If certain key employees were to leave, the Company may be unable to operate is business profitably, complete existing the Company projects or undertake certain new projects.



The key employees and consultants of the Company include Merrill Reuter, M.D., Peter Rothbart, M.D., Randy
Lubinsky, Mark Szporka, Andrea Trescot, M.D., and Ron Riewold. Employment agreements have been executed with Randy Lubinsky (Chief Executive Officer and Director), Mark Szporka (Chief Financial Officer and Director), Dr. Merrill Reuter (President of
AOSF), Dr. Andrea Trescot (President of PRNI), and Ron Riewold (President and Director). A consulting agreement has been executed with Peter Rothbart, M.D. Should the services of Dr. Reuter, Dr. Rothbart, Randy Lubinsky, Mark Szporka, Dr. Andrea
Trescot, Ron Riewold or other key personnel become unavailable to the Company for any reason, the business of the Company could be adversely affected. There is no assurance that the Company will be able to retain these key individuals and/or attract
new employees of the caliber needed to achieve the Companys objectives. The Company does not maintain any key employee life insurance policies.



Under the employment agreements of Mr. Lubinsky and Mr. Szporka, in the event of a change of control, they may terminate the agreement and
receive a lump sum severance payment. Under the employment agreement of Dr. Reuter, he is to receive a lump-sum severance payment of $500,000 if his employment is terminated Without Cause or if he terminates the agreement For
Cause.



To date, the Company has
experienced no difficulties in attracting key personnel and has been able to retain all such key personnel, saving Jay Rosen, M.D. and Stanley Swartz whose employment agreement was not renewed. The Company does not believe that the loss of Dr.
Rosens or Mr. Swartzs services will have a material adverse effect on the Companys business. To the best of the Companys knowledge and belief, there are no other key personnel that are planning to retire or leave the Company
in the near future.



GROWTH STRATEGY MAY NOT PROVE VIABLE AND
EXPECTED GROWTH AND VALUE MAY NOT BE REALIZED.



| | · |  | Establishment of Pain Management Centers
| | - |  | ----------------------------------------



The Companys strategy is to rapidly grow by establishing a network of pain management, minimally invasive spine surgery and
orthopedic rehabilitation centers. Identifying appropriate physician groups and proposing, negotiating and implementing economically attractive affiliations with them can be a lengthy, complex and costly process. There can be no assurance that the
Company will be successful in identifying and establishing relationships with orthopedic surgery and pain management groups. If the Company is successful in implementing its strategy of rapid growth, such growth may impair the Companys ability
to efficiently provide non-professional support services, facilities,



14



---

equipment, non-professional personnel, supplies and non-professional support staff to medical practices.
The Companys future financial results could be materially adversely affected if it is unable to manage growth effectively.



There can be no assurance that physicians, medical providers or the medical community in general will accept the business strategy of the
Company and adopt the strategy offered by the Company. The extent that, and rate of which, these services achieve market acceptance and penetration will depend on many variables including, but not limited to, a timely penetration of the market, the
establishment and demonstration in the medical community of the clinical safety, efficacy and cost-effectiveness of these services, the advantage of these services over existing technology, and third-party reimbursement practices. There can be no
assurance that the medical community and third-party payors will accept the Companys technology. Similar risks will confront any other services developed by the Company in the future. Failure of the Companys services to gain market
acceptance would have a material adverse effect on the Companys business, financial condition, and results of operations



| | · |  | Growth Through Acquisitions
| | - |  | ---------------------------



The Company intends to continue to grow through acquisitions. There can be no assurance that suitable acquisitions will be available or
that acquisitions can be negotiated on acceptable terms, or that the operations of acquired businesses can be integrated effectively into the operations of the Company. Competition for suitable acquisition candidates is expected to be intense and
many of the Companys competitors will have greater resources than the Company. The failure of the Company to implement its acquisition strategy could have a material adverse effect on the Companys expected financial performance and,
moreover, the attendant risks of expansion could also have a material adverse effect on the Companys business.



The Companys growth strategy will result in significant additional demands on its infrastructure, and will place a significant
strain on the Companys management, administrative, operational, financial and technical resources, and increased demands on its systems and controls. Additional capital will be needed to fund expected acquisitions and there can be no assurance
that the Company will be able to obtain sufficient resources to support this planned growth strategy. The inability to continue to upgrade the operating and financial control systems, the emergence of unexpected expansion difficulties or failure to
manage the Companys proposed expansion properly could have a material adverse effect on the Companys business, financial condition and results of operations.



SIGNIFICANT RISK ASSOCIATED WITH REIMBURSEMENTS BY THIRD PARTY PAYORS



Approximately 60% of the Companys revenues are directly
dependent on the acceptance of its services as covered benefits under third party payor programs, including private insurance, HMOs and other managed care entities. The healthcare industry is undergoing significant changes, with third party
payors taking measures to reduce reimbursement rates or in some cases denying reimbursement fees for previously acceptable treatment modalities. There is no assurance that third party payors will continue to pay for minimally invasive surgery (MIS)
services provided by the Company under its payor programs. Failure of third party payors to adequately cover MIS will have a materially adverse affect on the Company.



THERE ARE RISKS INHERENT IN THE PROVISION OF MEDICAL SERVICES WHICH COULD ADVERSELY IMPACT OUR BUSINESS



The Companys affiliated physician groups are involved
in the delivery of healthcare services to the public and are exposed to the risk of professional liability claims. Claims of this nature, if successful, could result in damage awards to the claimants in excess of the limits of any applicable
insurance



15



---

coverage. Insurance against losses related to claims of this type can be expensive and varies widely from
state to state. There can be no assurance that the Company will not be subject to such claims, that any claim will be successfully defended or, if the Company is found liable, that the claim will not exceed the limits of the Companys
insurance. Professional liability claims could have a material adverse effect on the Company.



SUCCESS OF BUSINESS STARTEGY IS DEPENDANT ON MARKET ACCEPTANCE



THE COMPANY HAS LIMITED MARKETING AND SALES CAPABILITY WHICH COULD ADVERSELY AFFECT ITS GROWTH PLANS



The Company has limited internal marketing and sales
resources and personnel. In order to effectively market any services, the Company will have to develop a marketing and sales force with technical expertise and distribution capability (or out-source such duties to independent contractors). There can
be no assurance that the Company will be able to establish sales and distribution capabilities or that the Company will be successful in gaining market acceptance for any services it may develop. There can be no assurance that the Company will be
able to recruit and retain skilled sales, marketing, service or support personnel, that agreements with payors will be available on terms commercially reasonable to the Company, or at all, or that the Companys marketing and sales efforts will
be successful. Failure to successfully establish a marketing and sales organization, whether directly or through third parties, would have a material adverse effect on the Companys business, financial condition, cash flows, and results of
operations.



BUSINESS IS SUBJECT TO SUBSTANTIAL COMPETITION
WHICH COULD HAVE A MATERIAL IMPACT ON ITS BUSINESS AND FINANCIAL CONDITION



The healthcare industry in general, and the market for orthopedic and rehabilitation services in particular, are highly competitive. The Company competes with companies like HealthSouth, Inc. and U.S.
Physical Therapy, Inc. that are larger in size than the Company and have access to considerably greater financial resources than the Company. The Company competes by providing more personalized care to the patients they serve. The Company competes
against other contract providers on the basis of quality of services, price and reliability. In the State of Florida, in particular, competition with respect to healthcare providers is highly competitive. The Company relies on reputation and service
to market its services.



CASH FLOW AND FINANCIAL CONDITION MAY
BE ADVERSELY AFFECTED BY THE ASSUMPTION OF CREDIT RISKS



The Company will bill the patients and/or their insurance carriers for services provided by its client clinics and/or physicians, including physician fees, facility fees and technical fees. By undertaking the responsibility for
patient billing and collection activities, the Company will assume the credit risk presented by the patient base, as well as the risk of payment delays attendant to reimbursement through governmental programs or third party payors. If the Company is
unsuccessful in collecting a substantial amount of such fees it will have a material adverse affect on the financial condition of the Company.



CONTROL BY MANAGEMENT WILL LIMIT THE ABILITY OF OTHER SHAREHOLDERS TO HAVE ANY INFLUENCE ON THE OPERATION OF THE COMPANYS BUSINESS



Officers and Directors of the Company and
its subsidiaries will hold common shares which will represent approximately 40% of the outstanding shares entitled to vote on matters presented to stockholders of the Company. Management of the Company will therefore have voting control of the
Company. See Voting Securities and Principal Stockholders.



16



---



PROVISIONS IN ARTICLES OF
INCORPORATION LIMIT LIABILITY OF MANAGEMENT AN AS A RESULT LIMITS SHAREHOLDERS RIGHTS



The Company has adopted provisions in its Articles of Incorporation which limit the liability of their officers and directors and provisions in its By-laws which provide for indemnification of its
officers and directors to the full extent permitted by law. The Articles of Incorporation generally provides that the directors shall have no personal liability to the Company or its stockholders for monetary damages for breaches of their fiduciary
duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or
redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit the stockholders ability to hold directors liable for breaches of fiduciary duty.



INVESTORS SHOULD NOT RELY ON THE PAYMENT OF DIVIDENDS IN CONSIDERING AN
INVESTMENT IN THE COMPANY



Any determination
to pay dividends in the future will be at the discretion of the Board of Directors of the Company and will be dependent upon the Companys results of operations, financial condition, capital requirements, contractual restrictions and other
factors deemed relevant by the Board of Directors. The Board of Directors is not expected to declare dividends or make any other distributions in the foreseeable future, but instead intends to retain earnings, if any, for use in business operations.
Accordingly, investors should not rely on the payment of dividends in considering an investment in the company.



CURRENT CAPITAL MAY BE INSUFFICIENT



The Company believes that the current capital will be sufficient to support the Companys operations and planned capital expenditures (savings acquisitions) through fiscal 2003, without additional
fundraising. The Companys future need for capital will depend on a number of factors, including the level of marketing activities, the amount of funding required to establish a network of minimally invasive spinal surgery and pain management
clinics by purchasing, owning, establishing and expanding certain assets used in minimally invasive spine surgery and pain management; managing and developing spine treatment and pain management clinics, diagnostic and rehabilitation services and
outpatient surgery facilities; and provide non-professional support services, facilities, equipment, non-professional personnel, supplies and non-professional support staff to medical practices. Moreover, the Companys business plans may change
or unforeseen events may occur which affect the amount of additional funds required by the Company. If the Company does not raise additional funds if and when required, the lack thereof could have a material adverse effect on the Company. Further,
there is no assurance that the terms on which any funds obtained by the Company will be favorable to stockholders of the Company at that time.



OUR COMMON SHARES ARE SUBJECT TO LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS



The Company common shares are considered a low priced security under rules promulgated under the Securities
Exchange Act of 1934. Under these rules, broker-dealers participating in transactions in low priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealers duties, the
customers rights and remedies, and certain market and other information, and make a suitability determination approving the customer for low priced stock transactions based on the customers financial situation, investment experience and
objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent of the customer, and provide monthly account statements to the customer. With all these restrictions, the likely affect of
designation as a low priced stock will be to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and to increase the transaction cost of sales and purchases of such stock compared to
other securities.



17



---



FAILURE TO OBTAIN MANAGED
CARE CONTRACTS AND LEGISLATIVE CHANGES COULD ADVERSELY AFFECT BUSINESS



There can be no assurance that the Company will be able to obtain managed care contracts. The future inability of the Company to obtain managed care contracts in its markets could have a material
adverse effect on its business, financial condition or results of operation. In addition, federal and state legislative proposals have been introduced that could substantially increase the number of Medicare and Medicaid recipients enrolled in HMOs
and other managed care plans. The Company will derive a substantial portion of its revenue from Medicare and Medicaid. In the event such proposals are adopted, there can be no assurance that the Company will be able to obtain contracts from HMOs and
other managed care plans serving Medicare and Medicaid enrollees. Failure to obtain such contracts could have a material adverse effect on the business, financial condition and results of operations of the Company.



RISKS ASSOCIATED WITH HIGHLY REGULATED INDUSTRY



The Companys centers and its affiliated physicians are
subject to numerous regulatory, accreditation and certification requirements, including requirements related to licensure, certificate of need, reimbursement from insurance companies and other private third party payors, Medicare and Medicaid
participation and reimbursement, and utilization and quality review organizations. An adverse determination by any authority could have a material adverse effect on the Company. Set forth immediately below is a list of the most significant
regulatory risks associated with the Companys business:



|· |  | Future Healthcare Reforms Could Have an Adverse Impact on the Business
|- |  | ----------------------------------------------------------------------



The public has recently focused significant attention on reforming the healthcare system in the United
States. A broad range of healthcare reform measures have been introduced in Congress and in certain state legislatures. Legislative interest recently has also focused on the role of HMOs in the provision of healthcare and the effect of managed
care reimbursement mechanisms on healthcare service utilization and quality of service. It is not clear at this time what proposals, if any, will be adopted or, if adopted what effect, if any, such proposals would have on the Companys
business. There can be no assurance that any proposals adopted would be coordinated at the federal or state level, and therefore the Company, as a national participant in the healthcare industry, is subject to varying state regulatory environments.
Certain proposals, such as cutbacks in the Medicare and Medicaid programs, containment of healthcare costs that could include a negative affect on prices charged by physicians, hospitals or other healthcare providers, and greater state flexibility
in the administration of Medicaid, could adversely affect the Company. There can be no assurance that currently proposed or future healthcare programs, laws, regulations or policies will not have a material adverse effect on the Companys
operating revenue.



The Company believes that
trends in cost containment in the health care industry will continue to result in reductions from historical levels in per-patient revenue. The federal government has implemented, through the Medicare program, the resource-based relative value scale
(RBRVS) payment methodology for physicians services. The RBRVS is a fee schedule that, except for certain geographical and other adjustments, pays similarly situated physicians the same amount for the same services. The RBRVS is
adjusted each year and is subject to increases or decreases at the discretion of Congress. To date, the implementation of RBRVS has reduced payment rates for certain of the procedures historically perform by the Companys affiliated physicians.
There can be no assurance that any reduced operating margins could be recouped by through cost reductions, increased volume, and introduction of additional procedures or otherwise.



Rates paid by non-governmental insurers, including those that provide Medicare supplemental insurance, are
based on established physician, ambulatory surgery center and hospital



18



---

charges, and are generally higher than Medicare payment rates. A change in the makeup of the patient mix
of the Companys ancillary services that results in a decrease in patients covered by private insurance or a shift by private payors to RBRVS or similar payment structures could adversely affect the Companys business, financial condition
and results of operations.



|· |  | Laws Severely Restrict Physicians Ability to Make Referrals Which Could Impact Our Business
|- |  | -------------------------------------------------------------------------------------------



The Companys centers and their physicians are also
subject to the Ethics in Patient Referrals Act of 1989 (the Stark Law). Unless excepted, a physician may not make a referral of a Medicare or Medicaid patient to any clinical laboratory services provider with whom he/she has a financial
relationship (either investment or compensation) for such restricted services, and any provider who accepts such a referral may not bill for the service provided pursuant to the referral. Sanctions for violating the Stark Law can include civil
monetary penalties and exclusion from Medicare and Medicaid. In August 1993, Congress passed legislation (Stark II) that, effective January 1, 1995, expanded the self-referral ban to include a number of healthcare services provided by
entities with which the physicians may have an ownership interest or are a part of a physicians private practice do not apply to the restrictions. Violation of the Stark Law or Stark II or related state laws by the Company may have a
materially adverse effect on the Company.



|· |  | Corporate Practice of Medicine Regulations Will Affect the Way We Transact Business in Certain States
|- |  | -----------------------------------------------------------------------------------------------------



Organizations that employ physicians directly or exercise
significant control over a physicians practice may be subject to challenge in states that prohibit the corporate practice of medicine. In states that still prohibit the corporate practice of medicine, agreements with physicians must provide
the physicians with sufficient control over their practices to avoid being deemed employees for corporate practice purposes. Violation of the corporate practice of medicine laws by the Company which presently has operations in Colorado and expects
to have operations in South Carolina, North Carolina and California (all of which prohibit the corporate practice of medicine) may have a materially adverse effect on the Company.



|· |  | Many States Prohibit Fee-Splitting Which Will Limit Our Expansion Plans
|- |  | -----------------------------------------------------------------------



The laws of many states prohibit physicians from splitting fees with non-physicians (or other physicians) and
prohibit non-physician entities from practicing medicine. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. The Companys business operations have not been the subject of
judicial or regulatory interpretation; thus, there can be no assurance that review of the Companys business by courts or regulatory authorities will not result in determinations that could materially adversely affect its operations of the
Company, or that the healthcare regulatory environment will not change so as to restrict the Companys operations or their expansion. In addition, the regulatory framework of certain jurisdictions may limit the Companys expansion into
such jurisdictions if they are unable to modify their operational structure to conform to such regulatory framework.



|· |  | The Company May Face Increased Scrutiny by Medicare and Medicaid
|- |  | ----------------------------------------------------------------



Federal law prohibits the offer, payment, solicitation or receipt of any form of remuneration in return or,
or in order to induce: (i) the referral of a person in connection with the provision of medical services; (ii) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare and Medicaid programs; and (iii) the
purchase, lease, order, arranging or recommending of any items or service reimbursable under Medicare or Medicaid (the Anti-Kickback Law). Pursuant to the Anti-Kickback Law, the federal government has announced a policy of increased
scrutiny of joint ventures and other transactions among health care providers in an effort to reduce potential fraud and abuse relating to Medicare costs. The applicability of this policy to many business transactions in



19



---

the health care industry will be subject to continuing judicial and regulatory interpretation. Although
the Company believes its operations and structure do not violate the Anti-Kickback Law, there can be no assurance that its activities will not be challenged by regulatory authorities. If such a challenge were successful, it could have a material
adverse effect on the business, financial condition and results of operations of the Company. Noncompliance with the Anti-Kickback Law can result in exclusion from Medicare and Medicaid programs and civil and criminal penalties.



ITEM 3.    CONTROLS AND PROCEDURES



The Companys Chief Executive Officer and Chief
Financial Officer (collectively, the Certifying Officers) are responsible for establishing and maintaining disclosure controls and procedures for the Company. Such officers have concluded (based upon their evaluation of these controls
and procedures as of a date within 90 days of the filing of this report) that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in this report is accumulated and
communicated to the Companys management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure.



The Certifying Officers also have indicated that there were no significant changes in the Companys
internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.



PART II  OTHER INFORMATION



Item 1.    Legal Proceedings



NONE



Item 2.    Changes in Securities



From January 1, 2003 through January 10, 2003, our
wholly-owned subsidiary, PainCare, Inc., sold to certain accredited investors approximately 6 Units of its Series A, 8% Senior Convertible Preferred Stock for net proceeds of $219,542 consisting of approximately 1,246 shares of its Series A, 8%
Senior Convertible Preferred Stock. The Preferred Shares may be converted into shares of common stock of PainCare Holdings at 90% of the fair market value of a share of PainCare Holdings on the date of conversion. Additional discounts up to 10% (80%
of fair market value) are available for purchases of more than one Unit. In accordance with the conversion privileges provided and exercised by certain of these investors, the Company issued 455,913 shares of its common stock in exchange for the
Preferred Stock. The Company paid no commissions with respect to these transactions. This offering was terminated on January 10, 2003.



Since January 13, 2003, through a Board authorized private placement of our stock, the Company sold 2,673,952 shares of common stock for
net proceeds of $1,454,276 to accredited investors. The Company paid no commissions with respect to these transactions.



On March 1, 2003, the Company issued 107,456 shares of common stock to Shasqua as additional consideration for meeting certain performance
targets regarding the acquisition of Rothbart Pain Management Centers Inc. The shares were valued at market, or $1.52 per share.



In connection with these transactions we relied on the exemptions from registration provided by Rule 506, Regulation D and Section 4(2) of
the Securities Act. We believe that all of the purchasers were Accredited Investors. All of the purchasers represented that they were acquiring the shares for investment purposes, and the certificates issued were appropriately
restricted.



20



---



Item
3.    Defaults Upon Senior Securities



NONE



Item
4.    Submission of Matters to a Vote of Security Holders



NONE



Item
5.    Other Information



NONE



Item 6.    Exhibits
and Reports on Form 8-K



|(a) |  | Exhibit Index
|--- |  | -------------



|Exhibit No. |  | Description                                                                      
|----------- |  | ---------------------------------------------------------------------------------
|           
|99.1        |  | Certification by CEO pursuant to 18 USC Section 1350  Sarbanes-Oxley Act of
2002
|           
|99.2        |  | Certification by CFO pursuant to 18 USC Section 1350  Sarbanes-Oxley Act of
2002



|(b) |  | Reports on Form 8-K
|--- |  | -------------------



A Form 8-K filed by the Company on February 25, 2003.



21



---



SIGNATURES



In accordance with Section 13 or 15 (d) of
the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



PainCare Holdings, Inc.



Date: April 28, 2003

/s/ Randy A.
Lubinsky

Randy A. Lubinsky

Chief Executive Officer



Date: April 28, 2003

/s/ Mark
Szporka

Mark Szporka

Chief Financial Officer



22