UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-Q




(Mark One)




xQuarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934




For the Quarter Ended March 31, 2011.




oTransition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)




For the transition period from _______ to _______.




Commission file number: 000-27407




SPINE PAIN MANAGEMENT, INC.


(Name of Registrant in Its Charter)




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





5225 Katy Freeway


Suite 600


Houston, Texas   77007


(Address of Principal Executive Offices)





(713) 521-4220


(Issuer's Telephone Number, Including Area Code)





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


Common Stock ($0.001 Par Value)


(Title of Each Class)





Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes  x    No   ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈





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





Large accelerated filer   ̈Accelerated filer   ̈


Non-accelerated filer     ̈Smaller reporting company  x





Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes   ̈    No  x





As of May 16, 2011, there were 17,403,396 shares of the Registrant’s common stock outstanding (the only class of voting common stock).





DOCUMENTS INCORPORATED BY REFERENCE





None.










FORM 10-Q





TABLE OF CONTENTS





PART I
FINANCIAL INFORMATIONItem 1.
Financial Statements

1Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010

1Statements of Operations for the three months ended March 31, 2011 (Unaudited) and 2010

2Statements of Cash Flows for the three months ended March 31, 2011 (Unaudited) and 2010

3Notes to Financial Statements (Unaudited)

4Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

12Item 3.
Quantitative and Qualitative Disclosure About Market Risk

13Item 4.
Controls and Procedures

13PART II
OTHER INFORMATIONItem 1.
Legal Proceedings

14Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

14Item 6.
Exhibits

15Signatures

16









SPINE PAIN MANAGEMENT, INC.CONDENSED BALANCE SHEETS  March 31,


December 31,ASSETS

2011


2010 (1)(Unaudited)Current assets:Cash

$
337,569


$
177,203Accounts receivable, net


1,433,994



1,254,618Related party receivable


23,703



23,597Prepaid expenses


134,708



151,333Total current assets


1,929,974



1,606,751Accounts receivable, net


1,969,229



1,721,520Total assets

$
3,899,203


$
3,328,271LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued liabilities

$
418,076


$
367,497Due to related parties


1,063,899



1,051,199Total current liabilities


1,481,975



1,418,696Debentures payable


271,852



136,586Total liabilities


1,753,827



1,555,282Commitments and contingenciesStockholders' equity (deficit)Common stock: $0.001 par value, 50,000,000 sharesauthorized; 17,403,396 shares issued and outstandingat March 31, 2011 and December 31, 2010


17,403



17,403Additional paid-in capital


15,732,972



15,658,734Accumulated deficit


(13,604,999
)


(13,903,148
)Total stockholders’ equity


2,145,376



1,772,989Total liabilities and stockholders' equity

$
3,899,203


$
3,328,271
 
 
 (1)
Derived from audited financial statements.
 The accompanying notes are an integral part of the unaudited condensed financial statements





1





SPINE PAIN MANAGEMENT, INC.UNAUDITED CONDENSED STATEMENTS OF OPERATIONS  FOR THE THREE MONTHS ENDEDMARCH 31,2011


2010Net revenue

$
839,446


$
903,810Cost of providing services


300,600



318,700Gross profit


538,846



585,110Operating, general and administrative expenses


230,974



231,487Income from operations


307,872



353,623Other income and (expense):Other income


6,767



1,500Interest expense


(16,490
)


-Total other income and (expense)


(9,723
)


1,500Net income

$
298,149


$
355,123Net income per common shareBasic and fully-diluted

$
0.02


$
0.02Weighted average number of common shares outstanding:Basic and diluted


17,403,396



16,867,682
  The accompanying notes are an integral part of the unaudited condensed financial statements




2





SPINE PAIN MANAGEMENT, INC.UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS  FOR THE THREE MONTHS ENDED
MARCH 31,2011


2010Cash flows from operating activities:Net income

$
298,149


$
355,123Adjustments to reconcile net income to net cashused in operating activities:Interest expense related to warrant amortization


9,504



-Changes in operating assets and liabilities:Accounts receivable, net


(427,085
)


(702,179
)Related party receivable


(106
)


-Prepaid expenses


16,625



-Accounts payable and accrued liabilities


50,579



287,700Net cash used in operating activities


(52,334
)


(59,356
)Cash flows from financing activities:Proceeds from issuance of debentures and warrants


200,000



-Proceeds from related party notes payable


147,700



56,404Repayments on related party notes payable


(135,000
)


(8,000
)Net cash provided by financing activities


212,700



48,404Net increase (decrease) in cash and cash equivalents


160,366



(10,952
)Cash and cash equivalents at beginning of period


177,203



32,789Cash and cash equivalents at end of period

$
337,569


$
21,837
  The accompanying notes are an integral part of the unaudited condensed financial statements




3




SPINE PAIN MANAGEMENT, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE 1.  DESCRIPTION OF BUSINESS





Spine Pain Management, Inc., formerly known as Versa Card, Inc. (the “Company”), was incorporated in Delaware on March 4, 1998 to acquire interests in various business operations and assist in their development. On November 12, 2009, the name of the Company was changed from Versa Card, Inc. to Spine Pain Management, Inc. The Company commenced commercial operations in August 2009 and is no longer considered a development stage company.  Since inception, the Company had engaged in and contemplated several ventures and acquisitions, many of which were not consummated.





At the end of December 2008, the Company began moving forward to launch its 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. In August 2009, the Company opened its first spine injury diagnostic center in Houston, Texas.  The Company also currently has two other spine diagnostic centers in McAllen, Texas and in the Tampa Bay Area of Florida.  All three of the Company’s facilities use a fellowship trained pain doctor to provide spine diagnostic injections, with assistance from Emergency Medical Technicians and specialized radiological personnel. The Company is also currently evaluating the development of additional spine injury diagnostic centers across the United States.





The Company is a medical marketing, management and billing and collection company facilitating diagnostic services for patients who have sustained spine injuries resulting from automobile and work-related accidents. The Company’s mission is to deliver turnkey solutions to spine surgeons, orthopedic surgeons and other health care providers for necessary and appropriate treatment for spine related injuries. The goal of the Company is to become a leader in providing care management services to spine surgeons and orthopedic surgeons to facilitate proper treatment of their injured patients. By providing early treatment, the Company believes that spine injuries can be properly managed to provide needed relief from painful conditions to injured victims and quickly place them on the road to recovery. The Company believes its advocacy is rewarding to patients because its care management program focuses on moving injured victims’ treatment forward to conclusion without the delay and hindrance of the legal process.





The Company engages independent contractors to perform medical services for patients under a fixed fee arrangement.  Subsequently, the Company bills the patient for the medical services provided by the independent contractor.  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 the Company 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.  In certain instances, the Company may bill a patient’s health insurance company if such patient has adequate health insurance.





The clinic facilities where the Company’s spine injury diagnostic centers operate are owned or leased by the Company’s independent contractor or a third party.  The Company has no ownership interest in these clinic facilities, nor does the Company have any responsibilities towards building or operating the clinic facilities.  Each of the Company’s independent contractors performs services for the Company (in the form of providing medical diagnostic services for patients) pursuant to a medical services agreement.





On November 12, 2009, the Company changed its name from "Versa Card, Inc." to "Spine Pain Management, Inc." and has changed its trading symbol from "IGLB" to "SPIN." The name change was effected legally with the Delaware Secretary of State on November 12, 2009 and was effected in the market on November 27, 2009.





4





SPINE PAIN MANAGEMENT, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE 2.  GOING CONCERN CONSIDERATIONS





Prior to opening its diagnostic center in Houston, Texas in 2009 and the McAllen, Texas center in 2010, the Company had a history of recurring losses from operations and accordingly, has an accumulated deficit of $13,604,999 as of March 31, 2011. During the three months ended March 31, 2011, the Company realized net revenue of $839,446 and net income of $298,149. Successful business operations and its transition to positive cash flows from operations are dependent upon obtaining additional financing and achieving a level of collections adequate to support its cost structure. Considering the nature of the business, the Company is not generating immediate liquidity and sufficient working capital within a reasonable period of time to fund its planned operations and strategic business plan through March 31, 2012. There can be no assurances that there will be adequate financing available to the Company. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.





NOTE 3.  CRITICAL ACCOUNTING POLICIES




The following are summarized accounting policies considered to be critical by the Company’s management:




Basis of Presentation





The accompanying unaudited condensed financial statements of Spine Pain Management, Inc. (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These interim condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2010 Annual Report as filed on Form 10-K. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial position of the Company with respect to the interim financial statements and the results of its operations for the interim period ended March 31, 2011, have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year.





Accounting Method





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





Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 the Company’s 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 the Company’s financial position and results of operations.





5





SPINE PAIN MANAGEMENT, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE 3.  CRITICAL ACCOUNTING POLICIES, continued





Fair Value of Financial Instruments





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





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.  The Company’s 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 the Company by a third party and the credit policy includes terms of net 240 days for collections (see Note 4).





The Company’s assets that are exposed to credit risk consist primarily of cash and accounts receivable.  The Company has receivables from a diversified customer base and therefore the concentration of credit risk is minimal. The creditworthiness of customers is evaluated before any services are provided. The Company records a discount based on the nature of its business, collection trends, current economic conditions, the composition of its accounts receivable aging, and the assessment of probable loss related to uncollectible accounts receivable.





The Company did not recognize an allowance or provision for bad debts during the three months ended March 31, 2011 or the year ended December 31, 2010 (see Note 4).





Stock Based Compensation





The Company accounts 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 the Company’s statements of income.  The Company uses the Black-Scholes Option Pricing Model to determine the fair-value of stock-based awards.





The Company utilizes the prospective transition method, which requires the application of the accounting standard to new awards made, as well as awards from previous years that have been modified, repurchased, or cancelled after December 31, 2005.  The Company continues to account for any portion of awards outstanding at December 31, 2005 using the accounting principles originally applied to those awards (either the minimum value method, or the authoritative guidance for accounting for certain transactions involving stock based compensation). The Company did not recognize any stock based compensation cost during the three months ended March 31, 2011.





6





SPINE PAIN MANAGEMENT, INC.NOTES TO FINANCIAL UNAUDITED CONDENSED STATEMENTS





NOTE 3.  CRITICAL ACCOUNTING POLICIES, continued





Income Taxes





The Company accounts 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. The Company establishes 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.





Reclassifications





Certain items in the 2010 financial statements have been reclassified to conform to the 2011 financial statement presentation.  Such reclassifications had no effect on the Company’s financial position, results of operations and cash flows.





Accounting Standard Updates





In December 2010, the FASB issued new accounting guidance on goodwill and other intangible assets. Under Accounting Standards Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other”, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). The amendments in this guidance modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010 and early adoption is not permitted. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.




NOTE 4.  ACCOUNTS RECEIVABLE





The Company recognizes 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 be recognized. The Company bills patients 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 Company believes that since medical practitioners use the same codes for specified procedures that the codes yield uniformity in billing.  Each patient is billed the normal billing amount, based on national averages, for a particular CPT code procedure.





Revenue is recognized by reference to “net revenue,” which is gross amounts billed using CPT codes less account discounts that are expected to result when individual cases are ultimately settled. During 2009, a 45% discount rate was used, based on historical experience of similar businesses. However, in 2010, the expected collection experience was refined, based on settled patient cases, and the discount rate was increased to 48%, reducing net revenue recognized to 52% of CPT code billings.  In the Form 10-Q for the quarter ended March 31, 2010, the “revenue” reflected in the Statements of Operations for the quarter ended March 31, 2010 represents only the gross amount billed without deducting the estimated account discounts; the discount is included under Operating Expenses as Allowance for Doubtful Accounts.  Revenue presentation has been changed in the accompanying Statements of Operations, which presents revenue for the quarters ended March 31, 2011 and 2010 using the “net revenue” concept described above.





7





SPINE PAIN MANAGEMENT, INC.NOTES TO FINANCIAL UNAUDITED CONDENSED STATEMENTS





NOTE 4.  ACCOUNTS RECEIVABLE, continued





The Company's patients are typically plaintiffs in accident lawsuits and the timing of collection of receivables is dependent on the timing of a settlement or judgment of each individual case. Because the Company's business model is new, in 2009 management believed that receivables would generally be collected within one year based on settlement or judgment of each individual case. However, experience in 2010 demonstrated that the collection period for individual cases may extend for two years or more. Accordingly, the Company has classified receivables as current and long term based on the Company's experience, which indicates that 42% of cases will be subject to a settlement or judgment within one year of a medical procedure.





The Company takes the following steps to establish an arrangement between all parties and facilitate collections upon settlement or final judgment of cases:





·
Each patient is required to complete and sign medical and financial paperwork which includes an acknowledgement of the patient’s responsibility of payment for the services provided.  Additionally, because the Company's patients are typically plaintiffs in accident lawsuits, the paperwork includes an assignment of benefits derived from any settlement or judgment of the patient’s case.





·
Each patient's attorney is required to issue the Company 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 is also designed to preclude any case settlement without providing for payment of the patient’s medical bill.





·
The Company's patients have typically been previously referred to a doctor who performed the initial treatment based on a recommendation by their attorney.  The doctor then typically refers the patient to us.  The Company only accepts patients if the initial referral is from a reputable plaintiff's attorney with adequate experience in personal injury lawsuits.  Before referring a patient to a doctor, the attorney is expected to have evaluated the patient’s accident case, including the conditions that gave rise to the patient's injuries and the extent and quality of general liability insurance held by the defendant.  The attorney is also responsible for determining that a settlement favorable to the patient/plaintiff is expected.




NOTE 5.  DUE TO RELATED PARTIES





Due to related parties consists of the following at:





March 31,


December 31,2011


2010Due to Northshore Orthopedics Associates

$
753,200


$
740,500Due to Chief Executive Officer


310,699



310,699$
1,063,899


$
1,051,199





Amounts due to Northshore Orthopedics Associates (“NSO”, a company owned by the Company’s Chief Executive Officer) and the Company’s Chief Executive Officer are non-interest bearing, due on demand and do not follow any specific repayment schedule. The Company used the amounts received to meet its working capital requirements (see Note 7).





8





SPINE PAIN MANAGEMENT, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE 6. DEBENTURES





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





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





Following is an analysis of debentures payable at March 31, 2011 and December 31, 2010:





March 31,


December 31,2011


2010Stated value of debentures payable

$
400,000


$
200,000Less value of warrants issued  to originate debentures


128,148



63,414$
271,852


$
136,586




NOTE 7. RELATED PARTY TRANSACTIONS





Medical Services Agreement





In August 2009, the Company entered into a medical services agreement with NSO, which is 100% owned by the Company’s Chief Executive Officer, William Donovan, M.D., to open its first spine injury diagnostic center in Houston, Texas. Pursuant to the terms of the agreement, NSO operates as an independent contractor for the Company to provide medical diagnostic services for evaluation and treatment of patients with spine injuries.  NSO charges the Company a fixed per-patient fee (which is predetermined and prenegotiated) as compensation for these services, pursuant to the agreement.  NSO’s business relationship with the Company is that of an independent contractor and the Company does not have any commitment or obligation to pay for any of the clinic’s direct costs, such as rent and utilities.  NSO is responsible for its own taxes associated with its performance of the services and receipt of payments pursuant to this agreement.  NSO is the sole operator of the clinic that treats the patients.  The medical services agreement has a term of three years, and thereafter will automatically renew for another three years at the discretion of involved parties.





As of March 31, 2011, the Company had a balance of $753,200 payable towards NSO’s costs incurred and billed to the Company and included as cost of sales in the accompanying statements of operations.  The Company does not directly pay Dr. Donovan (in his individual capacity as a physician) any fees in connection with NSO’s services.  However, Dr. Donovan is the sole owner of NSO and NSO is paid for costs incurred under the medical services agreement. During the year ended December 31, 2010, the Company issued 285,714 shares of common stock to Dr. Donovan for the conversion of $200,000 of outstanding debt owed by the Company to NSO. There were no shares issued during the three months ended March 31, 2011.





9




SPINE PAIN MANAGEMENT, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE 7. RELATED PARTY TRANSACTIONS, continued





Additionally, as shown in Note 5, at both March 31, 2011 and December 31, 2010, the Company had balances payable of $310,699 to Dr. Donovan, in his individual capacity, for working capital advances and payments made on behalf of the Company.




NOTE 8.  INCOME TAXES





The Company has not made provision for income taxes for the three months ended March 31, 2011 or 2010, since the Company has net operating loss carryforwards to offset current taxable income.





Deferred tax assets consist of the following at March 31, 2011 and December 31, 2010:





March 31,


December 31,2011


2010Benefit from net operating loss carryforwards

$
2,646,976


$
2,762,897Less valuation allowance


(2,646,976
)


(2,762,897
)$
-


$
-





Due to uncertainties surrounding the Company’s 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%, the Company has determined that it is not currently likely that a deferred income tax asset of approximately $2,646,976 and $2,762,897 attributable to the future utilization of the approximate $7,153,989 and $7,468,101 in eligible net operating loss carryforwards as of March 31, 2011 and December 31, 2010, respectively, will be realized. The Company 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 2029.





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





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




Three Months Ended
March 31,2011


2010Income tax (provision) benefit at the 34% statutory rate

$
(101,370
)

$
(120,742
)Effect of state income taxes


(8,944
)


(10,653
)Non-deductible interest expense


(5,607
)


-Less change in valuation allowance


115,921



131,395Income tax (provision) benefit

$
-


$
-





During 2010, the Company filed certain delinquent U.S. federal and state tax returns and is now current in its income tax return filings. Such filings did not have any significant impact on the Company’s financial position, its results of operations and cash flows considering its net operating loss carryforward position.




10





SPINE PAIN MANAGEMENT, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE 8.  INCOME TAXES, continued





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




NOTE 9. COMMITMENTS AND CONTINGENCIES





Legal Proceedings





On January 19, 2010, James McKay and Celebrity Foods, Inc. filed a lawsuit against the Company and William Donovan, M.D., individually, in the United States District Court, Eastern District of Pennsylvania.  Based on the lawsuit, in March 2009, the plaintiffs contacted our transfer agent to have restrictive legends removed on shares the plaintiffs had previously obtained from us in connection with a stock purchase agreement.  We subsequently requested that the transfer agent place a stop transfer order on the shares.  The plaintiffs alleged that our actions constitute a breach of contract, fraud and/or unjust enrichment.  They are seeking monetary and punitive damages, attorneys’ fees and costs, as well as a divestment of all shares and a rescission of the stock purchase agreement.  We filed a motion to dismiss in April 2010.  The Court ruled on this motion and dismissed all fraud counts.  Additionally, we have filed a counterclaim relating to the validity of a mutual release agreement and certain other related matters.  In December 2010, the plaintiffs filed a motion for judgment on the pleadings in connection with the counterclaim.  We have responded, and the motion is still pending.  The disposition of the motion will also control the scope of discovery in the suit.  Although we believe the plaintiffs’ case is without merit, there can be no assurance that the outcome of this case will be favorable to us.





On October 27, 2009, William R. Dunavant and William R. Dunavant Family Holdings, Inc. filed suit in the 55th Judicial District Court of Harris County, Texas, against us (the Company), William Donovan, M.D., Richard Specht, Rene Hamouth and Signature Stock Transfer, Inc.  The plaintiffs claim that we issued 2,000,000 shares of our stock as compensation for work they performed for us.  In December 2008, and again in early 2009, the plaintiffs sold some of their shares.  In February 2009, however, we issued a stop transfer resolution preventing the plaintiffs from selling any of the remaining shares.  The plaintiffs claim several causes of action, including breach of contract, conversion, fraud and fraudulent inducement, breach of fiduciary duty, intentional infliction of emotional distress, unjust enrichment, and a declaratory judgment.  The plaintiffs seek exemplary and punitive damages, as well as attorney fees.  In April 2011, we filed a counterclaim against Mr. Dunavant.  We believe that Mr. Dunavant fraudulently received the 2,000,000 shares that are the subject of his lawsuit, and that he caused significant damage to us around the period he acted as our executive officer and director.  In the counterclaim, we allege multiple causes of action against Mr. Dunavant, including fraud, violation of securities laws of the United States and Texas, breach of fiduciary duties, rescission of any contracts between the parties, negligence and gross negligence, negligent misrepresentations, and unjust enrichment.  We seek actual and punitive damages and attorney fees.  The case, including the original suit and the counterclaim, are scheduled to go to trial on October 3, 2011.  We are also awaiting a ruling from the Court of Appeals on certain jurisdictional issues.  We believe that the plaintiffs’ case is without merit and that we have a strong case against Mr. Dunavant in our counterclaim.  There can be no assurance, however, that the outcome of this case will be favorable to us.





On March 10, 2008, Kent Carasquero, Leslie Lounsbury, Riverside Manitoba, Inc. and Tyeee Capital Consultants, Inc. filed suit against us (the Company), Richard Specht, Rene Hamouth, Hamouth Family Trust, William R. Dunavant, and William R. Dunavant Family Holdings, Inc.  The plaintiffs filed the suit in the United States District Court, Middle District of Florida and request damages and injunctive relief for various breaches of contract and securities violations.  The Court entered a default judgment against the defendants in July 2008.  The Court set aside the default judgment and reopened the case in November 2008.  In January 2011, the Court dismissed seven of nine of the counts in the plaintiffs’ complaint and dismissed as defendants Richard Specht, Rene Hamouth, Hamouth Family Trust, William R. Dunavant, and William R. Dunavant Family Holdings, Inc.  In February 2011, the Court held a bench trial on the plaintiffs’ remaining two claims against us (relating to good faith and fair dealing and breach of contract).  In March 2011, the Court dismissed one of the claims but ruled in favor of Riverside Manitoba, Inc. against us for the remaining claim in the amount of $21,537 in full satisfaction of the claim.  On April 13, 2011, Kent Carasquero filed a notice of appeal in the United States Court of Appeals for the Eleventh Circuit.




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





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





FORWARD LOOKING STATEMENT AND INFORMATION





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




Management Overview






At the end of 2008, the Company launched its new business concept of delivering turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare providers for necessary, reasonable and appropriate treatment for musculo-skeletal spine injuries. Moving forward, the Company’s main focus will be on the expansion and development of spine testing centers and/or business relationships with contractors owning such facilities as needed by spine surgeons, orthopedic surgeons and other healthcare providers across the nation.




Results of Operations




The unaudited financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2011 and the results of operations and cash flows for the periods ended March 31, 2011 and 2010. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2011.




Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2010 as included in our report on Form 10-K.




Comparison of the three month period ended March 31, 2011 with the three month period ended March 31, 2010.
 
 The Company recorded $1,479,053 in gross service revenues for the three months ended March 31, 2011, offset in part by $639,607 of standard allowance for discount, resulting in net revenue of $839,446. For the same period in 2010, gross revenue was $1,452,133, offset in part by $548,323 of standard allowance for discount, resulting in net revenue of $903,810.  For the three months ended March 31, 2010, the Company had only one spine injury diagnostic center opened—its original center in Houston, Texas.  The Company’s McAllen center opened in June 2010, and its Tampa Bay area center opened in January 2011.  While the addition of the McAllen and Florida centers added additional revenue sources for the Company, the Company has been cautiously providing services at all three centers to not hinder cash flow and ensure that it could meet its monthly obligations to all its providers.  Accordingly, the slight decrease in revenues for the three months ended March 31, 2011 compared to the same period in 2010 is attributable to the Company’s intentional reduction in the amount of services performed.  The Company needs additional cash resources to manage cash flow and accelerate its growth.  Management prefers to avoid equity financing because they believe the Company’s stock is undervalued.  Accordingly, the Company is seeking various outside debt options.




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Service cost was $300,600 for the three months ended March 31, 2011 compared to $318,700 for the same period in 2010. During the three months ended March 31, 2011, the Company incurred $230,974 of general and administration expenses which is consistent with $231,487 for the same period in 2010.
 
 As a result of the foregoing, the Company had net income of $298,149 for the three months ended March 31, 2011, compared to $355,123 for the three months ended March 31, 2010, resulting in a decrease of $56,974 or 16.1 %.
 
 Liquidity and Capital Resources
 
 For the three months ended March 31, 2011, cash used in operations was $52,334, which primarily included an increase in accounts receivable of $427,085 and net income from operations of $298,149.  For the same period in 2010, net cash used in operating activities was $59,356, which primarily included an increase in accounts receivable of $702,179 and net income from operations of $355,123.
 
 There was no cash provided by or used in investing activities for the quarters ended March 31, 2011 and 2010.
 
 Cash provided by financing activities totaled $212,700 for the quarter ended March 31, 2011, consisting of proceeds from issuance of debentures and warrants of $200,000, proceeds from related party notes payable of $147,700, offset by a repayment on related party notes payable of $135,000. For the same period in 2010, cash provided by financing activities was $48,404, which was the result of proceeds from related party notes payable of $56,404 offset by a repayment on related notes payable of $8,000.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not Applicable.




ITEM 4.   CONTROLS AND PROCEDURES





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





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





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




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PART II   OTHER INFORMATION




ITEM 1.  LEGAL PROCEEDINGS





On January 19, 2010, James McKay and Celebrity Foods, Inc. filed a lawsuit against the Company and William Donovan, M.D., individually, in the United States District Court, Eastern District of Pennsylvania.  Based on the lawsuit, in March 2009, the plaintiffs contacted our transfer agent to have restrictive legends removed on shares the plaintiffs had previously obtained from us in connection with a stock purchase agreement.  We subsequently requested that the transfer agent place a stop transfer order on the shares.  The plaintiffs alleged that our actions constitute a breach of contract, fraud and/or unjust enrichment.  They are seeking monetary and punitive damages, attorneys’ fees and costs, as well as a divestment of all shares and a rescission of the stock purchase agreement.  We filed a motion to dismiss in April 2010.  The Court ruled on this motion and dismissed all fraud counts.  Additionally, we have filed a counterclaim relating to the validity of a mutual release agreement and certain other related matters.  In December 2010, the plaintiffs filed a motion for judgment on the pleadings in connection with the counterclaim.  We have responded, and the motion is still pending.  The disposition of the motion will also control the scope of discovery in the suit.  Although we believe the plaintiffs’ case is without merit, there can be no assurance that the outcome of this case will be favorable to us.





On October 27, 2009, William R. Dunavant and William R. Dunavant Family Holdings, Inc. filed suit in the 55th Judicial District Court of Harris County, Texas, against us (the Company), William Donovan, M.D., Richard Specht, Rene Hamouth and Signature Stock Transfer, Inc.  The plaintiffs claim that we issued 2,000,000 shares of our stock as compensation for work they performed for us.  In December 2008, and again in early 2009, the plaintiffs sold some of their shares.  In February 2009, however, we issued a stop transfer resolution preventing the plaintiffs from selling any of the remaining shares.  The plaintiffs claim several causes of action, including breach of contract, conversion, fraud and fraudulent inducement, breach of fiduciary duty, intentional infliction of emotional distress, unjust enrichment, and a declaratory judgment.  The plaintiffs seek exemplary and punitive damages, as well as attorney fees.  In April 2011, we filed a counterclaim against Mr. Dunavant.  We believe that Mr. Dunavant fraudulently received the 2,000,000 shares that are the subject of his lawsuit, and that he caused significant damage to us around the period he acted as our executive officer and director.  In the counterclaim, we allege multiple causes of action against Mr. Dunavant, including fraud, violation of securities laws of the United States and Texas, breach of fiduciary duties, rescission of any contracts between the parties, negligence and gross negligence, negligent misrepresentations, and unjust enrichment.  We seek actual and punitive damages and attorney fees.  The case, including the original suit and the counterclaim, are scheduled to go to trial on October 3, 2011.  We are also awaiting a ruling from the Court of Appeals on certain jurisdictional issues.  We believe that the plaintiffs’ case is without merit and that we have a strong case against Mr. Dunavant in our counterclaim.  There can be no assurance, however, that the outcome of this case will be favorable to us.




On March 10, 2008, Kent Carasquero, Leslie Lounsbury, Riverside Manitoba, Inc. and Tyeee Capital Consultants, Inc. filed suit against us (the Company), Richard Specht, Rene Hamouth, Hamouth Family Trust, William R. Dunavant, and William R. Dunavant Family Holdings, Inc.  The plaintiffs filed the suit in the United States District Court, Middle District of Florida and request damages and injunctive relief for various breaches of contract and securities violations.  The Court entered a default judgment against the defendants in July 2008.  The Court set aside the default judgment and reopened the case in November 2008.  In January 2011, the Court dismissed seven of nine of the counts in the plaintiffs’ complaint and dismissed as defendants Richard Specht, Rene Hamouth, Hamouth Family Trust, William R. Dunavant, and William R. Dunavant Family Holdings, Inc.  In February 2011, the Court held a bench trial on the plaintiffs’ remaining two claims against us (relating to good faith and fair dealing and breach of contract).  In March 2011, the Court dismissed one of the claims but ruled in favor of Riverside Manitoba, Inc. against us for the remaining claim in the amount of $21,537 in full satisfaction of the claim.  On April 13, 2011, Kent Carasquero filed a notice of appeal in the United States Court of Appeals for the Eleventh Circuit.




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




In February 2011, we issued warrants to purchase a total of 200,000 shares of our common stock, including 100,000 Series A Warrants, 50,000 Series B Warrants and 50,000 Series C Warrants, to a total of two investors.  The issuance was in connection with a private offering where we sold units, each consisting of a 10% debenture and warrants to purchase common stock.  The warrants to purchase 200,000 shares of our common stock were sold with a total of $200,000 in 10% debentures for aggregate consideration of $200,000.  The Series A Warrants have an exercise price of $1.50 per share and expire on December 31, 2012; the Series B Warrants have an exercise price of $3.00 per share and expire on December 31, 2013; and the Series C Warrants have an exercise price of $5.00 per share and expire on December 31, 2013.  The securities were issued under the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder.  The issuance of securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a limited number of offerees; (iii) there was no public solicitation; (iv) each offeree was an “accredited investor”; (v) the investment intent of the offerees; and (vi) the restriction on transferability of the securities issued.




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ITEM 6. EXHIBITS




Exhibit No.

Description3.1

Articles of Incorporation dated March 4, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *3.2

Amended Articles of Incorporation dated April 23,1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *3.3

Amended Articles of Incorporation dated January 4, 2002. (Incorporated by reference from Form 10KSB filed with the SEC on May 21, 2003.) *3.4

Amended Articles of Incorporation dated December 19, 2003. (Incorporated by reference from Form 10-KSB filed with the SEC on May 20, 2004.) *3.5

Amended Articles of Incorporation dated November 4, 2004. (Incorporated by reference from Form 10-KSB filed with the SEC on April 15, 2005) *3.6

Amended Articles of Incorporation dated September 7, 2005. (Incorporated by reference from Form 10-QSB filed with the SEC on November 16, 2005) *3.7

By-Laws dated April 23, 1998. (Incorporated by reference from Form 10K-SB filed with the SEC on January 5, 2000.) *10.1

The 2003 Benefit Plan of Delta Capital Technologies, Inc. dated August 20, 2003 (Incorporated by reference from Form S-8 filed with the SEC on August 26, 2003)*10.2

Employment Agreement with John A. Talamas dated May 11, 2010 (Incorporated by reference from Form 8-K filed with the SEC on May 17, 2010) *10.3

Employment Agreement with William F. Donovan, M.D. dated May 17, 2010 (Incorporated by reference from Form 8-K filed with the SEC on May 17, 2010) *14.1

Code of Ethics (Incorporated by reference from our website.  It can be found at: www.spinepaininc.com/investor-information)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.





*
Incorporated by reference from our previous filings with the SEC




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Spine Pain Management, Inc.Date: May 16, 2011
By:
/s/ William F. Donovan, M.D.William F. Donovan, M.D.Chief Executive Officer and 
Principal Financial Officer




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