UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q








x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





For the Quarter Ended March 31, 2011





 ̈
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





Commission File Number: 814-00783








SPRING CREEK HEALTHCARE SYSTEMS, INC.


(Exact name of registrant as specified in its charter)








Nevada

98-0496750(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)120 Wall Street

Suite 2401

New York, N.Y.

10005(Address of principal executive office)

(Zip Code)





(646) 896-3050


(Registrant’s telephone number, including area code)





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





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 and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No    ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    x      No   o





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





Large accelerated filer    ̈

Accelerated filer    ̈

Non-accelerated filer   o

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





APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE PRECEDING FIVE YEARS:





Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


Yes    ̈     No   o





APPLICABLE ONLY TO CORPORATE ISSUERS:





The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of May 13, 2011 was 36,493,893.





1





SPRING CREEK HEALTHCARE SYSTEMS, INC.





TABLE OF CONTENTS








PART IItem 1.
Financial Statements
3Condensed Consolidated Balance Sheet of Spring Creek Healthcare Systems, Inc. at March 31, 2011 (unaudited) and December 31, 2010
3Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 and for the period from inception (May 11, 2006) to March 31, 2011 (unaudited)
4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 and for the period from inception (May 11, 2006) to March 31, 2011 (unaudited)
5Condensed Consolidated Statement of Stockholders’ Equity for the period from inception (May 11, 2006) to March 31, 2011 (unaudited)
6Notes to Condensed Consolidated Financial Statements (unaudited)
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12Item 3.
Quantitative and Qualitative Disclosures about Market Risk
16Item 4.
Controls and Procedures
16PART IIItem 1.
Legal Proceedings
17Item 1A.
Risk Factors
17Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
17Item 3.
Defaults Upon Senior Securities
17Item 4
(Removed and Reserved)
17Item 5.
Other Information
17Item 6.
Exhibits
17Signatures

18











2








SPRING CREEK HEALTHCARE SYSTEMS, INC AND SUBSIDIARY COMPANIES


(A Development Stage Company)


CONDENSED CONSOLIDATED BALANCE SHEETS





March31,


December 31,2011


2010(unaudited)ASSETSCURRENT ASSETSCash

$
493


$
1,083Prepaid expenses


57,010



4,301Total current assets


57,503



5,384Available for sale securities


40,000



60,000Intangibles


388,157



352,157TOTAL ASSETS

$
485,660


$
417,541LIABILITIES AND STOCKHOLDERS' DEFICIENCYCURRENT LIABILITIESAccounts payable and accrued expenses

$
360,861


$
308,952Notes payable - related party - net of discount of $10,000 and $129,000


617,426



581,132Notes payable


40,500



40,500Total current liabilities


1,018,787



930,584Liability for unissued shares


172,858



81,858STOCKHOLDERS' DEFICIENCYCommon stock, par value $.001 per share; 75,000,000shares authorized 36,240,714 issued and outstanding


36,241



36,241Additional paid-in capital


4,734,275



4,734,275Deficit accumulated during the development stage


(5,156,501
)


(5,065,417
)Accumulated other comprehensive loss


(320,000
)


(300,000
)Total stockholders' deficiency


(705,985
)


(594,901
)TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY

$
485,660


$
417,541





See notes to consolidated financial statements












3




SPRING CREEK HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY COMPANIES


(A Development Stage Company)


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)








Three months ended

March 31,


From inception

(May 11, 2006)

to March 31,2011


2010


2011General and Administrative

$
69,883


$
165,486


$
3,337,335Interest


20,218



21,933



102,814Amortization of debt discount


983



44,148



264,962Finance costs


-



-



1,824,844Total expenses


91,084



231,567



5,529,955Other expense/( income)- related to affiliated companies


-



(1,639
)


(373,454
)Net income (loss)

$
(91,084
)

$
(229,928
)

$
(5,156,501
)Income (loss) per share – basic and diluted

$
(0.00
)

$
(0.01
)Weighted average shares outstanding


36,240,714



33,957,777





See notes to consolidated financial statements













4






SPRING CREEK HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY COMPANIES


(A Development Stage Company)


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS








From inceptionThree months ended


(May 11, 2006)March 31,


to March 31,2011


2010



2011Cash Flows Used in Operating ActivitiesNet Loss

$
(91,084)


$
(229,928)


$
(5,156,501)Adjustments to reconcile net loss to net cashused in operating activities:Amortization of debt discount


983



44,148



264,962Equity in losses of unconsolidated subsidiaries






30,550



34989Gain on exchange in minority interest in BioCube, Inc.










(365,043)Amortization of deferred compensation






1,121



13,450Accrued interest – related party


19,811



16,933



109,237Accrued interest










6,300Services - noncash charges


2,291



55,000



2,235,199Accrued fees from affiliates






(32,190)



(33,658)Finance costs










1,824,629Changes in operating assets and liabilities:Prepaid expenses






4,436



(4,301)Accounts payables and accrued expenses


51,909



23,829



393,396Net Cash Used in Operating Activities


(16,090)



(86,101)



(677,341)Cash Flows Used in Investing ActivitiesLoans to affiliated companies






(38,500)



(78,445)Net Cash Used in Investing Activities






(38,500)



(78,445)Cash Flows Provided By (Used In) Financing ActivitiesLoans from related party


15,500



81,305



559,779Loans






50,000



130,000Loan - repayment






(9,500)



(9,500)Issuance of common stock










126,000Repayment of related party loan










(50,000)Net Cash Provided by Financing Activities


15,500



121,805



756,279Net Increase (Decrease) in Cash


(590)



(2,796)



493Cash at beginning of period


1,083



4,187



-Cash at end of period

$
493


$
1,391


$
493Supplemental DisclosuresNon-cash investing and financing activitiesCommon stock to be issued in connection with:Services

$
55,000Acquisition of intangibles


36,000Settlement of payables





$
5,000





See notes to consolidated financial statements











5







SPRING CREEK HEALTHCARE SYSTEMS, INC AND SUBSIDIARY COMPANIES


(A Development Stage Company)


CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY








DeficitAccumulated


AccumulatedAdditional





Other


During


TotalCommon Stock


Paid -in


Deferred


Comprehensive


Development


Stockholders'Shares


Amount


Capital


Compensation


Income/(loss)


Stage


DeficiencyShares issued to founders at $.01 per share


30,000,000


$
30,000



-













$
30,000Net loss for period


-



-



-









$
(30,000
)


(30,000
)Balance - December 31, 2006


30,000,000



30,000



-










(30,000
)


-Net loss for period


-



-



-










(23,655
)


(23,655
)Balance - December 31, 2007


30,000,000



30,000



-










(53,655
)


(23,655
)Shares issued at $.033 per share


2,880,000



2,880


$
93,120










-



96,000Net loss for period


-



-



-










(72,845
)


(72,845
)Balance - December 31, 2008


32,880,000



32,880



93,120










(126,500
)


(500
)Shares issued in settlement of payables


850,000



850



27,200














28,050Warrants issued in connection with:Consulting fees


-



-



13,450


$
(13,450
)









-Finance Costs










1,723,000














1,723,000Indebtedness










231,537














231,537Amortization of deferred compensation


-











4,110










4,110Net loss for period


-



-



-



-






(2,251,795
)


(2,251,795
)Balance - December 31, 2009


33,730,000



33,730



2,088,307



(9,340
)





(2,378,295
)


(265,598
)Issuance of common stock in connection with:Exercise of warrants


500,000



500



4,500














5,000Indebtedness


785,714



786



221,643














222,429Services - Board


250,000



250



132,250














132,500Services – other


675,000



675



384,025














384,700Acquisition of

intangibles


300,000



300



269,700














270,000Issuance of options

Board and officers










1,245,313














1,245,313Consulting fees










388,537














388,537Amortization of deferred

compensation














9,340










9,340Net loss for period





















(2,687,122
)


(2,687,122
)Unrealized loss on

Investments


















(300,000
)






(300,000
)Total comprehensive loss


























(2,987,122
)Balance – December 31, 2010


36,240,714


$
36,241


$
4,734,275


$
-


$
(300,000
)

$
(5,065,417
)

$
(594,901
)Net loss for period






















(91,084
)


(91,084
)Unrealized loss on

Investments


















(20,000
)






(20,000
)Total comprehensive loss


























(111,084
)Balance – March 31, 2011


36,240,714


$
36,241


$
4,734,275


$
-


$
(320,000
)

$
(5,156,501
)

$
(705,985
)





See notes to consolidated financial statements





6





SPRING CREEK HEALTHCARE SYSTEMS, INC.  AND SUBSIDIARY COMPANIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS











Note 1.  Organization and Basis of Preparation





Spring Creek Healthcare Systems, Inc. (formerly Spring Creek Capital Corp.) (“Spring Creek” or the “Company”) is a healthcare company whose business plan is to distribute novel solutions for the medical, pharmaceutical and healthcare markets to resellers and consumers worldwide. Spring Creek actively pursues emerging opportunities in the healthcare industry by selecting young start-up and micro-cap companies with innovative concepts and launching their products and services utilizing the marketing distribution network of its principal subsidiary, Stratis Healthcare, Inc. (“Stratis”).





Spring Creek was a closed-end management investment company which in April 2009 elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).  The Company was originally formed in May 2006 to engage in the exploration of mineral properties for copper and other metals; however, as a result of the April 2009 change in business plan to be a specialty investment company, the mining operations were discontinued.  The Company conducted operations as a BDC from April 23, 2009 through December 31, 2009.  During this time, Spring Creek acquired or established its initial interests in healthcare companies by acquiring equity stakes in or starting development stage companies in this industry. The Company also completed two minority equity investments in companies that it believed to be strategic to its mission.





In February 2010, our Board of Directors and the holders of a majority of our outstanding shares of common stock authorized management to withdraw the election to be regulated as a BDC.  This decision was in part prompted by the actuality that the majority of the Company’s resources were allocated to managing the operating activities of its holdings and, in addition, management found that the Company may not have been in compliance with certain BDC provisions of the 1940 Act.  On July 7, 2010, the Company filed an Information Statement with the SEC providing notice of shareholder action in lieu of a Meeting of Shareholders, taken pursuant to the written consent of certain shareholders, referred to as the consenting shareholders.  Specifically, the consenting shareholders approved the withdrawal of the Company’s election to be a BDC.  This action became effective on August 17, 2010 when the Company filed the applicable Notice concerning the withdrawal with the Securities and Exchange Commission.  Further, in recognition of the change in its operations, the Company changed its name to Spring Creek Healthcare Systems, Inc., effective as of September 30, 2010.





As a result of the decision to withdraw the Company’s election to be treated as a BDC and become an operating company, the fundamental nature of the Company’s business changed from that of investing in a portfolio of securities with the goal of achieving gains on appreciation and dividend income, to that of being actively engaged in the ownership and management of a holding company with the goal of generating income from the operations of those businesses.  The decision to withdraw the Company’s election as a BDC under the 1940 Act necessitated a significant change in the Company’s method of accounting.  The Company formerly utilized the BDC financial statement presentation and that accounting utilized the value method of accounting used by investment companies, which allows BDCs to recognize income and value their investments at market value as opposed to historical cost.  As an operating company, the Company was required to adopt the financial statement presentation and accounting for securities held which provides for either fair value or historical cost methods of accounting, depending on the classification of the investment and the Company’s intent with respect to the period of time it intends to hold the investment.  This change in the Company’s method of accounting could impact the market value of its investments in privately held companies by eliminating the Company’s ability to report an increase in the value of its holdings as the increase occurs.  As an operating company, the Company, effective December 31, 2009, consolidated its financial statements with its controlled subsidiaries, thus eliminating the portfolio company reporting benefits available to BDCs.





The Company intends to distribute and market products and technologies in the healthcare sector.  Spring Creek’s principal operating subsidiary is Stratis, whose primary business is to distribute products to resellers and customers worldwide either directly, through distributors or through multi-channel resources.  Stratis will utilize strategic partnerships to warehouse, provide inventory control/monitoring, and distribute new Spring Creek products on a global basis.  Systems and processes will be designed to be efficient and repeatable so as to allow Spring Creek to implement cost-effective solutions for the distribution of healthcare products throughout its portfolio.   In 2010, the Company incorporated 2 new subsidiaries that are 51%-owned by the Company to market the products obtained through licensing arrangements for an oral spray technology for delivery of over-the-counter and prescription medications, including oral insulin through the buccal mucosa, and a topical therapy treatment for open wounds such as venous statis or decubitus ulcers.  In March 2011, the Company agreed to license the rights to market the ReVersital® family of microdermabrasion products and all of its proprietary line extensions.  Once the Company begins its commercialization of these rights, the Company will terminate the development stage presentation for its consolidated financial statements.








7





The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company 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 Company since its formation has not generated any significant revenues. The Company has not as yet attained a level of operations which allows it to meet its current overhead and may not attain profitable operations within its first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved.  The Company is dependent upon obtaining additional financing adequate to fund its operations. While the Company has funded its initial operations with private placements and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company.   The Company’s ability to continue as a going concern is also dependent on many events outside of its direct control, including, among other things, improvement in the economic climate.  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.





Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.





Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full year.





The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.





These interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes for the period ended December 31, 2010 filed with the Securities and Exchange Commission on Form 10-K on April 15, 2011.





Note 2.  Significant Accounting Policies





Consolidation





The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of the dates and for the fiscal years indicated.  All intercompany accounts and transactions have been eliminated in consolidation.





Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry and any other parameters used in determining these estimates, could cause actual results to differ.





Concentration of Credit Risk





The Company may place its cash with various financial institutions and, at times, cash held in depository accounts at such institutions may exceed the Federal Deposit Insurance Corporation insured limit.





Equity and Cost Method Investments in Portfolio Companies





The Company uses the equity method of accounting for its investments in entities in which it has significant influence; generally, this represents an ownership interest of between 20% and 50%. The Company uses the cost method of accounting for investments in equity securities in which it has a less than 20% equity interest and virtually no influence over the investee's operations.





Application of the cost method requires the Company to periodically review its investments in order to determine whether to maintain the current carrying value or to write off some or all of the investment.  While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company's management.  These judgments include assessments of the likelihood of the investments to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments, the Company must also attempt to anticipate trends in the industries as well as in the general economy. There can be no guarantee that the Company will be accurate in its assessments and judgments. To the extent that the Company is not correct in its conclusion, it may decide to write down all or part of the investment.








8





Securities Held for Sale





The company's investments in marketable equity securities are held for an indefinite period and thus are classified as available for sale. Unrealized holding gains or losses on such securities are charged to or credited to other comprehensive income.





Income Taxes





The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities (commonly known as the asset and liability method).  In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.





The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year.   The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.





As of December 31, 2010, the Company has approximately $5.1million of net operating loss carry-forwards available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry- forwards and temporary differences as realization of the asset is not assured.





Revenue Recognition





Upon initiation of active operations, the Company will recognize revenues when persuasive evidence of an arrangement exists, product has been delivered or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue will be recognized net of estimated sales returns and allowances.





Per Share Information





Basic earnings per share are calculated using the weighted average number of common shares outstanding for the period presented. Diluted loss per share is the same as basic loss per share, as the effect of potentially dilutive securities (options and warrants to acquire 3,450,000 and 2,490,000 shares of common stock, respectively) are anti-dilutive, and has no impact on the consolidated results of operations presented.





New Accounting Pronouncements





In December 2010, The Financial Accounting Standards Board (“FASB”) adopted new disclosure guidance for supplementary pro forma information related by a public entity that enters into business combinations that are material on an individual or aggregate basis.   The guidance specifies that if the public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.  In addition, the guidance expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this did not have a material effect on the Company’s operations or financial condition.





Note 3.  Available for Sale Securities





On July 12, 2010, the Company exchanged its minority interest in BioCube, Inc. ("BioCube") for 2 million shares of common stock of Alliance Network Communications, Inc. ("Alliance") in connection with a transaction in which BioCube became a wholly-owned subsidiary of Alliance. Alliance subsequently changed its name to BioCube, Inc.  The Company accounted for its investment in Alliance in accordance with FASB ASC Topic 320 - Investments and accordingly classified the investment as available for sale and recorded the investment at its fair value as of the acquisition date ($360,000), which resulted in a gain of $365,000.  Adjustments to the carrying value for subsequent changes in fair value are recorded as unrealized gains or losses in other comprehensive income in the consolidated statement of stockholders’ deficiency.  As a result of the decrease in the fair value during the period subsequent to July 12, 2010 through March 31, 2011, the Company recorded an unrealized loss of $320,000, of which $20,000 was recorded in the three month period ended March 31, 2011.








9





Note 4.  Intangibles





Intangibles as of March 31, 2011 consist of the following:





License for “Insect Repellent Composition Containing Essential Oils”

$
82,000License for an oral spray technology for delivery of medications through the buccal mucosa


270,000License for the market rights to ReVersital 3-in-1 Microderma Stick


36,000Total

$
388,000





On March 11, 2011, the Company pursuant to a ten-year licensing agreement acquired the right to market the ReVersital® family of microdermabrasion products and all of its proprietary line extensions. The license is exclusive for the United States mass consumer market. The licensor received as consideration for the license 300,000 shares of the Company’s common stock valued at $36,00 based upon the fair value of the shares to be issued as of the date of the agreement; a 49% interest in a subsidiary of the Company which will hold the marketing rights to any products developed utilizing the license and a royalty of 5 % of net sales.





On May 21, 2010, the Company exchanged its minority interest in Eco-Blends, Inc. (“Eco-Blends”) for a fully paid, royalty-free, perpetual, transferrable license to use all of the formulations set forth in the pending application for a patent under the name “Insect Repellent Composition Containing Essential Oils”.  Additionally, the Company forgave all amounts due for management fees, loans, interest and all other amounts due from Eco-Blends.  As a result, the Company recorded an intangible of $82,000 by transferring the following amounts which had been previously recorded as advances and investments in Eco-Blends:





Advances:Loans

$
65,000Management fees


30,000Interest


4,000Equity in losses


(17,000
)$
82,000





On April 27 and May 19, 2010, the Registrant entered into licensing agreements with McCoy Enterprise, LLC (the “licensor”), whereby the Company exclusively licensed (i) an oral spray technology for delivery of over-the-counter and prescription medications, including oral insulin through the buccal mucosa and (ii) a topical therapy treatment for open wounds such as venous statis or decubitus ulcers.  The exclusive licenses include world-wide rights in perpetuity.  The licensor received as consideration for each license a 49% interest in each of 2 subsidiaries of the Company, which will hold the marketing rights to any products developed utilizing each license.  In addition, the licensor also is to receive 300,000 shares of the Company’s common stock in connection with the buccal mucosa license.  The Company recorded the buccal mucosa license right as an Intangible valued at $270,000 based upon the fair value of the shares issued.





Note 5.  Notes payable - related party





The Company’s transactions with LeadDog Capital LP for the three months ended March 31, 2011 were as follows:





Balance at beginning of period

$
581,132New borrowings at 16% interest rate


15,500Interest accrued


19,811Accretion of discount


983Balance at end of period

$
617,426





At March 31, 2011, notes and interest payable to related party includes unpaid interest of $102,029.   The notes are payable within one year of the origination date of the notes or under extensions through July 2011.





Note 6.  Liability for Unissued Shares





As of March 31, 2011, the liability for unissued shares consists of shares issuable in accordance with:





Terminated agreement for services

$
80,300Marketing services agreement


55,000Acquisition of licensing agreement – see Note 4


36,000Settlement – for services rendered


1,558$
172,858










10







In March 2011, the Company engaged a marketing company to provide marketing and branding services in order to increase the distribution of the Company’s products. The agreement is for 12 months, automatically renewable for 12 months, and provides for monthly payments of $5,000. Additional consideration includes 500,000 shares of common stock of which half was to be issued on closing and the balance is due after 6 months. The Company also agreed to pay commissions on sales directly attributed to the services of the marketing company.





In February 2010, the Company entered into a letter of engagement with an investor relations firm to develop and implement a financial communications program designed to increase investor awareness of the Company in the investment community.  The initial term of the agreement was ninety days and may be terminated by either party upon thirty days’ notice.   Pursuant to the agreement, the Company is to issue up to 660,000 shares of our common stock in monthly installments of 55,000 during the first year of the agreement unless the agreement is terminated before the completion of the first year of the contract causing the monthly installments to end as of the termination date.   On November 9, 2010, the Company terminated the agreement and has not issued the balance of the shares due for a portion of the period prior to termination.





NOTE 7: Fair Value Measurements





Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:





Level 1 — Quoted prices in active markets for identical assets or liabilities.





Level 2 — Observable inputs other than quoted prices included in Level 1. We value assets and liabilities included in this level using dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.





Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.





Recurring Fair Value Measurements





In accordance with accounting principles generally accepted in the United States, certain assets and liabilities are required to be recorded at fair value on a recurring basis. For our Company, the only assets and liabilities that are adjusted to fair value on a recurring basis is the Company investment which was classified as available for sale and valued using Level 1 inputs (see Note 3.)





Note 8.  Subsequent Events





In May 2011, the Board of Directors awarded non-cash compensation awards for services rendered to the officers, directors and certain consultants in the form of 3 million shares of common stock and options to purchase an aggregate of 15.4 million shares of common stock at a $0.05 per share exercise price.   In addition, the Board approved a compensation plan for the directors in which all directors were awarded 500,000 options to purchase common stock at an exercise price of $.05 except the Chairman who received options to purchase 125,000 shares as well as 250,000 shares of common stock.





Subsequent to March 31, 2011, the Company borrowed an additional $13,500 from LeadDog Capital LP with interest payable at 16% per year.









11






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





You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under ‘Risk Factors’ in our annual report on Form 10-K, filed with SEC April 15, 2011.





OVERVIEW





Spring Creek Healthcare Systems, Inc.  (“Spring Creek” or the “Company”) is a healthcare company whose business plan is to distribute novel solutions for the medical, pharmaceutical and healthcare markets to resellers and consumers worldwide. Spring Creek actively pursues emerging opportunities in the healthcare industry by selecting young start-up and micro-cap companies with innovative concepts and launching their products and services utilizing a marketing distribution network including one of its subsidiaries, Stratis Healthcare, Inc. (“Stratis”).





Spring Creek was a closed-end management investment company that in April 2009 elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).  The Company was originally formed in May 2006 to engage in the exploration of mineral properties for copper and other metals; however, as a result of the April 2009 change in our business plan to be a specialty investment company, the mining operations were discontinued.  We conducted operations as a BDC from April 23, 2009 through December 31, 2009. During this time, we acquired or established the Company’s initial interests in healthcare companies by acquiring equity stakes in or starting development stage companies in this industry. We also completed two minority equity investments in companies that we believed to be strategic to our mission.





In February 2010, our Board of Directors and the holders of a majority of our outstanding shares of common stock authorized management to withdraw the election to be regulated as a BDC. This decision was in part prompted by the actuality that the majority of the our resources were allocated to managing the operating activities of our holdings and, in addition, management found that we may not have been in compliance with certain BDC provisions of the 1940 Act.  On July 7, 2010, we filed an Information Statement with the SEC providing notice of shareholder action in lieu of a Meeting of Shareholders, taken pursuant to the written consent of certain shareholders, referred to as the consenting shareholders. Specifically, the consenting shareholders approved the withdrawal of our election to be a BDC. This action became effective on August 17, 2010 when we filed the applicable Notice concerning the withdrawal with the Securities and Exchange Commission. Further, in recognition of the change in the Company’s operations we changed our name from Spring Creek Capital Corp. to Spring Creek Healthcare Systems, Inc., effective as of September 30, 2010.





As a result of the decision to withdraw our election to be treated as a BDC and become an operating company, the fundamental nature of our business changed from that of investing in a portfolio of securities with the goal of achieving gains on appreciation and dividend income, to that of being actively engaged in the ownership and management of a holding company with the goal of generating income from the operations of those businesses.  The decision to withdraw our election as a BDC under the 1940 Act necessitated a significant change in our method of accounting. We formerly utilized the BDC financial statement presentation and that accounting utilized the value method of accounting used by investment companies, which allows BDCs to recognize income and value their investments at market value as opposed to historical cost.  As an operating company, we were required to adopt the financial statement presentation and accounting for securities held which provides for either fair value or historical cost methods of accounting, depending on the classification of the investment and our intent with respect to the period of time we intend to hold the investment.  This change in our method of accounting could impact the market value of our investments in privately held companies by eliminating our ability to report an increase in the value of our holdings as the increase occurs.  As an operating company, the Company, effective December 31, 2009, consolidated our financial statements with our controlled subsidiaries, thus eliminating the portfolio company reporting benefits available to BDCs.









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Business Plan





Our core strategy is to acquire or develop innovative solutions in the field of healthcare and to grow our business. To accomplish this, we will:





*        Actively pursue emerging opportunities in the healthcare sector with high growth potential;





*        Exploit our global marketing and distribution infrastructure to reach our target markets;





*        Establish trust in our brands in the minds of consumers;





*        Schedule the launch of our products and services to coincide with the most opportune periods; and





*        Increase our cash flow and profits.





In addition, we will need capital sufficient to maintain operations and complete acquisitions in order to advance our objectives.





We believe that, through the experience of our management and directors, we have solid channels from which we may distribute our products and substantial resources to potentially generate a number of new opportunities for our Company. However, there can be no guarantee such relationships will lead to the origination of new products, acquisitions, or investments.  Our subsidiaries and their current product lines include:





DelRx Pharmaceuticalshas developed a proprietary drug delivery technology for the transmucosal (the cavity between the cheek and gum) administration of large molecule drugs as a liquid dispersion, e.g., peptides like insulin, monoclonal, antibodies, hormones, vaccines and other proteins.  Currently, these macro-molecular drugs cannot be administered orally, and are instead injected, usually with a needle and syringe or by intravenous infusion. Utilizing this innovative delivery system, DelRx can provide better stability and may reduce the side effects seen with certain nasal delivery and inhalation methods. Two initial product lines are planned based on DelRx Pharmaceuticals’ patented IP portfolios. The first is the buccal delivery of insulin and the second is for treatment of osteoporosis pain management with fentanyl citrate.





Debridehas licensed a patent pending drug product which represents a fundamentally new combination approach to the topical treatment of open wounds such as diabetic foot ulcers, venous stasis or decubitus ulcers (bed sores). The product can be developed as a prescription drug for the treatment of bed sores but has potential in other clinical indications, even in over-the-counter concentrations that could treat wounds, burns and various skin irritations, including rashes and insect bites.





Ecological Solutions has licensed the rights to manufacture a homeopathic insect repellent whose formulation is free of Deet. Deet is a commonly used ingredient in insect repellents that some consider to be too toxic for use on human skin.





In March 2011, the Company made its initial foray into the “Health and Beauty” segment of the healthcare market and formed a partially owned subsidiary, Sashiel Beauty, Inc.  Sashiel will specialize in developing premium cosmetic skincare products for effective skincare with a value-oriented approach.  Sashiel currently licenses two consumer products sold under the brand ReVersital® - Microderma Stick® Face, Throat, Décolleté, and Microderma Stick® Body, Elbows, Feet. Microderma Stick® is a microdermabrasion resurfacing stick with active moisturizers made to cleanse, exfoliate, and moisturize all in one dial-up application.  It is portable, easy to hold, and can reduce observable fine lines, wrinkles, acne scars, age spots, damage from UVA/UVB rays, skin discoloration and dry skin. The introductory product lines include a 2oz. resurfacing stick for sensitive and normal skin types and a 3oz. resurfacing stick for all skin types.





Current Economic Environment





The U.S. economy is currently in a recession. Consumer confidence continued to deteriorate and unemployment figures continued to increase during 2010.  However, in recent months, certain economic indicators have shown modest improvements. The generally deteriorating economic situation, together with the limited availability of debt and equity capital, including through bank financing, will likely have a disproportionate impact on the micro-cap companies.  As a result, we may not be able to execute our business plan as a result of inability to raise sufficient capital and/or be able to develop a customer base for our planned products.





Going Concern





The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern.  This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business.  Since our formation, we have not generated any revenues. The Company has not as yet attained a level of operations that allows us to meet our current overhead and may not attain profitable operations within its first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The Company is dependent upon obtaining additional financing adequate to fund its operations. While we have funded our initial operations with private placements and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to us.   Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, improvement in the economic climate.  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.








13





Results of Operations





Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010





Expenses during the three months ended March 31, 2011 aggregated $91,000 versus $232,000 in the prior period.





Our primary operating expenses include the payment of:  (i) consulting fees under arrangements to fund costs related to personnel, advisors as well as other administrative expenses; (ii) interest on borrowings; and (iii) professional services including legal, accounting and transfer agent.  Each year was impacted by non-cash charges as follows:  $1,000 (2011) and $44,000 (2010) related to amortization of debt discount for the issuance of warrants in connection with indebtedness and $2,000 (2011) and $55,000 (2010) related to non-cash compensation. The non-cash charges principally relate to fair value accounting for the stock and option awards.  The decrease in cash used in operations was the result of a reduction in the use of consultants and professionals in the 2011 period as the Company was developing a new business plan as a result of its recent rights acquisitions.





LIQUIDITY AND CAPITAL RESOURCES





As of March 31, 2011, the Company had a negative working capital of $961,000 and a stockholders’ deficiency of $706,000. Since inception, we generated net cash proceeds of $126,000 from equity placements and borrowed $560,000 from a related party (net of a repayment of $50,000) and from others $117,000 (net of repayment of $10,000). The Company has not as yet attained a level of operations that allows it to meet its current overhead and may not attain profitable operations within the next few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The Company is dependent upon obtaining additional financing adequate to fund the development of our new product lines. The report of our auditors on our financial statements for the year ended December 31, 2010 includes a reference to going concern risks.  While the Company has funded its initial operations with private placements, became a publicly owned entity and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company.  Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate.  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.





Cash Flows





The Company’s cash on hand at March 31, 2011 and December 31, 2010 was approximately $500 and $1,000, respectively.





Operating cash flows: We had no operating sources of cash in 2011 and 2010.  The decrease in the cash used in operations in 2011 versus the prior year principally relates to the reduction in the expenses related to use of consultants and professionals in the 2011 period as the Company was developing a new business plan as a result of its recent rights acquisitions.





Investing cash flows: The Company had no investing activity in the 2011 period and used cash of $39,000 in connection with its affiliated companies in the prior year period.





Financing cash flows: Net cash generated from financing in 2011 share consisted of $15,000 from loans from a related party.  Net cash provided by financing activities for the prior year was $121,000, which represents proceeds from loans from a related party of $81,000 and from others of $41,000, net of a repayment of $10,000.





Off-Balance Sheet Arrangements





As of March 31, 2011, we have no off-balance sheet arrangements.





Related Parties





Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report on Form 10-Q.








14





Critical Accounting Policies





The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.





The Company uses the equity method of accounting for its investments in entities in which it has significant influence; generally, this represents an ownership interest of between 20% and 50%. The Company uses the cost method of accounting for investments in equity securities in which it has a less than 20% equity interest and virtually no influence over the investee's operations.





Application of the cost method requires the Company to periodically review its investments in order to determine whether to maintain the current carrying value or to write off some or all of the investment. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company's management. These judgments include assessments of the likelihood of the investments to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments, the Company must also attempt to anticipate trends in the industries as well as in the general economy. There can be no guarantee that the Company will be accurate in its assessments and judgments. To the extent that the Company is not correct in its conclusion, it may decide to write down all or part of the investment.





The Company has recorded as intangibles amounts representing the rights we have obtained to technology, know-how, trademarks and etc. based upon the amounts the Company had previously recorded for the assets exchanged for the rights or the market value of its common stock given as consideration.  In the opinion of management the valuation of the assets given in exchange for the rights are representative of the value as the assets and based upon the Company’s current plans for these rights there has been no diminution in their value.





We used the Black-Scholes option pricing model to determine the fair value of stock options in connection with stock based compensation charges as well as certain finance cost charges when we issued warrants in connection with the issuance of indebtedness. The determination of the fair value of stock-based payment awards or warrants on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.





Due to our limited history as a public company, we have estimated expected volatility based on the historical volatility of certain companies as determined by management. The risk-free rate for the expected term of each option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on our intent not to issue a dividend as a dividend policy. Due to our limited operating history, management estimated the term to equal the contractual term.





If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.





The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models may not necessarily provide a reliable single measure of the fair value of its employee stock options.





The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities (commonly known as the asset and liability method). In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.





The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year.   The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.








15





Item 3.   Quantitative and Qualitative Disclosures about Market Risk.





Not applicable.





Item 4.          CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





The Company is in the process of implementing disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.





As of March 31, 2011, the Chief Executive Officer and Chief Financial Officer carried out an assessment, of the effectiveness of the design and operation of our disclosure controls and procedure and concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2011, because of the material weakness described below.





A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.





The material weakness identified during management's assessment was the lack of sufficient resources with SEC, generally accepted accounting principles (GAAP) and tax accounting expertise. This control deficiency did not result in adjustments to the Company’s interim financial statements. However, this control deficiency could result in a material misstatement of significant accounts or disclosures that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.





The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures in the Quarterly Report on Form 10-Q, to ensure that the Company’s Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods presented.





Changes in Internal Control over Financial Reporting





During the three months ended March 31, 2011 there were no changes in our system of internal controls over financial reporting.







16






PART II. OTHER INFORMATION





Item 1.   Legal Proceedings





We are not currently subject to any material pending legal proceedings.





Item 1A.  Risk Factors





In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.





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





None.





Item 3. Defaults Upon Senior Securities





None.





Item 4.   (Removed and Reserved)





Item 5.  Other Information





None.




Item 6.  Exhibits





(a) Exhibits


31.1

Certification of Chief Executive Officer31.2

Certification of Chief Financial Officer32.1

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer











17











SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) 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 on May 18, 2011.








Spring Creek Healthcare Systems, Inc.By:
/s/ Kelly T. HickelKelly T. HickelChief Executive OfficerBy:
/s/ Jan E. ChasonJan E. ChasonChief Financial Officer