Bitech Technologies Corp - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x Annual report under
Section 13 or 15(d) of the Securities Exchange Act of 1934
For the
fiscal year ended December 31,
2009.
¨ Transition 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.
(Formerly “VERSA
CARD, INC.”)
(Name of
Registrant in Its Charter)
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Delaware
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98-0187705
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(State
or Other Jurisdiction of Incorporation or
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(I.R.S.
Employer Identification No.)
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Organization)
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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:
Title of Each
Class
Common
Stock ($0.001 Par Value)
Indicate
by check mark if the Registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes ¨ No x
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):
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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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
At June
30, 2009, the aggregate market value of shares held by non-affiliates of the
Registrant (based upon 16,317,682 on June 30, 2009) was
$17,133,566.
At
December 31, 2009, there were 17,367,682 shares of the Registrant’s common stock
outstanding (the only class of voting common stock).
At March
1, 2010, there were 17,367,682 shares of the Registrant’s common stock
outstanding (the only class of voting common stock).
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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9
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Item
2.
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Properties
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14
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Item
3.
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Legal
Proceedings
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14
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Item
4.
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Submission
of Matters to a Vote of Security-Holders
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15
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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16
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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17
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Item
8.
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Financial
Statements and Supplementary Data
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21
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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40
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Item
9A.
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Controls
and Procedures
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40
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Item
9B.
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Other
Information
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42
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PART
III
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Item
10.
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Directors,
Executive Officer and Corporate Governance
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43
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Item
11.
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Executive
Compensation
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44
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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46
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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46
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Item
14.
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Principal
Accountant Fees and Services
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47
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Item
15.
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Exhibits
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48
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Signatures
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50
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2
PART
I
ITEM
1. BUSINESS
History
As used
herein, the terms “Company,” “we,” “our”, and “us” refer to Spine Pain
Management, Inc., formerly known as Versa Card, Inc., Intrepid Global Imaging
3D, Inc., MangaPets, Inc. and Newmark Ventures, Inc., a Delaware corporation and
its subsidiaries and predecessors, unless the context indicates
otherwise. The Company was incorporated on March 4,
1998.
Since
inception, the Company had engaged in and contemplated several ventures and
acquisitions, many of which were not consummated. In April 2005, the Company
began focusing on the development of the “MangaPets” interactive web portal and
acquiring other ventures in the technology sector. The Company entered into a
Portal Development Agreement in July 2005, with Sygenics Interactive Inc.
(“Sygenics”), a developer of advanced information management technology, located
in Montreal, Quebec, Canada, and an authorized licensee of Sygenics Inc. The
agreement provided for the design, development and deployment of an online
virtual pet portal/website. However, in 2006, prior to Sygenics’ completion of
the first stage of the portal, a dispute arose between the Company and Sygenics
that resulted in work being halted. Since that time, the Company has attempted
to develop the web portal or form another strategic relationship with a
different developer to complete development of the web portal. The
Company has reevaluated MangaPet's business of developing a web portal
containing games, merchandizing, and other entertainment activities to determine
the viability of that business concept. It has been determined that this
business segment is no longer appropriate to pursue given the Company’s current
business plan.
During
2006, in addition to developing the Manga themed web portal, the Company
expended resources toward establishing a United Kingdom based subsidiary company
to pursue acquisitions in the gaming sector. On the advice of counsel, and
unfavorable events in the United States pertaining to on-line gaming, the
Company decided not to pursue on-line gaming ventures.
During
the fourth quarter of 2007 and into the fourth quarter of 2008, the Company
focused on consummating a transaction with a smartcard / e-purse company, First
Versatile Smartcard Solutions Corporation (“FVS”), and put on hold the
development of its web portal for the Company’s MangaPets business. In November
2007, the Company entered into an agreement to merge with FVS, and subsequently
in April 2008, the transaction was restructured as a stock purchase
agreement. Based on various factors, the acquisition of FVS did
not meet the expectations of the Company or FVS, and on December 30, 2008 the
Company entered into a Mutual Release and Settlement Agreement to effectively
rescind the transactions effected by the FVS acquisition
agreements.
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 connection with this business plan, in
February, 2009, the Company acquired the website and propriety methodologies of
One Source Plaintiff Funding, Inc. (“One Source”), a Florida corporation, which
the Company planned to use in the business of “lawsuit
funding”. Based on several factors, however, the Company decided in
July 2009 not to enter the business of lawsuit funding (as described in more
detail below in the section titled “One Source Plaintiff Funding, Inc.”), and
focus solely on assisting healthcare providers in providing necessary and
appropriate treatment for patients with spine injuries. In August
2009, the Company opened its first spine injury treatment center in Houston,
Texas. The Company is also currently evaluating the development of
additional spine injury treatment centers in Texas and across the United
States.
On Nov.
12, 2009 the Company officially 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.
3
Spine
Pain Management, Inc. (SPMI)
Following
the exit from the smart card business at the end of December 2008, the Company
began initial work to launch its new business of delivering turnkey solutions to
spine surgeons and orthopedic surgeons for necessary and appropriate treatment
for muculo-skeletal spine injuries resulting from automobile and work-related
accidents (hereinafter, referred to as our “SPMI” business).
Our goal
is to become a leader in providing care management services to spine and
orthopedic surgeons and other healthcare providers to facilitate proper
treatment of their injured clients. By pre-funding diagnostic testing
and non-invasive and surgical care, patients are not unnecessarily delayed or
prevented from obtaining needed treatment. By providing early
treatment, the Company believes that health conditions can be prevented from
escalating and injured victims can be quickly placed on the road to
recovery. The Company believes its patient advocacy will be rewarding
to patients who obtain needed relief from painful conditions, and moreover,
provides spine surgeons and orthopedic surgeons a solution to offset the cost of
care prior to settlement.
In August
2009, the Company entered into a medical services agreement with Northshore
Orthopedics, Assoc. ("NSO") to open its first spine injury treatment center in
Houston, Texas. Pursuant to the agreement, NSO will operate as an independent
contractor for the Company to provide medical diagnostic services for evaluation
and treatment of patients with spine injuries. The agreement has a
term of three years, and thereafter will automatically renew for three year
periods. NSO is owned by the Company’s Chief Executive Officer,
William Donovan, M.D. Omar Vidal, M. D., a Fellowship Trained Pain
Management Doctor, is working with NSO to provide these specialized diagnostic
procedures. NSO has also hired special medically trained personnel,
including x-ray fluoroscopy, EMT's, and medical assistants, to provide a full
service spine pain management program.
The
Company is also currently evaluating the development of additional spine
treatment centers in Texas and across the United States in major metropolitan
cities. Our initial strategy calls for the development and deployment
of between seven and ten centers across the U.S. over the next 24 months, of
which there can be no assurance. In connection with this strategy, in
January 2010, we entered into a preliminary oral agreement with Forest Park
Medical Center (“FPMC”) in Dallas, Texas to open our second clinic within FPMC’s
state-of-the-art facility. We anticipate that FPMC, a doctor owned,
full-service, acute-care hospital that focuses on high-quality surgical
services, will facilitate our medical spine injection procedures within Dallas,
Texas. We are currently working with FPMC on a definitive operating
agreement.
SPMI
Market
According
to a report in the Journal of the American Medical Association (JAMA), the
spending for spine treatments in the United States totaled nearly $86 billion in
2005, a rise of 65 percent from 1997, after adjusting for inflation. Data from
the Agency for Healthcare Research and Quality collected from 23,000 people a
year from 1997 to 2005 found that people with spine problems spent about $6,096
each on medical care in 2005, compared to $3,516 in medical spending among those
without spine problems. In 2005, Americans spent an estimated $20 billion on
drug treatments from back and neck problems, an increase of 171 percent from
1997. Outpatient treatment for back and neck problems increased 74 percent to
about $31 billion during the period. Spending for surgical procedures and other
inpatient costs grew by 25 percent to about $24 billion.
The
market trends in treatment of musculo-skeletal injury all point to increased
costs to the American public, government and the insurance carriers for the
foreseeable future. This creates a major opportunity for the Company’s business
model.
SPMI Business
Model
The
Company plans to address this market by:
4
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Initiate
a two–year roll-out of our spinal medical services available to spine
surgeons, orthopedic surgeons, and other healthcare
providers.
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Employ
contract management services at regional, state and local
levels.
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Identify
and target key spinal healthcare providers who handle large numbers of
accident-type cases.
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SPMI Care Management
Strategy
The
Company's care management program was developed by Dr. William Donovan, our
Chief Executive Officer and Director. Our care management program generally
begins with physical therapy. If there is no improvement in patient condition
following sufficient amounts of physical therapy, the patient is referred for
pain management evaluation and diagnostic imaging, and if medically necessary,
surgery.
We
believe that our care management program improves the medical outcomes for
injured victims by providing medically necessary, appropriate and reasonable
treatment of injuries and facilitates the settlement of the injured victim's
case by completing required medical treatment and providing clear and consistent
medical records.
Document
Management
The
Company intends to use PaperWise to manage medical records for patient
cases. PaperWise is an enterprise document management and workflow
solutions manufacturer focused on providing adaptable and scalable solutions to
a range of different businesses. The PaperWise platform builds a manageable
infrastructure that protects data, documents and files from loss and corruption,
while making information instantly available to users. Through
collaboration with Paperwise, the Company believes it can retain and provide
easy access to medical records of its patients. The Company's document
management will be provided under tight, fully-HIPPA compliant
security.
SPMI
Marketing
Direct
contact with key spine surgeons, orthopedic surgeons and other healthcare
providers who are highly visible in their communities will be the initial step
in targeting appropriate referral sources. Additional marketing to spine
surgeons will be done at national medical meetings and trade
shows. The Company believes that its services will be favorably
received and result in referrals of injury patients. We intend to have our SPMI
business operational in at least ten cities by September 2011, of which there
can be no assurances.
One Source Plaintiff
Funding, Inc.
On
February 28, 2009, in connection with the launch of its SPMI business segment,
the Company entered into an agreement with Brian Koslow and David Waltzer to
acquire the website and proprietary methodologies of One Source Plaintiff
Funding, Inc., a Florida corporation (“One Source”). The agreement provided for
the Company to acquire the website and proprietary methodologies of One Source
in exchange for 900,000 shares of the Company’s common stock. One Source’s
website and proprietary methodologies were designed for the business of "lawsuit
funding" for plaintiff personal injury cases. In connection with the
One Source transaction, the Company entered into employment agreements with Mr.
Koslow and Mr. Waltzer, the founders of One Source, with Mr. Koslow being
appointed as Executive Vice President of Business Development of the
Company. With the assistance of Messrs. Koslow and Waltzer, the
Company planned to further develop One Source’s website and proprietary
methodologies so that the Company could enter the business of lawsuit
funding. In July 2009, however, Mr. Koslow and Mr. Waltzer
unexpectedly resigned from the Company. With the resignations of
Messrs. Koslow and Waltzer, the Company realized it would be unable to use the
proprietary methodology of One Source and has decided not to enter the business
of lawsuit funding, focusing instead on its SPMI
business. Accordingly, the Company will have no use for the website
and proprietary methodologies of One Source. Upon an evaluation of
the expected life of the acquired One Source assets, it was decided at December
31, 2009 that these assets had no value, and the acquired cost of the impaired
assets have been written off and recorded in the Company’s statement of
operations for the year ended December 31, 2009. The Company has also
filed a lawsuit against Messrs. Koslow and Waltzer, as described below in “Item
3, Legal Proceedings.”
5
Governmental
Regulation
Although
all of the medical treatment procedures offered by the Company are performed
through an independent contractor, the Company is still a provider of healthcare
management services, and we are subject to regulation by a number of
governmental entities at the federal, state, and local levels. We are also
subject to laws and regulations relating to business corporations in general. In
recent years, Congress and state legislatures have introduced an increasing
number of proposals to make significant changes in the healthcare system.
Changes in law and regulatory interpretations could reduce our revenue and
profitability.
Corporate
Practice of Medicine and Other Laws
We are
not licensed to practice medicine. Every state in which we anticipate our SPMI
segment will operate limits the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Business
corporations generally may not exercise control over the medical decisions of
physicians. Many states also limit the scope of business relationships between
business entities and medical professionals, particularly with respect to fee
splitting. Most state fee-splitting laws only prohibit a physician from sharing
medical fees with a referral source, but some states have interpreted certain
management agreements between business entities and physicians as unlawful
fee-splitting. Statutes and regulations relating to the practice of medicine,
fee-splitting, and similar issues vary widely from state to state. Because these
laws are often vague, their application is frequently dependent on court rulings
and attorney general opinions.
Under the
agreement we entered into with NSO and under similar agreements we plan to enter
into with other medical services providers, the doctors retain sole
responsibility for all medical decisions, developing operating policies and
procedures, implementing professional standards and controls, and maintaining
malpractice insurance. We attempt to structure all our health services
operations, including arrangements with our doctors, to comply with applicable
state statutes regarding corporate practice of medicine, fee-splitting, and
similar issues. However, there can be no assurance:
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•
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that
private parties, or courts or governmental officials with the power to
interpret or enforce these laws and regulations, will not assert that we
are in violation of such laws and
regulations;
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•
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that
future interpretations of such laws and regulations will not require us to
modify the structure and organization of our business;
or
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•
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that
any such enforcement action, which could subject us and our affiliated
professional groups to penalties or restructuring or reorganization of our
business, will not adversely affect our business or results of
operations.
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HIPAA
Administrative Simplification Provisions—Patient Privacy and
Security
The
Health Insurance Portability and Accountability Act of 1996, commonly known as
“HIPAA,” requires the adoption of standards for the exchange of health
information in an effort to encourage overall administrative simplification and
to enhance the effectiveness and efficiency of the healthcare industry. Pursuant
to HIPAA, the Secretary of the Department of Health and Human Services has
issued final rules concerning the privacy and security of health information,
the establishment of standard transactions and code sets, and the adoption of a
unique employer identifier and a national provider
identifier. Noncompliance with the administrative simplification
provisions can result in civil monetary penalties up to $100 per violation as
well as criminal penalties that include fines and imprisonment. The Department
of Health and Human Services Office of Civil Rights is charged with implementing
and enforcing the privacy standards, while the Centers for Medicare and Medicaid
Services are responsible for implementing and enforcing the security standards,
the transactions and code sets standards, and the other HIPAA administrative
simplification provisions.
6
The HIPAA
requirements only apply to “covered entities,” such as health plans, healthcare
clearinghouses, and healthcare providers, which transmit any health information
in electronic form. Our SPMI segment is likely considered a “covered entity”
under HIPAA.
Of the
HIPAA requirements, the privacy standards and the security standards have the
most significant impact on our business operations. Compliance with the privacy
standards was required by April 14, 2003. The privacy standards require
covered entities to implement certain procedures to govern the use and
disclosure of protected health information and to safeguard such information
from inappropriate access, use, or disclosure. Protected health information
includes individually identifiable health information, such as an individual’s
medical records, transmitted or maintained in any format, including paper and
electronic records. The privacy standards establish the different levels of
individual permission that are required before a covered entity may use or
disclose an individual’s protected health information, and establish new rights
for the individual with respect to his or her protected health
information.
The final
security rule was effective on April 21, 2003, and compliance with the
security standards was required by April 21, 2005. This rule establishes
security standards that apply to covered entities. The security standards are
designed to protect health information against reasonably anticipated threats or
hazards to the security or integrity of the information, and to protect the
information against unauthorized use or disclosure. The security standards
establish a national standard for protecting the security and integrity of
medical records when they are kept in electronic form.
The
administrative simplification provisions of HIPAA require the use of uniform
electronic data transmission standards for healthcare claims and payment
transactions submitted or received electronically. We believe that we will be in
substantial compliance with the transaction and code set standards as of the
date our SPMI segment is operational. The transaction standards require us to
use standard code sets when we transmit health information in connection with
certain transactions, including health claims and health payment and remittance
advice.
In
addition, on January 23, 2004, the Secretary of the Department of Health
and Human Services published a Final Rule that requires each healthcare provider
to adopt a standard unique health identifier, the National Provider Identifier
(“NPI”). The NPI will identify healthcare providers in the electronic
transactions for which the Secretary has already adopted standards (the
“standard transactions”). These transactions include claims, eligibility
inquiries and responses, claim status inquiries and responses, referrals, and
remittance advices. All health plans and all healthcare clearinghouses must
accept and use NPIs in standard transactions.
Other
Privacy and Confidentiality Laws
In
addition to the HIPAA requirements described above, numerous other state and
federal laws regulate the privacy of an individual’s health information. These
laws specify how an individual’s health information may be used internally, the
persons to whom health information may be disclosed, and the conditions under
which such uses and disclosures may occur. Many states have requirements
relating to an individual’s right to access his or her own medical records, as
well as requirements relating to the use and content of consent or authorization
forms. Also, because of employers’ economic interests in paying medical bills
for injured employees and in the timing of the injured employees’ return to
work, many states have enacted special confidentiality laws relating to
disclosures of medical information in workers’ compensation claims. These laws
limit employer access to such information. Many states have also passed laws
that regulate the notification process to individuals when a security breach
involving an individual’s personally identifiable information, such as social
security number or date of birth, occurs. To the extent that state law affords
greater protection of an individual’s health information than that provided
under HIPAA, the state law will control.
7
We
anticipate that there will be more regulation in the areas of privacy and
confidentiality, particularly with respect to medical information. We regularly
monitor the privacy and confidentiality requirements that relate to our
business, and we anticipate that we may have to modify our operating practices
and procedures in order to comply with these requirements.
Environmental
Although
the Company currently contracts with independent medical providers who are
responsible for compliance with environmental laws, our operations may be
subject to various federal, state, and local laws and regulations relating to
the protection of human health and the environment, including those governing
the management and disposal of infectious medical waste and other waste
generated and the cleanup of contamination. If an environmental regulatory
agency finds any of our facilities to be in violation of environmental laws,
penalties and fines may be imposed for each day of violation and the affected
facility could be forced to cease operations. The responsible party could also
incur other significant costs, such as cleanup costs or claims by third parties,
as a result of violations of, or liabilities under, environmental laws. Although
we believe that our independent medical providers’ environmental practices,
including waste handling and disposal practices, will be in material compliance
with applicable laws, future claims or violations, or changes in environmental
laws, could have an adverse effect on our business.
Competition
The
market to provide healthcare pain management services is highly competitive and
fragmented. Our primary competitors are typically independent
physicians, chiropractors, hospital emergency departments, and hospital-owned or
hospital-affiliated medical facilities. As managed care techniques
continue to gain acceptance in the auto accident marketplace, we believe that
our competitors will increasingly consist of nationally-focused care management
service companies providing their service to insurance companies and litigation
defense experts.
Because
the barriers to entry in our geographic markets have a low threshold and our
current patients have the flexibility to move easily to new healthcare service
providers, the addition of new competitors may occur relatively
quickly. Some of our contracted physicians and other healthcare
providers may elect to compete with us by offering their own products and
services to our patients. If competition within our industry
intensifies, our ability to retain patients or associated physicians, or
maintain or increase our revenue growth, price flexibility and control over
medical costs, trends, and marketing expenses, may be compromised.
In order
to mitigate the effects of intensifying competition, SPMI will make careful
study of population trends and demographic growth patterns in determining the
best locations to compete. Moreover, we will endeavor to have all of
our physicians under strict contract to avoid unnecessary attrition and loss of
skilled personnel.
Research
and Development
During
the fiscal years ended December 31, 2009 and 2008, respectively, the
Company did not spend any funds on research and development
activities.
Employees
The
Company currently has one part time employee and three full time
employees. Management of the Company expects to continue to use
independent contractors, consultants, attorneys and accountants as necessary, to
complement services rendered by our employees.
8
ITEM
1A. RISK FACTORS
Our
future operating results are highly uncertain. Before deciding to invest in us
or to maintain or increase your investment, you should carefully consider the
risks described below, in addition to the other information contained in this
annual report. If any of these risks actually occur, our business, financial
condition or results of operations could be seriously harmed. In that event, the
market price for our common stock could decline and you may lose all or part of
your investment.
General
Risks Related to Our Company
Our
limited history makes an evaluation of us and our future extremely difficult,
and profits are not assured.
We have a
limited operating history, having begun development of our SPMI business at the
end of December 2008. There can be no assurance that we will be
profitable in the future or that the shareholders’ investments in us will be
returned to them in full, or at all, over time. In view of our
limited history in the healthcare industry, an investor must consider our
business and prospects in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of
development. There can be no assurance that we will be successful in
undertaking any or all of the activities required for successful commercial
operations. Our failure to undertake successfully such activities
could materially and adversely affect our business, prospects, financial
condition and results of operations. There can be no assurance that
our business operations will ever generate significant revenues, that we will
ever generate additional positive cash flow from our operations or that we will
be able to achieve or sustain profitability in any future period.
Our
continued existence is dependent upon our ability to successfully execute our
business plan.
The
financial statements included in this report are presented on the basis that the
Company is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. At December 31, 2009, the Company had a working capital
deficiency of approximately $270,000 and a stockholders’ deficit of
approximately $270,000. Further, the Company had a net loss of $721,000 for the
year ended December 31, 2009 and an accumulated deficit in aggregate of
approximately $15.0 million. Since the opening of the treatment center in
Houston, Texas in August, 2009, the Company has generated revenue of
approximately $983,000, against which the Company has provided for an allowance
for doubtful accounts of approximately $442,000, and going forwards, hopes
to continue to increase revenue from operations.
The
Company’s continued existence is dependent upon its ability to successfully
execute its business plan. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of liabilities that may result from the outcome of this
uncertainty.
The
trading price of our common stock entails additional regulatory requirements,
which may negatively affect such trading price.
Generally,
the Securities and Exchange Commission defines a “penny stock” as any equity
security not traded on an exchange or quoted on NASDAQ that has a market price
of less than $5.00 per share. The trading price of our common stock
is below $5.00 per share. As a result of this price level, our common
stock is considered a penny stock and trading in our common stock is subject to
the requirements of certain rules promulgated under the Securities Exchange Act
of 1934. These rules require additional disclosure by broker-dealers
in connection with any trades generally involving penny stocks subject to
certain exceptions. Such rules require the delivery, before any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer
must determine the suitability of the penny stock for the purchaser and receive
the purchaser's written consent to the transaction before sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in our common
stock. As a consequence, the market liquidity of our common stock
could be severely affected or limited by these regulatory
requirements.
9
We are dependent on key
personnel.
We depend
to a large extent on the services of certain key management personnel, including
our executive officers and other key consultants, the loss of any of which could
have a material adverse effect on our operations. Specifically, we rely on Dr.
William Donovan, Director and Chief Executive Officer, to maintain the strategic
direction of the Company. Although Dr. Donovan currently serves under
an employment agreement, there is no assurance that he will continue to be
employed by us. We do not maintain, nor do we plan to maintain,
key-man life insurance with respect to any of our officers or
directors.
We
may experience potential fluctuations in results of operations.
Our
future revenues may be affected by a variety of factors, many of which are
outside our control, including the success of implementing our SPMI business and
trends and changes in the healthcare industry. As a result of our
limited operating history and the emerging nature of our business plan, it is
difficult to forecast revenues or earnings accurately, which may fluctuate
significantly from quarter to quarter.
We
had a history of significant operating losses prior to the opening of the
treatment center in August, 2009.
Since our
inception in 1998, until commencement of operations in August, 2009, our
expenses have substantially exceeded our revenue, resulting in continuing losses
and accumulated deficit from operations of $15,004,698 at December 31, 2009. We
intend to increase our operating expenses substantially as we increase our
service development, marketing efforts and brand building activities. We will
increase our general and administrative functions to support our growing
operations. We will need to generate significant revenues to achieve our
business plan. Our continued existence is dependent upon our ability to
successfully execute our business plan. We will be dependent upon our
ability to increase revenue from services, obtain additional capital from
borrowing and the sale of securities to fund our operations. There is no
assurance that additional capital can be obtained or that it can be obtained on
terms that are favorable to the Company and its existing
stockholders. Any expectation of future profitability is dependent
upon our ability to expand and develop our SPMI business, of which there can be
no assurances.
If
we are unable to manage growth, we may be unable to achieve our expansion
strategy.
The
success of our business strategy depends in part on our ability to expand our
operations in the future. Our growth has placed, and will continue to place,
increased demands on our management, our operational and financial information
systems, and other resources. Further expansion of our operations will require
substantial financial resources and management attention. To accommodate our
past and anticipated future growth, and to compete effectively, we will need to
continue to improve our management, to implement our operational and financial
information systems, and to expand, train, manage, and motivate our workforce.
Our personnel, systems, procedures, or controls may not be adequate to support
our operations in the future. Further, focusing our financial resources and
diverting management’s attention to the expansion of our operations may
negatively impact our financial results. Any failure to improve our management,
to implement our operational and financial information systems, or to expand,
train, manage, or motivate our workforce may reduce or prevent our
growth.
The
market for our stock is limited and our stock price may be
volatile.
There is
a limited market for our shares of common stock and an investor may not be able
to liquidate his or her investment regardless of the necessity of doing
so. The prices of our shares are highly volatile. This could have an
adverse effect on developing and sustaining the market for our
securities. We cannot assure you that the market price of our common
stock will not fluctuate or decline significantly. In addition, the
stock markets in general can experience considerable price and volume
fluctuations.
10
We
may incur significant expenses as a result of being quoted on the Over the
Counter Bulletin Board, which may negatively impact our financial
performance.
We may
incur significant legal, accounting and other expenses as a result of being
listed on the Over the Counter Bulletin Board. The Sarbanes-Oxley Act of 2002,
as well as related rules implemented by the Commission, has required changes in
corporate governance practices of public companies. We expect that compliance
with these laws, rules and regulations, including compliance with Section 404 of
the Sarbanes-Oxley Act of 2002 as discussed in the following risk factor, may
substantially increase our expenses, including our legal and accounting costs,
and make some activities more time-consuming and costly. As a result, there may
be a substantial increase in legal, accounting and certain other expenses in the
future, which would negatively impact our financial performance and could have a
material adverse effect on our results of operations and financial
condition.
Our
internal controls over financial reporting may not be considered effective,
which could result in a loss of investor confidence in our financial reports and
in turn could have an adverse effect on our stock price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, with our annual reports, we
are required to furnish a report by our management on our internal controls over
financial reporting. Such report will contain, among other matters, an
assessment of the effectiveness of our internal controls over financial
reporting as of the end of the year, including a statement as to whether or not
our internal controls over financial reporting are effective. This assessment
must include disclosure of any material weaknesses in our internal controls over
financial reporting identified by management. Beginning with our annual report
for the year ended December 31, 2010, the report must also contain a statement
that our independent registered public accounting firm has issued an attestation
report on management's assessment of internal controls. If we are unable to
assert that our internal controls are effective or if our independent registered
public accounting firm is unable to attest that our management's report is
fairly stated or they are unable to express an opinion on our management's
evaluation on the effectiveness of our internal controls as of December 31,
2010, investors could be adversely affected.
Our
SPMI business model is unproven.
Our SPMI
business model depends upon our ability to implement and successfully execute
our business and marketing strategy, which includes our ability to find and form
relationships with spine surgeons, orthopedic surgeons and other healthcare
providers, from whom we may obtain referrals for injured patients. If
we are unable to find and form relationships with such doctors, our SPMI
business will likely fail.
If
competition increases, our growth and profits may decline.
The
market to provide healthcare services and solutions is highly fragmented and
competitive. Currently, we believe the solutions that we can provide to spine
surgeons, orthopedic surgeons and other healthcare providers for necessary,
reasonable and appropriate treatment for muculo-skeletal spine injuries
resulting from automobile and work-related accidents, are somewhat unique in
most geographic markets. However, if we achieve our goal of becoming
a leader in providing care management services to spine surgeons, orthopedic
surgeons and other healthcare providers to facilitate proper treatment of their
injured clients, we believe that competition for our business model will
substantially increase. Further, there are many alternatives to the
care management services we can provide, that are currently available to
surgeons and their injured patients. We can make no assurances that we will be
able to effectively compete with the various care management services that are
currently available or may become available in the future.
Because
the barriers to entry in our geographic markets are not substantial and
customers have the flexibility to move easily to new care management service
providers, we believe that the addition of new competitors may occur relatively
quickly. Some physicians and other healthcare providers may elect to compete
with us by offering their own products and services to their clients and
patients. In addition, significant merger and acquisition activity has occurred
in our industry as well as in industries that will supply products to us, such
as the hospital, physician, pharmaceutical, medical device, and health
information systems industries. If competition within our industry intensifies,
our ability to retain patients and/or obtain physician referrals, or maintain or
increase our revenue growth, pricing flexibility, control over medical cost
trends, and marketing expenses may be compromised.
11
Future
acquisitions and joint ventures may use significant resources or be
unsuccessful.
As part
of our business strategy, we intend to pursue acquisitions of companies
providing services that are similar or complementary to those that we provide or
plan to provide in our business, and we may enter into joint ventures to operate
certain facilities. These acquisitions and joint venture activities may
involve:
|
|
·
|
significant
cash expenditures;
|
|
|
·
|
additional
debt incurrence;
|
|
|
·
|
additional
operating losses;
|
|
|
·
|
increases
in intangible assets relating to goodwill of acquired companies;
and
|
|
|
·
|
significant
acquisition and joint venture related
expenses,
|
any of
which could have a material adverse effect on our financial condition and
results of operations.
Additionally,
a strategy of growth by acquisitions and joint ventures involves numerous risks,
including:
|
|
·
|
difficulties
integrating acquired personnel and harmonizing distinct corporate cultures
into our current businesses;
|
|
|
·
|
diversion
of our management’s time from existing operations;
and
|
|
|
·
|
potential
losses of key employees or customers of acquired
companies.
|
We cannot
assure you that we will be able to identify suitable candidates or negotiate and
consummate suitable acquisitions or joint ventures. Also, we cannot assure you
that we will succeed in obtaining financing for any future acquisitions or joint
ventures at a reasonable cost, or that such financing will not contain
restrictive covenants that limit our operating flexibility or other unfavorable
terms. Even if we are successful in consummating acquisitions or joint ventures,
we may not succeed in developing and achieving satisfactory operating results
for the acquired businesses or integrating them into our existing operations.
Further, the acquired businesses may not produce returns that justify our
related investment. If our acquisitions or joint ventures are not successful,
our ability to increase revenue, cash flows, and earnings through future growth
may be impaired.
If
lawsuits against us are successful, we may incur significant
liabilities.
Spine
surgeons, orthopedic surgeons and other healthcare providers with whom we form
relationships are involved in the delivery of healthcare and related services to
the public. In providing these services, the physicians and other licensed
providers in our affiliated professional groups are exposed to the risk of
professional liability claims. Further, plaintiffs have proposed expanded
theories of liability against managed care companies as well as against
employers who use managed care in many cases that, if established and
successful, could expose the Company to liability from such claims, and could
adversely affect our operations.
Regulatory
authorities or other parties may assert that, in conducting our business, we may
be engaged in unlawful fee splitting or the corporate practice of
medicine.
The laws
of many states prohibit physicians from splitting professional fees with
non-physicians and prohibit non-physician entities, such as us, from practicing
medicine and from employing physicians to practice medicine. The laws in most
states regarding the corporate practice of medicine have been subjected to
limited judicial and regulatory interpretation. We believe our current and
planned activities do not constitute fee-splitting or the unlawful corporate
practice of medicine as contemplated by these laws. However, there can be no
assurance that future interpretations of such laws will not require structural
and organizational modification of our existing relationships with the
practices. In addition, statutes in some states in which we do not currently
operate could require us to modify our affiliation structure. If a court or
regulatory body determines that we have violated these laws, we could be subject
to civil or criminal penalties, our contracts could be found legally invalid and
unenforceable (in whole or in part), or we could be required to restructure our
arrangements with our affiliated physicians and other licensed
providers.
12
We
operate in an industry that is subject to extensive federal, state, and local
regulation, and changes in law and regulatory interpretations could reduce our
revenue and profitability.
The
healthcare industry is subject to extensive federal, state, and local laws,
rules, and regulations relating to, among other things:
|
|
·
|
payment
for services;
|
|
|
·
|
conduct
of operations, including fraud and abuse, anti-kickback, physician
self-referral, and false claims
prohibitions;
|
|
|
·
|
operation
of provider networks and provision of case management
services;
|
|
|
·
|
protection
of patient information;
|
|
|
·
|
business,
facility, and professional licensure, including surveys, certification,
and recertification requirements;
|
|
|
·
|
corporate
practice of medicine and fee splitting
prohibitions;
|
|
|
·
|
ERISA
health benefit plans; and
|
|
|
·
|
medical
waste disposal and environmental
protection.
|
In recent
years, both federal and state government agencies have increased civil and
criminal enforcement efforts relating to the healthcare industry. This
heightened enforcement activity increases our potential exposure to damaging
lawsuits, investigations, and other enforcement actions. Any such action could
distract our management and adversely affect our business reputation and
profitability.
In the
future, different interpretations or enforcement of laws, rules, and regulations
governing the healthcare industry could subject our current business practices
to allegations of impropriety or illegality or could require us to make changes
in our facilities, equipment, personnel, services, and capital expenditure
programs, increase our operating expenses, and distract our management. If we
fail to comply with these extensive laws and government regulations, we could
suffer civil and criminal penalties, or be required to make significant changes
to our operations. In addition, we could be forced to expend considerable
resources to respond to an investigation or other enforcement action under these
laws or regulations.
Changes
in federal or state laws, rules, and regulations, including those governing the
corporate practice of medicine, fee splitting, workers’ compensation, and
insurance laws, rules, and regulations, may affect our ability to expand all our
operations into other states and, therefore, may reduce our
profitability.
State
laws, rules, and regulations relating to our business vary widely from state to
state, and courts and regulatory agencies have seldom interpreted them in a way
that provides guidance with respect to our business operations. Changes in these
laws, rules, and regulations may adversely affect our profitability. In
addition, the application of these laws, rules, and regulations may affect our
ability to expand our operations into new markets.
Most
states limit the practice of medicine to licensed individuals or professional
organizations comprised of licensed individuals. Many states also limit the
scope of business relationships between business entities like ours and licensed
professionals and professional organizations, particularly with respect to fee
splitting between a licensed professional or professional organization and an
unlicensed person or entity. We plan to operate our business by maintaining
long-term administrative and management agreements with affiliated professional
doctors. Through these agreements, we plan to perform only non-medical
administrative services. All control over medical matters is retained by the
affiliated physicians or professional groups. Although we believe that our
arrangements with physicians and the other affiliated licensed providers comply
with applicable laws, regulatory authorities or other third parties may assert
that we are engaged in the corporate practice of medicine or that our
arrangements with the physicians or affiliated professional groups constitute
fee-splitting, or new laws may be introduced that would render our arrangements
illegal. If this were to occur, we and/or the affiliated professional groups
could be subject to civil or criminal penalties and/or we could be required to
restructure these arrangements, all of which may result in significant cost to
us and affect our profitability.
13
Confidentiality
laws and regulations may increase the cost of our business, limit our service
offerings, or create a risk of liability.
The
confidentiality of individually identifiable health information, and the
conditions under which such information may be maintained, included in our
databases, used internally, or disclosed to third parties are subject to
substantial governmental regulation. Legislation governing the possession, use,
and dissemination of such protected health information and other personally
identifiable information has been proposed or adopted at both the federal and
state levels. Such laws and regulations may require us to implement new security
measures. These measures may require substantial expenditures of resources or
may limit our ability to offer some of our products or services, thereby
negatively impacting the business opportunities available to us. If we are found
to be responsible for any violation of applicable laws, regulations, or duties
related to the use, privacy, or security of protected health information or
other individually identifiable information, we could be subject to a risk of
civil or criminal liability.
ITEM
2. PROPERTIES
The
Company currently maintains its office at 5225 Katy Freeway, Suite 600, Houston,
Texas 77007. This office space encompasses approximately 450 square
feet and is currently provided to the Company at no cost by Dr. William Donovan,
the Company’s Director and Chief Executive Officer. At some point in
the future, the Company anticipates entering into a sublease agreement pursuant
to which the Company will compensate Dr. Donovan for this office
space.
ITEM
3. LEGAL PROCEEDINGS
On
January 19, 2010, James McKay and Celebrity Foods, Inc. (“CFI”) filed a lawsuit
against the Company and Dr. William Donovan, M.D., individually, in the United
States District Court, Eastern District of Pennsylvania. Based on the
lawsuit, in March 2009, Plaintiffs contacted the Company’s transfer agent to
have restrictive legends removed on shares the plaintiffs had previously
obtained from the Company in connection with a stock purchase
agreement. The Company subsequently requested that the transfer agent
place a stop transfer order on the shares. Plaintiffs allege the
Company’s 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. This case is still
pending in District Court. We believe the case is without merit and
are vigorously fighting the lawsuit. We anticipate filing a motion to have the
case dismissed. There can be, however, no assurance that the outcome
of this case will be favorable to the Company.
In
December 2009, the Company reached a settlement in the case of Martin Nathan, a
former attorney for the Company, who filed suit against the Company. In his
petition, Mr. Nathan asserted that he performed certain legal services for the
Company and was never compensated. On November 14, 2007, the Company failed to
appear for a preliminary hearing held before the 295th Judicial District Court
of Harris County, and the Court entered an interlocutory default judgment
against the Company. On January 16, 2008, the Court entered a final judgment
against the Company, finding the Company liable for Mr. Nathan’s damages, for a
total amount of $90,456. Subsequently, the Company filed a motion for new trial.
In April 2009, the parties reached an agreement on terms of a settlement
providing for the issuance of Company stock to Mr. Nathan; however, a definitive
agreement was never executed, and stock was never issued to Mr.
Nathan. In December 2009, the parties agreed on different terms and
executed a settlement agreement providing for the Company to pay Mr. Nathan ten
monthly payments of $8,000 for aggregate consideration of $80,000, with the
final payment due in September 2010.
14
In
November 2009, the Company filed a lawsuit against Brian Koslow and David
Waltzer in Harris County District Court. The lawsuit was removed to
the District Court for the Southern District of Texas. The lawsuit
relates to the transactions the Company entered into with Messrs. Koslow and
Waltzer to acquire the website and proprietary methodologies of One Source, as
described in more detail in “Item 1” of this report. In the suit, the
Company alleges that Messrs. Koslow and Waltzer (a) breached an agreement to
rescind the One Source acquisition, (b) made fraudulent representations to the
Company to induce them to enter into the One Source acquisition, (c) will be
unjustly enriched if the One Source acquisition is not rescinded, and (d)
breached a fiduciary duty owed to the Company. Messrs. Koslow and
Waltzer answered the Original Petition and asserted counterclaims against the
Company for breach of contract and fraud. The parties have agreed to
mediate the case prior to undertaking any substantive discovery in the
lawsuit. Mediation is currently scheduled for April 16,
2010. The Company will continue to seek damages against Messrs.
Koslow and Waltzer. We believe the counterclaims filed by Messrs. Koslow
and Waltzer are without merit and will vigorously defend against them.
There can be, however, no assurance that the outcome of this case will be
favorable to the Company.
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 the Company, William Donovan, M.D., Richard Specht, Rene Hamouth and
Signature Stock Transfer, Inc. Plaintiffs claim that the Company
issued 2,000,000 shares of stock as compensation for work performed on behalf of
the Company. On December 31, 2008, and again in early 2009,
Plaintiffs sold some of their shares. However, on February 10, 2009,
the Company issued a stop transfer resolution preventing Plaintiffs from selling
any of the remaining shares. Plaintiffs claim the following causes of
action: 1) breach of contract, stating that Defendants agreed to compensate
Plaintiffs by tendering 2,000,000 shares of stock free and clear; 2) conversion,
claiming Defendants wrongfully and without authority converted the common stock
owned by Plaintiffs; 3) fraud and fraudulent inducement, claiming Defendants’
conduct constitutes legal fraud and deceit; 4) breach of fiduciary duty,
claiming Defendants had a fiduciary relationship with Plaintiffs and owed them
the utmost duty of good faith, fair dealing, loyalty and candor; 5) intentional
Infliction of emotional distress, claiming Defendants’ conduct was extreme,
outrageous, deliberate and intentional; 6) unjust enrichment, claiming that
Defendants had no right to prevent Plaintiffs from selling the stock; and 7)
declaratory judgment, seeking the Court to declare the common stock was proper
and authorized. Plaintiffs seek exemplary and punitive damages, as
well as attorney fees. We believe the case is without merit and are
vigorously fighting the lawsuit. We anticipate filing a motion to have
the case dismissed. There can be no assurance, however, that the
outcome of this case will be favorable to the Company.
In March
2008, Kent Caraquero, Leslie Lounsbury, Riverside Manitoba, Inc. and Tyeee
Capital Consultants, Inc. filed suit against the Company, Richard Specht, Rene
Hamouth, Hamouth Family Trust, William R. Dunavant, and William R. Dunavant
Family Holdings, Inc. The suit was filed in The United States District Court,
Middle District of Florida and requests damages in an unspecified amount and
injunctive relief for various breaches of contract and securities violations. A
default judgment was entered against the defendants on July 20, 2008. The
default judgment was set aside and the case reopened on November 7, 2008. The
Company believes all claims against it are without merit, and it will continue
to vigorously defend itself against such claims. There is no assurance,
however, that the matter can be settled on terms favorable to the
Company.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On Nov. 12, 2009 the Company officially
changed its name from "Versa Card, Inc." to "Spine Pain Management,
Inc." 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. Holders of 8,368,426 shares of our common stock
(constituting 52.91% of the outstanding shares of common stock of the Company as
of the record date of September 21, 2009) executed an Action by Written Consent
of Stockholders in Lieu of a Special Meeting, approving the amendment to our
Certificate of Incorporation, as amended. Additional information
regarding the name change may be found in the Company’s Definitive Schedule 14C
Information Statement filed with the Commission on October 14,
2009.
15
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company's common stock is quoted on the Over the Counter Bulletin Board under
the symbol, “SPIN.” Trading in the common stock in the over-the-counter market
has been limited and sporadic and the quotations set forth below are not
necessarily indicative of actual market conditions. Further, the following
prices reflect inter-dealer prices without retail mark-up, mark-down, or
commission, and may not necessarily reflect actual transactions. The high and
low bid prices for the common stock for each quarter of the fiscal years ended
December 31, 2008 and 2009, according to Pink OTC Markets Inc., were as
follows:
|
Quarter
ended
|
High
|
Low
|
||||||
|
3/31/08
|
$ | 3.15 | $ | 1.60 | ||||
|
6/30/08
|
$ | 2.99 | $ | 0.35 | ||||
|
9/30/08
|
$ | 0.60 | $ | 0.18 | ||||
|
12/31/08
|
$ | 0.40 | $ | 0.04 | ||||
|
3/31/09
|
$ | 1.50 | $ | 0.22 | ||||
|
6/30/09
|
$ | 1.50 | $ | 0.40 | ||||
|
9/30/09
|
$ | 0.80 | $ | 0.15 | ||||
|
12/31/09
|
$ | 2.25 | $ | 0.35 | ||||
Record
Holders
As of
March 1, 2010, there were approximately 98 shareholders of record holding a
total of 17,367,682 shares of common stock. The holders of the common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Holders of the common stock have no preemptive rights and
no right to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common
stock.
Dividends
The
Company has not declared any cash dividends since inception and does not
anticipate paying any dividends in the foreseeable future. The payment of
dividends is within the discretion of the board of directors and will depend on
the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividends on its common stock other than those generally imposed
by applicable state law.
Equity
Compensation Plan Information
The
following table sets forth all equity compensation plans as of December 31,
2009:
16
|
Plan category
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
N/A | N/A | N/A | |||||||||
|
Equity
compensation plans not approved by security holders
|
N/A | N/A | N/A | |||||||||
|
Total
|
N/A | N/A | N/A | |||||||||
Sales
of Unregistered Securities
Other
than the issuances described below, all equity securities of the Company sold by
the Company during the period covered by this report that were not registered
under the Securities Act have previously been included in a Quarterly Report on
Form 10-Q or in a Current Report on Form 8-K.
On
December 28, 2009, the Company issued 500,000 restricted shares of common stock
to William Donovan, M.D., the Company’s Chief Executive Officer, for the
conversion of $349,400 of outstanding debt owed by the Company to Dr.
Donovan. The Company owed this outstanding debt to Dr. Donovan in
connection with funds Dr. Donovan advanced to the Company from September 2009 to
December 2009 for its spine injury treatment operations. The shares
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 offer and sale of the shares was made exclusively to
an “accredited investor” (as such term is defined in Rule 501(a) of Regulation
D) in an offer and sale not involving a public offering. The holder
of the shares purchased the securities for his own account and not with a view
towards or for resale. There was no general solicitation or advertising
conducted in connection with the sale of the securities.
Also on
or about December 28, 2009, the Company reissued 500,000 restricted shares of
common stock to John Talamas in an unrelated transaction. Mr. Talamas
had previously been issued the 500,000 shares in connection with his previous
position with the Company as Chief Operating Officer. Mr. Talamas,
however, transferred the shares back to the Company when he resigned from this
position for personal reasons in July 2009. Since that time, Mr.
Talamas has rejoined the Company as its Director of Operations, and the Company
reissued the shares to Mr. Talamas as consideration for his
employment. The shares 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 offer and sale of
the shares was made exclusively to an “accredited investor” (as such term is
defined in Rule 501(a) of Regulation D) in an offer and sale not involving a
public offering. The holder of the shares purchased the securities
for his own account and not with a view towards or for resale. There was no
general solicitation or advertising conducted in connection with the sale of the
securities.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with our audited consolidated
financial statements and the related notes to the financial statements included
in this Form 10-K.
17
FORWARD
LOOKING STATEMENT AND INFORMATION
We are
including the following cautionary statement in this Form 10-K 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-K 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 are 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 relationship with
subcontractors owning such facilities as needed by spine surgeons, orthopedic
surgeons and other healthcare providers across the nation.
Results
of Operations
The
Company recorded approximately $983,000 in service revenues and approximately
$349,000 in costs of services for the year ended December 31, 2009. There were
no revenues and no costs of revenues from operations for the year ended December
31, 2008. This increase is attributable to revenues generated from
the Company’s spine injury treatment center in Houston, Texas, which center was
not open in 2008.
During
the twelve month period ended December 31, 2009, the Company’s operations
focused on developing its spine injury treatment management business and opening
its first spine injury treatment center in Houston,
Texas. Alternatively, during the twelve month period ended December
31, 2008, the Company’s operations were limited to attempting entry into the
smartcard/e-purse business through the rescinded transaction with FVS,
identifying other acquisition ventures in the technology sector, initial
planning of the Company’s SPMI business and satisfying continuous public
disclosure requirements.
Expenses
Operating
expenses for the year ended December 31, 2009, were approximately $1.7
million as compared to approximately $467,000 for the year ended December
31, 2008. The increase in operating expenses was primarily the result of the
increase in filing costs, legal and professional fees, asset impairment loss,
allowance for doubtful accounts and stock based compensation for the year ended
December 31, 2009.
During
2009, the Company incurred $519,000 and $538,643, respectively, towards stock
based compensation and general and administration expenses as compared to
$147,000 and $320,000, respectively, in 2008. For the year ended
December 31, 2009, the Company incurred the following costs that were not
incurred during the same period in 2008: approximately $231,000 towards asset
impairment loss and $442,000 towards allowance for doubtful
debts. There was approximately $374,000 for the write down of
accounts payables for the year ended December 31, 2009, as compared to an
approximately $294,000 write down of accounts payable in 2008 currently included
as other income in the accompanying statements of operations.
18
Net
Loss
Net loss
for the year ended December 31, 2009 was approximately $721,000 compared to a
net loss of approximately $173,000 for the year ended December 31, 2008 an
increase of approximately $548,000 or 316.8%. For the year ended December 31,
2009, we had additional non-cash expense of approximately $231,000 of asset
impairment loss; $442,000 allowance for doubtful debts and $519,000 stock based
compensation expense.
Liquidity
and Capital Resources (Revise based on 2009 cash flows)
Cash used
in operations was approximately $237,000, which primarily
included a reserve for uncollectible accounts receivable of
approximately $442,000 and a net loss of approximately $721,000 from operations,
write down of accounts payable of approximately $374,000, increase in accounts
receivable of approximately $951,000 offset by the issuance of common stock for
consulting services and stock based compensation of approximately $1.1 million,
and increase to accounts payable and accrued expenses of approximately $248,000,
for the year ended December 31, 2009. Cash utilized by operations was
approximately $100,000 for the year ended December 31, 2008, primarily due to a
net loss of approximately $173,000 from operations, write down of accounts
payable of approximately $294,000 offset by a decrease in receivable from
related party of $17,169, offset by the issuance of common stock for consulting
services and stock based compensation of approximately $187,000 and an increase
to accounts payable of approximately $153,000.
There was
no cash provided or used in investing activities for the years ended December
31, 2009 and 2008.
Cash
flows provided by financing activities totaled approximately $270,000 for the
year ended December 31, 2009, representing the accrual of interest and notes
payable and $90,000 for the year ended December 31, 2008, representing $50,000
from common stock subscription and $40,000 of proceeds from sales of common
stock and warrants.
In 2003,
we adopted an equity compensation plan entitled "The 2003 Benefit Plan of Delta
Capital Technologies, Inc." (the "Benefit Plan"). Pursuant to the Plan the
Company may issue up to 55,349 shares of the Company's common stock (reverse and
forward split adjusted) over a five year period, although the Board may shorten
this period. The Plan was intended to aid the Company in maintaining and
continuing its development of a quality management team, in attracting qualified
employees, consultants, and advisors who can contribute to the future success of
the Company, and in providing such individuals with an incentive to use their
best efforts to promote the growth and profitability of the Company. No shares
were issued in 2008 and 55,349 shares remained available for
issuance. As of the date of this filing, the Benefit Plan has expired
and is no longer in effect.
Capital
Expenditures
The
Company made no significant capital expenditures on property or equipment over
the periods covered by this report.
Impact
of Inflation
The
Company believes that inflation may have a negligible effect on future
operations. The Company believes that it may be able to offset inflationary
increases in the cost of sales by increasing sales and improving operating
efficiencies.
19
Income
Tax Expense (Benefit)
The
Company has experienced losses and as a result has net operating loss carry
forward available to offset future taxable income.
Critical
Accounting Policies
In Note 3
to the audited consolidated financial statements for the years ended December
31, 2009 and 2008, included in this Form 10-K, the Company discusses those
accounting policies that are considered to be significant in determining the
results of operations and its financial position. The Company believes that the
accounting principles utilized by it conform to accounting principles generally
accepted in the United States of America.
Preparation
of Financial Statements
The
preparation of financial statements requires Company management to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. By their nature, these judgments are subject
to an inherent degree of uncertainty. On an on-going basis, the Company
evaluates estimates. The Company bases its estimates on historical experience
and other facts and circumstances that are believed to be reasonable, and the
results form the basis for making judgments about the carrying value of assets
and liabilities. The actual results may differ from these estimates under
different assumptions or conditions.
Revenue
Recognition
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. The Company’s new business concept is focused on the development of
spine testing centers needed by spine surgeons, orthopedic surgeons and other
healthcare providers in order to provide the appropriate treatment for
musculo-skeletal spine injuries. The Company began treating patients in
August 2009 at the Company’s first spine testing center facility located at 5225
Katy Freeway, Suite 600, Houston, Texas 77007. The Company conforms to the
guidance provided by SEC Staff Accounting Bulletin, Topic 13, “Revenue
Recognition.” Persuasive evidence of an arrangement is obtained prior to
services being rendered when the patient completes and signs the medical and
financial paperwork. Delivery of services is considered to have occurred
when treatment(s) are provided to the patient. The price and terms for the
services are considered fixed and determinable at the time that the treatments
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 180 days for collections.
Recent
Accounting Pronouncements
In Note 3
to the audited consolidated financial statements for the years ended December
31, 2009 and 2008, included in this Form 10-K, the Company discusses those
recent accounting pronouncements that may be considered to be significant in
determining the results of operations and its financial position.
20
Going
Concern
The
financial statements are presented on the basis that the Company is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length of time.
At December 31, 2009, the Company had a working capital deficiency of
approximately $270,000 and a stockholders’ deficit of approximately $270,000.
Further, the Company had a net loss of approximately $721,000 for the year ended
December 31, 2009 and an accumulated deficit of approximately $15.0 million.
Since the opening of the treatment center in August, 2009, the Company has
generated revenue of approximately $983,000 and going forward, hopes to continue
to increase revenue from operations.
The
Company’s continued existence is dependent upon its ability to successfully
execute its business plan. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of liabilities that may result from the outcome of this
uncertainty.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
Company’s financial statements for the fiscal years ended December 31, 2009 and
2008 are attached hereto.
21
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors of Spine Pain Management, Inc., (formerly
known as “Versa Card, Inc.”):
We have
audited the accompanying balance sheets of Spine Pain Management, Inc., formerly
known as Versa Card, Inc., as of December 31, 2009 and 2008, and the related
statements of operations, changes in stockholders’ deficit and cash flows for
the year ended December 31, 2009 and 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provided a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Spine Pain Management, Inc.
formerly known as Versa Card, Inc. as of December 31, 2009 and 2008, and the
results of its operations and its cash flows for the years ended December 31,
2009 and 2008 in conformity with accounting principles generally accepted in the
United States.
The
accompanying financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note 1, the Company has an accumulated deficit of $15,004,698 and
working capital deficiency of $270,478 as of December 31, 2009. Additionally,
the Company is not generating sufficient cash flows to meet its regular working
capital requirements. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans
as to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Jewett,
Schwartz, Wolfe & Associates
|
/s/Jewett, Schwartz, Wolfe &
Associates
|
|
Hollywood,
Florida
|
|
March
23, 2010
|
22
SPINE
PAIN MANAGEMENT, INC. (FORMERLY "VERSA CARD, INC.")
BALANCE SHEETS
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
|
$ | 32,789 | $ | - | ||||
|
Account
receivable, net
|
508,499 | - | ||||||
|
Total
current assets
|
541,288 | - | ||||||
|
TOTAL
ASSETS
|
$ | 541,288 | $ | - | ||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 475,138 | $ | 601,660 | ||||
|
Notes
payable
|
11,317 | 10,676 | ||||||
|
Due
to former officers and directors
|
56,016 | 56,016 | ||||||
|
Due
to related party
|
269,295 | - | ||||||
|
Total
current liabilities
|
811,766 | 668,352 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
STOCKHOLDERS'
DEFICIT
|
||||||||
|
Common
stock: $0.001 par value, 50,000,000 shares authorized; 16,867,682 and
13,317,682 shares issued and outstanding at December 31, 2009 and 2008,
respectively
|
16,868 | 13,318 | ||||||
|
Additional
paid-in capital
|
14,717,352 | 13,552,502 | ||||||
|
Stock
subscription
|
- | 50,000 | ||||||
|
Accumulated
deficit
|
(15,004,698 | ) | (14,284,172 | ) | ||||
|
Total
stockholders’ deficit
|
(270,478 | ) | (668,352 | ) | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 541,288 | $ | - | ||||
The
accompanying notes are an integral part of the financial
statements
23
SPINE
PAIN MANAGEMENT, INC. (FORMERLY "VERSA CARD, INC.")
STATEMENTS
OF OPERATIONS
|
Year Ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUE
|
$ | 982,736 | $ | - | ||||
|
COST
OF SALES
|
||||||||
|
Service
costs
|
349,400 | - | ||||||
|
GROSS
PROFIT
|
633,336 | - | ||||||
|
OPERATING
EXPENSES
|
||||||||
|
General
and administrative expenses
|
538,643 | 320,000 | ||||||
|
Asset
impairment loss
|
230,697 | - | ||||||
|
Allownace
for doubtful accounts
|
442,231 | - | ||||||
|
Stock
based compensation
|
519,000 | 147,000 | ||||||
|
Total
Operating Expenses
|
1,730,571 | 467,000 | ||||||
|
NET
LOSS FROM OPERATIONS
|
(1,097,235 | ) | (467,000 | ) | ||||
|
Other
income
|
376,709 | 293,715 | ||||||
|
NET
LOSS
|
$ | (720,526 | ) | $ | (173,285 | ) | ||
|
NET
LOSS PER SHARE:
|
||||||||
|
Basic
and Diluted
|
$ | (0.05 | ) | $ | (0.02 | ) | ||
|
WEIGHTED-AVERAGE
SHARES:
|
||||||||
|
Basic
and Diluted
|
15,849,463 | 10,112,313 | ||||||
The
accompanying notes are an integral part of the financial
statements
24
SPINE
PAIN MANAGEMENT, INC. (FORMERLY "VERSA CARD, INC.")
STATEMENTS
OF STOCKHOLDERS' DEFICIT
|
Common Stock
|
Additional
|
|||||||||||||||||||||||||||
|
Common Stock
|
Issuable
|
Paid-in
|
Accumulated
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Subscription
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
|
Balances,
December 31, 2007
|
6,906,579 | 6,907 | 43,103,103 | - | 13,326,202 | (14,110,887 | ) | (777,778 | ) | |||||||||||||||||||
|
Issuance
of common stock issuable to James Fischbach - January
2008
|
20,000,000 | 20,000 | (20,000,000 | ) | - | - | 20,000 | |||||||||||||||||||||
|
Issuance
of common stock issuable for acquisition agreement -
January 2008
|
23,000,000 | 23,000 | (23,000,000 | ) | - | - | - | 23,000 | ||||||||||||||||||||
|
Issuance
of common stock issuable - January 2008
|
103,103 | 103 | (103,103 | ) | - | - | 103 | |||||||||||||||||||||
|
Stock
subscription
|
- | - | - | 50,000 | - | - | 50,000 | |||||||||||||||||||||
|
Issuance
of common stock to James Fischbach - August 2008
|
100,000 | 100 | - | - | - | 100 | ||||||||||||||||||||||
|
Reversal
of issuance of common stock issued to James Fischbach - August
2008
|
(20,000,000 | ) | (20,000 | ) | - | - | - | (20,000 | ) | |||||||||||||||||||
|
Issuance
of additional common stock for acquisition agreement - September
2008
|
9,500,000 | 9,500 | - | - | - | 9,500 | ||||||||||||||||||||||
|
Issuance
of common stock for cash - September 2008
|
200,000 | 200 | - | - | 39,800 | 40,000 | ||||||||||||||||||||||
|
Issuance
of common stock for services and compensation - September
2008
|
1,000,000 | 1,000 | - | - | 431,000 | 432,000 | ||||||||||||||||||||||
|
Reversal
of issuance of common stock issued for acquisition agreement - December
2008
|
(26,992,000 | ) | (26,992 | ) | - | - | - | (26,992 | ) | |||||||||||||||||||
|
Reversal
of issuance of common stock issued for compensation - December
2008
|
(500,000 | ) | (500 | ) | - | - | (244,500 | ) | (245,000 | ) | ||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (173,285 | ) | (173,285 | ) | |||||||||||||||||||
|
Balances,
December 31, 2008
|
13,317,682 | $ | 13,318 | - | $ | 50,000 | $ | 13,552,502 | $ | (14,284,172 | ) | $ | (668,352 | ) | ||||||||||||||
|
Stock
subscription
|
50,000 | 50 | - | (50,000 | ) | 49,950 | - | - | ||||||||||||||||||||
|
Issuance
of common stock for stock based compensation - February
2009
|
2,000,000 | 2,000 | - | - | 517,000 | - | 519,000 | |||||||||||||||||||||
|
Issuance
of common stock for acquisition of assets of One Source - February
2009
|
900,000 | 900 | - | - | 224,100 | - | 225,000 | |||||||||||||||||||||
|
Issuance
of common stock for professional services - February 2009
|
100,000 | 100 | - | - | 24,900 | - | 25,000 | |||||||||||||||||||||
|
Issuance
of common stock for conversion of debts - December 2009
|
500,000 | 500 | - | - | 348,900 | - | 349,400 | |||||||||||||||||||||
|
Net
loss
|
(720,526 | ) | (720,526 | ) | ||||||||||||||||||||||||
|
Balances,
December 31, 2009
|
16,867,682 | $ | 16,868 | - | $ | - | $ | 14,717,352 | $ | (15,004,698 | ) | $ | (270,478 | ) | ||||||||||||||
The
accompanying notes are an integral part of the financial
statements
25
SPINE
PAIN MANAGEMENT, INC. (FORMERLY "VERSA CARD, INC.")
STATEMENTS
OF CASH FLOWS
|
Twelve
Months Ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
loss
|
$ | (720,526 | ) | $ | (173,285 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
|
Allowance
of doubtful accounts
|
442,231 | - | ||||||
|
Accrued
interest
|
641 | 521 | ||||||
|
Issuance
of common stock for transaction not consummated
|
- | 5,692 | ||||||
|
Issuance
of common stock for consulting services and stock based
compensation
|
1,118,400 | 187,000 | ||||||
|
Write
off of receivable from related party
|
- | 17,169 | ||||||
|
Write
off of prepaid expenses
|
- | 3,122 | ||||||
|
Write
down of accounts payable
|
(374,209 | ) | (293,715 | ) | ||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(950,730 | ) | - | |||||
|
Accounts
payable and accrued liabilities
|
247,687 | 153,298 | ||||||
|
Net
cash used in operating activities
|
(236,506 | ) | (100,198 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Amounts
due to related parties
|
269,295 | - | ||||||
|
Proceeds
from subscription payable
|
- | 50,000 | ||||||
|
Proceeds
from sales of common stock and warrants
|
- | 40,000 | ||||||
|
Net
cash provided by financing activities
|
269,295 | 90,000 | ||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
32,789 | (10,198 | ) | |||||
|
BEGINNING
OF PERIOD
|
- | 10,198 | ||||||
|
END
OF PERIOD
|
$ | 32,789 | $ | - | ||||
|
Supplementary
disclosure of cash flow information:
|
||||||||
|
Cash
paid for interest
|
$ | - | $ | - | ||||
|
Cash
paid for taxes
|
$ | - | $ | - | ||||
|
Non-cash
investing and financing activities:
|
||||||||
|
Acquisition
of intangible assets with issuance of stock
|
$ | (230,697 | ) | $ | - | |||
|
Asset
impairment loss
|
230,697 | - | ||||||
|
Issuance
of common stock towards stock based compensation and
services
|
544,000 | 187,000 | ||||||
|
Issuance
of common stock for acquisition of assets of One Source
|
225,000 | - | ||||||
|
Issuance
of common stock towards conversion of debt
|
349,400 | - | ||||||
| $ | 1,118,400 | $ | 187,000 | |||||
The
accompanying notes are an integral part of the financial
statements
26
SPINE PAIN MANAGEMENT, INC.,
(Formerly “Versa Card, Inc.”)
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
1. DESCRIPTION OF BUSINESS
Spine
Pain Management, Inc., formerly known as Versa Card, Inc., Intrepid Global
Imaging 3D, Inc., MangaPets, Inc. and Newmark Ventures, Inc. (the
“Company”), a company which 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 Company changed its
name 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. In April 2005, the Company
began focusing on the development of the “MangaPets” interactive web portal and
acquiring other ventures in the technology sector. The Company entered into a
Portal Development Agreement in July 2005, with Sygenics Interactive Inc.
(“Sygenics”), a developer of advanced information management technology, located
in Montreal, Quebec, Canada, and an authorized licensee of Sygenics Inc. The
agreement provided for the design, development and deployment of an online
virtual pet portal/website. However, in 2006, prior to Sygenics’ completion of
the first stage of the portal, a dispute arose between the Company and Sygenics
that resulted in work being halted. Since that time, the Company has attempted
to develop the web portal or form another strategic relationship with a
different developer to complete development of the web portal. The
Company has revaluated MangaPet's business of developing a web portal containing
games, merchandizing, and other entertainment activities to determine the
viability of that business concept. It has been determined that this
business segment is no longer appropriate to pursue given the Company’s current
business plan.
During
2006, in addition to developing the Manga themed web portal, the Company
expended resources toward establishing a United Kingdom based subsidiary company
to pursue acquisitions in the gaming sector. On the advice of counsel, and
unfavorable events in the United States pertaining to on-line gaming, the
Company decided not to pursue on-line gaming ventures.
During
the fourth quarter of 2007 and into the fourth quarter of 2008, the Company
focused on consummating a transaction with a smartcard / e-purse company, First
Versatile Smartcard Solutions Corporation (“FVS”), and put on hold the
development of its web portal for the Company’s MangaPets business. In November
2007, the Company entered into an agreement to merge with FVS, and subsequently
in April 2008, the transaction was restructured as a stock purchase
agreement. Based on various factors, the acquisition of FVS did
not meet the expectations of the Company or FVS, and on December 30, 2008 the
Company entered into a Mutual Release and Settlement Agreement to effectively
rescind the transactions effected by the FVS acquisition
agreements.
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 connection with this business plan, in
February, 2009, the Company acquired the website and propriety methodologies of
One Source Plaintiff Funding, Inc. (“One Source”), a Florida corporation, which
the Company planned to use in the business of “lawsuit
funding”. Based on several factors, however, the Company decided in
July 2009 not to enter the business of lawsuit funding (as described in more
detail below in Note 2, “Change of Business”), and focus solely on assisting
healthcare providers in providing necessary and appropriate treatment for
patients with spine injuries. In August 2009, the Company opened its
first spine injury treatment center in Houston, Texas. The Company is
also currently evaluating the development of additional spine injury treatment
centers in Texas and across the United States.
27
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 resulting from automobile and work-related accidents.
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 clients. By providing early treatment, the Company
believes that spine injuries can be managed, and injured victims can be quickly
placed on the road to recovery. The Company believes its advocacy will be
rewarding to patients who obtain needed relief from painful conditions. The
Company provides a care management program that advocates for the injured
victims by moving treatment forward to conclusion without the delay and
hindrance of the legal process.
GOING
CONCERN
The
Company has a history of recurring losses from operations and has an accumulated
deficit of approximately $15 million and working capital deficiency of
approximately $270,000 as of December 31, 2009. Additionally, the
Company will require additional funding to execute its strategic business plan
for 2010. Successful business operations and its transition to attaining
profitability is dependent upon obtaining additional financing and achieving a
level of revenue adequate to support its cost structure. The Company does not
have sufficient working capital to fund its planned operations through December
31, 2010; therefore, it is actively seeking additional debt or equity financing.
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
2. CHANGE IN BUSINESS
At the
end of 2008, the Company launched its new business concept of spine pain
management. The Company’s goal is to engage in the delivery of
turnkey solutions to spine surgeons, orthopedic surgeons and other healthcare
providers for necessary and appropriate treatment of musculo-skeletal spine
injuries. With the new business plan, the Company has revaluated MangaPet's
business of developing a web portal containing games, merchandizing, and other
entertainment activities to determine the viability of that business
concept. It has been determined that this business segment is no
longer appropriate to pursue given the Company’s current business
plan.
On
February 28, 2009, in connection with the launch of its new spine pain injury
treatment business segment, the Company entered into an agreement with Brian
Koslow and David Waltzer to acquire the website and proprietary methodologies of
One Source Plaintiff Funding, Inc., a Florida corporation (“One Source”). The
agreement provided for the Company to acquire the website and proprietary
methodologies of One Source in exchange for 900,000 shares of the Company’s
common stock. One Source’s website and proprietary methodologies were designed
for the business of "lawsuit funding" for plaintiff personal injury
cases. In connection with the One Source transaction, the Company
entered into employment agreements with Mr. Koslow and Mr. Waltzer, the founders
of One Source, with Mr. Koslow being appointed as Executive Vice President of
Business Development of the Company. With the assistance of Messrs.
Koslow and Waltzer, the Company planned to further develop One Source’s website
and proprietary methodologies so that the Company could enter the business of
lawsuit funding. In July 2009, however, Mr. Koslow and Mr. Waltzer
unexpectedly resigned from the Company. With the resignations of
Messrs. Koslow and Waltzer, the Company realized it would be unable to use the
proprietary methodology of One Source and has decided not to enter the business
of lawsuit funding, focusing instead on its SPMI
business. Accordingly, the Company will have no use for the website
and proprietary methodologies of One Source. Upon an evaluation of
the expected life of the acquired One Source assets in the amount of
approximately $231,000, it was decided at December 31, 2009 that these assets
had no value, and the acquired cost of the impaired assets have been written off
and recorded in the Company’s statement of operation for the year ended December
31, 2009. The Company has also filed a lawsuit against Messrs. Koslow
and Waltzer, as described below in Note 12, “Commitments and
Contingencies.”
28
On Nov.
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. OTC
Bulletin Board: SPIN.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
following are summarized accounting policies considered to be significant by the
Company’s management:
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.
Change
from Development Stage
Pursuant
to FASB ASC 915, “Development Stage Entities”, the Company was considered to be
a development stage entity from March 4, 1998 to December 31, 2008. Among other
provisions, FASB ASC 915 stipulates the reporting of inception to date results
of operations, cash flows and other financial information. Since August 2009,
the Company began generating revenues from planned commercial operations.
Although the Company’s management expects to focus a significant amount of
resources to business development and expansion type activities over the next 2
to 3 years, the Company has been generating revenues that originate from planned
principle operations relative to new business concept of spine pain
management. Consequently, these financial statements are reported in
accordance with accounting principles for an operating company and do not
reflect inception to date information.
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.
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 treatment(s) are provided to the
patient. The price and terms for the services are considered fixed and
determinable at the time that the treatments 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 120 days for
collections.
29
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.
Long-Lived
Assets
The Company periodically reviews and
evaluates long-lived assets such as intangible assets, when events and
circumstances indicate that the carrying amount of these assets may not be
recoverable. In
performing its review for recoverability, the Company estimates the future cash
flows expected to result from the use of such assets and its eventual
disposition. If the sum of
the expected undiscounted future operating cash flows is less than the carrying
amount of the related assets, an impairment loss is recognized in the statement
of operations. Measurement
of the impairment loss is based on the excess of the carrying amount of such
assets over the fair value calculated using discounted expected future cash
flows. During 2009, the
Company recorded an asset impairment loss of approximately $231,000 in the
accompanying statements of operations (see Note 2).
Software
and Website Development Costs
The costs
of computer software developed or obtained for internal use, during the
preliminary project phase, as defined under AICPA Statement of Position (“SOP”)
98-1 “Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use”, are expensed as incurred. The costs of website development,
during the planning stage, as defined under Emerging Issues Task Force (“EITF”)
No. 00-2 “Accounting for Web Site Development Costs,” are also expensed as
incurred. For the fiscal years ended December 31, 2009 and 2008, no such costs
were incurred.
Computer
software and website development costs incurred during the application and
infrastructure development stage, including external direct costs of materials
and services consumed in developing the software, creating graphics and website
content, payroll and interest costs are capitalized and amortized over the
estimated useful life, beginning when the software is ready for use and after
all substantial testing is completed and the website is operational. Costs
incurred when the website and related software are in the operating stage will
be expensed as incurred. For the fiscal years ended December 31, 2009 and 2008,
no such costs were incurred.
Comprehensive
Income
The
Company reports and discloses comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Under this guidance, the Company classifies items of
other comprehensive income by their nature in a financial statement and
discloses the accumulated balance of other comprehensive income separately in
the stockholders’ equity (deficit) section classifies items of other
comprehensive income by their nature in a financial statement and discloses the
accumulated balance of other comprehensive income separately in the
stockholders’ equity (deficit) section of the balance sheet. The Company had no
other comprehensive income (loss) during 2009 and 2008,
respectively.
30
Concentrations
of Credit Risk
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 monitored before any services are provided. The
Company records an allowance for doubtful accounts based on 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 recorded an allowance
towards doubtful accounts in the amount of approximately $442,000 for the year
ended December 31, 2009 (none in 2008).
The
Company maintains cash balances that may at times exceed federally insured
limits. Cash balances are maintained at high-quality financial
institutions and the Company believes the credit risk related to these cash
balances is minimal.
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 recognized stock based compensation cost of
$519,000 and $147,000, respectively, during 2009 and 2008.
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.
Uncertain
tax positions
In July
2006, the Financial Accounting Standards Board (“FASB”) issued guidance codified
in Accounting Standards Codification (“ASC”) Topic 740-10-25 “Accounting for
Uncertainty in Income Taxes”. ASC Topic 740-10-25 supersedes guidance codified
in ASC Topic 450, “Accounting for Contingencies”, as it relates to income tax
liabilities and lowers the minimum threshold a tax position is required to meet
before being recognized in the financial statements from “probable” to “more
likely than not” (i.e., a likelihood of occurrence greater than fifty percent).
Under ASC Topic 740-10-25, the recognition threshold is met when an entity
concludes that a tax position, based solely on its technical merits, is more
likely than not to be sustained upon examination by the relevant taxing
authority. Those tax positions failing to qualify for initial recognition are
recognized in the first interim period in which they meet the more likely than
not standard, or are resolved through negotiation or litigation with the taxing
authority, or upon expiration of the statute of limitations. De-recognition of a
tax position that was previously recognized occurs when an entity subsequently
determines that a tax position no longer meets the more likely than not
threshold of being sustained.
31
The
Company is subject to ongoing tax exposures, examinations and assessments in
various jurisdictions. Accordingly, the Company may incur additional tax expense
based upon the outcomes of such matters. In addition, when applicable, the
Company will adjust tax expense to reflect the Company’s ongoing assessments of
such matters which require judgment and can materially increase or decrease its
effective rate as well as impact operating results.
Under ASC
Topic 740-10-25, only the portion of the liability that is expected to be paid
within one year is classified as a current liability. As a result, liabilities
expected to be resolved without the payment of cash (e.g. resolution due to the
expiration of the statute of limitations) or are not expected to be paid within
one year are not classified as current. The Company has recently adopted a
policy of recording estimated interest and penalties as income tax expense and
tax credits as a reduction in income tax expense.
The
Company did not file federal and applicable state income tax returns for the
years ended December 31, 2009 and 2008, respectively, and prior. Although the
Company is incurring losses since its inception, the Company is obligated to
file income tax returns for compliance with IRS regulations and that of
applicable state jurisdictions. Management believes that the Company will not
incur significant penalty and interest for non-filing of federal and state
income tax returns, as well as, federal and state income tax liabilities, as
applicable, for the years ended December 31, 2009 and 2008, respectively, and
prior considering its loss making history since inception.. The Company is still
in the process of determining the amount of net taxable operating losses
eligible to be carried forward for federal and applicable state income tax
purposes for the years ended December 31, 2009 and 2008, respectively, and
prior. The Company has not made any provision for federal and state income tax
liabilities that may result from this uncertainty as of December 31, 2009 and
2008, respectively. Management believes that this will not have a material
adverse impact on the Company’s financial position, its results of operations
and its cash flows.
The
number of years with open tax audits varies depending on the tax jurisdiction.
The Company’s major taxing jurisdictions include the United States (including
applicable states).
Legal
Costs and Contingencies
In the
normal course of business, the Company incurs costs to hire and retain external
legal counsel to advise it on regulatory, litigation and other matters. The
Company expenses these costs as the related services are received.
If a loss
is considered probable and the amount can be reasonably estimated, the Company
recognizes an expense for the estimated loss. If the Company has the potential
to recover a portion of the estimated loss from a third party, the Company makes
a separate assessment of recoverability and reduces the estimated loss if
recovery is also deemed probable.
Net
Loss per Share
Basic and
diluted net losses per common share are presented in accordance with Accounting
Standard Codifications (ASC) Topic 260, “Earning per Share”, for all periods
presented. Stock subscriptions, options and warrants have been excluded from the
calculation of the diluted loss per share for the periods presented in the
statements of operations, because all such securities were anti-dilutive. The
net loss per share is calculated by dividing the net loss by the weighted
average number of shares outstanding during the periods.
Reclassification
Certain
reclassifications have been made to conform with prior period’s financial
information to the current presentation.
32
Accounting
Standard Updates
In May
2009, the Financial Accounting Standard Board (“FASB”) issued ASC 855,
“Subsequent Events”, which provides guidance on events that occur after the
balance sheet date but prior to the issuance of the financial statements. ASC
855 distinguishes events requiring recognition in the financial statements and
those that may require disclosure in the financial statements. Furthermore, ASC
855 requires disclosure of the date through which subsequent events were
evaluated. These requirements are effective for interim and annual periods after
June 15, 2009. The Company adopted these requirements for the year ended
December 31, 2009, and have evaluated subsequent events through March 23,
2010.
In June
2009, the FASB issued Statement No. 168 (an update of ASC 105), “The FASB
Accounting Standards Codification TM and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162 (FAS 168)”.
The Codification became the source of authoritative Generally Accepted
Accounting Principle (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities
Exchange Commissions (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of SFAS
168, the Codification superseded all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification became nonauthoritative. SFAS 168 was effective
for financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of SFAS 168 did not affect the Company’s
financial position, results of operations, or cash flows.
In August
2009, the FASB issued Accounting Standard Update (“ASU”) No. 2009-05 which
includes amendments to Subtopic 820-10, “Fair Value Measurements and
Disclosures—Overall”. The update provides clarification that in circumstances,
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the techniques provided for in this update. The amendments in this ASU
clarify that a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of the liability and also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required are Level 1 fair value measurements. The guidance provided in this ASU
is effective for the first reporting period, including interim periods,
beginning after issuance. The adoption of this standard did not have
a material impact on the Company’s financial position, results of operations or
cash flows.
In
September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements
and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10,
“Fair Value Measurements and Disclosures – Overall”, to permit a reporting
entity to measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). This ASU also
requires new disclosures, by major category of investments including the
attributes of investments within the scope of this amendment to the
Codification. The guidance in this Update is effective for interim and annual
periods ending after December 15, 2009. The adoption of this standard did not
have an impact on the Company’s financial position, results of operations or
cash flows.
In
October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable
Revenue Arrangements" ("ASU No. 2009-13"). ASU No. 2009-13 amends guidance
included within ASC Topic 605-25 to require an entity to use an estimated
selling price when vendor specific objective evidence or acceptable third party
evidence does not exist for any products or services included in a multiple
element arrangement. The arrangement consideration should be allocated among the
products and services based upon their relative selling prices, thus eliminating
the use of the residual method of allocation. ASU No. 2009-13 also requires
expanded qualitative and quantitative disclosures regarding significant
judgments made and changes in applying this guidance. ASU No. 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010. Early adoption and retrospective application are also
permitted. The adoption of this standard is not expected to have a
material impact on the Company’s financial position, results of operations and
cash flows.
33
In
October 2009, the FASB issued ASU No. 2009-14, "Certain Revenue
Arrangements That Include Software Elements" ("ASU No. 2009-14"). ASU No.
2009-14 amends guidance included within ASC Topic 985-605 to exclude tangible
products containing software components and non-software components that
function together to deliver the product’s essential
functionality. Entities that sell joint hardware and software
products that meet this scope exception will be required to follow the guidance
of ASU No. 2009-13. ASU No. 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption and
retrospective application are also permitted. The adoption of this
standard is not expected to have a material impact on the Company’s financial
position, results of operations and cash flows.
In
January 2010, the FASB issued ASU No. 2010-06 applicable to FASB ASC
820-10, “Improving Disclosures about Fair Value Measurements”. The guidance
requires entities to disclose significant transfers in and out of fair value
hierarchy levels and the reasons for the transfers and to present information
about purchases, sales, issuances and settlements separately in the
reconciliation of fair value measurements using significant unobservable inputs
(Level 3). Additionally, the guidance clarifies that a reporting entity should
provide fair value measurements for each class of assets and liabilities and
disclose the inputs and valuation techniques used for fair value measurements
using significant other observable inputs (Level 2) and significant unobservable
inputs (Level 3). This guidance is effective for interim and annual periods
beginning after December 15, 2009 except for the disclosures about
purchases, sales, issuances and settlements in the Level 3 reconciliation, which
will be effective for interim and annual periods beginning after
December 15, 2010. As this guidance provides only disclosure requirements,
the adoption of this standard will not impact the Company’s results of
operations, cash flows or financial positions.
NOTE 4. RECEIVABLE FROM
FORMER RELATED PARTY
During
the year ended December 31, 2007, the Company made advances totaling $17,169 to
its former chief executive officer. This receivable was non-interest bearing and
due on demand. This receivable was considered uncollectible for the year ended
December 31, 2009. The entire amount has been written down and reflected in the
accompanying statements of operations as part of the write off of accounts
payable.
NOTE
5. ACCOUNTS PAYABLE
During
the year ended December 31, 2009, the Company determined and analyzed that
certain balances in accounts payable were older than five years, with no direct
contact with respective vendors to whom the Company owed approximately $374,000.
For the year ended December 31, 2009, the Company had written back $374,000 as
other income towards old liabilities no longer payable through
a resolution of the board of directors. This adjustment to accounts payable has
been reflected in the accompanying statements of operations as other income for
the year ended December 31, 2009.
During
the year ended December 31, 2008, the Company recorded an account payable to a
vendor in the amount of $435,049. This balance was settled with a vendor in the
amount of $141,334, resulting in a write down of accounts payable by $293,715
which had been recorded as other income towards full and final settlement of
liabilities. This adjustment to accounts payable had been reflected in the
Company’s statements of operations as other income for the year ended December
31, 2008.
34
NOTE 6. NOTES
PAYABLE
Notes
payable consist of:
|
December 31,
|
December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Note
payable to an individual, due on demand, including interest at 6% accrued
monthly, secured by all assets and revenues of the Company
|
$ | 9,334 | $ | 8,806 | ||||
|
Note
payable to a company, due on demand, including interest at 6% accrued
monthly, secured by all assets and revenues of the Company
|
1,983 | 1,870 | ||||||
|
Total
|
$ | 11,317 | $ | 10,676 | ||||
NOTE 7. DUE TO FORMER
OFFICERS AND DIRECTORS
Due to
former related parties consists of:
|
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Due
to former chief executive officer, non-interest bearing, due on
demand
|
$ | 4,237 | $ | 4,237 | ||||
|
Due
to former chief accounting officer, non-interest bearing, due on
demand
|
51,779 | 51,779 | ||||||
|
Total
|
$ | 56,016 | $ | 56,016 | ||||
NOTE 8. DUE TO RELATED
PARTIES
Due to
related parties consists of:
|
|
December 31,
|
December 31,
|
||||||
|
|
2009
|
2008
|
||||||
|
Due
to chief executive officer, non-interest bearing, due on demand,
used in working capital
|
$ | 269,295 | $ | - | ||||
|
Total
|
$ | 269,295 | $ | - | ||||
NOTE
9. RELATED PARTY TRANSACTIONS
Medical
Services Agreement
In August
2009, the Company entered into a medical services agreement (the “Agreement”)
with Northshore Orthopedics, Assoc. ("NSO") to open its first spine injury
treatment center in Houston, Texas. Pursuant to the terms of the Agreement, NSO
will operate as an independent contractor for the Company to provide medical
diagnostic services for evaluation and treatment of patients with spine injuries
at pre-determined and pre-negotiated rate per patient. NSO will be
deemed for all purposes an independent contractor and not an employee, agent,
joint venturer or partner of the Company. NSO will be responsible for
its own taxes associated with its performance of the services and receipt of
payments pursuant to this Agreement. The Agreement has a term of three years,
and thereafter will automatically renew for another three years at the
discretion of involved parties. During 2009, the Company incurred
$349,400 towards NSO’s costs which is included as cost of sales in the
accompanying statements of operations. NSO is owned
by the Company’s Chief Executive Officer, William Donovan, M.D.
35
In-kind
Contributions
Since
August, 2009; the Company maintains its office at: 5225 Katy Freeway, Suite 600,
Houston, Texas 77007. This office space encompasses approximately 450
square feet and is currently provided to the Company at no cost by Dr. William
Donovan, the Company’s Director and Chief Executive Officer. As a result, the
Company has recognized in-kind contributions of $2,500 as other income and
related rental expense of $2,500 as general and administration expenses in the
accompanying statement of operations for the year ending December 31, 2009 (none
in 2008).
NOTE
10. COMMON STOCK
Stock Issuances
On
January 29, 2007, the Company entered into an agreement with Intrepid World
Communications Corp. (“IWC”) which provided that the Company would merge with
IWC. The Company had 20,000,000 shares of restricted common stock issuable to
James Fischbach as of December 31, 2007. These shares were issued and
delivered to him on condition that the merger would be consummated. The merger
was never consummated and James Fischbach declined to return the shares.
The Company subsequently filed suit in the Delaware Court of Chancery to have
the shares cancelled. The Company and James C. Fischbach entered into a Mutual
Release and Settlement Agreement on August 20, 2008. Pursuant to the Mutual
Release and Settlement Agreement, the Company issued 100,000 shares of its
common stock to James C. Fischbach, James C. Fischbach agreed to the
cancellation of 20,000,000 shares issued and the Company agreed to dismiss the
pending litigation in the Delaware Court of Chancery.
On
November 26, 2007 the Company entered into an agreement with First Versatile
Smartcard Solutions Corporation (“FVS”), a Philippines corporation in the
business of developing a smartcard for use in the Philippines. Under the
agreement, the sole stockholder of FVS, or his designee was to receive
18,000,000 shares of Company common stock, the Company’s chief executive officer
was to receive 2,000,000 shares of Company common stock, and an affiliate of the
Company’s former chief executive officer was to receive 3,000,000 shares of
Company common stock. As of December 31, 2007 all shares were considered
to be issuable and were delivered to all parties to the agreement in January,
2008. In connection with the agreement, the Board of Directors approved a
name change for the Company to Versa Card, Inc. and a one (1) for two (2)
reverse split of its common stock. On April 9, 2008 the Company filed with
the Security Exchange Commission (“SEC”), reporting that on December 3, 2007
stockholders of the Company holding over a majority of the Company’s common
stock executed a written consent authorizing the Board to amend the Company’s
Articles of Incorporation to effect the 1 for 2 reverse stock split and to
change the name of the Company to Versa Card, Inc. On September 8,
2008 the Company issued an additional 9,500,000 shares of Company common stock
in connection with the agreement. The Company determined subsequently to
rescind the agreement and to not execute a reverse stock split. On December 30,
2008 the Company and certain parties of the FVS Transaction agreed to the
cancellation of approximately 27,500,000 shares of Company common stock.
With regards to the FVS Transaction, 5,000,000 shares of the Company’s common
stock issued remain outstanding as of December 31, 2008. The Company
currently is in the process of evaluating whether the issuances of these
5,000,000 shares were effectively rescinded upon the rescission of the FVS
Transaction. As such, the Company may negotiate the return of these
5,000,000 shares.
In
January 2008 the Company issued 103,103 shares of Company common stock that
were classified as issuable at December 31, 2007.
On
September 8, 2008 the Company issued 200,000 shares of Company common stock
for $40,000 in cash.
On
September 8, 2008 the Company issued 1,000,000 shares of Company common
stock to various individuals for services and compensation valued at
$432,000.
On
December 30, 2008 the Company cancelled 500,000 shares of Company common stock
issued to an individual on September 8, 2008 for compensation valued at
$245,000.
36
In
February, 2009, the Company issued 2,100,000 shares of Company common stock
to various individuals, including certain directors, officers and stockholders,
for services and compensation valued at approximately $544,000.
Pursuant
to a Stock Exchange Agreement dated February, 2009, the Company acquired the
website and proprietary methodologies of One Source Plaintiff Funding, Inc. in
exchange for 900,000 shares of its common stock valued at $225,000 (see Note
2).
On
December 28, 2009, the Company issued 500,000 restricted shares of common stock
to William Donovan, M.D., the Company’s Chief Executive Officer, for the
conversion of $349,400 of outstanding debt owed by the Company to Dr.
Donovan
Warrants
A summary
of warrant activity for the years ended December 31, 2009 and 2008
follows:
|
|
Shares of Common Stock that
Warrants are
|
|||||||
|
|
Exercisable Into
|
|||||||
|
|
December 31,
2009
|
December 31,
2008
|
||||||
|
Warrants
outstanding, beginning of period
|
- | 30,000 | ||||||
|
Issued
|
- | - | ||||||
|
Exercised
|
- | |||||||
|
Expired
|
- | (30,000 | ) ) | |||||
|
Warrants
outstanding, end of period
|
- | - | ||||||
The
30,000 warrants outstanding at December 31, 2007 were exercisable into 30,000
shares of common stock at an exercise price of $1.00 per share and expired
September 21, 2008.
NOTE
11. INCOME TAXES
The
Company has not made provision for income taxes in the
years ended December 31, 2009 and 2008, respectively, since the Company has
incurred net operating losses in these periods..
Deferred
income tax assets consist of:
|
|
December 31,
2009
|
December 31,
2008
|
||||||
|
Net operating loss carryforwards
|
$ | 2,675,400 | $ | 2,394,600 | ||||
|
Less
valuation allowance
|
(2,675,400 | ) | (2,394,600 | ) | ||||
|
Deferred
income tax assets, net
|
$ | - | $ | - | ||||
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 39%,
the Company has determined it to be more likely than not that a deferred income
tax asset of approximately $2,675,400 and $2,394,600 attributable to the future
utilization of the approximately $6,860,000 and $6,140,000 in eligible net
operating loss carryforwards as of December 31, 2009 and 2008, respectively,
will not 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.
37
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.
As the
Company has not filed federal and applicable state income tax returns for the
years ending December 31, 2009 and 2008, respectively, and prior, it is not
practicable to determine amounts of interest and/or penalties related to income
tax matters that will be due as of December 31, 2009 and 2008, respectively.
Accordingly, the Company had no accrual for interest or penalties on the
Company’s balance sheets at December 31, 2009 and 2008, respectively, and
has not recognized interest and/or penalties in the accompanying statements of
operations for the years ended December 31, 2009 and 2008, respectively.
However, management of the Company believes that non-filing of federal and
applicable state income tax returns will not have a significant impact on the
Company’s financial position, its results of
operations and cash flows considering continued operating losses
since inception.
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
carry forward of unutilized net operating losses.
NOTE 12. COMMITMENTS
AND CONTINGENCIES
On
January 19, 2010, James McKay and Celebrity Foods, Inc. (“CFI”) filed a lawsuit
against the Company and Dr. William Donovan, M.D., individually, in the United
States District Court, Eastern District of Pennsylvania. Based on the
lawsuit, in March 2009, Plaintiffs contacted the Company’s transfer agent to
have restrictive legends removed on shares the plaintiffs had previously
obtained from the Company in connection with a stock purchase
agreement. The Company subsequently requested that the transfer agent
place a stop transfer order on the shares. Plaintiffs allege the
Company’s 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. This case is still
pending in District Court. We believe the case is without merit and
are vigorously fighting the lawsuit. We anticipate filing a motion to have the
case dismissed. There can be, however, no assurance that the outcome
of this case will be favorable to the Company.
In
December 2009, the Company reached a settlement in the case of Martin Nathan, a
former attorney for the Company, who filed suit against the Company. In his
petition, Mr. Nathan asserted that he performed certain legal services for the
Company and was never compensated. On November 14, 2007, the Company failed to
appear for a preliminary hearing held before the 295th Judicial District Court
of Harris County, and the Court entered an interlocutory default judgment
against the Company. On January 16, 2008, the Court entered a final judgment
against the Company, finding the Company liable for Mr. Nathan’s damages, for a
total amount of $90,456. Subsequently, the Company filed a motion for new trial.
In April 2009, the parties reached an agreement on terms of a settlement
providing for the issuance of Company stock to Mr. Nathan; however, a definitive
agreement was never executed, and stock was never issued to Mr.
Nathan. In December 2009, the parties agreed on different terms and
executed a settlement agreement providing for the Company to pay Mr. Nathan ten
monthly payments of $8,000 for aggregate consideration of $80,000, with the
final payment due in September 2010.
In
November 2009, the Company filed a lawsuit against Brian Koslow and David
Waltzer in Harris County District Court. The lawsuit was removed to
the District Court for the Southern District of Texas. The lawsuit
relates to the transactions the Company entered into with Messrs. Koslow and
Waltzer to acquire the website and proprietary methodologies of One Source, as
described in more detail in “Item 1” of this report. In the suit, the
Company alleges that Messrs. Koslow and Waltzer (a) breached an agreement to
rescind the One Source acquisition, (b) made fraudulent representations to the
Company to induce them to enter into the One Source acquisition, (c) will be
unjustly enriched if the One Source acquisition is not rescinded, and (d)
breached a fiduciary duty owed to the Company. Messrs. Koslow and
Waltzer answered the Original Petition and asserted counterclaims against the
Company for breach of contract and fraud. The parties have agreed to
mediate the case prior to undertaking any substantive discovery in the
lawsuit. Mediation is currently scheduled for April 16,
2010. The Company will continue to seek damages against Messrs.
Koslow and Waltzer. We believe the counterclaims filed by Messrs. Koslow
and Waltzer are without merit and will vigorously defend against them.
There can be, however, no assurance that the outcome of this case will be
favorable to the Company.
38
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 the Company, William Donovan, M.D., Richard Specht, Rene Hamouth and
Signature Stock Transfer, Inc. Plaintiffs claim that the Company
issued 2,000,000 shares of stock as compensation for work performed on behalf of
the Company. On December 31, 2008, and again in early 2009,
Plaintiffs sold some of their shares. However, on February 10, 2009,
the Company issued a stop transfer resolution preventing Plaintiffs from selling
any of the remaining shares. Plaintiffs claim the following causes of
action: 1) breach of contract, stating that Defendants agreed to compensate
Plaintiffs by tendering 2,000,000 shares of stock free and clear; 2) conversion,
claiming Defendants wrongfully and without authority converted the common stock
owned by Plaintiffs; 3) fraud and fraudulent inducement, claiming Defendants’
conduct constitutes legal fraud and deceit; 4) breach of fiduciary duty,
claiming Defendants had a fiduciary relationship with Plaintiffs and owed them
the utmost duty of good faith, fair dealing, loyalty and candor; 5) intentional
Infliction of emotional distress, claiming Defendants’ conduct was extreme,
outrageous, deliberate and intentional; 6) unjust enrichment, claiming that
Defendants had no right to prevent Plaintiffs from selling the stock; and 7)
declaratory judgment, seeking the Court to declare the common stock was proper
and authorized. Plaintiffs seek exemplary and punitive damages, as
well as attorney fees. We believe the case is without merit and are
vigorously fighting the lawsuit. We anticipate filing a motion to have
the case dismissed. There can be no assurance, however, that the
outcome of this case will be favorable to the
Company.
In March
2008, Kent Caraquero, Leslie Lounsbury, Riverside Manitoba, Inc. and Tyeee
Capital Consultants, Inc. filed suit against the Company, Richard Specht, Rene
Hamouth, Hamouth Family Trust, William R. Dunavant, and William R. Dunavant
Family Holdings, Inc. The suit was filed in The United States District Court,
Middle District of Florida and requests damages in an unspecified amount and
injunctive relief for various breaches of contract and securities violations. A
default judgment was entered against the defendants on July 20, 2008. The
default judgment was set aside and the case reopened on November 7, 2008. The
Company believes all claims against it are without merit, and it will continue
to vigorously defend itself against such claims. There is no assurance,
however, that the matter can be settled on terms favorable to the
Company.
NOTE 13. SUBSEQUENT
EVENTS
In
January 2010, the Company entered into a preliminary oral agreement with Forest
Park Medical Center (“FPMC”) in Dallas, Texas to open the Company’s second
clinic within FPMC’s state-of-the-art facility. The Company anticipates that
FPMC, a doctor owned, full-service, acute-care hospital that focuses on
high-quality surgical services, will facilitate its medical spine injection
procedures within Dallas, Texas. The Company is currently working
with FPMC on a definitive operating agreement.
39
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective
May 16, 2008, our Board of Directors dismissed Michael T. Studer CPA P.C.
(“Studer”) as its independent registered public accounting firm and retained the
accounting firm of Jewett, Schwartz, Wolfe & Associates (“JSW”) as its new
independent registered public accounting firm.
Studer
was the Registrant’s independent registered public accounting firm since October
2006 and for the Registrant’s last two annual reports (Form 10-KSB) for years
ended December 31, 2006 and December 31, 2007. Studer’s reports on our financial
statements for those two years did not contain an adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles, except for a going concern modification expressing
substantial doubt about the ability of the Registrant to continue as a going
concern.
The
decision to change our accountants was recommended and approved by our Board of
Directors on May 16, 2008.
During
our most recent two fiscal years, there were no disagreements with Studer on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, except for a going concern modification expressing
substantial doubt about the ability of the Registrant to continue as a going
concern.
On May
16, 2008 we engaged JSW as our new principal independent registered accounting
firm in connection with our financial statements for the quarter ended March 31,
2008. Our Board of Directors recommended and approved the engagement of
JSW.
During
the Registrant’s fiscal years ended December 31, 2007, 2006, and 2005 and
through May 16, 2008, we did not consult JSW with respect to (i) the application
of accounting principles to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on the
Registrant’s consolidated financial statements; or (ii) any matter that was
either the subject of a disagreement or a reportable event.
ITEM
9A. CONTROLS AND PROCEDURES
Dr.
William Donovan, the Company’s Chief Executive Officer, who is the Company’s
principal executive officer and principal financial officer, is responsible for
establishing and maintaining disclosure controls and procedures for the
Company.
Evaluation of Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as of December 31, 2009. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were
effective and adequately designed to ensure that the information required to be
disclosed by us in the reports we submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
applicable rules and forms and that such information was accumulated and
communicated to our principal executive officer and principal financial officer,
in a manner that allowed for timely decisions regarding
disclosure.
40
Management’s Annual Report
on Internal Control over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
Our internal control over financial reporting includes those policies and
procedures that:
|
|
(i)
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
|
(ii)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements;
and
|
|
|
(iii)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized transactions.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.
In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework and
Internal Control over Financial Reporting – Guidance for Smaller Public
Companies.
Our
management evaluated the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009. Based on this
evaluation, our management concluded that, as of December 31, 2009, the Company
maintained effective internal control over financial reporting.
This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in this Annual Report on
Form 10-K.
Changes in internal control
over financial reporting
There
were no changes in our internal control over financial reporting during the year
ended December 31, 2009 that have materially affected, or are reasonably likely
to materially affect our internal control over financial reporting.
The
Company’s management, including the principal executive officer and principal
financial officer, does not expect that its disclosure controls or internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. In addition, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake.
Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management’s override of the control. The
design of any systems of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Over time, control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of these inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
41
Individual
persons perform multiple tasks which normally would be allocated to separate
persons and therefore extra diligence must be exercised during the period these
tasks are combined. It is also recognized the Company has not designated an
audit committee and no member of the Board of Directors has been designated or
qualifies as a financial expert. The Company should address these concerns at
the earliest possible opportunity.
ITEM
9B. OTHER INFORMATION
Not
applicable.
42
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
Directors and Officers of the Company are as follows:
|
Name
|
Age
|
Position(s) and
Office(s)
|
||
|
William
Donovan, M.D.
|
66
|
Chief
Executive Officer and Director / Interim
Principal
Financial Officer
|
||
|
Richard
Specht
|
28
|
Director
|
William Donovan,
M.D. Dr. Donovan has served as the Company’s Chief Executive Officer
since January 28, 2009. He has served as a Director of the Company
since April 2008. He is a Board Certified Orthopedic Surgeon, and has
been involved with venture funding and management for over 25
years. He was the co-founder of DRCA (later known as I.O.I) and
became Chairman of this company that went from the pink sheets, to NASDAQ and
then to the AMEX before being acquired by a subsidiary of the Bass
Family. He was a founder of “I Need A Doc”, later changed to IP2M
that was acquired by Dialog Group, a public traded company. He was
the Chairman of House of Brussels, an international chocolate company and
president of ChocoMed, a specialized confectionery company combining
Nutraceuticals with chocolate bars. Dr. Donovan has been practicing
in Houston since l975. Throughout his career as a physician, he has been
involved in projects with both public and private enterprises. He received his
Orthopedic training at Northwestern University in Chicago. He was a
Major in the USAF for 2 years at Wright Patterson Air force base in Dayton,
Ohio. He established Northshore Orthopedics in 1975 and continues in active
practice in Houston, Texas specializing in Orthopedic Surgery.
Richard Specht. Mr.
Specht has been a Director of the Company since December 2008. He
also previously served as Director of the Company from October 2007 to April
2008, and briefly served as interim Chief Executive Officer and interim Chief
Financial Officer in April 2008. Richard Specht has over nine years
of experience as an investor in various private and public
companies.
Board
of Directors Committees
The Board
of Directors has not yet established an audit committee. An audit committee
typically reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the recommendations and
performance of independent auditors, the scope of the annual audits, fees to be
paid to the independent auditors, and internal accounting and financial control
policies and procedures. Certain stock exchanges currently require companies to
adopt a formal written charter that establishes an audit committee that
specifies the scope of an audit committee’s responsibilities and the means by
which it carries out those responsibilities. In order to be listed on any of
these exchanges, the Company will be required to establish an audit
committee.
The
Company does currently have a Compensation Committee, of which our Director,
Richard Specht is currently the sole member.
Section
16(a) Beneficial Ownership Reporting Compliance
Based
solely upon a review of Forms 3, 4 and 5 furnished to the Company, the Company
is aware of six people who, during the fiscal year ended December 31, 2009 were
Directors, officers, or beneficial owners of more than ten percent of the common
stock of the Company, and who failed to file, on a timely basis, reports
required by Section 16(a) of the Securities Exchange Act of 1934 as
follows:
Richard
Specht, our current Director, has failed to file various reports required by
Section 16(a) of the Exchange Act, and to date is not current in these
filings. Mr. Specht failed to file a Form 3 when he was reappointed
Director in December 2008, which report has not been filed to
date. He is currently in the process of preparing his outstanding
reports.
43
William
Donovan, M.D., our current Chief Executive Officer and Director, may have failed
to timely file certain Form 4’s during 2009. However, he is current
in his filings to date.
Timothy
Donovan, our former interim Chief Executive Officer failed to timely file a Form
3 when he was appointed in December 2008. This report was ultimately
filed, however. He also failed to file a Form 5 when he resigned as
interim Chief Executive Officer in 2009.
John
Talamas, our former Chief Operating Officer and current Director of Operations
(non-executive position), failed to timely file a Form 3 when he as was
appointed as Chief Operating Officer in 2009. This report was
ultimately filed, however. He also failed to file a Form 5 when he
resigned as Chief Operating Officer in 2009.
Brian
Koslow, our former Executive V.P. of Business Development, failed to timely file
a Form 3 when he as was appointed in 2009. This report was ultimately
filed, however. He also failed to file a Form 5 when he resigned as
Executive V.P. of Business Development in 2009.
Code
of Ethics
The
Company has adopted a code of ethics in compliance with Item 406 of Regulation
S-K that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. The Company has filed a copy of its Code of Ethics by
reference as Exhibit 14 to this Form 10-K. Further, we undertake herewith to
provide by mail to any person without charge, upon request, a copy of such code
of ethics if we receive the request in writing by mail to:
Spine
Pain Management, Inc.
5225 Katy
Freeway
Suite
600
Houston,
Texas 77007
ITEM
11. EXECUTIVE COMPENSATION
The
following table provides summary information for the years 2009 and 2008,
concerning cash and non-cash compensation paid or accrued to or on behalf of our
principal executive officer and principal financial officer, and any other
employees to receive compensation in excess of $100,000.
44
Summary
Compensation Table
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
($)
|
All Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||||
|
William
F. Donovan,
CEO,
Interim
PFO
|
2009
|
- | - | -260,000 | (1) | - | - | - | - | - | |||||||||||||||||||||||
|
Timothy
Donovan,
|
2009
|
- | - | -104,000 | (2) | - | - | - | - | - | |||||||||||||||||||||||
|
Former
Interim CEO
|
2008
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
John
Talamas, Former COO
|
2009
|
- | - | -125,000 | (3) | - | - | - | - | - | |||||||||||||||||||||||
|
William
Dunavant
Former
CEO, CFO, PAO, and director
|
2008
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
James
R. MacKay,
Former
CEO
|
2008
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Shane
Mulcahy,
Former
CEO
|
2008
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
(1) In
February 2009, the Company issued 1,000,000 restricted shares of common stock to
Dr. Donovan as consideration for his employment as Chief Executive Officer of
the Company.
(2) In
February 2009, the Company issued 400,000 restricted shares of common stock to
Mr. Timothy Donovan as consideration for his past employment as interim
Chief Executive Officer and his employment as Director of Clinic Operations
(non-executive).
(3) In
February 2009, the Company issued 500,000 restricted shares of common stock to
Mr. Talamas as consideration for his employment as Chief Operating Officer. Mr.
Talamas returned these shares to the Company when he resigned as Chief Operating
Officer, but the Company reissued these shares to Mr. Talamas when he was
subsequently appointed Director of Operations.
Outstanding equity awards at fiscal
year-end
The
Company had no unexercised options, stock that has not vested, or equity
incentive plan awards for any of its executive officers outstanding as of
December 31, 2009.
Compensation
of Directors
At
present, the Company does not pay its Directors for attending meetings of the
Board of Directors, although the Company may adopt a Director compensation
policy in the future. The Company has no standard arrangement pursuant to which
Directors of the Company are compensated for any services provided as a Director
or for committee participation or special assignments.
The
Company has no “Grants of Plan-Based Awards,” “Outstanding Equity Awards at
Fiscal Year-End,” “Option Exercises and Stock Vested,” “Pension Benefits,” or
“Nonqualified Deferred Compensation.” Nor does the Company have any
“Post Employment Payments” to report.
Our
Directors received no compensation for their services as Directors during years
ended December 31, 2009 and 2008.
Compensation
Policies and Practices as they Relate to Risk Management
The
Company does not currently believe that any risks arising from its compensation
policies and practices for its employees are reasonably likely to have a
material adverse effect on the Company. As of the time of filing of
this report, however, the Company is still in the process of evaluating is
compensation policies and practices as they relate to the Company’s risk
management. Upon completion of this evaluation, the Company’s
assessment of the potential effects of risks arising from its compensation
policies may change.
45
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information at December 31, 2009 with respect
to the beneficial ownership of shares of common stock by (i) each person known
to us who owns beneficially more than 5% of the outstanding shares of common
stock (based upon reports which have been filed and other information known to
us), (ii) each of our Directors, (iii) each of our Executive Officers and (iv)
all of our Executive Officers and Directors as a group. Unless otherwise
indicated, each stockholder has sole voting and investment power with respect to
the shares shown. As of March 1, 2010, there were 17,367,682 shares
of common stock outstanding.
|
Name and Address of Beneficial
Owner
|
Number and Class of
Common Shares
Beneficially Owned
|
Percent of Class
|
||||||
|
William
Francis Donovan (1)
|
2,712,084 | 15.62 | % | |||||
|
Richard
Specht (1)
|
2,500 | 0.01 | % | |||||
|
All
Directors and executive officers as a group (2 persons)
|
2,714,584 | 15.63 | % | |||||
|
Rene
Hamouth (2)
|
4,527,751 | 26.07 | % | |||||
|
William
R. Dunavant (3)
|
1,800,000 | 10.36 | % | |||||
|
Total
shares outstanding:
|
17,367,682 | |||||||
|
(1)
|
The
named individual is an executive officer or Director of the Company, the
business address of which is 5225 Katy Freeway, Suite 600, Houston, TX
77007.
|
|
(2)
|
Includes
3,354,665 shares registered in the name of the Hamouth Family Trust,
1,094,598 shares registered in the name of Rene Hamouth, and 145,863
shares registered in the name of Leona Hamouth. Mr. Hamouth is the trustee
of the Hamouth Family Trust. Mr. Hamouth’s address is 2608
Finch Hill, Vancouver, BC, Canada, V7S
3H1.
|
|
(3)
|
William
R. Dunavant, our former CEO, is the beneficial owner of Dunavant Family
Holdings, Inc. Mr. Dunavant’s address is 2624 Eagle Cove Drive,
Park City, Utah 84060.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On
December 28, 2009, the Company issued 500,000 restricted shares of common stock
to William Donovan, M.D., the Company’s Chief Executive Officer, for the
conversion of $349,400 of outstanding debt owed by the Company to Dr.
Donovan. The Company owed this outstanding debt to Dr. Donovan in
connection with funds Dr. Donovan advanced to the Company from September 2009 to
December 2009 for its spine injury treatment operations.
No
other person has any direct or indirect material interest in any transactions to
which we were or are a party, and the amount involved exceeded $120,000, since
the beginning of our last fiscal year or in any proposed transaction to which we
propose to be a party..
|
(A)
|
any
of our directors or executive
officers;
|
|
(B)
|
any
nominee for election as one of our
directors;
|
46
|
(C)
|
any
person who is known by us to beneficially own, directly or indirectly,
shares carrying more than 5% of the voting rights attached to our common
stock; or
|
|
(D)
|
any
member of the immediate family (including spouse, parents, children,
siblings and in-laws) of any of the foregoing persons named in paragraph
(A), (B) or (C) above.
|
Director
Independence
The
Company currently does not have any independent directors. Although
Mr. Richard Specht does not currently hold any other positions with the Company
besides Director, he previously served as Chief Executive Officer of the
Company, and as such, we have decided to not label him as an independent
director at this point in time.
As the
Company’s securities are not listed on a national securities exchange or on an
inter-dealer quotation system which has requirements that a majority of the
board of directors be independent, we are not required to have independent
members of our Board of Directors, and do not anticipate having independent
Directors until such time as we are required to do so.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth fees billed to us by our independent accountants
during the fiscal years ended December 31, 2009 and December 31, 2008 for: (i)
services rendered for the audit of our annual financial statements and the
review of our quarterly financial statements, (ii) services rendered that are
reasonably related to the performance of the audit or review of our financial
statements and that are not reported as Audit Fees, (iii) services rendered in
connection with tax compliance, tax advice and tax planning, and (iv) all other
fees for services rendered. "Audit Related Fees" consisted of
consulting fees regarding accounting issues. "All Other Fees" consisted of fees
related to the issuance of consents for our SB-2 Registration Statements and
this Annual Report. Since we have no audit committee, none of these
services were approved by an audit committee, and we have no pre-approval
policies or procedures.
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Audit
Fees
|
$ | 68,000 | $ | 54000 | ||||
|
Audit
Related Fees
|
- | - | ||||||
|
Tax
Fees
|
- | - | ||||||
|
All
Other Fees
|
- | - | ||||||
|
Total
|
$ | 68,000 | $ | 54,000 | ||||
Audit
Committee Pre-Approval
The
Company does not have a standing audit committee. Therefore, for the fiscal
years ended December 31, 2009 and 2008 all services, as described above, were
provided to the Company by Jewett, Schwartz, Wolfe & Associates based upon a
prior approval of the board of directors.
47
ITEM
15. EXHIBITS
INDEX
TO EXHIBITS
|
Exhibit
No.
|
Description
|
|
|
3(i)(a)
|
Articles
of Incorporation dated March 4, 1998. (Incorporated by reference from Form
10SB filed with the SEC on January 5, 2000.) *
|
|
|
3(i)(b)
|
Amended
Articles of Incorporation dated April 23,1998. (Incorporated by reference
from Form 10SB filed with the SEC on January 5, 2000.)
*
|
|
|
3(i)(c)
|
Amended
Articles of Incorporation dated January 4, 2002. (Incorporated by
reference from Form 10KSB filed with the SEC on May 21, 2003.)
*
|
|
|
3(i)(d)
|
Amended
Articles of Incorporation dated December 19, 2003. (Incorporated by
reference from Form 10KSB filed with the SEC on May 20, 2004.)
*
|
|
|
3(i)(e)
|
Amended
Articles of Incorporation dated November 4, 2004. (Incorporated by
reference from Form 10KSB filed with the SEC on April 15,2005)
*
|
|
|
3(i)(f)
|
Amended
Articles of Incorporation dated September 7,2005. (Incorporated by
reference from Form 10QSB filed with the SEC on November 16, 2005)
*
|
|
|
3(ii)
|
By-Laws
dated April 23, 1998. (Incorporated by reference from Form 10SB filed with
the SEC on January 5, 2000.) *
|
|
|
10(i)
|
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(ii)
|
Employee
Agreement dated April 30, 2004 between the Company and Kent Carasquero.
(Incorporated by reference from Form 10KSB filed with the SEC on May 20,
2004 *
|
|
|
10(iii)
|
Employee
Agreement dated April 30, 2004 between the Company and Martin Tutschek.
(Incorporated by reference from Form 10KSB filed with the SEC on May 20,
2004) *
|
|
|
10(iv)
|
Employee
Agreement dated October 1, 2004 between the Company and Roderick Shand
(Incorporated by reference from Form 10KSB filed with the SEC on April 15,
2005) *
|
|
|
10(v)
|
Employee
Agreement dated October 1, 2004 between the Company and Mr. Paul Bains
(Incorporated by reference from Form 10KSB filed with the SEC on April 15,
2005) *
|
|
|
10(vi)
|
Consulting
Agreement dated October 1, 2004 between the Company and Kent Carasquero.
(Incorporated by reference from Form 10KSB filed with the SEC on April 15,
2005) *
|
|
|
10(vii)
|
Portal
Development Agreement dated July 15, 2005 between the Company and Sygenics
Interactive Inc. (Incorporated by reference from Form 8-K filed with the
SEC on August 9, 2005) *
|
|
|
10(viii)
|
Debt
Settlement Agreement dated August 3, 2005 between the Company and Rajesh
Vadavia and Sygenics Interactive, Inc. (Incorporated by reference from
Form 10KSB filed with the SEC on April 17, 2006) *
|
|
|
10(ix)
|
Debt
Settlement Agreement dated September 30, 2005 between the Company and
Leslie Lounsbury. (Incorporated by reference from Form 10QSB
filed with the SEC on November 16, 2005) *
|
|
|
10(x)
|
Debt
Settlement Agreement dated November 9, 2005 between the Company and
Roderick Shand. (Incorporated by reference from Form 10KSB filed on April
17, 2006) *
|
|
|
10(xi)
|
Debt
Settlement Agreement dated November 9, 2005 between the Company and Paul
Bains. (Incorporated by reference from Form 10KSB filed on April 17, 2006)
*
|
|
|
10(xii)
|
Agreement
and Plan of Merger between MangaPets Inc. and Intrepid World
Communications Corporation dated January 29, 2007.(Incorporated by
reference from Form 8k filed on January 29,2007) *
|
|
|
10(xiii)
|
Merger
Agreement dated November 21, 2007 between the Company and First Versatile
Smartcard Solutions Corporation (Incorporated by reference from Form 8-K
filed on April 22, 2008) *
|
|
|
10(xiv)
|
Stock
Purchase Agreement dated April 28, 2008 between the Company, First
Versatile Smartcard Solutions Corporation and MacKay Group,
Ltd. (Incorporated by reference from Form 10-K filed on April 15,
2009)*
|
|
|
10(xv)
|
Mutual
Release and Settlement Agreement dated December 30, 2008 between the
Company, James MacKay, MacKay Group, Ltd., Celebrity Foods, Inc. and
Michael Cimino. (Incorporated by reference from Form 10-K filed on April
15, 2009)*
|
|
|
10(xvi)
|
Employment
Agreement dated February 21, 2009 between the Company and William Donovan,
M.D. (Incorporated by reference from Form 10-K filed on April 15,
2009)*
|
|
|
10(xvii)
|
Employment
Agreement dated February 25, 2009 between the Company and John Talamas
(Incorporated by reference from Form 10-K filed on April 15,
2009)*
|
48
|
10(xviii)
|
Employment
Agreement dated February 21, 2009 between the Company and Brian Koslow
(Incorporated by reference from Form 10-K filed on April 15,
2009)*
|
|
|
14
|
Code
of Ethics (Incorporated by reference from Form 10KSB filed with the SEC on
April 15, 2005) *
|
|
|
31
|
Certification
Pursuant to Rule 13a-14(A)/15d-14(A) of the Securities Act of 1934 as
amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2003.
|
|
|
32
|
Certification
Pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act
of 2002.
|
*
Incorporated by reference from previous filings of the Company
49
SIGNATURES
In
accordance with the requirements of Section 13 of 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 31, 2010.
|
Spine
Pain Management, Inc.
|
|
/s/ William F. Donovan,
M.D.
|
|
By:
William F. Donovan, M.D.
|
|
Chief
Executive Officer
|
|
/s/ William F. Donovan,
M.D.
|
|
By:
William F. Donovan, M.D.
|
|
Interim
Principal Financial
Officer
|
Pursuant
to the requirements of the Exchange Act, this report has been signed below by
the following persons in the capacities and on the dates indicated:
|
Signature
|
Title
|
Date
|
||
|
/s/ William F. Donovan,
M.D.
|
||||
|
William
F. Donovan, M.D.
|
Director
|
March
31, 2010
|
||
|
/s/ Richard Specht
|
||||
|
Richard
Specht
|
Director
|
March
31, 2010
|
50