Paincare (PRXZ) 8-K/A Completion of Acquisition or Disposition of Assets

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): August 27, 2004

PAINCARE HOLDINGS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

FLORIDA	1-14160	(06-1110906)
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	(COMMISSION FILE NUMBER)	(IRS EMPLOYER IDENTIFICATION NUMBER)

37 N. ORANGE AVENUE, SUITE 500

ORLANDO, FLORIDA 32801

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

(407) 926-6615

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

(407) 926-6616

(REGISTRANT’S FACSIMILE NUMBER, INCLUDING AREA CODE)

WWW.PAINCAREHOLDINGS.COM

(REGISTRANT’S WEBSITE ADDRESS)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

On June 12, 2004 we announced that we completed a merger with Benjamin Zolper, M.D., LLC, d/b/a Northeast Pain Management (the “Zolper”), a Maine based private physician group specializing in pain management. The capital stock of “Zolper” was acquired in a merger transaction from Benjamin Zolper, M.D., the sole shareholder. Dr. Zolper has no prior relationship with us.

Total consideration which may be paid to the shareholder is $3,500,000, with 50% of such consideration to be paid in cash and 50% in PainCare’s common stock. One-half of the purchase price ($1,750,000) was paid at closing with the remaining one-half of the merger consideration ($1,750,000) payable pro-rata over three years pursuant to a strict “earn out formula” in which PainCare must realize $700,000 per year in net operating income. PainCare will fund the cash portion of the initial purchase price from the proceeds of the recently completed $5,000,000 follow-on financing by Laurus Master Fund, Ltd.

The acquisition has been accounted for using the purchase method of accounting.

ITEM 9.01 FINANCIAL STATEMENT AND EXHIBITS

The following financial statements, pro forma information and exhibits are filed as part of this report.

(a) Financial Statements of Business Acquired

Benjamin Zolper, M.D., LLC, d/b/a Northeast Pain Management

Report of Independent Certified Public Accountants

2003 Financial Statements:

• Balance Sheet as of December 31, 2003

• Statement of Operations and Retained Earnings for the year ended December 31, 2003

• Statement of Cash Flows for the year ended December 31, 2003

Notes to Financial Statements

(b) Pro forma financial information:

• Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information

• Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2003

• Unaudited Pro Forma Condensed Consolidated Statement of Operations for the twelve months ended December 31, 2003

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SIGNATURES

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

PAINCARE HOLDINGS, INC.

Date: August 30, 2004	BY:	/s/ RANDY LUBINSKY
		Chief Executive Officer and Director
Date: August 30, 2004	BY:	/s/ MARK SZPORKA
		Chief Financial & Accounting Officer, Secretary and Director

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Independent Auditors’ Report

The Board of Directors

Benjamin Zolper, M.D., LLC

d/b/a Northeast Pain Management

We have audited the accompanying balance sheet of Benjamin Zolper, M.D., LLC, d/b/a Northeast Pain Management as of December 31, 2003 and the related statements of operations and member’s equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 audit provides 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 Benjamin Zolper, M.D., LLC, d/b/a Northeast Pain Management at December 31, 2003 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Tschopp, Whitcomb & Orr, P.A.

August 24, 2004

Maitland, Florida

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Balance Sheet

December 31, 2003

Assets
Current assets:
Cash	$	38,303
Patient accounts receivable, net of contractual reserves and doubtful accounts of $442,896		347,990
Total current assets		386,293
Property and equipment, net (notes 2 and 3)		117,023
Total assets	$	503,316
Liabilities and Member’s Equity
Current liabilities:
Line of credit (note 3)	$	5,471
Accounts payable and accrued expenses		18,446
Current installments of long-term debt (note 3)		23,413
Total current liabilities		47,330
Long-term debt, excluding current installments (note 3)		64,967
Total liabilities		112,297
Commitments and contingencies (notes 3, 4,5 and 6))
Members’ equity		391,019
Total liabilities and members’ equity	$	503,316

See accompanying notes to financial statements.

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Statement of Operations and Member’s Equity

Year ended December 31, 2003

Net patient revenue	$	1,041,783
Cost of patient revenue		234,573
Gross profit		807,210
General and administrative expenses		201,092
Operating income		606,118
Other expenses:
Interest		6,550
Depreciation		18,003
Total other expenses		24,553
Net income		581,565
Member’s equity at beginning of year		160,237
Distributions to member		(350,783	)
Member’s equity at end of year	$	391,019

See accompanying notes to financial statements.

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Statement of Cash Flows

Year Ended December 31, 2003

Cash flows from operating activities:
Net income	$	581,565
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		18,003
Cash provided by (used for) changes in:
Patient accounts receivable		(212,090	)
Accounts payable and accrued expenses		18,446
Net cash provided by operating activities		405,924
Cash flow from investing activities:
Purchase of property and equipment		(135,026	)
Net cash used in investing activities		(135,026	)
Cash flows from financing activities:
Proceeds from line of credit, net		5,471
Repayment of long-term debt		(13,620	)
Proceeds from long-term debt		102,000
Distributions to member		(350,783	)
Net cash used in financing activities		(256,932	)
Net increase in cash		13,966
Cash at beginning of year		24,337
Cash at end of year	$	38,303
Supplemental disclosures of cash flow information:
Cash paid for interest	$	6,550

See accompanying notes to financial statements.

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Notes to Financial Statements

December 31, 2003

(1) Organization and Summary of Significant Accounting Policies

(a) Organization and Mission

Benjamin Zolper, M.D., LLC was organized in the State of Maine in December 2001 for the purpose of providing quality medical treatment to the Bangor, Maine area.

(b) Net Patient Revenue

Patient revenue is recognized at the time the service is performed at the estimated net realizable amounts from patients, third-party payors and others for services rendered. The Company is a provider under the Medicare program and various other third-party payor arrangements which provide for payments to the Company at amounts different from its established rates. Provisions for estimated third-party payor settlements, if necessary, are provided in the period the related services are rendered.

(c) Income Taxes

Benjamin Zolper, M.D., LLC has been organized as a limited liability company. As such, Benjamin Zolper, M.D., LLC is not a tax paying entity for Federal or state income tax purposes. Accordingly, the accompanying financial statements do not contain a provision for income taxes as the net income or loss of Benjamin Zolper, M.D., LLC is included in the member’s income tax return.

(d) Financial Instruments Fair Value, Concentration of Business and Credit Risks

The carrying amount reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported in the accompanying balance sheets for line of credit and long-term debt approximates fair value because the actual interest rates do not significantly differ from current rates offered for instruments with similar characteristics. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of patient accounts receivable which amount to approximately $350,000. The Company performs credit evaluations of its

(Continued)

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Notes to Financial Statements

December 31, 2003

(1) Organization and Summary of Significant Accounting Policies – (Continued)

(d) Financial Instruments Fair Value, Concentration of Business and Credit Risks – (Continued)

patients prior to rendering service and generally does not require collateral. The majority of the Company’s patients are covered by third party payors such as insurance companies and Medicare. For the year ended December 31, 2003 the percentage of revenue derived from significant third party payors was as follows:

Blue Cross of Maine	19%
Medicare	32%

(e) Use of Estimates

Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

(f) Cash Flows

For purposes of cash flows, cash and cash equivalents include cash on hand, cash on deposit (including interest bearing accounts) and short-term financial instruments with a maturity, from the date of purchase, of three months or less.

(2) Property and Equipment

Property and equipment consists of the following at December 31, 2003:

Leasehold improvements	$	12,000
Computer equipment and software		3,390
Furniture and fixtures		17,636
Medical and therapy equipment		102,000
		135,026
Less accumulated depreciation		(18,003	)
	$	117,023

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Notes to Financial Statements

December 31, 2003

(3) Line of Credit and Long-Term Debt

Long-term debt consists of the following at December 31, 2003:

Note payable with monthly principal payments of $2,524, plus interest at 8.8% through May, 2007, collateralized by medical equipment.	$	88,380
Less current installments		23,413
	$	64,967

Future maturities of long-term debt are as follows:

2004	$	23,413
2005		25,564
2006		27,912
2007		11,491

The Company has a line of credit with a bank which bears interest at the bank’s prime interest plus 1% rate (5.0% at December 31, 2003) and has a maximum borrowing capacity of $100,000. The outstanding balance under this line at December 31, 2003 was $5,471.

(4) Commitments

The Company is obligated under a non-cancellable operating lease with related party for its office facilities and various equipment. Future minimum lease payments under the Company’s non-cancellable operating lease as of December 31, 2003 are as follows:

Year ending December 31,
2004	$	55,800
2005		23,750

Total rent expense for the year ended December 31, 2003 was $48,000.

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BENJAMIN ZOLPER, M.D., LLC

D/B/A NORTHEAST PAIN MANAGEMENT

Notes to Financial Statements

December 31, 2003

(5) Contingencies

Third-Party Payor Settlements

Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered. The Company is a provider under Blue Cross, Medicare and various other third-party payor arrangements which provide for payments to the Clinic at amounts different from its established rates. Provisions for estimated third-party payor settlements, if necessary, are provided in the period the related services are rendered.

Medical Malpractice Claims

The Company is subject to claims and legal actions primarily as a result of medical malpractice matters which arise in the ordinary course of business. The Company maintains malpractice insurance to protect against such claims or legal actions. Management believes the ultimate resolution of such matters will be adequately covered by the Company’s insurance and will not have a material adverse effect on its financial position or results of operations.

(6) Subsequent Event

In July, 2004, the Company completed a merger with PainCare Holdings, Inc. (“PainCare”). The merger required the owner to sell the capital stock of the practice to PainCare for $3,500,000. $875,000 of the purchase price was paid in cash and $875,000 paid in PainCare stock at closing. The remaining $1,750,000 will be paid as 50% cash and 50% PainCare stock over a three year period assuming certain earning thresholds are met.

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PAINCARE HOLDINGS, INC.

Unaudited Pro Forma Consolidated Balance Sheet

As of December 31, 2003

	PainCare Historical Statements		Zolper Historical Statements			Pro forma Adjustments			Pro forma
Assets
Current Assets:
Cash (1)	$	7,923,767	$	38,303		$	(875,000	)	$	7,087,070
Accounts receivable		5,100,699		347,990			—			5,448,689
Due from shareholder		203,050		—			—			203,050
Note receivable		320,353		—			—			320,353
Deposits & prepaid expenses		514,957		—			—			514,957
Total current assets		14,062,826		386,293			(875,000	)		13,574,119
Property and equipment, net		4,730,723		117,023			—			4,847,746
Goodwill, net (1)		21,946,735		—			1,265,130			23,211,865
Other assets		2,680,665		—			—			2,680,665
Total assets	$	43,420,949	$	503,316		$	390,130		$	44,314,395
Liabilities and Stockholder’s Equity
Current liabilities:
Accounts payable & accrued expenses	$	639,668	$	18,446		$	—		$	658,114
Line of Credit		—		5,471			(5,471	)		—
Current portion of notes payable		4,216,566		23,413			(23,413	)		4,216,566
Current portion of convertible debenture		306,616		—			—			306,616
Current portion of lease payable		578,557		—			—			578,557
Total current liabilities		5,741,407		47,330			(28,884	)		5,759,853
Notes payable, less current portion 510,141		64,967		(64,967	)		510,141
Convertible debentures		10,712,000		—			—			10,712,000
Deferred income tax liability		683,300		—			—			683,300
Lease payable		2,300,165		—			—			2,300,165
Total liabilities		19,947,013		112,297			(93,851	)		19,965,459
Stockholder’s equity:
Common stock, $.0001 par value (1)		2,688		—			32			2,720
Preferred stock, $.0001 par value		—		—			—			—
Additional paid in capital (1)		21,700,894		—			874,968			22,575,862
Retained earnings (1)		1,769,393		391,019			(391,019	)		1,769,393
Cumulative translation adjustment		961		—			—			961
Total stockholder’s equity		23,473,936		391,019			483,981			24,348,936
Total liabilities & stockholder’s equity	$	43,420,949	$	503,316		$	390,130		$	44,314,395

See accompanying footnotes to unaudited pro forma financial statements.

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PAINCARE HOLDINGS, INC.

Unaudited Pro Forma Consolidated Statement of Operations

For the twelve months ended December 31, 2003

	PainCare Historical Statements		Zolper Historical Statements		Pro forma Adjustments			Pro forma
Revenues	$	14,980,867	$	1,041,783	$	—		$	16,022,650
Cost of sales (2)		4,586,732		234,573		(25,361	)		4,795,944
Gross profit		10,394,135		807,210		25,361			11,226,706
Operating expenses:
Selling, general and administrative (3)		7,543,915		201,092		(85,263	)		7,659,744
Amortization expense		61,463		—		—			61,463
Depreciation expense		463,190		18,003		—			481,193
Operating income		2,325,567		588,115		110,624			3,024,306
Interest expense		487,786		6,550		—			494,336
Other income		45,425		—		—			45,425
Income before taxes		1,883,206		581,565		110,624			2,575,395
Provision for income taxes (4)		670,300		—		246,419			916,719
Net income	$	1,212,906	$	581,565	$	(135,795	)	$	1,658,676
Basic earnings per share								$	0.08
Basic weighted average shares outstanding									21,089,064
Diluted earnings per share								$	0.07
Diluted weighted average shares outstanding									24,283,874

See accompanying footnotes to unaudited pro forma financial statements.

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Footnotes to Unaudited Pro Forma Financial Statements

(1) Represents the impact of the purchase of the outstanding shares of Benjamin Zolper, M.D., LLC, d/b/a Northeast Pain Management, including the issuance of 316,444 shares of PainCare Holdings, Inc. common stock at $2.7651 per share and the resulting goodwill of $1,265,130 using the purchase method of accounting.

(2) Adjustment for non-recurring compensation paid to Dr. Zolper.

(3) Adjustment for non-recurring general and administrative expenses.

(4) Adjustment for estimated income tax liability based on an income tax rate of 35.6%.

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