Bitech Technologies (BTTC) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarter Ended September 30, 2013.

¨ 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.

(Name of Registrant in Its Charter)

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

5225 Katy Freeway

Suite 600

Houston, Texas  77007

(Address of Principal Executive Offices)

(713) 521-4220

(Issuer's Telephone Number, Including Area Code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  ¨

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

Large accelerated filer  ¨    Accelerated filer  ¨

Non-accelerated filer  ¨    Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 1, 2013, there were 18,715,882 shares of the registrant’s common stock outstanding (the only class of voting common stock).

FORM 10-Q

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	3
	Statements of Operations for the three and nine months ended September 30, 2013 and 2012 (Unaudited)	4
	Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (Unaudited)	5
	Notes to Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	15
Item 4.	Controls and Procedures	15
PART II	OTHER INFORMATION
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 6.	Exhibits	16
	Signatures	17

2

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SPINE PAIN MANAGEMENT, INC.

BALANCE SHEETS

	SEPTEMBER 30,		DECEMBER 31,
	2013		2012
		(Unaudited)
ASSETS
Current assets:
Cash	$	570,199	$	1,017,755
Accounts receivable, net		3,589,635		3,209,191
Prepaid expenses		199,359		257,684
Other assets		-		55,786
Total current assets		4,359,193		4,540,416
Accounts receivable, net of allowance for doubtful accounts     of $150,958 and $52,628 at September 30, 2013 and     December 31, 2012, respectively		3,533,152		3,287,552
Intangible assets, net		201,700		215,200
Other assets		7,417		10,417
Total assets	$	8,101,462	$	8,053,585
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	168,375	$	183,950
Due to related parties		251,624		352,909
Current portion of notes payable and long-term debt, net		482,482		371,088
Total current liabilities		902,481		907,947
Notes payable and long-term debt, net of discount		984,902		1,332,365
Total liabilities		1,887,383		2,240,312
Commitments and contingencies
Stockholders' equity:
Common stock: $0.001 par value, 50,000,000 shares authorized,     18,715,882 and 18,415,882 shares issued and outstanding at     September 30, 2013 and December 31, 2012, respectively.		18,716		18,416
Additional paid-in capital		19,138,044		18,813,219
Accumulated deficit		(12,942,681)		(13,018,362)
Total stockholders' equity		6,214,079		5,813,273
Total liabilities and stockholders’ equity	$	8,101,462	$	8,053,585

The accompanying notes are an integral part of the unaudited condensed financial statements

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SPINE PAIN MANAGEMENT, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

	FOR THE THREE MONTHS ENDED SEPTEMBER 30,				FOR THE NINE MONTHS ENDED SEPTEMBER 30,
	2013		2012		2013		2012
Net revenue	$	1,006,569	$	946,614	$	2,917,101	$	3,149,905
Cost of providing services
Third party providers		165,282		110,700		506,135		616,299
Related party providers		242,556		258,596		648,472		599,897
Total cost of providing services		407,838		369,296		1,154,607		1,216,196
Gross profit		598,731		577,318		1,762,494		1,933,709
Operating, general and administrative expenses		456,619		484,082		1,424,591		1,329,962
Income from operations		142,112		93,236		337,903		603,747
Other income (expense):
Other income		7,411		7,233		20,297		24,344
Litigation settlement expense		-		-		-		(326,650)
Gain from debt extinguishment		60,179		95,568		60,179		95,568
Interest expense		(78,465)		(91,661)		(342,698)		(197,192)
Total other income (expense)		(10,875)		11,140		(262,222)		(403,930)
Net income	$	131,237	$	104,376	$	75,681	$	199,817
Net income per common share
Basic	$	0.01	$	0.01	$	0.00	$	0.01
Diluted	$	0.01	$	0.01	$	0.00	$	0.01
Weighted average number of common shares outstanding:
Basic		18,484,360		18,215,556		18,438,959		17,814,087
Diluted		18,484,360		19,046,500		18,438,959		18,624,936

The accompanying notes are an integral part of the unaudited condensed financial statements

4

 

SPINE PAIN MANAGEMENT, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

	FOR THE NINE MONTHS ENDED SEPTEMBER 30,
	2013		2012
Cash flows from operating activities:
Net income	$	75,681	$	199,817
Adjustments to reconcile net income to net cash     used in operating activities:
Provision for bad debts		180,000		180,000
Gain from debt extinguishment		(60,179)		(95,568)
Interest expense related to warrant amortization		97,823		126,126
Stock based compensation		376,166		422,680
Common stock issued in settlement of litigation		-		326,650
Accretion of debt discount on long-term debt		85,019		13,340
Depreciation and amortization expense		16,500		5,083
Changes in operating assets and liabilities:
Accounts receivable, net		(806,044)		(1,311,116)
Related party receivable		-		163,703
Prepaid expenses		(5,841)		(70,475)
Due to related party		13,715		36,696
Accounts payable and accrued liabilities		44,604		(396,124)
Net cash provided by (used in) operating activities		17,444		(399,188)
Cash flows from financing activities:
Proceeds from issuance of notes payable and long-term debt		-		1,550,000
Proceeds from related party payable		-		261,000
Repayments of related party payable		(115,000)		(244,500)
Repayments of notes payable		(350,000)		-
Net cash (used in) provided by financing activities		(465,000)		1,566,500
Net (decrease) increase in cash and cash equivalents		(447,556)		1,167,312
Cash and cash equivalents at beginning of period		1,017,755		54,582
Cash and cash equivalents at end of period	$	570,199	$	1,221,894
Supplemental disclosure of cash flow information:
Interest paid	$	159,856	$	57,726
Supplementary disclosure of non-cash investing and financing activities:
Common stock issued to acquire Gleric Holdings, Ltd.	$	-	$	231,200
Issuance of common stock for conversion of related party     payable	$	-	$	1,020,200
Common stock issued for consulting services	$	96,000	$	315,000

The accompanying notes are an integral part of the unaudited condensed financial statements

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

NOTE 1. DESCRIPTION OF BUSINESS

As used herein, the terms “Company,” “we,” “our,” and “us” refer to Spine Pain Management, Inc. (formerly known as Versa Card, Inc.), a Delaware corporation and its subsidiaries and predecessors, unless the context indicates otherwise.  We were incorporated on March 4, 1998.

Since inception, we have engaged in and contemplated several ventures and acquisitions, many of which were not consummated. In December 2008, we began moving forward to launch our 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. Our first spine injury diagnostic center opened in Houston, Texas in August 2009. We currently manage a total of six spine injury diagnostic centers in the United States. We are also evaluating the expansion of our services through additional spine injury diagnostic centers in multiple markets across the country.

We are a medical marketing, management, licensing, billing and collection company, facilitating diagnostic services for patients who have sustained spine injuries resulting from traumatic accidents. We deliver turnkey solutions to spine surgeons, orthopedic surgeons and other health care providers for necessary and appropriate treatment of musculo-skeletal spine injuries resulting from automobile and work-related accidents. Our goal is to become a leader in providing financial management services to spine and orthopedic surgeons and other healthcare providers to facilitate proper treatment of their injured clients.  By funding diagnostic testing and non-invasive and surgical care, patients are not unnecessarily delayed or prevented from obtaining needed treatment.  By providing early treatment, we believe that health conditions can be prevented from escalating and injured victims can be quickly placed on the road to recovery.  

Through our financial management system, we assist spine surgeons, orthopedic surgeons and other healthcare providers to operate as independent contractors and diagnose and treat patients with musculo-skeletal spine injuries. We assist the centers that provide the spine diagnostic injections and treatment and pay the doctors a fixed rate for the medical procedures they performed. After a patient is billed for the procedures performed, we take control of the patients’ unpaid bill and oversee collection. In most instances, the patient is a plaintiff in an accident case, where the patient is represented by an attorney. Typically, the defendant (and/or the insurance company of the defendant) in the accident case pays the patient’s bill upon settlement or final judgment of the accident case. The payment to us is made through the attorney of the patient. In most cases, we must agree to the settlement price and the patient must sign off on the settlement. Once we are paid, the patient’s attorney can receive payment for his or her legal fee.

We currently manage seven spine injury diagnostic centers in the United States, which are located in Texas and Florida (one of the centers opened subsequent to the quarter ended September 30, 2013). We are also currently evaluating the development of additional spine injury diagnostic centers across the United States in major metropolitan cities.  We are seeking additional funding for this expansion by way of reasonable debt financing to combine with increased cash flow to accelerate this future development. In connection with this strategy, we plan to open additional diagnostic centers in new market areas that are attractive under our business model, assuming adequate funds are available.

In May 2012, we acquired Gleric Holdings, LLC which owns a device and process by which a video recording system is attached to a fluoroscopic x-ray machine, the “four camera technology,” which we believe can attract additional physicians and patients, expedite settlements and provide us with additional revenue streams. During the last half of 2012, through additional research and development, we have refined the technology into the fully commercialized Quad Video Halo System 2.0. Using this technology, diagnostic procedures are recorded from four separate video feeds that capture views from both inside and outside the body, and a video is made which is given to the plaintiff’s attorney to verify the treatment received. We believe the video will expedite the settlement process. Each of our affiliated centers can lease the hardware from us. Additionally, independent medical representatives will sell Quad Video Halo units to outside hospitals and clinics.

NOTE 2. GOING CONCERN CONSIDERATIONS

Since our inception in 1998, until commencement of our spine injury diagnostic operations in August, 2009, our expenses substantially exceeded our revenue, resulting in continuing losses and an accumulated deficit from operations of $15,004,698 as of December 31, 2009. Since that time, we have been able to reduce our deficit, and our accumulated deficit is $12,942,681 as of September 30, 2013. During the nine months ended September 30, 2013, we generated net revenue of $2,917,101 and net income of $75,681. Successful business operations and our transition to positive cash flows from operations are dependent upon obtaining additional financing and achieving a level of collections adequate to support our cost structure. Considering the nature of our business, we are not generating immediate liquidity and sufficient working capital within a reasonable period of time to fund our planned operations and strategic business plan through September 30, 2014. There can be no assurances that there will be adequate financing available to us. The accompanying financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. 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.

6

 

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

NOTE 3. CRITICAL ACCOUNTING POLICIES

The following are summarized accounting policies considered to be critical by our management:

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Nevertheless, we believe that the disclosures are adequate to make the information presented not misleading. These interim condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2012 Annual Report as filed on Form 10-K. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position with respect to the interim financial statements and the results of its operations for the interim period ended September 30, 2013, have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year.

Accounting Method

Our financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 our 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 our 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 medical diagnostic services are provided to the patient. The price and terms for the services are considered fixed and determinable at the time that the medical services are provided and are based upon the type and extent of the services rendered. Our 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 us by a third party and the credit policy includes terms of net 240 days for collections; however, collections occur upon settlement or judgment of cases (see Note 4).

7

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

Recent Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides an improvement on the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income by component either on the income statement or in the notes to the financial statements. The guidance will become effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-02 is not expected to have a significant impact on the financial statements.

NOTE 4. ACCOUNTS RECEIVABLE

We recognize revenue and accounts receivable in accordance with SEC staff accounting bulletin, Topic 13, “Revenue Recognition”, which requires persuasive evidence that a sales arrangement exists; the fee is fixed or determinable; and collection is reasonably assured before revenue is recognized. We manage certain spine injury diagnostic centers where we engage healthcare providers as our independent contractors to perform medical services for patients. We pay the healthcare providers a fixed rate for medical services performed. The patients are billed based on Current Procedural Terminology (“CPT”) codes for the medical procedure performed. CPT codes are numbers assigned to every task and service a medical practitioner may provide to a patient including medical, surgical and diagnostic services. CPT codes are developed, maintained and copyrighted by the American Medical Association. Patients are billed at the normal billing amount, based on national averages, for a particular CPT code procedure. We take control of the patients’ unpaid bills.

Revenue and corresponding accounts receivable are recognized by reference to “net revenue” and “accounts receivable, net” which is defined as gross amounts billed using CPT codes less account discounts that are expected to result when individual cases are ultimately settled. A discount rate of 52% and 50%, based on settled patient cases, was used to reduce revenue to 48% and 50% of CPT code billings (“gross revenue”) during the three and nine months ended September 30, 2013 and 2012, respectively.

The patients who receive medical services at the diagnostic centers are typically plaintiffs in accident lawsuits. The timing of collection of receivables is dependent on the timing of a settlement or judgment of each individual case associated with these patients. Historical experience, through 2012, demonstrated that the collection period for individual cases may extend for two years or more. Accordingly, we have classified receivables as current or long term based on our experience, which currently indicates that 49% of cases will be subject to a settlement or judgment within one year of a medical procedure.

We take the following steps to establish an arrangement between all parties and facilitate collection upon settlement or final judgment of cases:

⋅	The patient completed and signed medical and financial paperwork, which included an acknowledgement of the patient’s responsibility of payment for the services provided. Additionally, the paperwork should include an assignment of benefits derived from any settlement or judgment of the patient’s case.
⋅	The patient’s attorney issued the healthcare provider a Letter of Protection designed to guarantee payment for the medical services provided to the patient from proceeds of any settlement or judgment in the accident case. This Letter of Protection also should preclude any case settlement without providing for payment of the patient’s medical bill.
⋅	Most of the patients who received medical services at the diagnostic centers have typically been previously referred to a doctor who performed the initial two to four months of conservative treatment. The doctor then typically refers the patient to one of our healthcare providers for an evaluation because of continuing symptoms. Patients are only accepted if the initial referral was from a reputable plaintiff’s attorney with adequate experience in personal injury lawsuits. Before referring a patient, the attorney is expected to have evaluated the patient’s accident case, including the conditions that gave rise to the patient’s injuries and the extent and quality of general liability insurance held by the defendant. The attorney is also responsible for determining that a settlement favorable to the patient/plaintiff is expected.

8

 

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

NOTE 5. DUE TO RELATED PARTIES

Due to related parties consists of the following:

	September 30,		December 31,
	2013		2012
Due to Northshore Orthopedics Associates	$	52,466	$	4,400
Due to Chief Executive Officer		175,699		290,699
Due to Spine Injury Physicians		23,459		57,810
(formerly Wellness Works)
	$	251,624	$	352,909

Amounts due to Northshore Orthopedics, Assoc. (“NSO”, a company owned by our Chief Executive Officer) and our Chief Executive Officer are non-interest bearing, due on demand and do not follow any specific repayment schedule. Amounts due to Spine Injury Physicians, LLC (“SIJ”, a company owned by our Chief Technology Officer and formerly known as Wellness Works) are non-interest bearing and are due by the 15^th of the month following the month in which they were billed. See Note 7 for further information on the amounts due to SIJ.

NOTE 6. STOCKHOLDERS’ EQUITY

Common Stock

In September 2013, we issued 300,000 restricted shares of common stock at $0.32 per share (based on the quoted market price at the date of issuance) totaling $96,000 for consulting services, which was recorded as a prepaid asset to be amortized over the life of the 18 month agreement. In August 2012, we issued 300,000 restricted shares of common stock at $1.05 per share (based on the quoted market price at the date of issuance) totaling $315,000 for consulting services, which was recorded as a prepaid asset to be amortized over the life of the 18 month agreement. 

Stock Options

We recognized $72,000 and $36,000 in compensation expense in operating, general and administrative expenses in the Statements of Operations for the three months ended September 30, 2013 and 2012, respectively. We recognized $216,000 and $264,000 in compensation expense in operating, general and administrative expenses in the Statements of Operations for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013, there was approximately $266,110 of total unrecognized compensation expense related to non-vested stock option awards. The remaining $266,110 in compensation expense will be recognized at $72,000 per quarter with the final $122,110 being recognized in the last three quarters ending December 31, 2014.

NOTE 7. RELATED PARTY TRANSACTIONS

Due to Related Parties

We have an agreement with NSO, which is 100% owned by our Chief Executive Officer, William Donovan, M.D., to provide medical services as our independent contractor. As of September 30, 2013 and December 31, 2012, we had balances payable to NSO of $52,466 and $4,400, respectively. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule. We do not directly pay Dr. Donovan (in his individual capacity as a physician) any fees in connection with NSO. However, Dr. Donovan is the sole owner of NSO, and we pay NSO under the terms of our agreement.

9

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

As shown in Note 5, at September 30, 2013 and December 31, 2012, we had balances of $175,699 and $290,699, respectively, due to Dr. Donovan, in his individual capacity, for working capital advances and payments made on our behalf. This outstanding payable is non-interest bearing, due on demand and does not follow any specific repayment schedule.

Also, as shown in Note 5, we have an agreement with SIJ, a company 100% owned by Eric Groteke, D.C., our Chief Technology Officer, to provide medical services as our independent contractor in Florida. SIJ is paid for services on a monthly basis dependent upon the services provided. At September 30, 2013 and December 31, 2012, $23,459 and $57,810, respectively, was owed to SIJ.

NOTE 8. LONG-TERM DEBT

In June 2013, we renewed a 10% debenture totaling $50,000 that was originally due on June 30, 2013 at stated value with a maturity date of June 30, 2015 in exchange for 50,000 warrants at $0.45 per share. Interest is payable quarterly and the full principal amount is due upon maturity. In June 2013, we also extended the maturity date of a note for $50,000 that was originally due March 9, 2015 for two additional years in exchange for warrants to purchase 50,000 shares at $0.45 per share. 

The weighted-average estimated fair value of the warrants issued was $0.21 per share using the Black-Sholes pricing model with the following assumptions:

Expected volatility	89.5%
Risk-free interest rate	0.31%
Expected life	2 years
Dividend yield	0%

During the three months ended September 30, 2013 and 2012, we recorded $22,500 and $27,900 in interest expense, respectively, related to the amortization of warrants associated with long term debt. During the nine months ended September 30, 2013 and 2012, we recorded $67,500 and $83,700 in interest expense, respectively related to the amortization of warrants associated with long term debt.

In June 2013, we repaid debentures totaling $350,000 based on the stated contractual terms.

NOTE 9. INCOME TAXES

We have not made provision for income taxes for the nine months ended September 30, 2013 or the year ended December 31, 2012, since we have net operating loss carryforwards to offset current taxable income.

Deferred tax assets consist of the following at September 30, 2013 and December 31, 2012:

	September 30,		December 31
	2013		2012
Benefit from net operating loss carryforwards	$	1,975,917	$	2,279,261
Allowance for doubtful accounts		51,325		-
Less: valuation allowance		(2,027,242)		(2,279,261)
	$	-	$	-

Due to uncertainties surrounding our 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, we have determined that it is not currently likely that a deferred income tax asset of approximately $1,975,917 and $2,279,261 attributable to the future utilization of the approximate $5,811,521 and $7,043,430 in eligible net operating loss carryforwards (“NOL”) as of September 30, 2013 and December 31, 2012, respectively, will be realized. We 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 2031.

10

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

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

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Income tax (provision) benefit at     the 34% statutory rate	$	(44,621)	$	(35,488)	$	(25,732)	$	(67,938)
Effect of state income taxes		(3,937)		(3,132)		(2,270)		(5,995)
Non-deductible stock-based     litigation settlement expense,     compensation expense, and     interest expense		(41,464)		(365,932)		(127,055)		(394,500)
Change in available NOL		(89,562)		-		(96,962)		-
Other		-		(2,021)		-		(7,862)
Less change in valuation allowance		179,584		406,573		252,019		476,295
Income tax (provision) benefit	$	-	$	-	$	-	$	-

We are subject to taxation in the United States and certain state jurisdictions. Our tax years for 2003 and forward are subject to examination by the United States and applicable state tax authorities due to the carryforwards of unutilized net operating losses and the timing of tax filings.

NOTE 10. GAIN ON DEBT EXTINGUISHMENT

During the quarter ended September 30, 2013, we recognized a gain on extinguishment of debt of $60,179. We determined that certain accounts payable balances for legal services would never be paid because they related to a prior business venture, were no longer being pursued for payment and had passed the statute of limitations.

During the quarter ended September 30, 2012, we recognized a gain on extinguishment of debt of $95,568. We were able to negotiate an accounts payable balance of $429,521 to a reduced amount of $363,703. As a result, at September 30, 2012, we removed $229,521 in accounts payable and the $163,703 related party note receivable, realizing a gain of $65,818 on extinguishment of debt. We also determined that a certain accounts payable balance for legal services would never be paid because they related to a prior business venture, was no longer being pursued for payment and had passed the statute of limitations. Accordingly, this $29,750 payable was also included in the gain on extinguishment of debt.

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

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

FORWARD LOOKING STATEMENT AND INFORMATION

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

Critical Accounting Policies

The following are summarized accounting policies considered to be critical by our management:

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Nevertheless, we believe that the disclosures are adequate to make the information presented not misleading. These interim condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2012 Annual Report as filed on Form 10-K. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position with respect to the interim financial statements and the results of its operations for the interim period ended September 30, 2013, have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year.

Accounting Method

Our financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

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

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Revenue Recognition

Revenues are recognized in accordance with SEC staff accounting bulletin, Topic 13, Revenue Recognition, which specifies that only when persuasive evidence for an arrangement exists; the fee is fixed or determinable; and collection is reasonably assured can revenue be recognized.

Persuasive evidence of an arrangement is obtained prior to services being rendered when the patient completes and signs the medical and financial paperwork. Delivery of services is considered to have occurred when medical diagnostic services are provided to the patient. The price and terms for the services are considered fixed and determinable at the time that the medical services are provided and are based upon the type and extent of the services rendered. Our 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 us by a third party and the credit policy includes terms of net 240 days for collections; however, collections occur upon settlement or judgment of cases (see Note 4).

Recent Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides an improvement on the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income by component either on the income statement or in the notes to the financial statements. The guidance will become effective prospectively for fiscal years and interim reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-02 is not expected to have a significant impact on the financial statements.

Management Overview

At the end of 2008, we launched our 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, our main focus will be on expansion through new affiliations with spine surgeons, orthopedic surgeons and other healthcare providers across the nation.

Results of Operations

The unaudited financial statements as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2013 and the results of operations and cash flows for the periods ended September 30, 2013 and 2012. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for any subsequent quarter or of the entire year ending December 31, 2013.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2012 as included in our previously filed report on Form 10-K.

Comparison of the three month period ended September 30, 2013 with the three month period ended September 30, 2012.

We recorded $2,002,259 in gross revenue for the three months ended September 30, 2013, offset by $995,690 of standard allowance for discount resulting in net revenue of $1,006,569. For the same period in 2012, gross revenue was $1,925,138, offset by $978,524 of standard allowance for discount, resulting in net revenue of $946,614. We manage spine injury diagnostic centers located in Texas and Florida. Service cost was $407,838 for the three months ended September 30, 2013 compared to $369,296 for the same period in 2012. The increase in service cost is attributable to a different sales mix where certain procedures were prefunded at a higher than normal amount percentage. Revenue was increased by higher case volume in the three month period ended September 30, 2013 versus the three month period ended September 30, 2012. Our affiliated healthcare providers accepted fewer patient cases from certain attorneys whose cases had a history of low returns. Additionally, in 2013, because of the low returns we have experienced on cases of patients with minimal coverage limits, our diagnostic centers performed fewer of the medically-necessary procedures needed by these patients.  

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During the three months ended September 30, 2013, we incurred $456,619 of operating, general and administrative expenses compared with the $484,082 for the same period in 2012. The decrease is attributable to decreases in investor relations expense by $26,000, consultant fees of $12,000, and travel expenses of approximately $6,000, coupled with an increase of payroll expense of $10,000, legal fees of $14,000 and non-cash director and officer compensation of $12,000 and other net general and administrative expenses of approximately $8,000. 

As a result of the aforementioned, we realized net income of $131,237 for the three months ended September 30, 2013 as compared to $104,376 for the three months ended September 30, 2012.

Comparison of the nine month period ended September 30, 2013 with the nine month period ended September 30, 2012.

We recorded $5,895,261 in gross revenue for the nine months ended September 30, 2013, offset by $2,978,160 of standard allowance for discount resulting in net revenue of $2,917,101. For the same period in 2012, gross revenue was $6,556,340, offset by $3,406,435 of standard allowance for discount, resulting in net revenue of $3,149,905. We manage spine injury diagnostic centers located in Texas and Florida. Revenue was decreased due to lower case volume in 2013. Our affiliated healthcare providers accepted fewer patient cases from certain attorneys whose cases had a history of low returns. Additionally, in 2013, because of the low returns we have experienced on cases of patients with minimal coverage limits, our diagnostic centers performed fewer of the medically-necessary procedures needed by these patients.  

Service cost was $1,154,607 for the nine months ended September 30, 2013 compared to $1,216,196 for the same period in 2012. The decrease in service cost is attributable to the lower case volume.

During the nine months ended September 30, 2013, we incurred $1,424,591 of operating, general and administrative expenses compared with the $1,329,962 for the same period in 2012. The increase is attributable to increases in payroll expenses of approximately $105,000, consulting and professional fees of approximately $118,000, legal expenses of approximately $40,000, a decrease of $126,000 in stock based compensation, a decrease of investor relations fee of $34,000 and other net general and administrative expenses of approximately $7,000. 

As a result of the aforementioned, we realized net income of $75,681 for the nine months ended September 30, 2013, compared to net income of $199,817 for the nine months ended September 30, 2012.

Liquidity and Capital Resources

For the nine months ended September 30, 2013, cash provided by operations was $17,444, which primarily included net income of $75,681, an increase in accounts payable of $44,604, an increase in due to related party of $13,715 and adjustments to reconcile net income to net cash used in operating activities including provision for bad debts, interest expense related to warrant amortization, stock based compensation, debt discount accretion, gain from debt extinguishment and depreciation totaling $695,329, partially offset by increases in accounts receivable of $806,044, and a cash increase in prepaid expenses of $5,841. For the nine months ended September 30, 2012, cash used in operations was $399,188, which was primarily due to an increase in accounts receivable of $1,311,116 and a decrease in accounts payable and accrued liabilities of $396,124, partially offset by adjustments to reconcile net income to net cash used in operating activities including provision for bad debts, interest expense related to warrant amortization, stock based compensation, debt discount accretion and depreciation totaling $1,073,879 and net income of $199,817. 

There was no cash provided by or used in investing activities for the nine months ended September 30, 2013 or 2012.

Cash used in financing activities totaled $465,000 for the nine months ended September 30, 2013, consisting of repayments on related party payables of $115,000 and the principal repayment of $350,000 to the debenture holders for debentures that matured on June 30, 2013. Cash provided by financing activities for the nine months ended September 30, 2012 totaled $1,566,500 consisting of proceeds from issuance of notes payable and long-term debt of $1,550,000 and proceeds from related party payables of $261,000, partially offset by repayments on related party payables of $244,500.

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During the three months ended September 30, 2013 and 2012, we collected $948,808 and $558,680 in settlements from our accounts receivable, respectively.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

ITEM 4.  CONTROLS AND PROCEDURES

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

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

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

PART II  OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, one should carefully consider the discussion of various risks and uncertainties contained in Part I, Item 1A,  “Risk Factors” in our 2012 Annual Report on Form 10-K.  We believe the risk factors presented in this filing and those presented on our 2012 Form 10-K are the most relevant to our business and could cause our results to differ materially from any forward-looking statements made by us.  

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

In September 2013, we issued 300,000 restricted shares of common stock to a business development consultant as consideration for consulting services. We issued the securities under the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder. The issuance of securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a limited number of offerees; (iii) there was no public solicitation; (iv) the investment intent of the offerees; and (v) the restriction on transferability of the securities issued.

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ITEM 6. EXHIBITS

Exhibit No.	Description
3.1	Articles of Incorporation dated March 4, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
3.2	Amended Articles of Incorporation dated April 23, 1998. (Incorporated by reference from Form 10-KSB filed with the SEC on January 5, 2000.) *
3.3	Amended Articles of Incorporation dated January 4, 2002. (Incorporated by reference from Form 10KSB filed with the SEC on May 21, 2003.) *
3.4	Amended Articles of Incorporation dated December 19, 2003. (Incorporated by reference from Form 10-KSB filed with the SEC on May 20, 2004.) *
3.5	Amended Articles of Incorporation dated November 4, 2004. (Incorporated by reference from Form 10-KSB filed with the SEC on April 15, 2005) *
3.6	Amended Articles of Incorporation dated September 7, 2005. (Incorporated by reference from Form 10-QSB filed with the SEC on November 16, 2005) *
3.7	By-Laws dated April 23, 1998. (Incorporated by reference from Form 10K-SB filed with the SEC on January 5, 2000.) *
10.1	Amendment to Employment Agreement with William F. Donovan, M.D. dated February 16, 2012 (Incorporated by reference from Form 8-K filed with the SEC on February 21, 2012) *
10.2	Employment Agreement with John Bergeron dated November 30, 2012 (Incorporated by reference from Form 8-K filed with the SEC on December 13, 2012) *
31.1	Certification of principal executive officer required by Rule 13a – 14(1) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of principal financial officer required by Rule 13a – 14(1) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
32.2	Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definitions Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

* Incorporated by reference from our previous filings with the SEC

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SIGNATURES

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

	Spine Pain Management, Inc.
Date: November 7, 2013	/s/ William F. Donovan, M.D.
	By: William F. Donovan, M.D.
	Chief Executive Officer (Principal Executive Officer)

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