Via Facsimile and U.S. Mail
Mail Stop 6010
December 14, 2005
Mr. Mark Szporka
Chief Financial Officer
Paincare Holdings, Inc.
1030 N. Orange Avenue
Suite 105
Orlando, FL 32801
Re: Paincare Holdings, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
Filed March 16, 2005
File No. 001-14160
Dear Mr. Szporka:
We have reviewed your November 16, 2005 response to our
October
27, 2005 letter and have the following comments. In our comments,
we
ask you to provide us with information so we may better understand
your disclosure.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2004
Managements Discussion and Analysis of Financial Condition and
Results of Operations
Significant Accounting Policies and Estimates, page 29
1. Refer to our comment 1 and our discussion on December 6, 2005.
Please confirm in disclosure-type format that you use a fee
schedule
for each payor to record your contractual allowance and that those
adjustments are recorded manually.
2. Refer to your response to our comment 6. Please tell us why you
did not provide an allowance for doubtful accounts.
3. Refer to your response to our comment 7. The total accounts
receivable balance in the payor mix and aging tables should agree
to
the balance sheet for each period presented. Please provide us
revised tables accordingly.
4. Refer to your responses to comments 3 and 4. Your analysis
does
not distinguish between how much of the change in estimate for
contractual allowances relates to the prior year and how much
relates
to the current year. The breakout by acquisition for each year is
confusing and does not answer our original question. In addition,
the terminology of charge-offs as it relates to your increase in
contractual allowances is confusing. Please revise your proposed
disclosure to clearly provide a roll-forward of your contractual
allowance with separate lines for the beginning balance, increase
in
contractual allowance for the current year, increase/decrease in
contractual allowance relating to the prior year`s contractual
allowance, decrease in contractual allowance for the year, and the
ending balance.
Convertible Debt, page 32
5. Refer to your response to our comment 9. Tell us the valuation
methodology you used to determine that the warrants had no fair
value. We do not believe the mere fact that the exercise price was
out of the money at the time of issuance and the underlying shares
are not registered is an applicable accounting basis for your
determination. Refer to paragraphs 15 and 16 of APB 14.
6. We noted your response to our comments 10 and 11 and have the
following additional comments:
* Please tell us if your convertible instruments require you to
maintain an effective registration statement.
* Provide us an analysis that indicates you have sufficient
authorized and unissued shares available to settle the warrants
for
such instruments to meet the classification as equity under EITF
00-
19. This includes assessing the company`s other instruments that
could require share settlement that are outstanding. For example,
if
you have other convertible instruments, warrants, or employee
stock
options outstanding, these shares would need to be considered in
determining whether there are sufficient shares to settle the
contract.
* Tell us if shareholder approval will be required to increase
authorized shares in order to share settle a contract.
7. We note in your response to comments 10 and 11 that the
warrants
relating to Laurus do contain a cashless exercise feature. It
appears that those warrants may be required to be accounted for as
a
derivative pursuant to paragraph 6 of SFAS 133.
8. It is unclear to us why the conversion option in the
convertible
debt is not considered a derivative. Please provide us an
analysis.
If you believe the convertible debt is a conventional convertible
security, please address the reasons why, including why you
believe
the clauses in the agreements would constitute standard anti-
dilution
options. Refer to EITF 00-19 and 05-2 and SFAS 133.
9. Refer to your response to our comment 12. Please provide us in
disclosure-type format the original conversion price for each debt
issuance and the original and adjusted conversion price related to
the warrants. Provide a discussion with regards to the re-pricing
in
October 2004. Clarify in the disclosure that the warrants had no
fair
value at the time of issuance, if you continue to believe that is
the
case after your analysis of the comment above.
10. Refer to your response to our comment 13. You indicate that
the
balance related to the increase in charge offs related to changes
in
billing codes that reduced the collection rates. However, we noted
in
the table provided in your response to our comment 3 that the
change
in estimate decreased in 2003 rather than increased. Please
clarify
this discrepancy. In this regard, it appears that your changes in
estimate line item provided in your response to comment 3 does not
take into consideration changes in estimates relating to
acquisitions
that occurred in prior years.
(b) Summary of Significant Accounting Policies
Note 8 Acquisitions:
11. We note your response to comment 14, but continue to believe
that
the allocation of the purchase price should have included an
allocation for management agreements. Please refer to paragraph
35
(b) of FAS 141 which states "identify all of the assets acquired
and
liabilities assumed, including intangible assets that meet the
recognition criteria in paragraph 39, regardless of whether they
had
been recorded in the financial statements of the acquired entity."
We
note that a management contract is cited in paragraph A14 of FAS
141
as an example of an intangible asset that meets the criteria for
recognition apart from goodwill. Also, refer to paragraph 36 which
discusses the use of independent appraisals and actuarial or other
valuations to aid in determining the estimated fair values of
assets
acquired and liabilities assumed. Please tell us what valuation
methodology was used, the significant assumptions, and the extent
that you used an independent valuation expert to determine the
fair
value of assets acquired and liabilities assumed. Also tell us
what
consideration was given in your valuations specifically to valuing
management agreements entered into as part of the acquisitions
including whether or not you concluded that the terms of
management
agreements entered into were at fair value requiring no allocation
of
the purchase price.
* * * *
Please provide us the information requested within 10
business
days of the date of this letter or tell us when you will provide a
response prior to the expiration of the 10-day period. Please
furnish
a letter with your responses that keys your responses to our
comments. Detailed letters greatly facilitate our review. You
should
file the letter on EDGAR under the form type label CORRESP.
Please
understand that we may have additional comments after reviewing
your
responses to our comments.
You may contact Sasha Parikh, Staff Accountant, at (202)
551-
3627 or Mary Mast, Review Accountant, at (202) 551-3613 if you
have
questions regarding the comments. In this regard, do not hesitate
to
contact me, at (202) 551-3679.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mark Szporka
Paincare Holdings, Inc.
December 14, 2005
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