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Executives

William Donovan - Chairman, President and CEO

John Bergeron - CFO

Eric Groteke - CTO and SVP of Sales/Marketing

Spine Pain Management, Inc. (OTCQB:SPIN) Q4 2012 Earnings Conference Call April 1, 2013 4:15 PM ET

Unidentified Company Participant

Welcome all to the 2012 Spine Pain Management Investors Webinar Conference Call. Before I turn it over to the panelists, I want to take a minute (inaudible) and explain features of the console you should now have open. On your screen, you should see a slide which is similar to the Webinar console. There's really only a couple of areas you need to know about. If you're using a mic and headset or just want to hear the conference call and view the slide presentation, then you need to select Mic & Speakers over in this area.

But if you're like most and dial-up through your telephone, then you need to select Telephone right above it. The bottom half of the console down here is simply a checkbox where you can type a short question to management. You can type in and send messages any time during the presentation and as many as you'd like. They'll just be queued up in the order received and answered during the Q&A session after the presentation.

With that said, let me turn over the presentation to John Bergeron, our Chief Financial Officer and he will do the SEC disclaimer.

John Bergeron

Thank you. This presentation includes forward-looking statements as determined by the U.S. Securities and Exchange Commission, the SEC. All statements other than statements of historical facts included in this presentation that address activities, events, or developments that the company believes or anticipates will or may occur in the future are forward-looking statements.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include general economic and business conditions, the ability to acquire and develop specific projects, the ability to fund operations, healthcare services demands, changes in healthcare practices, government regulation, and other factors over which the company has little or no control.

The company does not intend and is not obligated to update any publicly forward-looking statements. The contents of this presentation should be considered in conjunction with the warnings and cautionary statements contained in the company's recent filings with SEC.

Now, after taking care that part of business, I will now turn it over to Dr. William Donovan.

William Donovan

Good afternoon and welcome to our conference call. As you know, just prior to the start of this call we released our 2012 results both through a 10-K and a press release. Yes, a quick look on paper and you'll quickly see that 2012 appears to have been our worst full year ever as far as the bottom line. Sure, we can sit here and tell you that we had a boatload of non-cash charges mainly having to do with settlements and finally get rid of all the preexisting six lawsuits from people before us. And while this would be true, it doesn't explain away the significant drop in revenues. But we hated for that to happen.

As in the case of most peer startups and a new public company industry, the learning curve started to catch up with us in 2012. This was paired with several events that affected both Texas and the Florida markets and we will address these events. I consider these issues to be temporary and basically saying that management didn't just sit around wringing our hands but instead took advantage of the time and our strong cash position to proactively resolve these issues. And in a basic sense, we took these lemons and we feel that we're going to turn it into a tasty lemonade.

The key issue is did we change our core business model? And the answer is absolutely not. In fact, we have enhanced it in a significant way. Here's what SPIN has learned from our business in 2012. In order to continue to build market share and attract the best of the best affiliates, the existing model of relying upon existing relationships and run its course, SPIN was looking for a way to cut through the clutter and attract the best attorneys in cases into our network.

The Quad Video HALO technology presented a tremendous opportunity to the company in that number one, it immediately differentiated the types of services that our affiliate centers would offer each market. Number two, it would bring transparency to a segment of the PI legal field and pain management medical community that desperately needed it. In other words, our edge in this aspect is the HALO technology.

We invested in developing the HALO 2.0 and bring it into the market with the goal of attracting new affiliate centers and attorneys which will lay the groundwork for long-term revenue growth, and it will become apparent at the next conference call how this HALO has attracted new affiliate centers.

The second issue we realized that we wanted to invest our shareholders' money in the best cases. I've been doing this orthopedics from over 35 years and there's lots of good cases out there, but we all need to remember not all cases are good. We've developed a risk assessment system to make sure that we are investing in the best type of cases and also that we are not overly investing in procedures that might not deliver the return on investment to our shareholders.

And lastly in 2012, we started the development of CLE and CME programs. This separates us from our competitors because we're utilizing these specialized programs to identify key attorneys and key doctors. For me personally, I felt that the Spine Pain Management ship had lost course in 2012 and we all instituted programs to get this ship headed in the right direction.

Now as we go through this presentation, there's going to be slides that are quite busy, but we purposely left them in because we know that there are investors and potential investors who will go to our website to read the PowerPoint rather than be in on the actual call. So what my goal today is to highlight key areas of the various slides. And as we're all getting beyond half ways on this presentation, we're going to try to show a live video of an actual video on this. We think that it will work.

Lastly, as many of you know over the years, I've been the largest purchaser of Spine Pain shares. Since the start of 2012 alone, I have added over $1.1 million in shares with over 1 million of that at $1.83 a share. I've been asked why I haven't been a buyer lately; actually it's a good question. Due to our published corporate governance guidelines, I along with the rest of the management have been locked out of buying shares since December 16, 2012 and will not be able to buy any until two days after Q1 is published. Were it not for these restrictions, I'd be adding share.

Let me just wrap up this opening statement by saying coming into 2013, the company is in the strongest financial condition ever and I feel a major turnaround is underway. And as we look at this first slide, up at the top what's underlined is transparency. This is the key word in healthcare.

Next slide. Can we do the next slide, please? On the business model, there's a couple of things I want to identify. We provide prefunding as a medical services and technology company. The key issue is transparency. The attorney is the gatekeeper. In 2012, we enhanced the transparency of the diagnostic and treatment phase and we started the initial part of the CLE and CME programs.

Next. Many of you have seen this slide before. It's of a SPIN case. We don't get involved in our prefunding for at least four to five months in the treatment process of most of these cases that have been vetted out and so forth, but it's this selection of cases that we feel that the risk assessment will have significance in 2013 and beyond.

Next. Under some key developments in 2012, we appointed two senior VPs; one in marketing, one in operations and personnel. We've completed the commercial use of the 2.0 Quad Video HALO and we began development of CLE and CME. Under the latest news, obviously since 31/12, the CLE's have been approved both in Florida and Texas.

Next slide. This is a snapshot and what I want to identify and point out is the shareholder equity. In 2010, it was 1.7 million; 2011, it was 3.7 million and now it's 5.81 million. So we have been working hard in increasing shareholder equity because we're very mindful that we're investing the shareholders' money in these cases. We've managed over 4,700 procedures since we started.

Next. A couple of points on the market. It's a huge market based on information from JAMA, Journal of the American Medical Association. It's estimated at 50 billion for spine injury case sector. The market trends show they all point to increased costs of importance as we're identifying affiliated doctors, we understand that cash flow for doctors has been compromised by all the various health programs. This provides us with a major opportunity and we're doing that to separate ourselves from the traditional pain doctors and so on and so forth.

Next slide. Under the business model, we prefund diagnostic testing. Since 2009 we've received approximately 48% of our billings once the case is settled. This percentage has been varying each year by our auditors based on the audit that they do. Since inception, there have been 740 cases that have settled; only 44 of the 740 are considered failures. So it's about 4%.

The HALO Quad Video field provides added advantage and the CLE provides us with a unique way to identify the key attorneys and the CMEs for key doctors. These two issues separate us from our competitors. And for those who say the business model doesn't work, well, let me tell you. We have instituted competitors both in Texas and Florida, but we feel things that we have done in 2012 is going to separate us for those competitors.

Next slide. We've seen this slide before, compelling economics. Our gross margins were 52% and we prefund approximately 20%. Next slide. The benefits to the parties involved; for doctors like me, it broadens our patient base and when we as an affiliate we're controlling the diagnostics we feel that we get better diagnostic tests. Obviously, it's a new revenue center. For those of you who are patients, the key thing is you're getting a correct diagnosis and reasonable treatment without delays.

And that key thing is without delays. For the attorneys, both plaintiff or defense, there's transparency. Plus by using the Quad Video HALO, we can visualize the medical damages. And we've seen this especially when discograms are performed. For the insurance providers, they're receiving accurate and explicit records. So they can then make a determination of how they handle this particular case.

Next slide. Over the past many years, having treated thousands of patients entered in this manner, what happened is the typical timeline just went on and on and on and on. And this wasn't good for the patient. It wasn't good for anybody involved because the longer something drags out, the greater chance the patient can get addicted to medication and the patients are just left in limbo. So this is what things look like before Spine Pain started.

Next slide. Our goal with Spine Pain is to do a Fast Trac. This is the ideal thing. If we can expedite and fast track appropriate evaluations, reasonable appropriate necessary treatment, identify what's causing the pain, we're not treating the pain but we're identifying what's causing the pain, we can either get this patient to surgery, to get the patient better or they can settle this case and let the patient get the surgery after the settlement. So the whole idea is, let's treat the patient correctly given the appropriate necessary and reasonable treatment.

Next page. We believe at Spine Pain that the video technology is critical and a picture is worth a thousand words. And by providing a video presentation from four different aspects, we can prove what was done, what the patient's response has been and have we identified the true areas causing pain, so we can be in the middle of a procedure and if the pain is not resolved and we've documented it, we can immediately go to another level and test that area. And there are certain patients that have unusual configurations from a bony standpoint that during the procedure, we started doing one procedure but because of the patient's response, we identified the pain generator site at an adjacent space.

So the video technology is crystal clear. There's no question, because the patient's awake, the patient introduces themselves. We document what medicine is being used and we record this. And for those doctors who don't want to use video technology, well, I think that's old school. It's all changed now, because the patients understand the value of video documentation. And if a patient has a choice going to a facility that video records the diagnostic procedure versus one that doesn't, we have found that the patient will choose what's video technology. Once again, it's transparency.

Next slide. As we've mentioned before, these videos are tamper proof. So you can't be changing things if you're not -- if you don't like what's going on. I know that some people have used a handheld video camera. Well, you can't do that anymore because number one, it can't be used. And number two, if you're going to do stuff like this, you better have the best equipment.

Next slide. When we talk about operative reports, for all of these years, I've been doing orthopedic surgery, you'll get a traditional operative report on the left side. Well, let's say we're doing a discogram. There's components of the discogram where I would have to put down the amount of pain that the patient has, the location of the pain and is it the kind of pain that the patient has been having. Well, when you're looking at just a black and white operative report, it doesn't say much.

However, if you do a Video HALO technology procedure when you're injecting the disc and you're asking to the patient, does this hurt? They're going to tell you yes or no, they're going to tell you is it in the same location where they're having trouble and is this the kind of pain and what level of pain.

So in certain aspects of diagnostics, the Video HALO has changed the standard of care. What we're going to try to do right now is put on a short video and it's one of my patients. And this way you'll be able to actually see the procedure.

[Video Presentation]

Now what you're seeing here is an actual procedure. Now if you notice, in the left upper quadrant, they're showing the bottles. Ever since that horrible fiasco up in Northeast where that contaminated medicine was placed in the spine, we document the actual different drugs that we use and its part of the video. Now this is a patient of mine with a low back problem and he's on his tummy and he's looking -- you can see the C-Arm machine, you can see the doctor in blue. The video camera looking straight at his head is at the front of the table and this patient has introduced himself. He's agreed to this procedure.

And now that we're starting, the needle is going through his skin on the left upper quadrant and you look down to the right lower quadrant, you'll see the placement of the needle. But those fingers that you see, those are lead-lined gloves that the doctor uses. So the back is sterile condition. The needles are put into the back and the doctor uses the C-Arm to guide the needle in place. So the images that you're seeing, some are from top down, some are from left to right.

Now, down the right lower quadrant you can see a black line. That's where one of the needles has gone in and that's the actual dye that injected, so we know that the needle was in the correct place because that black dye is coming out along that nerve. And what is done is you put the nerve asleep and if the pain goes away, that means that nerve is the one that's pinched. The right upper quadrant shows the doctor with the needle that was in the back and the patient is awake during this procedure.

Down in the right lower quadrant, the needle was going into a different location and the doctor will be talking to the patient to document that this is where the kind of pain that he has. The doctor then puts in dye in the right lower quadrant. You'll see some dark areas. That's the dye being put in proven that he's in the right space. And if you see the original video, I can actually see the needle that's in place. So there's no question with this patient what was done and the patient's awake and the doctor will be asking, is this the kind of pain that you have and so forth.

Now, we'll go back and we'll finish out the PowerPoint, we'll just switch back to the other slides here in a second. But what we were able to show you here is what the actual procedure is like. The patients are awake. They have to be awake because how else are you going to know if that's the nerve. So it's like a dentist. When the dentist freezes your teeth with a local anesthetic, the pain goes away.

When you do a nerve block, you put the nerve asleep for about an hour to see if the pain disappears. If it helps, you then put in a little cortisone to give a better result. Cortisone is a drug that will reduce the swelling around the knee. So we have video documentation of what was done, what the results were, what's causing the pain.

We're now switching back to the PowerPoint and then we'll be getting into the financials in a second with John Bergeron. But I wanted to talk about the leadership and the growth strategy. It's really interesting. There are pain doctors that just -- I was just thinking, there's a lot of pain doctors who put patients asleep when they're doing these procedures. Well, wait a second. If you put the patient asleep, how do you know you're at the right nerve?

So our affiliates are trained. We do this with the patient awake. We do it under local anesthetic. And some patients when you get and identify and touch the nerve that's really inflamed, they let you know. But once again, it's audio visual so we're capturing both components of the diagnostic test. You can't be doing these procedures with the patient asleep. How do you know you hit the right nerve? So there's a lot of stuff that's build into these procedures, so that it helps us as a treating doctor how to identify, is this the correct place, is this the correct nerve?

I think we're just getting the PowerPoint back into its regular rhythm now. Next slide. I'm very proud of our management team. And John Bergeron, he'll be next, he's our CFO. He will explain what you guys all want to hear about the numbers. Eric Groteke and Tim Donovan are our two senior VPs. Eric is the CTO. He and his partner are the developers of the HALO.

Next slide. The company has been blessed with a solid Board of Directors. They're smart, they're very engaged and they want to do the right thing for our shareholders and we have talked to our Board that our job is to invest our shareholder money in the best cases.

I'm going to turn over the slides now to John Bergeron so that he can go through and explain, and then I'll be back for closing. And then we'll take questions. John?

John Bergeron

Thank you, Dr. Donovan and thank you all for joining us this afternoon. For the 12-month period ended December 31, 2012, we reported revenue, net of allowance or net revenue of 3,459,000. Our gross billings for the period were 7.8 million. This compares to net revenue of 5.2 million and gross billings of 10.6 million for the same period of the previous year.

The decrease in net revenue was partly due to an adjusting of our allowance for discount which increased to 52% in the current year from 50% in 2011. This resulted in revenue previously recorded being what it is. The reduction in gross billings during the year primarily emanated from lower case volume than in the years prior.

Two issues; our healthcare provider stopped using attorneys who have a history of low returns on their case settlements coupled with the fact that we performed fewer procedures on cases with minimal insurance coverage as we began to experience well returns on those cases. The increase in the discount rate hopefully will be abated by the steps we take in doing our cases closer before we deliver medical-necessary procedures needed by the patients.

The fact that we incurred a net loss of $430,000 or $0.02 per basic share which includes non-cash charges of $1,166,000 provided to the settlement of lawsuits, let's say I'm happy with all the lawsuits that we inherited have now been resolved. This includes stock-based compensation that could strengthen the options even though there's no exercise, warrant, amortization on debt, depreciation and amortization, bad debt expense offset by an expansion on debt.

This $430,000 loss compares to a net profit of 1,315,000 that's baked in for share for 2011. G&A expenses or G&A costs during the year was 1.9 million, this was 8% higher than the previous year. However, non-cash G&A recorded in 2012 was $725,000 of non-cash charges.

Now, having said that, let's take a quick look at the slide. I'm not going through full detail, but of course the 10-K has listed all of the financial statements. But if you look on page 20, you'll see basically it's our cases and our procedures, what we're seeing is the trend, it's somewhat -- you see there's a trend that we're continuing to grow with cases and procedures in 2012.

Next slide. On page 21, you'll see that we've collected over $5 million since interception and the people that say that business model doesn't work, I would disagree. I will show you that in the fourth quarter of 2012, we had our highest collections per quarter with $766,000. We expect the trends to continue. I'd like to also point out that as Dr. Donovan said, we've had 740 cases and 44 has gone bad and I think a lot of those has to do with one attorney and I don't expect that trend to continue to as high expected trend down, but that's where we are so far.

On page 22, you'll see the earnings statement. You can see this again in the 10-K. Just look at our income has gone the right way. 2012 we've lost some money, but we had a lot of non-cash charges.

On the next slide, this is on 2013, this is a snapshot, it's not the full balance sheet again to the 10-K for it. What I'd like to emphasize on this is the accounts receivable provided into the short-term and the long-term and the auditors make it classified 51% of the accounts receivable long term and 49% in the short term for financial reporting purposes.

I'd also like to let you notice the increase in our shareholders' value. At 12/31/2009, it was a negative 270,000; at 12/31/12, 5,813,000. Also, you'll notice that due to our ability to go out and sell debentures, we've had a cash balance over $1 million whereas we started off in 2009 with a cash balance of $32,000.

Go on the next slide. This is the cash flow statement. Again, this is a snapshot through the 401 in the 10-K. What I want to emphasize on this is not only for cash, but you can look at when we talk about non-cash charges, the bad debt expense, the interest expense and the warrant, stock-based compensation, these are the non-cash charges that we talk about and the remaining results, the litigation settlement, especially with options using the (inaudible) method and the amortization of the warrant that we assumed or we issued with the issuance of the debt only this year.

Okay, with that, I'm going to turn it back to Dr. Donovan.

William Donovan

At the end of 2012, we knew and we identified certain milestone targets. We needed to expand our geographic reach in the new states. Now we've learned a lot in Florida and any questions dealing with that, Eric Groteke can answer them how we've been able to consolidate some of the centers because the distance -- the patients were willing to travel a certain distance because of the HALO. We're now exploring at the end of December that we would engage various reps, medical device reps for the HALO system for clinics, hospitals, there's thousands and thousands and thousands of these facilities around.

And I'll tell you one thing. If you're doing discograms, you better do a video recording because that's the standard now. We're developing streamline processes and we're very serious about this risk assessment that is how do we spend the shareholders' money? We need to identify the best cases. And we're getting to the point where we need a top level Wall Street Management Executive.

Next slide. The investment thesis; this business model works and ask our competitors. If the competitors are not going to have the HALO, they're not going to have the CLE or CME because in order to be approved, there's very, very specific things that you have to do. We've funded over 4,700 procedures. And I think a point to consider, we're the only public company addressing this huge market with first mover advantage and high returns.

So with this, I would like to turn it over to any questions. And hopefully, we've answered a lot of your questions with the presentations. We're excited about what's going on and we feel that there's a huge opportunity for growth in this year, next year and down the road.

Question-and-Answer Session

Unidentified Company Participant

Okay. You'll just use that little chat box. We have a few questions in the queue already, so I'll just go ahead and read them. We have a question here from Ted. What states probably in Florida and Texas do you anticipate (inaudible) for the short term? For your information, 20% of the upper right-hand is extremely black, I'm sorry about that. Anyway, that's a question for you.

William Donovan

Eric, can you talk about it please.

Eric Groteke

Hi, everyone. Thanks for joining us today. Some of the states that we're looking to go into would be Georgia, one of them Alabama, New Mexico and we're doing that based on some of the -- obviously some of the state laws and more favorable for this particular liability model that we have. But also just by word of mouth by people contacting us, it should be different than our competitors up the street based on the technology that we have.

William Donovan

I'd like to add to that. We could go in an [adjoining] state to Texas, but it's not -- probably makes the sense to invest our shareholders' money in these cases because the value of cases is not very good. So we have to juggle what is the best way to spend our shareholders' money and it's the case selection. Remember, there's lots of good cases but not all the cases are good. Same way with states; there's a lot of states, but all the states are not necessarily good. The example we're going to go in to Minnesota. We had hired attorneys, we were ready to go, but for us it didn't work. The people that we talk to liked the HALO so much, they bought it. So there are certain states that are good for us, certain states that are not good for us. And Minnesota was not a good state for us, but it worked out that they liked our technology. So, that's how we do a risk assessment of how we spend the money in case selections, actually state selections.

Unidentified Company Participant

Carl has asked are you interested expanding into Colorado?

William Donovan

I think yes. Let me answer that, because we've had some context from people and there's some people that know about our technology there and there's been some interest expressed. That's all I can say at this point.

Unidentified Company Participant

Okay. Charles asked how are you going to increase your revenue from the 300,000 in the fourth quarter -- I think we did more than that anyway to a level that is sustainable?

William Donovan

Well, it's going to be case selection, risk assessment, getting the right affiliates and invest the money properly. We'll do more than 300,000 net in the quarter if that's what the question was…

Unidentified Company Participant

Yes. And actually there's another question here just so it happens, but it asks when do you anticipate at least getting back above the $1 million fourth quarter level?

William Donovan

I think very soon. That's all we can say at this point.

Unidentified Company Participant

Okay. Let's see here. What is the royalty associated with -- this is Adam White, royalty associated -- inform us more about the royalty associated with the use of the HALO after one year, percentage or flat fee?

William Donovan

Let's have Eric handle that because he's taking care of that.

Eric Groteke

The royalty fee would really be more of a licensing fee. For the export technology, it would be a flat fee.

Unidentified Company Participant

Okay. How would you characterize the rebuilding of the quarterly revenue income over the intermediate terms; slow -- it's from Mark -- or fast from the 2010 levels? Some of these similar but choppy over here, so I apologize, would you say we would see a rebound in a few quarters time or a few years time, I guess what he's trying to say?

William Donovan

No, I think we're talking about quarters. And obviously 2012 was a horrible year. We got the ship straightened out now and we're going to second, third and fourth quarters I think of this year are going to be very nice. And I think that's based on things that we learned from 2012. We learned a lot, let me tell you, and we will be implementing those things that we've learned this year. So I feel that it's definitely going to be much better or it is going to be better.

Unidentified Company Participant

Okay. (Inaudible) follow with the same individual, any chance that you'd hit the $1 million level in this first quarter?

William Donovan

John Bergeron, I haven't seen the numbers so I don't know. John?

John Bergeron

Yes. We will have income of over $1 million.

Unidentified Company Participant

You mean revenues?

John Bergeron

Revenues, excuse me.

Unidentified Company Participant

Okay, very good. Let's see, on the future revenue line for the company, you have a breakout amount for Quad Video sales, are there other (inaudible) charges extremely realized from Quad with the usage?

William Donovan

Eric could handle that.

Eric Groteke

Yeah, the Quad Video HALO being part of that package and that technology is the maintenance and storage of the actual video files and that was a part of a licensing fee and a recurring revenue model efficient to the current revenue model that's in place. So, yes, the company will realize a recurring revenue model of the HALO technology itself.

John Bergeron

And also from a GAAP standpoint, we will disclose in the financial statements how much we actually received in the Quad Video HALO revenue.

Unidentified Company Participant

Okay. Karen asked the question, I think was answered pretty clearly in the topic, probably may have came on late, do you see an end of the lawsuits from the previous companies?

William Donovan

Let me answer that. I've been living through those lawsuits for three years. It's a horrible, horrible existence for a company like us. We didn't cause, we didn't start them, we inherited these things. They always take longer than expected. They cost more than they expected. Everything is settled and what we've been living with is the -- in the settlement, there was a leak-out provision. We've been seeing some of that stock coming on to the market which we monitor with DTC (inaudible) we monitored it every week. So thank God they are gone. And if you read the 10-K under legal proceedings, it says none. That's the first time in the life of this company that under legal proceedings, it says none. It's just a horrible experience. We've had terrific attorneys, but let me tell you these guys are expensive and it costs a lot of money on time, effort, travel, negotiations, you name it. Kind of drives you crazy.

Unidentified Company Participant

Specifically what differentiates HALO fluoroscopy equipment from other systems on the market? Also, does the HALO put the need to be approved by individuals, say, health departments?

William Donovan

Eric, why don't you answer that? That's a terrific question.

Eric Groteke

It's a great question, yeah. The quantity of HALO system, because it attaches physically to the video fluoroscopic guidance systems, the cameras is close as you can possibly get to the sterile field where the procedure or surgery is being performed. My knowledge to my research out there, there is no other system like that out in the marketplace that can actually get the pictures that close to the sterile field without violating it. As far as state and if there are any guidelines for that, the system is not at use as a diagnostic tool, it's really used as a video tool for these actual procedures or surgeries to create transparency. So, it wouldn't really fall on the new -- that kind of guidelines. The actual system wouldn't. Obviously there are compliance issues because this becomes part of the patient's medical record. So from a compliance standpoint, the answer is yes to that. You have to meet all the criteria for compliance.

William Donovan

Let me add one thing to that. I asked Eric and key people to go to Medicus this past year. Tim went and Eric and Glen and they said that Medicus' in Europe, it's once a year and it has all the new medical equipment coming out and it's one to two years ahead of what you see in the clinics or in the hospitals. Our system will fit attached to any new systems coming out. They're changing the systems from a circular to a square system and it doesn't affect our equipment at all because we attach to it. And that's the [radiance] of what they developed and invented. It will fit basically any type of C-Arm fluoro equipment in the world.

Eric Groteke

Right. Bill, can I just answer that for a second?

William Donovan

Sure.

Eric Groteke

Yeah, the closest competitors' products to the Quad Video HALO we've seen at various conferences like [Medica] and some of the U.S.-based conferences as well, but those are cameras that are further away from the sterile field. They're actually across the room or they're like up in OR for instance. Companies that produced those are the super of elite companies that are out there. They're the [Sony's] of the world, they're the Stryker electronic people that -- people that have fit the surgical operating rooms. But keep in mind, those cameras with the Quad Video HALO, those are a lot closer to the actual procedure of surgery that is being performed. And when you couple that, those images in that Quad screen with the actual feed of the X-ray that's going on inside the patient, that's valuable to the case and it will be very difficult to come up with that kind of product without having the cameras that close to that sterile space.

William Donovan

Eric, one question. Hold on, Eric, a question to deal with Medica. Did you see anything like the HALO there?

Eric Groteke

No, nothing like this, Bill. Like I said, there are cameras across the room in like a surgical suite.

Unidentified Company Participant

This actually almost ties into that. What makes the patent (inaudible) what is that protected against and what type of margin is in when you were selling a unit for $50,000; a two-part question?

William Donovan

Eric, can you talk about the patent pending?

Eric Groteke

Yeah, the patent pending is on the actual -- obviously a device attaches the cameras to the video fluoroscopic unit. As far as protecting it, patents are there for that specific purpose. You can try to get around the patents as much as you possible want to, but to my knowledge and to the attorneys that we used to research this, there is nothing else like this out there on the market, so they advised us to move forward with patent filing. It's a utility patent, yeah.

Unidentified Company Participant

Okay.

William Donovan

And the margins on -- this first one has sold just five to one, but that's been increased as we produce more and our goal is to get it eight to nine to one return.

Unidentified Company Participant

Do we have an update on the phases done with the HALO to know how effective and even accelerating settlements?

William Donovan

Eric, can you take that?

Eric Groteke

We're still working on compiling that data.

Unidentified Company Participant

Okay. Let's see here. Okay, this is a strange one. It's been like a supercharged financial institution on the banks that have turned around, there's often a chance that allowance is taken or too conservative. Can this be the case it's been?

William Donovan

John, can you take that?

John Bergeron

I'm sorry…

Unidentified Company Participant

Okay, I think what he's trying to say is that in this day and age, banks have been so conservative that the -- is there a chance that (inaudible) and all that that we could actually improve our percentages as we get more streamlined, I think that's what he's saying?

John Bergeron

Well, I think he's talking about the sum or you talking about the cost of money…?

Unidentified Company Participant

No, he's talking about the settlement -- I guess what he's talking about is we're taking a 52% haircut right now. In that turnaround, it'd become a 50% like…?

John Bergeron

That's one way it can. With the vetting procedures that we're doing now coupled with the fact that the attorneys realize what kind of term we are looking for in percentage not a dollar amount, the rate can go up. Certainly they can.

Unidentified Company Participant

Okay. Here's one for Eric. Can you please give an update how the Florida Liability Laws affected case volume there? I think that ties into what Dr. Donovan opened about explaining what just happened in Florida?

Eric Groteke

With Florida, (inaudible) law is still in -- there's been some things going through the court system to where they were trying to get it revoked and appealed. So that still continues here in Florida.

Unidentified Company Participant

Is this an advantage or a disadvantage trial -- is it an advantage or a disadvantage to spend over the small [mom and pop]? I mean if they have to live with that, I guess is what he means?

Eric Groteke

Well, I could tell you in my opinion I think as many states are, I think Florida would be one of them trying more towards a [bodily] injury, state means that the insurance part will go away. I think some of the legislatives have even suggested that as being an option. The advantage that we have is with or without the insurance, we can still treat the patient as they need to be treated and continue to have the proprietary technology that will be attractive to all stakeholders.

Unidentified Company Participant

Okay. Here's an interesting question.

William Donovan

Let me add one more thing to that, to Eric. With our risk assessment of valuation at the end of 2012, we are focusing on investing the money in the best type of cases. It's a case selection issue. And we want to invest in procedures that have the best type of case and not overly invest in cases and procedures that do not deliver a return of investment to our shareholders. So I think that's the core issue that we're following. And I believe the CLE programs are going to help as we get into that in 2013.

Unidentified Company Participant

Realistically when we have this call at this time next year, what would be your guess as to the breakup of the year's performance, i.e., the basic business, HALO, which would be the leader? If HALO takes off, I would guess we'd see a multiple increase significant, as it is a question and a comment there?

William Donovan

Well, it's a terrific question. I think by July of this year, we're going to have a better idea of how much HALO is going to be involved in sales. Once again, that's coming in the next four to six months. By staying focused on risk assessment, implementing the CLEs and the HALO, I feel the basic business of this company is going to increase. The business model works. That's why we got these competitors, but our competitors don't have the things that we have now.

Unidentified Company Participant

One just joined you.

William Donovan

I'm sorry?

Unidentified Company Participant

One just joined you.

William Donovan

Yeah, absolutely.

Unidentified Company Participant

Okay. Given the [two-set] loss in 2012, could you provide us with more concrete guidance for Q1 '13? I think that one was financial a few minutes, so the approach per share could be supported in the coming trading…?

William Donovan

Well, let me answer just part of that. Back in 2011 we gave some guidance which was crazy. We shouldn't have done it because we were too young of a company. I'll let John Bergeron handle that. I think we're still too young to give guidance. I think it wouldn't be good for our shareholders. But John, how would you answer that.

John Bergeron

A lot of it depends on for the year 2012, how the Quad Video HALO is received by the medical reps (inaudible) will be quite good. Now one thing I'm not going to do is come out and give you a earnings per share -- I mean I've learnt my lesson on that. I will say in the first quarter that I expect us to break close to even, maybe make a little bit. We'll have revenue interest in the $1 million. Again, we do have over $200,000 in non-cash expenses that we'll get on our income statement. So I think that's about the most comfortable I am to say what our guidance would be.

William Donovan

Let's take one more question because we're beyond an hour now.

Unidentified Company Participant

We have a lot more questions. I don't know if we should cut off right now unless there's some reason you all have to.

William Donovan

Okay, go on.

Unidentified Company Participant

We still have 24 people online according to this.

William Donovan

Okay, go ahead.

Unidentified Company Participant

So they're willing and we're willing. Okay, let's see here. I got to get back to where we were. We can stay on the (inaudible) questions we have. Okay. No investor likes the sticky stock (inaudible) looks fine, but also started to improve which would lead to the company's open and honest approach to shareholders. If Dr. Donovan is going to take a more active role in reaching out (inaudible) presentations, et cetera. Your effort was met -- I'm sorry, this may be a different question here. Did you catch that one?

William Donovan

It cut off a couple of times, but let me tell you in 2012 we had to put our head to the grindstone. So instead of running around giving a bunch of talks, we had to get this ship turned around. It's heading in the right direction now and we're going to get more involved later this year, sure. But right now, our focus has to be on keeping this ship going straight ahead.

Unidentified Company Participant

Okay. Next question, it's been said that revenues should be almost triple in the first quarter from the third quarter. What would be the key drivers for this large growth case volume, product sales, et cetera?

William Donovan

Have John answer that, I didn't understand it.

Unidentified Company Participant

I think what they're basically saying is we're anticipating a very big jump in the first quarter over the third quarter. What would be the primary driver of that? Would it be case or…?

John Bergeron

I think one of the things that the driver in the first quarter is to actual sell the video HALO, we actually sold it. And of course there's no percentage discounted on the sale of equipment. I think if that was the question, I think moving forward what he's trying to ask is what will the sales mix be. Again, that's hard for us to calculate for another three to five months because as Dr. Donovan stated, we're not really quite sure how medical reps are going to react just to representing the Quad Video HALO. So once we have an idea of that, we might be able to have a better idea of how to answer your question.

Unidentified Company Participant

Okay. Let's see, I think we have one more question here. How did you manage to get the CLE program in both of these states passed the Bar Association and how are new doctors in the area and attorneys viewing this? I guess what they're basically saying over there on the CLE program, how are you going to use it to recruit other doctors and attorneys?

William Donovan

Well, I'll just talk about first CLEs, number two, CMEs. CME is medical. The process you have to go through the State Bar and meet very, very, very specific requirements about what the presentation is about and they're difficult and let me tell you, most companies would not meet the requirements for CLEs. They have to be very, very specific and these Bar Associations are very, very specific. CMEs, in order to get CME credit at a particular presentation, the people putting on the presentation get their CMEs either from the hospitals or the national organization.

Unidentified Company Participant

And here's just a final -- I guess we'll take, this is a final comment. It looks very well here. Tom Harking wants to congratulate management for their opening candor as compared to past conference calls and look forward to a great year ahead.

William Donovan

Thank you. We want to thank everybody for taking the time to listen to our story and we hope that we'll get you back in 45 days for Q1. I appreciate everybody that worked on getting this assembled and completed. And I thank my shareholders and we're very concerned about how we invest your money in what cases.

Unidentified Company Participant

Okay, I guess that's it. There's about six weeks for the next conference call.

William Donovan

Thank you all very much. Have a great day.

Unidentified Company Participant

Okay. Coming offline.

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