Dear Shareholders,
It has been a while since we have had a chance to communicate with our shareholders. We spent the past year quite busy with events that helped grow awareness of our company dramatically. Recently, our efforts have reached a fever pitch, and our hands have been full acting on the growth opportunities. With all of the attention focused on Somatic Systems, we are still a small company, and faced with the choice, we chose to focus on substantive work internally to move our company forward; unfortunately, this left little time to communicate externally as often as we would have wished. We have a lot of exciting things on which to report and are eager to inform you of our progress and efforts, which are producing exciting returns.
To start, we wanted to share an annual review of our efforts and accomplishments over the past year.
Somatic Systems is the worldwide center for Clinical Somatics™, the groundbreaking drug-free, non-surgical approach to pain relief. This proprietary system uses natural, non-invasive movement techniques — conducted through one-hour hands-on sessions, therapeutic exercises classes, and home exercises lasting as little as 5 minutes a day — to relieve pain and limitation resulting from accident, trauma and repetitive stress, including back pain, knee pain, joint problems, carpal tunnel syndrome, TMJ, scoliosis, bursitis, sciatica, headaches, fibromyalgia, and more. Clinical Somatics™ also provides performance gains and injury prevention for casual and professional athletes.
Somatic Systems is pursuing a 3-part growth strategy, consisting of a nationwide rollout of pain management Somatics Clinics; increased production and distribution of therapeutic videos, books, and other retail self-help Somatics Products; and expanded Somatics Training Programs to supply Clinic practitioners serving medical and orthopedic professionals and institutional and corporate programs.
Chronic pain is a $90+ billion per year industry; and business loses more than $100 billion annually in medical costs, decreased employee productivity, disability payments, and worker retraining. 33% of Americans are in chronic pain; 42% of Americans experience pain daily; and 89% report pain at least monthly. Surgeries are controversial and 2.5 million pain sufferers develop ulcers and gastrointestinal disorders from pain medicines. The most common types of pain (low back pain, joint and muscle pain, fibromyalgia, etc.) are exactly the conditions that most conventional methods fail to treat sufficiently — and that Clinical Somatics is most effective at relieving or eliminating all together.
2008 opened with the beginning of what has become a dramatically increased national presence for us, with Somatic Systems and its Somatics treatment featured on a half-hour syndicated television health program called Health Forum. So far, our television show has aired to over 200 million households on a variety of stations and national channels, including...
- We TV (Women’s Entertainment Television)
- Travel Channel
- New York
- New Jersey
- Connecticut
- Seattle-Tacoma
- Minneapolis-Saint Paul
- Chicago
- Pittsburgh
Future airing schedules can be found at http://somatics.org//healthforum/schedule, and you can also find a form on that page to signup to be emailed directly when new airdates are announced.
Additionally, Somatic Systems was featured on several other television shows including MoneyTV, reaching more than another 100 million households internationally.
Somatic Systems has been building presence in several locations nationally, including sales offices in Arizona and Virginia, and a training center in Texas. Long-term goals for these locations include sales of additional clinics and training programs, and launching of franchise expansions.
We continued to strengthen our marketing efforts, including continued improvement of our website and web services, as well as engaging with national public relations firm Goldman Communications Group to assist with our expansion and branding process. Upcoming strategies to promote Somatics growth include large-scale affiliate and franchise programs, co-marketing, leveraging strategic relationships, web development, media coverage, and web-based professional services.
Some of you may have also noticed that we’ve increased our activity on the major social networking tools including Facebook and Twitter, and we operate our own channel on YouTube. We have seen a big increase in customer and shareholder awareness from this, and it is of course a very cost effective and lightning fast way to keep everyone one in the loop. Here’s how to reach us:
- Facebook: http://www.facebook.com/people/Prime-Somatics/1116595567
- Twitter: http://www.twitter.com/primesomatics
- YouTube: http://www.youtube.com/primesomatics
- MySpace: http://www.myspace.com/primesomatics
We hope you will “Friend us” on Facebook, and follow us on Twitter. We advise shareholders to set their Twitter account device settings to text message our Tweets to their cell phones, as a free way to keep instantly up-to-date on our activities and news releases. And of course, watch our videos on YouTube to learn more about the Somatics and how it can help you and everyone else with chronic pain, injury, stress, and athletic performance.
Of course, one of our most significant activities in the past year was our work with the US military to discuss the military interest in our Somatics system to help soldiers and veterans with injury and chronic pain. We met with supervising officers, directors, and other high-ranking administrators of several different military rehabilitation programs, army hospitals, and VA hospitals at multiple locations throughout the United States. There is strong interest in a solution for the crisis of acute and chronic pain in active and retired soldiers and to alleviate the addictions to medications and other drugs that develop as a result.
Contract proposals include Somatic Systems providing...
- comprehensive inpatient Somatic treatment programs;
- outpatient Somatics treatments and therapeutic Somatic group exercise programs for recovery and long-term health maintenance;
- expansion of Somatics clinics in parallel with military bases throughout the US.
Another exciting aspect is our efforts to become approved providers under the military health insurance, Tricare. Tricare provides coverage to 70 million US soldiers, veterans, and dependents.
In addition to the most important benefit of helping those who so proudly serve our nation, this accomplishment can be of enormous importance to the bottom line for shareholders and the company. If only 1% of the 70 million population covered sought Somatics treatment for their chronic pain, this would be 700,000 Somatics clients. Total cost of a single client’s course of Somatics treatments is typically about $400 or more; multiplying this by 700,000 clients equals $280 million in revenue.
Great progress has been made on multiple fronts in Somatics efforts with the military. In October, Somatic Systems was registered in the federal government contractor registry, enabling Somatic Systems to be hired by the military or any federal government agency. In December, we were added to the National Provider registry, and received our National Provider Identifier (NPI) code by the United States Centers for Medicare and Medicaid Services.
This past quarter, we sponsored and exhibited at the Battlefield Healthcare conference, a high profile 4-day event providing a platform for reviewing objectives and program initiatives to provide combat casualty care for the US military. The Conference's audience consists of senior-level professionals from military units and organizations, including directors responsible for medical readiness, education and training, health services, medical plans & requirements, research and development, and case management.
Legislation introduced this year, called the Military Pain Care Act of 2008, requires the Department of Defense, Veterans Affairs, and Health and Human Services and the Surgeon General of the United States to implement and maintain a pain care initiative in all military health care facilities and for all active and retired military personnel, dependents, and survivors. The legislation requires that the Department of Defense contracts for medical care, include provisions for the treatment of pain. Furthermore, the legislation requires that all those receiving treatment in military health care facilities are assessed for pain at the time of admission or initial treatment, and periodically thereafter, and receive pain care as needed. Our Somatics program provides just such a service and we are excited about our continued growth within the Military.
Another important effort for Somatic Systems is the process of becoming fully reporting and uplisting to the OTCBB. We announced plans for this in the last quarter of 2008, and we know it is an important goal for our shareholders. This effort is still a major priority, although our time frame has been adjusted slightly, for very good reasons: We are undertaking the uplisting process as part of a larger capital financing process, which will enable the company to expand more effectively for tremendous growth. This much more lucrative synergy was in our estimation worthy of slightly shifting our uplisting completion timetable forward by a few months. We think you will agree as the process unfolds.
Regarding our current share structure and price, it’s helpful not only to understand our goals of real growth for the company, but also our history as a public company. Somatics went public in 2006, via an acquisition of and reverse merger with an existing public entity. At that time, the public entity had been mismanaged to the point of seeing a tremendous drop in share price from a reasonable market price to sub-penny status. We have had a strong opportunity for the public market from the moment we went public, however, the situation we took over left us a bit handicapped in growing share price. Of course, that was some time ago, and we have worked hard to build a solid public operation ever since. Every single party involved with that mismanagement was removed from company operations and association, and we have built a strong business every year to date:
Focusing on infrastructural change in 2007, we built out the very valuable systems — for growing corporate and franchise locations, for expanding customer services globally, and for rapid training and deployment of practitioners worldwide, etc. — that are a bedrock of our rollout expansion plans.
Once these fundamentals were in place, our next step was to spend 2008 growing the profile, promotional activity, and reach of Somatic Systems. This step involved many complicated careful and strategic initiatives, initiatives that were months and years in the making. And, despite all the ups-and-downs of the 2008 market, these initiatives were very successful, including the media coverage and military and civilian expansions I’ve already reviewed, and also the tremendous further opportunities I will describe later in this letter.
In this grand plan, we see 2009 as capitalizing on our increased profile — the beginning of “cashing in” on this progressive plan with expanded revenues and footprints in all of our divisions.
One of our activities last fall was to begin a share retirement program. We were able to retire large blocks of shares in an effort improve the company share structure. Even though we started the process, we have not yet achieved our goals for share retirement. Part of this has to do with the dramatic turn the market took in the second half of 2008. The opportunities and the effects of our initiative did not progress as we had hoped. However, we are in a long-term process of growing the company and improving share structure and price.
We did also make some share issuances, and I know that seems contradictory or disingenuous to some. Most growth processes involve a few steps backward along with all the forward steps. We are not blindly retiring or recklessly issuing shares. I know it can be hard to see our plan from the point of view of the shareholders, but we are diligently growing the company as best we can, to improve its value, and to put us in a position to continue to improve share structure as well as share price.
On a related note, we certainly do not want to make light of all the many companies that are suffering in this economy. However, I do want to stress that, while we certainly do feel the pinch of the times in some ways, we are one a few companies that is facing a brighter future than ever before, and beginning to realize some tremendous opportunities for both growth and revenue. While most other business large and small are contracting and failing, we are able to expand and succeed.
I do want to clarify another piece of our history. I have a few times in the past year-and-a-half heard the same criticism expressed about our performance, and I’d like to address this in this larger forum so misinformation has less opportunity to be unfairly propagated: The criticism was that we have been in business for 15 years and have not succeeded adequately. This is simply not a fair or accurate assessment of our history: Somatic Systems Institute, the private company that went public in 2006, was founded in 1993. However, it was a small, clinical operation until just prior to going public. The decade prior to going public was spent developing and perfecting the very systems and strategies you are now seeing us implement and expand as a public company. It’s for that reason that we are such a great investment: We are not your typical PinkSheet company that is looking to raise six or seven figures just to complete development or permits, only to come back later looking twice as much to begin marketing the newly developed and possibly untested product. Instead, we are a company with a product perfect, tested, and fine-tuned over decades of both research and development. Any money we earn or raise can go right into growing the company, both in expanding operations and up-scaling the company’s public listing.
And we have been very successful at our current scale, reaching or exceeding developmental and quality milestones for our training, clinic models, etc. on or ahead of schedule. The path forward now is one of production: That is, we have the best mouse-trap in the world for pain care and prevention; now we must produce that mousetrap on a larger scale (for both civilians and the military), and promote awareness of it, so that the world (and profits) can beat a path to our door.
This letter wouldn’t be complete without talking about another strategic effort last year was the completion of our application to make our Somatics Professional Training Program licensed by the National Certification Board for Therapeutic Massage & Bodywork (NCBTMB). NCBTMB is the national, accredited regulatory agency for movement therapy and therapeutic massage professionals, operating the national certification process and examinations that are mandatory for most practitioners to work and to obtain state approval to operate. To maintain their certification, NCBTMB requires massage therapists to complete regular continuing education at programs licensed by the NCBTMB. There are approximately 100,000 massage therapists in the US, with over 130 million visits to massage therapists annually, generating $11 billion in revenue. NCBTMB licensure of Somatic Systems' Somatics professional training program as provider of the mandatory continuing education credits for all these massage therapists will provide unprecedented growth and revenue opportunities for Somatic Systems in our highest revenue per capita division.
We are also embarking upon accreditation of our professional training program as a Masters degree, an accomplishment that not only provides even greater notoriety for Somatics Systems' clinical offerings, but also generally enables a training program to charge tuition rates of approximately $25,000 for the same services provided for the company's current $12,000 tuition price.
Somatic Systems is an exciting company with a strong expansion plan for many reasons, one of which is that we operate the “whole pipeline“ — the Somatics clinics, self-help products, and the professional training programs that produce more Somatics practitioners. Our efforts to this end and to support maximum return on this big picture strategy are aggressive, broad, and comprehensive. This includes the nuts and bolts such as our projects to build out all the necessary infrastructure of our profession. One of these project we announced toward the end of last year is the development of our specialized electronic medical records software for the Clinical Somatics profession.
The software, called Somadex, will cost between $1,000 and $10,000, depending on the package and options purchased. The only electronic records practice management software available for Somatics practitioners, the software will allow practitioners of the company's leading edge Clinical Somatics pain-management system to enjoy the same benefits of digital practice management as medical professionals, including cost savings, efficiency, superior customer service, and the highest quality of care. Somadex will enable the company and its franchises to deliver consistent high-quality services as it continues its nationwide expansion and provide graduates of Somatic Systems’ Professional Training Program with advanced tools for their own successful careers. We are pleased that software is nearing release to the Somatics community, just in time for our upcoming new Professional Training class.
To the same end, we will be releasing additional tools for our practitioners this year, to market their businesses as well as continue to support quality and productivity of our field of Somatics. We will announce these as they become available.
As to other new information, I can disclose that our recent meetings with the military personnel bode well for continued growth in this arena. The recent Battlefield Healthcare conference alone saw rich new opportunities for work at bases as well as potential training of existing medical professionals in military hospital and VA settings.
Additionally, as a result of our activities in 2008, there has been interest in Somatic Systems on a much grander scale. We have had discussions regarding PBS programming as well as cable news channels. We look forward to a vastly increased presence on television as well as in the mainstream media and culture in general.
We are in discussions with several groups regarding international expansion of Somatics in regions across the globe that are both highly receptive consumer markets for Somatics and lucrative even in today’s volatile economy. These opportunities look to provide international distribution of our Somatics self-help products, the expansion of our clinic centers, and the presentation of professional events and training programs for world health professionals.
I want to personally thank you again for your interest in our company and our work to help with the enormous epidemic of chronic pain. We are pleased that so many of you understand the importance of helping people so significantly; and we are grateful that you can also see that financially this can be so beneficial to everyone involved — the clients in pain, the company, and shareholders. Somatic Systems’ work over this past year has been dense and productive, and we are proud of our progress so far. That pride is only overshadowed by our enthusiasm for how much there is to come.
Thanks again for your support.
Sincerely,
Steven Aronstein
Chief Executive Officer
Somatic Systems, Inc.
