##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
   FORM 10-KT
 U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 (MARK ONE)
 o
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended
 OR
 þ
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from February 1, 2007 to September 30, 2007
 Commission file number: 000-30326
 
 TRI-ISTHMUS GROUP, INC.
  DELAWARE
    
    77-0557617(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)149 South Barrington Avenue, Suite 808
Los Angeles, California
(Address of principal executive offices)
    
    90049
(Zip Code)
 (818) 887- 6659
 NONE
 COMMON STOCK, PAR VALUE $0.01 PER SHARE
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
  Number of shares of common stock outstanding as of January 11, 2008
    
    
    8,177,629




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##### 



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
  TABLE OF CONTENTS
 PagePART IItem 1. BUSINESS
    
    
    3Item 1A. RISK FACTORS
    
    
    10Item 1B. UNRESOLVED STAFF COMMENTS
    
    
    13Item 2. PROPERTIES
    
    
    14Item 3. LEGAL PROCEEDINGS
    
    
    14Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    14PART IIItem 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
    
    
    15Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    18Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    18Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    26Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    48Item 9A. CONTROLS AND PROCEDURES
    
    
    48Item 9B. OTHER INFORMATION
    
    
    48PART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    49Item 11. EXECUTIVE COMPENSATION
    
    
    51Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    59Item 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
    
    
    61Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    62PART IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    64SIGNATURESEXHIBIT INDEXSubsidiariesCertification Pursuant to Rule 13a-14(d)Certification Pursuant to Rule 13a-14(d)Certification Pursuant to 18 U.S.C. 1350Certification Pursuant to 18 U.S.C. 1350
  2




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 SEC
  
 PART I
 
 ITEM 1. BUSINESS
 www.tig3.com
    COMPANY BACKGROUND
 BPO
 Vsource Asia Symphony House Symphony
Purchase Agreement
 3




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  TIGroup
 ASCs Point Loma Del Mar San Diego ASCs
 RHA
 CURRENT OPERATIONS
      Strategy
  4




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
   FUTURE FUNDING
  Notes
   INTELLECTUAL PROPERTY
   EMPLOYEES
   GOVERNMENT REGULATIONS
  5




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 State Licensing and CONs
  CON
 Corporate Practice of Medicine
  Certification
  Medicare-Medicaid Fraud and Abuse Provisions
 Federal Anti-Kickback Statute
 OIG
 6




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
   HIPAA
  Prohibition on Physician Ownership of Healthcare Facilities and Certain Self-Referrals
  CMS
   7




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
        Final Report DRA
    The Federal False Claims Act and Similar Federal and State Laws
 FCA
  8




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
   Healthcare Industry Investigations
   Privacy Requirements and Administrative Simplification
    COMPETITORS
  9




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  
 Item 1A. RISK FACTORS
 ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OR RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT.
 If we are unable to acquire and develop additional healthcare facilities on favorable terms, we may
be unable to execute our acquisition and development strategy, which could limit our future growth.
  We have incurred significant losses and may incur losses in the future, and as a result, there is
substantial doubt about our ability to continue as a going concern.
  If we incur material liabilities as a result of acquiring companies, hospitals or ambulatory
surgical centers, our operating results could be adversely affected.
  If we are unable to manage growth, we may be unable to achieve our growth strategy.
  10




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 If we are unable to grow revenues at our existing facilities, our operating margins and
profitability could be adversely affected.
  We are dependent for our success on a few key executive officers. Were we to lose one or more of
these key executive officers, we would be forced to expend significant time and money in the
pursuit of a replacement, which would result in both a delay in the implementation of our business
plan and the diversion of working capital.
  We depend on our relationships with the physicians who use our facilities. Our ability to provide
medical services at our facilities would be impaired and our revenues reduced if we were unable to
maintain these relationships.
  We depend on payments from third-party payors, including government healthcare programs. If these
payments are reduced, our revenue will decrease.
  If we fail to comply with other applicable laws and regulations, we could suffer penalties or be
required to make significant changes to our operations.
  
    
    physician ownership of our facilities;
    
    the adequacy of medical care, equipment, personnel, operating policies and
procedures;
    
    building and safety codes;
 11




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
    
    licensure, certification and accreditation;
    
    billing for services;
    
    maintenance and protection of records; and
    
    environmental protection.
   Appropriate acquisitions or investment opportunities may not be available.
    We continue to have significant corporate and SEC-related expenses and limited revenue to offset
these expenses.
  12




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 We have broad discretion in using our cash resources and may not use them in a manner that our
stockholders would prefer.
  We may finance acquisitions by issuing additional capital stock or incurring substantial debt, both
of which could have negative consequences.
  We have a need for ongoing financing.
  The market for our common stock may be illiquid.
  Our stock is not listed on a major stock market
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  13




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Item 2. PROPERTIES
  Del Mar Lease
 th RHA Stroud RHA Stroud Lease
  
 Item 3. LEGAL PROCEEDINGS
 HI Del
Mar, LLC Point Loma, LLC
 Put
Option Common Stock HI-Owned Shares
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  14




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 PART II
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES
OF EQUITY SECURITIES
 PERFORMANCE GRAPH
  COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG TRI-ISTHMUS GROUP,
INC.,
 NASDAQ COMPOSITE INDEX AND PEER GROUP INDEX
 
 ASSUMES $100 INVESTED ON SEPT. 30, 2002 ASSUMES DIVIDEND REINVESTED

FISCAL YEAR ENDING SEPT. 30, 2007
 ASSUMES $100 INVESTED ON SEPTEMBER 30, 2002
 THE FISCAL YEAR ENDED
    
    9/30/2002
    
    9/30/2003
    
    9/30/2004
    
    9/30/2005
    
    9/30/2006
    
    9/30/2007COMPANY/INDEX/MARKETTri-Isthmus Group, Inc.
    
    $
    100.00
    
    
    $
    36.36
    
    
    $
    9.09
    
    
    $
    16.82
    
    
    $
    15.45
    
    
    $
    16.36Peer Group Index
    
    $
    100.00
    
    
    $
    95.83
    
    
    $
    100.54
    
    
    $
    129.44
    
    
    $
    117.46
    
    
    $
    78.22Old Peer Group Index
    
    $
    100.00
    
    
    $
    103.08
    
    
    $
    199.31
    
    
    $
    206.91
    
    
    $
    262.00
    
    
    $
    271.53NASDAQ Market Index
    
    $
    100.00
    
    
    $
    153.26
    
    
    $
    162.48
    
    
    $
    184.85
    
    
    $
    195.81
    
    
    $
    234.00
 
 (1)
    
    Our peer group is made up of Community Health Systems, Inc., Health Management Associates Inc.
and Lifepoint Hospitals Inc. 15




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 MARKET INFORMATION
  The Transition Period Ended Sep. 30, 2007
    
    High
    
    LowAs of Sep. 30, 2007
    
    $
    0.36
    
    
    $
    0.26As of Jul. 31, 2007
    
    
    0.35
    
    
    
    0.28As of Apr. 30, 2007
    
    
    0.40
    
    
    
    0.26
 The Fiscal Year Ended Jan. 31, 2007
    
    High
    
    LowFirst Quarter
    
    $
    0.94
    
    
    $
    0.56Second Quarter
    
    
    0.90
    
    
    
    0.44Third Quarter
    
    
    0.58
    
    
    
    0.29Fourth Quarter
    
    
    0.80
    
    
    
    0.31
 The Fiscal Year Ended Jan. 31, 2006
    
    High
    
    LowFirst Quarter
    
    $
    0.20
    
    
    $
    0.12Second Quarter
    
    
    0.38
    
    
    
    0.10Third Quarter
    
    
    0.80
    
    
    
    0.32Fourth Quarter
    
    
    1.05
    
    
    
    0.30
 SHAREHOLDERS
  DIVIDENDS
  EQUITY COMPENSATION PLAN INFORMATION
 Number of securitiesremaining available forNumber of securities
    
    
    
    
    
    future issuance underto be issued upon
    
    Weighted-average
    
    equity compensationexercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflected inwarrants and rights at
    
    warrants and rights
    
    column (a)) atPlan category
    
    Sep. 30, 2007
    
    at Sep. 30, 2007
    
    Sep. 30, 2007(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security
holders(2)(3)(4)(5)(
6)
    
    
    483,750
    
    
    $
    0.42
    
    
    
    5,149,230Equity compensation
plans not approved
by security
holders(1)
    
    
    27,171
    
    
    $
    15.25
    
    
    
    -0-Total
    
    
    510,921
    
    
    $
    0.83
    
    
    
    5,149,230
 
 (1)
    
    In July 2000, our Board of Directors approved a stock option plan (the 2000 Plan).
Our stockholders have not approved this plan. The 2000 Plan authorizes the grant of incentive
stock options and non-statutory stock options covering an aggregate of 16




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 39,750 shares of common
stock, as adjusted for our November 2002 reverse stock split (subject to limitations of
applicable laws, and adjustment in the event of stock dividends, stock splits, reverse stock
splits and certain other corporate events). The 2000 Plan expires on July 6, 2010, unless it
is terminated earlier or suspended by the Board. The 2000 Plan is not subject to any
provisions of the Employee Retirement Income Security Act of 1974. As of September 30, 2007,
options to purchase an aggregate of 27,171 shares of common stock are classified as
outstanding under the 2000 Plan, with a weighted average exercise price of $15.25. We do not
intend to issue any further options under the 2000 Plan or warrants to purchase stock to
additional individuals or vendors as compensation for services rendered.(2)
    
    In 2001, at our 2001 Annual Meeting, our stockholders approved two equity compensation plans:
(a) our 2001 Stock Options/Stock Issuance Plan (the 2001 Plan) and (b) our Employee
Stock Purchase Plan (ESPP). The maximum number of shares of common stock that may
be issued under the 2001 Plan cannot exceed 20% of the total shares of common stock
outstanding at the time the calculation is made (including, on an as-converted basis, all
convertible preferred stock, convertible debt securities, warrants, options and other
convertible securities that are exercisable) but in no event will the maximum number of shares
of common stock which may be issued under this plan as incentive stock options exceed
20,000,000. As of September 30, 2007, based on the 20% calculation, the maximum number of
shares issuable under the 2001 Plan was 5,632,980. The maximum number of shares of common
stock that may be purchased under our ESPP is 350,000. In the Transition Period Ended
September 30, 2007, the Employee Stock Purchase Plan was not offered and consequently there
were no shares issued under this plan. Since its inception, a total of 22,940 shares of common
stock have been purchased pursuant to the ESPP.(3)
    
    In August 2005, our Board of Directors approved the issuance of warrants to purchase an
aggregate of 727,500 shares of our common stock at an exercise price of $0.35 per share to
members of our Advisory Board, as compensation for participation on our Advisory Board. The
shares underlying these warrants became fully vested in August 2007. These warrants expire on
August 2, 2008. In December 2006, our stockholders approved the issuance of a warrant to
purchase 50,000 shares of our common stock at an exercise price of $0.45 per share to Steven
Spector, upon his addition as an Advisory Board member. The shares underlying the warrant
issued to Mr. Spector became fully vested on December 12, 2008. The warrant issued to Mr.
Spector expires on December 12, 2008. On September 11, 2007, our Board of Directors approved
the issuance of warrants to purchase 350,000 shares of our common stock at an exercise price
of $0.45 per share to six new members of our Advisory Board. The shares underlying these
warrants become fully vested in September 11, 2009. These warrants expire on September 11,
2009.(4)
    
    On November 17, 2005, our Board of Directors approved the grants of options to acquire an
aggregate of 360,000 shares of our common stock at an exercise price of $0.40 per share to two
independent directors. The shares underlying these options vest in quarterly increments over
three years, beginning on the effective issuance date of August 1, 2005.(5)
    
    On December 12, 2006, our Board of Directors approved the grant of an option to acquire an
aggregate of 120,000 shares of our common stock at an exercise price of $0.42 per share to
Dennis M. Smith, in his capacity as a director and consultant of the Company. The shares
underlying the option granted to Mr. Smith vest in quarterly increments over three years,
beginning on the effective issuance date of December 12, 2006.(6)
    
    On December 12, 2006, our Board of Directors approved the issuance of warrants J. Michael
Issa to purchase an aggregate of 10,000 shares of our common stock at an exercise price of
$0.45 per share for services provided. These warrants vested immediately on the effective
issuance date of December 12, 2006 and expire on December 12, 2008. SALES OF UNREGISTERED SECURITIES
    17




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  
 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
 AS NOTED ABOVE, IN THE FISCAL YEAR ENDED JANUARY 31, 2005 WE CONCLUDED THE EXCHANGE OFFER AND
RELATED TRANSACTIONS RESULTING IN THE CESSATION OF OUR OWNERSHIP IN VSOURCE ASIA, WHICH REPRESENTED
96% AND 100% OF OUR REVENUES IN THE FISCAL YEAR ENDED JANUARY 31, 2005 AND THE FISCAL YEAR ENDED
JANUARY 31, 2004, RESPECTIVELY. THE DISCUSSION BELOW PRESENTS OUR RESULTS, EXCLUDING REVENUES AND
EXPENSES FROM DISCONTINUED OPERATIONS.
 Transition PeriodEnded
    
    Fiscal Year EndedSep. 30
    
    Jan. 31,2007
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands, except per share amounts)Revenue
    
    $
    2,452
    
    
    $
    702
    
    
    $
    
    
    
    $
    254Operating expenses
    
    
    4,444
    
    
    
    2,453
    
    
    
    2,175
    
    
    
    2,503
    
    
    
    5,394
    
    
    
    4,522Net income/(loss) before minority interest
    
    
    (1,990
    )
    
    
    (1,748
    )
    
    
    (2,170
    )
    
    
    (2,252
    )
    
    
    (5,362
    )
    
    
    (13,599
    )Minority interest
    
    
    93
    
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net profit/(loss) per share available to
common shareholders
    
    
    (1,897
    )
    
    
    (1,580
    )
    
    
    (2,170
    )
    
    
    (2,252
    )
    
    
    (5,362
    )
    
    
    (13,599
    )- Basic
    
    $
    (0.50
    )
    
    $
    (0.43
    )
    
    $
    (0.91
    )
    
    $
    9.77
    
    
    $
    (9.01
    )
    
    $
    (4.08
    )- Diluted
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    9.53
    
    
    
    N/A
    
    
    
    N/ACash and cash equivalents
    
    
    733
    
    
    
    286
    
    
    
    1,289
    
    
    
    1,064
    
    
    
    1,452
    
    
    
    11,152Accounts receivables
    
    
    1,418
    
    
    
    1,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property and equipment, net
    
    
    1,163
    
    
    
    1,115
    
    
    
    1
    
    
    
    40
    
    
    
    4,418
    
    
    
    4,974Goodwill
    
    
    759
    
    
    
    987
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    4,504
    
    
    
    4,571
    
    
    
    1,579
    
    
    
    2,714
    
    
    
    10,834
    
    
    
    20,137Current liabilities
    
    
    1,624
    
    
    
    839
    
    
    
    552
    
    
    
    779
    
    
    
    8,550
    
    
    
    5,696Long term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    900Minority interest
    
    
    920
    
    
    
    1,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-redeemable preferred stock
    
    
    191
    
    
    
    191
    
    
    
    191
    
    
    
    191
    
    
    
    4,354
    
    
    
    5,368Redeemable preferred stock
    
    
    5,019
    
    
    
    3,859
    
    
    
    1,116
    
    
    
    
    
    
    
    14,521
    
    
    
    2,728Shareholders equity/ (deficit)
    
    
    (3,250
    )
    
    
    (1,603
    )
    
    
    (280
    )
    
    
    1,744
    
    
    
    (16,591
    )
    
    
    5,445
  
 Item 7.
    
    MANAGEMENTS DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
  FORWARD LOOKING STATEMENTS
   OVERVIEW
  18




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
    CHANGE IN THE FISCAL YEAR END
  FUNDING
  Notes
  CRITICAL ACCOUNTING POLICIES
  Principles of Consolidation and Basis of Presentation
  19




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Use of Estimates
  Property and Equipment
  Computer hardware
    
    
    2 to 5 yearsComputer software
    
    5 yearsOffice equipment, furniture and fixtures
    
    5 yearsMotor vehicle
    
    3 yearsMedical equipment
    
    
    5 to 7 years
  Revenue Recognition
  Income Taxes
  Stock-Based Compensation
   Earnings Per Share
  20




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Recent Accounting Pronouncements
 SFAS
157
 SFAS 158
 SFAS No.
159
 SFAS No. 160
 SFAS No. 141 (R)
 21




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 RESULTS OF OPERATIONS (All amounts in thousands)
 TransitionPeriod
    
    
    Fiscal Year
    
    
    Fiscal YearEnded
    
    
    Ended
    
    
    EndedSep. 30,
    
    
    Jan. 31,
    
    
    Jan. 31,2007
    
    
    2007
    
    
    2006Revenue from services
    
    $
    2,452
    
    
    $
    702
    
    
    $
    Cost of revenue from services
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    3,966
    
    
    
    2,255
    
    
    
    2,028Amortization of stock-based compensation
    
    
    250
    
    
    
    198
    
    
    
    147Impairment Loss on Goodwill
    
    
    228
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    4,444
    
    
    
    2,453
    
    
    
    2,175Operating loss
    
    
    (1,992
    )
    
    
    (1,751
    )
    
    
    (2,175
    )Interest income
    
    
    2
    
    
    
    3
    
    
    
    5Interest expense
    
    
    
    
    
    
    
    
    
    
    Loss from operations before taxation
    
    
    (1,990
    )
    
    
    (1,748
    )
    
    
    (2,170
    )Minority interest
    
    
    93
    
    
    
    168
    
    
    
    Taxation
    
    
    
    
    
    
    
    
    
    
    Net income/(loss)
    
    
    (1,897
    )
    
    
    (1,580
    )
    
    
    (2,170
    )Net income/(loss) available to common shareholders
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )
 MANAGEMENTS DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS  EIGHT-MONTH TRANSITION PERIOD ENDED
SEPTEMBER 30, 2007 COMPARED TO YEAR ENDED JANUARY 31, 2007 AND YEAR ENDED JANUARY 31, 2006.
 Revenue
  Cost of Revenue
  Selling, General and Administrative Expenses
   22




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Amortization of Stock-based Compensation
      Operating Loss
  Goodwill
  23




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Interest Income
  Minority Interest
  Taxation
  Net Income or Loss
  Net Income or Loss Available to Common Shareholders
  LIQUIDITY AND CAPITAL RESOURCES
       24




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
   OFF-BALANCE SHEET FINANCING
  DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 Contractual Obligations
 Payments due by periodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years[Long-Term Debt Obligations]
    
    $
    35,000
    
    
    
    
    
    
    
    
    
    
    $
    35,000[Capital Lease Obligations]
    
    
    -0-[Operating Lease Obligations]
    
    
    -0-[Purchase Obligations]
    
    NONE[Other Long-Term Liabilities
    
    
    -0-Reflected on the Registrants
Balance Sheet under GAAP]Total
    
    $
    35,000
    
    
    
    
    
    
    
    
    
    
    $
    35,000
 INTEREST RATE RISK
  FOREIGN CURRENCY RISK
  25




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Item 8. CONSOLIDATED FINANCIAL STATEMENTS
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Mendoza Berger & Company, LLP
 
 26




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Sep. 30, 2007
    
    
    Jan. 31, 2007ASSETS
Current assets:Cash and cash equivalents
    
    $
    733
    
    
    $
    286Accounts receivable, net of allowance for uncollectible accounts
    
    
    1,418
    
    
    
    1,403Advance to affiliated entity (Note 5)
    
    
    273
    
    
    
    273Prepaid expenses
    
    
    23
    
    
    
    51Other current assets
    
    
    135
    
    
    
    457Total current assets
    
    
    2,582
    
    
    
    2,470Property and equipment, net
    
    
    1,163
    
    
    
    1,115Goodwill (Note 6)
    
    
    759
    
    
    
    987Total assets
    
    $
    4,504
    
    
    $
    4,572
  27




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Sep. 30, 2007
    
    
    Jan. 31, 2007LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITY/ (DEFICIT)Current liabilities:Accounts payable
    
    $
    678
    
    
    $
    545Accrued expenses
    
    
    792
    
    
    
    290Staff accruals
    
    
    154
    
    
    
    4Total current liabilities
    
    
    1,624
    
    
    
    839Commitments and contingencies (Note 9)
    
    
    
    
    
    
    Minority interest (Note 7)
    
    
    920
    
    
    
    1,285Non-redeemable preferred stock:Preferred stock Series 1-A ($0.01 par value, 67,600 shares
authorized; 67,600 and 67,600 shares issued and outstanding as of
Sep. 30, 2007 and Jan. 31, 2007, respectively) (Aggregate
liquidation value is $169 as of Sep. 30, 2007 and Jan. 31, 2007)
    
    
    166
    
    
    
    166Preferred stock Series 2-A ($0.01 par value, 3,900 shares
authorized; 3,900 shares issued and outstanding as Sep. 30, 2007
and Jan. 31, 2007, respectively) (Aggregate liquidation value is
$25 as of Sep. 30, 2007 and Jan. 31, 2007)
    
    
    25
    
    
    
    25Total non-redeemable preferred stock
    
    
    191
    
    
    
    191Redeemable preferred stock: (Note 12)Preferred stock Series 5-A ($0.01 par value, 9,000 shares
authorized; 2,519 and 1,842 shares issued and outstanding as of
Sep. 30, 2007 and Jan. 31, 2007, respectively
(Aggregate liquidation value is $2,519 and $1,842 as of Sep. 30,
2007 and Jan. 31, 2007, respectively)
(Aggregate redemption value is $2,645 and $1,934 as of Sep. 30,
2007 and Jan. 31, 2007, respectively)
    
    
    2,519
    
    
    
    1,659Series B preferred stock issued by subsidiary (note 12) ($0.01
par value, 38,250 shares authorized, 19,990 shares issued and
outstanding as of Sep. 30, 2007 and Jan. 31, 2007)
    
    
    2,500
    
    
    
    2,500Receivable from issuance of preferred stock
    
    
    
    
    
    
    (150
    )Total redeemable preferred stock
    
    
    5,019
    
    
    
    4,050Shareholders equity/(deficit):Common stock ($0.01 par value, 100,000,000 shares authorized;
3,828,739 and 3,674,029 shares issued and outstanding as of Sep.
30, 2007 and Jan. 31, 2007, respectively)
    
    
    38
    
    
    
    37Additional paid-in-capital
    
    
    65,663
    
    
    
    65,390Accumulated deficit
    
    
    (68,591
    )
    
    
    (66,694
    )Other comprehensive income
    
    
    (52
    )
    
    
    (52
    )Deferred stock based compensation
    
    
    (308
    )
    
    
    (284
    )Total shareholders equity/(deficit)
    
    
    (3,250
    )
    
    
    (1,603
    )Total liabilities, preferred stock and shareholders equity/(deficit)
    
    $
    4,504
    
    
    $
    4,571
  28




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Transition Period
    
    
    Fiscal Year
    
    
    Fiscal YearEnded
    
    
    Ended
    
    
    EndedSep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006Revenue from services
    
    $
    2,452
    
    
    $
    702
    
    
    $
    Cost and expenses:Cost of revenue from services
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    3,966
    
    
    
    2,255
    
    
    
    2,028Amortization of stock-based compensation (Note 12)
    
    
    250
    
    
    
    198
    
    
    
    147Impairment loss on goodwill
    
    
    228
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    4,444
    
    
    
    2,453
    
    
    
    2,175Operating loss
    
    
    (1,992
    )
    
    
    (1,751
    )
    
    
    (2,175
    )Interest income
    
    
    2
    
    
    
    3
    
    
    
    5Net loss from continuing operations before taxation
    
    $
    (1,990
    )
    
    $
    (1,748
    )
    
    $
    (2,170
    )Minority interest
    
    
    93
    
    
    
    168Income tax benefit/(expense)
    
    
    
    
    
    
    
    
    
    
    Net income/(loss)
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )Net income/(loss) available to common shareholders (Note 3 )
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )Net income/(loss) per common share:TotalBasic
    
    $
    (0.50
    )
    
    $
    (0.43
    )
    
    $
    (0.91
    )Diluted
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  29




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Common Shares
    
    
    Additional Paid-in
    
    
    Deferred Stock
    
    
    
    
    
    
    
    
    
    
    Other Comprehensive
    
    
    Total ShareholdersStock
    
    
    Amount
    
    
    Capital
    
    
    Based Compensation
    
    
    Notes Receivable
    
    
    Accumulated Deficit
    
    
    Income (Loss)
    
    
    DeficitBalance at Jan. 31, 2005
    
    
    2,074,234
    
    
    $
    21
    
    
    $
    67,375
    
    
    $
    
    
    
    
    
    
    
    $
    (65,600
    )
    
    $
    (52
    )
    
    $
    1,744Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,170
    )
    
    
    
    
    
    
    (2,170
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Issuance of Common Stock
    
    
    1,600,000
    
    
    
    16
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320Fractional shares arising on
reverse stock split
    
    
    (201
    )Warrants Cancelled
    
    
    
    
    
    
    
    
    
    
    (2,796
    )
    
    
    
    
    
    
    
    
    
    
    2,656
    
    
    
    
    
    
    
    (140
    )Issuance of Series 5-A Preferred
Stock and warrants under private
placement
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161Issuance of options
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Deferred stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (416
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (416
    )Balance at Jan. 31, 2006
    
    
    3,674,033
    
    
    $
    37
    
    
    $
    65,263
    
    
    $
    (416
    )
    
    
    
    
    
    $
    (65,114
    )
    
    $
    (50
    )
    
    $
    (280
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,580
    )
    
    
    
    
    
    
    (1,580
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Fractional shares arising on
reverse stock split
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Issuance of options
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198Balance at Jan. 31, 2007
    
    
    3,674,070
    
    
    $
    37
    
    
    $
    65,390
    
    
    $
    (285
    )
    
    
    
    
    
    $
    (66,694
    )
    
    $
    (52
    )
    
    $
    (1,604
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,897
    )
    
    
    
    
    
    
    (1,897
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares issued
    
    
    154,669
    
    
    
    1
    
    
    
    34
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Warrants Cancelled
Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    (110
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84Issuance of options
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Deferred stock based compensationBalance at Sept. 30, 2007
    
    
    3,828,739
    
    
    $
    38
    
    
    $
    65,663
    
    
    $
    (309
    )
    
    
    
    
    
    $
    (68,591
    )
    
    $
    (52
    )
    
    $
    (3,251
    )
  30




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 Transition Period
    
    
    Fiscal Year
    
    
    Fiscal YearEnded
    
    
    Ended
    
    
    EndedSep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006Cash flows from operating activities:Net income/(loss)
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Minority Interest
    
    
    (93
    )
    
    
    (168
    )
    
    
    Depreciation and amortization
    
    
    76
    
    
    
    29
    
    
    
    Bad debt provision/(writeback)
    
    
    284
    
    
    
    
    
    
    
    12(Gain)/loss on disposal of property and equipment
    
    
    
    
    
    
    1
    
    
    
    26Amortization of stock-based compensation
    
    
    250
    
    
    
    198
    
    
    
    147Impairment loss on goodwill
    
    
    228
    
    
    
    
    
    
    
    Changes in working capital components:Accounts receivable
    
    
    (15
    )
    
    
    101
    
    
    
    Accounts payable
    
    
    133
    
    
    
    15
    
    
    
    (106
    )Others
    
    
    444
    
    
    
    204
    
    
    
    1,168Net cash (used in)/provided by operating activities
    
    
    (590
    )
    
    
    (1,200
    )
    
    
    (923
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (123
    )
    
    
    
    
    
    
    (3
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    1Proceeds from disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    24Short term investment in CSA
    
    
    
    
    
    
    (272
    )
    
    
    Acquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    163
    
    
    
    Net cash used in investing activities
    
    
    (123
    )
    
    
    (109
    )
    
    
    22Cash flows from financing activities:Proceeds from issuance of preferred stock, net of cost
    
    
    1,160
    
    
    
    304
    
    
    
    1,266Warrants Cancelled
    
    
    
    
    
    
    
    
    
    
    (140
    )Net cash provided by financing activities
    
    
    1,160
    
    
    
    304
    
    
    
    1,126Effect of changes in foreign exchange rates
    
    
    
    
    
    
    
    
    
    
    Net increase/(decrease) in cash and cash equivalents
    
    
    447
    
    
    
    (1,005
    )
    
    
    225Cash and cash equivalents at beginning of year
    
    
    286
    
    
    
    1,289
    
    
    
    1,064Cash and cash equivalents at end of year
    
    $
    733
    
    
    $
    286
    
    
    $
    1,289Supplemental cash flow informationIssuance of Series B Preferred Stock for acquisition of subsidiaries
    
    $
    
    
    
    $
    2,500
    
    
    $
    
  31




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 1. The Company
 Company Background
 Company Vsource Asia Symphony House Symphony Transactions Symphony Purchase Agreement
 Sale and Purchase Agreement
 Surgical Center Acquisition Agreements
 32




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Point Loma Del Mar San Diego
ASCs
    Current Operations
 TIGroup
  RHA
  Strategy
   33




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Future Funding
   Notes
   2. Summary of Significant Accounting Policies
 Change of Financial Year End
 Transition Period Ended September
30, 2007 Fiscal Year Ended January 31, 2007 Fiscal Year Ended
2006
 Principles of Consolidation and Basis of Presentation
  Use of Estimates
  34




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Foreign Currency Translation
  Cash and Cash Equivalents
  Property and Equipment
  Computer hardware
    
    
    2 to 5 yearsComputer software
    
    5 yearsOffice equipment, furniture and fixtures
    
    5 yearsMotor vehicle
    
    3 yearsMedical equipment
    
    
    5 to 7 years
  Impairment of Long-lived Assets
  Revenue Recognition
  35




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Income Taxes
  Accounting for Uncertainty in Income Taxes
 FASB FIN 48
 Functional Currency
  Other Comprehensive Income (Loss)
  Stock-Based Compensation
 Purchase Plan
   Earnings Per Share
  36




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Segment Data
  Recent Accounting Pronouncements
 SFAS
157
 SFAS 158
 SFAS No.
159
 SFAS No. 160
 SFAS No. 141 (R)
 Fair Value of Financial Instruments
  37




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 3. Net Income/(Loss) Available to Common Shareholders and Comprehensive Profit/(Loss)
  Transition
    
    
    Fiscal Year
    
    
    Fiscal YearPeriod Ended
    
    
    Ended
    
    
    EndedSep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006Net loss available to common shareholders
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )Other comprehensive (loss)/gain
foreign currency translations
    
    
    
    
    
    
    (2
    )
    
    
    2Comprehensive income/(Loss)
    
    $
    (1,897
    )
    
    $
    (1,582
    )
    
    $
    (2,168
    )
 Earnings Per Share
  Transition
    
    
    Fiscal Year
    
    
    Fiscal YearPeriod Ended
    
    
    Ended
    
    
    EndedSep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006Numerator for basic and diluted income/(loss) per share:Net income/(loss)
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )Denominator for basic earnings/(loss) per share  weighted average shares
    
    
    3,764,522
    
    
    
    3,673,996
    
    
    
    2,374,993Basic
    
    $
    (0.50
    )
    
    $
    (0.43
    )
    
    $
    (0.91
    )Diluted
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  4. Consolidated Balance Sheet Details
  Sep. 30, 2007
    
    
    Jan. 31, 2007Other current assets:Deposits
    
    $
    24
    
    
    $
    81Other receivables
    
    
    111
    
    
    
    376Total Other Assets
    
    
    135
    
    
    
    457Property and equipment:Computer hardware
    
    
    74
    
    
    
    40Office equipment, furniture and fixtures
    
    
    
    
    
    
    49Leasehold improvements
    
    
    30
    
    
    
    Medical equipment
    
    
    1,164
    
    
    
    1,144Accumulated depreciation
    
    
    (105
    )
    
    
    (118
    )Property and equipment, net
    
    $
    1,163
    
    
    $
    1,115
 5. Advance to CSA II, LLC
 Cross Shore RPS
 38




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  6. Goodwill
   Point Loma
    
    Del Mar
    
    TotalCash and cash equivalents
    
    $
    109
    
    
    $
    55
    
    
    $
    164Accounts receivable, net
    
    
    950
    
    
    
    569
    
    
    
    1,519Other current assets
    
    
    91
    
    
    
    145
    
    
    
    236Property and equipment, net
    
    
    428
    
    
    
    768
    
    
    
    1,144Accounts payable
    
    
    (51
    )
    
    
    (46
    )
    
    
    (97
    )Total
    
    
    1,527
    
    
    
    1,491
    
    
    
    3,018Less: Minority interest  49%
    
    
    (748
    )
    
    
    (731
    )
    
    
    (1,479
    )Share of net assets
    
    
    779
    
    
    
    731
    
    
    
    1,539Purchase consideration
    
    
    1,250
    
    
    
    1,250
    
    
    
    2,500Goodwill balance at January 31, 2007
    
    $
    471
    
    
    $
    516
    
    
    $
    987Impairment loss on goodwill
    
    
    (228
    )
    
    
    
    
    
    
    (228
    )Goodwill balance at September 30,
2007
    
    
    243
    
    
    
    516
    
    
    
    759
  7. Minority Interests
  8. Warrants
    39




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
      Weighted-AverageNumber of Shares of Common Stock
    
    Exercise Price Per ShareYear ended Jan. 31,
    
    Year ended Jan. 31,September 30,
    
    
    
    
    
    September 30,2007
    

2007
    

2006
    
    2007
    
    2007
    
    2006Warrants
outstanding at
beginning of the
period
    
    
    1,724,300
    
    
    
    2,097,095
    
    
    
    1,545,528
    
    
    $
    0.43
    
    
    $
    0.56
    
    
    $
    2.65Granted
    
    
    1,174,400
    
    
    
    328,400
    
    
    
    1,614,300
    
    
    $
    0.48
    
    
    $
    0.48
    
    
    $
    0.43Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled or Expired
    
    
    
    
    
    
    (701,195
    )
    
    
    (1,062,733
    )
    
    
    
    
    
    $
    0.67
    
    
    $
    3.41Converted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
outstanding at end
of the period
    
    
    2,898,700
    
    
    
    1,724,300
    
    
    
    2,097,095
    
    
    $
    0.45
    
    
    $
    0.43
    
    
    $
    0.56Warrants
exercisable at end
of the period
    
    
    2,671,617
    
    
    
    1,563,049
    
    
    
    1,733,345
    
    
    $
    0.45
    
    
    $
    0.44
    
    
    $
    0.60
 9. Commitments and Contingencies
  10. Litigation
 HI Del
Mar, LLC Point Loma, LLC
 40




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Put
Option Common Stock HI-Owned Shares
 11. Preferred Stock
 Non-Redeemable Preferred Stock
  Series 1-A Preferred Stock
  Series 2-A Preferred Stock
  41




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Series 5-A Preferred Stock
 Purchase Agreement
     42




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Series B Preferred Stock issued by subsidiary
   Related Party Interests in Preferred Stock
  12. Stock Options
 Stock-Based Compensation
  Transition
    
    
    Fiscal Year
    
    
    Fiscal YearPeriod Ended
    
    
    Ended
    
    
    EndedSep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    52
    %
    
    
    212
    %
    
    
    99
    %Risk-free rate of return
    
    
    3.1
    %
    
    
    4.5
    %
    
    
    4.1
    %Expected life (years)
    
    
    3.0
    
    
    
    3.0
    
    
    
    3.0
 Stock Option Plans
 2000
Plan
 2001 Plan
 43




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
       Weighted-AverageNumber of Options
    
    
    Exercise Price Per ShareTransition
    
    
    Fiscal Year
    
    
    Fiscal Year
    
    
    Transition
    
    
    Fiscal Year
    
    
    Fiscal YearPeriod Ended
    
    
    Ended
    
    
    Ended
    
    
    Period Ended
    
    
    Ended
    
    
    EndedSep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2006Options outstanding at beginning of the period
    
    
    483,750
    
    
    
    458,517
    
    
    
    449,067
    
    
    $
    0.42
    
    
    $
    1.88
    
    
    $
    3.82Granted at above fair market value
    
    
    
    
    
    
    
    
    
    
    360,000
    
    
    
    
    
    
    
    
    
    
    
    0.40 at fair market value
    
    
    
    
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    0.42
    
    
    
     at below fair market value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    (94,767
    )
    
    
    (350,550
    )
    
    
    
    
    
    $
    8.48
    
    
    $
    2.85Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding at end of the period
    
    
    483,750
    
    
    
    483,750
    
    
    
    458,517
    
    
    
    0.42
    
    
    
    0.42
    
    
    
    1.88Options vested/exercisable at end of the period
    
    
    267,083
    
    
    
    363,750
    
    
    
    458,517
    
    
    $
    0.42
    
    
    $
    0.42
    
    
    $
    1.88
 44




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Weighted-average
    
    Weighted-average remainingExercise price
    
    Number of options
    
    exercise price
    
    contractual life$0.40
    
    360,000
    
    $0.40
    
    7.3$0.42
    
    120,000
    
    $0.42
    
    2.3$2.00
    
    3,750
    
    $2.00
    
    4.3483,750
  Employee Stock Purchase Plan
 ESPP
 13. 401(k) Plan
 401(k) Plan
 14. Income Taxes
   Sep. 30, 2007
    
    
    Jan. 31, 2007Net income/(loss) subject to U.S income taxes only
    
    $
    (1,846
    )
    
    $
    (1,474
    )Net loss subject to foreign income taxes only
    
    
    (51
    )
    
    
    (274
    )Net income/(loss)
    
    $
    (1,897
    )
    
    $
    (1,748
    )
 45




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Sep. 30, 2007
    
    
    Jan. 31, 2007Deferred tax assets:- net operating loss carry forward
    
    $
    15,986
    
    
    $
    15,382Gross deferred tax assets
    
    
    15,986
    
    
    
    15,382Deferred tax liabilities
    
    
    
    
    
    
    Net deferred tax assets
    
    
    15,986
    
    
    
    15,382Valuation allowance
    
    
    (15,986
    )
    
    
    (15,382
    )$
    -
    
    
    $
    Current year taxation:- Corporate tax  federal
    
    
    
    
    
    
    - Corporate tax  foreign
    
    
    
    
    
    
    Total
    
    $
    -
    
    
    $
    
     15. Segment Data
  16. Subsequent Events
 Option grants to Dennis M. Smith.
 Issuance of promissory notes in the aggregate principal amount of $1.65 million. SMP Ciabattoni Waveland
 46




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Spector
 Maturity Date
    Acquisition of membership interests in Rural Hospital Acquisition, LLC. RHA
 Settlement of arbitration matter. HI
 Put
Option HI-Owned Shares
  47




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Internal Control Over Financial Reporting Exchange Act
 Changes in Internal Control Over Financial Reporting
 
 Item 9B. OTHER INFORMATION
  48




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionDavid Hirschhorn
    
    
    46
    
    
    Chairman and DirectorChief Executive OfficerDennis M. Smith
    
    
    56
    
    
    Chief Financial OfficerDirectorTodd Parker (1)
    
    
    44
    
    
    DirectorRobert N. Schwartz, PhD.(2)
    
    
    68
    
    
    DirectorRichardson E. Sells(2)
    
    
    61
    
    
    Director
 
 (1)
    
    Member of the Audit Committee(2)
    
    Member of the Audit Committee and Compensation Committee David Hirschhorn
 Dennis M. Smith
 Todd Parker
 Robert N. Schwartz, Ph.D.
 49




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Richardson E. Sells
 Board Meetings and Committees
     Stockholder Communications with the Board of Directors
  
  Compensation of Directors
  50




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
   Section 16(a) Beneficial Ownership Reporting Compliance
   Number ofTransactions Not
    
    Known FailuresNumber of Late
    
    Reported On a
    
    To File aName
    
    Reports
    
    Timely Basis
    
    Required Form(#)
    
    (#)David Hirschhorn
    
    1
    
    1
    
    Form 5 due Mar. 15, 2007Todd Parker
    
    1
    
    1
    
    Form 5 due Mar. 15, 2007Dennis M. Smith
    
    2
    
    2
    
    Form 5 due Mar. 15, 2007Form 4 due Oct. 12, 2007
 Code of Ethics
  
 Item 11. EXECUTIVE COMPENSATION
 COMPENSATION DISCUSSION AND ANALYSIS
 Compensation Philosophy and Compensation Program Objectives
  
    
    Attract the highest caliber of talent required for the success of our business;
    
    Retain those individuals capable of achieving challenging performance standards;
    
    Incent our executives to strive for superior company-wide and individual performance;
and
 51




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
    
    Align management and stockholder interests over both the short and long-term.
  
    
    Base Salaries. We seek to provide competitive base salaries factoring in the position,
the executives skills and experience, the executives performance as well as other
factors. We believe appropriate base salary levels are critical in helping us to attract
and retain talented executives.
    
    Annual Cash Incentives.The aim of this element of compensation is to reward individual
contributions to align with our annual operating performance and to recognize the
achievement of challenging performance standards.
    
    Long-Term Equity Incentives.The long-term element of our compensation program consists
of discretionary grants of equity awards which are reviewed annually. These are designed to
align interests of management and employees with those of the Company and its stockholders
by directly linking individual compensation to the Companys long-term performance, as
reflected in stock price appreciation and increased stockholder value.
 Executive Officers
 The Executive Compensation Process
 The Board of Directors
  
    
    Reviewing and approving our compensation philosophy;
    
    Determining executive compensation levels;
    
    Annually reviewing and assessing performance goals and objectives for all Executive
Officers, including our chief executive officer and chief financial officer; and
    
    Determining short-term and long-term incentive compensation for all Executive Officers,
including our chief executive officers and chief financial officer.
  Outside Compensation Advice
  Benchmarking Process
  52




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Compensation of Executive Officers
     Components of the Executive Compensation Program
  53




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Base Salary
  Annual Cash Incentives
  Long-Term Equity Incentives
  Perquisites and Other Benefits
  Retirement Plans
  Benefits Upon Termination of Employment
   54




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Tax and Accounting Matters
   THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007 SUMMARY EXECUTIVE COMPENSATION TABLE
  Non-
    
    Change inEquity
    
    Pension ValueIncentive
    
    andName
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan
    
    Nonqualified
    
    All otherand
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    Option
    
    Compen-
    
    Deferred
    
    Compen-Principal
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    sation
    
    Compensation
    
    sation
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Earnings
    
    ($)
    
    ($)David Hirschhorn
    
    The Transition
    
    $
    183,508
    
    
    
    -0-
    
    
    $
    99,041
    (2)
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    282,549Chief Executive
    
    Period ended Sep.Officer (formerly
    
    30, 2007Co-Chief
Executive Officer
and Co-Chief
Financial
Officer)Todd Parker
    
    The Transition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3)Co-Chief
    
    Period ended Sep.Executive Officer
    
    30, 2007and Co-Chief
Financial Officer
(resigned Sep.
2007)Dennis M. Smith
    
    The Transition
    
    $
    200,000
    (4)
    
    
    
    
    
    
    
    
    
    
    -0-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    200,000Chief Financial
    
    Period ended Sep.Officer
    
    30, 2007
 
 (1)
    
    Mr. Hirschhorn was entitled to a guaranteed bonus payment in the amount of $56,250 during the
Transition Period Ended September 30, 2007. He did not receive this bonus during the
Transition Period Ended September 30, 2007, but the Company has reserved this bonus amount in
its financial statements. 55




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 (2)
    
    Pursuant to his employment agreement, Mr. Hirschhorn was granted 1,250,000 restricted shares
of our common stock upon becoming our Co-Chief Executive Officer. During the Transition
Period Ended September 30, 2007, 275,114 of these shares accrued and have been recognized for
financial statement reporting purposes.(3)
    
    Mr. Parker did not earn or receive any compensation during the Transition Period Ended
September 30, 2007.(4)
    
    Mr. Smith earned $200,000 in consulting fees in respect of consulting services he provided to
the Company during the Transition Period Ended September 30, 2007 prior to becoming our Chief
Financial Officer. Of this $200,000, $125,000 was paid to Mr. Smith during the Transition
Period Ended September 30, 2007. EMPLOYMENT AGREEMENTS
    THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007  GRANTS OF PLAN-BASED AWARDS
  56




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 OUTSTANDING EQUITY AWARDS AT THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007
  Option Awards
    
    
    Stock AwardsEquity
    
    EquityIncentive Plan
    
    Incentive PlanEquity Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    Awards:Plan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    Market orNumber of
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    Payout ValueSecurities
    
    Number of
    
    Securities
    
    
    
    
    
    
    
    
    
    Number of
    
    Market Value
    
    Shares, Units
    
    of UnearnedUnderlying
    
    Securities
    
    Underlying
    
    
    
    
    
    
    
    
    
    Shares or
    
    of Shares or
    
    or Other
    
    Shares, UnitsUnexercised
    
    Underlying
    
    Unexercised
    
    Option
    
    
    
    
    
    Units of Stock
    
    Units of Stock
    
    Rights That
    
    or Other RightsOptions
    
    Unexercised Options
    
    Unearned
    
    Exercise
    
    Option
    
    That Have
    
    That Have
    
    Have Not
    
    That Have Not(#)
    
    (#)
    
    Options
    
    Price
    
    Expiration
    
    Not Vested
    
    Not Vested
    
    Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)David Hirschhorn
Chief Executive
Officer (formerly
Co-Chief
Executive Officer
and Co-Chief
Financial
Officer)
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    329,875
    (1)
    
    
    118,755
    (2)
    
    
    -0-
    
    
    
    -0-Todd Parker
Co-Chief
Executive Officer
and Co-Chief
Financial Officer
(resigned Sep.
2007)
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Dennis M. Smith
Chief Financial
Officer
    
    
    30,000
    (3)
    
    
    
    
    
    
    90,000
    (3)
 
 (1)
    
    Pursuant to his employment agreement, Mr. Hirschhorn was granted 1,250,000 restricted shares
of our common stock upon becoming our Co-Chief Executive Officer on July 18, 2005. During the
Transition Period Ended September 30, 2007, 275,114 of these shares accrued and have been
recognized for financial statement reporting purposes. As a result, Mr. Hirschhorn is vested
in 920,125 shares.(2)
    
    This is determined by multiplying the number of shares that have not vested by the market
price on September 30, 2007 of $0.36.(3)
    
    On December 12, 2006, our Board of Directors approved the grant of an option to acquire an
aggregate of 120,000 shares of our common stock at an exercise price of $0.42 per share to Mr.
Smith, in his capacity as a director and consultant of the Company. The shares underlying the
option granted to Mr. Smith vest in quarterly increments over three years, beginning on the
effective issuance date of December 12, 2006. As of September 30, 2007, 30,000 shares
underlying the option are fully vested. The remaining 90,000 shares underlying the option are
unvested. 57




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 OPTION EXERCISES AND STOCK VESTED DURING THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007
  Number of
    
    
    
    
    
    Number ofShares
    
    Value
    
    Shares
    
    ValueAcquired on
    
    Realized on
    
    Acquired on
    
    Realized onExercise
    
    Exercise
    
    Vesting
    
    VestingName
    
    (#)
    
    ($)
    
    (#)
    
    ($)David Hirschhorn
Chief Executive Officer (formerly Co-Chief Executive
Officer and Co-Chief Financial Officer)
    
    
    
    
    
    
    
    
    
    
    275,114
    (1)
    
    
    99,041Todd Parker
Co-Chief Executive Officer and Co-Chief Financial
Officer (resigned Sep. 2007)
    
    
    
    (2)
    
    
    
    
    
    
    
    (2)
    
    
    Dennis M. Smith
Chief Financial Officer
    
    
    
    
    
    
    
    
    
    
    -0-
    
    
    
    -0-
 
 (1)
    
    Pursuant to his employment agreement, Mr. Hirschhorn was granted 1,250,000 restricted shares
of our common stock upon becoming our Co-Chief Executive Officer on July 18, 2005. During the
Transition Period Ended September 30, 2007, 275,114 of these shares accrued and have been
recognized for financial statement reporting purposes. As a result, Mr. Hirschhorn is vested
in 920,125 shares.(2)
    
    Mr. Parker resigned as Co-Chief Executive Officer and Co-Chief Financial Officer in September
2007. He did not acquire any shares on exercise or vesting during the Transition Period Ended
September 30, 2007. THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007 NONQUALIFIED DEFERRED COMPENSATION
  THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007 PENSION BENEFITS
  THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007 EQUITY COMPENSATION PLAN INFORMATION
  Number ofsecurities to beissued upon
    
    Weighted-average
    
    Number of securitiesexercise of
    
    exercise price of
    
    remaining available for futureoutstanding
    
    outstanding
    
    issuance under equity compensation plansoptions, warrants
    
    options, warrants
    
    (excluding securities reflected inand rights at
    
    and rights at
    
    column (a)) atSep. 30, 2007
    
    Sep. 30, 2007
    
    Sep. 30, 2007Plan category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans approved by
security holders
    
    
    1,402,596
    
    
    $
    0.42
    
    
    
    5,149,230Equity compensation plans not approved
by security holders
    
    
    27,171
    
    
    $
    15.25
    
    
    
    -0-Total
    
    
    1,429,767
    
    
    $
    0.83
    
    
    
    5,149,230
 THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007 POTENTIAL PAYMENTS UPON TERMINATION OR A CHANGE IN
CONTROL
  58




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  DAVID HIRSCHHORN, CHIEF EXECUTIVE OFFICER (FORMERLY CO-CEO and CO-CFO)
 InvoluntaryTerminationVoluntary
    
    Involuntary Not
    
    
    
    
    
    Without CauseTermination
    
    For
    
    
    
    
    
    or TerminationBenefits/Payments
    
    (including
    
    Cause
    
    For Cause
    
    for Good
    
    Death orUpon Termination
    
    Retirement)
    
    Termination
    
    Termination
    
    Reason
    
    DisabilitySalary
    
    
    
    
    
    $
    720,000
    (1)
    
    
    
    
    
    
    118,755
    (2)
    
    
    Accelerated Vesting of Deferred Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accelerated Vesting of Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Continuation of Insurance Benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    In the event Mr. Hirschhorn is terminated without cause after July 18, 2008 and prior to July
18, 2008, he is entitled to receive a severance payment of two times his then current annual
salary, pursuant to his employment agreement.(2)
    
    All of Mr. Hirschhorns unvested shares of our restricted common stock that were granted to
him pursuant to his becoming Co-Chief Executive Officer will vest upon a change of control, as
that term is defined in his employment agreement. As of September 30, 2007, he owned
1,250,000 shares of our restricted common stock, of which 920,125 shares had vested. THE TRANSITION PERIOD ENDED SEPTEMBER 30, 2007 DIRECTOR COMPENSATION
  
 Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 Common Stock
 Executive Compensation
 59




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TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Percent ofNumber of
    
    TotalShares
    
    Common
    
    Percent ofBeneficially
    
    Stock
    
    TotalName of Beneficial Owner(1)
    
    Owned
    
    Outstanding(2)
    
    Outstanding(3)Greater Than 5% Beneficial OwnersSMP Investments I, LLCc/o HSP Group, LLC875 Prospect
Street, Suite 220La Jolla, CA 92037(4)
    
    
    5,757,142
    
    
    
    70.4
    %
    
    
    17.60
    %Carol Schuster
3555 NW 58th Street

Suite 700

Oklahoma City, OK 73112
    
    
    4,250,000
    
    
    
    51.97
    %
    
    
    12.99
    %Ciabbattoni Living Trust 8/17/2000(5)
16 Lagunita Drive

Laguna Beach, CA 92561
    
    
    2,783,571
    
    
    
    34.0
    %
    
    
    8.51
    %Mercantile Capital Partners I, L.P.
3201 Old Glenview Road 

Wilmette, Illinois 60091
    
    
    48,860
    
    
    
    7.93
    %
    
    
    1.98
    %Current DirectorsDavid Hirschhorn (6)
149 South Barrington Avenue 

Suite 808

Los Angeles, CA 90049
    
    
    1,725,000
    
    
    
    21.09
    %
    
    
    5.28
    %Todd Parker (7)
149 South Barrington Avenue 

Suite 808

Los Angeles, CA 90049
    
    
    672,800
    
    
    
    8.22
    %
    
    
    2.05
    %Robert N. Schwartz, Ph.D (8)
6 Duquesa 

Dana Point, CA 92629
    
    
    185,857
    
    
    
    2.27
    %
    
    
    *Richardson E. Sells (9)
18 Audubon Pond

Hilton Head, SC 29928
    
    
    180,000
    
    
    
    2.20
    %
    
    
    *Dennis M. Smith (10)
33 Gull Point 

Hilton Head, SC 29928
    
    
    895,000
    
    
    
    10.94
    %
    
    
    2.74
    %Current directors and executive officers as a group (5 persons) (11)
    
    
    3,658,657
    
    
    
    4.36
    %
    
    
    11.19
    %
 
 *
    
    Less than 1%.(1)
    
    Except as otherwise indicated, we believe that the beneficial owners of the securities listed
have sole investment and voting power with respect to their shares. The number of shares shown
as beneficially owned by any person or entity includes all Preferred Stock, options, warrants
and other convertible securities currently exercisable by that person or entity within 60 days
of January 11, 2008.(2)
    
    The percentages of beneficial ownership shown assume the exercise or conversion of all
Preferred Stock, options, warrants and other securities convertible into common stock held by
such person or entity currently exercisable within 60 days of January 11, 2008, but not the
exercise or conversion of Preferred Stock, options, warrants and other convertible securities
held by other holders of such securities.(3)
    
    Based on a total of 32,696,687 shares of common stock outstanding on a fully-diluted basis as
of January 11, 2008, which includes shares of common stock issuable upon the conversion of our
outstanding Preferred Stock and shares of common stock issuable upon the exercise of stock
options and warrants that are exercisable within 60 days of January 11, 2008. 60




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 
 (4)
    
    Consists of (a) 250 shares of Series 5-A Convertible Preferred Stock, $0.01 par value, which
could be deemed to be beneficially owned by the reporting person which are convertible into
800,000 shares of Common Stock; (b) a warrant to purchase 1,200,000 shares of Common Stock at
a price of $0.3125 per share which could be deemed to be beneficially owned by the reporting
person; (c) warrants to purchase an aggregate of 900,000 shares of Common Stock at a price of
$0.50 per share which could be deemed to be beneficially owned by the reporting person, and
(d) a convertible promissory note in the principal amount of $1,000,000 which could be deemed
to be beneficially owned by the reporting person convertible into 2,857,142 shares of Common
Stock at a price of $0.35 per share.(5)
    
    Consists of (a) 100 shares of Series 5-A Convertible Preferred Stock, $0.01 par value, which
could be deemed to be beneficially owned by the reporting person which are convertible into
320,000 shares of Common Stock; (b) a warrant to purchase 600,000 shares of Common Stock at a
price of $0.3125 per share which could be deemed to be beneficially owned by the reporting
person; (c) warrants to purchase 435,000 shares of Common Stock at a price of $0.50 per share
which could be deemed to be beneficially owned by the reporting person, and (d) a convertible
promissory note in the principal amount of $500,000 which could be deemed to be beneficially
owned by the reporting person convertible into 1,428,571 shares of Common Stock at a price of
$0.35 per share.(6)
    
    Consists of (a) 1,250,000 restricted shares of common stock granted in connection with Mr.
Hirschhorns Employment Agreement, dated as of July 18, 2005; and (b) 475,000 shares
beneficially owned by Mr. Hirschhorn in his capacity as President of Hope & Abel Investments,
LLC, which directly holds (i) 125 shares of Series 5-A Preferred Stock, which are convertible
into 400,000 shares of common stock, and (ii) warrants to purchase 75,000 shares of common
stock at an exercise price of $0.50 per share, both which were issued in connection with
Series 5-A Preferred Stock and Warrant Agreements, dated as of July 18, 2005 and September 18,
2006.(7)
    
    Consists of (a) 159,800 restricted shares of common stock granted in connection with Mr.
Parkers Employment Agreement, dated as of July 18, 2005; and (b) (i) 135 shares of Series 5-A
Preferred Stock, which are convertible into 432,000 shares of common stock and (ii) warrants
to purchase 81,000 shares of common stock at an exercise price of $0.50 per share, both which
were issued in connection with the Series 5-A Preferred Stock and Warrant Agreements, dated as
of July 18, 2005 and September 18, 2006.(8)
    
    Consists of (a) 982 shares directly owned by Mr. Schwartz; (b) 1,125 shares owned in a trust
on behalf of Mr. Schwartz and (c) 183,750 shares of common stock issuable upon exercise of Mr.
Schwartzs stock options.(9)
    
    Consists of 180,000 shares of common stock issuable upon exercise of Mr. Sells stock
options.(10)
    
    Consists of (a) 125 shares of Series 5-A Preferred Stock, which are convertible into 400,000
shares of common stock; (b) warrants to purchase 75,000 shares of common stock at an exercise
price of $0.50 per share, both which were issued in connection with the Series 5-A Preferred
Stock and Warrant Agreements, dated as of July 18, 2005 and September 18, 2006 and (c) 420,000
shares of common stock currently issuable upon exercise of Mr. Smiths stock options.(11)
    
    Includes shares held directly, as well as shares held jointly with family members, held in
retirement accounts, held in a fiduciary capacity, held by certain of the group members
families, or held by trusts of which the group member is a trustee or substantial beneficiary,
with respect to which shares the group member may be deemed to have sole or shared voting or
investment powers. Also includes an aggregate of 383,750 shares of common stock issuable upon
exercise of stock options. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Vsource Asia Board of Directors
  Advisory Board
  61




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
  Cross Shore Acquisition Corporation Advance
  Sub-Lease from HSP, Inc.
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Fees
  Transition PeriodEnded
    
    
    Year Ended
    
    
    Year EndedSeptember 30, 2007
    
    
    January 31, 2007
    
    
    January 31, 2006Audit
    
    $
    62
    
    
    $
    61
    
    
    $
    91,000Audit Related
    
    $
    
    
    
    $
    
    
    
    $
    Tax
    
    $
    19
    
    
    $
    
    
    
    $
    1,822Total
    
    $
    81
    
    
    $
    61
    
    
    $
    92,822
 Audit .
 62




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##### Table of Contents



TRI-ISTHMUS GROUP, INC.
    
    2007 FORM 10-KT
 Audit Related
 Tax
  Audit Committee Pre-Approval Policies and Procedures
  63




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##### Table of Contents



TRI-ISTHMUS GROUP, INC
    
    2007 FORM 10-KT
 
 PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 The following documents are filed as part of this Form 10-K:(1)
    
    Consolidated Financial StatementsReports of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of September 30, 2007, January 31, 2007 and 2006Consolidated Statements of Operations for the Transition Period Ended September 30, 2007 and the
years ended January 31, 2007 and 2006Consolidated Statements of Stockholders Equity for the Transition Period Ended September 30,
2007 and the years ended January 31, 2007 and 2006Consolidated Statements of Cash Flows for the Transition Period Ended September 30, 2007 and the
years January 31, 2007 and 2006Notes to the Consolidated Financial Statements(2)
    
    Financial Statement SchedulesAll schedules have been omitted because they are not required or the required information is
shown in the financial statements or notes thereto.(3)
    
    The following documents are filed as exhibits to this Transition Report on Form 10-K
(exhibits marked with an asterisk (*) have been previously filed with the SEC as indicated and
are incorporated herein by reference):
 2.1*
    
    Membership Interest Purchase Agreement (filed as Exhibit 2.1 to the Form 8-K, as filed with the SEC on November
5, 2007)3.1*
    
    Certificate of Incorporation (filed as Exhibit 3.1 to the Form 8-K, as filed with the SEC on November 14, 2000)3.2*
    
    Bylaws (filed as Exhibit 3.2 to the Form 8-K, as filed with the SEC on November 14, 2000)3.3*
    
    Amendment to Certificate of Incorporation, dated January 16, 2002 (filed as Exhibit 3.3 to the Form 8-K, as
filed with the SEC on January 23, 2002)3.4*
    
    Amendment to Certificate of Incorporation, dated November 20, 2002 (filed as Exhibit 3.1 to the Form 10-Q for
the period ending October 31, 2002, as filed with the SEC on December 5, 2002)3.5*
    
    Certificate of Amendment to Certificate of Incorporation, dated December 16, 2005 (filed as Exhibit 3.5 to the
Form 10-Q for the period ending October 31, 2005, as filed with the SEC on December 20. 2005)4.1*
    
    Certificate of Designation of Rights and Preferences of Series 5-A Convertible Preferred Stock (filed as
Exhibit 3.1 to the Form 8-K, as filed with the SEC on July 21, 2005)4.2*
    
    Certificate of Decrease of Shares Designated as Series 1-A Convertible Preferred Stock (filed as Exhibit 4.1 to
the Form 8-K, as filed with the SEC on July 13, 2005)4.3*
    
    Certificate of Decrease of Shares Designated as Series 2-A Convertible Preferred Stock (filed as Exhibit 4.2 to
the Form 8-K, as filed with the SEC on July 13, 2005)4.4*
    
    Certificate of Decrease of Shares Designated as Series 3-A Convertible Preferred Stock (filed as Exhibit 4.3 to
the Form 8-K, as filed with the SEC on July 13, 2005)4.5*
    
    Certificate of Decrease of Shares Designated as Series 4-A Convertible Preferred Stock (filed as Exhibit 4.4 to
the Form 8-K, as filed with the SEC on July 13, 2005)4.6*
    
    Series 5-A Preferred Stock and Warrant Purchase Agreement, dated as of July 7, 2005, by and among Vsource, Inc.
and the investors listed therein (filed as Exhibit 4.1 to the Form 8-K, as filed with the SEC on July 21, 2005)4.7*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant (filed as Exhibit 4.2 to the Form 8-K, as filed with the
SEC on July 21, 2005)4.8*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant issuable to Advisory Board members (filed as Exhibit 4.2 to
the Form 8-K, as filed with the SEC on August 23, 2005)4.9*
    
    Amended and Restated Articles of Organization (filed as Exhibit 4.1 to the Form 8-K, as filed with the SEC on
November 5, 2007)
 64




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##### Table of Contents



TRI-ISTHMUS GROUP, INC
    
    2007 FORM 10-KT
 4.10*
    
    Amended and Restated Operating Agreement (filed as Exhibit 4.2 to the Form 8-K, as filed with the SEC on
November 5, 2007)10.1*
    
    Purchase and Sale of Obligation Agreement, dated as of May 24, 2005, by and among Vsource, Inc. and Symphony
House Berhad (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on May 27, 2005)10.2*
    
    Consulting and Non-Competition Agreement, dated as of July 18, 2005, by and between Vsource, Inc. and Dennis M.
Smith (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on July 21, 2005)10.3*
    
    Loan Agreement, dated as of July 29, 2005, between Clinicis-Phoenix Surgery, LLC and Vsource (USA) Inc. (filed
as Exhibit 10.1 to the Form 8-K, as filed with the SEC on August 9, 2005)10.4*
    
    Secured Promissory Note, dated as of July 29, 2005, executed by Clinicis-Phoenix Surgery, LLC. (filed as
Exhibit 10.2 to the Form 8-K, as filed with the SEC on August 9, 2005)10.5*
    
    Stock Pledge Agreement, dated as of July 29, 2005, between Donald A. Cook and Vsource (USA) Inc. (filed as
Exhibit 10.3 to the Form 8-K, as filed with the SEC on August 9, 2005)10.6*
    
    Inducement Agreement, dated as of July 29, 2005, between Vsource, Inc. and Clinicis, Inc. (filed as Exhibit
10.4 to the Form 8-K, as filed with the SEC on August 9, 2005)10.7*
    
    Employment and Non-Competition Agreement, dated as of July 18, 2005, between David Hirschhorn and Vsource (USA)
Inc. (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on August 23, 2005)10.8*
    
    Employment and Non-Competition Agreement, dated as of July 18, 2005, between Todd Parker and Vsource (USA) Inc.
(filed as Exhibit 10.2 to the Form 8-K, as filed with the SEC on August 23, 2005)10.9*
    
    Partnership Interest Purchase Agreement, dated as of December 2, 2005, by and among Del Mar GenPar, Inc. and
Del Mar Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David M. Kupfer, M.D.
(filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on December 7, 2005)10.10*
    
    Partnership Interest Purchase Agreement, dated as of December 2, 2005, by and among Point Loma GenPar, Inc. and
Point Loma Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David M. Kupfer, M.D.
(filed as Exhibit 10.2 to the Form 8-K, as filed with the SEC on December 7, 2005)10.11*
    
    First Amendment to Partnership Interest Purchase Agreement, dated as of March 13, 2006, by and among Del Mar
GenPar, Inc. and Del Mar Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David M.
Kupfer, M.D. (filed as Exhibit 10.3 to the Form 8-K, as filed with the SEC on March 16, 2006)10.12*
    
    First Amendment to Partnership Interest Purchase Agreement, dated as of March 13, 2006, by and among Point Loma
GenPar, Inc. and Point Loma Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David
M. Kupfer, M.D. (filed as Exhibit 10.4 to the Form 8-K, as filed with the SEC on March 16, 2006)10.13*
    
    Series 5-A Preferred Stock and Warrant Purchase Agreement, dated as of September, 18, 2006, by and among
Tri-Isthmus Group, Inc. and certain Series 5-A Preferred Stock Investors (filed as Exhibit 4.1 to the Form 8-K,
as filed with the SEC on September 22, 2006)10.14*
    
    Form of Common Stock Purchase Warrant (filed as Exhibit 4.2 to the Form 8-K, as filed with the SEC on September
22, 2006)10.15*
    
    Form of First Group Notes (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on November 2, 2007)10.16*
    
    Form of Second Group Notes (filed as Exhibit 10.2 to the Form 8-K, as filed with the SEC on November 2, 2007)10.17*
    
    Form of First Group Warrants (filed as Exhibit 10.3 to the Form 8-K, as filed with the SEC on November 2, 2007)10.18*
    
    Form of Second Group Warrants (filed as Exhibit 10.4 to the Form 8-K, as filed with the SEC on November 2, 2007)10.19*
    
    Form of Limited Guaranty by Tri-Isthmus (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on
November 5, 2007)10.20*
    
    Employment Agreement of Dennis M. Smith, dated effective as of October 10, 2007 (filed as Exhibit 10.1 to the
Form 8-K, as filed with the SEC on December 21, 2007)10.21*
    
    Option Agreement of Dennis M. Smith, dated effective as of October 10, 2007 (filed as Exhibit 10.2 to the Form
8-K, as filed with the SEC on December 21, 2007)21.1
    
    Subsidiaries of Tri-Isthmus Group, Inc. (f/k/a Vsource, Inc.)31.1
    
    Certification Pursuant to Rule 13a-14(d) promulgated under the Securities Exchange Act of 193431.2
    
    Certification Pursuant to Rule 13a-14(d) promulgated under the Securities Exchange Act of 193432.1
    
    Certification Pursuant to 18 U.S.C. 135032.2
    
    Certification Pursuant to 18 U.S.C. 1350
 65




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##### Table of Contents



TRI-ISTHMUS GROUP, INC
    
    2007 FORM 10-KT
 
 SIGNATURES
  Tri-Isthmus Group, Inc.Date: January 15, 2008
    /s/ David HirschhornDavid HirschhornChief Executive Officer  Signature
    
    Title
    
    Date/s/ David Hirschhorn

David Hirschhorn
    
    Chairman of the Board,
Chief Executive Officer
    
    January 15, 2008/s/ Dennis M. Smith

Dennis M. Smith
    
    Chief Financial Officer
    
    January 15, 2008/s/ Todd Parker

Todd Parker
    
    Director
    
    January 15, 2008/s/ Robert N. Schwartz

Robert N. Schwartz
    
    Director
    
    January 15, 2008/s/ Richardson E. Sells

Richardson E. Sells
    
    Director
    
    January 15, 2008
 66




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##### Table of Contents



TRI-ISTHMUS GROUP, INC
    
    2007 FORM 10-KT
 
 EXHIBIT INDEX
 Exhibit No.
    
    Description2.1*
    
    Membership Interest Purchase Agreement (filed as Exhibit 2.1 to the Form 8-K, as filed with the SEC on
November 5, 2007)3.1*
    
    Certificate of Incorporation (filed as Exhibit 3.1 to the Form 8-K, as filed with the SEC on November 14, 2000)3.2*
    
    Bylaws (filed as Exhibit 3.2 to the Form 8-K, as filed with the SEC on November 14, 2000)3.3*
    
    Amendment to Certificate of Incorporation, dated January 16, 2002 (filed as Exhibit 3.3 to the Form 8-K, as
filed with the SEC on January 23, 2002)3.4*
    
    Amendment to Certificate of Incorporation, dated November 20, 2002 (filed as Exhibit 3.1 to the Form 10-Q for
the period ending October 31, 2002, as filed with the SEC on December 5, 2002)3.5*
    
    Certificate of Amendment to Certificate of Incorporation, dated December 16, 2005 (filed as Exhibit 3.5 to the
Form 10-Q for the period ending October 31, 2005, as filed with the SEC on December 20. 2005)4.1*
    
    Certificate of Designations of Rights and Preferences of Series 5-A Convertible Preferred Stock (filed as
Exhibit 3.1 to the Form 8-K, as filed with the SEC on July 21, 2005)4.2*
    
    Certificate of Decrease of Shares Designated as Series 1-A Convertible Preferred Stock (filed as Exhibit 4.1
to the Form 8-K, as filed with the SEC on July 13, 2005)4.3*
    
    Certificate of Decrease of Shares Designated as Series 2-A Convertible Preferred Stock (filed as Exhibit 4.2
to the Form 8-K, as filed with the SEC on July 13, 2005)4.4*
    
    Certificate of Decrease of Shares Designated as Series 3-A Convertible Preferred Stock (filed as Exhibit 4.3
to the Form 8-K, as filed with the SEC on July 13, 2005)4.5*
    
    Certificate of Decrease of Shares Designated as Series 4-A Convertible Preferred Stock (filed as Exhibit 4.4
to the Form 8-K, as filed with the SEC on July 13, 2005)4.6*
    
    Series 5-A Preferred Stock and Warrant Purchase Agreement, dated as of July 7, 2005, by and among Vsource,
Inc. and the investors listed therein (filed as Exhibit 4.1 to the Form 8-K, as filed with the SEC on July 21,
2005)4.7*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant (filed as Exhibit 4.2 to the Form 8-K, as filed with the
SEC on July 21, 2005)4.8*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant issuable to Advisory Board members (filed as Exhibit 4.2
to the Form 8-K, as filed with the SEC on August 23, 2005)4.9*
    
    Amended and Restated Articles of Organization (filed as Exhibit 4.1 to the Form 8-K, as filed with the SEC on
November 5, 2007)4.10*
    
    Amended and Restated Operating Agreement (filed as Exhibit 4.2 to the Form 8-K, as filed with the SEC on
November 5, 2007)10.1*
    
    Purchase and Sale of Obligation Agreement, dated as of May 24, 2005, by and among Vsource, Inc. and Symphony
House Berhad (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on May 27, 2005)10.2*
    
    Consulting and Non-Competition Agreement, dated as of July 18, 2005, by and between Vsource, Inc. and Dennis
M. Smith (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on July 21, 2005)10.3*
    
    Loan Agreement, dated as of July 29, 2005, between Clinicis-Phoenix Surgery, LLC and Vsource (USA) Inc. (filed
as Exhibit 10.1 to the Form 8-K, as filed with the SEC on August 9, 2005)10.4*
    
    Secured Promissory Note, dated as of July 29, 2005, executed by Clinicis-Phoenix Surgery, LLC. (filed as
Exhibit 10.2 to the Form 8-K, as filed with the SEC on August 9, 2005)10.5*
    
    Stock Pledge Agreement, dated as of July 29, 2005, between Donald A. Cook and Vsource (USA) Inc. (filed as
Exhibit 10.3 to the Form 8-K, as filed with the SEC on August 9, 2005)10.6*
    
    Inducement Agreement, dated as of July 29, 2005, between Vsource, Inc. and Clinicis, Inc. (filed as Exhibit
10.4 to the Form 8-K, as filed with the SEC on August 9, 2005)10.7*
    
    Employment and Non-Competition Agreement, dated as of July 18, 2005, between David Hirschhorn and Vsource
(USA) Inc. (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on August 23, 2005)10.8*
    
    Employment and Non-Competition Agreement, dated as of July 18, 2005, between Todd Parker and Vsource (USA)
Inc. (filed as Exhibit 10.2 to the Form 8-K, as filed with the SEC on August 23, 2005)10.9*
    
    Partnership Interest Purchase Agreement, dated as of December 2, 2005, by and among Del Mar GenPar, Inc. and
Del Mar Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David M. Kupfer, M.D.
(filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on December 7, 2005)10.10*
    
    Partnership Interest Purchase Agreement, dated as of December 2, 2005, by and among Point Loma GenPar, Inc.
and Point Loma Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David M. Kupfer,
M.D. (filed as Exhibit 10.2 to the Form 8-K, as filed with the SEC on December 7, 2005)10.11*
    
    First Amendment to Partnership Interest Purchase Agreement, dated as of March 13, 2006, by and among Del Mar
GenPar, Inc. and Del Mar Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and David
M. Kupfer, M.D. (filed as Exhibit 10.3 to the Form 8-K, as filed with the SEC on March 16, 2006)10.12*
    
    First Amendment to Partnership Interest Purchase Agreement, dated as of March 13, 2006, by and among Point
Loma GenPar, Inc. and Point Loma Acquisition, Inc., as the buyers; Surgical Ventures, Inc., as the seller; and
David M. Kupfer, M.D. (filed as Exhibit 10.4 to the Form 8-K, as filed with the SEC on March 16, 2006)
 67




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##### Table of Contents



TRI-ISTHMUS GROUP, INC
    
    2007 FORM 10-KT
 10.13*
    
    Series 5-A Preferred Stock and Warrant Purchase Agreement, dated as of September, 18, 2006, by and among
Tri-Isthmus Group, Inc. and certain Series 5-A Preferred Stock Investors (filed as Exhibit 4.1 to the Form
8-K, as filed with the SEC on September 22, 2006)10.14*
    
    Form of Common Stock Purchase Warrant (filed as Exhibit 4.2 to the Form 8-K, as filed with the SEC on
September 22, 2006)10.15*
    
    Form of First Group Notes (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on November 2, 2007)10.16*
    
    Form of Second Group Notes (filed as Exhibit 10.2 to the Form 8-K, as filed with the SEC on November 2, 2007)10.17*
    
    Form of First Group Warrants (filed as Exhibit 10.3 to the Form 8-K, as filed with the SEC on November 2, 2007)10.18*
    
    Form of Second Group Warrants (filed as Exhibit 10.4 to the Form 8-K, as filed with the SEC on November 2,
2007)10.19*
    
    Form of Limited Guaranty by Tri-Isthmus (filed as Exhibit 10.1 to the Form 8-K, as filed with the SEC on
November 5, 2007)10.20*
    
    Employment Agreement of Dennis M. Smith, dated effective as of October 10, 2007 (filed as Exhibit 10.1 to the
Form 8-K, as filed with the SEC on December 21, 2007)10.21*
    
    Option Agreement of Dennis M. Smith, dated effective as of October 10, 2007 (filed as Exhibit 10.2 to the Form
8-K, as filed with the SEC on December 21, 2007)21.1
    
    Subsidiaries of Tri-Isthmus Group, Inc. (f/k/a Vsource, Inc.)31.1
    
    Certification Pursuant to Rule 13a-14(d) promulgated under the Securities Exchange Act of 193431.2
    
    Certification Pursuant to Rule 13a-14(d) promulgated under the Securities Exchange Act of 193432.1
    
    Certification Pursuant to 18 U.S.C. 135032.2
    
    Certification Pursuant to 18 U.S.C. 1350
 
 *
    
    Previously filed with the SEC as indicated, and hereby incorporated herein by reference. 68