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U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended January 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-30326
 TRI-ISTHMUS GROUP, INC.
  DELAWARE
(State or other jurisdiction
of incorporation or organization)
    
    77-0557617
(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
 
 
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
  Number of shares of common stock outstanding as of May 16, 2006
    
    
    3,673,992Number of shares of Series 1-A Convertible Preferred Stock outstanding as of May 16, 2006
    
    
    67,600Number of shares of Series 2-A Convertible Preferred Stock outstanding as of May 16, 2006
    
    
    3,900Number of shares of Series 4-A Convertible Preferred Stock outstanding as of May 16, 2006
    
    
    0Number of shares of Series 5-A Convertible Preferred Stock outstanding as of May 16, 2006
    
    
    1,478




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TABLE OF CONTENTS
 PART IItem 1.
    
    BUSINESS
    
    
    2Item 1A.
    
    RISK FACTORS
    
    
    8Item 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    10Item 2.
    
    PROPERTIES
    
    
    10Item 3.
    
    LEGAL PROCEEDINGS
    
    
    10Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    11PART IIItem 5.
    
    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    12Item 6.
    
    SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    14Item 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    15Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    21Item 8.
    
    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    22Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    51Item 9A.
    
    CONTROLS AND PROCEDURES
    
    
    51Item 9B.
    
    OTHER INFORMATION
    
    
    51PART IIIItem 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    52Item 11.
    
    EXECUTIVE COMPENSATION
    
    
    55Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
 MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    61Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    66Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    67PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    68SIGNATURES
    
    
    70EXHIBIT INDEX
    
    
    71SubsidiariesCertification 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
  1




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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
   
 PART I
 
 Item 1.
    
    BUSINESS
 www.tig3.com
    Series 4-A Preferred Stock
 2




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3




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4




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Strategy
  
    
    Process intensive businesses and/or businesses with differentiating assets.
    
    Fragmented competitive landscape with the potential for both organic growth and
growth through consolidation.
    
    Companies lending themselves to a partnership with TIGroup, with the seller
retaining a continued involvement in the success of the business and the success of
TIGroup.
    
    Diverse client base with strong retention traits.
    
    Positive cash flow, which can be improved with better operating efficiencies.
 5




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
    
    Healthcare delivery and processing services including ambulatory surgical centers,
data and billing management and claims processing.
    
    Financial processing services including accounting, tax preparation and accounts
receivable and payable management.
    
    Asset management services including funds management and benefits management.
    
    Resources services including support functions for the energy industry.
         www.vsource.com
  6




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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.
 We have incurred significant losses and anticipate losses in the future, and as a result, there is
substantial doubt about our ability to continue as a going concern.
  We continue to have significant corporate and SEC-related expenses and limited revenue to offset
these expenses.
  We have broad discretion in using our cash resources and may not use them in a manner that our
stockholders would prefer.
  Appropriate acquisitions or investment opportunities may not be available.
   8




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We may finance acquisitions by issuing additional capital stock or incurring substantial debt, both
of which could have negative consequences.
  Need for ongoing financing.
  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.
  Substantial costs of any securities litigation could divert our limited resources.
  The market for our common stock may be illiquid.
  9




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Our stock is not listed on a major stock market
  
 Item 1B.
    
    UNRESOLVED STAFF COMMENTS.
  
 Item 2.
    
    PROPERTIES
  
 Item 3.
    
    LEGAL PROCEEDINGS
  10




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Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Name of Class or Series
    
    Number of Shares
    
    Number of VotesCommon Stock
    
    
    3,673,992
    
    
    
    3,673,992Series 1-A Preferred Stock
    
    
    67,600
    
    
    
    75,712Series 2-A Preferred Stock
    
    
    3,900
    
    
    
    5,538Series 5-A Preferred Stock
    
    
    1,478
    
    
    
    4,729,600Total
    
    
    
    
    
    
    8,484,883
    Name
    
    Number of VotesDavid Hirschhorn
    
    
    6,210,285Todd Parker
    
    
    6,210,285Robert N. Schwartz
    
    
    6,210,285Richardson E. Sells
    
    
    6,210,285Dennis M. Smith
    
    
    6,210,285
  11




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PART II
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES
OF EQUITY SECURITIES
   Fiscal Year Ended January 31, 2006
    
    High
    
    LowFirst Quarter
    
    $
    0.20
    
    
    $
    0.12Second Quarter
    
    
    0.38
    
    
    
    0.10Third Quarter
    
    
    0.80
    
    
    
    0.32Fourth Quarter
    
    
    1.05
    
    
    
    0.30
 Fiscal Year Ended January 31, 2005
    
    High
    
    LowFirst Quarter
    
    $
    0.65
    
    
    $
    0.35Second Quarter
    
    
    0.51
    
    
    
    0.25Third Quarter
    
    
    0.32
    
    
    
    0.18Fourth Quarter
    
    
    0.20
    
    
    
    0.15
 Fiscal Year Ended January 31, 2004
    
    High
    
    LowFirst Quarter
    
    $
    2.00
    
    
    $
    0.53Second Quarter
    
    
    2.50
    
    
    
    0.80Third Quarter
    
    
    1.39
    
    
    
    0.67Fourth Quarter
    
    
    1.18
    
    
    
    0.46
     12




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Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnand rights at
    
    
    and rights at
    
    
    (a)) at January 31,Plan category
    
    January 31, 2006
    
    
    January 31, 2006
    
    
    2006(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security
holders(1)
    
    
    131,346
    
    
    
    0.99
    
    
    
    2,271,063Equity compensation
plans not approved
by security
holders(2)
(3)(4)
    
    
    1,132,171
    
    
    
    2.43
    
    
    
    12,579Total
    
    
    1,263,517
    
    
    
    2.28
    
    
    
    2,283,642
 
 (1)
    
    Consists of two plans: (a) our 2001 Stock Options/Stock Issuance Plan and (b) our
Employee Stock Purchase Plan. Both plans were approved by stockholders at our 2001 Annual
Meeting. The maximum number of shares of common stock that may be issued under the 2001
Stock Options/Stock Issuance 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 January 31, 2006, based on the 20% calculation, the maximum
number of shares issuable under the 2001 Plan was 2,075,349.The maximum number of shares
of common stock that may be purchased under our Employee Stock Purchase Plan is 350,000.
In Fiscal 2006, 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 Employee Stock Purchase Plan. As of May
16, 2006, the number of shares issuable upon the exercise of all outstanding options was
178,517 and the maximum number of shares issuable under the 2001 Plan was 2,029,341.(2)
    
    In July 2000, our Board of Directors approved a stock option plan (the 2000 Plan).
This plan has not been approved by our stockholders. The 2000 Plan authorizes the grant of
incentive stock options and non-statutory stock options covering an aggregate of 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 January 31, 2006, 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. In addition, as of January 31, 2006, we had outstanding warrants to purchase an
aggregate of 17,500 shares of common stock, with an exercise price of $2, to certain
individuals and vendors as compensation for services rendered. These warrants will expire
July 12, 2006. 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.(3)
    
    During the third quarter of Fiscal 2006, our Board of Directors approved the issuance
to members of our Advisory Board, as compensation for participation on our Advisory Board,
of warrants to purchase an aggregate of 727,500 shares of our common stock at an exercise
price of $0.35 per share. These warrants become one-third vested upon issuance and vest an
additional third after each calendar year. These warrants will become fully vested after
two years.(4)
    
    On November 17, 2005, our Board of Directors approved the grants to two independent
directors of options to acquire an aggregate of 360,000 shares of our common stock at an
exercise price of $0.40 per share. These options vest in quarterly increments over three
years, beginning on the effective issuance date of August 1, 2005.   13




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Item 6.
    
    SELECTED CONSOLIDATED FINANCIAL DATA
 AS NOTED ABOVE, IN FISCAL 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 FISCAL 2005 AND FISCAL 2004 RESPECTIVELY. THE DISCUSSION BELOW PRESENTS OUR RESULTS,
EXCLUDING REVENUES AND EXPENSES FROM DISCONTINUED OPERATIONS.
 January 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(in thousands, except per share amounts)Revenue
    
    $
    
    
    
    $
    254
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating expenses
    
    
    2,175
    
    
    
    2,503
    
    
    
    5,394
    
    
    
    4,522
    
    
    
    13,058Net loss
from continuing operations
    
    
    (2,170
    )
    
    
    (2,252
    )
    
    
    (5,362
    )
    
    
    (13,599
    )
    
    
    (16,789
    )Net income/(loss)
per share available
to common
shareholders- Basic
    
    $
    (0.91
    )
    
    $
    9.77
    
    
    $
    (9.01
    )
    
    $
    (4.08
    )
    
    $
    (17.49
    )- Diluted
    
    
    N/A
    
    
    $
    9.53
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ACash and cash
equivalents
    
    
    1,289
    
    
    
    1,064
    
    
    
    1,452
    
    
    
    11,152
    
    
    
    4,753Property and
Equipment, net
    
    
    1
    
    
    
    40
    
    
    
    4,418
    
    
    
    4,974
    
    
    
    7,232Total assets
    
    
    1,579
    
    
    
    2,714
    
    
    
    10,834
    
    
    
    20,137
    
    
    
    16,439Current liabilities
    
    
    (552
    )
    
    
    779
    
    
    
    8,550
    
    
    
    5,696
    
    
    
    6,222Long term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    2,365Non-redeemable
preferred stock
    
    
    191
    
    
    
    191
    
    
    
    4,354
    
    
    
    5,368
    
    
    
    11,223Redeemable preferred
stock
    
    
    1,116
    
    
    
    
    
    
    
    14,521
    
    
    
    2,728
    
    
    
    Shareholders
equity/ (deficit)
    
    
    (280
    )
    
    
    1,744
    
    
    
    (16,591
    )
    
    
    5,445
    
    
    
    (3,371
    )
  14




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Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  FORWARD LOOKING STATEMENTS
   OVERVIEW
 OUR FISCAL YEAR ENDS ON JANUARY 31 OF THE FOLLOWING CALENDAR YEAR. UNLESS OTHERWISE
INDICATED, REFERENCES TO 2004, 2005 AND 2006 RELATE TO THE FISCAL YEARS ENDED JANUARY 31,
2004, 2005 AND 2006 RESPECTIVELY, RATHER THAN CALENDAR YEARS. AS NOTED ABOVE, IN 2005 WE CONCLUDED
THE EXCHANGE OFFER AND RELATED TRANSACTIONS RESULTING IN THE CESSATION OF OUR OWNERSHIP IN VSOURCE
ASIA, WHICH REPRESENTED 96% OF OUR REVENUES IN 2005. THE DISCUSSION BELOW PRESENTS OUR RESULTS,
EXCLUDING REVENUES AND EXPENSES FROM DISCONTINUED OPERATIONS.
      15




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FUNDING
   CRITICAL ACCOUNTING POLICIES
  Fiscal Year
  16




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Principles of Consolidation and Basis of Presentation
  Use of Estimates
  Property and Equipment
  Computer hardware
    
    2 to 5 yearsComputer software
    
    5 yearsOffice equipment, furniture and fixtures
    
    5 yearsMotor vehicle
    
    3 years
   Revenue Recognition
  Income Taxes
  Stock-Based Compensation
  Earnings Per Share
  17




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Recent Accounting Pronouncements
    RESULTS OF OPERATIONS (All amounts in thousands)
 Year Ended January 31,2006
    
    
    2005
    
    
    2004Revenue from services
    
    $
    
    
    
    $
    254
    
    
    $
    Cost of revenue from services
    
    
    
    
    
    
    161
    
    
    
    Selling, general and administrative expenses
    
    
    2,028
    
    
    
    2,342
    
    
    
    3,875Expenses related to terminated merger with TEAM
America
    
    
    
    
    
    
    
    
    
    
    1,467Amortization of stock-based compensation
    
    
    147
    
    
    
    
    
    
    
    52Total costs and expenses
    
    
    2,175
    
    
    
    2,503
    
    
    
    5,394Operating loss
    
    
    (2,175
    )
    
    
    (2,249
    )
    
    
    (5,394
    )Interest income
    
    
    5
    
    
    
    14
    
    
    
    32Interest expense
    
    
    
    
    
    
    (12
    )
    
    
    Loss from continuing operations before taxation
    
    
    (2,170
    )
    
    
    (2,247
    )
    
    
    (5,362
    )Taxation
    
    
    
    
    
    
    (5
    )
    
    
    Net loss from continuing operations after taxation
    
    
    (2,170
    )
    
    
    (2,252
    )
    
    
    (5,362
    )Discontinued operationsIncome/(loss) from discontinued operations before
taxation
    
    
    
    
    
    
    17,491
    
    
    
    (5,985
    )Taxation on discontinued operations
    
    
    
    
    
    
    3
    
    
    
    (22
    )Income/(loss) from discontinued operations after
taxation
    
    
    
    
    
    
    17,494
    
    
    
    (6,007
    )Net income/(loss)
    
    
    (2,170
    )
    
    
    15,242
    
    
    
    (11,369
    )Add/(Less): Deemed non-cash dividend to preferred
shareholdersCredit arising on exchange
    
    
    
    
    
    
    34,363
    
    
    
    Deemed non-cash dividend
    
    
    
    
    
    
    (12,219
    )
    
    
    (11,877
    )Net income/(loss) available to common shareholders
    
    $
    (2,170
    )
    
    $
    37,386
    
    
    $
    (23,246
    )
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MANAGEMENTS DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS  YEAR ENDED JANUARY 31, 2006 COMPARED
TO YEAR ENDED JANUARY 31, 2005.
 AS NOTED ABOVE, IN FISCAL 2005 WE CONCLUDED THE EXCHANGE OFFER AND RELATED TRANSACTIONS RESULTING
IN THE CESSATION OF OUR OWNERSHIP IN VSOURCE ASIA, WHICH REPRESENTED 96% OF OUR REVENUES IN FISCAL
2005. THEREFORE, A YEAR-TO-YEAR COMPARISON OF FISCAL 2005 TO FISCAL 2004 WOULD NOT ENHANCE A
READERS UNDERSTANDING OF OUR CURRENT FINANCIAL CONDITION, CHANGES IN FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. THE DISCUSSION BELOW PRESENTS OUR RESULTS, EXCLUDING REVENUES AND EXPENSES
FROM DISCONTINUED OPERATIONS.
 Revenue
  Cost of Revenue
  Selling, General and Administrative Expenses
   Amortization of Stock-based Compensation
    Operating Loss
  Interest Expense
  Taxation
  19




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Discontinued Operations
    Net Income or Loss
  Net Income or Loss Available to Common Shareholders
  LIQUIDITY AND CAPITAL RESOURCES
      20




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OFF-BALANCE SHEET FINANCING




DISCLOSURE OF CONTRACTUAL OBLIGATIONS




Payment due by period (in thousands)Contractual Obligations
    
    
    
    
    
    Less than
    
    1-3
    
    3-5
    
    More thanTotal
    
    1 year
    
    years
    
    years
    
    5 yearsLong-Term Debt Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    $
    40
    
    
    $
    40
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    40
    
    
    $
    40
    
    
    
    
    
    
    
    
    
    
    
    





ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rate Risk
  Foreign Currency Risk
   21




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Item 8.
    
    CONSOLIDATED FINANCIAL STATEMENTS
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Mendoza Berger & Company, LLP
 
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Report of Independent Registered Public Accounting Firm
 
   PricewaterhouseCoopers
Hong Kong
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January 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,289
    
    
    $
    1,064Receivable from related party (net of estimated discount of $0.783 million) (Note 8)
    
    
    
    
    
    
    956Restricted cash
    
    
    
    
    
    
    258Prepaid expenses
    
    
    45
    
    
    
    308Other current assets (Note 7)
    
    
    244
    
    
    
    88Total current assets
    
    
    1,578
    
    
    
    2,674Property and equipment, net (Note 7)
    
    
    1
    
    
    
    40Total assets
    
    $
    1,579
    
    
    $
    2,714
  24




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##### Table of Contents



January 31,2006
    
    
    2005LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITY/ (DEFICIT)Current liabilities:Accounts payable
    
    $
    391
    
    
    $
    497Accrued expenses
    
    
    150
    
    
    
    262Staff accruals
    
    
    11
    
    
    
    20Total current liabilities
    
    
    552
    
    
    
    779Commitments and contingencies (Note 10)Non-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
January 31, 2006 and 2005, respectively)(Aggregate liquidation value is $169 as of January 31, 2006 and 2005)
    
    
    166
    
    
    
    166Preferred stock Series 2-A ($0.01 par value, 3,900 shares
authorized; 3,900 shares issued and outstanding as of January 31,
2006 and 2005)(Aggregate liquidation value is $25 as of January 31, 2006 and 2005)
    
    
    25
    
    
    
    25191
    
    
    
    191Redeemable preferred stock:Preferred stock Series 5-A ($0.01 par value, 3,752 shares
authorized; 1,478 and 0 shares issued and outstanding as of January
31, 2006 and 2005, respectively)
    
    
    1,266
    
    
    
    (Aggregate liquidation value is $1,478 as of January 31, 2006)(Aggregate redemption value is $1,774 as of January 31, 2006)Receivable from issuance of preferred stock
    
    
    (150
    )
    
    
    Total preferred stock (Note 11)
    
    
    1,307
    
    
    
    191Shareholders equity/(deficit):Common stock ($0.01 par value, 100,000,000 shares authorized;
3,673,992 and 2,074,234 shares issued and outstanding as of January
31, 2006 and 2005, respectively)
    
    
    37
    
    
    
    21Additional paid-in-capital
    
    
    65,263
    
    
    
    67,375Accumulated deficit
    
    
    (65,114
    )
    
    
    (65,600
    )Other comprehensive income
    
    
    (50
    )
    
    
    (52
    )Deferred stock-based compensation
    
    
    (416
    )
    
    
    Total shareholders equity/(deficit)
    
    
    (280
    )
    
    
    1,744Total liabilities, preferred stock and shareholders equity/(deficit)
    
    
    1,579
    
    
    $
    2,714
  25




---



##### Table of Contents



Year Ended January 31,2006
    
    
    2005
    
    
    2004Revenue from services
    
    $
    
    
    
    $
    254
    
    
    $
    Cost and expenses:Cost of revenue from services
    
    
    
    
    
    
    161
    
    
    
    Selling, general and administrative
expenses
    
    
    2,028
    
    
    
    2,342
    
    
    
    3,875Expenses related to terminated
merger with TEAM America (Note 5)
    
    
    
    
    
    
    
    
    
    
    1,467Amortization of stock-based
compensation (Note 12)
    
    
    147
    
    
    
    
    
    
    
    52Total costs and expenses
    
    
    2,175
    
    
    
    2,503
    
    
    
    5,394Operating loss
    
    
    (2,175
    )
    
    
    (2,249
    )
    
    
    (5,394
    )Interest income
    
    
    5
    
    
    
    14
    
    
    
    32Interest expense
    
    
    
    
    
    
    (12
    )
    
    
    Net loss from continuing operations
before taxation
    
    $
    (2,170
    )
    
    $
    (2,247
    )
    
    $
    (5,362
    )Income tax (expense)
    
    
    
    
    
    
    (5
    )
    
    
    Net loss from continuing operations
after taxation
    
    $
    (2,170
    )
    
    $
    (2,252
    )
    
    $
    (5,362
    )Discontinued operations (Note 3)Income/(loss) from
discontinued operations before
taxation
    
    
    
    
    
    
    17,491
    
    
    
    (5,985
    )Income tax benefit/(expense)
on discontinued operations
    
    
    
    
    
    
    3
    
    
    
    (22
    )Income/(loss) from
discontinued operations after
taxation
    
    
    
    
    
    
    17,494
    
    
    
    (6,007
    )Net income/(loss)
    
    
    (2,170
    )
    
    
    15,242
    
    
    
    (11,369
    )Net income/(loss) available to
common shareholders (Note 4)
    
    $
    (2,170
    )
    
    $
    37,386
    
    
    $
    (23,246
    )Net income/(loss) per common share:Continuing operationsBasic
    
    
    (0.91
    )
    
    
    9.77
    
    
    
    (9.01
    )Diluted
    
    
    N/A
    
    
    
    9.53
    
    
    
    N/ADiscontinued operationsBasic
    
    
    
    
    
    
    8.60
    
    
    
    (3.14
    )Diluted
    
    
    
    
    
    
    8.39
    
    
    
    N/ATotalBasic
    
    
    (0.91
    )
    
    
    18.37
    
    
    
    (12.15
    )Diluted
    
    
    N/A
    
    
    
    17.92
    
    
    
    N/A
  26




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##### Table of Contents



Common Shares
    
    Additional Paid-in
    
    Deferred Stock
    
    
    
    
    
    
    
    
    
    Other Comprehensive
    
    Total Shareholders'Stock
    
    Amount
    
    Capital
    
    Based Compensation
    
    Notes Receivable
    
    Accumulated Deficit
    
    Income (Loss)
    
    DeficitBalance at January 31, 2003
    
    
    1,785,094
    
    
    $
    18
    
    
    $
    85,424
    
    
    $
    (94
    )
    
    $
    
    
    
    $
    (79,740
    )
    
    $
    (163
    )
    
    $
    5,445Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,369
    )
    
    
    
    
    
    
    (11,369
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )Issuance of Common Stock on:- Employee Stock Purchase Plan
    
    
    22,940
    
    
    
    0
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34- Conversion from Series 1-A and
2-A Preferred Stock
    
    
    140,007
    
    
    
    1
    
    
    
    1,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,015Conversion from Series 4-A
Preferred Stock (Note 11)
    
    
    78,000
    
    
    
    1
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83Stock Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Deemed non-cash dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,877
    )
    
    
    
    
    
    
    (11,877
    )Balance at January 31, 2004
    
    
    2,026,041
    
    
    $
    20
    
    
    $
    86,554
    
    
    $
    
    
    
    $
    
    
    
    $
    (102,986
    )
    
    $
    (179
    )
    
    $
    (16,591
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,242
    
    
    
    
    
    
    
    15,242Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    127Beneficial conversion feature of
Series 1-A, 2-A and 4-A
Preferred Stock Exchanged
    
    
    
    
    
    
    
    
    
    
    (19,188
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,188
    )Credit on exchange of Series
1-A, 2-A and 4-A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,144
    
    
    
    
    
    
    
    22,144Issuance of Common Stock on
stock options exercised
    
    
    48,193
    
    
    
    1
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Balance at January 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 January 31, 2006
    
    
    3,673,992
    
    
    $
    37
    
    
    $
    65,263
    
    
    $
    (416
    )
    
    $
    
    
    
    $
    (65,114
    )
    
    $
    (50
    )
    
    $
    (280
    )
  27




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##### Table of Contents



Year Ended January 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income/(loss)
    
    $
    (2,170
    )
    
    $
    15,242
    
    
    
    ($11,369
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    1,883
    
    
    
    2,288Bad debt provision
    
    
    12
    
    
    
    753
    
    
    
    663Write-off of expenses related to terminated merger
with TEAM America
    
    
    
    
    
    
    
    
    
    
    678(Gain)/loss on disposal of property and equipment
    
    
    26
    
    
    
    (4
    )
    
    
    2Amortization of stock-based compensation
    
    
    147
    
    
    
    
    
    
    
    94Minority interest in loss of a former subsidiary
    
    
    
    
    
    
    (758
    )
    
    
    Gain on disposal of discontinued operations
    
    
    
    
    
    
    (21,471
    )
    
    
    Changes in working capital components:Accounts receivable
    
    
    
    
    
    
    (1,149
    )
    
    
    460Inventory
    
    
    
    
    
    
    60
    
    
    
    283Accounts payable
    
    
    (106
    )
    
    
    (346
    )
    
    
    1,162Advance from customers
    
    
    
    
    
    
    (892
    )
    
    
    (1,223
    )Others
    
    
    1,168
    
    
    
    (1,213
    )
    
    
    296Net cash provided by/(used in) operating
activities
    
    
    (923
    )
    
    
    (7,895
    )
    
    
    (6,666
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (3
    )
    
    
    (641
    )
    
    
    (1,693
    )Proceeds from sale of property and equipment
    
    
    1
    
    
    
    4
    
    
    
    Expenses related to terminated merger with TEAM
America
    
    
    
    
    
    
    
    
    
    
    (1,467
    )Proceeds from disposal of subsidiaries
    
    
    24
    
    
    
    9,596
    
    
    
    Cash disposed of in conjunction with the disposal of
subsidiaries
    
    
    
    
    
    
    (335
    )
    
    
    Net cash provided by/(used in) investing
activities
    
    
    22
    
    
    
    8,624
    
    
    
    (3,160
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    10
    
    
    
    34Proceeds from issuance of preferred stock, net of cost
    
    
    1,266
    
    
    
    
    
    
    
    Warrants Cancelled
    
    
    (140
    )
    
    
    
    
    
    
    Proceeds from borrowings and convertible notes
    
    
    
    
    
    
    
    
    
    
    Repayment of convertible notes and preferred stock
    
    
    
    
    
    
    
    
    
    
    Net cash provided by/(used in) financing
activities
    
    
    1,126
    
    
    
    10
    
    
    
    34Effect of changes in foreign exchange rates
    
    
    
    
    
    
    (5
    )
    
    
    92Net increase/(decrease) in cash and cash equivalents
    
    
    225
    
    
    
    734
    
    
    
    (9,700
    )Cash and cash equivalents at beginning of year
    
    
    1,064
    
    
    
    330
    
    
    
    11,152Cash and cash equivalents of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,122
    )Cash and cash equivalents at end of year
    
    $
    1,289
    
    
    $
    1,064
    
    
    $
    330
  28




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##### Table of Contents



Year Ended January 31,2006
    
    
    2005
    
    
    2004Supplemental cash flow informationCash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    Non-cash financing and investing activitiesConversion of Series 4-A Preferred Stock
to Common Stock
    
    
    
    
    
    
    
    
    
    
    83Conversion of Series 1-A and 2-A Preferred
Stock to Common Stock
    
    
    
    
    
    
    
    
    
    
    1,015Cancellation of preferred stock
    
    
    
    
    
    
    30,902
    
    
    
    Credit arising on exchange
    
    
    
    
    
    
    (34,363
    )
    
    
    Beneficial conversion feature of:Series 4-A Preferred Stock (Note 4)
    
    
    
    
    
    
    12,219
    
    
    
    11,877
  29




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##### Table of Contents



1.
    
    The Company
 Company Background
      30




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##### Table of Contents



31




---



##### Table of Contents



Current Operations
    Strategy
  
    
    Process intensive businesses and/or businesses with differentiating assets.
 32




---



##### Table of Contents




    
    Fragmented competitive landscape with the potential for both organic growth and
growth through consolidation.
    
    Companies lending themselves to a partnership with TIGroup, with the seller
retaining a continued involvement in the success of the business and the success of
TIGroup.
    
    Diverse client base with strong retention traits.
    
    Positive cash flow, which can be improved with better operating efficiencies.
  
    
    Healthcare delivery and processing services including ambulatory surgical centers,
data and billing management and claims processing.
    
    Financial processing services including accounting, tax preparation and accounts
receivable and payable management.
    
    Asset management services including funds management and benefits management.
    
    Resources services including support functions for the energy industry.
 Future Funding
      33




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies
 Fiscal Year
  Principles of Consolidation and Basis of Presentation
  Use of Estimates
  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 years
   Impairment of Long-lived Assets
  34




---



##### Table of Contents



Restricted Cash
  Revenue Recognition
  Income Taxes
  Functional Currency
  Other Comprehensive Income (Loss)
  Stock-Based Compensation
  Earnings Per Share
  35




---



##### Table of Contents



Segment Data
  Recent Accounting Pronouncements
    36




---



##### Table of Contents



3.
    
    Discontinued Operations
     For the Year Ended January 31, 2005Vsource Asia
    
    
    Vsource Texas
    
    
    TotalRevenues, net
    
    $
    13,934
    
    
    $
    254
    
    
    $
    14,188Income/(loss) before income tax benefit/(expense)
    
    $
    18,639
    
    
    $
    (1,148
    )
    
    $
    17,491Income tax benefits/(expense)
    
    
    3
    
    
    
    
    
    
    
    3Net income/(loss) (including gain/(loss) on
disposal of $21,633 and ($162))
    
    $
    18,642
    
    
    $
    (1,148
    )
    
    $
    17,494
 For the Year Ended January 31, 2004Vsource Asia
    
    
    Vsource Texas
    
    
    TotalRevenues, net
    
    $
    18,227
    
    
    $
    71
    
    
    $
    18,298Loss before income tax expense
    
    $
    (5,306
    )
    
    $
    (679
    )
    
    $
    (5,985
    )Income tax expense
    
    
    (22
    )
    
    
    
    
    
    
    (22
    )Net loss
    
    $
    (5,328
    )
    
    $
    (679
    )
    
    $
    (6,007
    )
 37




---



##### Table of Contents



4.
    
    Net Income/(Loss) Available to Common Shareholders and Comprehensive Profit/(Loss)
  For the Year Ended January 31,2006
    
    
    2005
    
    
    2004Net income/(loss)
    
    $
    (2,170
    )
    
    $
    15,242
    
    
    $
    (11,369
    )Add (Less): Deemed non-cash dividend to preferred
shareholdersCredit arising on exchange
    
    
    
    
    
    
    34,363
    
    
    
    Deemed non-cash dividend
    
    
    
    
    
    
    (12,219
    )
    
    
    (11,877
    )$
    (2,170
    )
    
    
    22,144
    
    
    
    (11,877
    )Net profit/(loss) available to common shareholders
    
    $
    (2,170
    )
    
    $
    37,386
    
    
    $
    (23,246
    )Other comprehensive income/(loss):Foreign currency translation adjustment
    
    
    2
    
    
    
    127
    
    
    
    (16
    )Comprehensive Income/(Loss)
    
    $
    (2,168
    )
    
    $
    37,513
    
    
    $
    (23,262
    )






38



---



##### Table of Contents



Earnings Per Share
  For the Year Ended January 31,2006
    
    
    2005
    
    
    2004Numerator for basic and diluted income/(loss) per share:Net income/(loss)  continuing operations
    
    
    (2,170
    )
    
    $
    19,892
    
    
    $
    (17,239
    )Net income/(loss)  discontinued operations
    
    
    
    
    
    $
    17,494
    
    
    $
    (6,007
    )Net income/(loss)
    
    
    (2,170
    )
    
    $
    37,386
    
    
    $
    (23,246
    )Denominator for basic earnings/(loss) per share 
weighted average shares
    
    
    2,374,993
    
    
    
    2,035,434
    
    
    
    1,913,807Effect of dilutive securities:Employee stock options
    
    
    N/A
    
    
    
    23,913
    
    
    
    N/APreferred stock
    
    
    N/A
    
    
    
    27,312
    
    
    
    N/ADilutive potential common shares
    
    
    N/A
    
    
    
    51,225
    
    
    
    N/ADenominator for diluted earnings/(loss) per common
share  adjusted weighted average shares
    
    
    2,374,993
    
    
    
    2,086,659
    
    
    
    1,913,807Net income/(loss) per common share:Continuing operationsBasic
    
    
    (0.91
    )
    
    
    9.77
    
    
    
    (9.01
    )Diluted
    
    
    N/A
    
    
    
    9.53
    
    
    
    N/ADiscontinued operationsBasic
    
    
    
    
    
    
    8.60
    
    
    
    (3.14
    )Diluted
    
    
    
    
    
    
    8.39
    
    
    
    N/ATotalBasic
    
    
    (0.91
    )
    
    
    18.37
    
    
    
    (12.15
    )Diluted
    
    
    N/A
    
    
    
    17.92
    
    
    
    N/A
  39




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##### Table of Contents



5.
    
    Merger with TEAM America
  6.
    
    Fair Value of Financial Instruments
  7.
    
    Consolidated Balance Sheet Details
 January 31,2006
    
    
    2005(in thousands)Other current assets:Deposits
    
    $
    140
    
    
    $
    43Other receivables
    
    
    104
    
    
    
    45$
    244
    
    
    $
    88Property and equipment:Computer hardware
    
    $
    40
    
    
    $
    91Office equipment, furniture and fixtures
    
    
    49
    
    
    
    75Leasehold improvements
    
    
    
    
    
    
    39Motor vehicle
    
    
    
    
    
    
    89
    
    
    
    205Accumulated depreciation
    
    
    (88
    )
    
    
    (165
    )$
    1
    
    
    $
    40
 8.
    
    Receivable from Related Party
   40




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##### Table of Contents



9.
    
    Warrants
        41




---



##### Table of Contents



Weighted-AverageNumber of Shares of Common Stock
    
    Exercise Price Per ShareYear ended January 31,
    
    Year ended January 31,2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Warrants
outstanding at
beginning of the
period
    
    
    1,545,528
    
    
    
    1,609,886
    
    
    
    1,569,059
    
    
    $
    2.65
    
    
    $
    4.42
    
    
    $
    6.59Granted
    
    
    1,614,300
    
    
    
    
    
    
    
    57,738
    
    
    
    0.43
    
    
    
    
    
    
    
    5.38Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled or Expired
    
    
    (1,062,733
    )
    
    
    (64,358
    )
    
    
    (16,911
    )
    
    
    3.41
    
    
    
    47.03
    
    
    
    171.47Converted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
outstanding at end
of the period
    
    
    2,097,095
    
    
    
    1,545,528
    
    
    
    1,609,886
    
    
    
    0.56
    
    
    
    2.65
    
    
    
    4.42Warrants
exercisable at end
of the period
    
    
    1,733,345
    
    
    
    295,528
    
    
    
    359,886
    
    
    
    0.60
    
    
    $
    13.82
    
    
    $
    19.76
 10.
    
    Commitments and Contingencies
 Operating Leases
  Litigation
  11.
    
    Preferred Stock
 Non-Redeemable Preferred Stock
    Series 1-A Preferred Stock
  42




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##### Table of Contents



Series 2-A Preferred Stock
    Conversion and Exchange of Series 1-A, Series 2-A and Series 4-A Preferred Stock
  43




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##### Table of Contents



Series 5-A Preferred Stock
   Related Party Interests in Preferred Stock
  44




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##### Table of Contents



12.
    
    Stock Options
 Stock-Based Compensation
  Year ended January 31,2006
    
    2005
    
    2004(in thousands, except for per share data)Net income/(loss) as reported
    
    $
    (2,170
    )
    
    $
    15,242
    
    
    $
    (11,369
    )Add: Stock-based employee
compensation expense
included in reported net
income
    
    
    147
    
    
    
    
    
    
    
    94Less: Total stock-based
employee compensation
expense determined under
fair value method for all
awards
    
    
    (147
    )
    
    
    
    
    
    
    (2,030
    )Net income/(loss)
    
    $
    (2,170
    )
    
    $
    15,242
    
    
    $
    (13,305
    )Basic net income/(loss)
available to common
shareholders per shareAs reported
    
    $
    (0.91
    )
    
    $
    18.37
    
    
    $
    (12.15
    )Pro forma
    
    
    N/A
    
    
    $
    18.37
    
    
    $
    (13.16
    )Diluted net income/(loss)
available to common
shareholders per shareAs reported
    
    $
    (0.91
    )
    
    $
    17.92
    
    
    $
    (12.15
    )
   Year ended January 31,2006
    
    2005
    
    2004Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    99
    %
    
    
    208
    %
    
    
    170
    %Risk-free rate of return
    
    
    4.1
    %
    
    
    3.1
    %
    
    
    2.1
    %Expected life (years)
    
    
    3.0
    
    
    
    3.0
    
    
    
    3.0
 Stock Option Plans
  45




---



##### Table of Contents



Weighted-AverageNumber of Options
    
    
    Exercise Price Per ShareYear ended January 31,
    
    
    Year ended January 31,2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Options outstanding at
beginning of the period
    
    
    449,067
    
    
    
    3,697,249
    
    
    
    3,822,925
    
    
    $
    3.82
    
    
    $
    2.44
    
    
    $
    2.50Granted at above fair market value
    
    
    360,000
    
    
    
    312,050
    
    
    
    27,700
    
    
    
    0.40
    
    
    
    2.00
    
    
    
    2.00 at fair market value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     at below fair market value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (48,225
    )
    
    
    
    
    
    
    
    
    
    
    0.20
    
    
    
    Cancelled
    
    
    (350,550
    )
    
    
    (2,754,482
    )
    
    
    
    
    
    $
    2.85
    
    
    
    2.34
    
    
    
    Forfeited
    
    
    
    
    
    
    (757,525
    )
    
    
    (153,376
    )
    
    
    
    
    
    
    1.95
    
    
    
    3.77Options outstanding at end
of the period
    
    
    458,517
    
    
    
    449,067
    
    
    
    3,697,249
    
    
    
    1.88
    
    
    
    3.82
    
    
    
    2.44Options vested/exercisable
at end of the period
    
    
    458,517
    
    
    
    449,067
    
    
    
    2,212,772
    
    
    $
    1.88
    
    
    $
    3.82
    
    
    $
    2.55
  Weighted-averageWeighted-average
    
    remainingExercise price
    
    Number of options
    
    exercise price
    
    contractual life$0.20
    
    
    67,596
    
    
    $
    0.20
    
    
    
    5.8$0.40
    
    
    360,000
    
    
    $
    0.37
    
    
    
    8.9$5.80
    
    
    3,750$11.80
    
    
    25,000
    
    
    $
    11.02
    
    
    
    2.8$37.40
    
    
    134$56.20
    
    
    2,037
    
    
    $
    55.02
    
    
    
    2.9458,517
    
    
    $
    1.88
 46




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##### Table of Contents



Employee Stock Purchase Plan
    13.
    
    401(k)Plan
  47




---



##### Table of Contents



14.
    
    Income Taxes
  January 31,2006
    
    
    2005Net income/(loss) subject to U.S income taxes only
    
    $
    (1,756
    )
    
    $
    16,857Net loss subject to foreign income taxes only
    
    
    (414
    )
    
    
    (1,613
    )Net income/(loss)
    
    $
    (2,170
    )
    
    $
    15,244
  January 31,2006
    
    
    2005Deferred tax assets:- net operating loss carryforward
    
    $
    14,777
    
    
    $
    14,033Gross deferred tax assets
    
    
    14,777
    
    
    
    14,033Deferred tax liabilities
    
    
    
    
    
    
    Net deferred tax assets
    
    
    14,777
    
    
    
    14,033Valuation allowance
    
    
    (14,777
    )
    
    
    (14,033
    )$
    
    
    
    $
    Current year taxation:- Corporate tax  Federal
    
    
    
    
    
    $
    5- Corporate tax  Foreign
    
    
    
    
    
    
    (3
    )Total
    
    
    
    
    
    $
    2
   15.
    
    Segment Data
  48




---



##### Table of Contents



16.
    
    Certain Relationships And Related Transactions
 Vsource Asia and Symphony House Relationships
    17.
    
    Subsequent Events
    49




---



##### Table of Contents



50




---



##### Table of Contents



Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
  
 Item 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting
 
 Item 9B.
    
    OTHER INFORMATION
  51




---



##### Table of Contents



PART III
 
 Item 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionDavid Hirschhorn
    
    43
    
    Co-Chairman and DirectorCo-Chief Executive OfficerCo-Chief Financial OfficerTodd Parker
    
    42
    
    Co-Chairman and DirectorCo-Chief Executive OfficerCo-Chief Financial OfficerDennis M. Smith
    
    54
    
    Director and Senior AdvisorRobert N. Schwartz, PhD.(1)
    
    66
    
    DirectorRichardson E. Sells(1)
    
    59
    
    Director
 
 (1)
    
    Member of the Audit Committee. David Hirschhorn
 Todd Parker
 Dennis M. Smith
 Robert N. Schwartz, Ph.D
 52




---



##### Table of Contents



Richardson E. Sells
 Board Meetings and Committees
      Stockholder Communications with the Board of Directors
  
 53




---



##### Table of Contents



Compensation of Directors
   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(#)
    
    (#)Symphony House Berhad
    
    2
    
    1
    
    Form 4 due June 16, 2005;Form 5 due March 17, 2006Robert N. Schwartz
    
    2
    
    1
    
    Form 4 due November 21, 2005;Form 5 due March 17, 2006Richardson E. Sells
    
    3
    
    1
    
    Form 3 due April 11, 2005;Form 4 due November 21, 2005;Form 5 due March 17, 2006
 Code of Ethics
  54




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##### Table of Contents



Item 11.
    
    EXECUTIVE COMPENSATION
  Summary Compensation Table
 Annual Compensation
    
    Long-Term CompensationFiscalYear
    
    
    
    
    
    
    
    
    
    RestrictedEnded
    
    
    
    
    
    
    
    
    
    Stock
    
    Securities Underlying
    
    All OtherName and Principal Position
    
    Jan. 31,
    
    Salary
    
    Bonus(1)
    
    Awards
    
    Options/SARs(2)
    
    CompensationDavid Hirschhorn
    
    
    2006
    
    
    $
    112,985
    
    
    
    7,500
    
    
    
    1,250,000
    
    
    
    0
    
    
    
    10,945
    (3)Co-Chief Executive Officer,
    
    
    2005
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Co-Chief Financial Officer
    
    
    2004
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Todd Parker
    
    
    2006
    
    
    $
    53,169
    
    
    
    7,500
    
    
    
    350,000
    
    
    
    0
    
    
    
    6,200
    (4)Co-Chief Executive Officer,
    
    
    2005
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Co-Chief Financial Officer
    
    
    2004
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Dennis M. Smith
    
    
    2006
    
    
    $
    154,367
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    160,396
    (5)Former Chief Financial Officer
    
    
    2005
    
    
    $
    294,872
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    99,348
    (6)2004
    
    
    $
    224,326
    
    
    
    135,570
    
    
    
    0
    
    
    
    0
    
    
    
    169,940
    (7)James G. Higham **
    
    
    2006
    
    
    $
    110,595
    
    
    
    13,667
    
    
    
    0
    
    
    
    0
    
    
    
    14,606
    (8)Former Vice President,
    
    
    2005
    
    
    $
    164,012
    
    
    
    25,500
    
    
    
    0
    
    
    
    12,500
    
    
    
    11,929
    (9)General Counsel
    
    
    2004
    
    
    $
    148,540
    
    
    
    28,356
    
    
    
    0
    
    
    
    0
    
    
    
    9,610
    (10)Phillip E. Kelly **
    
    
    2006
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Former Chief Executive Officer
    
    
    2005
    
    
    $
    321,200
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    189,362
    (11)2004
    
    
    $
    292,000
    
    
    
    14,600
    
    
    
    0
    
    
    
    0
    
    
    
    28,999
    (12)John G. Cantillon **
    
    
    2006
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Former Chief Operating Officer
    
    
    2005
    
    
    $
    221,600
    
    
    
    75,414
    
    
    
    0
    
    
    
    0
    
    
    
    40,000
    (13)2004
    
    
    $
    175,079
    
    
    
    83,579
    
    
    
    0
    
    
    
    0
    
    
    
    36,000
    (13)Neal Gemassmer **
    
    
    2006
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Former Vice President, Client
    
    
    2005
    
    
    $
    129,953
    
    
    
    66,125
    
    
    
    0
    
    
    
    11,250
    
    
    
    7,783
    (14)Outsourcing Solutions
    
    
    2004
    
    
    $
    140,185
    
    
    
    30,343
    
    
    
    0
    
    
    
    0
    
    
    
    1,538
    (15)
 
 (1)
    
    In the case of Mr. Gemassmer, includes sales commissions and cash awards. In the case of the
other executive officers, represents annual bonus payments.(2)
    
    Throughout this report, the number of shares underlying options granted are adjusted for the
20:1 post-reverse split on November 20, 2002.(3)
    
    Includes the following paid by us on behalf of or to Mr. Hirschhorn: (a) $8,208 for employer
contribution for Medicare and OASDI, (b) $2,086 for Annual Leave Entitlement, and (c) $651 for
Mandatory Social Security.(4)
    
    Includes the following paid by us on behalf of or to Mr. Parker: (a) $4,519 for employer
contribution for Medicare and OASDI, (b) $982 for Annual Leave Entitlement, and (c) $698 for
Mandatory Social Security. 55




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##### Table of Contents



(5)
    
    Includes the following paid by us on behalf of or to Mr. Smith: (a) $150,000 for Consultancy
Fee, (b) $769 in Hong Kong Mandatory Provident Fund contribution, and (d) $10,429 in health
insurance premiums for Mr. Smith and certain of his family members.(6)
    
    Includes the following paid by us on behalf of or to Mr. Smith: (a) $61,052 in housing
allowance, (b) $6, 417 for a tax filing fee, (c) $1,541 in Hong Kong Mandatory Provident Fund
contribution, and (d) $30,338 in health insurance premiums for Mr. Smith and certain of his
family members.(7)
    
    Includes the following paid by us on behalf of or to Mr. Smith: (a) $125,153 in housing
allowance, (b) $19,064 in education allowance for one of Mr. Smiths children, (c) $1,540 in
Hong Kong Mandatory Provident Fund contribution, and (e) $24,183 in health insurance premiums
for Mr. Smith and certain of his family members.(8)
    
    Includes the following paid by us on or behalf of Mr. Higham: (a) $173 membership dues, (b)
$1,598 for employer contribution for Medicare and OASDI, (c) $6,364 for Annual Leave
Entitlement, and (d) $5,152 in 401(k) Plan contributions.(9)
    
    Includes the following paid by us on or behalf of Mr. Higham: (a) $5,822 in 401(k) Plan
contributions and (b) $5,366 in health insurance premiums.(10)
    
    Includes the following paid by us on or behalf of Mr. Higham: (a) $4,244 in 401(k) Plan
contributions and (b) $5.266 in health insurance premiums.(11)
    
    Includes the following paid by us on behalf of or to Mr. Kelly: (a) $4,524 for tax
preparation and filing fee, (b) $4,380 401(k) Plan contribution, (c) $17,218 in health
insurance premiums, (d) $28,651 in travel expenses for spouse, (e) $87,600 severance payment
covering three months salary in accordance with Mr. Kellys employment agreement, and (f)
$46,989 in accrued but unused vacation pay paid upon Mr. Kellys departure.(12)
    
    Includes the following paid by us on behalf of or to Mr. Kelly: (a) $5,239 for tax
preparation and filing fee, (b) $2,628 401(k) Plan contribution, (c) $13,780 in health
insurance premiums, and (d) $7,352 in travel expenses for spouse.(13)
    
    Consists of composite and housing allowance paid by us on behalf of or to Mr. Cantillon.(14)
    
    Includes the following paid by us on behalf of or to Mr. Gemasmmer: (a) $1,413 in Hong Kong
Mandatory Provident Fund contribution, and (b) $6,370 in accrued but unused vacation pay paid
upon Mr. Gemasmmers departure.(15)
    
    Represents Hong Kong Mandatory Provident Fund contribution paid by us.**
    
    Mr. Kelly left the Company in December 2004. Mr. Cantillon left in November 2004. Mr.
Gemassmer left in January 2005. Mr. Higham left in October 2005. Options
 Fiscal Year-End Option/SAR Values
  Fiscal Year-End Option/SAR Values
 Number of Securities
    
    Value of Unexercised In-the-Underlying Unexercised
    
    Money Options January 31,Options at January 31, 2006
    
    2006(1)Name
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    Unexercisable*James G. HighamFormer Vice President, General Counsel
    
    
    20,000
    
    
    
    0
    
    
    $
    0
    
    
    $
    0*Neal GemassmerFormer Vice President, Client Outsourcing Solutions
    
    
    20,000
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
 
 *
    
    Mr. Gemassmer left the Company in January 2005 and Mr. Higham left in October 2005.(1)
    
    Value is calculated in accordance with SEC rules by subtracting the exercise price per share
for each option from the fair market value of the underlying common stock as of January 31, 2006,
and multiplying that difference by the number of shares of common stock subject to the option. The
fair market value of one share of common stock as of January 31, 2006, was $0.90. 56




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
 Certain Relationships and Related Transactions
 Compensation of Officers  Executive Employment Agreements
        57




---



##### Table of Contents



58




---



##### Table of Contents



REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
  General Compensation Policy
   Base Salary.
 Bonus Compensation.
 Long Term Incentives.
   Executive Compensation for the Fiscal Year Ended January 31, 2006
   59




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##### Table of Contents



60




---



##### Table of Contents



Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Common Stock
 Executive Compensation
 Number of
    
    Percent ofShares
    
    Total Common
    
    Percent ofBeneficially
    
    Stock
    
    TotalName of Beneficial Owner(1)
    
    Owned
    
    Outstanding(2)
    
    Outstanding(3)Greater Than 5% Beneficial OwnersSymphony House Berhad
    
    
    648,860
    
    
    
    17.66
    %
    
    
    6.71
    %Level 17 Menara Milenium
Jalan Damanlela
Pusat Bandar Damansara
50490 Kuala Lumpur, MalaysiaEparfin SA (4)
    
    
    250,000
    
    
    
    6.80
    %
    
    
    2.59
    %84, Grand Rue
L-1660
LuxembourgCurrent DirectorsDavid Hirschhorn (5)
    
    
    1,630,000
    
    
    
    44.37
    %
    
    
    16.86
    %149 South Barrington Avenue, Suite 808
Los Angeles, CA 90049Todd Parker (6)
    
    
    730,000
    
    
    
    19.87
    %
    
    
    7.55
    %149 South Barrington Avenue, Suite 808
Los Angeles, CA 90049Robert N. Schwartz, Ph.D (7)
    
    
    184,732
    
    
    
    5.03
    %
    
    
    1.91
    %6 Duquesa
Dana Point, CA 92629Richardson E. Sells (8)
    
    
    180,000
    
    
    
    4.90
    %
    
    
    1.86
    %7475 Flying Cloud Drive
Eden Prairie, MN 55344Dennis M. Smith (9)
    
    
    380,000
    
    
    
    10.34
    %
    
    
    3.93
    %33 Gull Point
Hilton Head, SC 29928Current directors and executive officers as a group
(5 persons) (10)
    
    
    3,104,732
    
    
    
    84.51
    %
    
    
    32.12
    %
 
 *
    
    Less than 1%. 61




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##### Table of Contents



(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 May 16, 2006.(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 May 16, 2006, 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 9,665,433 shares of common stock outstanding on a fully-diluted basis as
of May 16, 2006, 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 May 16, 2006. Includes the
1,250,000 shares of common stock issuable upon exercise of the warrants issued in connection
with our October 2002 private placement.(4)
    
    Consists of warrants to purchase 250,000 shares of common stock at an exercise price of $0.01
per share novated by the original warrant holder, Quilvest Asia Equity Ltd, pursuant to a
Novation Agreement, dated as of February 2, 2005, between us, Quilvest Asian Equity Ltd and
Eparfin SA. These warrants were originally issued in connection with our October 2002 private
placement.(5)
    
    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) 380,000 shares
beneficially owned by Mr. Hirschhorn in his capacity as President of Hope & Abel Investments,
LLC, which directly holds (i) 100 shares of Series 5-A Preferred Stock, which are convertible
into 320,000 shares of common stock, and (ii) warrants to purchase 60,000 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 Agreement, dated as of July 18, 2005.(6)
    
    Consists of (a) 350,000 restricted shares of common stock granted in connection with Mr.
Parkers Employment Agreement, dated as of July 18, 2005; and (b) (i) 100 shares of Series 5-A
Preferred Stock, which are convertible into 320,000 shares of common stock and (ii) warrants
to purchase 60,000 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 Agreement, dated as
of July 18, 2005.(7)
    
    Consists of (a) 982 shares directly owned by Mr. Schwartz; and (b) 183,750 shares of common
stock issuable upon exercise of Mr. Schwartzs stock options.(8)
    
    Consists of 180,000 shares of common stock issuable upon exercise of Mr. Sells stock
options.(9)
    
    Consists of (a) 100 shares of Series 5-A Preferred Stock, which are convertible into 320,000
shares of common stock; and (b) warrants to purchase 60,000 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 Agreement, dated as of July 18, 2005.(10)
    
    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 363,750 shares of common stock issuable upon
exercise of stock options held by all current directors and executive officers as a group. 62




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##### Table of Contents



Preferred Stock
 Series 1-A Convertible Preferred Stock
  Executive
Compensation
 Number of Shares
    
    Percent of TotalBeneficially
    
    Series 1-A Preferred
    
    Percent of TotalName of Beneficial Owner
    
    Owned
    
    Stock Outstanding
    
    Outstanding(1)Greater Than 5% Beneficial OwnersRon Soderling
    
    
    40,000
    
    
    
    59.2
    %
    
    
    *Suite 270
Newport Beach, CA 92660First Clearing Corporation
    
    
    20,000
    
    
    
    29.6
    %
    
    
    *P.O. Box 6570
Glen Allen, VA 23058Susan Lacerra & Steven Tingey JT
    
    
    7,600
    
    
    
    11.2
    %
    
    
    *c/o Jefferies & Co. Inc.
650 California Street
San Francisco, CA 94108Current directors and executive
officers as a group
(0 persons)
    
    
    0
    
    
    
    0
    %
    
    
    0
    %
 
 *
    
    Less than 1%.(1)
    
    The percentages of beneficial ownership assume the conversion into common stock of all Series
1-A Preferred Stock held by such person or entity and is based on a total of 9,665,433 shares
of common stock outstanding on a fully-diluted basis as of May 16, 2006, which includes shares
of common stock issuable upon the conversion of our outstanding preferred securities and
shares of common stock issuable upon the exercise of stock options and warrants that are
exercisable within 60 days of May 16, 2006. Includes the 1,250,000 shares of common stock
issuable upon exercise of the warrants issued in connection with our October 2002 private
placement. 63




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##### Table of Contents



Series 2-A Convertible Preferred Stock
  Executive
Compensation
 Percent of TotalNumber of Shares
    
    Series 2-A
    
    Percent ofBeneficially
    
    Preferred
    
    TotalName of Beneficial Owner
    
    Owned
    
    Stock Outstanding
    
    Outstanding(1)Greater Than 5% Beneficial OwnersAli R. Moghaddami
    
    
    3,900
    
    
    
    100
    %
    
    
    *2000 Riverside Drive
Los Angeles, CA 90039Current directors and executive
officers as a group (0 persons)
    
    
    0
    
    
    
    0
    %
    
    
    0
    %
 
 *
    
    Less than 1%.(1)
    
    The percentages of beneficial ownership assume the conversion into common stock of all Series
2-A Preferred Stock held by such person or entity and is and is based on a total of 9,665,433
shares of common stock outstanding on a fully-diluted basis as of May 16, 2006, which includes
shares of common stock issuable upon the conversion of our outstanding preferred securities
and shares of common stock issuable upon the exercise of stock option and warrants that are
exercisable within 60 days of May 16, 2006. Includes the 1,250,000 shares of common stock
issuable upon exercise of the warrants issued in connection with our October 2002 private
placement. 64




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##### Table of Contents



Series 5-A Convertible Preferred Stock
  Executive
Compensation
 Number of Shares
    
    
    Percent of TotalBeneficially
    
    
    Series 5-A Preferred
    
    
    Percent of TotalName of Beneficial Owner
    
    Owned
    
    
    Stock Outstanding
    
    
    Outstanding(1)Greater Than 5% Beneficial OwnersDavid Hirschhorn (2)
149 South Barrington Avenue, Suite 808
Los Angeles, CA 90049
    
    
    100
    
    
    
    6.77
    %
    
    
    3.3
    %Todd Parker
149 South Barrington Avenue, Suite 808
Los Angeles, CA 90049
    
    
    100
    
    
    
    6.77
    %
    
    
    3.3
    %Dennis M. Smith
33 Gull Point
Hilton Head, SC 29928
    
    
    100
    
    
    
    6.77
    %
    
    
    3.3
    %Current directors and executive officers
as a group
(3 persons)
    
    
    300
    
    
    
    20.3
    %
    
    
    9.9
    %
 
 *
    
    Less than 1%.(1)
    
    The percentages of beneficial ownership assume the conversion into common stock of all Series
5-A Preferred Stock held by such person or entity and is based on a total of 9,665,433 shares
of common stock outstanding on a fully-diluted basis as of May 16, 2006, which includes shares
of common stock issuable upon the conversion of our outstanding preferred securities and
shares of common stock issuable upon the exercise of stock options and warrants that are
exercisable within 60 days of May 16, 2006. Includes the 1,250,000 shares of common stock
issuable upon exercise of the warrants issued in connection with our October 2002 private
placement.(2)
    
    Includes shares beneficially owned by Mr. Hirschhorn in his capacity as President of Hope &
Abel Investments, LLC, which directly holds 100 shares of Series 5-A Preferred Stock, which
are convertible into 320,000 shares of common stock. 65




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##### Table of Contents



Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Vsource Asia Board of Directors
  Vsource Asia Relationship and Symphony House
    Stonefield Consulting Agreement
  Advisory Board
  66




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##### Table of Contents



Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Fees
  2006
    
    
    2005Audit
    
    $
    91,000
    
    
    $
    157,176Audit Related
    
    
    
    
    
    
    165,614Tax
    
    
    1,822
    
    
    
    177,044Total
    
    $
    92,822
    
    
    $
    499,834
 Audit .
 Audit Related
 Tax
  Audit Committee Pre-Approval Policies and Procedures
  67




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##### Table of Contents



PART IV
 
 Item 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (1)
    
    Consolidated Financial Statements
       (2)
    
    Financial Statement Schedules
  (3)
    
    The following documents are filed as exhibits to this Annual 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):
 3.1*
    
    Certificate of Incorporation (filed as Exhibit 3.1 to the Companys Form 8-K,
as filed with the SEC on November 14, 2000 (the November 14, 2000 Form 8-K))3.2*
    
    Bylaws (filed as Exhibit 3.2 to the November 14, 2000 Form 8-K)3.3*
    
    Amendment to Certificate of Incorporation, dated January 16, 2002 (filed as
Exhibit 3.3 to the Companys 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 Companys 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 Companys 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 Companys Form 8-K, as filed with the SEC
on July 21, 2005 (the July 21, 2005 Form 8-K))4.2*
    
    Certificate of Decrease of Shares Designated as Series 1-A Convertible
Preferred Stock (filed as Exhibit 4.1 to the Companys Form 8-K, as filed with the SEC
on July 13, 2005 (the July 13, 2005 Form 8-K))4.3*
    
    Certificate of Decrease of Shares Designated as Series 2-A Convertible
Preferred Stock (filed as Exhibit 4.2 to the July 13, 2005 Form 8-K)4.4*
    
    Certificate of Decrease of Shares Designated as Series 3-A Convertible
Preferred Stock (filed as Exhibit 4.3 to the July 13, 2005 Form 8-K)4.5*
    
    Certificate of Decrease of Shares Designated as Series 4-A Convertible
Preferred Stock (filed as Exhibit 4.4 to the July 13, 2005 Form 8-K)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 July 21, 2005 Form 8-K)4.7*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant (filed as Exhibit 4.2 to
the July 21, 2005 Form 8-K)4.8*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant issuable to Advisory Board
members (filed as Exhibit 4.2 to the Companys Form 8-K, as filed with the SEC on
August 23, 2005 (the August 23, 2005 Form 8-K))
 68




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##### Table of Contents



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 Companys
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 July 21, 2005
Form 8-K)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 Companys Form 8-K, as filed
with the SEC on August 9, 2005 (the August 9, 2005 Form 8-K))10.4*
    
    Secured Promissory Note, dated as of July 29, 2005, executed by
Clinicis-Phoenix Surgery, LLC. (filed as Exhibit 10.2 to the August 9, 2005 Form 8-K)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 August 9, 2005 Form 8-K)10.6*
    
    Inducement Agreement, dated as of July 29, 2005, between Vsource, Inc. and
Clinicis, Inc. (filed as Exhibit 10.4 to the August 9, 2005 Form 8-K)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 August 23, 2005
Form 8-K)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 August 23, 2005 Form
8-K)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 Companys Form 8-K, as filed with the SEC on December 7, 2005 (the December 7,
2005 Form 8-K))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 December 7, 2005 Form 8-K)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 Companys Form 8-K, as filed with the SEC on March 16, 2006 (the March 16,
2006 Form 8-K))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 March 16, 2006 Form 8-K)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
 69




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##### Table of Contents



SIGNATURES
  Tri-Isthmus Group, Inc.Date: June 20, 2006
    /s/ David HirschhornDavid HirschhornCo-Chief Executive Officer  Signature
    
    Title
    
    Date/s/ David Hirschhorn

David Hirschhorn
    
    Co-Chairman of the Board,
Co-Chief Executive Officer,
Co-Chief Financial Officer and
Co-Principal Accounting Officer
    
    June 20, 2006/s/ Todd Parker

Todd Parker
    
    Co-Chairman of the Board,
Co-Chief Executive Officer,
Co-Chief Financial Officer and
Co-Principal Accounting Officer
    
    June 20, 2006/s/ Dennis M. Smith

Dennis M. Smith
    
    Director
    
    June 20, 2006/s/ Robert N. Schwartz

Robert N. Schwartz
    
    Director
    
    June 20, 2006/s/ Richardson E. Sells

Richardson E. Sells
    
    Director
    
    June 20, 2006
 70




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1*
    
    Certificate of Incorporation (filed as Exhibit 3.1 to the Companys Form 8-K, as filed with the SEC on
November 14, 2000 (the November 14, 2000 Form 8-K))3.2*
    
    Bylaws (filed as Exhibit 3.2 to the November 14, 2000 Form 8-K)3.3*
    
    Amendment to Certificate of
Incorporation, dated January 16, 2002 (filed as Exhibit 3.3 to the Companys 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 Companys 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 Companys 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 Companys Form 8-K, as filed with the SEC on July 21, 2005 (the July 21, 2005
Form 8-K))4.2*
    
    Certificate of Decrease of Shares Designated as Series 1-A Convertible Preferred Stock (filed as
Exhibit 4.1 to the Companys Form 8-K, as filed with the SEC on July 13, 2005 (the July 13, 2005 Form
8-K))4.3*
    
    Certificate of Decrease of Shares Designated as Series 2-A Convertible Preferred Stock (filed as
Exhibit 4.2 to the July 13, 2005 Form 8-K)4.4*
    
    Certificate of Decrease of Shares Designated as Series 3-A Convertible Preferred Stock (filed as
Exhibit 4.3 to the July 13, 2005 Form 8-K)4.5*
    
    Certificate of Decrease of Shares Designated as Series 4-A Convertible Preferred Stock (filed as
Exhibit 4.4 to the July 13, 2005 Form 8-K)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 July 21, 2005 Form 8-K)4.7*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant (filed as Exhibit 4.2 to the July 21, 2005 Form 8-K)4.8*
    
    Form of Vsource, Inc. Common Stock Purchase Warrant issuable to Advisory Board members (filed as
Exhibit 4.2 to the Companys Form 8-K, as filed with the SEC on August 23, 2005 (the August 23, 2005
Form 8-K))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 Companys 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 Companys 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 Companys Form 8-K, as filed with the SEC on August 9, 2005 (the August
9, 2005 Form 8-K))10.4*
    
    Secured Promissory Note, dated as of July 29, 2005, executed by Clinicis-Phoenix Surgery, LLC. (filed
as Exhibit 10.2 to the August 9, 2005 Form 8-K)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 August 9, 2005 Form 8-K)10.6*
    
    Inducement Agreement, dated as of July 29, 2005, between Vsource, Inc. and Clinicis, Inc. (filed as
Exhibit 10.4 to the August 9, 2005 Form 8-K)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 August 23, 2005 Form 8-K)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 August 23, 2005 Form 8-K)
 71




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##### Table of Contents



Exhibit No.
    
    Description10.9*
    
    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 Companys Form 8-K, as filed with the SEC on December 7,
2005 (the December 7, 2005 Form 8-K)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 December 7, 2005 Form 8-K)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 Companys Form 8-K, as filed with the
SEC on March 16, 2006 (the March 16, 2006 Form 8-K))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 March 16, 2006 Form 8-K)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. 72