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FORM 10-K
 U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from
 Commission file number: 000-30326
 
 TRI-ISTHMUS GROUP, INC.
  DELAWARE
    
    77-0557617(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)9663 Santa Monica Boulevard, #959Beverly Hills, California
    
    90210(Address of principal executive offices)
    
    (Zip Code)
 (310) 860-2501
 NONE
 COMMON STOCK, PAR VALUE $0.01 PER SHARE
 o Yes þ No
 o Yes þ No
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Number of shares of common stock outstanding as of December 17, 2008
  10,122,929




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##### 



TABLE OF CONTENTS
 PagePART I
    
    
    1Item 1. BUSINESS
    
    
    1Item 1A. RISK FACTORS
    
    
    10Item 1B. UNRESOLVED STAFF COMMENTS
    
    
    19Item 2. PROPERTIES
    
    
    19Item 3. LEGAL PROCEEDINGS
    
    
    19Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20PART II
    
    
    20Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES
    
    
    20Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    25Item 7. MANAGEMENTS DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
    
    
    26Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34Item 8. CONSOLIDATED FINANCIAL STATEMENTS
    
    
    34Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
    
    
    61Item 9A. CONTROLS AND PROCEDURES
    
    
    62Item 9B. OTHER INFORMATION
    
    
    63PART III
    
    
    63Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    63Item 11. EXECUTIVE COMPENSATION
    
    
    66Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
    
    
    76Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    79Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    81PART IV
    
    
    82Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    82SIGNATURES
    
    
    85EXHIBIT INDEX
    
    
    86Exhibit 14.1Exhibit 21.1 - SubsidiariesExhibit 31.1 - Certification Pursuant to Rule 13a-14(d)Exhibit 31.2 - Certification Pursuant to Rule 13a-14(d)Exhibit 32.1 - Certification Pursuant to 18 U.S.C. 1350Exhibit 32.2 - Certification Pursuant to 18 U.S.C. 1350
   i




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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 Form
10-K Securities Act Exchange Act SEC
  
 PART I
 
 ITEM 1. BUSINESS
 www.tig3.com
    COMPANY BACKGROUND
 BPO
 TIGroup
  1




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ASCs Point Loma Del Mar San Diego ASCs
 RHA SPMC x-ray,
   CURRENT OPERATIONS
      2




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Strategy
  RHA Acquisition RHA Healthcare Operations
    3




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FUTURE FUNDING
   
    
    In October 2007, we entered into promissory notes in the aggregate amount of $1.65
million (the 2007 Notes), of which $1.0 million was used to finance
our investment in RHA. The 2007 Notes were repaid in April 2008.
    
    In January 2008, we received subscriptions for an aggregate of $4.6 million to
purchase additional shares of our Series 5-A Preferred Stock and warrants to purchase
our common stock.
    
    In March 2008, we received subscriptions for an aggregate of $3.9 million to
purchase shares of our new Series 6-A Preferred Stock and warrants to purchase our
common stock.
    
    In May 2008, we received subscriptions for an aggregate of $1.65 million to purchase
additional shares of our Series 5-A Preferred Stock and Series 6-A Preferred Stock and
warrants to purchase our common stock.
    
    In May 2008, we received subscriptions for an aggregate of $0.8 million to purchase
additional shares of our Series 6-A Preferred Stock and warrants to purchase our common
stock.
    
    In July 2008, we received $308,400 in connection with the exercise of warrants to
purchase 616,800 shares of our common stock.
    
    In August 2008, we received $105,875 in connection with the exercise of Advisory
Board warrants to purchase 302,500 shares of our common stock.
    
    In September 2008, we received $25,500 in connection with the exercise of warrants
to purchase 51,000 shares of our common stock.
 RHA Loan 2008 Loans USDA
   4




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INTELLECTUAL PROPERTY
   EMPLOYEES
   GOVERNMENT REGULATIONS
  State Licensing and CONs
  CON
 Corporate Practice of Medicine
   5




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Certification
  Medicare-Medicaid Fraud and Abuse Provisions
 Federal Anti-Kickback Statute
 OIG
  HIPAA
  6




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Prohibition on Physician Ownership of Healthcare Facilities and Certain Self-Referrals
  CMS
           7




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Final Report
    The Federal False Claims Act and Similar Federal and State Laws
 FCA
    8




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Healthcare Industry Investigations
  DOJ
 Privacy Requirements and Administrative Simplification
    Environmental Regulation
   9




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Medicare and Medicaid Regulatory and Audit Impacts
  2003 Act
 COMPETITORS
  
 Item 1A. RISK FACTORS
 ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT.
 Risks Related to Our Business
 We have a need for ongoing financing.
   10




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The recent disruption in the overall economy and the financial markets may adversely impact our
business.
  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.
  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.
   11




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If we incur material liabilities as a result of acquiring companies, hospitals or ASCs, our
operating results could be adversely affected.
  If we are unable to manage growth, we may be unable to achieve our growth strategy.
  If we are unable to grow revenues at our existing facilities, our operating margins and
profitability could be adversely affected.
  Appropriate acquisitions or investment opportunities may not be available.
    12




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A significant portion of our revenues are produced by a small number of our facilities, which are
concentrated in Oklahoma and California.
   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.
  Continued growth in the number of uninsured and underinsured patients or further deterioration in
the collectibility of the accounts of such patients could harm our results of operations.
   13




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We may incur liabilities not covered by our insurance or which exceed our insurance limits.
  Because we have facilities in Oklahoma and California, we may incur liabilities as a result of
damage from tornados, mudslides, earthquakes and wildfires, as well as damage from other natural
disasters.
   Risks Related to Our Industry/General Market Conditions
 Current and future disruptions in the banking industries may limit our access to our funds or cause
us to lose funds, which could negatively impact our business.
  We depend on payments from third-party payors, including government healthcare programs. If these
payments are reduced, our revenue will decrease.
   14




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If federal or state healthcare programs or managed care companies reduce the payments we receive as
reimbursement for services we provide, our net operating revenues may decline.
 .
 Providers in the hospital industry have been the subject of federal and state investigations and we
could become subject to such investigations in the future.
      15




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We are subject to uncertainties regarding health care reform.
  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;
    
    licensure, certification and accreditation;
    
    billing for services;
    
    maintenance and protection of records; and
    
    environmental protection.
   We are subject to anti-kickback and self-referral laws and regulations that provide for
criminal and civil penalties if they are violated.
   16




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We could fail to comply with the federal Emergency Medical Treatment and Active Labor Act, or
EMTALA, which could subject us to civil monetary penalties or cause us to be excluded from
participation in the Medicare program.
  We continue to have significant corporate and SEC-related expenses and limited revenue to offset
these expenses.
  Our hospitals face competition for medical support staff, including nurses, pharmacists, medical
technicians and other personnel, which may increase our labor costs and adversely affect our
business.
  If we do not continually enhance our hospitals with the most recent technological advances in
diagnostic and surgical equipment, our ability to maintain and expand our markets will be adversely
affected.
 CT MRI PET
  17




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If we are unable to effectively compete for patients, local residents could use other hospitals.
    Risks Related to Our Common Stock
 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.
  The market for our common stock may be illiquid.
   18




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Our stock is not listed on a major stock market.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
  Facility
    
    Address
    
    Lease Term
    
    Monthly Rent
    
    
    Area (sq. ft.)Outpatient Surgery Center
    
    12264 El Camino Real, Suite 55 San Diego, California  92130
    
    Lease expires 1/1/2016; one, seven year option to extend
    
    $
    20,169.07
    
    
    
    6,684Hospital and Clinic
    
    2308 Highway 66 West Stroud, Oklahoma  74079
    
    Lease expires 10/31/2012; three, five year options to extend
    
    $
    35,000.00
    
    
    
    34,333RHA Home Office
    
    3555 N.W. 58th Street, Suite 700 Oklahoma City, Oklahoma  73112
    
    Lease expires 11/30/2012
    
    $
    13,429.50
    
    
    
    10,232Office Sublease from HSP, Inc.
    
    433 N. Camden, Suite 810 Beverly Hills, California  90210
    
    Lease expires 11/1/2012
    
    $
    4,800.00
    
    
    
    1183.5
  Facility
    
    Address
    
    Area (sq. ft.)Hospital and Medical Office Buildings
    
    1002 E. Central Boulevard Anadarko, Oklahoma 73005
    
    
    57,887Hospital and Medical Office Building
    
    1101 S. Byrd Tishomingo, Oklahoma  73460
    
    
    37,393Physician Clinic
    
    2222 W. Iowa Avenue Chickasha, OK  73018
    
    
    65,800
 
 Item 3. LEGAL PROCEEDINGS
   19




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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 re-elected
   
 PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES
OF EQUITY SECURITIES
 PERFORMANCE GRAPH
 1
 
 1
    
    Our current self-determined peer group is made up of
AmSurg Corp., Community Health Systems, Inc., Health Management Associates,
Inc., Novamed, Inc., and Universal Health Services, Inc. Our prior
self-determined peer group index is made of Community Health Systems, Inc.,
Health Management Associates, Inc., and Lifepoint Hospitals, Inc.  20




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COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG TRI-ISTHMUS GROUP, INC.,
NASDAQ COMPOSITE INDEX AND PEER GROUP INDEX
 
 ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING SEPT. 30, 2008  ASSUMES $100 INVESTED ON JAN 31, 2002
 THE FISCAL YEAR ENDED
    
    1/31/2002
    
    
    1/31/2003
    
    
    1/31/2004
    
    
    1/31/2005
    
    
    1/31/2006
    
    
    9/30/2007
    
    
    9/30/2008COMPANY/INDEX/MARKETTri-Isthmus Group, Inc.
    
    $
    100.00
    
    
    $
    51.47
    
    
    $
    16.47
    
    
    $
    4.41
    
    
    $
    26.47
    
    
    $
    10.59
    
    
    $
    10.59Peer Group Index
    
    $
    100.00
    
    
    $
    100.29
    
    
    $
    193.7
    
    
    $
    242.22
    
    
    $
    248.98
    
    
    $
    182.79
    
    
    $
    190.40Old Peer Group Index
    
    $
    100.00
    
    
    $
    83.32
    
    
    $
    115.12
    
    
    $
    115.12
    
    
    $
    117.17
    
    
    $
    85.19
    
    
    $
    79.43NASDAQ Market Index
    
    $
    100.00
    
    
    $
    69.11
    
    
    $
    107.99
    
    
    $
    109.18
    
    
    $
    118.38
    
    
    $
    145.47
    
    
    $
    101.89
   21




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MARKET INFORMATION
  The Fiscal Year Ended September 30, 2008
    
    High
    
    
    LowFirst Quarter
    
    $
    0.37
    
    
    $
    0.26Second Quarter
    
    
    0.51
    
    
    
    0.29Third Quarter
    
    
    0.89
    
    
    
    0.35Fourth Quarter
    
    
    0.75
    
    
    
    0.31
 The Transition Period Ended Sep. 30, 2007
    
    High
    
    
    LowFirst
Quarter (Feb. 1, 2007  Apr. 30, 2007)
    
    $
    0.38
    
    
    $
    0.26Second Quarter (May 1, 2007  Jul. 31, 2007)
    
    
    0.34
    
    
    
    0.28Third Quarter (Aug. 1, 2007  Sep. 30, 2007)
    
    
    0.36
    
    
    
    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
 STOCKHOLDERS
  DIVIDENDS
   22




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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, 2008
    
    
    at Sep. 30, 2008
    
    
    Sep. 30, 2008(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security 
holders(2)(8)(9)
    
    
    150,000
    
    
    $
    0.3125
    
    
    
    7,287,453Equity compensation
plans not approved by
security 
holders(1)(4)(5)(6)(7)
    
    
    868,346
    
    
    $
    0.8970
    
    
    
    12,579Total
    
    
    1,018,346
    
    
    $
    0.8108
    
    
    
    7,300,032
 (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 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 the 2001 Plan as incentive stock options
exceed 20,000,000. The weighted average exercise price under the 2001 Plan shall be fixed by
the Plan Administrator (as that term is defined in the 2001 Plan) and, in the case of an
incentive option, shall be limited by the following: 1) the exercise price per share shall not
be less than 100% of the fair market value (as that term is defined in the 2001 Plan) per
share of our common stock on the date of option grant; and 2) in the event that the Optionee
is a 10% stockholder, then the exercise price per share shall not be less than 110% of the
fair market value per share of common stock on the date of option grant. We have granted
various incentive stock options as well as non-qualified stock options to key executives,
management and other employees at exercise prices equal to or below the market price at the
date of grant. As of September 30, 2008, based on the 20% calculation, the maximum number of
shares issuable under the 2001 Plan was 13,210,993, and as of September 30, 2008, 6,960,393
shares remain available for issuance. The maximum number of shares of common stock that may
be purchased under our ESPP is 350,000, with a weighted average exercise price of $1.48. As of
September 30, 2008, the Company has discontinued offering the ESPP, no shares have been issued
subsequent to the original issuance, and the Company currently has no intention to issue
shares under the ESPP. Since its inception, a total of 22,940 shares of common stock have
been purchased pursuant to the ESPP, and to the best of our records, 327,060 shares remain
available for issuance.(3)
    
    On November 20, 2001, our Board of Directors approved a grant of options to purchase a total
of 3,750 shares (adjusted for reverse split) of our common stock at an exercise price of $2.00
per share.  23




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(4)
    
    On August 2, 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 the
seven initial members of
our Advisory Board, as compensation for participation on our Advisory Board. The shares
underlying these warrants became fully vested in August 2007. In August 2008, three of the
initial Advisory Board members exercised their warrants in full and a total of 302,500
shares of common stock were issued. The other four initial Advisory Board members, holding
an aggregate of 425,000 shares of common stock, allowed their warrants to expire
unexercised. In December 2006, our Board of Directors 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 a member to the Advisory Board. The shares underlying the
warrant issued to Mr. Spector became fully vested on December 12, 2008. The warrant issued
to Mr. Spector expired unexercised on December 12, 2008. On September 11, 2007, our Board
of Directors approved the issuance of warrants to purchase an aggregate of 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 on September 13, 2009 and
expire on September 13, 2009. On February 15, 2008, our Board of Directors approved the
issuance of a warrant dated October 30, 2007, to purchase a total of 714,285 shares of our
common stock at an exercise price of $0.45 per share to Brian Potiker, in consideration for
his continued service as a member of our Advisory Board. The shares underlying the warrant
issued to Mr. Potiker became fully vested on October 30, 2008 and expire on October 30,
2009.(5)
    
    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 vested in quarterly increments
over three years, beginning on the effective issuance date of August 1, 2005.(6)
    
    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.(7)
    
    On December 12, 2006, our Board of Directors approved the issuance of warrants to 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 expired on December 12, 2008. These warrants expired
unexercised.(8)
    
    On October 10, 2007, subsequent to the completion of the Transition Period Ended September
30, 2007, our Board of Directors approved the grant of an option pursuant to the 2001 Plan to
acquire an aggregate of 600,000 shares of our common stock at an exercise price of $0.3125 to
Dennis M. Smith, following his appointment as our Chief Financial Officer. Provided that Mr.
Smith is employed by us on the applicable vesting dates, the shares underlying these options
vest according to the following schedule: 150,000 shares vested upon the grant of the option;
150,000 shares vested on October 10, 2008; and the remaining 150,000 shares vest on October
10, 2009. 150,000 shares vested immediately upon the grant of the option and 150,000 shares
vested on October 10, 2008. The remaining 150,000 shares will vest on October 10, 2009. Mr.
Smiths employment agreement terminated on October 9, 2008. Mr. Smith has continued to serve
as our Chief Financial Officer without a formal employment agreement. We are currently in
discussions with Mr. Smith regarding a new employment agreement.(9)
    
    On July 1, 2008, our Compensation Committee approved the issuance of options to purchase
6,250,000 shares of our common stock to David Hirschhorn pursuant to the 2001 Plan. These
options are exercisable for a period of seven years at an exercise price of $0.625 per share.
Mr. Hirschhorns shares vest according to the following schedule: 1,250,000 shares vest on
July 1, 2009; 1,250,000 shares vest on July 1, 2010; 1,250,000 shares vest on July 1, 2011;
1,250,000 shares vest on July 1, 2012; and the last 1,250,000 vest on July 1, 2013.  24




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SALES OF UNREGISTERED SECURITIES
    
 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 OUR BPO OPERATIONS IN 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.
 Fiscal
    
    
    TransitionYear
    
    
    PeriodEnded
    
    
    Ended
    
    
    Fiscal Year EndedSep. 30,
    
    
    Sep. 30,
    
    
    Jan. 31,2008
    
    
    2007
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Revenue
    
    $
    29,641
    
    
    $
    2,452
    
    
    $
    702
    
    
    $
    
    
    
    $
    254
    
    
    $
    Operating expenses
    
    
    34,689
    
    
    
    4,444
    
    
    
    2,453
    
    
    
    2,175
    
    
    
    2,503
    
    
    
    5,394Net income/(loss) before
minority interest
    
    
    (5,601
    )
    
    
    (1,990
    )
    
    
    (1,748
    )
    
    
    (2,170
    )
    
    
    (2,252
    )
    
    
    (5,362
    )Minority interest
    
    
    1,368
    
    
    
    93
    
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    Net profit/(loss) per
share allocable to common
stockholders
    
    
    (4,233
    )
    
    
    (1,897
    )
    
    
    (1,580
    )
    
    
    (2,170
    )
    
    
    (2,252
    )
    
    
    (5,362
    )- Basic
    
    $
    (0.86
    )
    
    $
    (0.50
    )
    
    $
    (0.43
    )
    
    $
    (0.91
    )
    
    $
    9.77
    
    
    $
    (9.01
    )- Diluted
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    9.53
    
    
    
    N/ACash and cash equivalents
    
    
    2,970
    
    
    
    733
    
    
    
    286
    
    
    
    1,289
    
    
    
    1,064
    
    
    
    1,452Accounts receivables
    
    
    6,289
    
    
    
    1,418
    
    
    
    1,403
    
    
    
    
    
    
    
    
    
    
    
    Property and equipment, net
    
    
    12,277
    
    
    
    1,163
    
    
    
    1,115
    
    
    
    1
    
    
    
    40
    
    
    
    4,418Goodwill
    
    
    759
    
    
    
    759
    
    
    
    987
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    26,498
    
    
    
    4,504
    
    
    
    4,571
    
    
    
    1,579
    
    
    
    2,714
    
    
    
    10,834Current liabilities
    
    
    9,803
    
    
    
    1,624
    
    
    
    839
    
    
    
    552
    
    
    
    779
    
    
    
    8,550Long term liabilities
    
    
    1,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    967
    
    
    
    920
    
    
    
    1,285
    
    
    
    
    
    
    
    
    
    
    
    Non-redeemable preferred
stock
    
    
    191
    
    
    
    191
    
    
    
    191
    
    
    
    191
    
    
    
    191
    
    
    
    4,354Redeemable preferred stock
    
    
    14,432
    
    
    
    5,019
    
    
    
    4,050
    
    
    
    1,307
    
    
    
    
    
    
    
    14,521Stockholders equity/
(deficit)
    
    
    (4,350
    )
    
    
    (3,250
    )
    
    
    (1,603
    )
    
    
    (280
    )
    
    
    1,744
    
    
    
    (16,591
    )
   25




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##### Table of Contents



Item 7. MANAGEMENTS DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
  FORWARD LOOKING STATEMENTS
   OVERVIEW
    CHANGE IN THE FISCAL YEAR END
  FUNDING
    26




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Principles of Consolidation and Basis of Presentation
  Use of Estimates
  Property and Equipment
  Computer hardware
    
    
    2 to 5 yearsComputer software
    
    
    3 to 5 yearsOffice equipment, furniture and fixtures
    
    
    5 yearsMedical equipment
    
    
    5 to 7 yearsBuildings
    
    
    30 to 40 yearsLeasehold improvements
    
    
    15 years
  Revenue Recognition
  Income Taxes
   27




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##### Table of Contents



Stock-Based Compensation
  Earnings Per Share
  Recent Accounting Pronouncements
 SFAS 160
 SFAS 141 (R) SFAS 141 (R) requires
  28




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##### Table of Contents



RESULTS OF OPERATIONS (All amounts in thousands)
 Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    FiscalYear
    
    
    Period
    
    
    Year
    
    
    YearEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSep. 30,
    
    
    Sep. 30,
    
    
    Jan. 31,
    
    
    Jan. 31,2008
    
    
    2007
    
    
    2007
    
    
    2006Revenue from services
    
    $
    29,641
    
    
    $
    2,452
    
    
    $
    702
    
    
    $
    Selling, general and administrative expenses
    
    
    33,336
    
    
    
    3,966
    
    
    
    2,255
    
    
    
    2,028Amortization of stock-based compensation
    
    
    339
    
    
    
    250
    
    
    
    198
    
    
    
    147Impairment
of long-lived assets and goodwill
    
    
    308
    
    
    
    228
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    706
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    34,689
    
    
    
    4,444
    
    
    
    2,453
    
    
    
    2,175Operating loss
    
    
    (5,048
    )
    
    
    (1,992
    )
    
    
    (1,751
    )
    
    
    (2,175
    )Interest income
    
    
    320
    
    
    
    2
    
    
    
    3
    
    
    
    5Interest expense
    
    
    (873
    )
    
    
    
    
    
    
    
    
    
    
    Net loss from operations before taxation
and non-cash beneficial conversion feature
    
    
    (5,601
    )
    
    
    (1,990
    )
    
    
    (1,748
    )
    
    
    (2,170
    )Minority interest
    
    
    1,368
    
    
    
    93
    
    
    
    168
    
    
    
    Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (4,233
    )
    
    
    (1,897
    )
    
    
    (1,580
    )
    
    
    (2,170
    )Non-cash beneficial conversion feature
preferred dividend
    
    
    (2,878
    )
    
    
    
    
    
    
    
    
    
    
    Net loss allocable to common stockholders
    
    $
    (7,111
    )
    
    $
    (1,897
    )
    
    $
    (1,580
    )
    
    $
    (2,170
    )
 MANAGEMENTS DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS  FISCAL YEAR ENDED SEPTEMBER 30, 2008
COMPARED TO EIGHT-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30, 2007, YEAR ENDED JANUARY 31, 2007 AND
YEAR END JANUARY 31, 2006.
 Revenue
 ,
  Selling, General and Administrative Expenses
    29




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##### Table of Contents



Amortization of Stock-Based Compensation
        30




---



##### Table of Contents



Impairment of Long-Lived Assets and Goodwill
  Operating Loss
   Interest Income
   31




---



##### Table of Contents



Interest Expense
  Minority Interest
   Taxation
  Net Income or Loss
  Non-Cash Beneficial Conversion Feature Preferred Dividend
 EITF
  32




---



##### Table of Contents



Net Income or Loss Available to Common Stockholders
  LIQUIDITY AND CAPITAL RESOURCES
        OFF-BALANCE SHEET FINANCING
   33




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##### Table of Contents



DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 Contractual Obligations
 Payments due by periodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsLong-term debt obligations
    
    $
    742
    
    
    $
    164
    
    
    $
    318
    
    
    $
    37
    
    
    $
    223Capital lease obligations
    
    
    513
    
    
    
    113
    
    
    
    356
    
    
    
    44
    
    
    
    Operating lease obligations
    
    
    4,440
    
    
    
    1,256
    
    
    
    2,932
    
    
    
    252
    
    
    
    Total
    
    $
    5,693
    
    
    $
    1,533
    
    
    $
    3,606
    
    
    $
    333
    
    
    $
    223
 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATE RISK
  FOREIGN CURRENCY RISK
  
 Item 8. CONSOLIDATED FINANCIAL STATEMENTS
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Whitley Penn LLPDallas, TexasJanuary 12, 2009
  34




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Mendoza Berger & Company, LLP
 
  35




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##### Table of Contents



Sep. 30, 2008
    
    
    Sep. 30, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,970
    
    
    $
    733Restricted cash
    
    
    1,514
    
    
    
    Accounts receivable, net of allowance for uncollectible accounts
    
    
    6,289
    
    
    
    1,418Advance to affiliated entity (Note 7)
    
    
    72
    
    
    
    273Prepaid expenses
    
    
    103
    
    
    
    23Other current assets
    
    
    1,754
    
    
    
    135Total current assets
    
    
    12,702
    
    
    
    2,582Property and equipment, net
    
    
    12,277
    
    
    
    1,163Goodwill (Note 8)
    
    
    759
    
    
    
    759Other assets
    
    
    760
    
    
    
    Total assets
    
    $
    26,498
    
    
    $
    4,504LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS EQUITY/ (DEFICIT)Current liabilities:Accounts payable
    
    $
    2,944
    
    
    $
    678Accrued expenses
    
    
    1,765
    
    
    
    792Staff accruals
    
    
    950
    
    
    
    154Notes payable
    
    
    3,980
    
    
    
    Current maturities of long term debt
    
    
    164
    
    
    
    Total current liabilities
    
    
    9,803
    
    
    
    1,624Long term debt
    
    
    1,091
    
    
    
    Notes payable
    
    
    4,364
    
    
    
    Total liabilities
    
    
    15,258
    
    
    
    1,624Minority interest (Note 10)
    
    
    967
    
    
    
    920Non-redeemable preferred stock:Preferred stock Series 1-A ($0.01 par value, 67,600 shares authorized; 67,600 shares issued and
outstanding as of Sep. 30, 2008 and 2007)
    
    
    166
    
    
    
    166Preferred stock Series 2-A ($0.01 par value, 3,900 shares authorized; 3,900 shares issued and
outstanding as Sep. 30, 2008 and 2007)
    
    
    25
    
    
    
    25Total non-redeemable preferred stock
    
    
    191
    
    
    
    191Redeemable preferred stock: (Note 13)Preferred
stock Series 5-A ($0.01 par value, 9,000 shares authorized;
8,987 and 2,717 shares issued
and outstanding as of Sep. 30, 2008 and Sep. 30, 2007, respectively)
    
    
    7,819
    
    
    
    2,519Preferred stock Series 6-A ($0.01 par value, 5,000 shares authorized; 4,607 shares issued and
outstanding as of Sep. 30, 2008 and -0- as of Sep. 30, 2007)
    
    
    4,113
    
    
    
    Series B preferred stock issued by subsidiary (Note 13) ($0.01 par value, 38,250 shares authorized,
19,990 shares issued and outstanding as of Sep. 30, 2008 and Sep. 30, 2007)
    
    
    2,500
    
    
    
    2,500Total redeemable preferred stock
    
    
    14,432
    
    
    
    5,019Stockholders equity/(deficit):Common stock ($0.01 par value, 100,000,000 shares authorized; 10,122,992 and 3,828,739 shares issued
and outstanding as of Sep. 30, 2008 and 2007, respectively)
    
    
    103
    
    
    
    38Additional paid-in-capital
    
    
    71,301
    
    
    
    65,355Accumulated deficit
    
    
    (75,702
    )
    
    
    (68,591
    )Other comprehensive income (loss)
    
    
    (52
    )
    
    
    (52
    )Total stockholders equity/(deficit)
    
    
    (4,350
    )
    
    
    (3,250
    )Total liabilities, preferred stock and stockholders equity/(deficit)
    
    $
    26,498
    
    
    $
    4,504
   36




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##### Table of Contents



Fiscal
    
    
    Transition
    
    
    FiscalYear
    
    
    Period
    
    
    YearEnded
    
    
    Ended
    
    
    EndedSep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Revenue from services
    
    $
    29,641
    
    
    $
    2,452
    
    
    $
    702Cost and expenses:Selling, general and administrative expenses
    
    
    33,336
    
    
    
    3,966
    
    
    
    2,255Amortization of stock-based compensation (Note 14)
    
    
    339
    
    
    
    250
    
    
    
    198Impairment of long-lived assets and goodwill
    
    
    308
    
    
    
    228
    
    
    
    Depreciation and amortization
    
    
    706
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    34,689
    
    
    
    4,444
    
    
    
    2,453Operating loss
    
    
    (5,048
    )
    
    
    (1,992
    )
    
    
    (1,751
    )Interest income
    
    
    320
    
    
    
    2
    
    
    
    3Interest expense
    
    
    (873
    )
    
    
    
    
    
    
    Minority interest
    
    
    1,368
    
    
    
    93
    
    
    
    168Net loss from operations before taxation and non-cash
beneficial conversion feature
    
    
    (4,233
    )
    
    
    (1,897
    )
    
    
    (1,580
    )Taxation
    
    
    
    
    
    
    
    
    
    
    Non-cash beneficial conversion feature preferred dividend
    
    
    (2,878
    )
    
    
    
    
    
    
    Net loss
allocable to common shareholders
    
    $
    (7,111
    )
    
    $
    (1,897
    )
    
    $
    (1,580
    )Net income/(loss) per common share:Basic
    
    $
    (0.86
    )
    
    $
    (0.50
    )
    
    $
    (0.43
    )Diluted
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
   37




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##### Table of Contents



Additional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Shares
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    DeficitBalance at Jan. 31, 2006
    
    
    3,674,033
    
    
    $
    37
    
    
    $
    64,847
    
    
    $
    (65,114
    )
    
    $
    (50
    )
    
    $
    (280
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,580
    )
    
    
    
    
    
    
    (1,580
    )Comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Fractional shares arising on
reverse stock split
    
    
    37Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Stock based compensation
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    198Balance at Jan. 31, 2007
    
    
    3,674,070
    
    
    $
    37
    
    
    $
    65,105
    
    
    $
    (66,694
    )
    
    $
    (52
    )
    
    $
    (1,604
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,897
    )
    
    
    
    
    
    
    (1,897
    )Shares issued
    
    
    154,669
    
    
    
    1
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    105Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    84Stock based compensation
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    62Balance at Sep. 30, 2007
    
    
    3,828,739
    
    
    $
    38
    
    
    $
    65,355
    
    
    $
    (68,591
    )
    
    $
    (52
    )
    
    $
    (3,250
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,111
    )
    
    
    
    
    
    
    (7,111
    )Issuance of Common Stock
    
    
    6,294,253
    
    
    
    65
    
    
    
    2,175
    
    
    
    
    
    
    
    
    
    
    
    2,240Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    554
    
    
    
    
    
    
    
    
    
    
    
    554Stock based compensation
    
    
    
    
    
    
    
    
    
    
    339
    
    
    
    
    
    
    
    
    
    
    
    339Beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    2,878
    
    
    
    
    
    
    
    
    
    
    
    2,878Balance at Sept. 30, 2008
    
    
    10,122,992
    
    
    $
    103
    
    
    $
    71,301
    
    
    $
    (75,702
    )
    
    $
    (52
    )
    
    $
    (4,350
    )
   38




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##### Table of Contents



Fiscal
    
    
    Transition
    
    
    FiscalYear
    
    
    Period
    
    
    YearEnded
    
    
    Ended
    
    
    EndedSep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Cash flows from operating activities:Net income/(loss)
    
    $
    (4,233
    )
    
    $
    (1,897
    )
    
    $
    (1,580
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Minority interest
    
    
    (1,368
    )
    
    
    (93
    )
    
    
    (168
    )Depreciation and amortization
    
    
    706
    
    
    
    76
    
    
    
    29Bad debt provision/(writeback)
    
    
    3,792
    
    
    
    284
    
    
    
    Impairment loss on property and equipment
    
    
    308
    
    
    
    
    
    
    
    1Amortization of stock-based compensation
    
    
    339
    
    
    
    250
    
    
    
    198Amortization
of debt discount
    
    
    233
    
    
    
    
    
    
    
    Impairment loss on goodwill
    
    
    
    
    
    
    228
    
    
    
    Changes in working capital components:Accounts receivable
    
    
    (4,275
    )
    
    
    (15
    )
    
    
    101Accounts payable
    
    
    348
    
    
    
    133
    
    
    
    15Others
    
    
    (1,322
    )
    
    
    444
    
    
    
    204Net cash used in operating activities
    
    
    (5,472
    )
    
    
    (590
    )
    
    
    (1,200
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (676
    )
    
    
    (123
    )
    
    
    Payments from affiliated entity
    
    
    33
    
    
    
    
    
    
    
    (272
    )Restricted cash
    
    
    (1,514
    )
    
    
    
    
    
    
    Acquisition of subsidiaries, net of cash acquired
    
    
    175
    
    
    
    
    
    
    
    163Net cash used in investing activities
    
    
    (1,982
    )
    
    
    (123
    )
    
    
    (109
    )Cash flows from financing activities:Drawdown of convertible loans
    
    
    1,650
    
    
    
    
    
    
    
    Payments on notes payable
    
    
    (2,613
    )
    
    
    
    
    
    
    Proceeds on notes payable
    
    
    162
    
    
    
    
    
    
    
    Proceeds
from exercise of warrants
    
    
    440
    
    
    
    
    
    
    
    Proceeds from issuance of preferred stock, net of cost
    
    
    10,052
    
    
    
    1,160
    
    
    
    304Net cash provided by financing activities
    
    
    9,691
    
    
    
    1,160
    
    
    
    304Net increase/(decrease) in cash and cash equivalents
    
    
    2,237
    
    
    
    447
    
    
    
    (1,005
    )Cash and cash equivalents at beginning of year
    
    
    733
    
    
    
    286
    
    
    
    1,289Cash and cash equivalents at end of year
    
    $
    2,970
    
    
    $
    733
    
    
    $
    284Supplemental cash flow informationCash paid
for interest
    
    
    873
    
    
    
    
    
    
    
    Cash paid
for taxes
    
    
    
    
    
    
    
    
    
    
    Issuance of Series B Preferred Stock for acquisition of subsidiaries
    
    $
    
    
    
    $
    
    
    
    $
    2,500
   39




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##### Table of Contents



1. Company Background
 BPO
 TIGroup
 ASCs Point Loma Del Mar San Diego ASCs
 RHA SPMC
  Current Operations
 TIGroup
   40




---



##### Table of Contents



Strategy
      41




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##### Table of Contents



Future Funding
   
    
    In October 2007, we entered into promissory notes in the aggregate amount of $1.65
million (the 2007 Notes), of which $1.0 million was used to finance our investment in
RHA. The 2007 Notes were repaid in April 2008.
 
    
    In January 2008, we received subscriptions for an aggregate of $4.6 million to
purchase additional shares of our Series 5-A Preferred Stock and warrants to purchase
our common stock.
 
    
    In March 2008, we received subscriptions for an aggregate of $3.9 million to
purchase shares of our new Series 6-A Preferred Stock and warrants to purchase our
common stock.
 
    
    In May 2008, we received subscriptions for an aggregate of $1.65 million to purchase
additional shares of our Series 5-A Preferred Stock and Series 6-A Preferred Stock and
warrants to purchase our common stock.
 
    
    In May 2008, we received subscriptions for an aggregate of $0.8 million to
purchase additional shares of our Series 6-A Preferred Stock and warrants to purchase
our common stock.
 
    
    In July 2008, we received $308,400 in connection with the exercise of warrants to
purchase 616,800 shares of our common stock.
 
    
    In August 2008, we received $105,875 in connection with the exercise of Advisory
Board warrants to purchase 302,500 shares of our common stock.
 
    
    In September 2008, we received $25,500 in connection with the exercise of warrants
to purchase 51,000 shares of our common stock.
 RHA Loan 2008 Loans USDA
    42




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##### Table of Contents



2. Summary of Significant Accounting Policies
 Change of Financial Year End
 Fiscal Year Ended September 30, 2008 Transition Period Ended September 30, 2007 Fiscal Year Ended
January 31, 2007
 Principles of Consolidation and Basis of Presentation
  Use of Estimates
  Foreign Currency Translation
  Cash and Cash Equivalents
   Accounts Receivable
   43




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##### Table of Contents



Property and Equipment
  Computer hardware
    
    
    2 to 5 yearsComputer software
    
    
    3 to 5 yearsOffice equipment, furniture and fixtures
    
    5 yearsMedical equipment
    
    
    5 to 7 yearsBuildings
    
    
    30 to 40 yearsLeasehold improvements
    
    15 years
  Impairment of Goodwill and Long-lived Assets
   Revenue Recognition
  Income Taxes
   44




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##### Table of Contents



Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes
 Functional Currency
  Other Comprehensive Income (Loss)
  Stock-Based Compensation
   Earnings Per Share
   45




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##### Table of Contents



Recent Accounting Pronouncements
 SFAS
157
 SFAS No.
159
 SFAS No. 160
 SFAS No. 141 (R)
 Fair Value of Financial Instruments
   46




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##### Table of Contents



3. Net Income/(Loss) Available to Common Stockholders and Comprehensive Profit/(Loss)
  Fiscal
    
    
    Transition
    
    
    FiscalYear Ended
    
    
    Period Ended
    
    
    Year EndedSep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Net loss available to common stockholders
    
    $
    (7,111
    )
    
    $
    (1,897
    )
    
    $
    (1,580
    )Other comprehensive (loss)/gain foreign currency translations
    
    
    
    
    
    
    
    
    
    
    (2
    )Comprehensive income/(loss)
    
    $
    (7,111
    )
    
    $
    (1,897
    )
    
    $
    (1,582
    )
 Earnings Per Share
  Fiscal
    
    
    Transition
    
    
    FiscalYear Ended
    
    
    Period Ended
    
    
    Year EndedSep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Numerator for basic and diluted income/(loss) per share:Net income/(loss)
    
    $
    (7,111
    )
    
    $
    (1,897
    )
    
    $
    (1,580
    )Denominator for basic earnings/(loss) per share  weighted average shares
    
    
    8,223,865
    
    
    
    3,764,522
    
    
    
    3,673,996Basic
    
    $
    (0.86
    )
    
    $
    (0.50
    )
    
    $
    (0.43
    )Diluted
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  4. Accounts receivable
  Sep. 30, 2008
    
    
    Sep. 30, 2007Gross patient accounts receivable
    
    $
    16,309
    
    
    $
    6,074Reserves for bad debt
    
    
    (2,721
    )
    
    
    Reserves for contractual allowances
    
    
    (7,299
    )
    
    
    (4,656
    )Patient accounts receivable, net
    
    $
    6,289
    
    
    $
    1,418
 5. Other current assets
 Sep. 30, 2008
    
    
    Sep. 30, 2007Other current assets:Deposits
    
    $
    119
    
    
    $
    24Medical supplies
    
    
    558
    
    
    
    Other receivables
    
    
    1,077
    
    
    
    111Total other assets
    
    $
    1,754
    
    
    $
    135
 6. Property and equipment
 Sep. 30, 2008
    
    
    Sep. 30, 2007Property and equipment:Computer hardware
    
    $
    76
    
    
    $
    74Furniture, fixtures and medical equipment
    
    
    3,434
    
    
    
    1,164Land
    
    
    694
    
    
    
    Buildings
    
    
    8,851
    
    
    
    Leasehold improvements
    
    
    33
    
    
    
    30Accumulated depreciation
    
    
    (811
    )
    
    
    (105
    )Property and equipment, net
    
    $
    12,277
    
    
    $
    1,163
  47




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7. Advance to Affiliated Entity
 Cross Shore RPS
 8. Goodwill
  (in thousands)
    
    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
    
    
    
    742
    
    
    
    1,170Accounts payable
    
    
    (51
    )
    
    
    (46
    )
    
    
    (97
    )Total
    
    
    1,527
    
    
    
    1,465
    
    
    
    2,992Less: Minority interest  49%
    
    
    (748
    )
    
    
    (731
    )
    
    
    (1,479
    )Share of net assets
    
    
    779
    
    
    
    734
    
    
    
    1,513Purchase 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
   48




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9. Long-term Debt
  2008
    
    
    2007Note payable, secured by equipment, $4,558 payable
monthly, including 8.25% interest through September 2011
    
    $
    139
    
    
    $
    Note payable, secured by equipment, $13,456 payable
monthly, including 8.75% interest
    
    
    249
    
    
    
    8% Notes payable to prior shareholders for stock
repurchases, eleven notes outstanding at September 30, 2008,
maturity dates ranging from 2008 through 2017
    
    
    307
    
    
    
    Note payable, secured by equipment, $2,825 payable
monthly, including 13.6% interest through April 2010
    
    
    45
    
    
    
    Capitalized lease obligations  five leases for
buildings and medical equipment with imputed interest
rates ranging from 4% to 17.2%, maturing at various dates
through 2013
    
    
    515
    
    
    
    Total
    
    
    1,255
    
    
    
    Less current maturities of long-term debt
    
    
    (164
    )
    
    
    Total long-term debt
    
    $
    1,091
    
    
    
    
 Fiscal Year Ended September 30,
    
    Payments2009
    
    $
    1642010
    
    
    3242011
    
    
    2022012
    
    
    1482013 and thereafter
    
    
    417Total
    
    $
    1,255
   10. Minority Interests
   49




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##### Table of Contents



11. Warrants
 Warrants Issued Pursuant to the Issuance of Series 5-A Preferred Stock
     Warrants Issued Pursuant to the Issuance of Series 6-A Preferred Stock
  Warrants Issued Pursuant to the Individuals for Advisory Board Participation
      50




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##### Table of Contents



Other Warrant Issuances
   Weighted-AverageNumber of Shares of Common Stock
    
    
    Exercise Price Per ShareFiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    FiscalYear
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    Period
    
    
    YearEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    January 31,
    
    
    September 30,
    
    
    September 30,
    
    
    January 31,2008
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2007Warrants outstanding
at beginning of the period
    
    
    2,868,700
    
    
    
    1,867,700
    
    
    
    1,599,300
    
    
    $
    0.48
    
    
    $
    0.48
    
    
    $
    0.48Issued
    
    
    10,744,035
    
    
    
    1,001,000
    
    
    
    268,400
    
    
    $
    0.46
    
    
    $
    0.48
    
    
    $
    0.48Exercised
    
    
    970,300
    
    
    
    
    
    
    
    
    
    
    $
    0.46
    
    
    
    
    
    
    
    Cancelled or expired
    
    
    847,400
    
    
    
    
    
    
    
    
    
    
    $
    0.47
    
    
    
    
    
    
    
    Warrants outstanding
at end of the
period
    
    
    11,795,035
    
    
    
    2,868,700
    
    
    
    1,867,700
    
    
    $
    0.46
    
    
    $
    0.48
    
    
    $
    0.48
  51




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12. Commitments and Contingencies
   Operating
    
    
    Capital LeaseYear Ending September 30,
    
    Leases
    
    
    Obligations
    
    
    Total2009
    
    $
    1,256
    
    
    $
    126
    
    
    $
    1,3822010
    
    
    1,171
    
    
    
    133
    
    
    
    1,3042011
    
    
    902
    
    
    
    138
    
    
    
    1,0402012
    
    
    859
    
    
    
    116
    
    
    
    9752013
    
    
    252
    
    
    
    48
    
    
    
    3002014 and thereafter
    
    
    
    
    
    
    
    
    
    
    $
    4,440
    
    
    $
    561
    
    
    $
    5,001
 13. Preferred Stock
 Non-Redeemable Preferred Stock and Redeemable Preferred Stock
  Series 1-A Preferred Stock
   52




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Series 2-A Preferred Stock
  Series 5-A Preferred Stock
      53




---



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Series 6-A Preferred Stock
 6-A Purchase Agreement
    54




---



##### Table of Contents



Series B Preferred Stock issued by subsidiary
   Related Party Interests in Preferred Stock
  14. Stock Options
 Stock-Based Compensation
  Fiscal
    
    
    Transition
    
    
    FiscalYear Ended
    
    
    Period Ended
    
    
    Year EndedSep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    140
    %
    
    
    52
    %
    
    
    212
    %Risk-free rate of return
    
    
    3.3
    %
    
    
    3.1
    %
    
    
    4.5
    %Expected life (years)
    
    
    5.0
    
    
    
    3.0
    
    
    
    3.0
 Stock Option Plans
 2000
Plan
 2001 Plan
  55




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56




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##### Table of Contents



Weighted-AverageNumber of Options
    
    
    Exercise Price Per ShareFiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    FiscalYear Ended
    
    
    Period Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Period Ended
    
    
    Year EndedSep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007
    
    
    Sep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Options outstanding at
beginning of the
period
    
    
    483,750
    
    
    
    483,750
    
    
    
    458,517
    
    
    $
    0.42
    
    
    $
    0.42
    
    
    $
    1.88Granted at above fair
market value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
     at fair market value
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    0.42 at below fair
market value
    
    
    6,850,000
    
    
    
    
    
    
    
    
    
    
    $
    0.60
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    (94,767
    )
    
    
    
    
    
    
    
    
    
    $
    1.48Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding at
end of the period
    
    
    7,333,750
    
    
    
    483,750
    
    
    
    483,750
    
    
    $
    0.59
    
    
    $
    0.42
    
    
    $
    0.42Options
vested/exercisable at
end of the period
    
    
    513,750
    
    
    
    363,750
    
    
    
    363,750
    
    
    $
    0.3125
    
    
    $
    0.42
    
    
    $
    0.42
  Weighted-average
    
    
    Weighted-average remainingExercise price
    
    
    Number of options
    
    
    exercise price
    
    
    contractual life$
    0.40
    
    
    
    360,000
    
    
    $
    0.40
    
    
    6.3$
    0.42
    
    
    
    120,000
    
    
    $
    0.42
    
    
    1.3$
    2.00
    
    
    
    3,750
    
    
    $
    2.00
    
    
    3.3$
    0.3125
    
    
    
    600,000
    
    
    $
    0.3125
    
    
    6.0$
    0.625
    
    
    
    6,250,000
    
    
    $
    0.625
    
    
    6.8
 Employee Stock Purchase Plan
 ESPP
 15. 401(k) Plan
 401(k) Plan
  57




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16. Income Taxes
  (in thousands)
    
    Sep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Net income/(loss) subject to U.S income taxes only
    
    $
    (7,111
    )
    
    $
    (1,846
    )
    
    $
    (1,306
    )Net loss subject to foreign income taxes only
    
    
    
    
    
    
    (51
    )
    
    
    (274
    )Net income/(loss)
    
    $
    (7,111
    )
    
    $
    (1,897
    )
    
    $
    (1,580
    )
  Sep. 30, 2008
    
    
    Sep. 30, 2007
    
    
    Jan. 31, 2007Deferred tax assets: net operating loss carry forward
    
    $
    14,193
    
    
    $
    15,986
    
    
    $
    15,382 Accounts
receivable reserves
    
    
    2,080
    
    
    
    
    
    
    
    Gross deferred tax assets
    
    
    16,273
    
    
    
    15,986
    
    
    
    15,382Deferred tax liabilities
    
    $
    (828
    )
    
    
    
    
    
    
    Net deferred tax assets
    
    $
    15,445
    
    
    $
    15,986
    
    
    $
    15,382Valuation allowance
    
    $
    (15,445
    )
    
    $
    (15,986
    )
    
    $
    (15,382
    )Current year taxation: Corporate tax  federal
    
    
    
    
    
    
    
    
    
    
     Corporate tax  foreign
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
     58




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##### Table of Contents



17. Acquisitions
 Del Mar Point Loma
 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
    
    
    
    742
    
    
    
    1,170Accounts payable
    
    
    (51
    )
    
    
    (46
    )
    
    
    (97
    )Total
    
    
    1,527
    
    
    
    1,465
    
    
    
    2,992Less: Minority interest - 49%
    
    
    (748
    )
    
    
    (731
    )
    
    
    (1,479
    )Share of net assets
    
    $
    779
    
    
    $
    734
    
    
    $
    1,513Purchase consideration
    
    
    1,250
    
    
    
    1,250
    
    
    
    2,500Goodwill at November 16, 2006
    
    
    471
    
    
    
    516
    
    
    
    987Impairment of goodwill during year ended September 30, 2007
    
    
    (228
    )
    
    
    
    
    
    
    (228
    )Goodwill at September 30, 2008
    
    $
    243
    
    
    $
    516
    
    
    $
    759
   59




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##### Table of Contents



Cash and cash equivalents
    
    $
    348Accounts receivable, net
    
    
    2,524Other current assets
    
    
    550Property and equipment, net
    
    
    6,067Accounts payable
    
    
    (556
    )Accrued expenses
    
    
    (1,106
    )Notes payable
    
    
    (528
    )Total
    
    $
    2,544Less: Minority interest - 49%
    
    
    (1,246
    )Share of net assets
    
    $
    1,298Purchase considerationIssuance of restricted shares
    
    $
    (1,233
    )Incidental costs
    
    
    (65
    )$
    (1,298
    )
     Cash
    
    $
    644Accounts receivable
    
    
    1,692Other current assets
    
    
    258Property and equipment
    
    
    5,385Other assets
    
    
    329Current liabilities
    
    
    (2,655
    )Long-term liabilities
    
    
    (4,305
    )$
    1,349
  60




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##### Table of Contents



September 30,
    
    
    September 30,2008
    
    
    2007Revenues
    
    $
    36,612
    
    
    $
    10,714Net Loss
    
    $
    (7,965
    )
    
    $
    (2,365
    )Net loss per common (basic and diluted)
    
    $
    (0.87
    )
    
    $
    (0.50
    )Weighted average common shares common
shares outstanding (basic and diluted)
    
    
    9,198,865
    
    
    
    4,739,522
 18. Subsequent Events
    
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 MBC
     61




---



##### Table of Contents



Item 9A(T). CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
 Changes in Internal Control Over Financial Reporting
  62




---



##### Table of Contents



Item 9B. OTHER INFORMATION
  
 PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionDavid Hirschhorn
    
    
    47
    
    
    Chairman and Director
Chief Executive OfficerDennis M. Smith
    
    
    57
    
    
    Chief Financial Officer
DirectorTodd Parker (1)
    
    
    45
    
    
    DirectorRobert N. Schwartz, PhD. (2)
    
    
    69
    
    
    DirectorRichardson E. Sells (2)
    
    
    62
    
    
    DirectorDonald C. Parkerson (3)
    
    
    58
    
    
    Chief Financial Officer of RHAThomas Rice (3)
    
    
    62
    
    
    President and Chief Operating Officer of RHA
 (1)
    
    Member of the Audit Committee.(2)
    
    Member of the Audit Committee and Compensation Committee.(3)
    
    Individual became a key Executive Officer of a subsidiary of the Registrant following the end
of the fiscal year ending September 30, 2008, but prior to the filing of this Form 10-K. David Hirschhorn.
 Dennis M. Smith.
  63




---



##### Table of Contents



Todd Parker.
 Robert N. Schwartz, Ph.D.
 Richardson E. Sells.
 Donald C. Parkerson.
 Thomas Rice.
  64




---



##### Table of Contents



Board Meetings and Committees
     Stockholder Communications with the Board of Directors
  
  Compensation of Directors
    65




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##### Table of Contents



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
    
    2
    
    0Dennis M. Smith
    
    0
    
    1
    
    1Robert N.
Schwartz, PhD.
    
    1
    
    2
    
    0Todd Parker
    
    1
    
    1
    
    0Ciabattoni Living Trust dated August 17, 2000
    
    1
    
    2
    
    0SMP Investments I, LLC
    
    1
    
    2
    
    0
 Code of Ethics
 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
 
    
    Align management and stockholder interests over both the short and long-term.
  66




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##### Table of Contents




    
    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.
  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.
   67




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##### Table of Contents



Outside Compensation Advice
  Benchmarking Process
  Compensation of Executive Officers
    68




---



##### Table of Contents



Components of the Executive Compensation Program
  Base Salary
  Annual Cash Incentives
  Long-Term Equity Incentives
   69




---



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Perquisites and Other Benefits
  Retirement Plans
  Benefits Upon Termination of Employment
   Tax and Accounting Matters
    70




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##### Table of Contents



THE FISCAL YEAR ENDED SEPTEMBER 30, 2008, SEPTEMBER 30, 2007 AND JANUARY 31, 2007 SUMMARY EXECUTIVE
COMPENSATION TABLE
  Non-
    
    Change inEquity
    
    PensionIncentive
    
    Value andName
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan
    
    Nonqualified
    
    All otherand
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    Option
    
    Compen-
    
    Deferred
    
    Compen-Principal
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    sation
    
    Compensation
    
    sation
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Earnings
    
    ($)
    
    ($)David Hirschhorn
Chief Executive
Officer (formerly
Co-Chief Executive
Officer and
Co-Chief Financial
Officer)
    
    Fiscal 2007  Jan.
31, 2007
    
    $
    223,724
    
    
    $
    88,697
    (1)
    
    $
    88,333
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    395,754The Transition
Period ended Sep.
30, 2007
    
    $
    183,508
    
    
    
    
    (3)
    
    $
    99,041
    (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    282,549Sep. 30, 2008
    
    $
    360,000
    
    
    $
    225,000
    
    
    
    
    
    
    $
    3,704,807
    
    
    
    
    
    
    $
    37,163
    
    
    $
    4,326,970Todd Parker
Co-Chief Executive
Officer and
Co-Chief Financial
Officer (resigned
Sep. 2007)
    
    Fiscal 2007  Jan.
31, 2007
    
    
    $96,000
    
    
    
    $63,698
    (5)
    
    $
    23,333
    (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $183,051The Transition
Period ended Sep.
30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7)Sep. 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7)Dennis M. Smith
Chief Financial
Officer
    
    Fiscal 2007  Jan.
31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $47,162
    
    
    
    
    
    
    $
    300,000
    (8)
    
    
    $347,162The Transition
Period ended Sep.
30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    200,000
    (9)
    
    $
    200,000Sep. 30, 2008
    
    $
    275,000
    
    
    
    
    
    
    
    
    
    
    
    $50,000
    
    
    
    
    
    
    
    $8,230
    
    
    $
    333,230
 
 (1)
    
    Mr. Hirschhorn was entitled to a guaranteed bonus payment in the amount of $88,697 in Fiscal
2007. He did not receive this bonus in Fiscal 2007.(2)
    
    Pursuant to his employee agreement, Mr. Hirschhorn was granted 1,250,000 restricted shares of
our common stock upon becoming our Co-Chief Executive Officer. One/third (1/3) of these
shares of our common stock vests annually. 416,666 of these shares of our common stock vested
at an average share price of $0.20 in Fiscal 2007.  71




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##### Table of Contents



(3)
    
    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.
 (4)
    
    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.
 (5)
    
    Mr. Parker was entitled to a guaranteed bonus in the amount of $63,698 in Fiscal 2007. He
did not receive this bonus in Fiscal 2007.
 (6)
    
    Pursuant to his employment agreement, Mr. Parker was granted 350,000 restricted shares of our
common stock upon becoming our Co-Chief Executive Officer. One-third (1/3) of these shares of
common stock vest annually. 116,666 of these shares of our common stock vested at an average
share price of $0.20 in Fiscal 2007. Pursuant to his resignation, 159,800 of his shares are
in the process of being cancelled and returned to authorized but unissued status.
 (7)
    
    Mr. Parker did not earn or receive any compensation during the Transition Period Ended
September 30, 2007.
 (8)
    
    Mr. Smith earned $300,000 in consulting fees in respect of consulting services he provided to
the Company during the Fiscal Year Ended January 31, 2007.
 (9)
    
    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.
 EMPLOYMENT AGREEMENTS
    72




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##### Table of Contents



THE FISCAL YEAR ENDED SEPTEMBER 30, 2008  GRANTS OF PLAN-BASED AWARDS
  GRANTS OF PLAN-BASED AWARDSAll Other
    
    
    All OtherStock
    
    
    OptionAwards:
    
    
    Awards:Estimated Future Payouts
    
    
    Estimated Future Payouts
    
    
    Number
    
    
    Number
    
    
    Exercise or
    
    
    GrantUnder Non-Equity
    
    
    Under Equity
    
    
    of Shares
    
    
    of Securities
    
    
    Base Price
    
    
    Date FairIncentive Plan Awards
    
    
    Incentive Plan Awards
    
    
    of Stock
    
    
    Underlying
    
    
    of Option
    
    
    Value of StockThreshold
    
    
    Target
    
    
    Maximum
    
    
    Threshold

    
    
    Target
    
    
    Maximum
    
    
    or Units
    
    
    Options
    
    
    Awards
    
    
    and OptionName
    
    Grant Date
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    

(#)
    
    
    (#)
    
    
    (#)
    
    
    (#)
    
    
    (#)
    
    
    ($/Sh)
    
    
    Awards(a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)
    
    
    (g)
    
    
    (h)
    
    
    (i)
    
    
    (j)
    
    
    (k)
    
    
    (l)David Hirschhorn
Chief Executive
Officer (formerly
Co-Chief Executive
Officer and
Co-Chief Financial
Officer)
    
    
    7/1/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,250,000
    
    
    $
    0.625
    
    
    $
    3,704,807Dennis M. Smith
Chief Financial
Officer
    
    
    10/10/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    $
    0.3125
    
    
    $
    50,000Dr. Robert N.
Schwartz
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Richardson E. Sells
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Todd Parker
Co-Chief Executive
Officer and
Co-Chief Financial
Officer (resigned
Sep. 2007)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  73




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##### Table of Contents



OUTSTANDING EQUITY AWARDS AT THE FISCAL YEAR ENDED SEPTEMBER 30, 2008
  Option Awards
    
    
    Stock AwardsEquityIncentivePlanEquity
    
    
    Awards:Incentive
    
    
    Market orEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan
    
    
    PayoutIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    
    ValuePlan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    ofAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    UnearnedNumber
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares,
    
    
    Shares,Number of
    
    
    Number of
    
    
    of
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Units
    
    
    UnitsSecurities
    
    
    Securities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    Shares or
    
    
    Market Value
    
    
    or Other
    
    
    or OtherUnderlying
    
    
    Underlying
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    Units of
    
    
    of Shares or
    
    
    Rights
    
    
    RightsUnexercised
    
    
    Unexercised
    
    
    Unexercised
    
    
    Option
    
    
    
    
    
    
    Stock
    
    
    Units of Stock
    
    
    That
    
    
    That HaveOptions
    
    
    Options
    
    
    Unearned
    
    
    Exercise
    
    
    Option
    
    
    That Have
    
    
    That Have
    
    
    Have Not
    
    
    Not(#)
    
    
    (3)
    
    
    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)
    
    
    
    
    
    
    6,250,000
    
    
    
    
    
    
    
    0.625
    
    
    
    07/01/15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Todd Parker
Co-Chief Executive
Officer and
Co-Chief Financial
Officer (resigned
Sep. 2007)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dennis M. Smith
Chief Financial
Officer
    
    
    150,000
    (2)
    
    
    
    
    
    
    450,000
    (2)
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    On July 1, 2008, our Compensation Committee approved the issuance of options to purchase
6,250,000 shares of our common stock pursuant to the 2001 Plan to David Hirschhorn. These
options are exercisable for a period of seven years at an exercise price of $0.625 per share.(2)
    
    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, 2008, 70,000 shares
underlying the option are fully vested. The remaining 50,000 shares underlying the option are
unvested.    74




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##### Table of Contents



OPTION
EXERCISES AND STOCK VESTED DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 2008
  THE FISCAL YEAR ENDED SEPTEMBER 30, 2008 PENSION BENEFITS
  THE FISCAL YEAR ENDED SEPTEMBER 30, 2008 NONQUALIFIED DEFERRED COMPENSATION
  THE FISCAL YEAR ENDED SEPTEMBER 30, 2008 POTENTIAL PAYMENTS UPON TERMINATION OR A CHANGE IN CONTROL
  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(1)
    
    $
    120,000
    
    
    $
    120,000
    
    
    $
    120,000
    
    
    $
    120,000
    
    
    $
    120,000Accelerated Vesting
of Deferred
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,000,000
    (3)Accelerated Vesting
of Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Continuation of
Insurance Benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    In the event of Mr. Hirschhorns voluntary termination, the Company shall pay Mr. Hirschhorn
any amount base salary earned by, but not yet paid to, Mr. Hirschhorn through the effective
date of termination.(2)
    
    In the event Mr. Hirschhorns voluntary termination, the Company shall pay Mr. Hirschhorn (i)
all benefits that have been earned by or vested in, and are payable to, Mr. Hirschhorn under
and subject to the terms (including all eligibility requirements) of, the Compensation and
Benefit Plans in which Mr. Hirschhorn participated through the effective date of termination;
(ii) all reimbursable expenses due, but not yet paid, to Mr. Hirschhorn as of the effective
date of termination; and (iii) an amount equal to all accrued and unused paid vacation or time
off, calculated in accordance with the Companys paid vacation or time off policies, practices
and procedures (including authorized deductions and the deductions required by law), as of the
effective date of termination.(3)
    
    Mr. Hirschhorns employment agreement provides that he shall receive a term life insurance
policy with a death benefit of $1,000,000 for the first year of the agreement; $1,500,000 for
the second and third years of the agreement; and $2,000,000 for each of the fourth and fifth
years of the agreement.  75




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##### Table of Contents



THE FISCAL YEAR ENDED SEPTEMBER 30, 2008 DIRECTOR COMPENSATION
  
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Common Stock, Series 1-A Convertible Preferred Stock, Series 2-A Convertible Preferred Stock,
Series 5-A Convertible Preferred Stock, and Series 6-A Convertible Preferred Stock
  Amount andNature ofBeneficial
    
    Percent ofTitle of Class
    
    Name of Beneficial Owner(1)
    
    Ownership
    
    ClassCommon(2)
    
    SMP Investments I, LLC 
c/o HSP Group, LLC 
875 Prospect Street, Suite 220
La Jolla, CA 92037 (4)
    
    
    11,076,190
    
    
    
    52.2
    %Common
    
    Carol Schuster 
3555 NW 58th Street 
Suite 700
Oklahoma City, OK 73112
    
    
    4,250,000
    
    
    
    42.0
    %Common
    
    Ciabattoni Living Trust 8/17/2000
16 Lagunita Drive
Laguna Beach, CA 92561 (5)
    
    
    5,535,000
    
    
    
    35.3
    %Common
    
    Mercantile Capital Partners I, L.P. 
3201 Old Glenview Road 
Wilmette, Illinois 60091
    
    
    648,860
    
    
    
    6.4
    %Current DirectorsCommon
    
    David Hirschhorn (3)
    
    
    1,710,000
    
    
    
    14.5
    %Common
    
    Todd Parker (6)
    
    
    842,000
    
    
    
    7.7
    %Common
    
    Robert N. Schwartz, Ph.D (7)
    
    
    185,857
    
    
    
    1.8
    %Common
    
    Richardson E. Sells (8)
    
    
    180,000
    
    
    
    1.7
    %Common
    
    Dennis M. Smith (9)
    
    
    865,000
    
    
    
    7.9
    %
  76




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##### Table of Contents



Amount andNature ofBeneficial
    
    Percent ofTitle of Class
    
    Name of Beneficial Owner(1)
    
    Ownership
    
    ClassCurrent OfficersCommon
    
    Donald C. Parkerson
    
    
    
    
    
    
    Common
    
    Thomas Rice
    
    
    
    
    
    
    Common
    
    Current directors and officers as
a group (7 persons) (10)
    
    
    3,782,857
    
    
    
    27.2
    %Series 1-A Preferred
    
    First Clearing Corporation 
P.O. Box 6570
Glen Allen, VA 23058
    
    
    20,000
    
    
    
    29.6
    %Series 1-A Preferred
    
    Susan Lacerra & Steven Tingey, as 
joing tenants 
c/o Jefferies & Co, Inc. 
650 California Street 
San Francisco, CA 94108
    
    
    7,600
    
    
    
    11.2
    %Series 1-A Preferred
    
    Ron Soderling 
901 Dove Street, Suite 270
Newport Beach, CA 92660
    
    
    40,000
    
    
    
    59.2
    %Series 2-A Preferred
    
    Ali R. Moghaddami 
333 E. GlenOaks Boulevard 
Suite 202
Glendale, CA 91207
    
    
    3,900
    
    
    
    100
    %Series 5-A Preferred
    
    Ciabattoni Living Trust 8/17/2000
16 Lagunita Drive
Laguna Beach, CA 92561
    
    
    500
    
    
    
    5.6
    %Series 5-A Preferred
    
    Integral Investors  Waveland LLC 
19800 MacArthur Boulevard 
Suite 650
Irvine, CA 92612
    
    
    600
    
    
    
    6.7
    %Series 5-A Preferred
    
    Richard Sambora Living Trust 
4/13/00
c/o Gelfand Rennert & Feldman LLP 
360 Hamilton Avenue, Suite 100
White Plains, New York 10601
    
    
    500
    
    
    
    5.6
    %Series 5-A Preferred
    
    SMP Investments I, LLC 
c/o HSP Group, LLC 
875 Prospect Street, Suite 220
La Jolla, CA 92037
    
    
    1,250
    
    
    
    13.9
    %Series 5-A Preferred
    
    South Bay Capital LLC 
c/o Keith Lehman, Managing Member 
960 Third Street, Apt. 204
Santa Monica, CA 90403
    
    
    500
    
    
    
    5.6
    %Current DirectorsSeries 5-A Preferred
    
    David Hirschhorn
    
    
    125
    
    
    
    1.4
    %Series 5-A Preferred
    
    Todd Parker
    
    
    135
    
    
    
    1.5
    %Series 5-A Preferred
    
    Robert N. Schwartz, Ph.D
    
    
    
    
    
    
    Series 5-A Preferred
    
    Richardson E. Sells
    
    
    
    
    
    
    Series 5-A Preferred
    
    Dennis M. Smith
    
    
    125
    
    
    
    1.4
    %
  77




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##### Table of Contents



Amount andNature ofBeneficial
    
    Percent ofTitle of Class
    
    Name of Beneficial Owner(1)
    
    Ownership
    
    ClassCurrent OfficersSeries 5-A Preferred
    
    Donald Parkerson
    
    
    
    
    
    
    Series 5-A Preferred
    
    Thomas Rice
    
    
    
    
    
    
    Series 5-A Preferred
    
    Current directors and officers as
a group (7 persons) (10)
    
    
    385
    
    
    
    4.3
    %Series 6-A Preferred
    
    Ciabattoni Living Trust 8/17/2000
16 Lagunita Drive
Laguna Beach, CA 92561
    
    
    600
    
    
    
    13.0
    %Series 6-A Preferred
    
    Darras Revocable Trust dated 9/2/94
600 South Indian Hill Boulevard
Claremont, CA 91711
    
    
    250
    
    
    
    5.4
    %Series 6-A Preferred
    
    SMP Investments I, LLC 
c/o HSP Group, LLC 
875 Prospect Street, Suite 220
La Jolla, CA 92037
    
    
    1,000
    
    
    
    21.7
    %Series 6-A Preferred
    
    Hector S. Torres 
c/o Joseph Apuzzo, CPA 
150 Airport Road, Suite 1000
Lakewood, NJ 08701
    
    
    300
    
    
    
    6.5
    %Current DirectorsSeries 6-A Preferred
    
    David Hirschhorn
    
    
    
    
    
    
    Series 6-A Preferred
    
    Todd Parker
    
    
    
    
    
    
    Series 6-A Preferred
    
    Robert N. Schwartz, Ph.D
    
    
    
    
    
    
    Series 6-A Preferred
    
    Richardson E. Sells
    
    
    
    
    
    
    Series 6-A Preferred
    
    Dennis M. Smith
    
    
    
    
    
    
    Current OfficersSeries 6-A Preferred
    
    Donald Parkerson
    
    
    
    
    
    
    Series 6-A Preferred
    
    Thomas Rice
    
    
    
    
    
    
    Series 6-A Preferred
    
    Current directors and officers as a group (7 persons) (10)
    
    
    
    
    
    
    
 (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.(2)
    
    The number of shares of common stock 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 9, 2009. The percentages of
beneficial ownership of common stock 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 9, 2009, but not the exercise
or conversion of Preferred Stock, options, warrants and other convertible securities held by
other holders of such securities.(3)
    
    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; (b) 400,000 shares beneficially
owned by Mr. Hirschhorn in his capacity as President of Hope & Abel Investments, LLC, which
directly holds 125 shares of Series 5-A Preferred Stock, which are convertible into 400,000
shares of common stock, and (c) 60,000
shares of common stock issued to David Hirschhorn in his capacity as President of Hope &
Abel Investments, LLC, pursuant to the exercise of a warrant dated July 18, 2005.  78




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##### Table of Contents



(4)
    
    Consists of (a) 1,250 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 4,000,000 shares of Common Stock; (b) 1,000 shares of Series 6-A Convertible Preferred
Stock, $0.01 par value, which could be deemed to be beneficially owned by the reporting
person, which are convertible into 3,200,000 shares of Common Stock; (c) an Advisory Board
warrant to purchase an aggregate of 150,000 shares of Common Stock, of which 100,000 shares
are currently vested and exercisable, at a price of $0.45 per share which could be deemed to
be beneficially owned by the reporting person; (d) an Advisory Board warrant to purchase an
aggregate of 714,285 shares of Common Stock, of which 476,190 at a price of $0.45 per share
which could be deemed to be beneficially owned by the reporting person; (e) 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; and (f) warrants to purchase an
aggregate of 2,100,000 shares of Common Stock at a price of $0.50 per share which could be
deemed to be beneficially owned by the reporting person.
 (5)
    
    Consists of (a) 600 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
1,920,000 shares of Common Stock; (b) 600 shares of Series 6-A Convertible Preferred Stock,
$0.01 par value, which could be deemed to be beneficially owned by the reporting person which
are convertible into 1,920,000 shares of Common Stock; (c) 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; and (d) warrants to purchase an aggregate of
1,095,000 shares of Common Stock at a price of $0.50 per share which could be deemed to be
beneficially owned by the reporting person.
 (6)
    
    Consists of (a) 410,000 shares of Common Stock, of which (i) 350,000 restricted shares were
granted in connection with Mr. Parkers Employment Agreement, dated as of July 18, 2005, of
which 190,200 are in the process of cancellation pursuant to termination of Mr. Parkers
Employment Agreement; and (ii) 60,000 were issued pursuant to the exercise of a warrant dated
July 18, 2005; and (b) 135 shares of Series 5-A Convertible Preferred Stock, par value $0.01,
which could be deemed to be beneficially owned by the reporting person which are convertible
into 432,000 shares of common stock.
 (7)
    
    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.
 (8)
    
    Consists of 180,000 shares of common stock issuable upon exercise of Mr. Sells stock
options.
 (9)
    
    Consists of (a) 125 shares of Series 5-A Preferred Stock, which are convertible into 400,000
shares of common stock; (b) 60,000 shares of common stock issued pursuant to the exercise of a
warrant dated July 18, 2005; (c) 15,000 shares of common stock granted pursuant to the
exercise of a warrant dated September 18, 2006; (d) 300,000 shares of common stock currently
issuable upon exercise of Mr. Smiths stock options; and (e) 90,000 shares of common stock
currently issuable upon exercise of Mr. Smiths stock options.
 (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.
 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   79




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Advisory Board
  Advance to Affiliated Entities
  Sub-Lease from HSP, Inc.
  Repurchase of 49% Interest in RHA
   80




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##### Table of Contents



Exercise of Warrants
    
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Fees
  Year
    
    
    TransitionEnded
    
    
    Period Ended
    
    
    YearSeptember 30,
    
    
    September 30,
    
    
    Ended January 31,2008
    
    
    2007
    
    
    2007Audit
    
    $
    335,137
    
    
    $
    70,350
    
    
    $
    61Audit Related
    
    $
    8,565
    
    
    $
    
    
    
    $
    Tax
    
    $
    
    
    
    $
    68,300
    
    
    $
    Other
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    343,702
    
    
    $
    138,650
    
    
    $
    61
 Audit
  81




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##### Table of Contents



Audit Related
 Tax
   Audit Committee Pre-Approval Policies and Procedures
  
 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 Firm
    
    
    34Consolidated Balance Sheets as of September 30, 2008, September 30, 2007 and January 31,
2007
    
    
    36Consolidated Statements of Operations for the Fiscal Year Ended September 30, 2008, the
Transition Period Ended September 30, 2007 and the Fiscal Year Ended January 31, 2007
    
    
    37Consolidated Statements of Stockholders Equity for the Fiscal Year Ended September 30,
2008, the Transition Period Ended September 30, 2007 and the Fiscal Year Ended January 31,
2007
    
    
    38Consolidated Statements of Cash Flows for the Fiscal Year Ended September 30, 2008, the
Transition Period Ended September 30, 2007 and the Fiscal Year Ended January 31, 2007
    
    
    39Notes to the Consolidated Financial Statements
    
    
    40(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.
  82




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##### Table of Contents



(3)

    
    
    The following documents are filed as exhibits to this 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)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)
  83




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##### Table of Contents



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)
  84




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##### Table of Contents



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)14.1
    
    
    Corporate Code of Business Conduct and Ethics for Directors, Executive Officers, and
Employees, dated effective as of April 22, 200821.1
    
    

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
 
 SIGNATURES
  Tri-Isthmus Group, Inc.Date:  January 12, 2009
    /s/ David HirschhornDavid Hirschhorn Chief
Executive Officer  Signature
    
    Title
    
    Date/s/ David HirschhornDavid Hirschhorn
    
    Chairman of the Board,
Chief Executive Officer
    
    January 12, 2009/s/ Dennis M. SmithDennis M. Smith
    
    Chief Financial Officer and Director
    
    January 12, 2009/s/ Todd ParkerTodd Parker
    
    Director
    
    January 12, 2009/s/ Robert N. SchwartzRobert N. Schwartz
    
    Director
    
    January 12, 2009/s/ Richardson E. SellsRichardson E. Sells
    
    Director
    
    January 12, 2009
  85




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##### Table of Contents



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)
  86




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##### Table of Contents



Exhibit No.
    
    Description10.5*
    
    
    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)
  87




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Exhibit No.
    
    Description14.1
    
    
    Corporate Code of Business Conduct and Ethics for Directors, Executive Officers, and
Employees, dated effective as of April 22, 200821.1
    
    
    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.  88