UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For the
fiscal year ended June 30, 2010





 ̈
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





Commission
file number: 000-51317





THE
CENTER FOR WOUND HEALING, INC.


(Name of
registrant as specified in its charter)





Nevada
              
              87-0618831(State
      or jurisdiction of
                Incorporation
      or organization)
              
              (IRS
      Employer ID Number)





155 White
Plains Road, Suite 200, Tarrytown, NY 10591


[Address
of Principal Executive Offices]





Registrant's
telephone number, including area code:   (914)
372-3150




Securities
registered under Section 12(b) of the Exchange Act:




None




Securities
registered under Section 12(g) of the Exchange Act:




Common
Stock, $0.001 par value per share


(Title of
Class)




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or J5 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:  YES x NO  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)
              Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


YES  ̈ NOx




State the
number of shares outstanding of each of the Issuer's classes of common equity,
as of the latest practicable date: As of October 12, 2010 there were 24,123,638
shares of common stock issued and outstanding.







10-K





THE
CENTER FOR WOUND HEALING, INC.


Report
on Form 10-K





For
the Fiscal Year Ended June 30, 2010





TABLE
OF CONTENTS





PAGEPART
      IItem
      1.
                Business
                
                3Item
      2.
                Properties
                
                9Item
      3.
                Legal
      Proceedings
                
                9Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                
                9PART
      IIItem
      5.
                Market
      for Registrants’ Common Equity, Related Stockholder Matters and Small
      Business Issuer Purchases of Equity Securities
                
                10Item
      7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                11Item
      8.
                Financial
      Statements
                
                15Item
      9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                
                33Item
      9A.
                Controls
      and Procedures
                
                34Item
      9B.
                Other
      Information
                
                34PART
      IIIItem
      10
                Directors,
      Executive Officers and Corporate Governance
                
                35Item
      11.
                Executive
      Compensation
                
                39Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                45Item
      13.
                Principal
      Accountant Fees and Services
                
                45Item
      14
                Exhibits
                
                46Signatures
                
                
                49





10-K10-K





2


FORWARD-LOOKING
STATEMENTS




This
Annual Report on Form 10-K includes, in addition to historical information,
forward-looking statements regarding The Center For Wound Healing, Inc. (the
“Company” or “CFWH”), within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended.  These forward-looking statements represent the Company’s
expectations or beliefs concerning, among other things, the Company’s
operations, performance, financial condition, business strategies, and other
information, and that involve substantial risks and uncertainties.  We
have based these forward-looking statements on our current expectations and
projections about future events.  These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking
statements.  In some cases, you can identify forward-looking
statements by terminology such as “may,” “should,” “could,” “would,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such
terms or other similar expressions. Actual operations and results may differ
materially from present plans and projections due to changes in economic
conditions, new business opportunities, changed business conditions, and other
developments.  Other factors that could cause results to differ
materially are described in our filings with the Securities and Exchange
Commission.




There are
several factors that could cause actual results or events to differ materially
from those anticipated, and include, but are not limited to, general economic,
financial and business conditions, changes in and compliance with governmental
laws and regulations, including various state and federal government
regulations, our ability to obtain additional financing from outside investors
and/or bank and mezzanine lenders, and our ability to generate revenues
sufficient to achieve positive cash flow.




Readers
are cautioned not to place undue reliance on the forward-looking statements
contained herein, which speak only as of the date hereof.  We believe
the information contained in this Annual Report on Form 10-K to be accurate as
of the date hereof.  Changes may occur after that date.  We
will not update that information except as required by law in the normal course
of our public disclosure practices.




Additionally,
all discussion regarding our financial condition and results of operations
(including the information contained in Item 7 of Part I of this Annual Report
on Form 10-K as part of Management’s Discussion and Analysis of Financial
Condition and Results of Operations) should be read in conjunction with the
financial statements and related notes contained in Item 8 of Part II of this
Annual Report on Form 10-K.




PART
I




ITEM 1.
            BUSINESS




As used
in this annual report, "we", "us", "our", "CFWH", "Company" or "our company"
refers to The Center for Wound Healing, Inc. and all of its subsidiaries and
affiliated companies.




Business
Development:




The Center for Wound Healing, Inc.
(“CFWH” or the “Company”), a Nevada corporation, was organized on July 2,
1988.  The Company’s current business was initially conducted by
American Hyperbaric, Inc. (“American Hyperbaric), a Florida corporation that was
organized on May 25, 2005.  The Company became engaged in its current
business as a result of in a “reverse merger” share exchange transaction between
the Company and American Hyperbaric that was completed on December 9,
2005.  CFWH develops and manages wound care centers, which are
marketed as “THE CENTER FOR WOUND HEALING TM”
throughout the United States.  These centers render the specialized
service of wound care and hyperbaric medicine.  The centers are
developed in conjunction with acute care hospitals.  CFWH can be
contracted to start up and manage the wound care program as well as offer a
turnkey operation including the furnishing of hyperbaric oxygen chambers to
hospitals.




As of
June 30, 2010, CFWH operates thirty-two (32) wound care centers with various
institutions.  The Company operates such centers through either
wholly-owned or majority-owned limited liability company subsidiaries. The
Company also manages Hyperbaric Medical Associates, P.C., a New York
professional staffing company, owned by an employee of CFWH, which provides
professional healthcare staffing services, including services of physicians, to
the Company.  CFWH is headquartered in Tarrytown, New
York.





Business of Issuer:





Wound
care treatments include a myriad of products and therapies, with the services
ranging from the prosaic, i.e., applying bandages to open wounds, to complex
treatments including debridements and the application of artificial
skin.  Hyperbaric Oxygen Treatment (“HBOT”) is a medical treatment
administered by delivering one-hundred percent (100%) oxygen at pressures
greater than atmospheric (sea level) pressure to a patient inside an enclosed
chamber.  This means that the pressure is typically 21⁄2 times greater
than normal atmospheric pressure, causing blood to carry larger amounts of
oxygen, which is delivered to organs and tissues in the body.  The
increased pressure combined with the increased oxygen dissolves oxygen in the
blood and throughout all body tissues and fluids at up to 20 times normal
concentration.  By doing so, wounds, particularly infected wounds,
heal more quickly.


3


Hyperbaric
oxygen acts as a drug, eliciting varying levels of response at different
treatment depths, durations and dosages and has been proven effective as
adjunctive therapy for specifically indicated conditions. The amount of pressure
increase and the length of time under pressure are determined by the conditions
being treated.  Treatment pressures are usually between two and
three-times atmospheric pressure and usually last from one to two hours at full
pressure.





The US
Food and Drug Administration (“FDA”) has approved HBOT to treat decompression
sickness, gangrene, brain abscess, air bubbles in the blood, and injuries in
which tissues are not getting enough oxygen.  Oxygen is considered to
be a drug by the FDA that must be prescribed by a physician or a licensed health
care provider in order to help treat illnesses or health
conditions.





HBOT does
not compete with or replace other treatment modalities.  However, it
is now increasingly being used on an adjunctive basis in the management of a
variety of disorders refractory to standard medical and surgical care, and has
been shown to be particularly effective in treating problem wounds, chronic bone
infections, and radiation injury.  In general, physicians are using
HBOT for their patients to help them heal faster from surgeries and
injuries.





We
contract with hospitals to manage their wound care
facilities.  Generally, for each individual wound care center,
appropriate space is allocated to us by the institution.  We are
responsible for the management of the center including patient scheduling and
all non-medical staff, and we assist the hospital in its billing of patient
services, which are billed directly by the hospital to insurance companies. We also are responsible
for designing and installing the necessary leasehold improvements of the
hospital-provided space and supplying the appropriate furniture, fixtures and
equipment, including the hyperbaric chambers, used in the wound
center.  We either acquire the chambers under three year capital
leases with $1 buyout arrangements or under operating leases.  This
has allowed us to leverage our resources and maximize the number of centers that
we can support.  As our operation grows, we have the ability to
transfer chambers between individual wound care centers in order to balance
demand and maximize the use of our resources.




CFWH is a
provider of contract services for wound care and hyperbaric medicine in the
United States.  Through medical leadership based upon a
multi-disciplinary team of physicians and defined clinical standards, CFWH is
committed to achieving patient results while simultaneously providing both
physicians and hospitals with professional and economic
opportunities.  For the period ended June 30, 2010, CFWH has entered
into separate multi-year operating agreements to manage the wound care programs
in 32 hospitals.  Although there can be no assurance that we will be
successful in each instance, our plan at each center requires
a  multi-year contract with the hospital providing for a fixed or
variable fee schedule based on the services provided whether for hyperbaric
treatment, wound care procedures, or both.  The expected fees are
adequate for us to recover our investment in leasehold improvements (a sunk cost
and non-transferable asset), our start-up costs, including recruiting and
training of personnel, and the amortization of chamber lease
financing.





Management’s
goal is to broaden the Company’s geographic reach and to establish
relationships with community and acute care hospitals across the United
States.  CFWH’s individualized therapies, established protocols and
proactive care and case management has proven successful in treating chronic
wounds that have previously resisted healing with outcomes exceeding national
averages.  In all of its centers, CFWH utilizes a best practice model
enhanced by nationally accepted wound care algorithms to significantly improve
the medical results for patients with chronic non-healing wounds.





In
addition to wound healing management, CFWH also provides HBOT as an adjunct
treatment modality to enhance the body’s natural healing abilities and to
strengthen the body’s immune system.  This is resulting in more rapid
and comprehensive healing powers for patients.  HBOT is a simple,
non-invasive, painless treatment that has been proven to benefit patients
presenting with Center for Medicare and Medicaid Services approved indications,
including:




·
            Acute arterial
      insufficiency


·
            Osteomyelitis


·
            Radiation
      injury/necrosis


·
            Necrotizing
      infection


·
            Compromised skin grafts and
      flaps


·
            Diabetic wounds of the lower
      extremities


·
            Gas
    gangrene




To
measure the effectiveness of our wound management program, CFWH has developed a
functional assessment scoring system to measure the healing of a
wound.  In addition, CFWH has developed a proprietary tracking
software and database of over 1,000 patient outcomes that have been collected
over the past four years.  In reviewing the data collected, CFWH has
registered healing rates in excess of 80 percent for those patients who complete
their HBOT therapy protocols.  This group of patients falls within the
high risk category that would otherwise require amputation.  Instead,
less than eight percent of this patient population will undergo
amputation.  This is well below national benchmarks consistently
reporting amputation rates over 20 percent in the high risk group.




4





Competition:





Our
principal competition in the chronic wound care market consists of specialty
clinics that have been established by some hospitals or
physicians.  Additionally, there are a number of private companies
that provide wound care and HBOT services.  In the market for disease
management products and services, we face competition from other disease
management entities, general health care facilities and service providers,
biopharmaceutical companies, pharmaceutical companies and other
competitors.  Many of these companies have substantially greater
capital resources and marketing staffs, and greater experience in
commercializing products and services than we have.  In addition,
recently developed technologies, or technologies that may be developed in the
future, are or may be the basis for products which compete with our chronic
wound program.  There can be no assurance that we will be able to
enter into co-marketing arrangements with respect to these products or that we
will be able to compete effectively against such companies in the
future.





As the
FDA issues formal approvals for new applications of HBOT as treatment for
specific illness, both physician and patient awareness will continue to increase
as to the benefits of using HBOT.




Marketing:





CFWH
conducts education and market awareness programs, and advertising to promote the
utilization of its centers among medical professionals, care givers, and
patients.  A multifaceted marketing approach is used to create
awareness of our centers’ capabilities.  This approach is implemented
over several months and features:





·
            Educational lectures and dinners
      with homecare agencies, nursing homes and physicians (both individual and
      group practices)





·
            Grand opening
      ceremonies





·
            Outcome data presented at
      vascular, podiatric and wound care
  conferences





·
            Sponsored healthcare events for
      the community served by a
hospital





·
            Distribution of collateral
      materials to medical referral sources and
  consumers





·
            Media
      advertising




·
            Sponsorship of local and national
      wound care and podiatry society meetings and
    lectures





·
            Efforts to secure patients from
      other local hospitals’ medical
staffs





·
            Efforts to engage community
      medical providers to treat patients in the wound care
      center




Government
Regulation:





Our
operations and the marketing of our services are subject to extensive regulation
by numerous federal and state governmental authorities in the United
States.  We believe that we are currently in substantial compliance
with applicable laws, regulations and rules.  However, we cannot
assure that a governmental agency or a third party will not contend that certain
aspects of our business are either subject to or are not in compliance with such
laws, regulations or rules or that the state or federal regulatory agencies or
courts would interpret such laws, regulations and rules in our
favor.  The sanctions for failure to comply with such laws,
regulations or rules could include denial of the right to conduct business,
significant fines and criminal and civil penalties.  Additionally, an
increase in the complexity or substantive requirements of such laws, regulations
or rules could have a material adverse effect on our business.





Any
change in current regulatory requirements or related interpretations by or
positions of, state officials where we operate could adversely affect our
operations within those states.  In states where we are not currently
located, we intend to utilize the same approaches adopted elsewhere for
achieving state compliance.  However, state regulatory requirements
could adversely affect our ability to establish operations in such other
states.





Various
state and federal laws apply to the operations of health care providers
including, but are not limited to, the following:





Licensing:





Health
care providers are generally required to be licensed by various state regulatory
bodies.  If our hospital customer or we are found to not be in
compliance with state licensing laws, we or our hospital customer could be
subject to fines and penalties or ordered to cease operations which could have
an adverse effect on our business.




5


False
Claims Act:





The
Federal False Claims Act and some state laws impose requirements in connection
with the submission of claims for payment for health care services and products,
including prohibiting the knowing submission of false or fraudulent claims and
submission of false records or statements for reimbursement and payment to the
United States government or state government.  Such requirements would
apply to the hospitals to which we provide wound care management
services.  Although we do not submit claims to the federal health care
programs, we consult with our hospital customers regarding billing matters and
are involved to a certain extent in the claims process.  Not only are
government agencies active in investigating and enforcing actions with respect
to applicable health laws, but also health care providers are often subject to
actions brought by individuals on behalf of the government.  As such
"whistleblower" lawsuits filed as “qui tam” actions are generally filed under
seal with a court to allow the government adequate time to investigate and
determine whether it will intervene in the action, health care providers
affected are often unaware of the suit until the government has made its
determination and the seal is lifted.  The Federal False Claims Act
provides for penalties equal to three (3) times the actual amount of any
overpayments plus $11,000 per claim. Under legislation passed in 2009, those who
bill third parties are now obligated to discover and disclose any overpayments
received or be subject to False Claims Act penalties as well.




Fraud
and Abuse Laws:





Since a
significant portion of reimbursement for healthcare products and services are
currently paid through reimbursements under Medicare, Medicaid or similar
programs, the federal government and many states have adopted statutes and
regulations that address fraudulent and/or abusive behavior in connection with
such programs.





As part
of this regulatory scheme, the federal government believes that an “inducement”
to refer a Medicare or Medicaid patient is likely to result in fraud or abuse on
the Medicare or Medicaid programs. Therefore, the federal government adopted a
number of laws and regulations to recoup funds and assess penalties which it
believes were paid inappropriately.  In cases of criminal fraud, the
individuals responsible for the fraudulent activity can be subject to
imprisonment.





One of
the principal federal statutes regulating fraud and abuse is the Anti-Kickback
Statute. The Anti-Kickback statute prohibits the solicitation, payment, receipt
or offering of any direct or indirect remuneration in exchange for the referral
of Medicare and Medicaid patients or for the purchasing, arranging for or
recommending the purchasing, leasing or ordering of Medicare or Medicaid covered
services, items or equipment.  To be convicted of a violation of the
Anti-Kickback Statute, the party must have had specific intent to induce the
referral of Medicare or Medicaid patients or the purchase, lease or ordering of
a good, item or service reimbursable by Medicare or Medicaid.  Some of
the federal courts have broadly construed the Anti-Kickback Statute and held
that the “intent” required to support a criminal conviction will exist if only
one purpose of the referral is to induce a prohibited referral.





To
clarify some of the issues created by the Anti-Kickback Statute, the Center for
Medicare and Medicaid Services issued “safe harbor” regulations identifying
actions which will not be deemed to violate the Anti-Kickback
Statute.  Some of these “safe harbors” are in the area of joint
ventures, personal services, and other arrangements.  Conducting an
activity that falls within a “safe harbor” regulation provides comfort that such
activity will not be prosecuted.  Compliance with each element of a
particular “safe harbor” is required in order to be assured of the protection
provided by such “safe harbor.”  Even though a transaction that does
not fall within a “safe harbor” may be perfectly appropriate, the arrangement
will be evaluated based on its facts and circumstances to determine if the
parties intended to induce the referral of Medicare or Medicaid patients or the
purchase, lease or ordering of a good, item or service reimbursable under
Medicare or Medicaid.





The
federal government also has adopted an Advisory Opinion procedure where a
proposed transaction can be submitted to the Office of Inspector General for an
opinion as to whether it violates the Anti-Kickback Statute.  If a
proposed arrangement receives a satisfactory Advisory Opinion, then the parties
would be immune from prosecution under the Anti-Kickback Statute.





Also, in
many companies, Compliance Plans are adopted.  These plans take a
number of forms.  Should a company ever violate the Anti-Kickback
Statute having a Compliance Plan (the “Plan”) which the Company follows will
mitigate the sentence that might otherwise be imposed on the affected
individuals.  Although there is not necessarily any one right way to
draft or implement a Compliance Plan, there are some elements which the
authorities will be looking for in the Plan, including a “hot” line for the
reporting of suspected fraudulent or abusive activity, dissemination of the
Plan, actions taken or not taken as the result of a report of wrongful activity,
including whether those who reported the activity were terminated.





An
allegation of violation and/or a conviction for violation of the Anti-Kickback
Statute and parallel state laws could have a significant impact on our ability
to conduct our business.  As noted earlier, significant fines,
penalties, exclusion from Medicare and Medicaid programs and imprisonment of
individuals can result.  Additionally, the federal government or a
“whistleblower” could bring an action under the federal False Claims Act
alleging that a violation of the Anti-Kickback Statute “tainted” our hospital
customers’ claims to the federal health care programs, and, thus, allege that we
or our hospital customers are liable for damages and per claim penalties under
the False Claims Act.




6


The
Stark Law:





Federal
and some state laws prohibit physician referrals to an entity in which the
physician or his or her immediate family members have a financial interest for
provision of certain designated health services that are reimbursed by Medicare
or Medicaid.  Hospital outpatient services, including wound care
treatments, and outpatient prescription drugs, are two of the designated
services.  We believe we have structured our operations to comply with
these provisions but no assurances can be given that a federal or state agency
charged with enforcement of the Stark Law, its regulations, or similar state
laws might not assert a contrary position.  In addition, periodically,
there are efforts to expand the scope of these referral restrictions from its
application to government health care programs to all payors and to additional
health services.  Certain states have adopted similar restrictions or
are considering expanding the scope of existing restrictions.  We
cannot assure you that the federal government, or other states in which we
operate, will not enact similar or more restrictive legislation or restrictions
or interpret existing laws and regulations in a manner that could harm our
business.





Physician
Fee Splitting/Corporate Practice of Medicine:





The laws
of many states prohibit physicians from sharing professional fees with
non-physicians and prohibit entities not solely owned by physicians, including
us, from practicing medicine and from employing physicians to practice
medicine.  The laws in most states regarding the corporate practice of
medicine have been subjected to judicial and regulatory interpretation and while
we have attempted to structure our relationships with physicians and our
operations in a manner that complies with these requirements, there is no
assurance that various state regulators will agree that we are in
compliance.  Violation of a state’s prohibitions on the corporate
practice of medicine and the splitting of professional fees with lay individuals
or corporations could result in civil or criminal liability, and/or the
unenforceability of certain of our contracts.  As a result, we may be
required to restructure or reduce our business in a particular
state.  Any one of these consequences could have a material adverse
effect on the operations and financial performance of our business.





HIPAA:





The
Health Insurance Portability and Accountability Act (HIPAA) was enacted by the
United States Congress in 1996. Title I of HIPAA protects health insurance
coverage for workers and their families when they change or lose their jobs and
amends the Employment Retirement Income Security Act, the Public Health Service
Act, and the Internal Revenue Code.





Title II
of HIPAA defines numerous offenses relating to health care and sets civil and
criminal penalties for them.  It also creates several programs to
control fraud and abuse within the health care system.  However, the
most significant provisions of Title II are its Administrative Simplification
rules which require the establishment of national standards for electronic
health care transactions and national identifiers for providers, health
insurance plans, and employers.  The Administration Simplification
provisions also address the privacy of “protected health information” (including
individually identifiable patient information) and the security of electronic
protected health information.  The standards are meant to improve the
efficiency and effectiveness of the nation's health care system by encouraging
the widespread use of electronic data exchange in the United
States.  These rules apply to "covered entities" as defined by HIPAA
and the Department of Health and Human Services (HHS).  Covered
entities include health care providers that submit electronic claims for
reimbursement, health plans and health care clearinghouses, such as billing
services.





The new
Health Information Technology for Economic and Clinical Health Act (HITECH Act),
which is Title XIII of the American Recovery and Reinvestment Act of 2009
(ARRA), amended HIPAA and included provisions for its heightened enforcement and
stiffer penalties for privacy and security violations.  The new
privacy and security provisions expand the reach of HIPAA’s privacy and security
standards to include “business associates” of covered entities and mandate
certain actions in the event of a breach of unsecured personal health
information that could harm the reputation or finances of individuals, among
other provisions.  Covered entities must incorporate these additional
requirements in their agreements with their business
associates.  Business associates are vendors that provide services to
covered entities involving the use and disclosure of protected health
information. The new requirements for breach notification of unsecured protected
health information provide a strong incentive for covered entities and their
business associates to implement technical, physical and administrative
safeguards to prevent unauthorized access to protected health
information.  The new HITECH penalties for privacy and security
violations are the same for covered entities and for their business
associates.  These include a tiered increase in the amount of civil
monetary penalties. Where the person did not know, and by exercising reasonable
diligence would not have known, that such person violated a provision: (i) $100
to $50,000 for each violation; (ii) the total amount per calendar year for all
such violations of an identical requirement may not exceed
$1,500,000.  Where the violation was due to reasonable cause and not
to willful neglect: (i) $1,000 to $50,000 for each violation, (ii) the total
amount per calendar year for all such violations of an identical requirement may
not exceed $1,500,000. Where the violation was due to willful neglect and was
corrected: (i) $10,000 to $50,000 for each violation, (ii) the total amount per
calendar year for all such violations of an identical requirement may not exceed
$1,500,000.  Where the violation was due to willful neglect and was
not corrected: (i) at least $50,000 for each violation, (ii) the total amount
per calendar year for all such violations of an identical requirement may not
exceed $1,500,000.  The Secretary of HHS will base the amount of the
penalty on: (i) the nature and extent of the violation, (ii) the nature and
extent of the harm resulting from such violation.  In addition, many
states also have laws that protect the privacy and security of health and other
confidential, personal information.  These laws may be similar to or
even more protective than the federal HIPAA and HITECH
provisions.  Not only may some of these state laws impose fines and
penalties upon violators, but some may afford private rights of action to
individuals who believe that their personal information has been
misused.




7


We must
comply with the various HIPAA standards described above.  The
decentralized nature of our operations could represent significant challenges to
us in the implementation of required compliance.  If we are found to
not be in compliance, we could be subject to fines, penalties and other actions
which could have an adverse effect on our business.





Health
Care Reform:





We
believe the Patient Protection and Affordable Care Act signed into law March 23,
2010 will have no immediate impact on our business.  Over the
long-term, as the cuts in Medicare payments to our hospital customers take
effect, and more uninsured people are brought into the healthcare system, our
revenues per hospital customer could change.  There could be an
increase in the number of insured patients who can avail themselves of wound
care and hyperbaric therapies, which more than offsets cuts in Medicare payments
to our hospital customers.  If this turns out to be the case, our
business may increase as a result; however, we cannot predict at this time what
that impact will be as this increase in insurance coverage to this population is
several years into the future.





Confidentiality:




Under
federal and state laws, we must adhere to stringent confidentiality regulations
intended to protect the confidentiality of patient records. We believe our
operations are in compliance with these laws but we could be subject to claims
from patients as well as charges of violations from regulators and such claims
or charges could have a material adverse effect on our business.





Ongoing
Investigations:




Federal
and state investigations and enforcement actions continue to focus on the health
care industry, scrutinizing a wide range of items such as joint venture
arrangements and referral and billing practices.  We believe our
current and planned activities are substantially in compliance with applicable
legal requirements.  We cannot assure you, however, that a
governmental agency or a third party will not contend that certain aspects of
our business are subject to, or are not in compliance with, such laws,
regulations or rules, or that state or federal regulatory agencies or courts
would interpret such laws, regulations and rules in our favor, or that future
interpretations of such laws will not require structural or organizational
modifications of our existing business or have a negative impact on our
business.  Applicable laws and regulations are very broad and complex,
and, in many cases, the courts interpret them differently, making compliance
difficult.  Although we try to comply with such laws, regulations and
rules, a violation could result in denial of the right to conduct business,
significant fines and criminal penalties.  Additionally, an increase
in the complexity or substantive requirements of such laws, regulations or
rules, or reform of the structure of health care delivery systems and payment
methods, could have a material adverse effect on our business.




Intellectual
Property:




Our
success depends in part on our ability to maintain trade secret protection and
operate without infringing on or violating the proprietary rights of third
parties.  In addition, we also rely, in part, on trade secrets,
proprietary know-how and technological advances which we seek to protect by
measures, such as confidentiality agreements with our employees, consultants and
other parties with whom we do business.  We cannot assure you that
these agreements will not be breached, that we will have adequate remedies for
any breach or that our trade secrets and proprietary know-how will not otherwise
become known, be independently discovered by others or found to be
unprotected.




Employees:





The
Company counts 224 full-time employees coming from various
backgrounds.  In addition to over 100 physicians accredited in
hyperbaric medicine, including some of the top physicians practicing in vascular
surgery today, the Company boasts a number of ex-hospital executives, registered
nurses, financial professionals, and business executives.  To ensure
and facilitate the successful planning, implementation and continued operations
of our numerous wound care centers, our team also utilizes architects,
engineers, contractors, and healthcare counsel.  Currently, CFWH
provides management and operations for 32 hospital-based wound care and HBOT
programs.





Proposed
Acquisition of the Company:





On
October 5, 2010, the Company, CFWH Holding Corporation, a Delaware corporation
(“Parent”) and CFWH Merger Sub, Inc., a Nevada corporation and a wholly-owned
subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of
Merger (the “Merger Agreement”). Parent and Merger Sub are affiliates of Sverica
International, a private equity firm.  Under the terms of the Merger
Agreement, Merger Sub will merge with and into the Company (the “Merger”). As a
result of the Merger, the separate corporate existence of Merger Sub shall cease
and the Company shall continue as the surviving corporation of the Merger and a
wholly owned subsidiary of Parent. At the closing of the Merger, each share of
common stock, par value $0.001 per share, of the Company (“Company Common
Stock”), issued and outstanding immediately prior to the closing, other than
shares held by Parent as a result of the exchange by one of the Company’s
founders of a portion of his shares of Company Common Stock for shares of
capital stock of Parent, shall be converted into the right to receive an amount
in cash, not to exceed $0.60, subject to certain adjustments as set forth in the
Merger Agreement.  The amount of cash consideration that holders of
shares of Company Common Stock will be entitled to receive in the Merger, giving
effect to all possible adjustments, will be at least $0.579 per
share.  All amounts payable to holders of Company Common Stock in the
Merger are without interest and subject to applicable tax withholding
requirements.




8


Holders of a total of approximately
68.3% of the issued and outstanding shares of Company Common Stock, including
all of the directors and executive officers of the Company who hold shares of
Company Common Stock, have entered into a Voting Agreement with Parent pursuant
to which such holders have agreed to vote their shares in favor of approval of
the Merger Agreement.





Completion
of the transaction is subject to customary closing conditions, including CFWH
shareholder approval, and the receipt by Sverica of financing for the
transaction in accordance with financing commitments received.  The
transaction is expected to be completed in the fourth quarter of 2010, subject
to customary closing conditions.





ITEM 2.
            Properties:





The
corporate office is located in Tarrytown, NY. On July 21, 2010, the Company
extended its Tarrytown, NY lease to include additional space.  The
lease was extended through January 31, 2016 at a starting base rate of $11,182
per month.





The
minimum payments under non-cancelable operating lease obligations for office
space at June 30, 2010 are as follows:





Years Ending June 30,2011
                        
                        $
                        130,9692012
                        
                        $
                        136,4822013
                        
                        $
                        139,7072014
                        
                        $
                        141,3932015
                        
                        $
                        143,754Thereafter
                        
                        $
                        83,857




Rent
expense under all operating leases in fiscal years ended June 30, 2010 and 2009
was $146,767 and $125,848, respectively.   The lease obligation
calculation, shown above, includes the new office space.




ITEM 3.
            Legal
      Proceedings:




There is
no action, suit, proceeding, inquiry or investigation before or by any public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our company's or our company’s subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.




ITEM 4.
            Submission of Matters to a Vote
      of Security Holders:




No
matters were submitted to shareholders during the fiscal year ended June 30,
2010.




9




PART
II




ITEM 5.
            Market for Registrant's Common
      Equity, Related Stockholder Matters and Small Business Issuer Purchases of
      Equity Securities:




Our
common stock was quoted on the Over-The-Counter Bulletin Board system and the
Financial Industry Regulatory Authority (“FINRA”) Electronic Bulletin Board
under the symbol "CFWH.OB."





The
closing price of our common stock on October 12, 2010, as reported on CFWH.OB
was $0.51 per share.




Quarter Ended
                            
                            High
                            
                            
                            LowSeptember
      2008
                            
                            $
                            1.50
                            
                            
                            $
                            0.75December
      2008
                            
                            $
                            1.10
                            
                            
                            $
                            0.36March
      2009
                            
                            $
                            0.45
                            
                            
                            $
                            0.05June
      2009
                            
                            $
                            0.90
                            
                            
                            $
                            0.10September
      2009
                            
                            $
                            0.80
                            
                            
                            $
                            0.40December
      2009
                            
                            $
                            0.70
                            
                            
                            $
                            0.45March
      2010
                            
                            $
                            0.65
                            
                            
                            $
                            0.36June
      2010
                            
                            $
                            0.45
                            
                            
                            $
                            0.25




The
quotations set forth above reflect inter-dealer prices, without retail markup,
markdown, or commission, and may not necessarily represent actual
transactions.




Holders:




As of
October 12, 2010, there were approximately 221 shareholders of record of our
common stock.




Dividends:




We have
never declared or paid any cash dividends on our capital stock and do not
anticipate paying any cash dividends on our capital stock in the foreseeable
future. Instead, we intend to retain our earnings, if any, to finance the
expansion of our business. The declaration and payment of dividends in the
future, if any, will be determined by the board of directors in light of
conditions then existing, including our earnings, financial condition, capital
requirements and other factors.





Equity
Compensation Plan Information:




The
following table gives information about our common stock that may be issued upon
the exercise of options, or rights under our existing equity compensation plan,
the 2006 Stock Option Plan (as amended and restated April 20, 2009). The
information in this table is as of June 30, 2010.





Plan Category
                          
                          Number of securities to
                            be issued upon exercise
                            of outstanding options
                            and rights
                          
                          
                          Weighted average
                            exercise price of
                            outstanding options
                            and rights
                          
                          
                          Number of
                            securities
                            remaining
                            availableEquity
      compensation plans approved by security holders (1)
                          
                          
                          3,932,500
                          
                          
                          $
                          1.09
                          
                          
                          
                          3,567,500Equity compensation plans not approved by security
      holders
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          
                          3,932,500
                          
                          
                          $
                          1.09
                          
                          
                          
                          3,567,500





(1)
            Our 2006 Stock Option Plan
      permits the issuance of restricted stock, stock appreciation rights,
      options to purchase our common stock, deferred stock and other stock-based
      awards, not to exceed 7,500,000 shares of our common stock, to employees,
      outside directors, and
consultants.


10





ITEM 7.
            Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations




GENERAL
OVERVIEW




The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations is intended to help the reader understand our company. The
discussion is provided as a supplement to, and should be read in conjunction
with, our consolidated financial statements and the accompanying notes
thereto.




GENERAL




The
Company develops and manages comprehensive wound care centers, which are
marketed as “THE CENTER FOR WOUND HEALINGtm”
primarily in the mid-Atlantic and northeastern parts of the
country.  These centers render wound care and the specialized service
of hyperbaric medicine, and are developed in partnerships with acute care
hospitals.  We enter into separate multi-year operating agreements to
startup and manage the wound care program with the hospital environment.
Although there can be no assurance that we will be successful in each instance,
our plans for each hospital center require a multi-year committed contract term
adequate for us to recover our investment in leasehold improvements (a sunk cost
and non-transferable asset); our start-up costs, including recruiting and
training of personnel; and the amortization of chamber lease
financing.  Generally, the hospital provides us with appropriate space
for each of our centers.




We are
responsible for the development and management of the wound care and hyperbaric
centers, including providing direct staff and billing support to ensure
hospitals are reimbursed appropriately.  We also are responsible for
designing and installing necessary leasehold improvements of the
hospital-provided space and to supply the appropriate equipment, including the
hyperbaric chambers.  We acquire the chambers under both operating and
capitalized lease financing transactions with a nominal buyout arrangement
(treated as capitalized leases in our accompanying consolidated financial
statements).  As our operation grows, we have the ability to transfer
chambers between institutions to balance demand and maximize the use of our
resources.





Patient
service revenue is recognized when the service is rendered in accordance with
the terms of the contracts with hospitals.  Certain hospitals are not
billed for the service until the hospital is paid by the third party
payers.  As a result, accounts receivable include amounts not yet
billed to the hospitals, collection of which by CFWH can take several
months.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses.  On an on-going basis, we
evaluate these estimates, including those related to revenue recognition,
allowance for doubtful accounts, fair value of warrants, goodwill, and
stock-based compensation.  We base these estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources.  Actual results may differ from
these estimates under different assumptions or conditions.  We believe
the following critical accounting policies reflect our more significant
estimates and assumptions used in the preparation of the financial
statements.





Revenue
Recognition:  The Company derives revenue from providing
patient care services. Patient service revenue is recognized when the service is
rendered, the amount due is estimable, in accordance with the terms of the
individual contracts with hospitals (the hospital retains a percentage of each
patients’ fee) and collection is reasonably assured.  The net amounts
realizable as revenue (net of the amount retained by the hospital), which the
Company records, are based on reimbursement rates settled and paid by insurance
companies for wound care and hyperbaric treatments, which vary in accordance
with the insurance companies’ contracts with the hospital.  Although
revenue is recognized at the time of service, the hospitals are usually not
billed for the service until the hospital is paid by the third party payers. As
a result, the accounts receivable of the Company include amounts not yet billed
to the hospitals. Because the collection of receivables from certain hospitals
encompasses two separate billing processes, by the hospital to third party
payers and by CFWH to the hospitals, the elapsed time between rendering of
patent services and collection by CFWH may be several months.





The
Company considers many factors when applying accounting principles generally
accepted in the United States of America related to revenue
recognition.  These factors include, but are not limited to contract
terms, such as payment terms and expected insurance reimbursement rates, and
creditworthiness of the customer.





Each of
the relevant factors is analyzed to determine its impact, individually and
collectively with other factors, on the revenue to be recognized. 
Management is required to make judgments regarding the significance of each
factor in applying the revenue recognition standards, as well as whether or not
each factor complies with such standards.  Any misjudgment or error by
management in its evaluation of the factors and the application of the
standards, especially with respect to complex or new types of transactions,
could have a material adverse affect on the Company’s future revenues and
operating results.


11


Allowance for Doubtful
Accounts:  The Company maintains an allowance for doubtful
accounts based on its estimates of collectability.  The Company bases
these estimates on historical collections, performance and specific collection
issues.  If actual bad debts differ from the reserves calculated, the
Company records an adjustment to bad debt expense in the period in which the
difference occurs.  If creditworthiness of the Company’s clients were
to weaken or the Company’s collection results relative to historical experience
were to decline, it could have a material adverse impact on operating results
and cash flows.





Stock-Based
Compensation:  The Company accounts for stock-based
compensation in accordance with ASC 718, Compensation – Stock
Compensation.    Under the fair value recognition
provisions of this statement, share-based compensation cost is measured at the
grant date based on the value of the award.  This value is expensed
ratably over the vesting period for time-based awards and when the achievement
of performance goals is probable in our opinion for performance-based
awards.  Determining the fair value of share-based awards at the grant
date requires judgment; including volatility, expected terms, estimating the
amount of share-based awards that are expected to be forfeited, and the
likelihood of achieving performance or market conditions if
present.  If actual results differ significantly from these estimates,
stock-based compensation expense and the Company’s results of operations could
be materially impacted.





Fair Value of
Warrants:  The Company estimates the fair value of warrants
recorded as a liability using the Black-Scholes model.





Long-Lived
Assets:  The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable.  Impairment is measured by comparing the
carrying value of the long-lived assets to the estimated undiscounted future
cash flows expected to result from use of the assets and their ultimate
disposition.  If carrying value of the long-lived assets is not
considered to be recoverable, the amount of impairment loss to be recognized is
determined by comparing long-lived assets’ carrying value to their fair value
determined using future discounted cash flows.





Goodwill:  Goodwill
is not amortized but reviewed for possible impairment at least annually or more
frequently upon the occurrence of an event or when circumstances indicate that a
reporting unit’s carrying amount may be greater than its fair
value.





RESULTS
OF OPERATIONS:




REVENUES:




Revenues
for the year ended June 30, 2010, were approximately $28.7 million, a decrease
of approximately $503,000 or approximately 0.2% from the revenues of
approximately $29.2 million generated during the fiscal year ended June 30,
2009.  The reduction in revenue is primarily due to three fewer
centers operating during the last five months of the fiscal year ended June 30,
2010.  The decline in revenue as a result of the closing of the three
centers was partially offset by increased revenue from other existing
centers.





OPERATING
EXPENSES:




Overview:  Operating
expenses for the year ended June 30, 2010 were approximately $31.9 million or
approximately 111.3% of total revenues compared to approximately $28.3 million
or approximately 96.8% of revenues for the twelve months ended June 30,
2009.  The increase in operating expenses for the fiscal year ended
June 30, 2010 resulted from approximately $2.5 million in higher payroll costs
associated with the operations of new centers and increased staffing at the
corporate level, including in the business development, marketing, finance and
human resources departments; approximately $386,000 in licensing fees for
software not deployed the prior year; approximately $410,000 in higher health
insurance costs due to greater number of employees participating in the
Company’s health insurance plan and overall cost increases for health insurance
premiums; approximately $108,000 of impairment loss incurred in connection with
a closed center: and approximately $296,000 due to a combination of other center
operating cost increases including supplies and commercial insurance
premiums.  In addition, the Company incurred increased bad debt
expense of approximately $576,000, the result of the Company’s assessment of its
accounts receivable allowance estimates based in large part on enhanced
information derived from its recently deployed accounts receivable collection
tracking system.  As a result, the Company recorded approximately $2.7
million of bad debt expense for year ended June 30, 2010.





Cost of
services:  Cost of services, which are comprised principally of
payroll and payroll related costs for administrative, professional and nursing
staff required to administer treatments at our centers, as well as depreciation
relating to hyperbaric medical chambers and leasehold improvements, was
approximately $16.1 million or approximately 55.9% of total revenues for year
ended June 30, 2010 compared with approximately $14.9 million or approximately
50.9% in the year ended June 30, 2009.  This increase of approximately
$1.2 million or approximately 8.1%, is primarily attributable to higher direct
labor costs, increases in software licensing fees, and higher health and
commercial insurance costs.





Sales and
marketing:  Sales and marketing expenditures of approximately
$467,000 for the fiscal year ended June 30, 2010, increased by approximately
$213,000 from the prior fiscal year due to increased business development,
education, marketing and promotional costs including trade show participation,
hospital sponsorships, and other similar efforts.




12


General and
administrative:  General and administrative expenses are
comprised primarily of payroll and payroll related costs, insurance, accounting,
travel and entertainment costs, and professional fees.  General and
administrative costs increased by approximately $1.4 million to approximately
$11.3 million or approximately 39.4% of revenues for the fiscal year ended June
30, 2010, compared to approximately $9.8 million or approximately 33.7% of
revenues for the fiscal year ended June 30, 2009.  The increase is due
to increased payroll and payroll related costs for business development;
marketing; center management and corporate staff, including in the finance,
marketing and human resources departments; and professional fees.




Impairment
loss:  Abandonment loss was approximately $108,000 or
approximately 0.4% of total revenue for the year ended June 30, 2010 compared
with approximately $134,000 or approximately 0.5% of total revenues for the
prior fiscal year.  These losses resulted from the closing of centers
in each of the fiscal years.





Depreciation and
amortization:  Depreciation and amortization expense related to
corporate property and equipment and intangible assets aggregated approximately
$1.3 million or approximately 4.6% of revenues for the year ended June 30, 2010
compared to approximately $1.1 million or approximately 3.7% of total revenues
for the fiscal year ended June 30, 2009.  The increase is due to the
acquisition and deployment of various software applications and hardware
necessary for the Company to conduct its business and to the amortization of the
intangible assets associated with the buyout of the non-controlling
interests.




Bad debt
expense:  Bad debt expense was approximately $2.7 million or
approximately 9.4% of total revenues for the year ended June 30, 2010 compared
to approximately $2.1 million or approximately 7.2% of revenues for the fiscal
year ended June 30, 2009.  The Company assessed its accounts
receivable allowance estimates based in large part on an analysis of its
accounts receivable balances enabled by its recently deployed collection
tracking system.




OTHER
INCOME (EXPENSE):





Interest
expense:  The Company incurred interest expense of
approximately $6.5 million or approximately 22.5% of total revenues for the year
ended June 30, 2010, compared to approximately $4.9 million or approximately
16.9% of revenues for the year ended June 30, 2009.  Interest expense
increased by approximately $1.5 million due to an increase in the principal
amount of the Bison Note, the result of adding accrued interest to the Note
principal.  Cash paid for interest for the year ended June 30, 2010
was approximately $2.1 million, including approximately $2.0 million of interest
paid to Bison Capital.  Cash paid for interest expense for the year
ended June 30, 2009 was approximately $333,000.




Loss on disposal of property
and equipment:  The loss on disposal of property and equipment
was approximately $124,000 or approximately 0.4% of total revenues for the
fiscal year ended June 30, 2010.




Change in fair value of
warrants:  The Company recorded approximately $2.9 million of
income for the year ended June 30, 2010 due to the decrease in the fair value of
the warrant obligation for the year as described in Note 2r to the Company’s
consolidated financial statements.




LIQUIDITY
AND CAPITAL RESOURCES:




Operating
Activities:  Net cash provided by operating activities was
approximately $7.1 million for the year ended June 30, 2010.  While
our net loss was approximately $7.0 million, noncash expenses incurred during
the fiscal year included (a) approximately $5.9 million of interest accrued for
the notes payable and long-term debt, (b) approximately $2.7 million of bad debt
expense, (c) depreciation and amortization of approximately $4.9 million related
to equipment, leasehold improvements and certain hospital contracts, and (c)
approximately $0.6 million of stock based compensation expense, partially offset
by approximately $2.9 million of non-cash income recorded for the change in the
fair value of the warrant liability.





Investing
Activities:  Net cash used in investing activities was
approximately $0.9 million for the year ended June 30, 2010.  The
primary use of cash was for the purchase of software and other infrastructure
projects necessary to support the Company’s information technology needs and
leasehold improvements at a new center.  Net cash used in investing
activities was approximately $2.3 million for the year ended June 30, 2009,
primarily for purchase of information technology equipment and applications
development.





Financing
Activities:  Net cash used in financing activities was
approximately $6.5 million for the year ended June 30, 2010.  The
Company repaid approximately $0.7 million of the bank line of credit, retired
approximately $600,000 aggregate principal amount of notes and loans, paid
approximately $2.0 million of  capitalized interest due on the Bison
Note, paid approximately $2.5 million of principal due on the Bison Note, and
made the required payments of approximately $100,000 to former majority
members.




We
participate in a working capital financing and term loan arrangement with
Signature Bank, which matures on December 1, 2012.  The maximum amount
that can be borrowed under the bank loan – revolving line of credit, at June 30,
2010, is $6.0 million.  At June 30, 2010, there were no outstanding
balances against this revolving line of credit.


13


As more
fully described in Note 10 to the Company’s  consolidated financial
statements for the fiscal year ended June 30, 2010, the Company failed to comply
with covenants in its Loan Agreement with Signature Bank, the Company’s senior
lender, requiring that the Company’s debt service coverage ratio, and total debt
to EBITDA ratio not exceed specified amounts, and requiring that the Company
maintain a specified minimum effective net worth as of June 30, 2010. Signature
has waived such non-compliance through July 1, 2011, provided that the Company
complies with such covenants based upon the current ratios and effective net
worth as they existed on June 30, 2010, in each case subject to certain
specified adjustments, resulting in less stringent requirements that the Company
believes it can satisfy.





Also, as
more fully described in Note 10 to the Company’s consolidated financial
statements for the fiscal year ended June 30, 2010, the Company and Bison have
entered into agreements to address the Company’s failure to comply with certain
financial covenants at the end of the fiscal year ended June 30, 2010, to change
the interest rate on the Bison Note while Bison’s agreement to forbear from
exercising remedies by reason of such noncompliance remains in effect, to add an
additional event of default if the Company enters into a definitive agreement
relating to a change of control and fails to satisfy certain conditions in
connection therewith, and to provide for the recomputation of certain parameters
for the fiscal year ended June 30, 2008 for purposes of calculating the Base
Multiple, and consequently the Put Price (as such terms are defined in the
Securities Purchase Agreement relating to the Bison Note.)





We
believe that the Company will be able to comply with the modified covenants
described above.





We
believe that the cash flows from operations and borrowings under the senior bank
line of credit will provide sufficient liquidity for the Company to be able to
finance our operations for at least the next 12 months.





OFF-BALANCE SHEET
ARRANGEMENTS:





We do not
currently have any off-balance sheet arrangements that have, or are likely to
have, a material current or future effect on us.





RECENT ACCOUNTING
PRONOUNCEMENTS:





See Note
2 to the Consolidated Financial Statements regarding the effects on the
Company’s financial statements of the adoptions of recent accounting
pronouncements.


14





ITEM 8.   Financial
Statements




THE
CENTER FOR WOUND HEALING, INC.




Report
      of Independent Registered Public Accounting Firm
                  16Consolidated
      Balance Sheets as of June 30, 2010 and 2009
                  17Consolidated
      Statements of Operations for the Years Ended June 30, 2010 and
      2009
                  18Consolidated
      Statements of Stockholders' (Deficit) Equity for the Years Ended June 30,
      2010 and 2009
                  19Consolidated
      Statements of Cash Flows for the Years Ended June 30, 2010 and
      2009
                  20Notes
      to Consolidated Financial Statements
                  21-33




15





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of The Center for Wound Healing,
Inc.




We have
audited the accompanying consolidated balance sheets of The Center for Wound
Healing, Inc. and subsidiaries (the “Company”) as of June 30, 2010 and 2009, and
the related consolidated statements of operations, stockholders’ (deficit)
equity, and cash flows for each of the years then ended.  These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The Center for Wound
Healing, Inc. and subsidiaries as of June 30, 2010 and 2009, and the
consolidated results of their operations, and their consolidated cash flows for
each of the years then ended in conformity with accounting principles generally
accepted in the United States of America.




EisnerAmper
LLP


New York,
New York


October
13, 2010




16




THE
CENTER FOR WOUND HEALING, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





JUNE 30,2010
                                      
                                      
                                      2009ASSETSCURRENT ASSETSCash
                                      
                                      $
                                      86,891
                                      
                                      
                                      $
                                      339,859Accounts
      receivable, net of allowance for doubtfulaccounts
      of $1,029,398 and $3,088,272 respectively
                                      
                                      
                                      9,397,814
                                      
                                      
                                      
                                      14,730,767Prepaid
      expenses and other current assets
                                      
                                      
                                      389,520
                                      
                                      
                                      
                                      295,135Total
      current assets
                                      
                                      
                                      9,874,225
                                      
                                      
                                      
                                      15,365,761Property
      and equipment, net
                                      
                                      
                                      5,479,896
                                      
                                      
                                      
                                      7,585,373Intangible
      assets, net
                                      
                                      
                                      1,092,280
                                      
                                      
                                      
                                      3,110,378Goodwill
                                      
                                      
                                      751,957
                                      
                                      
                                      
                                      751,957Other
      assets
                                      
                                      
                                      1,444,552
                                      
                                      
                                      
                                      1,427,391TOTAL
      ASSETS
                                      
                                      $
                                      18,642,910
                                      
                                      
                                      $
                                      28,240,860LIABILITIES AND STOCKHOLDERS' (DEFICIT)
      EQUITYCURRENT LIABILITIESAccounts
      payable and accrued expenses
                                      
                                      $
                                      2,951,681
                                      
                                      
                                      $
                                      3,080,796Current
      maturities of obligations under capital leases
                                      
                                      
                                      4,850
                                      
                                      
                                      
                                      133,295Current
      maturities of senior collateralized subordinated promissory
      note
                                      
                                      
                                      426,170
                                      
                                      
                                      
                                      532,227Current
      maturities of notes payable
                                      
                                      
                                      1,093,000
                                      
                                      
                                      
                                      1,957,626Payable
      to former majority members
                                      
                                      
                                      -
                                      
                                      
                                      
                                      118,034Total
      current liabilities
                                      
                                      
                                      4,475,701
                                      
                                      
                                      
                                      5,821,978Senior
      collaterized subordinated promissory note, net of current
      maturities
                                      
                                      
                                      15,139,502
                                      
                                      
                                      
                                      13,772,810Notes
      payable, net of current maturities
                                      
                                      
                                      947,640
                                      
                                      
                                      
                                      1,323,629Oligations
      under capital leases, net of current maturities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,850Warrant
      obligation
                                      
                                      
                                      769,484
                                      
                                      
                                      
                                      -TOTAL
      LIABILITIES
                                      
                                      
                                      21,332,327
                                      
                                      
                                      
                                      20,923,267COMMITMENTS
      AND CONTINGENCIES (NOTE 15)STOCKHOLDERS' (DEFICIT)
    EQUITYThe
      Center for Wound Healing, Inc. stockholders' equity:Common
      stock, $0.001 par value; 290,000,000 shares authorized;24,123,638
      shares issued and outstanding
                                      
                                      
                                      24,123
                                      
                                      
                                      
                                      24,123Additional
      paid-in capital (including cumulative effect of change inaccounting
      principle (see Note 2 p.)
                                      
                                      
                                      20,475,444
                                      
                                      
                                      
                                      31,625,135Accumulated
      deficit (including cumulative effect of change inaccounting
      principle (see Note 2 p.)
                                      
                                      
                                      (23,350,850
                                      )
                                      
                                      
                                      (24,646,815
                                      )Total
      The Center for Wound Healing, Inc stockholders' (deficit)
      equity
                                      
                                      
                                      (2,851,283
                                      )
                                      
                                      
                                      7,002,443Non-controlling
      interest
                                      
                                      
                                      161,866
                                      
                                      
                                      
                                      315,150TOTAL
      STOCKHOLDERS' (DEFICIT) EQUITY
                                      
                                      
                                      (2,689,417
                                      )
                                      
                                      
                                      7,317,593TOTAL
      LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
                                      
                                      $
                                      18,642,910
                                      
                                      
                                      $
                                      28,240,860





See
accompanying notes to consolidated financial statements.


17





THE
CENTER FOR WOUND HEALING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





For The Years Ended June 30,2010
                      
                      
                      2009NET
      SERVICE REVENUE
                      
                      $
                      28,702,898
                      
                      
                      $
                      29,206,208OPERATING EXPENSESCost
      of services
                      
                      
                      16,054,788
                      
                      
                      
                      14,854,283Sales
      and marketing
                      
                      
                      467,284
                      
                      
                      
                      253,999General
      and administration
                      
                      
                      11,295,834
                      
                      
                      
                      9,849,924Impairment
      and/or abandonment loss
                      
                      
                      107,700
                      
                      
                      
                      133,589Depreciation
      and amortization
                      
                      
                      1,327,558
                      
                      
                      
                      1,082,914Bad
      debts
                      
                      
                      2,687,929
                      
                      
                      
                      2,111,499TOTAL
      OPERATING EXPENSES
                      
                      
                      31,941,093
                      
                      
                      
                      28,286,208OPERATING
      (LOSS) INCOME
                      
                      
                      (3,238,195
                      )
                      
                      
                      920,000OTHER EXPENSES (INCOME)Interest
      expense
                      
                      
                      6,452,411
                      
                      
                      
                      4,937,657Interest
      income
                      
                      
                      (14,358
                      )
                      
                      
                      (19,550
                      )Loss
      on disposal of property and equipment
                      
                      
                      124,354
                      
                      
                      
                      -Change
      in fair value of warrant obligation
                      
                      
                      (2,864,057
                      )
                      
                      
                      -Other
      expenses
                      
                      
                      52,500
                      
                      
                      
                      49,801TOTAL
      OTHER EXPENSES
                      
                      
                      3,750,850
                      
                      
                      
                      4,967,908LOSS
      BEFORE PROVISION FOR INCOME TAXES
                      
                      
                      (6,989,045
                      )
                      
                      
                      (4,047,908
                      )PROVISION
      FOR INCOME TAXES
                      
                      
                      -
                      
                      
                      
                      130,222NET
      LOSS
                      
                      
                      (6,989,045
                      )
                      
                      
                      (4,178,130
                      )Net
      loss attributable to non-controlling interest
                      
                      
                      (134,894
                      )
                      
                      
                      (10,418
                      )NET
      LOSS ATTRIBUTABLE TO THE CENTER FOR WOUND HEALING, INC
                      
                      $
                      (6,854,151
                      )
                      
                      $
                      (4,167,712
                      )NET
      LOSS  PER COMMON SHARE - BASIC AND DILUTED
                      
                      $
                      (0.29
                      )
                      
                      $
                      (0.18
                      )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES - BASIC AND DILUTED
                      
                      
                      24,123,638
                      
                      
                      
                      23,548,029





See
accompanying notes to consolidated financial statements.




18




THE
CENTER FOR WOUND HEALING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY


FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009





The Center for Wound Healing, Inc StockholdersCommon Stock
                      
                      
                      AdditionalPaid-
                      
                      
                      Accumulated
                      
                      
                      NoncontrollingShares
                      
                      
                      Amount
                      
                      
                      in Capital
                      
                      
                      Deficit
                      
                      
                      Interest
                      
                      
                      TotalBalance
      at June 30, 2008
                      
                      
                      23,373,281
                      
                      
                      $
                      23,373
                      
                      
                      $
                      29,764,982
                      
                      
                      $
                      (20,479,103
                      )
                      
                      $
                      580,558
                      
                      
                      $
                      9,889,810Issuance
      of shares in settlement of obligations
                      
                      
                      98,381
                      
                      
                      
                      98
                      
                      
                      
                      79,254
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      79,352Issuance
      of shares in connection with acquisition ofnon-controlling
      interest
                      
                      
                      651,976
                      
                      
                      
                      652
                      
                      
                      
                      207,980
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      208,632Stock-based
      compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,572,919
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,572,919Distribution
      to non-controlling interest holders
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (254,990
                      )
                      
                      
                      (254,990
                      )Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,167,712
                      )
                      
                      
                      (10,418
                      )
                      
                      
                      (4,178,130
                      )Balance
      at June 30, 2009
                      
                      
                      24,123,638
                      
                      
                      $
                      24,123
                      
                      
                      $
                      31,625,135
                      
                      
                      $
                      (24,646,815
                      )
                      
                      $
                      315,150
                      
                      
                      $
                      7,317,593Cumulative
      effect of change in accounting principle (see Note 2 p.)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (11,783,655
                      )
                      
                      
                      8,150,116
                      
                      
                      
                      
                      
                      
                      
                      (3,633,539
                      )Stock-based
      compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      633,964
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      633,964Distribution
      to non-controlling interest holders
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (18,390
                      )
                      
                      
                      (18,390
                      )Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6,854,151
                      )
                      
                      
                      (134,894
                      )
                      
                      
                      (6,989,045
                      )Balance
      at June 30, 2010
                      
                      
                      24,123,638
                      
                      
                      $
                      24,123
                      
                      
                      $
                      20,475,444
                      
                      
                      $
                      (23,350,850
                      )
                      
                      $
                      161,866
                      
                      
                      $
                      (2,689,417
                      )





See
accompanying notes to consolidated financial statements.


19





THE CENTER FOR WOUND HEALING, INC. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For The Years Ended June 30,2010
                      
                      
                      2009CASH FLOWS FROM OPERATING
      ACTIVITIESNet
      loss
                      
                      $
                      (6,989,045
                      )
                      
                      $
                      (4,178,130
                      )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                      
                      
                      4,888,757
                      
                      
                      
                      4,833,943Impairment
      loss
                      
                      
                      107,700
                      
                      
                      
                      133,589Change
      in fair value of warrant liability
                      
                      
                      (2,864,057
                      )
                      
                      
                      -Amortization
      of deferred financing costs
                      
                      
                      427,760
                      
                      
                      
                      245,099Bad
      debt expense
                      
                      
                      2,687,929
                      
                      
                      
                      2,111,499Loss
      on disposal of property and equipment
                      
                      
                      124,354
                      
                      
                      
                      -Fees
      related to waiver added to debt principal
                      
                      
                      300,000
                      
                      
                      
                      -Accrued
      interest added to debt principal
                      
                      
                      5,850,739
                      
                      
                      
                      4,336,298Stock-based
      compensation expense
                      
                      
                      633,964
                      
                      
                      
                      1,572,919Issuance
      of shares in settlement of obligations
                      
                      
                      -
                      
                      
                      
                      79,352Changes
      in operating assets and liabilities:Accounts
      and notes receivable
                      
                      
                      2,645,024
                      
                      
                      
                      (1,863,784
                      )Prepaid
      expenses and other current assets
                      
                      
                      (94,385
                      )
                      
                      
                      108,082Other
      assets
                      
                      
                      (96,046
                      )
                      
                      
                      -Accounts
      payable and accrued expenses
                      
                      
                      (511,423
                      )
                      
                      
                      (976,083
                      )NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                      
                      
                      7,111,271
                      
                      
                      
                      6,402,784CASH FLOWS FROM INVESTING
      ACTIVITIESPurchases
      of property and equipment
                      
                      
                      (903,459
                      )
                      
                      
                      (1,594,111
                      )Proceeds
      of the disposal of fixed assets
                      
                      
                      2,271
                      
                      
                      
                      -Acquisition
      of non-controlling interest
                      
                      
                      -
                      
                      
                      
                      (702,714
                      )NET
      CASH USED IN INVESTING ACTIVITIES
                      
                      
                      (901,188
                      )
                      
                      
                      (2,296,825
                      )CASH FLOWS FROM FINANCING
      ACTIVITIESNet
      repayments from bank loan - revolving line of credit
                      
                      
                      (744,988
                      )
                      
                      
                      (3,455,012
                      )Proceeds
      from bank loan - term note
                      
                      
                      -
                      
                      
                      
                      2,000,000Repayment
      of bank loan - term note
                      
                      
                      (500,000
                      )
                      
                      
                      (250,000
                      )Repayment
      of Bison Note
                      
                      
                      (2,500,000
                      )
                      
                      
                      -Repayment
      of accrued interest added to principal on Bison Note
                      
                      
                      (1,998,547
                      )
                      
                      
                      -Payment
      of deferred financing costs
                      
                      
                      -
                      
                      
                      
                      (36,462
                      )Repayment
      of Boyer/Morris notes payable
                      
                      
                      (124,000
                      )
                      
                      
                      -Repayment
      of all other notes payable
                      
                      
                      (325,797
                      )
                      
                      
                      (935,722
                      )Principal
      payments on capital lease obligations
                      
                      
                      (133,295
                      )
                      
                      
                      (519,736
                      )Payments
      to former majority members
                      
                      
                      (118,034
                      )
                      
                      
                      (500,000
                      )Distributions
      to non-controlling interest
                      
                      
                      (18,390
                      )
                      
                      
                      (124,307
                      )NET
      CASH USED IN FINANCING ACTIVITIES
                      
                      
                      (6,463,051
                      )
                      
                      
                      (3,821,239
                      )NET
      (DECREASE) INCREASE IN CASH
                      
                      
                      (252,968
                      )
                      
                      
                      284,720CASH  –
      BEGINNING OF YEAR
                      
                      
                      339,859
                      
                      
                      
                      55,139CASH  –
      END OF YEAR
                      
                      $
                      86,891
                      
                      
                      $
                      339,859Cash
      paid during the year:Interest
                      
                      $
                      2,113,446
                      
                      
                      $
                      333,302Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      101,351Non
      -cash financing and investing activities:Issuance
      of common stock in connection with acquisition of non-controlling
      interest
                      
                      
                      -
                      
                      
                      $
                      208,632Issuance
      of shares in settlement of obligations
                      
                      
                      -
                      
                      
                      $
                      79,352





See
accompanying notes to consolidated financial statements.




20




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010 AND 2009





Note
1 - Organization and Nature of Business




The
Center for Wound Healing, Inc. (“CFWH” or the “Company”) was organized on May
25, 2005.  CFWH develops and manages comprehensive wound care centers,
which are marketed as “THE CENTER FOR WOUND HEALING tm” throughout the United
States.  These centers render wound care treatments and the
specialized service of hyperbaric medicine, and are developed in partnerships
with community and acute care hospitals.  CFWH is contracted by the
hospital on a multi-year basis to start up and manage the hospital’s wound care
program.




As of
June 30, 2010, CFWH operates thirty-two (32) wound care centers with various
institutions.  Such centers operate as either wholly-owned or
majority-owned limited liability subsidiaries of CFWH.  CFWH manages
and provides administrative services to Hyperbaric Medical
Associates,  P.C. (“HMA”), a New York professional staffing company,
owned by a Company employee, under the terms of the Management Service Agreement
between the Company and HMA.  In return, HMA provides professional
healthcare staffing services to CFWH, its sole customer, under the terms of the
Technical Service Agreement.  CFWH is headquartered in Tarrytown, New
York.





Note
2 - Summary of Significant Accounting Policies





a.           Principles of
Consolidation.  The accompanying consolidated financial
statements include the accounts of CFWH and its wholly-owned and majority-owned
subsidiaries and of HMA, a variable interest entity, whose primary beneficiary
is CFWH.  Purchases of majority ownership interests are accounted for
under the acquisition method of accounting and initially reflect the fair value
of net assets acquired at the dates of acquisition.  All intercompany
profits, transactions, and balances have been
eliminated.  Non-controlling interests in the net assets and earnings
or losses of the Company’s majority-owned subsidiary are reflected in the
caption “Non-controlling interest” in the accompanying consolidated balance
sheets and the caption “Net income (loss) attributable to non-controlling
interest” in the accompanying consolidated statements of
operations.  Non-controlling interest adjusts the Company's
consolidated results of operations to reflect only the Company's share of the
earnings or losses of its subsidiaries, and in the consolidated balance sheet
represents the portion of the net assets of subsidiaries not attributable to the
Company.





b.           Revenue Recognition and
Accounts Receivable.  Patient service revenue is recognized
when the service is rendered, the amount due is estimable, in accordance with
the terms of the individual contracts with hospitals (the hospital retains a
percentage of each patients’ fee) and collection is reasonably
assured.  The net amounts realizable as revenue (net of the amount
retained by the hospital), which the Company records, are based on reimbursement
rates settled and paid by insurance companies for wound care and hyperbaric
treatments, which vary in accordance with the insurance companies’ contracts
with the hospital.  Although revenue is recognized at the time of
service, the hospitals are usually not billed for the service until the hospital
is paid by the third party payers.  As a result, the accounts
receivable of the Company include amounts not yet billed to the
hospitals.  As of June 30, 2010 and June 30, 2009 approximately $6.7
and $10.7 million, respectively, of accounts receivable were
unbilled.  Because the collection of receivables from certain
hospitals encompasses two separate billing processes, by the hospital to third
party payers and by CFWH to the hospitals, the elapsed time between rendering of
patent services and collection by CFWH may be several months.





Allowance
for Doubtful Accounts - The reported balance of accounts receivable, net of the
allowance for billed and unbilled doubtful accounts, represents the Company’s
estimate of amounts that ultimately will be realized in cash. The Company
reviews the adequacy of the allowance for doubtful accounts on an ongoing basis,
using management estimates based on historical trends, age of the receivables,
and knowledge of specific accounts. When the analysis so indicates, the
allowance is increased or decreased accordingly.





c.           Use of
Estimates.  The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of commitments and contingencies, if any, at the
date of the financial statements, and revenue and expenses during the reporting
period.  Actual results could differ from those
estimates.  Significant estimates made by management include the
collectability of accounts receivable, the consideration of impairment of
long-lived and intangible assets, and the fair value of stock and warrants
issued.




d.           Fair Value of Financial
Instruments.  The carrying amount of cash, accounts and notes
receivable, accounts payable and accrued expenses approximate fair value due to
short-term maturities of the instruments.  The carrying amount of the
Company’s Bank Loan, (Note 10), approximates fair value due to the variable
interest rates applicable to such indebtedness.  The fair value of the
Bison Note (Note 11), was estimated to be approximately $25 million at June 30,
2010, based on the present values of future cash flows discounted at estimated
borrowing rates for similar loans.  The fair value of the Company’s
other indebtedness, notes payable, and capital lease obligations approximates
their carrying value due to their short term nature.


21




e.           Loss Per
Share.  Basic net earnings (loss) per share is calculated based
on the weighted average number of common shares outstanding for each
period.  Diluted loss per share includes potentially dilutive
securities such as outstanding options and warrants.  Common shares
issuable upon the exercise of warrants and options outstanding that could
potentially dilute basic EPS in the future were not included in the computation
of diluted EPS because to do so would have been anti-dilutive for the periods
presented.  Potential common shares as of June 30, 2010 and 2009 are
as follows:





June 2010
                  
                  June 2009Options
      to purchase shares of common stock
                  
                  
                  3,932,500
                  
                  3,402,500Warrants
      to purchase shares of common stock
                  
                  
                  14,085,676
                  
                  14,085,676Total
      potential shares of common stock
                  
                  
                  18,018,176
                  
                  17,488,176




f.       
    Stock Based
Compensation.  The Company recognizes all stock based payments,
including grants to employees of common stock options, as an expense based on
fair values of the grants measured on award dates, using the Black-Scholes
valuation model, over vesting periods of such grants and net of an estimated
forfeiture rate for grants to employees.  The Company estimates
the expected life of options granted based on historical exercise patterns and
volatility based on trading patterns of its common stock over a period similar
to the vesting period of the grants.





g.           Property
and Equipment.Property and
equipment are recorded at cost.  The Company provides for depreciation
of property and equipment over their estimated useful lives using the
straight-line method.  Hyperbaric chambers, which are generally
acquired under capital leases, are depreciated over seven
years.  Leasehold improvements, primarily located at hospitals, are
amortized on a straight-line basis over the lesser of the remaining term of the
hospital contract or the economic life of the improvement.




Maintenance
and repairs are charged to operating expenses as they are
incurred.  Improvements and betterments which extend the lives of the
assets are capitalized.  The cost and accumulated depreciation of
assets retired or otherwise disposed of are relieved from the appropriate
accounts and any profit or loss on the sale or disposition of such assets is
credited or charged to income.





h.           Leases.  Leases
are classified as capital leases or operating leases in accordance with the
terms of the underlying lease agreements.  Capital leases at inception
are recorded as property and equipment and the related obligations as
liabilities. Such assets are amortized over their estimated useful
lives.  The lease payments under capital leases are applied as a
reduction of the capital lease obligation and accrued expense.





The
operating lease expense for rent is recorded using the straight-line method over
the term of the rent agreement.





i.           Long-Lived
Assets.  The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable.  Impairment may be recognized if the
carrying value of the long-lived assets is less than the estimated undiscounted
future cash flows expected to result from use of the assets and their ultimate
disposition.  If carrying value of the long-lived assets is not
considered to be recoverable, the amount of impairment loss to be recorded is
determined by comparing long-lived assets’ carrying value to their fair value
determined using future discounted cash flows.





j.    
       Income
Taxes.  The Company uses the asset and liability method of
accounting for income taxes under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities.  Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which these temporary
differences are expected to be recovered or settled.  The effect on
deferred tax assets or liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.  A valuation
allowance against deferred tax assets is provided when it is more likely than
not that the deferred tax asset will not be fully realized.




k.           Impairment.The Company reviews its
long-lived assets and goodwill for impairment at least annually and whenever
events or changes in circumstances indicate the carrying value may not be
recoverable.  As of year ended June 30, 2010 $108,000 of intangible
assets were written off due to the closing of one of our
centers.





l.       
    Concentrations. 
The Company places its cash primarily with one financial institution, and at
times the balance may exceed amounts in excess of the FDIC insurance
limit.





m.     
    Advertising
Costs.  Advertising costs are expensed as
incurred.  Advertising costs incurred for the fiscal years ended June
30, 2010 and 2009 were approximately $14,000 and $25,000, respectively and
included in sales and marketing expenses





n.           Goodwill.  Goodwill
is not amortized but reviewed for possible impairment at least annually or more
frequently upon the occurrence of an event or when circumstances indicate that a
reporting unit’s carrying amount may be greater than its fair
value.  As of the fiscal year ended June 30, 2010, no impairment of
goodwill has occurred.


22




o.           Amortization of Intangible
Assets.  Intangible assets with finite lives are amortized over
the estimated useful lives of these assets, generally from three to five
years.





p.           Recently Issued and/or
Adopted Accounting Pronouncements.





In June
2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting
Standard Codification (the “Codification”). Effective July 1, 2009, the
Codification became the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (GAAP), superseding existing rules and
related literature issued by the FASB, American Institute of Certified Public
Accounts (“AICPA”) and Emerging Issues Task Force (“EITF”).  The
Codification also eliminates the previous US GAAP hierarchy and establishes one
level of authoritative GAAP.  Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants.  All other literature is considered
non-authoritative. The Codification which has not changed GAAP, was effective
for interim and annual periods ending after September 15, 2009. The Company
adopted the Codification for the quarter ended September 30,
2009.  Other than the manner in which new accounting guidance is
referenced, the adoption of the Codification had no impact on the Company’s
consolidated financial statements.




Guidance
issued by the FASB in June 2009 requires companies to recognize in the financial
statements the effects of subsequent events that provide additional evidence
about conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing financial
statements.  Companies are not permitted to recognize subsequent
events that provide evidence about conditions that did not exist at the date of
the balance sheet but arose after the balance sheet date and before financial
statements are issued.  Some non-recognized subsequent events must be
disclosed to keep the financial statements from being misleading. For such
events a company must disclose the nature of the event, an estimate of its
financial effect, or a statement that such an estimate cannot be
made.  This guidance applies prospectively for interim or annual
financial periods ending after June 15, 2009.  The adoption of this
guidance did not affect the consolidated financial position, results of
operations or cash flows of the Company.





In August
2009, the FASB issued amended guidance on the measurement of liabilities at fair
value.  The guidance provides clarification that in circumstances in
which a quoted market price in an active market for an identical liability is
not available, the fair value of a liability is measured using one or more of
the valuation techniques that uses the quoted price of an identical liability
when traded as an asset or, if unavailable, quoted prices for similar
liabilities or similar assets when traded as assets. If none of this information
is available, an entity should use a valuation technique in accordance with
existing fair valuation principles.  This guidance is effective for
the first reporting period (including interim periods) after
issuance.  The Company adopted this guidance in the quarter ended
September 30, 2009.  The adoption had no impact on the Company’s
consolidated financial statements.





In June
2009, the FASB issued amendments to the accounting rules for variable interest
entities (VIEs) and for transfers of financial assets. The new guidance for VIEs
eliminates the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity and requires ongoing
qualitative reassessments of whether an enterprise is the primary
beneficiary.  In addition, qualifying special purpose entities (QSPEs)
are no longer exempt from consolidation under the amended guidance. The
amendments also limit the circumstances in which a financial asset, or a portion
of a financial asset, should be derecognized when the transferor has not
transferred the entire original financial asset to an entity that is not
consolidated with the transferor in the financial statements being presented,
and/or when the transferor has continuing involvement with the transferred
financial asset. For the Company, the amendments are effective as of the first
quarter of fiscal 2011.  The company does not believe that adoption of
these amendments will have a material effect on its consolidated financial
statements.





In April,
2009, the FASB issued additional requirements regarding interim disclosures
about fair value of financial instruments to require disclosures about fair
value of financial instruments in interim and annual statements.  The
new requirements are effective for interim periods ended after June 15, 2009 and
the Company adopted this requirement in the quarter ended September 30,
2009.





In March
2008, the FASB issued new disclosure requirements regarding derivative
instruments and hedging activities. These requirements give financial statement
users better information about the reporting entity’s hedges by providing for
qualitative disclosures about the objectives and strategies for using
derivatives, quantitative data about fair value of gains and losses on
derivative contracts, and details of credit-risk-related contingent features in
their hedged positions.  These requirements are effective for
financial statements issued for fiscal years beginning after November 15, 2008
and interim periods within such fiscal year with early application encouraged
but not required. The Company adopted the requirements effective July 1, 2009,
and they did not have any effect on the Company’s consolidated financial
statements.


23


In June
2008, a two step approach to evaluate whether an equity-linked financial
instrument (or embedded feature) is indexed to its own stock was established,
including evaluating the instrument’s contingent exercise and settlement
provisions.  The standard was effective for financial statements
issued for fiscal years beginning after January 1, 2009 and interim periods
within such fiscal year.  The Company adopted these requirements as of
July 1, 2009 and determined that 13,785,676 of the 14,085,676 outstanding
warrants to purchase the Company’s common shares are not considered indexed to
the Company’s own stock, as the respective agreements include reset
features.  The 13,785,676 warrants were issued by the Company as
follows: (1) 2,750,000 warrants in April 2006 in a transaction with convertible
debt; (2) 3,093,750 warrants in January 2008 in satisfaction of the reset
provision related to the above April 2006 warrants; (3) 7,941,926 warrants in
March 2008 in connection with the Bison Note.  The Company initially
recorded the fair value or relative fair value of these warrants as additional
paid-in capital.  As of July 1, 2009, the Company recorded a warrant
obligation of approximately $3.6 million, which represents the
fair  value of the warrants as of that date, and also recorded
approximately $8.1 million decrease in the fair value of these warrants during
the period from their respective dates of issuance through the July 1, 2009
adoption date of the new accounting pronouncement as a cumulative effect of a
change in accounting principle, as a reduction to accumulated deficit and a
reduction of $11.8 million in additional paid-in capital.  The
decrease in the fair value of the warrant obligation during the year ended June
30, 2010 of approximately $ 2.9 million is recorded as other income in the
condensed consolidated statement of operations.  The fair value of the
above warrants and the assumptions employed in the Black-Scholes valuation
model, which were used to determine the fair value of the warrants at various
measurement dates were as follows:





June 30, 2010
                  
                  
                  July1,2009
                  
                  
                  Issuance DateNumber
      of warrants
                  
                  
                  13,785,676
                  
                  
                  
                  13,785,676
                  
                  
                  
                  13,785,676Fair
      value of each warrant, $ per share
                  
                  
                  0.003
      – 0.096
                  
                  
                  
                  0.18
      – 0.33
                  
                  
                  
                  1.07
      – 2.00Combined
      fair value of warrants, $*
                  
                  
                  769,484
                  
                  
                  
                  3,633,541
                  
                  
                  
                  22,440,279Market
      price, $ per common share
                  
                  
                  0.25
                  
                  
                  
                  0.55
                  
                  
                  
                  1.68
      – 4.00Exercise
      price, $ per common share
                  
                  
                  2 –
      5
                  
                  
                  
                  2 -
      5
                  
                  
                  
                  2
       - 5Volatility,
      %
                  
                  
                  109
      - 113
                  
                  
                  
                  114
      – 123
                  
                  
                  
                  95
      – 111Dividend
      yield, %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Risk
      free interest rate, %
                  
                  
                  3.5
                  
                  
                  
                  3.5
                  
                  
                  
                  3.5
      – 4.9Contractual
      life, years
                  
                  
                  .75
      – 4.75
                  
                  
                  
                  1.75
      – 5.75
                  
                  
                  
                  3.2 -
      7


*Consistsofthefair value of the warrants determined
using the Black-Scholes model.





In December 2007, the FASB
issued new guidance on non-controlling interests in consolidated financial
statements.  This guidance requires that ownership interests in
subsidiaries held by parties other than the parent, be clearly identified,
labeled, and presented in the consolidated financial statements within equity,
but separate from the parent’s equity.  It also requires that once a
subsidiary is deconsolidated, any retained non-controlling equity investment in
the former subsidiary be initially measured at fair value.  Sufficient
disclosures are required to clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling
owners.  This guidance is effective for fiscal years beginning after
December 15, 2008, and is to be applied prospectively, except for the
presentation and disclosure requirements, which are required to be applied
retrospectively for all periods presented.  As a result of adoption,
effective July 1, 2009 the Company has retrospectively adjusted its financial
statements for the year ended June 30, 2009 to include net loss attributable to
non-controlling interest (previously referred to as minority interest) in
consolidated net loss as presented below:




Attributable toTotal
                  Equity
                
                
                Company
                
                
                Non-controlling
                  interestBeginning
      balance
                
                $
                9,889,810
                
                
                $
                9,309,252
                
                
                $
                580,558Distribution
      to non-controlling interest
                
                
                (254,900
                )
                
                
                
                
                
                
                (254,990
                )Issuance
      of shares in settlement of obligations
                
                
                79,352
                
                
                
                79,352Issuance
      of shares in connection with the acquisition of non-controlling
      interest
                
                
                208,632
                
                
                
                208,632Share-based
      compensation
                
                
                1,572,919
                
                
                
                1,572,919
                
                
                
                -Net
      loss
                
                
                (4,178,130
                )
                
                
                (4,167,712
                )
                
                
                (10,418
                )Ending
      balance
                
                $
                7,317,593
                
                
                $
                7,002,443
                
                
                $
                315,150





In
December 2007, the FASB issued new accounting guidance related to the accounting
for business combinations and related disclosures.  This guidance
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree, and any
goodwill acquired in a business combination.  It also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of a business combination.  The guidance is to be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The Company adopted this guidance, effective July
1, 2009, and it did not have any effect on the Company’s consolidated financial
statements.




In
February 2008, the FASB issued amended guidance to delay the fair value
measurement and expanded disclosures about fair value measurements for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until fiscal years beginning after November 15,
2008.  Effective July 1, 2009, the Company adopted the guidance
related to fair value measurements for nonfinancial assets and nonfinancial
liabilities and the adoption of such guidance did not have a material effect on
the Company’s consolidated financial statements.


24




Note
3 – Capital Transactions





Common
Stock





During
the year ended June 30, 2010, the Company did not issue any common
stock.





During
the year ended June 30, 2009, the Company issued 98,381 shares of its common
stock in settlement of various obligations and 651,976 shares as part of the
purchase price for the acquisition of minority interests in subsidiaries in
April 2009 (see Note 4).





The
issuances of common stock for cash or services or in connection with
acquisitions were recorded at fair value, determined by reference to the market
price of the shares as of the dates of issuance.




Warrants





On March 31, 2008, the Company issued a
$20 million 15% Bison Note (see Note 11).  In connection with the
Bison Note, the Company issued 7,941,926 seven year warrants to purchase the
Company’s shares of common stock at an exercise price of $5 per share. Sixty
percent of the warrants or 4,765,156 warrants vest immediately and the remaining
warrants vest ratably over three years on a monthly basis.  Unvested
warrants are subject to cancelation if the Company meets specified EBITDA
targets and/or Bison Note redemption terms, which the Company has been unable to
achieve.  The fair value of each warrant was determined to be $1.07 on
the grant date based on the Black-Scholes valuation models using the following
assumptions: expected volatility of 101%, dividend yield of 0%, risk free
interest rate of 3.5%, and expected life of seven years.  The relative
fair value of warrants was determined to be approximately $8,400,000, with an
expectation that the Company will meet redemption requirements and was recorded
as debt discount which is being amortized over the life of the Bison Note under
the effective interest rate method.





In December 2007 and January 2008, the
Company raised $1.6 million from individual investors in the form of an
unsecured note.  Under the terms of the note, the Company could pay
interest expense in cash or in lieu of cash, in warrants to purchase shares of
the Company’s common stock with an exercise price of $2 per share and a five
year term.  The Company issued 300,000 warrants to purchase shares of
its common stock as compensation to the holders of the note with a fair value of
$564,659.





Issuance
of the warrants to the holders of the $1.6 million of notes triggered certain
anti-dilution provisions under the warrant agreement related to 2,750,000
warrants outstanding at June 30, 2007.  As the result, the Company
issued an additional 3,093,750 warrants to purchase shares of its common stock
at an exercise price of $2 per share and the exercise price for 2,750,000
warrants previously outstanding under this warrant agreement was reset to $2 per
share.





Number of
                                            Shares
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise Price
                                          
                                          
                                          Weighted Average
                                            Remaining Contractual
                                            Terms (Years)
                                          
                                          
                                          Intrinsic
                                            Value (*)Outstanding,
      at June 30, 2008
                                          
                                          
                                          14,085,676
                                          
                                          
                                          $
                                          2.00
                                          
                                          
                                          
                                          3.8
                                          
                                          
                                          $
                                          0Outstanding,
      at June 30, 2009 and 2010
                                          
                                          
                                          14,085,676
                                          
                                          
                                          $
                                          3.69
                                          
                                          
                                          
                                          4.5
                                          
                                          
                                          $
                                          0Exercisable
      at June 30, 2010
                                          
                                          
                                          12,232,560
                                          
                                          
                                          $
                                          3.49
                                          
                                          
                                          
                                          3.8
                                          
                                          
                                          $
                                          0





(*) The
intrinsic value of stock warrants is the amount by which the market value of the
underlying stock exceeds the exercise price of the warrants.





Note
4 – Acquisitions





In April
2009, the Company completed the acquisition of the remaining minority interests
in 12 subsidiaries not previously owned by the Company.  As a result,
the Company owns 100% of the interests in all but one subsidiary, in which the
Company owns 81.75%.  The purchase price paid by the Company includes
651,976 shares of the Company’s common stock, with a fair value at the date of
issuance of approximately $176,000, and $142,000 in cash.  The Company
incurred approximately $463,000 of transaction costs in connection with these
acquisitions.  As the result of the acquisitions the Company
recognized an intangible asset consisting of hospital contracts, in the amount
of $781,000.





Note
5 – Stock options





During
the year ended June 30, 2010 the Company granted options to purchase 650,000
shares of its common stock at an exercise price of $1.05 to one of the Company’s
employees. The grants vest between 2.5 to 3.0 years, and the fair value of the
grants was determined to be approximately $205,000 based on the Black-Scholes
valuation model using the assumptions below, which amount is recognized as
compensation expense over the relevant vesting period.


25




In April
2009, the Company amended its 2006 Stock Plan (the “Plan”). The Plan is
administered by a committee, appointed by the Board of Directors of the Company,
which consists of at least two non-executive directors of the
Company.  Under the terms of the Plan the Company can issue, within 10
years of initial adoption of the Plan, equity grants such as restricted stock or
stock appreciation rights and either incentive or non-statutory stock options to
purchase up to 7,500,000 shares of common stock, to employees, outside
directors, and consultants. Not more than 1,500,000 options and stock
appreciation rights and 500,000 shares of restricted stock may be granted to an
employee within a calendar year.  The exercise price of any option
granted under the Plan may not be less than the fair market value of the common
stock at the grant date or, in the case of incentive stock options granted to a
10% or greater stockholder, 110% of such fair market value.  The terms
of the options shall not exceed 10 years from a grant date or five years for the
grants to a 10% or greater stockholder.  Unvested options are
terminated within a certain period after termination of
employment.  The Company may issue new shares or use shares held in
treasury to deliver shares for equity grants or upon exercise of non-qualified
stock options.  Shares related to terminated, canceled, forfeited,
expired or surrendered equity grants or options become available for issuance
under the future grants.





During
the year ended June 30, 2009 the Company granted options to purchase 777,500
shares of the Company’s common stock at an exercise price of $1.05 to its
employees with various vesting periods ranging from the grant date and up to the
third anniversary date.  The Company determined fair value of the
options to be approximately $474,000 at the grant date using the assumptions
described below.  Additionally, during the year ended June 30, 2009
the Company granted options to purchase 975,000 shares of the Company’s common
stock to its officers, which will vest if the Company meets certain EBITDA
targets over a three year period provided the officers continue to be employed
by the Company.  At the grant date, the Company determined that it’s
probable that the Company will meet EBITDA targets.  The Company
estimated the aggregate fair value of these options on the date of grant to be
$809,444 and, will recognize compensation expenses over the relevant service
periods.




In July
and October 2008 the Company modified the option exercise prices for 1,310,000
and 350,000, respectively, of previously granted options to purchase shares of
the Company’s common stock effectively exchanging previous awards for new awards
with increased new fair value for measurement of compensation
expenses.  As the result of such modification the Company recognized
additional compensation expense of approximately $250,000 determined as the
increase in the fair value of the grants as a result of the
modification.




The fair
value of the stock options granted during the years ended June 30, 2010 and 2009
was determined at the dates of grant and is being charged to compensation
expense over the vesting period of the options.  The fair value of
options granted at the dates of the grants was estimated using the Black-Scholes
option pricing model utilizing the following assumptions for the years ended
June 30, 2010 and 2009:





For the Year Ended
                        June 30, 2010
                      
                      
                      For the Year Ended
                        June 30, 2009Average expected life (years)
                      
                      
                      2.8
                      
                      
                      
                      5.8Average risk free interest rate
                      
                      
                      3.5
                      %
                      
                      
                      4.48
                      %Expected volatility
                      
                      
                      112
                      %
                      
                      
                      104
                      %Expected dividend rate
                      
                      
                      0
                      %
                      
                      
                      0
                      %Expected forfeiture rate
                      
                      
                      1.0
                      %
                      
                      
                      1.0
                      %





The
compensation expense related to stock grants to employees was $0.6 million in
2010 and $1.6 million in 2009. The following is a summary of stock options
granted by the Company:





Number of
                                                          Shares
                                                        
                                                        
                                                        Weighted
                                                          Average
                                                          Exercise Price
                                                        
                                                        
                                                        Weighted
                                                          Average
                                                          Remaining
                                                          Contractual
                                                          Terms (Years)
                                                        
                                                        
                                                        Aggregate
                                                          Intrinsic
                                                          ValueOutstanding,
      at June 30, 2008
                                                        
                                                        
                                                        1,857,667
                                                        
                                                        
                                                        $
                                                        3.37
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        -Granted
                                                        
                                                        
                                                        1,752,500
                                                        
                                                        
                                                        $
                                                        1.05Forfeited/expired
                                                        
                                                        
                                                        (207,667
                                                        )
                                                        
                                                        $
                                                        1.68Outstanding,
      at June 30, 2009
                                                        
                                                        
                                                        3,402,500
                                                        
                                                        
                                                        $
                                                        1.15
                                                        
                                                        
                                                        
                                                        5.86
                                                        
                                                        
                                                        
                                                        -Granted
                                                        
                                                        
                                                        650,000
                                                        
                                                        
                                                        $
                                                        1.15Forfeited
                                                        
                                                        
                                                        (120,000
                                                        )
                                                        
                                                        $
                                                        2.68Outstanding
      at June 30, 2010
                                                        
                                                        
                                                        3,932,500
                                                        
                                                        
                                                        
                                                        1.09
                                                        
                                                        
                                                        
                                                        4.87
                                                        
                                                        
                                                        
                                                        -Exercisable
      at June 30, 2010
                                                        
                                                        
                                                        2,782,500
                                                        
                                                        
                                                        $
                                                        1.10
                                                        
                                                        
                                                        
                                                        4.40
                                                        
                                                        
                                                        
                                                        -





As of
June 30, 2010, there was $184,201 of unrecognizedcompensation
cost.


26





The
risk-free interest rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of the
grant.  The Company uses historical data to estimate option exercise
and employee and director termination within the valuation model; separate
groups of employees and directors that have similar historical exercise behavior
are considered separately for valuation purposes.  The expected term
of options granted represents the period of time that options granted are
expected to be outstanding; the range given above results from groups of
employees and directors exhibiting different behavior.  Expected
volatilities are based on historical volatility of the Company’s
stock.  The Company has not paid any dividends in the past and does
not expect to pay any in the near future.





The
weighted average fair value at dates of grant for options granted during the
fiscal year ended June 30, 2010 was $0.32 per share.





Note
6 - Property and Equipment





Property
and equipment consists of the following at June 30, 2010 and 2009:





2010
                
                
                2009Medical
      chambers and equipment, including $0 for 2010 and $569,552 for 2009 under
      capital leases
                
                $
                7,903,183
                
                
                $
                8,069,417Furniture,
      fixtures and computers
                
                
                3,051,120
                
                
                
                2,704,464Leasehold
      improvements
                
                
                5,898,820
                
                
                
                5,632,550Autos
      and vans
                
                
                481,747
                
                
                
                494,051Construction
      in progress
                
                
                204,896
                
                
                
                25,36617,539,766
                
                
                
                16,925,848Less:
      Accumulated depreciation and amortization – including $0 and $235,880 for
      medical chambers and equipment under capital lease
                
                
                12,059,870
                
                
                
                9,340,475$
                5,479,896
                
                
                $
                7,585,373





Depreciation
expense for 2010 was $2,882,312 of which $2,174,282 is included in cost of
services. Depreciation expense for 2009 was $2,894,742 of which $2,234,127 is
included in cost of services.





Note
7 - Intangible Assets





Intangible
assets consist of the following as of June 30:





2010
                  
                  
                  2009Hospital
      contracts acquired
                  
                  $
                  5,873,090
                  
                  
                  $
                  5,884,745Covenants
      not to compete
                  
                  
                  1,206,462
                  
                  
                  
                  1,206,462Total
      intangible assets with finite lives
                  
                  
                  7,079,552
                  
                  
                  
                  7,091,207Less:
      Accumulated amortization
                  
                  
                  5,987,272
                  
                  
                  
                  3,980,829$
                  1,092,280
                  
                  
                  $
                  3,110,378





Amortization
expense related to intangible assets for the years ended June 30, 2010 and 2009
was $2,006,443 and $1,939,201 and amortization expense included in cost of
services was $1,461,070 and $1,516,903, respectively.





The
following represents the amortization of the intangible assets over the next
five years:





Year 
      Ending June 30,2011
                        
                        $
                        801,1292012
                        
                        
                        200,8462013
                        
                        
                        68,2342014
                        
                        
                        18,9372015
                        
                        
                        3,134$
                        1,092,280




During
the year ended June 30, 2010, the Company recognized an impairment loss
of  $107,700 representing the unamortized balance of hospital
contracts at one hospital closed during the year.


27





Note
8 - Other Assets





Other
Assets consist of the following as of June 30:


2010
                    
                    
                    2009Deferred
      financing costs, applicable to the Bison Note, net of amortization of
      approximately $632,000 and $288,000
                    
                    $
                    1,035,729
                    
                    
                    $
                    1,380,222Deferred
      commissions, net of amortization of approximately $74,000
                    
                    
                    370,761
                    
                    
                    
                    0Bank
      loan fees, net of amortization of approximately $9,000
      and  $5,000
                    
                    
                    22,798
                    
                    
                    
                    31,902Security
      deposit
                    
                    
                    15,264
                    
                    
                    
                    15,267Total
      other assets
                    
                    $
                    1,444,552
                    
                    
                    $
                    1,427,391





Note
9 – Accounts payable and accrued expenses





Accounts
payable and accrued expenses consist of the following at June 30, 2010 and
2009:





2009
                
                
                2008Accrued
      compensation
                
                $
                1,435,771
                
                
                $
                1,370,063Accounts
      payable
                
                
                710,877
                
                
                
                984,968Other
      current liabilities
                
                
                805,033
                
                
                
                725,765$
                2,951,681
                
                
                $
                3,080,796





Note
10 – Notes payable





Notes payable consist of the following
at June 30, 2010 and 2009:





2010
                        
                        
                        2009Bank
      Loan - Term Note
                        
                        $
                        1,250,000
                        
                        
                        $
                        1,750,000Bank
      Loan - Revolving Line of Credit
                        
                        
                        0
                        
                        
                        
                        744,988Med-Air
      promissory note
                        
                        
                        431,496
                        
                        
                        
                        554,614Warantz
      promissory note
                        
                        
                        24,638
                        
                        
                        
                        117,999JD
      Keith promissory note
                        
                        
                        0
                        
                        
                        
                        79,702AMT,
      LLC and Boyer Marketing Associates, Inc promissory note
                        
                        
                        330,170
                        
                        
                        
                        0Vans
      and auto loans
                        
                        
                        4,336
                        
                        
                        
                        33,9522,040,640
                        
                        
                        
                        3,281,255Less:
      Current maturities
                        
                        
                        1,093,000
                        
                        
                        
                        1,957,626$
                        947,640
                        
                        
                        $
                        1,323,629





Maturities
of the long-term portion of notes payable as of June 30, 2010 are as
follows:





Year
      Ending June 30,2012
                    
                    $
                    638,2722013
                    
                    
                    309,368$
                    947,640





Bank
loan:





On December 18, 2008, the Company
entered into an $8.0 million bank loan with Signature Bank (the “Bank Loan”),
which consists of a $6 million revolving line of credit that matures in two
years (the “Revolving Line of Credit”), and a $2 million term loan that matures
in four years and requires 48 monthly principal payments of $41,667 (the “Term
Note”).  The maturity of the Revolving Line of Credit has been
extended to July 1, 2011.  The Term Note bears interest at a rate per
annum equal to the prime rate plus 1.0%.  As of June 30, 2010 and
2009, the interest rate for the Revolving Line of Credit was
3.75%.  The interest rate for the Term Note was 4.25% and 4.75% as of
June 30, 2010 and 2009, respectively.





Under the
terms of the Bank Loan the Company is subject to certain covenants requiring
minimum or maximum levels of quarterly tangible net worth, annual capital
expenditures and various financial ratios.  Additionally, the Bank
Loan restricts the Company in dividend distributions, lending, and
investing activities and sale of its assets.  The Bank Loan is
collateralized by all assets of the Company, except leased
equipment.


28





The
Company failed to comply with covenants in its Loan Agreement with Signature
Bank, the Company’s senior lender, requiring that the Company’s debt service
coverage ratio, and total debt to EBITDA ratio not exceed specified amounts, and
requiring that the Company maintain a specified minimum effective net worth as
of June 30, 2010, and Signature Bank has agreed to waive the Company’s failure
to comply with these financial covenants as of June 30,
2010.  Signature has waived such non-compliance through July 1, 2011,
provided that the Company complies with such covenants based upon the current
ratios and effective net worth as they existed on June 30, 2010, in each case
subject to certain specified adjustments, resulting in less stringent
requirements that the Company believes that it can satisfy.





The
balance outstanding under the Revolving Line of Credit was $0 and $744,988 at
June 30, 2010 and 2009, respectively.  The unused amount of the
Revolving Line of Credit as of June 30, 2010 and 2009 was $6,000,000 and
$5,255,012, respectively.  During the fiscal year ended June 30, 2010
and 2009, the company recorded interest expense of $78,978 and $161,938,
respectively, in relation to the Bank Loan.





Med-Air
promissory Note:





In
August, 2007, the Company issued a non-interest bearing note of $1,894,000 to
Med-Air as part of the purchase consideration for 51% of the membership interest
of Raritan Bay LLC and 40% of the membership interest of Bayonne
LLC.  The note is payable in 36 equal monthly
installments.  The Company valued the note at its fair value
calculated using the effective interest rate, which was determined based on
terms of financing available to the Company at that time and recorded a discount
of $202,000 to the note.  The discount is being amortized to interest
expense over the term of the note using the interest method.  The
interest expense related to the amortization of discount for the year ended June
30, 2010 and 2009 was $30,650 and $74,932, respectively and the unamortized
portion of the note discount at June 30, 2010 and 2009 was $18,504 and $30,065,
respectively.





Warantz
promissory notes:





The Company issued various notes
totaling approximately $378,000 to Warantz and other parties together with
shares of common stock as the purchase price for the additional 40% interest in
Modern Medical, LLC in October 2007.  The notes are non-interest
bearing and have maturities which range from six to thirty three
months.  The Company determined the fair value of the notes using an
effective interest rate of 8.75% estimated based on credit facilities available
to the Company at the time of the transaction and recorded a discount of $45,002
on the notes.  The discount is being amortized to interest expense
over the terms of the notes using the interest method.  Interest
expense recorded during the years ended June 30, 2010 and 2009 was $5,083 and
$16,771, respectively and the remaining portion of the note discount was $1,067
and $5,083, respectively.





JD
Keith promissory note:





In
September 2007, the Company terminated the five year employment agreement of Ms.
Elise Greenberg, the former Director of Human Resources at the Company, in which
all of the Company’s obligations under the employment agreement were
terminated.  Additionally, the Company terminated a consulting
agreement with Ms. Greenberg’s spouse, under which JD Keith LLC, the spouse’s
consulting firm, was to be paid $10,000 per month for five years as well as
commissions and other compensation.  As part of the settlement, the
Company entered into an agreement with the Greenbergs.  The Company is
obligated to pay JD Keith LLC approximately $600,000 in 52 bi-weekly
installments during the first two years of the five year
agreement.  The fair value of the future payments was determined to be
$548,150 calculated using the effective interest rate.  Interest
expense for the liability related to the Greenbergs for the years ended June 30,
2010 and 2009 was $0 and $19,879.





AMT,
LLC and Boyer Marketing Associates, Inc. promissory note:





In February 2010, the Company
terminated the consulting agreements it had with AMT, LLC (Robert J. Morris) and
Boyer Marketing Associates, Inc (Thomas L. Boyer) and negotiated a settlement
that included two notes totaling $432,000.  The notes are non-interest
bearing with monthly payment of $6,000 through November 30, 2012.  The
Company determined the fair value of the notes using an effective interest rate
of 4.25% estimated based on credit facilities available to the Company at the
time of the transaction and recorded a discount of $27,078 on the
notes.  The discount is being amortized to interest expense over the
terms of the notes using the interest method.  Interest expense
recorded during the year ended June 30, 2010 was $9,248, and the remaining
portion of the note discount was $17,830.





Note
11 – Senior Collateralized Subordinated Promissory Note





On March
31, 2008, the Company entered into a financing agreement with Bison Capital
Equity Partners II-A, L.P. and Bison Capital Equity Partners II-B, L.P. and
issued a $20 million senior collateralized subordinated promissory note (“Senior
Collateralized Subordinated Note” or “Bison Note”).  The Company
received cash proceeds of $17.5 million, net of a $2.5 million discount, and
incurred approximately $3.1 million of expenses related to this
transaction.  The Company used these proceeds to retire certain debts
with accrued interest, certain accounts payable and other
obligations.





Under the
terms of the Bison Note, cash interest accrues at the rate of 12% per
annum.  Initial Payment-in-Kind (“PIK”) interest accrued at 6% per
annum until certain conditions were met in September 2008.  Beginning
in October 2008, PIK interest decreased to 3% per annum.  Provided no
event of default had occurred, the Company had the option to defer up to 12
months of scheduled payments of cash interest until maturity of the
note.  Payment of cash interest began in October
2009.


29




Also
under the terms of the Bison Note, PIK interest rate increases upon an event of
default and if such default is not cured within a certain period of time or
waived by the Bison Note holders, the outstanding principal balance and accrued
interest become due and payable.  The Company failed to comply with a
covenant requiring the Company to have a specified minimum Consolidated Adjusted
EBITDA for the fiscal quarter ended December 31, 2009.  A waiver for
such default was obtained which included an increase in PIK interest from 3.0%
per annum to 4.5% per annum effective January 1, 2010.  PIK interest
remained at 4.5% per annum through June 30, 2010.





The Bison
Note is required to be paid in annual installments of $2.5 million starting from
the second anniversary and until the fifth year at which point the Company is
required to retire the remaining balance.  The Bison Note and other
obligations under the securities purchase agreement under which the Bison Note
was issued are collateralized by a lien granted by the Company and its
subsidiaries on substantially all of their assets, including all stock held by
either the Company or its subsidiaries.  The Bison Note is
subordinated to the Bank Debt.





Additionally,
the Company entered into a common stock warrant agreement with the holders of
the Bison Note and issued warrants to purchase 7,941,926 shares of its common
stock with an exercise price of $5 per share and a seven year
term.  4,765,156 or 60% of the warrants vested immediately and the
remaining warrants vest monthly over a three year period.  Under the
terms of the common stock warrant agreement, part of the unvested warrants might
be canceled, provided the Company meets certain EBITDA targets and required
Bison Note redemption conditions.





The
Company determined the fair value of warrants to be $8,391,893 and recorded such
amount as a discount to the Bison Note in addition to $2.5 million
discount.  Additionally, based on the fair values of the Bison Note
and warrants the Company allocated $3.1 million of expenses related to the
transaction as follows: $1.7 million to deferred expenses and $1.4 million to
additional paid-in capital.  The Company amortizes the deferred
financing cost and debt discount, and records interest expense at an effective
rate of 37%, using the interest method.





Presented
below are balances and related expenses for the Bison Note as of and for the
years ended June 30, 2010 and 2009:





2010
                  
                  
                  2009Bison
      Note
                  
                  $
                  17,500,000
                  
                  
                  $
                  20,000,000Debt
      discount
                  
                  
                  (8,373,309
                  )
                  
                  
                  (10,150,744
                  )Interest
      payable at maturity – Bison Note
                  
                  
                  6,438,981
                  
                  
                  
                  4,455,781Senior
      collateralized subordinated promissory note
                  
                  
                  15,565,672
                  
                  
                  
                  14,305,037Less
      current maturities
                  
                  
                  426,170
                  
                  
                  
                  532,227Non-current
      maturities
                  
                  $
                  15,139,502
                  
                  
                  $
                  13,772,810Interest
      expense, including amortization of debt discount and issuance
      cost
                  
                  $
                  5,944,424
                  
                  
                  $
                  4,576,838





Under the
terms of the financing agreement the Company is required to maintain certain
financial ratios and covenants related to its indebtedness, is subject to a lien
on its assets and is restricted in respect to certain transactions, including
compensation to its employees and members of its board of directors, and payment
of dividends.





The
Company and Bison have amended the Securities Purchase Agreement relating to the
Bison Note, among other things, to change the definition of Consolidated
Adjusted Earnings Before Interest, Taxes Depreciation and Amortization
(“Consolidated Adjusted EBITDA”) applicable to periods from and after December
31, 2009.





The
Company failed to comply with the covenant requiring the Company to have a
specified minimum trailing twelve-month Consolidated Adjusted EBITDA (as
revised) and a covenant requiring the Company’s Consolidated Leverage Ratio not
to exceed a specified maximum amount.  The Company and Bison have
entered into a Waiver and Forbearance Agreement (and amendments thereto) under
which Bison agreed to waive the Company’s failure to comply with such financial
covenants as of June 30, 2010 and waived the failure by the Company to comply
with such covenants for the measuring period ending June 30, 2010. In this
connection, Bison also has agreed to forbear from accelerating the Company’s
obligations to Bison under the Securities Purchase Agreement through and
including July 1, 2011.





The
Waiver and Forbearance Agreement also changed the interest rate on the Bison
Note from 15.0% to 16.5% during the period while Bison’s agreement to forbear
under the Waiver and Forbearance Agreement is in effect.





The
Company and Bison also further amended the Securities Purchase Agreement to
provide that it will be an event of default if the Company enters into a
definitive agreement with respect to a Change of Control prior to December 31,
2010 and fails for any reason to consummate such transaction by July 1, 2011 or
to file a proxy or information statement with the Securities and Exchange
Commission within 45 days after the execution such definitive
agreement.


30




The
Securities Purchase Agreement also was amended to require the recomputation,
starting with the quarter ending June 30, 2010, of certain financial parameters
for the fiscal year ended June 30, 2008 for purposes of determining Base
Multiple and consequently the Put Price, as such terms are defined in the
Securities Purchase Agreement.





Maturities
of the Bison Note as of June 30, 2010 are as follows:





Year
      ending June 30,2011
                  
                  $
                  2,500,0002012
                  
                  
                  2,500,0002013
                  
                  
                  18,938,981$
                  23,938,981




Note
12 – Income Taxes





The
provision for income taxes is comprised of the following:





For the Year Ended
                    June 30, 2010
                  
                  
                  For the Year Ended
                    June 30, 2009Current:
                  
                  $
                  -
                  
                  
                  $
                  -Federal
                  
                  
                  -
                  
                  
                  
                  -State
                  
                  
                  -
                  
                  
                  
                  130,222$
                  -
                  
                  
                  $
                  130,222





The
provision for fiscal 2009 includes approximately $107,000 of adjustments and
true-ups related to prior year accruals.





A
reconciliation of the statutory income tax effective rate to the actual
provision shown in the financial statements is as follows:




For the Year Ended
                    June 30, 2010
                  
                  
                  For the Year Ended
                    June 30, 2009Expected
      tax benefit
                  
                  
                  (34.0
                  )%
                  
                  
                  (34.0
                  )%State
      and local taxes, net of federal benefit
                  
                  
                  (7.2
                  )%
                  
                  
                  3.2
                  %Minority
      interest
                  
                  
                  0.9
                  %
                  
                  
                  2.2
                  %Permanent
      Items
                  
                  
                  (15.0
                  )%
                  
                  
                  (0.2
                  )%Change
      in valuation allowance
                  
                  
                  55.3
                  %
                  
                  
                  32.0
                  %Total
      tax provision
                  
                  
                  -
                  
                  
                  
                  3.2
                  %





The
Company has a federal tax operating loss carry-forward of approximately $12.3
million at June 30, 2010 of which $0.8 million expires in 2027, $2.9 million
expires in 2028, $0.9 million expires in 2029 and $7.7 million expires in
2030.





The
components of the net deferred tax asset (liability) at June 30, 2010 and 2009
consist of the following:





2010
                  
                  
                  2009Deferred
      tax assets:Allowance
      for doubtful accounts
                  
                  $
                  399,000
                  
                  
                  $
                  1,165,000Property
      assets
                  
                  
                  55,000
                  )
                  
                  
                  (476,000
                  )Intangibles
                  
                  
                  865,000
                  
                  
                  
                  -Accrued
      expenses
                  
                  
                  273,000
                  
                  
                  
                  254,000Stock
      option compensation
                  
                  
                  2,667,000
                  
                  
                  
                  2,404,000Net
      operating loss carry-forward
                  
                  
                  4,695,000
                  
                  
                  
                  2,806,000Total
      deferred tax asset
                  
                  
                  8,954,000
                  
                  
                  
                  6,153,000Less
      valuation allowance
                  
                  
                  (8,954,000
                  )
                  
                  
                  (6,153,000
                  )Net
      deferred assets
                  
                  $
                  0
                  
                  
                  $
                  0




In June
2006, the FASB issued guidance related to recognition threshold and measurement
attributes for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return and seeks to reduce the diversity
in practice associated with certain aspects of measurement and recognition in
accounting for income taxes.  The guidance also addresses
de-recognition, classification, interest and penalties and accounting in interim
periods and requires expanded disclosures with respect to the uncertainty in
income taxes.  This guidance was effective for the Company on July 1,
2007.


31




Under
this guidance, the Company applied the “more-likely-than-not” recognition
threshold to all tax positions, commencing at the adoption date and determined
that there were no uncertain tax positions at the adoption date or at June 30,
2010.  The Company will recognize accrued interest and penalties, if any,
in future years, in income tax expense.





The
Company is subject to U.S. federal and state examinations by tax authorities for
fiscal years ending June 30, 2007 and thereafter.





Note
13 - Defined Contribution Plan





The
Company maintains a 401(k) defined contribution plan in which all employees,
over the age of 21, are eligible to participate after three months of
employment.  The Company is allowed to but chose not to match employee
contributions during the years ended June 30, 2010 and 2009.





Note
14 – Payable to Former Majority Members of Limited Liability Company
Subsidiaries





The
Company acquired certain wound care centers operated through limited liability
companies from the majority members of such limited liability companies
during the year ended June 30, 2006, some of whom are also employees, directors
and stockholders of the Company.  As part of the purchase consideration
the Company recognized a liability to former majority members of these
limited liability companies in the amount of $0.6 million.  The
Company paid $118 thousand of this liability to the former majority members
during the year ended June 30, 2010.





Note
15 - Commitments and Contingencies





Registration
Rights Agreement





In
connection with the issuance of the Bison Note (Note 11), the Company entered
into a Registration Rights Agreement with the holders of the Bison Note under
which the Company is required, after October 15, 2008, to be in a position to
file, within 60 days upon a request, and maintain its effectiveness for at least
180 days, a registration statement with the Securities and Exchange Commission
(“SEC”) covering the resale of the shares of common stock issuable pursuant to
exercise of the warrants issued with Bison Note.  If the Company fails
to file or maintain effectiveness of the registration statement or if the
registration statement is not declared effective by the SEC, the Company is
subject to a penalty equal to 2% of the securities to be registered per
month.  Such penalty is doubled if the Company’s failure extends for
more than 90 days but the maximum amount of penalty cannot exceed 20% of
securities to be registered. The Company has not accrued any amounts in
connection with these commitments, because management believes that it is not
probable that any such penalties will be incurred.





Other
Contingencies and Uncertainties





The
Company is from time to time involved in routine litigation incidental to the
conduct of its business, including employment disputes and other
claims.  The Company believes that no such routine litigation
currently pending against it, if adversely determined, would have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.





Employment
Agreements





Two
officers and two members of the Company’s board, who are former officers of the
Company, have employment agreements.  In 2010, the Company paid these
four individuals a total of $1,719,918 in salary and bonuses.  The
four employment agreements have terms that run through June 30, 2011 and have
annual minimum compensation obligations of approximately $1,490,300 in fiscal
years 2011.  Certain of these employment agreements for the Company’s
officers provide, in addition to their base salaries, minimum cash bonuses,
stock options and other executive benefits common for these types of employment
arrangements.


32





Note
16 - Lease Commitments:





The
corporate office is located in Tarrytown, NY. On July 21, 2010, the Company
extended its Tarrytown, NY lease to include additional space.  Future
payments under non-cancelable operating lease obligations for office space are
as follows:




Years Ending June 30,2011
                    
                    $
                    130,9692012
                    
                    
                    136,4822013
                    
                    
                    139,7072014
                    
                    
                    141,3932015
                    
                    
                    143,754Thereafter
                    
                    
                    83,857





Rent
expense under the operating leases in fiscal years ended June 30, 2010 and 2009
was $146,767 and $125,848, respectively.





Note
17 - Valuation and qualifying accounts





The
following is a summary of the allowance for doubtful accounts related to
accounts and notes receivable for the years ended June 30, 2010 and
2009:





2010
                
                
                2009Balance
      at beginning of year
                
                $
                3,088,272
                
                
                $
                2,941,917Provision
      for doubtful accounts and notes
                
                
                2,687,929
                
                
                
                2,111,499Uncollectible
      accounts written off
                
                
                (
      4,746,803
                )
                
                
                (1,965,144
                )Balance
      at the end of year
                
                $
                1,029,398
                
                
                $
                3,088,272





Note
18 – Subsequent Event





On
October 5, 2010, the Company, CFWH Holding Corporation, a Delaware corporation
(“Parent”) and CFWH Merger Sub, Inc., a Nevada corporation and a wholly-owned
subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of
Merger (the “Merger Agreement”).  Parent and Merger Sub are affiliates
of Sverica International, a private equity firm.  Under the terms of
the Merger Agreement, Merger Sub will merge with and into the Company (the
“Merger”). As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger and a wholly owned subsidiary of Parent. At the closing of the
Merger, each share of common stock, par value $0.001 per share, of the Company
(“Company Common Stock”), issued and outstanding immediately prior to the
closing, other than shares held by Parent as a result of the exchange by one of
the Company’s founders of a portion of his shares of Company Common Stock for
shares of capital stock of Parent, shall be converted into the right to receive
an amount in cash, not to exceed $0.60, subject to certain adjustments as set
forth in the Merger Agreement.  The amount of cash consideration that
holders of shares of Company Common Stock will be entitled to receive in the
Merger, giving effect to all possible adjustments, will be at least $0.579 per
share.  All amounts payable to holders of Company Common Stock in the
Merger are without interest and subject to applicable tax withholding
requirements.





Holders
of a total of approximately 68.3% of the issued and outstanding shares of
Company Common Stock, including all of the directors and executive officers of
the Company who hold shares of Company Common Stock, have entered into a Voting
Agreement with Parent pursuant to which such holders have agreed to vote their
shares in favor of approval of the Merger Agreement.





Completion
of the transaction is subject to customary closing conditions, including CFWH
shareholder approval, and the receipt by Sverica of financing for the
transaction in accordance with financing commitments received.  The
transaction is expected to be completed in the fourth quarter of 2010, subject
to customary closing conditions.





ITEM 9.  
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure:





We have
not had any disagreements with our accountants on accounting and financial
disclosures during our two recent fiscal years or any later interim
period.




33




Item
9A. Controls and Procedures:





Disclosure
Controls and Procedures





(a)  Evaluation
of Disclosure Controls and Procedures.




The
Company’s management carried out an evaluation, conducted by its chief executive
officer and chief financial officer, on the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30,
2010, pursuant to Exchange Act Rule 13a-15.  Such disclosure controls
and procedures are designed to ensure that information required to be disclosed
by the Company is accumulated and communicated to the appropriate management on
a basis that permits timely decisions regarding disclosure.  Based
upon that evaluation, the Company’s chief executive officer and chief financial
officer concluded that the Company’s disclosure controls and procedures as of
June 30, 2010 were effective.





(b)  Changes
in Internal Control over Financial Reporting.





During
the quarter ended June 30, 2010, there was no change in our internal control
over financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





Management’s
Report on Internal Control over Financial Reporting





Under
Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to
assess the effectiveness of the Company’s internal control over financial
reporting as of the end of each fiscal year and report, based on that
assessment, whether the Company’s internal control over financial reporting is
effective.





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting.  The Company’s internal control over
financial reporting is designed to provide reasonable assurance as to the
reliability of the Company’s financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.





Internal
control over financial reporting, no matter how well designed, has inherent
limitations.  Therefore, internal control over financial reporting
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect all
misstatements.  Moreover, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





The
Company’s management has assessed the effectiveness of the Company’s internal
control over financial reporting as of June 30, 2010.  In making this
assessment, the Company referenced the criteria established by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in “Internal
Control-Integrated Framework.” These criteria are in the areas of control
environment, risk assessment, control activities, information and communication,
and monitoring.  The Company’s assessment included documenting,
evaluating and testing the design and operating effectiveness of its internal
control over financial reporting.





Based on
the Company’s processes and assessment, as described above, management has
concluded that, as of June 30, 2010, the Company’s internal controls are
effective.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting. Such
report is not required by the Company’s registered public accounting
firm.





Item 9B.   Other
Information:




None.




34





PART
III





ITEM 10.
            Directors,
      Executive Officers, and Corporate
Governance:





Our
directors, executive officers and control persons and their respective ages as
of October 12. 2010, are as follows:





Name
                    
                    Age
                    
                    PositionAndrew G. Barnett
                    
                    56
                    
                    CEO, Secretary, DirectorDavid Walz
                    
                    50
                    
                    President, TreasurerMichael
      J. Jakolat
                    
                    50
                    
                    CFOJohn Capotorto, MD
                    
                    49
                    
                    Chairman
      of the Board and DirectorPaul Basmajian
                    
                    53
                    
                    DirectorJohn DeNobile
                    
                    37
                    
                    DirectorDr. Phillip Forman
                    
                    51
                    
                    DirectorDouglass Trussler
                    
                    39
                    
                    DirectorPeter
      S. Macdonald,
                    
                    51
                    
                    Director




Business
Experience of Current Officers and Directors:





All of
our directors serve a one year term until their successors are elected and
qualified by our shareholders, or until their earlier death, retirement,
resignation or removal. The following is a brief description of the business
experience of our executive officers, directors and significant
employees:





Andrew G.
Barnett has been our Chief Executive Officer since January 19, 2007, our
Chief Financial officer through June 29, 2010 and is also our Corporate
Secretary.  From January 1, 2001 through January, 2007, Mr. Barnett
was a principal of Morris Anderson & Associates, Ltd., a financial and
management consulting firm. Mr. Barnett brings extensive expertise in the
development and implementation of strategic plans, and operational and financial
strategies.  Mr. Barnett has served in advisory and senior management
capacities as CEO, COO, and CFO to both publicly and privately held
companies.  Mr. Barnett has acted in such capacities in many companies
including a $1 billion tobacco and HBA distributor, a $100 million outdoor
security lighting company, a $150 million periodicals agency, a $90 million
consumer products company, a $100 million financial services company, a $100
million industrial parts distributor, and a $50 million professional services
firm. Mr. Barnett has served a broad range of clients with operations throughout
the United States as well as in Europe, the Middle East and
Asia.  Industry experience includes retail, manufacturing, consumer
products, publishing, financial services, wholesale distribution and
professional services.  Mr. Barnett has served as a director since
2008.





David J.
Walz was named President on September 27, 2006 and is also our Treasurer.
Mr. Walz joined the predecessor company in November 2003 as Executive Vice
President and Chief Operating Officer. Mr. Walz is an executive with over 21
years of experience in hospital operations, financial management, business
development and strategic planning within complex healthcare organizations. From
November 2000 to September 2003, Mr. Walz was Executive Director/Vice President
of Operations at St. John’s Queens Hospital, a teaching division of Saint
Vincent’s Catholic Medical Centers in New York, where he was responsible for the
day-to-day operations.  Prior to this role, Mr. Walz held various
positions in finance, including director of finance for a four-hospital system.
Mr. Walz has a Bachelors degree in Finance, Banking and Investments and also
holds a Master Degree in Healthcare Administration.  Mr. Walz is a
Fellow (“FHFMA”) and a Certified Managed Care Professional (“CMCP”) in the
Healthcare Financial Management Association





Michael J.
Jakolatwas named Chief Financial and Chief Accounting Officer on June
29, 2010.Mr. Jakolat served as Vice President, Finance of the Company since July
1, 2009.  Prior to joining the Company, Mr. Jakolat founded the
BeaconView Group, a boutique advisory firm serving a number of middle market
public and private companies, including the Company.  Prior to
founding the BeaconView Group, Mr. Jakolat was Vice President and Chief
Financial Officer of Life Fitness, an upper-middle-market manufacturer of
high-end consumer and commercial fitness equipment.  At Life Fitness,
Mr. Jakolat was responsible for global financial and information technology
operations





Phillip Forman,
DPM, who serves as the Company’s Co-Medical Director, was the Medical
Director of the New York Hyperbaric, the predecessor to American Hyperbaric,
Inc., since 2001 and, from July, 2005 through January 18, 2007, served as the
chief executive officer of American Hyperbaric, Inc.  Prior to joining
New York Hyperbaric, he was a private practitioner.  He received his
doctor degree of Podiatric Medicine from the Pennsylvania College of Podiatric
Medicine.  His degree is a Diplomat, American Board of Podiatric
Surgery. His academic appointments include Podiatric Attending, Staten Island
University Hospital and Associate Director, Residency Program, Staten Island
University Hospital.  Dr. Forman has extensive experience in wound
care. He has participated in numerous clinical trials involving diabetic foot
infections, novel antibiotics and new biopharmaceuticals for problem and
non-healing wounds of the lower extremities.  He has participated in
trials with Merck & Co., Inc., Pharmacia, OrthoBiotech,
Novartis/Organogenesis, Johnson & Johnson, Monsanto, Ortho-McNiel, Alpha
Therapeutics and Ortec International. In addition to his clinical trial
participation, Dr. Forman has several research projects underway involving
Osteomyelitis and Vascular Disease in patients with Diabetes.  Dr.
Forman has served as a director since 2005.




35


John V.
Capotorto, M.D., who serves as the Company’s Chairman of the Board and
Co-Medical Director, was the Chief Medical Director of New York Hyperbaric, the
predecessor to American Hyperbaric, Inc., since 2001 and from July, 2005 through
January 18 was the Vice President of American Hyperbaric, Inc.  Prior
to joining New York Hyperbaric Dr. Capotorto was an attending physician in Adult
and Pediatric Endocrinology and was a clinical assistant professor at SUNY HSCB
since 1996.  He holds board certification in Internal Medicine,
Pediatrics, Adult and Pediatric Endocrinology and Metabolism, and is accredited
in Hyperbaric Medicine. Additionally, he is the Medical Director of the Diabetes
Treatment Center at Staten Island University Hospital and has extensive
experience in both wound care and hyperbaric medicine. Dr. Capotorto graduated
from Vassar College in 1981 and studied Medicine at the University of
Bologna.  He returned to New York where he completed a combined
medical and pediatric internship and residency.  Dr. Capotorto was a
Research Fellow in Islet Cell Transplantation at the Joslin Diabetes Center and
a clinical fellow in Adult and Pediatric Endocrinology at both the Joslin
Diabetes Center and Children’s Hospital, part of the Harvard Medical School
system. In addition to his medical training, Dr. Capotorto has completed an
Executive MBA program at the Baruch College.  He is a member of the
Beta Gamma Sigma Honor Society and has used his combined medical and business
knowledge towards developing and opening comprehensive Hyperbaric and Wound Care
Centers.  Dr. Capotorto has served as a director since
2005.





Paul
Basmajian was appointed to the board of directors on July 20, 2006. Mr.
Basmajian has 24 years servicing global asset management and plan sponsor
communities.  He is a Senior Managing Partner and member of the Board
of Directors of BNY ESI & Co., subsequently acquired by the Bank of New York
in 1998.  Currently, Mr. Basmajian serves as the director of trading
operations for BNY Brokerage and part of senior management team for the Bank of
New York.




John
DeNobile founded American Hyperbaric in May 2005.  From April
2002 through May, 2005, Mr. DeNobile invested in real estate development
projects, from pre-construction through rental phase, as well as acting as a
consultant to emerging companies.  From 1995 through April 2002, Mr.
DeNobile was a licensed stock broker at Winchester Investment Securities,
Inc.  Mr. DeNobile is currently president of Axcess, Inc., a company
dedicated to providing state of the art imaging, diagnostic and interventional
services and education to meet the vascular access needs of the hemodialysis
community.  Mr. DeNobile has served as a director of the Company since
2005.





Douglas B.
Trussler co-founded Bison Capital in 2001 and is a partner and serves as
its president.  Previously, he was at Windward Capital Partners LP, and at
Credit Suisse First Boston.  Mr. Trussler is currently a member of the
Board of Directors of GTS Holdings, Inc., Performance Team Freight Systems,
Inc., Royal Wolf Australia Ltd., Royal Wolf Trading New Zealand Limited,
Precision Assessment Technology Corporation, and Big Rock Sports,
LLC.  He was formerly a member of the Board of Directors of Twin Med,
LLC and Helinet Aviation, Inc.  Mr. Trussler earned a BA with honors
in Business Administration from the University of Western Ontario in
Canada.  Mr. Trussler has served as a director of the Company since
2008.





Peter
Macdonald is a general partner of Bison Capital. Mr. Macdonald joined
Bison Capital in 2009.  Prior to joining Bison Capital, Mr. Macdonald
was a Managing Director of BlackRock Kelso Capital Management from 2006 to
2009.  From 1994 until 2006, Mr. Macdonald was a Partner of Windward
Capital Partners, LP.  Prior to co-founding Windward, Mr. Macdonald
was a member of the Mergers & Acquisitions Group of CS First
Boston.





Directors
are elected at the Company’s annual meeting of stockholders and serve for one
year until the next annual Stockholders’ meeting or until their successors are
elected and qualified.  Officers are elected by the Board of Directors
and their terms of office are, except to the extent governed by employment
contract, at the discretion of the Board.  The Company reimburses all
directors for their expenses in connection with their activities as directors of
the Company.  Directors of the Company who are also employees of the
Company will not receive additional compensation for their services as
directors.





Family
and Other Relationships:





There are
no family relationships between any two or more of our former or current
directors or executive officers.  Except as described below, there is
no arrangement or understanding between any of our former or current directors
or executive officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer, and there is no
arrangement, plan or understanding as to whether non-management shareholders
will exercise their voting rights to continue to elect the current board of
directors. There are also no arrangements, agreements or understandings to our
knowledge between non-management shareholders that may directly or indirectly
participate in or influence the management of our affairs.





Bison
Capital Equity Partners II-A., L.P. Bison Capital Equity Partners II-B., L.P.
(collectively, the “Bison Entities”), the Company and certain executive officers
and stockholders of the Company, including Dr. Capotorto, Dr. Forman, Mr.
Barnett, Mr. Walz, Mr. De Nobile, Mr. Basmajian and the Elise Trust, are parties
to a Voting Agreement dated as of March 31, 2008, pursuant to which such parties
have agreed to vote their shares of common stock of the Company in favor of the
election of two representatives designated by the Bison Entities, initially
Messrs. Trussler and Bissette, as directors of the Company.  At a
meeting held on June 29, 2010, the Company’s Board of Directors elected Peter S.
Macdonald, director of the Company and a member of the Audit Committee of the
Board of Directors, filling the vacancy on the Board of Directors and the Audit
Committee of the Board of Directors created by reason of Mr. Bissette’s
resignation.  Such voting agreement also provides that, under certain
circumstances following an Event of Default (as defined in the Securities
Purchase Agreement dated as of March 31, 2008, between the Bison Entities and
the Company), the Bison Entities shall be entitled to designate a majority of
the Company’s directors.  The Voting Agreement also provides that the
number of directors constituting the entire board of directors shall not exceed
seven without the written consent of the Bison Entities.




36





Board
Committees and Independence:





Director
Independence; Audit and Compensation Committees





Director
Independence





The Board assesses each director’s
independence in accordance with the applicable rules and regulations of
NASDAQ.  This assessment includes a review of any potential conflicts
of interest and significant outside relationships.  In determining
each director’s independence, the Board broadly considers all relevant facts and
circumstances, including specific criteria included in NASDAQ’s corporate
governance standards.  For these purposes, the Board of Directors
considers certain relationships that existed during a three-year look-back
period.  The Board of Directors considers the issue not merely from
the standpoint of a director, but also from the standpoint of persons or
organizations with which the director has an affiliation.  An
independent director is free of any relationship with the Company or management
that impairs the director’s ability to make independent judgments.





Based on this assessment, the Board of
Directors has determined that Messrs.  Basmajian, Trussler and
Macdonald are independent.





Audit
and Compensation Committees





In
October 2008, the Board of Directors established an Audit Committee, and on
March 5, 2009, appointed the initial members of f the Audit
Committee.  The principal functions of the Audit Committee are to
recommend the annual appointment of the Company’s auditors, to discuss with the
auditors matters concerning the scope of the audit and the results of their
examination, to review and approve any material accounting policy changes
affecting the Company’s operating results and to review the Company’s internal
control procedures.





The
current members of the Audit Committee are Messrs. Trussler and
Macdonald.  The Board of Directors has determined that Messrs.
Trussler and Macdonald are audit committee financial experts within the meaning
of applicable SEC rules.  Mr. Macdonald was appointed to the Audit
Committee on June 29, 2010, filling the vacancy created by reason of the
resignation of Mr. Louis Bissette from the Board of Directors.





On March
5, 2009 the Board of Directors authorized the establishment of a Compensation
Committee.  The principal functions of the Compensation Committee are
to review and recommend compensation and benefits for the executives of the
Company.





Certain
Additional Information Concerning the Board of Directors





All of
the directors serve until the next annual meeting of common shareholders and
until their successors are elected and qualified by our common shareholders, or
until their earlier death, retirement, resignation or removal.  Our
bylaws set the authorized number of directors at not less than one or more than
nine, with the actual number fixed by our board of directors. Under our bylaws,
the Board of Directors has fixed the number of directors at
seven.  Our bylaws authorize the Board of Directors to designate from
among its members one or more committees and alternate members thereof, as they
deem desirable, each consisting of one or more of the directors, with such
powers and authority (to the extent permitted by law and these Bylaws) as may be
provided in such resolution




Compliance
with Section 16(a) of the Exchange Act





Section
16(a) of the Exchange Act requires our directors, executive officers and persons
who own more than 10% of a required class of our equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of our company.  Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file.





To our
knowledge, based upon a review of the copies of such reports furnished to us and
based upon written representations that no other reports were required, all
Section 16(a) filing requirements applicable to our officers, directors and
greater than 10% beneficial owners were complied with for the fiscal year ended
June 30, 2010.





Code
of Ethics





A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:





1)  Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;




2)  Full,
fair, accurate, timely and understandable disclosure in reports and documents
that are filed with, or submitted to the Securities and Exchange Commission and
in other public communications made by the company;


37




3)  Compliance
with applicable government laws, rules and regulations;





4)  The
prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code; and





5)  Accountability
for adherence to the code.





The
company adopted a formal code of ethics statement that is designed to deter
wrong doing and to promote ethical conduct and full, fair, accurate, timely and
understandable reports that the company files or submits to the SEC and
others.  A copy of the code of ethics is filed as an exhibit to the
Company’s Annual Report on Form 10-KSB filed with the SEC on September 24, 2004,
and may be obtained without charge from the Company upon
request.  Such request may be directed to the Company at its principal
executive offices, 155 White Plains Road, Suite 200, Tarrytown, NY 10591,
attention: Corporate Secretary.




38





ITEM 11.   Executive
Compensation:





FISCAL
2010 SUMMARY COMPENSATION TABLE





The
following table summarizes the compensation of the Named Executive Officers for
the fiscal years ended June 30, 2010, 2009 and 2008. The Named Executive
Officers are the Company’s Chief Executive Officer and Chief Financial Officer
and the Company’s President. Listed below are the only two executive officers of
the Company that served in positions that would cause them to be Named Executive
Officers during the year ended June 30, 2010.




Non-QualifiedNon-Equity
                                
                                
                                DeferredStock
                                
                                
                                Option
                                
                                
                                Incentive Plan
                                
                                
                                Compensation
                                
                                
                                All OtherFiscal
                                
                                Salary
                                
                                
                                Bonus
                                
                                
                                Awards
                                
                                
                                Awards
                                
                                
                                Compensation
                                
                                
                                Earnings
                                
                                
                                Compensation
                                
                                
                                TotalNameandPrincipalPosition
                                
                                Year
                                
                                ($)
                                
                                
                                ($)
                                
                                
                                ($)
                                
                                
                                ($) (1)
                                
                                
                                ($)
                                
                                
                                ($)
                                
                                
                                ($)
                                
                                
                                ($)Andrew
      G. Barnett (2)
                                
                                2010
                                
                                
                                403,992
                                
                                
                                
                                150,000
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                34,782
                                (2)
                                
                                
                                588,774Chief
      Executive Officer
                                
                                2009
                                
                                
                                382,313
                                
                                
                                
                                250,000
                                
                                
                                
                                -
                                
                                
                                
                                767,259
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                35,973
                                (2)
                                
                                
                                1,435,545David
      J. Walz (2)
                                
                                2010
                                
                                
                                340,560
                                
                                
                                
                                50,000
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                35,754
                                (2)
                                
                                
                                426,314President
                                
                                2009
                                
                                
                                290,557
                                
                                
                                
                                60,000
                                
                                
                                
                                -
                                
                                
                                
                                254,222
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                25,771
                                (2)
                                
                                
                                630,550









(1)
            The
      values for option awards in this column represent the cost recognized for
      financial statement reporting purposes for fiscal year 2010 and 2009,
      respectively, in accordance with FAS 123R. However, pursuant to SEC
      rules these values are not reduced by an estimate for the probability of
      forfeiture. The assumptions used to value these awards can be found in
      Note 5 to the financial statements in this Form
  10-K.





(2)
            We
      reimbursed automobile expenses for Messrs. Barnett and Walz in the amounts
      of $24,629 and $15,000, respectively, and health benefit expenses in the
      amounts of $10,153 and $10,606,
respectively.




Employment
Agreements with the Named Executive Officers





Employment
Agreement for Andrew G. Barnett





On July
21, 2008, the Company entered into an employment agreement (the amended and
restated employment agreement) with Andrew G. Barnett, effective as of March 31,
2008, which amended and restated the employment agreement dated January 3, 2007
(the 2007 employment agreement).  Pursuant to the amended and restated
employment agreement Mr. Barnett agreed to serve as our Chief Executive
Officer and Chief Financial Officer.  The initial term of the amended
and restated employment agreement commenced on March 31, 2008 and ends on June
30, 2011, and will automatically be renewed for an additional 12 months unless
Mr. Barnett or the Company provides written notice of the intent not to renew on
or before June 30, 2010.  After each 12 month extension, the term will
continue to renew for successive 12 month periods unless Mr. Barnett or the
Company provides written notice of the intent not to renew no less than 180 days
prior to the end of the renewal term.





Under the
terms of the agreement, Mr. Barnett will receive an annual base salary of
$375,000 beginning March 31, 2008, which salary will be reviewed annually by the
board of directors.  In addition, Mr. Barnett is eligible to earn
annual cash performance bonuses based on the Company’s achievement of certain
adjusted EBITDA targets for fiscal years 2009 through 2013 and
thereafter.  The amount of the annual cash performance bonus, if
earned, will be set by the Board in its sole discretion, but will be no less
than $50,000 and no greater than 50% of his then-existing base
salary.  Mr. Barnett is also eligible for all employee benefits
made available generally to other senior executive officers, including
participation in medical and life insurance programs and profit sharing plans,
and is entitled to reimbursement for automobile expenses, provided such expenses
do not exceed $15,000 per year and $3,000 per month. We have agreed to establish
a long-term incentive plan, in which Mr. Barnett will be entitled to
participate.  If Mr. Barnett is subject to an excise tax under
the Internal Revenue Code of 1986, as amended, he will be entitled to a gross-up
payment.




39


On
January 3, 2007 Mr. Barnett was granted the option to purchase 1,000,000
shares of our common stock pursuant to the Center for Wound Healing, Inc. 2006
Stock Option Plan under the 2007 Employment Agreement. Six hundred thousand of
these options are time vesting options and 400,000 are performance vesting
options.  With respect to the 600,000 shares of time vesting options,
400,000 are fully vested, 100,000 shares will vest on the second anniversary of
the date of grant and 100,000 shares will vest on the third anniversary of the
date of grant, provided for each vestment that Mr. Barnett has remained
continuously employed by us during those terms.  With respect to the
400,000 performance vesting options, 100,000 options are fully vested and
Mr. Barnett will vest in his option to purchase the remaining 300,000
options (100,000 options in each of fiscal years 2009, 2010 and 2011) if we meet
certain financial targets during fiscal years 2009, 2010 and 2011 as set forth
in his agreement.  These options will expire ten years from the date
of grant. Effective July 21, 2008, the exercise price for these options was
reduced from $3.10 per share to $1.05 per share.




Under the
amended and restated employment agreement, on July 21, 2008 Mr. Barnett was
granted an additional 750,000 performance vesting options at an exercise price
of $1.05 per share.  These performance vesting options will vest 33
1/3% per year if we meet certain quarterly Adjusted EBITDA targets during fiscal
years 2009, 2010 and 2011.  Mr. Barnett’s options will vest upon
a change of control as described below. Mr. Barnett’s option to purchase
such shares of our common stock will remain outstanding for 10 years following
the date of its grant.





The
agreement provides that we may terminate Mr. Barnett for cause at any time
upon written notice.  For purposes of the agreement, cause means any
of the following: (1) Mr. Barnett’s material breach of the agreement,
breach of fiduciary duty having a material adverse impact on our Company,
material breach of our employment policies applicable to him, or refusal to
follow the lawful directives of our board of directors that is not corrected (to
the extent correctable) within 10 days after delivery of written notice to
Mr. Barnett with respect to such breach; (2) Mr. Barnett’s breach
of a fiduciary duty to us, material breach of our employment policies applicable
to him, refusal to follow the lawful directives of our board of directors, or
repeated breach of the same provision of the agreement, each on more than two
occasions, regardless of whether such breach has been or may be corrected;
(3) Mr. Barnett’s indictment for or conviction of a felony or any
crime involving fraud; (4) Mr. Barnett’s misappropriation of our funds
or material property; or (5) Mr. Barnett’s material dishonesty,
disloyalty or willful misconduct. In addition, we may terminate
Mr. Barnett’s employment without cause upon 30 days’ prior written
notice.  A failure by us to renew the amended and restated employment
agreement is a termination without cause.





Pursuant
to the agreement, Mr. Barnett may terminate his employment for good reason
at any time upon written notice to us.  Mr. Barnett may also
terminate his employment without good reason upon 45 days’ prior written
notice.  For purposes of the agreement, good reason means the
occurrence of: (1) a material change in Mr. Barnett’s duties,
reporting responsibilities, titles or elected or appointed offices as in effect
immediately prior to the effective date of such change, provided, however that
Mr. Barnett’s ceasing to be our chief financial officer does not constitute good
reason; (2) any reduction or failure to pay when due any compensation to
which Mr. Barnett is entitled; (3) our breach of any material
provisions of the amended and restated agreement; (4) the relocation of our
corporate offices more than 100 miles away from Mr. Barnett’s current
residence; (5) us hiring, retaining or promoting any employee or consultant
whose base salary is or becomes greater than Mr. Barnett’s base salary; or
(6) we fail to elect Mr. Barnett a member of the board of
directors.





In
addition, Mr. Barnett may terminate his employment within 60 days of a
change of control, defined to occur at such time as (1) any person is or
becomes the beneficial owner of securities representing 45% or more of the
combined voting power for election of directors of our then outstanding
securities, subject to certain exceptions; (2) during any period of two
years or less, individuals who at the beginning of such period constitute the
board of directors cease to constitute at least a majority of the board of
directors; (3) the consummation of a sale or disposition of 50% or more of
our assets or business; or (4) the consummation of any reorganization,
merger, consolidation or share exchange, subject to certain
exceptions.





If we
terminate Mr. Barnett’s employment without cause or if Mr. Barnett
terminates his employment for good reason, then Mr. Barnett is entitled to:
(1) his then-existing base salary through the end of the term of the
amended and restated agreement, or for two years, whichever is longer;
(2) the full amount of the Accounting Bonus and the Closing Bonus, to the
extent that they have not been paid as of the date of termination; (3) a
pro-rata amount of any annual bonus for which he is eligible and (4) the
continuation of his health or medical benefit plans for a period of two
years.  However, if his employment is terminated as a result of our
failure to renew the initial term of his amended and restated employment
agreement, then he is generally entitled to receive the continuation of his base
salary and his health or medical benefit plans for a period of one
year.  In addition, any unvested time vesting stock options to which
Mr. Barnett may have been entitled will immediately vest.  The
performance vesting options will vest if the adjusted EBITDA for the quarter
meets the adjusted EBITDA targets.  If Mr. Barnett terminates his
employment pursuant to a change of control, Mr. Barnett will be entitled to
receive the payments described above, as well as a cash payment of $800,000 if
the average price per-share sale price resulting in the change of control is
less than $7.50.




Mr. Barnett
may not disclose any confidential information about us, including our financial
condition, our products and services, and information concerning the identity of
individuals affiliated with us, during the term of his employment and for a
period of five years thereafter.





Mr. Barnett
agrees not to manage, operate, participate in, be employed by or perform
consulting services for our competitors listed in the amended and restated
employment agreement during the term of his employment, and during any period
which he is receiving the continuation payments from us as described
above.  During this period, Mr. Barnett agrees to abstain from
soliciting any individual, partnership, corporation, association, or entity who,
within the 36 month period prior to Mr. Barnett’s termination of
employment, contracted with us or was solicited by us for business, and to
abstain from soliciting any of our officers, managers or
salespersons.





To the
fullest extent permitted by law, we agree to indemnify Mr. Barnett pursuant
to our standard indemnification agreement and by any directors’ and officers’
liability insurance we maintain.  We also agree to maintain directors’
and officers’ liability insurance in appropriate amounts for the benefit of
Mr. Barnett throughout the term of his employment with us, and for a period
of three years thereafter.


40




Employment
Agreement for David Walz





On
December 2, 2008, The Center for Would Healing, Inc. (the “Company”) entered
into an Amended and Restated Employment Agreement with David Walz, the Company’s
President and Treasurer (the “Amended Agreement”).





The
Amended Agreement, effective as of October 7, 2008, amended and restated the
Employment Agreement dated April 1, 2005.  The prior agreement was
filed with the Company’s Form 10-K for the fiscal year ended June 30,
2007.  The material amendments to the Amended Agreement are described
below.  The description is qualified by the Amended Agreement filed as
Exhibit 10.1 to this Form 8-K.





The
initial term of the Amended Agreement is three years, commencing October 7, 2008
and ending on June 30, 2011, and will be automatically renewed for an additional
12 months unless Mr. Walz or the Company provides written notice of the intent
not to renew on or before January 1, 2011.  After each 12 month
extension, the term will continue to renew for successive 12 month periods
unless Mr. Walz or the Company provides written notice of the intent not to
renew no less than 180 days prior to the end of the renewal term.





Mr. Walz’s
annual base salary is $285,000 and is subject to annual cost of living increases
not to exceed 4% per year.  The Board will also review the base salary
at least annually and may increase it in its sole discretion.  Mr.
Walz will receive a $10,000 signing bonus upon execution of the Amended
Agreement.  He is eligible to earn annual cash performance bonuses
based on the Company’s achievement of certain gross margin targets for fiscal
years 2009 through 2011 and thereafter.  The amount of the annual cash
performance bonus, if earned, will be set by the Board in its sole discretion,
but will be no less than $50,000 and no greater than 50% of his applicable base
salary.  Mr. Walz’s car allowance is increased to an amount not
exceeding $15,000 per year, and his vacation is increased to 6 weeks per
year.





The
exercise price of the 210,000 time vesting options previously granted to Mr.
Walz is decreased to $1.05 per share, which represents the fair market value of
a share of the Company’s stock as determined by the Board as of October 8, 2008.
The expiration date of the time vesting options is extended to April 1,
2011.  In addition, on October 8, 2008, Mr. Walz was granted (i) an
additional 300,000 time vesting options and (ii) an additional 225,000
performance vesting options, at an exercise price of $1.05 per
share.  The time vesting options will vest 25% per year on each
anniversary of the grant date.  The performance vesting options will
vest 33 1/3% per year if we meet certain quarterly Adjusted EBITDA targets
during fiscal years 2009, 2010 and 2011.





In the
event of a termination of his employment by the Company without cause, by Mr.
Walz for good reason or by Mr. Walz following a change in control, he is
entitled to (1) continuation of his then-existing base salary through the end of
the term or for 24 months, whichever is longer, (2) a pro-rata amount of his
annual bonus, (3) payment of any accrued employment benefits and (4) continued
health or medical benefits for 24 months.  Any unvested time vesting
options will immediately vest and become exercisable.  With respect to
performance vesting options, if the Company’s annualized EBITDA for the quarter
during which the termination takes place exceed any of the EBITDA vesting
thresholds, then any performance vesting options that would have vested as a
result of the Company’s achieving such EBITDA threshold at any time shall vest
and become exercisable.




However,
if his employment is terminated as a result of the Company’s failure to renew
the initial term of this Amended Agreement, then he is generally entitled to
receive the continuation of his base salary and his health or medical benefit
plans for a period of 12 months.





Employment
Agreement for Michael J. Jakolat





The
Company employs Mr. Jakolat pursuant to an Employment Agreement dated July 1,
2009.  The description of Mr. Jakolat’s Employment Agreement set forth
below is qualified in its entirety by reference to the text of such Employment
Agreement.




Mr.
Jakolat’s Employment Agreement provides that he is to be employed by the Company
as Vice President-Finance.  No changes were made to Mr. Jakolat’s
Employment Agreement in connection with his election to the positions of Chief
Financial Officer and Chief Accounting Officer of the Company.




The
initial term of Mr. Jakolat’s Employment Agreement is for two years, commencing
July 1, 2009 and ending June 30, 2011, and will be automatically renewed for an
additional 12 months unless either Mr. Jakolat or the Company provides written
notice to the other of intent not to renew on or before January 1,
2011.  Following such initial 12 month renewal term, Mr. Jakolat’s
employment shall be automatically renewed for successive 12 month periods unless
either Mr. Jakolat or the Company has provided written notice to the other of
intent not to renew prior to the expiration of the prior renewal
term.





Mr.
Jakolat’s annual base salary is $260,000, subject to review and possible
increase by the Company’s Chief Executive Officer at least
annually.  In addition, Mr. Jakolat is eligible to receive an annual
cash performance bonus for each fiscal year during the term of his employment if
he remains employed by the Company on the last day of the applicable fiscal
year, such bonus to be based upon the annual earnings before interest, taxes,
depreciation and amortization (“EBITDA”) and accounts receivable days sales
outstanding (“Accounts Receivable DSO”) targets set forth in the Company’s
Business Plan.  The amount of Mr. Jakolat’s cash bonus, if any, shall
be established by the Company’s Chief Executive Officer following the close of
the applicable fiscal year.




41




Mr.
Jakolat was granted options to purchase a total of 400,000 shares of Common
Stock, par value $0.001 per share, of the Company (“Common Stock”) under the
Company’s 2006 Stock Option Plan, at an exercise price of $1.05 per share. Such
options are exercisable for a term of five years. Options to purchase 250,000
shares were fully vested at the time of grant, and the options to purchase the
remaining 150,000 shares will vest as follows:  If the Company
achieves the annual EBITDA and Accounts Receivable DSO targets set forth in the
Company’s business plan for the fiscal year ending June 30, 2010, then Mr.
Jakolat’s option to purchase 100,000 shares of Common Stock shall vest as of the
last day of the applicable quarter.  If the Company achieves the
annual EBITDA and Accounts Receivable DSO targets set forth in the Company’s
business plan for the fiscal year ending June 30, 2011, then Mr. Jakolat’s
option to purchase 50,000 shares of Common Stock shall vest as of the last day
of the applicable quarter.  All of Mr. Jakolat’s options will become
fully vested upon a Change in Control (as defined in Mr. Jakolat’s Employment
Agreement).  Mr. Jakolat also holds options, exercisable for five
years, to purchase a total of 280,000 shares of Common Stock at an exercise
price of $1.05 per share that were granted as partial consideration for
consulting services rendered prior to his full-time employment by the
Company.




In the
event of the termination of Mr. Jakolat’s employment by the Company without
cause or after the Company notifies Mr. Jakolat in writing of its intent not to
renew the term of Mr. Jakolat’s Employment Agreement, or by Mr. Jakolat for
“Good Reason” (as defined in Mr. Jakolat’s Employment Agreement), or by Mr.
Jakolat following a Change in Control, then Mr. Jakolat is entitled to
continuation of his base salary then in effect for a period of 12 months after
the termination of his active employment, accrued but unpaid base salary and any
annual bonus earned for any prior years, accrued employment benefits (including
accrued vacation) and continued participation at the Company’s expense for six
months in the Company’s employee benefit plans and programs (or reimbursement
for costs incurred by Mr. Jakolat to procure continuation coverage if he is not
then eligible to participate in such plans).  All unvested stock
options granted to Mr. Jakolat also shall immediately vest.




In Mr.
Jakolat’s Employment Agreement, the Company also agrees to indemnify Mr. Jakolat
under the Company’s Articles of Incorporation and By-Laws, to cover Mr. Jakolat
pursuant to the terms of the Company’s standard indemnification agreement, and
to provide directors’ and officers’ liability insurance coverage in amounts
appropriate for the Company’s size for a period during the term of Mr. Jakolat’s
employment and for a period of three years thereafter.





OUTSTANDING
EQUITY AWARDS AT 2010 FISCAL YEAR END





The
following table shows the number of shares covered by exercisable and
unexercisable options held by the Company’s Named Executive Officers on
June 30, 2010. All options were granted under the Center for Wound Healing
2006 Stock Option Plan, formerly called the Kevcorp Services Inc. 2006 Stock
Option Plan. 
There were no stock awards outstanding on June 30, 2010




Option AwardsName
                                                            
                                                            Number
                                                              of
                                                              Securities
                                                              Underlying
                                                              Unexercised
                                                              Options
                                                              (#)
                                                              Exercisable
                                                            
                                                            Number of
                                                              Securities
                                                              Underlying
                                                              Unexercised
                                                              Options
                                                              (#)
                                                              Unexercisable
                                                            
                                                            Equity
                                                              Incentive
                                                              Plan Awards:
                                                              Number of
                                                              Securities
                                                              Underlying
                                                              Unexercised
                                                              Unearned
                                                              Options
                                                              (#)
                                                            
                                                            
                                                            Option
                                                              Exercise
                                                              Price
                                                              ($)
                                                            
                                                            Option
                                                              Grant Date
                                                            
                                                            Option
                                                              Expiration DateAndrew
      G. Barnett
                                                            
                                                            
                                                            1,050,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1.05
                                                            
                                                            January
      19, 2007
                                                            
                                                            January
      19, 2017250,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1.05
                                                            
                                                            July
      21, 2008
                                                            
                                                            July
      21, 20181.05
                                                            
                                                            January
      19, 2007
                                                            
                                                            January
      19, 2017100,000
                                                            (2)
                                                            
                                                            
                                                            1.05
                                                            
                                                            January
      19, 2007
                                                            
                                                            January
      19, 2017250,000
                                                            (3)
                                                            
                                                            
                                                            1.05
                                                            
                                                            July
      21, 2008
                                                            
                                                            July
      21, 2018David
      J. Walz
                                                            
                                                            
                                                            210,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1.05
                                                            
                                                            April
      1, 2006
                                                            
                                                            April
      1, 2011300,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1.05
                                                            
                                                            October
      8,2008
                                                            
                                                            October
      8, 2013150,000
                                                            (4)
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1.05
                                                            
                                                            October
      8,2008
                                                            
                                                            October
      8,201375,000
                                                            (5)
                                                            
                                                            
                                                            1.05
                                                            
                                                            October
      8,2008
                                                            
                                                            October
      8,2013




(1)
            Of
      these options, 100,000 will vest related to each respective fiscal year if
      the Company meets certain financial targets during fiscal fiscal
      2011.


(2)   Of
these options, 250,000 will vest related to each respective fiscal year if the
Company meets certain financial targets during
fiscal  2011.


(3)   Of
these options, 75,000 will vest in each October of , 2010, and
2011.


(4)   Of
these options, 75,000 will vest related to each respective fiscal year if the
Company meets certain financial targets during fiscal 2010 and fiscal
2011.




42




FISCAL
2010 DIRECTOR COMPENSATION





The
following table sets forth the compensation paid to our non-executive officer
directors in fiscal year 2010.  Mr. Barnett’s compensation is set
forth in the Fiscal 2010 Summary Compensation Table.





Name
                                
                                Fees
                                  Earned or
                                  Paid in
                                  Cash
                                  ($)
                                
                                
                                Stock
                                  Awards
                                  ($)
                                
                                
                                Option
                                  Awards
                                  ($) (1)
                                
                                
                                Non-Equity
                                  Incentive Plan
                                  Compensation
                                  ($)
                                
                                
                                All Other
                                  Compensation
                                  ($)
                                
                                
                                Total
                                  ($)Paul
      Basmajian
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Louis
      Bissette
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —John
      Capotorto, M.D.
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                426,315
                                (2)
                                
                                
                                426,315John
      DeNobile
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Phillip
      Forman, M.D.
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                458,400
                                (2)
                                
                                
                                458,400Douglas
      B. Trussler
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —





(1)
            As
      of June 30, 2010, Mr. Basmajian held 110,000 vested options that expire on
      July 18, 2012.


(2)
            Dr.
      Capotorto received $ 340,561 in salary, $10,754 in health benefit expense
      and $25,000 for a car allowance for his service as Co-Medical Director, a
      non-executive position; and Dr. Forman received $340,561 in salary, and
      $10,639 for health benefit expense and $57,200 for a car allowance for his
      service as Co-Medical Director, a non-executive officer
      position.  The employment agreements are described
      below.




Employment
Agreements for John Capotorto and Phillip Forman





We have
employment agreements with two of our directors who continue to serve as
non-executive officers of the Company.




On
December 1, 2005, our predecessor, American Hyperbaric, Inc., entered into
short-term and long-term employment agreements with Dr. Phillip Forman and Dr.
John Capotorto pursuant to which Dr. Forman agreed to serve as our Chief
Executive Officer and Dr. Capotorto agreed to serve as our Chairman and Medical
Director.  The term of the short-term agreements was four months,
commencing on December 1, 2005 and ending on April 1, 2006.  The term
of the long-term agreements is five years, commencing on April 1, 2006 and
ending on April 1, 2011.  Both the short-term and long-term agreements
are subject to earlier termination.  As of January 3, 2007, Dr. Forman
resigned as our Chief Executive Officer, although he remains a member of our
board of directors.




Under the
terms of the agreements, Doctors Forman and Capotorto received a base salary at
the rate of $150,000 per year during the term of the short-term agreements, and
will receive $300,000 per year during the term of the long-term
agreements.  In addition, Doctors Forman and Capotorto are eligible
for all employee benefits made available generally to other senior executive
officers, including participation in medical and life insurance programs and
profit sharing plans, and may lease or purchase an automobile at our expense,
provided such purchase or lease does not exceed $25,000 per year.




The
agreements provide that we may terminate the employment of Doctors Forman and
Capotorto for cause upon 15 days’ written notice. For the purpose of the
agreements, cause means (1) conviction for fraud or a felony; (2) embezzlement;
(3) willful and continued material failure to perform the duties and services
required under the employment agreements for a continued period of 45 days
following written notice thereof from us; or (4) the employee voluntarily
leaving our employ other than for good reason.  The employment
agreements also provide that we may terminate the employment of Dr. Forman or
Dr. Capotorto without cause, upon 30 days’ prior written notice to that
employee.  In addition, Dr. Forman or Dr. Capotorto may terminate his
own employment, upon prior written notice to us, for good reason.  For
the purpose of the agreements, good reason means (1) a material adverse
change in the employee’s title, responsibilities or assignment of duties
inconsistent with, or adverse to, his current duties; (2) any failure by us
to comply with the terms of the employment agreements; (3) any requirement
by us that the employee’s office be located more than 15 miles from his or her
current office; (4) any requirement that the employee travel in connection
with his duties to any location located more than 15 miles from his or her
current office location; or (5) 30 days following a material breach by us
of our obligations under the employment agreements that is not cured within 15
days following receipt of written notice from the employee specifying such
breach.




Upon a
change of control of our Company, if (1) an employee is terminated by us at
any time subsequent to a change of control, other than for cause; or (2) an
employee voluntarily terminates such employment within 180 days subsequent to a
change of control, then, in addition to any other amounts we may be obligated to
pay that employee, we agree to pay to the employee within 10 days after such
termination a lump sum payment in cash in an amount equal to 2.99 times the
employee’s base salary.  For purposes of the employment agreements, a
change of control occurs if (1) any person or group of persons becomes the
beneficial owner of more than 35% of our outstanding voting securities; or
(2) when individuals who are members of the board of directors at any one
time shall, within a period of 13 months thereafter, cease to constitute a
majority of the board of directors except where such change is approved by a
majority of such members of the board of directors who both are then serving as
such and were serving as such at the beginning of the period.




43





Each of
Doctors Forman and Capotorto is bound by a nondisclosure of confidential
information provision included in the employment agreements, pursuant to which
they may not disclose any confidential information about us, including our
financial condition, our products and services, and information concerning the
identity of individuals affiliated with us, during the term of his employment
and for a period of five years thereafter.  In addition, Doctors
Forman and Capotorto agree to abide by the provisions of the covenants not to
compete found in the employment agreements, pursuant to which they agree, during
the period of employment with us and for a period of three years thereafter, not
to engage as, among other things, an officer, director, employee, shareholder
(other than ownership of less than 5% of the issued and outstanding stock of a
public company) or consultant for any entity which is engaged in providing
services in competition with our business.




Under the
terms of the employment agreements, we agree to indemnify Dr. Forman and Dr.
Capotorto to the maximum extent permitted by law against all claims, judgments,
fines, penalties, liabilities, losses, costs and expenses (including reasonable
attorneys’ fees) arising from their position as executive officers, or from acts
or omissions made in the course of performing their duties for
us.  However, such indemnity does not apply to acts or omissions which
constitute willful misconduct, gross negligence, or which resulted in an
improper personal benefit for the employee.  In addition, we agree to
maintain directors’ and officers’ liability insurance on behalf of the
employees.




44




ITEM
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters:




The
following tables set forth certain information with respect to the beneficial
ownership of The Center for Wound Healing’s Common Stock as of October 12, 2010
by each director and named executive officer of the Company, all executive
officers and directors as a group, and each person known to the Company to own
beneficially more than 5% of the Common Stock.





(A)
            Security
      Ownership of Certain Beneficial
Owners





AMOUNT OF
                  
                  
                  PERCENTNAME AND ADDRESS OF BENEFICIAL OWNER
                  
                  OWNERSHIP (1)
                  
                  
                  OF CLASS (2)The
      Elise Trust
                    P.O.
      Box 562, Goldens Bridge, NY 10526
                  
                  
                  4,221,181
                  
                  
                  
                  17.5
                  %





(B)
            Security
      Ownership of Management





AMOUNT OF
                    
                    
                    PERCENTNAME OF BENEFICIAL
    OWNER
                    
                    OWNERSHIP (1) (2) (3)
                    
                    
                    OF CLASS (4)Andrew
      G. Barnett
                    
                    
                    1,036,450
                    
                    
                    
                    4.1
                    %Paul
      Basmajian
                    
                    
                    337,776
                    
                    
                    
                    1.3
                    %Peter
      Macdonald  (5)
                    
                    
                    7,941,926
                    
                    
                    
                    24.8
                    %John
      Capotorto, M.D.
                    
                    
                    4,242,266
                    
                    
                    
                    17.6
                    %John
      DeNobile
                    
                    
                    2,050,924
                    
                    
                    
                    8.5
                    %Phillip
      Forman, M.D.
                    
                    
                    3,894,682
                    
                    
                    
                    16.1
                    %Douglas
      B. Trussler (5)
                    
                    
                    7,941,926
                    
                    
                    
                    24.8
                    %David
      Walz
                    
                    
                    525,999
                    
                    
                    
                    2.16
                    %Directors
      and executive officers as a group (9 persons)
                    
                    
                    20,280,423
                    
                    
                    
                    60.0
                    %





(1)
Unless otherwise indicated, the address of each beneficial owner is c/o The
Center for Wound Healing, Inc., 155 White Plains Road, Suite 200, Tarrytown, NY
10591.





(2) Under
the rules of the Securities and Exchange Commission, a person is deemed to be
the beneficial owner of a security if that person, directly or indirectly has or
shares the powers to direct the voting of the security or the power to dispose
or direct the disposition of the security. Accordingly, more than one person may
be deemed to be a beneficial owner of the same securities.





(3)
Includes shares which may be acquired through stock options or warrants
exercisable through December 13, 2010 in the following amounts: Barnett -
950,000; Basmajian - 110,000; Walz - 435,000 and Jakolat – 250,000.





(4) Based
on 24,123,638 shares of Common Stock issued and outstanding as of October 11,
2010; 1,495,000 exercisable stock options; and 7,941,926 outstanding
warrants.





(5)  Includes
the following for which the named person has shares voting and investment power:
warrants held by Bison Capital Equity Partners II-A, L.P. to purchase a total of
526,153 shares of Common Stock at the initial exercise price of $5.00 per share
and warrants held by Bison Capital Equity Partners II-B, L.P. to purchase a
total of 7,415,773 shares of Common Stock at the initial exercise price of $5.00
per share.




Item
13. Principal Accountant Fees and Services:




Audit Fees:




The
following is a summary of the fees incurred or expected to be incurred by the
Company for professional services rendered by its principal accountants for
fiscal 2010 and 2009:


45





Year Ended June 30,2010
                  
                  
                  2009Audit
      fees(a)
                  
                  $
                  300,000
                  
                  
                  $
                  406,000Audit
      related fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      fees (b)
                  
                  $
                  93,000
                  
                  
                  
                  -All
      other(c)
                  
                  $
                  15,000
                  
                  
                  
                  -Total
                  
                  $
                  408,000
                  
                  
                  $
                  406,000





(a)
            Audit
      fees for the year ended June 30, 2009 include $116,000 for quarterly
      review services provided by our former principal accounting
      firm.


(b)
            Tax
      fees consist of tax compliance and tax planning services.  Such
      services aggregated approximately $133,000 for the year ended June 30,
      2009 and were provided by a firm other than our principal accounting
      firm.


(c)
            All
      other fees for the year ended June 30, 2010 consist of fees for the audit
      of the Company’s 401-k Plan.




Based on
the review and discussions referred to above, the Board approved the inclusion
of the audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K for its 2010 fiscal year for filing with the
SEC.





The Board
pre-approved all fees described above.





ITEM 14 Exhibits:




The
following exhibits are included as part of this Annual Report.





Exhibit No.
                                
                                Description of Exhibit3.1
                                
                                Amended
      and Restated Articles of Incorporation (incorporated by reference to
      Exhibit 3(i) to Form 10-K filed on April 10, 2008)3.2
                                
                                Amended
      and Restated By-Laws (incorporated by reference to Exhibit 3.1 to Form 8-
      filed on July 25, 2008)4.1
                                
                                Securities
      Purchase Agreement dated as of April 7, 2006 among the Company and the
      purchasers named therein with respect to $5.5 million principal amount of
      Debentures and Warrants to purchase common stock of the Company, including
      the form of Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 4.1 of Annual Report on Form10-KSB filed on September 25,
      2008)4.2
                                
                                Securities
      Purchase Agreement dated as of March 31, 2008 among the Company and Bison
      Capital Equity Partners II-A, L.P. and Bison Capital Equity Partners II-B,
      L.P. (“Bison”) (incorporated by reference to Exhibit 4.1 to Form 8-K filed
      on April 7, 2008)4.3
                                
                                15%
      Senior Secured Subordinated Promissory Note in the principal amount of $20
      million due March 31, 2013 (incorporated by reference to Exhibit 4.2 to
      the Current Report on Form 8-K filed on April 7, 2008)4.4
                                
                                Common
      Stock Warrant Agreement dated as of March 31, 2008 among the Company and
      Bison, and the related Series W-1 and W-2 Warrants (incorporated by
      reference to Exhibits 4.3, 4.4 and 4.5 to the Current Report on Form 8-K
      filed on April 7, 2008)4.5
                                
                                Registration
      Rights Agreement dated as of March 31, 2008 among the Company and Bison
      (incorporated by reference to Exhibit 4.6 to the Current Report on Form
      8-K filed on April 7, 2008)9.1
                                
                                Form
      of Voting Agreement dated as of March 31, 2008 among the Company, Bison
      and certain shareholders of the Company (incorporated by reference to
      Exhibit 4.7 to the Current Report on Form 8-K filed on April 7,
      2008)10.1*
                                
                                Employment
      Agreement between American Hyperbaric, Inc. and Dr. John Capotorto dated
      December 1, 2005 (incorporated by reference to Exhibit 10.4 to Form 10-QSB
      filed February 21, 2006)10.2*
                                
                                Employment
      Agreement between American Hyperbaric, Inc. and Dr. Phillip Forman dated
      December 1, 2005 (incorporated by reference to Exhibit 10.5 to Form 10-QSB
      filed February 21, 2006)10.3*
                                
                                Amended
      and Restated Employment Agreement between The Center for Wound Healing,
      Inc. and David Walz, executed December 2, 2008 (incorporated by reference
      to Exhibit 10.1 to Form 10-QSB filed December 2,
  2008)




46





10.4
      *
                                  
                                  Amended
      and Restated Employment Agreement between The Center for Wound Healing,
      Inc. and Andrew Barnett executed July 21, 2008 (incorporated by reference
      to Exhibit 10.5 of Annual Report on Form 10-KSB filed on September 25,
      2008)10.5*
                                  
                                  Employment
      Agreement dated July 1, 2001 between The Center  For Wound
      Healing, Inc., and Michael J. Jakolat (incorporated by reference to
      Exhibit 10.1 to Current Report on Form 80K filed on July 2,
      1010)10.6
                                  
                                  2006
      Stock Option Plan, as Amended and Restated July 21, 2008 (incorporated by
      reference to Exhibit 10.6 of Annual Report on Form 10-KSB filed on
      September 25, 2008)10.7
                                  
                                  Settlement
      Agreement between the Company and Keith Greenberg, Elise Greenberg, the
      Elise Trust, Raintree Development, LLC, JD Keith LLC and Braintree
      Properties LLC dated September 21, 2007 (incorporated by reference to
      Exhibit 10.7 of Annual Report on Form 10-KSB filed on September 25,
      2008)10.8
                                  
                                  Settlement
      Agreement between the Company and Med-Air Consultants, Inc., Alan Richer
      and Joel Macher dated August 9, 2007 (incorporated by reference to Exhibit
      10.8 of Annual Report on Form 10-KSB filed on September 25,
      2008)10.9
                                  
                                  Seventh
      Amendment to Amended and Restated Loan Agreement dated March 31, 2008 by
      and among the Company, certain borrowers named therein and Signature Bank
      (incorporated by reference to Exhibit 10.10 of Annual Report on Form
      10-KSB filed on September 25, 2008)10.10
                                  
                                  Eighth
      Amendment to Amended and Restated Loan Agreement dated December 18, 2008
      by and among the Company, certain borrowers named therein and Signature
      Bank (incorporated by reference to Exhibit 10.11 of Annual Report on Form
      10-K filed on October 13, 2009)10.11
                                  
                                  Waiver
      dated as of October 9, 2009, in respect of Amended and Restated Loan
      Agreement dated December 18, 2008 by and among the Company, certain
      borrowers named therein and Signature Bank (incorporated by reference to
      Exhibit 10.12  of Annual Report on Form 10-K filed on October
      13, 200910.12
                                  
                                  Waiver
      dated May 24, 2010 in respect of Amended and Restated Loan Agreement among
      the Company and its subsidiaries and Signature Bank (incorporated by
      reference to Exhibit 4.1 of Quarterly Report on Form 10-Q filed on May 26,
      2010).10.13
                                  
                                  Third
      Amendment to Securities Purchase Agreement dated May 24, 2010 between
      Bison Capital Equity Partners II-A, L.P. and Bison Capital Equity Partners
      II-B, L.P., and the Company (incorporated by reference to Exhibit 4. of
      Quarterly Report on Form 10-Q filed on May 26, 2010).10.14†
                                  
                                  First
      Amendment dated September 17, 2010, to Waiver and Forbearance Agreement
      between Bison Capital Equity Partners II-A, L.P., and Bison Capital Equity
      Partners II-B, L.P. and the Company.10.15†
                                  
                                  Fourth
      Amendment to Securities Purchase Agreement dated September 17, 2010
      between Bison Capital Equity Partners II-A, L.P.and Bison Capital Equity
      Partners II-B, L.P., a Delaware limited partnership and the
      Company.10.16†
                                  
                                  Second
      Amendment dated October 13, 2010, to Waiver and Forbearance Agreement
      between Bison Capital Equity Partners II-A, L.P., and Bison Capital Equity
      Partners II-B, L.P. and the Company.10.17†
                                  
                                  Fifth
      Amendment to Securities Purchase Agreement dated October 13, 2010, between
      Bison Capital Equity Partners II-A, L.P.and Bison Capital Equity Partners
      II-B, L.P., a Delaware limited partnership and the
  Company.10.18†
                                  
                                  Waiver
      and Ninth Amendment dated as of October 13, 2010, among the subsidiaries
      of the Company, the Company and Signature Bank.14.1
                                  
                                  Code
      of Ethics (incorporated by reference to Exhibit 99.1 to Form 10-K filed on
      September 24, 2004)21.1†
                                  
                                  Subsidiaries31.1†
                                  
                                  Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act.




47




31.2†
            
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act.32.1†
            
            Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.32.2†
            
            Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.





†  
Filed herewith




*  
Management contract


48





SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





Signature
                          
                          Title
                          
                          Date/s/
      Andrew G. Barnett
                          
                          Chief
      Executive Officer
                          
                          October
      13 , 2010Andrew
      G. Barnett




In
accordance with the requirements of the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:




Signature
                                                    
                                                    Title
                                                    
                                                    Date/s/
      Andrew G. Barnett
                                                    
                                                    Chief
      Executive Officer;
                                                    
                                                    October
      13, 2010Andrew
      G. Barnett
                                                    
                                                    Director/s/
      Michael J. Jakolat
                                                    
                                                    Chief
      Financial Officer;
                                                    
                                                    October
      13, 2010Michael
      J. Jakolat
                                                    
                                                    Chief
      Accounting Officer/s/
      Paul Basmajian
                                                    
                                                    Director
                                                    
                                                    October
      13, 2010Paul
      Basmajian/s/
      Dr. John Capotorto
                                                    
                                                    Director
                                                    
                                                    October
      13, 2010Dr.
      John Capotorto/s/
      John De Nobile
                                                    
                                                    Director
                                                    
                                                    October
      13, 2010John
      DeNobile/s/
      Dr. Phillip Forman
                                                    
                                                    Director
                                                    
                                                    October
      13, 2010Dr.
      Phillip Forman/s/Peter
      S. Macdonald
                                                    
                                                    Director
                                                    
                                                    October
      13, 2010Peter
      S. Macdonald/s/Douglas
      B. Trussler
                                                    
                                                    Director
                                                    
                                                    October
      13, 2010Douglas
      B. Trussler




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