##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-54064
 
 UNIVERSITY GENERAL HEALTH SYSTEM, INC.
   Nevada
    
    71-0822436(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)7501 Fannin Street, Houston, Texas
    
    77054(Address of principal executive offices)
    
    (Zip Code)
 (713) 375-7100
 SeaBridge Freight Corp.
 þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller Reporting company)
 o þ




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##### 



UNIVERSITY GENERAL HEALTH SYSTEM, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 2011
Table of Contents
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 4 Controls and Procedures
    
    
    50PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    51Item 1A. Risk Factors
    
    
    52Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    63Item 3. Defaults Upon Senior Securities
    
    
    63Item 4. (Removed and Reserved)
    
    
    63Item 5. Other Information
    
    
    63Item 6. Exhibits
    
    
    64SIGNATURES
    
    
    66Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 PAGEConsolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
    
    
    4Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (Unaudited)
    
    
    5Consolidated Statement of Shareholders Equity (Deficit) for the six months ended June 30, 2011 and 2010
(Unaudited)
    
    
    6Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8
  3




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##### Table of Contents



UNIVERSITY GENERAL HEALTH SYSTEM, INC.
 
 Consolidated Balance Sheets
 June 30,
    
    
    December 31,2011
    
    
    2010(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    200,003
    
    
    $
    2,291,754Accounts receivables, net
    
    
    15,260,711
    
    
    
    11,812,184Inventories
    
    
    1,994,793
    
    
    
    1,765,735Receivables from related parties
    
    
    621,860
    
    
    
    633,678Prepaid expenses and other assets
    
    
    457,875
    
    
    
    52,790Total current assets
    
    
    18,535,242
    
    
    
    16,556,141Investments in unconsolidated affiliates
    
    
    115,000
    
    
    
    Property and equipment, net
    
    
    63,861,625
    
    
    
    53,224,152Goodwill
    
    
    33,365,278
    
    
    
    Other assets
    
    
    908,275
    
    
    
    266,603Total assets
    
    $
    116,785,420
    
    
    $
    70,046,896LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilitiesAccounts payable
    
    $
    15,177,608
    
    
    $
    14,823,508Payables to related parties
    
    
    2,023,807
    
    
    
    4,714,951Accrued expenses
    
    
    8,385,719
    
    
    
    7,984,109Accrued acquisition cost
    
    
    1,407,546
    
    
    
    Payable to Internal Revenue Service
    
    
    3,329,091
    
    
    
    5,436,041Deferred revenue
    
    
    24,375
    
    
    
    Lines of credit
    
    
    8,450,000
    
    
    
    Notes payable, current portion
    
    
    18,870,115
    
    
    
    8,321,298Notes payable to related parties, current portion
    
    
    2,780,683
    
    
    
    4,027,650Capital lease obligations, current portion
    
    
    7,849,141
    
    
    
    11,591,999Capital lease obligation to related party, current portion
    
    
    218,067
    
    
    
    137,076Total current liabilities
    
    
    68,516,152
    
    
    
    57,036,632Lines of credit
    
    
    
    
    
    
    8,450,000Notes payable, less current portion
    
    
    14,136,174
    
    
    
    5,487,939Notes payable to related parties, less current portion
    
    
    2,144,062
    
    
    
    2,087,241Capital lease obligations, less current portion
    
    
    439,840
    
    
    
    532,805Capital lease obligation payable to related party, less current portion
    
    
    30,925,148
    
    
    
    31,042,859Total liabilities
    
    
    116,161,376
    
    
    
    104,637,476Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity (deficit)Preferred stock, $0.001 par value, 20,000,000 shares authorized,
3,000 shares issued and outstanding
    
    
    3
    
    
    
    3Common stock, $0.001 par value, 480,000,000 shares authorized;
274,895,895 and 151,498,884 shares issued and outstanding at June
30, 2011 and December 31, 2010, respectively
    
    
    274,896
    
    
    
    151,499Additional paid in capital
    
    
    46,177,453
    
    
    
    12,069,750Shareholders receivables
    
    
    (2,130,000
    )
    
    
    Accumulated deficit
    
    
    (47,479,336
    )
    
    
    (46,811,832
    )Total shareholders equity (deficit)
    
    
    (3,156,984
    )
    
    
    (34,590,580
    )Noncontrolling interest
    
    
    3,781,028
    
    
    
    Total equity (deficit)
    
    
    624,044
    
    
    
    (34,590,580
    )Total liabilities and shareholders equity (deficit)
    
    $
    116,785,420
    
    
    $
    70,046,896
   4




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##### Table of Contents



UNIVERSITY GENERAL HEALTH SYSTEM, INC.
 
 Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010RevenuesNet patient service revenues, net of contractual
adjustments
    
    $
    18,218,417
    
    
    $
    14,714,965
    
    
    $
    33,952,453
    
    
    $
    25,294,693Other revenues
    
    
    2,971
    
    
    
    4,031
    
    
    
    8,953
    
    
    
    30,224Total revenues
    
    
    18,221,388
    
    
    
    14,718,996
    
    
    
    33,961,406
    
    
    
    25,324,917Operating expensesSalaries, benefits, and other employee costs
    
    
    6,812,693
    
    
    
    4,668,054
    
    
    
    12,947,409
    
    
    
    9,019,346Medical supplies
    
    
    3,103,206
    
    
    
    2,953,307
    
    
    
    6,263,841
    
    
    
    5,718,867Management fees
    
    
    1,303,727
    
    
    
    685,922
    
    
    
    2,693,382
    
    
    
    1,159,747General and administrative expenses
    
    
    4,172,194
    
    
    
    2,988,608
    
    
    
    7,656,234
    
    
    
    5,808,818Bad debt expense
    
    
    334,347
    
    
    
    725,363
    
    
    
    625,150
    
    
    
    1,569,411Gain on extinguishment of liabilities
    
    
    (160,979
    )
    
    
    (735,978
    )
    
    
    (1,464,345
    )
    
    
    (1,723,136
    )Depreciation and amortization
    
    
    1,757,509
    
    
    
    1,739,934
    
    
    
    3,520,116
    
    
    
    3,482,224Total operating expenses
    
    
    17,322,697
    
    
    
    13,025,210
    
    
    
    32,241,787
    
    
    
    25,035,277Operating income
    
    
    898,691
    
    
    
    1,693,786
    
    
    
    1,719,619
    
    
    
    289,640Interest expense
    
    
    (1,045,427
    )
    
    
    (1,206,905
    )
    
    
    (2,225,123
    )
    
    
    (2,635,306
    )Income (loss) before income tax
    
    
    (146,736
    )
    
    
    486,881
    
    
    
    (505,504
    )
    
    
    (2,345,666
    )State income tax expense (benefit)
    
    
    81,000
    
    
    
    60,000
    
    
    
    162,000
    
    
    
    175,000Net income (loss)
    
    $
    (227,736
    )
    
    $
    426,881
    
    
    $
    (667,504
    )
    
    $
    (2,520,666
    )Net income (loss) per common share
 basic and dilutedNet income (loss) per common share
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    (0.00
    )
    
    $
    (0.03
    )Weighted average shares outstanding
    
    
    253,000,000
    
    
    
    91,132,160
    
    
    
    214,080,503
    
    
    
    91,132,160
   5




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UNIVERSITY GENERAL HEALTH SYSTEM, INC.
 
 Consolidated Statements of Shareholders Equity (Deficit)
 Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Subscriptions
    
    
    Accumulated
    
    
    Shareholders
    
    
    NoncontrollingShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Receivable
    
    
    Deficit
    
    
    Equity (Deficit)
    
    
    InterestBalance, December 31, 2010,
    
    
    3,000
    
    
    $
    3
    
    
    
    151,498,884
    
    
    $
    151,499
    
    
    $
    12,069,750
    
    
    $
    
    
    
    $
    (46,811,832
    )
    
    $
    (34,590,580
    )
    
    $
    Redemption of common stock
on January 2011
    
    
    
    
    
    
    
    
    
    
    (173,632
    )
    
    
    (174
    )
    
    
    (49,826
    )
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    Issuance of common stock
on February 2011
    
    
    
    
    
    
    
    
    
    
    56,388,831
    
    
    
    56,389
    
    
    
    7,193,611
    
    
    
    (130,000
    )
    
    
    
    
    
    
    7,120,000
    
    
    
    Issuance of common stock
on February 2011
    
    
    
    
    
    
    
    
    
    
    22,040,000
    
    
    
    22,040
    
    
    
    1,977,960
    
    
    
    (2,000,000
    )
    
    
    
    
    
    
    
    
    
    
    Exchange of debt for common stock on February 2011
    
    
    
    
    
    
    
    
    
    
    40,600,587
    
    
    
    40,601
    
    
    
    3,459,399
    
    
    
    
    
    
    
    
    
    
    
    3,500,000
    
    
    
    Issuance of common stock to affiliate for
termination of service agreement
    
    
    
    
    
    
    
    
    
    
    11,600,000
    
    
    
    11,600
    
    
    
    988,400
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    Exchange of profit interest for common stock on February 2011
    
    
    
    
    
    
    
    
    
    
    2,204,000
    
    
    
    2,204
    
    
    
    (2,204
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of Reverse Merge
    
    
    
    
    
    
    
    
    
    
    (31,158,670
    )
    
    
    (31,159
    )
    
    
    31,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss  3 months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (439,768
    )
    
    
    (439,768
    )
    
    
    March 31, 2011
    
    
    3,000
    
    
    
    3
    
    
    
    253,000,000
    
    
    
    253,000
    
    
    
    25,668,249
    
    
    $
    (2,130,000
    )
    
    
    (47,251,600
    )
    
    
    (23,460,348
    )
    
    
    Issuance of common stock for acquisitions
    
    
    
    
    
    
    
    
    
    
    21,895,895
    
    
    
    21,896
    
    
    
    20,509,204
    
    
    
    
    
    
    
    
    
    
    
    20,531,100
    
    
    
    (3,781,028
    )Net loss  3 months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (227,736
    )
    
    
    (227,736
    )
    
    
    June 30, 2011
    
    
    3,000
    
    
    $
    3
    
    
    
    274,895,895
    
    
    $
    274,896
    
    
    $
    46,177,453
    
    
    $
    (2,130,000
    )
    
    $
    (47,479,336
    )
    
    $
    (3,156,984
    )
    
    $
    (3,781,028
    )
   6




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##### Table of Contents



UNIVERSITY GENERAL HEALTH SYSTEM, INC.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Six Months EndedJune 30,2011
    
    
    2010Operating activitiesNet loss
    
    $
    (667,504
    )
    
    $
    (2,520,666
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Bad debt expense
    
    
    625,150
    
    
    
    1,569,411Depreciation and amortization
    
    
    3,520,116
    
    
    
    3,482,224Loss (gain) on disposal of property and equipment
    
    
    
    
    
    
    Gain on extinguishment of liabilities
    
    
    (1,464,345
    )
    
    
    (1,723,136
    )Net changes in other operating assets and liabilities:Accounts receivable
    
    
    (3,483,770
    )
    
    
    (329,980
    )Related party receivables and payables
    
    
    24,653
    
    
    
    (3,227,711
    )Inventories
    
    
    (229,058
    )
    
    
    10,888Prepaid expenses and other assets
    
    
    (105,114
    )
    
    
    (99,567
    )Accounts payable, accrued expenses, and payable to Internal Revenue Service
    
    
    (2,370,311
    )
    
    
    4,787,517Net cash provided by (used in) operating activities
    
    
    (4,150,183
    )
    
    
    1,948,981Investing activitiesPurchase of property and equipment
    
    
    (368,012
    )
    
    
    (206,268
    )Business acquisitions, net of cash acquired
    
    
    198,526
    
    
    
    Investments in unconsolidated affiliates
    
    
    (115,000
    )
    
    
    Net cash used in investing activities
    
    
    (284,486
    )
    
    
    (206,268
    )Financing activitiesRedemption of common stock
    
    
    (50,000
    )
    
    
    Issuance of common stock
    
    
    7,120,000
    
    
    
    Borrowings under notes payable
    
    
    3,500
    
    
    
    Payments on notes payable
    
    
    (2,387,893
    )
    
    
    (288
    )Borrowings under notes payable to related party
    
    
    3,428,250
    
    
    
    2,202,592Payments on notes payable to related party
    
    
    (1,898,396
    )
    
    
    (2,615,000
    )Repayment of capital lease obligation
    
    
    (3,835,823
    )
    
    
    (1,154,959
    )Payments on capital lease obligation to related party
    
    
    (36,720
    )
    
    
    (34,534
    )Net cash provided by (used in) financing activities
    
    
    2,342,918
    
    
    
    (1,602,189
    )Net increase (decrease) in cash and cash equivalents
    
    
    (2,091,751
    )
    
    
    140,524Cash and cash equivalents at beginning of period
    
    
    2,291,754
    
    
    
    1,640Cash and cash equivalents at end of period
    
    $
    200,003
    
    
    $
    142,164Supplemental disclosure of cash flow informationInterest paid
    
    $
    538,718
    
    
    $
    297,652Taxes paid
    
    $
    4,828,470
    
    
    $
    495,740Supplemental noncash financing activitiesExchange of debt for common stock on February 2011
    
    $
    3,500,000
    
    
    $
    Issuance of common stock on February 2011
    
    $
    2,130,000
    
    
    $
    Issuance of common stock to affiliate for termination of service agreement
    
    $
    1,000,000
    
    
    $
    Noncash consideration paid for acquisitions
    
    $
    24,753,735
    
    
    $
    
   7




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##### Table of Contents



University General Health System, Inc.
(f/k/a SeaBridge Freight, Corp.)
 
 Notes to the Consolidated Financial Statements (unaudited)
         8




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##### Table of Contents



University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
     Basis of Presentation
   Use of Estimates
  Cash and Cash Equivalents
   9




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##### Table of Contents



University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Accounts Receivable
  June 30,
    
    
    December 31,2011
    
    
    2010Commercial and managed care providers
    
    
    63
    %
    
    
    67
    %Government-related programs
    
    
    34
    %
    
    
    31
    %Self-pay patients
    
    
    3
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
  Related Parties Receivables
  Inventories
   10




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Property and Equipment
  Estimated Lifein YearsBuildings
    
    
    40Machinery and Equipment
    
    
    3 to 15Leasehold improvement
    
    
    5 to 30Computer equipment and software
    
    
    5
 Impairment of Long-lived Assets
   11




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##### Table of Contents



University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Fair Value Measurements
   Revenue Recognition
    Concentration of Credit Risk
   12




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Income Taxes
  Earnings (Losses) Per Share Information
  Cost Method Investments in Nonconsolidated Affiliates
   Non-controlling Interests in Consolidated Affiliates
  Business Combinations
   13




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##### Table of Contents



University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Segment Information
  Commitments and Contingencies
   Subsequent Events
  Recent Accounting Pronouncements
   14




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
          15




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University General Health System, Inc.
(f/k/a SeaBridge Freight, Corp.)
Notes to the Consolidated Financial Statements (unaudited)
  (in thousands)Current assets
    
    $
    743Property and equipment
    
    
    13,697Other noncurrent assets
    
    
    642Accounts payable and accrued expenses
    
    
    (1,450
    )Deferred revenue
    
    
    (24
    )Notes payable, short term portion
    
    
    (114
    )Notes payable, less short term
    
    
    (18,692
    )Goodwill
    
    
    25,453Total fair value of net assets acquired
    
    
    20,255Less: goodwill attributable to non-controlling interest
    
    
    (3,781
    )Total purchase consideration
    
    $
    16,474
   Autimis
    16




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##### Table of Contents



University General Health System, Inc.
(f/k/a SeaBridge Freight, Corp.)
Notes to the Consolidated Financial Statements (unaudited) (Restated)
  (in thousands)Current assets
    
    $
    345Property and equipment
    
    
    93Accounts payable and accrued expenses
    
    
    (70
    )Goodwill
    
    
    7,912Total purchase consideration
    
    $
    8,280
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Revenue
    
    $
    20,812,083
    
    
    $
    16,434,877
    
    
    $
    38,800,668
    
    
    $
    28,786,503Income from operations
    
    
    1,395,078
    
    
    
    1,684,771
    
    
    
    2,584,040
    
    
    
    274,623Net income (loss)
    
    
    (126,881
    )
    
    
    215,437
    
    
    
    (465,841
    )
    
    
    (2,922,856
    )
  17




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##### Table of Contents



University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
    (i)
    
    Hospital.The Company provides a full array of services including inpatient and
outpatient medical treatments and surgeries, heart catheterization procedures, physical
therapy, diagnostic imaging and respiratory therapy, as well as other ancillary services.
The Company also provides 24-7 emergency services and comprehensive inpatient services
including critical care and cardiovascular services.
 (ii)
    
    Senior Living.Senior living communities offer housing and 24-hour assistance with
activities of daily life to mid-acuity frail and elderly residents. The Company also
operates memory care services specially designed for residents with Alzheimers disease and
progressive dementia.
 (iii)
    
    Revenue Management.The Company provides billing, coding and other revenue cycling
management services to University General Hospital, our 72 bed acute care hospital in
Houston, as well as other clients not affiliated with the Company.
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010RevenuesHospital
    
    $
    18,211,388
    
    
    $
    14,718,996
    
    
    $
    33,961,406
    
    
    $
    25,324,917Senior living
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revenue management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    $
    18,211,388
    
    
    
    14,718,996
    
    
    
    33,961,406
    
    
    
    25,324,917Operating incomeHospital
    
    $
    898,691
    
    
    $
    1,693,786
    
    
    $
    1,719,619
    
    
    $
    289,641Senior living
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revenue management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Intersegment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating income
    
    $
    898,691
    
    
    $
    1,693,786
    
    
    $
    1,719,619
    
    
    $
    289,641
  18




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  June 30,
    
    
    December 31,2011
    
    
    2010Total assetsHospital
    
    $
    67,899,012
    
    
    $
    70,046,896Senior living
    
    
    40,536,817
    
    
    
    Revenue management
    
    
    8,349,591
    
    
    
    Total assets
    
    $
    116,785,420
    
    
    $
    70,046,896
   June 30,
    
    
    December 31,2011
    
    
    2010Land
    
    $
    1,105,000
    
    
    $
    Buildings
    
    
    38,256,034
    
    
    
    27,406,478Machinery and equipment
    
    
    31,148,424
    
    
    
    29,439,203Leasehold improvements
    
    
    21,677,439
    
    
    
    21,348,505Computer equipment and software
    
    
    3,658,143
    
    
    
    3,493,26595,845,040
    
    
    
    81,687,451Less accumulated depreciation and amortization
    
    
    (31,983,415
    )
    
    
    (28,463,299
    )$
    63,861,625
    
    
    $
    53,224,152
  19




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Lines of Credit
    Notes Payable
  June 30,
    
    
    December 31,2011
    
    
    2010Note payable to a financial institution due January 15, 2012, monthly principal
payments of $150,000 for January 2011 to June 2011, and $200,000 for July 2011
to January 2012 with interest at 6%
    
    $
    6,300,000
    
    
    $
    7,200,000Notes payable to a financial institution guaranteed by shareholders, due April 4, 2011,
interest at 7%
    
    
    1,629,925
    
    
    
    2,561,623Note payable to a financial institution due on demand, with interest at prime (3.25%
at June 30, 2010 and December 31, 2010)
    
    
    982,079
    
    
    
    982,079Notes payable to a financial institution due on September 30, 2009, with interest at
LIBOR plus 2.25%5.25% at June 30, 2011 and 5.25% at December 31, 2010)
    
    
    1,452,421
    
    
    
    1,604,063Note payable to individuals due on demand, interest at 15%
    
    
    180,000
    
    
    
    300,000Notes payable to Medicare, interest at 11% due October 1, 2013
    
    
    429,014
    
    
    
    507,295Notes payable due on demand guaranteed by shareholders, with 0% -6.25% interest
    
    
    191,405
    
    
    
    403,482Non-interest bearing note payable due on demand to a shareholderNote was paid in full in January, 2011
    
    
    
    
    
    
    250,695Non-interest bearing note payable to an individual due June 30, 2012
    
    
    220,000
    
    
    
    Total debt
    
    
    11,384,844
    
    
    
    13,809,237Less: current portion
    
    
    (11,126,291
    )
    
    
    (8,321,298
    )Total debt, less current portion
    
    $
    258,553
    
    
    $
    5,487,939
  20




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
       Year ending June 30,Fiscal 2012
    
    $
    11,126,291Fiscal 2013
    
    
    129,277Fiscal 2014
    
    
    129,276Total
    
    $
    11,384,844
  Notes payable assumed from TrinityCare
  Line of Credit with total line of $80,000
    
    
    (1
    )
    
    $
    76,813Mortgage payable  UGHS Knoxville
    
    
    (2
    )
    
    
    5,833,390Mortgage payable  UGHS Pearland
    
    
    (3
    )
    
    
    6,210,113Mortgage payable  UGHS Port Lavaca
    
    
    (4
    )
    
    
    5,375,425Mortgage payable  TrinityCare LLC
    
    
    (5
    )
    
    
    45,054Other
    
    
    (6
    )
    
    
    380,012UGHS of Knoxville
    
    
    (7
    )
    
    
    200,000UGHS of Port Lavaca
    
    
    (7
    )
    
    
    200,000TrinityCare LLC, guaranteed by shareholder
    
    
    (8
    )
    
    
    485,520Subordinated promissory notes
    
    
    (9
    )
    
    
    2,815,118Total
    
    
    
    
    
    
    21,621,445Less current portion
    
    
    
    
    
    
    7,743,824Total Long-Term Debt assumed from TrinityCare
    
    
    
    
    
    $
    13,877,621
 Notes to debt instruments:
 (1)
    
    Line of credit with Wells Fargo Bank bearing interest at Prime plus 7.25% expiring September, 2009.(2)
    
    Note payable due Citizens National Bank of Sevierville bearing interest at 7% and due on July 13, 2013.(3)
    
    Note payable due Davis-Penn Mortgage Co. bearing interest at 5.75% and due on June 1, 2043.(4)
    
    Interest only note payable due Trustmark National Bank bearing interest at 2.75% above LIBOR and due on June
30, 2009. The Company has an option to extend this note for an additional 42 months said extension to be
amortized over 25 years.(5)
    
    Note payable to Citizens National Bank of Sevierville bearing interest at 6.95% and due on November 11, 2011.(6)
    
    Various notes payable, bearing interest at various rates and due on various dates beginning in 2011.(7)
    
    Note payable to individual bearing interest of 10% and due on December 31, 2012.(8)
    
    Note payable to Founders Bank bearing interest of 1% over Prime with a minimum of 6.50% due July 31, 2010,
guaranteed by a shareholder.(9)
    
    Subordinated promissory notes issued in connection with TrinityCare acquisition (see Note 5).  21




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
 Future maturities of notes payable assumed from TrinityCare are as follows:
 Fiscal year endedJune 30,Long-term debt maturities2012
    
    $
    7,743,8242013
    
    
    2,140,0442014
    
    
    5,300,5952015
    
    
    80,2452016
    
    
    87,456Thereafter
    
    
    6,269,281$
    21,621,445
  Capital Leases
  Related Party
    
    
    Third PartyLease
    
    
    Leases2012
    
    $
    1,148,159
    
    
    $
    8,548,5232013
    
    
    2,323,333
    
    
    
    221,9372014
    
    
    2,323,333
    
    
    
    53,4722015
    
    
    2,323,333
    
    
    
    2016
    
    
    2,323,333
    
    
    
    Thereafter
    
    
    57,212,744
    
    
    
    Total minimum lease payments
    
    $
    67,654,235
    
    
    $
    8,823,932Less amounts representing interest
    
    
    36,511,020
    
    
    
    534,951Present value of minimum lease payments
    
    
    31,143,215
    
    
    
    8,288,981Less current portion
    
    
    218,067
    
    
    
    7,849,141Long term portion
    
    $
    30,925,148
    
    
    $
    439,840
    22




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Operating Leases
  Fiscal 2012
    
    $
    131,456Fiscal 2013
    
    
    141,440Fiscal 2014
    
    
    151,424Fiscal 2015
    
    
    106,496Total
    
    
    530,816
  Litigation
  Prexus
    23




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Siemens
     Internal Revenue Service Audit
  Employee Benefit Plans
  Management Service Agreements
 Kingwood Neighborhood Emergency Center
     24




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
    Common Stock Offerings
     25




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Debt Exchange Agreements
  Issuance of Common Stock to Affiliate for Termination of Service Agreement
   Issuance of Common Stock in connection with the Trinity Care acquisition
  Issuance of Common Stock in connection with the Autimis acquisition
  Exchange of Profit Interest for Common Stock
   26




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
      Related Party Capital Lease Obligation
     27




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Management Services Agreements
    Food Services, Plant Operations & Management, Environmental, and Other Services Agreement
     28




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University General Health System, Inc.
(f/k/a SeaBridge Freight, Corp.)
Notes to the Consolidated Financial Statements (unaudited)
  Other Related Party Transactions
     Receivables from Related Parties
  June 30,
    
    
    December 31,2011
    
    
    2010Receivable
from former executive of UGH GP
    
    $
    438,820
    
    
    $
    438,820Receivable from Chief Executive Officer
    
    
    
    
    
    
    24,518Receivable from other related party entities
    
    
    58,641
    
    
    
    Receivable from Cambridge
    
    
    124,399
    
    
    
    170,340$
    621,860
    
    
    $
    633,678
 Payables to Related Parties
  June 30,
    
    
    December 31,2011
    
    
    2010Payable to APS
    
    $
    
    
    
    $
    2,649,711Payable to ASA
    
    
    110,098
    
    
    
    332,074Payable to USS
    
    
    17,048
    
    
    
    16,843Payable to Autimis
    
    
    173,069
    
    
    
    27,800Interest on notes payable to shareholders
    
    
    1,238,444
    
    
    
    1,248,118Payable to SYBARIS
    
    
    485,148
    
    
    
    364,725Payable to other related party entities
    
    
    
    
    
    
    75,680$
    2,023,807
    
    
    $
    4,714,951
  29




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Notes Payable to Related Parties
  June 30,
    
    
    December 31,2011
    
    
    2010UGH GP note payable to a shareholder, payable on demand, bearing interest at 10%
    
    $
    1,923,000
    
    
    $
    1,923,000UGH LP subordinated promissory notes payable to shareholders, payable in 2028,
bearing interest at 15%
    
    
    700,000
    
    
    
    800,000UGH LP non-interest bearing notes payable to shareholders, payable on demand
    
    
    233,500
    
    
    
    482,461UGH LP note payable to shareholder, payable in $20,000 monthly installments
through 2017, bearing interest at 2.43%, maturing in 2017
    
    
    425,000
    
    
    
    UGH LP note payable to a shareholder, payable in $20,000 monthly installments
through 2017, interest imputed at 2.88%, with a discount of $112,791 and
$152,984 at June 30, 2011 and December 31, 2010, respectively, and principal
owed of $1,520,000 and $1,640,000 at June 30, 2011 and December 31, 2010,
respectively
    
    
    1,407,209
    
    
    
    1,487,016UGH LP various notes payable to shareholders, payable on demand, bearing
interest at 4.25% - 10%
    
    
    236,036
    
    
    
    1,422,414Total notes payable to related parties
    
    
    4,924,745
    
    
    
    6,114,891Less: current portion
    
    
    (2,780,683
    )
    
    
    (4,027,650
    )Notes payable to related parties, less current portion
    
    $
    2,144,062
    
    
    $
    2,087,241
  Year ending June 30,2012
    
    $
    2,780,6832013
    
    
    385,6082014
    
    
    366,6122015
    
    
    217,1912016
    
    
    224,150Thereafter
    
    
    950,501Total
    
    $
    4,924,745
  30




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University General Health System, Inc.
Notes to the Consolidated Financial Statements (unaudited)
  Related Party Costs and Expenses
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Interest expense
    
    $
    631,493
    
    
    $
    635,180
    
    
    $
    1,288,381
    
    
    $
    1,299,607Management fees
    
    
    
    
    
    
    685,922
    
    
    
    461,814
    
    
    
    1,159,747General and administrative
    
    
    1,621,953
    
    
    
    1,376,262
    
    
    
    3,369,262
    
    
    
    2,842,122Amortization expense
    
    
    171,290
    
    
    
    171,290
    
    
    
    342,580
    
    
    
    342,580$
    2,424,736
    
    
    $
    2,868,654
    
    
    $
    5,462,037
    
    
    $
    5,644,056
  31




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Forward-Looking Statements
  
    
    risks related to environmental laws and regulations and environmental risks;
    
    risks related to changes in and the competitive nature of the healthcare industry;
    
    risks related to stock price and volume volatility;
    
    risks related to our ability to access capital markets;
    
    risks related to our ability to successfully implement our business and acquisition strategies;
    
    risks related to our issuance of additional shares of common stock.
   32




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Nature of Business
      Merger Transaction
      33




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Plan of Operation
   
    
    University General Hospital, which is a 72-bed general acute care hospital near Texas Medical Center in Houston, Texas.
    
    A hyberbaric wound care center as an HOPD of University
General Hospital doing business under the name University
General Hospital -Hyperbaric Wound Care Center.
    
    A free-standing emergency room as an HOPD of University
General Hospital doing business under the name EliteCare
Emergency Center
    
    A free-standing emergency room as an HOPD of University
General Hospital doing business under the name Neighborhood
Emergency Center
    
    Mainland Surgery Center, which is an ambulatory surgery
center in Dickinson, Texas, located approximately 25 miles
from University General Hospital.
    
    Trinity Oaks senior living community in Pearland, Texas, which is an 80 unit senior
living community providing independent living and assisted living services since 2001.
    
    Trinity Shores senior living community in Port Lavaca, Texas, which is a 63 unit
senior living community providing independent living, assisted living and memory care
services since 2007.
    
    Trinity Hills senior living community in Knoxville, Tennessee, which is an 87 unit
senior living community providing independent living, assisted living and memory care
services since 2007.
    
    Autimis Billing, which is a revenue cycle management company that specializes in
serving hospitals, ambulatory surgery centers, outpatient laboratories and free-standing
outpatient emergency rooms.
    
    Autimis Coding, which is a specialized health care coding company that serves
hospitals, ambulatory surgery centers, outpatient laboratories and free-standing
outpatient emergency rooms.
    34




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##### Table of Contents



University General Hospital
  Recent Developments
 Kingwood Neighborhood Emergency Center
   Mainland Surgery Center
   Trinity Care Senior Living
    35




---



##### Table of Contents



Autimis Acquisitions
   Regulatory Matters
   Licensure and Certification
     36




---



##### Table of Contents



False Claims
  Relationships with Physicians and Other Providers
 Anti-Kickback Law.
      37




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##### Table of Contents



Physician Self-Referral Law.
       38




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##### Table of Contents



HIPAA
        39




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##### Table of Contents



Health Reform Legislation
        40




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##### Table of Contents



Medicare and Medicaid Participation
     Texas Statutory and Regulatory Risks
 Illegal Remuneration Law
  41




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##### Table of Contents



Medicaid Fraud.
 Other Texas Statutes .
  Results of Operations
  (A)
    
    A discussion of the results of operations for University General
Hospital (UGH) for the three and six months ended June 30, 2011, as
compared to the three and six months ended June 30, 2010; and
 (B)
    
    A discussion of the results of operations for our senior living care
communities and revenue cycle management companies for the three and
six months ended June 30, 2011, as compared to the three and six
months ended June 30, 2010;
 (A) Results of Operation  Hospital
      42




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43




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##### Table of Contents



(B) Results of Operation  Senior Living and Revenue Management
   44




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##### Table of Contents



Liquidity and Capital Resources
      Off-Balance Sheet Arrangements
   45




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Critical Accounting Policies
   Business Combinations
  Revenue Recognition
     46




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Allowance for Doubtful Accounts
    June 30,
    
    
    December 31,2011
    
    
    2010Government payors and insured receivables
    
    
    97
    %
    
    
    98
    %Self-pay receivables (including deductible and co-payments)
    
    
    3
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
  47




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##### Table of Contents



Long-lived Assets
  Income Taxes
     48




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##### Table of Contents



Uncertain Tax Positions
  Assessment of Loss Contingencies
   Recent Accounting Pronouncements
   49




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls Procedures
   Changes in internal controls over financial reporting
  Officers Certifications
   50




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
   51




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ITEM 1A.
    
    RISK FACTORS
  Risks related to our business and industry
 Our significant leverage could adversely affect our ability to raise additional capital to fund our
operations, limit our ability to react to changes in the economy or our industry, expose us to
interest rate risk and prevent us from meeting our obligations
  
    
    a substantial amount of our cash flow from operations must
be dedicated to the payment of lease payments and interest
on our indebtedness and will not be available for other
purposes;
    
    covenants contained in our debt obligations requires us to
meet certain financial tests and retain minimum cash
balances, in addition to certain other restrictions that
will limit our ability to borrow additional funds or
dispose of our assets and may affect our flexibility in
planning for, and reacting to, changes in our business;
    
    our ability to obtain permanent and additional financing
for working capital, capital expenditures, or general
corporate purposes may be impaired;
    
    our vulnerability to downturns or adverse changes in
general economic, industry or competitive conditions and
adverse changes in government regulations is increased;
    
    our risk of exposure to interest rate fluctuations is increased;
    
    our ability to make strategic acquisitions may be limited; and
    
    our ability to adjust to changing market conditions may be constrained.
 We may not be able to generate sufficient cash to service all of our indebtedness and may not be
able to refinance our indebtedness on favorable terms. If we are unable to do so, we may be forced
to take other actions to satisfy our obligations under our indebtedness, which may not be
successful.
   52




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We may not be able to obtain additional capital, when desired, on favorable terms, without dilution
to our shareholders or at all.
   If we are unable to enter into and retain managed care contractual arrangements on acceptable
terms, if we experience material reductions in the contracted rates we receive from managed care
payers or if we have difficulty collecting from health maintenance organizations, preferred
provider organizations, and other third party payors, our results of operations could be adversely
affected.
    53




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##### Table of Contents



We cannot predict with certainty the effect that the Affordable Care Act may have on our business,
financial condition, results of operations or cash flows
  .
 Our business and financial results could be harmed by violations of existing regulations or
compliance with new or changed regulations.
   54




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##### Table of Contents



.
          55




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##### Table of Contents



If we fail to implement and maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.
  Future acquisitions may adversely affect our financial condition and results of operations.
  
    
    difficulties integrating the acquired business;
    
    unanticipated costs, capital expenditures or liabilities;
    
    diversion of financial and management resources from our existing business;
    
    difficulties integrating acquired business relationships with our existing business relationships;
    
    risks associated with entering markets in which we have little or no prior experience; and
    
    potential loss of key employees, particularly those of the acquired organizations.
  The profitability of our business may be affected by highly competitive healthcare industry.
   56




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Certain events may adversely affect the ability of seniors to afford our monthly resident fees or
entrance fees (including downturns in the economy, housing market, and unemployment among resident
family members), which could cause our occupancy rates, revenues and results of operations of our
Senior Care segment to decline.
  The inability of seniors to sell real estate may delay their moving into our senior living care
communities, which could negatively impact our occupancy rates, revenues, cash flows and results of
operations.
   57




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##### Table of Contents



Our liability insurance may not be sufficient to cover all potential liability.
       We depend on relationships with the physicians who use our hospital.
    58




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##### Table of Contents



:
 
    
    terminates their relationship with, or reduces their use of our hospital;
    
    fails to maintain the quality of care provided or to
otherwise adhere to professional standards at our hospital;
suffers any damage to their reputation;
    
    exits the Houston, Texas market entirely;
    
    experiences major changes in the composition or leadership of the physician group; or
    
    elects to join a competing hospital systems as an employee.
  A nationwide shortage of qualified nurses could affect our ability to grow and deliver quality,
cost-effective services.
   We are subject to liabilities from claims by various taxing authorities.
   59




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##### Table of Contents



We do not own the land on which our primary hospital is located and, as such, are subject to a
Lease Agreement with Cambridge Properties and various risks related to such lease arrangement
  We are subject to various licensure requirements
   We are subject to various environmental regulations
   60




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Risks Related to Our Common Stock
 An active, liquid trading market for our common stock may not develop.
  Our stock price may be volatile.
    Our principal shareholders, executive officers and directors own a significant percentage of our
common stock and will continue to have significant control of our management and affairs, and they
can take actions that may be against your best interests.
     61




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Our stock price could decline due to the large number of outstanding shares of our common
stock eligible for future sale
    Investors may face significant restrictions on the resale of our common stock due to federal
regulations of penny stocks.
    62




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##### Table of Contents



We currently do not intend to pay dividends on our common stock and, consequently, your only
opportunity to achieve a return on your investment is if the price of our common stock appreciates.
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 ITEM 5.
    
    OTHER INFORMATION
   63




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ITEM 6.
    
    EXHIBITS
  
    
    should not in all instances be treated as categorical statements of
fact, but rather as a way of allocating the risk to one of the parties
if those statements prove to be inaccurate;
    
    have been qualified by disclosures that were made to the other party
in connection with the negotiation of the applicable agreement, which
disclosures are not necessarily reflected in the agreement;
    
    may apply standards of materiality in a way that is different from
what may be viewed as material to you or other investors; and
    
    were made only as of the date of the applicable agreement or such
other date or dates as may be specified in the agreement and are
subject to more recent developments.
   64




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##### Table of Contents



ExhibitNo.
    
    Description10.1
    
    
    Asset Acquisition Agreement dated June 28, 2011 for the acquisition
of TrinityCare-Pearland. (incorporated by reference as Exhibit 2.1 to
the Companys Form 8-K filed July 1, 2011)10.2
    
    
    Asset Acquisition Agreement dated June 28, 2011 for the acquisition
of TrinityCare-Port Lavaca (incorporated by reference as Exhibit 2.2
to the Companys Form 8-K filed July 1, 2011)10.3
    
    
    Asset Acquisition Agreement dated June 28, 2011 for the acquisition
of TrinityCare-Knoxville (incorporated by reference as Exhibit 2.3 to
the Companys Form 8-K filed July 1, 2011)10.4
    
    
    Purchase and Sale Agreement dated June 28,2011 for the acquisition of
TrinityCare (incorporated by reference as Exhibit 2.4 to the
Companys Form 8-K filed July 1, 2011)10.5
    
    
    Asset Acquisition Agreement dated June 30, 2011 for the acquisition
of Autimis Billing (incorporated by reference as Exhibit 2.5 to the
Companys Form 8-K filed July 1, 2011)10.6
    
    
    Asset Acquisition Agreement dated June 30, 2011 for the acquisition
of Autimis Coding (incorporated by reference as Exhibit 2.6 to the
Companys Form 8-K filed July 1, 2011)31.1
    *
    
    Rule 13a-14(a)/15d-14(a) Certification, executed by Hassan Chahadeh,
Chairman of the Board of Directors, Chief Executive Officer and
President of University General Health System Inc.31.2
    *
    
    Rule 13a-14(a)/15d-14(a) Certification, executed by Michael L.
Griffin, Chief Financial Officer of University General Health System
Inc32.1
    *§
    
    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18
U.S.C. Section 1350), executed by Hassan Chahadeh, Chairman of the
Board of Directors and Chief Executive Officer of University General
Health System, Inc., and by Michael L. Griffin, Chief Financial
Officer of University General Health System, Inc.
 *
    
    Filed herewith§
    
    This certification is being furnished and shall not be deemed filed with the SEC for purposes
of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall
not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it
by reference.  65




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##### Table of Contents



SIGNATURES
  UNIVERSITY GENERAL HEALTH SYSTEM, INC.Dated:  August 15, 2011
    By:
    /s/ Hassan ChahadehName:
    Hassan Chahadeh, M.D.Title:
    Chief Executive OfficerDated:  August 15, 2011
    By:
    /s/ Michael L. GriffinName:
    Mr. Michael L. GriffinTitle:
    Chief Financial Officer  66