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EX-5.1 - OPINION OF ANSLOW & JACLIN, LLP - AMERICAN SURGICAL HOLDINGS INC | fs11209ex5i_asah.htm |
EX-23.1 - CONSENT OF WEBB & COMPANY P.A. - AMERICAN SURGICAL HOLDINGS INC | fs11209ex23i_asah.htm |
SECURITIES
AND EXCHANGE COMMISSION
==================================
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
==================================
AMERICAN
SURGICAL HOLDINGS, INC.
(Exact
Name of Registrant in its Charter)
DELAWARE
|
98-0403551
|
|||
(State
of Incorporation)
|
(Primary
Standard Classification Code)
|
(IRS
Employer ID No.)
|
||
AMERICAN
SURGICAL HOLDINGS, INC.
10039
BISSONET, SUITE #250
HOUSTON,
TX 77036-7852
Tel.:
(713) 779-9800
(Address
and Telephone Number of Registrant’s Principal
Executive
Offices and Principal Place of Business)
(Name,
Address and Telephone Number of Agent for Service)
Copies of
communications to:
Gregg
E. Jaclin, Esq.
Anslow
& Jaclin, LLP
195
Route 9 South, Suite 204
Manalapan,
NJ 07726
Tel.
No.: (732) 409-1212
Fax
No.: (732) 577-1188
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective. If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box.
x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act registration Statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
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
|
o
|
Accelerated
filer
|
o
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class Of Securities to be Registered
|
Amount
to be
Registered
|
Proposed
Maximum
Aggregate
Offering
Price
per
share
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
of Registration
fee
|
||||||||||||
Common
Stock, $0.001 par value per share
|
3,060,500
|
$
|
2.81
|
$
|
8,600,005
|
$
|
613.18
|
(1) This
Registration Statement covers the resale by our selling shareholders of up to
3,060,500 shares of common stock issuable to such selling shareholders upon
exercise of warrants purchased by the selling shareholders on July 2,
2007.
(2) The
offering price has been estimated solely for the purpose of computing the amount
of the registration fee in accordance with Rule 457(c) under the Securities Act
of 1933, based on the closing price of $2.81 on the OTC Bulletin Board on
December 10, 2009.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to such Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is not
permitted.
Subject
to completion, dated December 22, 2009
PROSPECTUS
AMERICAN
SURGICAL HOLDINGS, INC.
3,060,500 SHARES OF COMMON STOCK
This
prospectus relates to 3,060,500 shares of common stock of American Surgical
Holdings, Inc. that may be sold from time to time by the selling shareholders
named in this prospectus. We will not receive any proceeds from the
sale of the common stock covered by this prospectus, but we will receive
funds from the exercise of the warrants held by the selling shareholders if
those warrants are exercised for cash. We will utilize any proceeds from the
exercise of such warrants for general corporate and working capital
purposes.
Our
common stock is quoted on the OTC Bulletin Board maintained by the National
Association of Securities Dealers, Inc. under the symbol “ASRG.OB.” The closing
bid price for our common stock on December 17, 2009 was $2.59 per share, as
reported on the OTC Bulletin Board.
Any
participating broker-dealers and any selling shareholders who are affiliates of
broker-dealers may be “underwriters” within the meaning of the Securities Act of
1933, as amended, which we refer to as the Securities Act, and any commissions
or discounts given to any such broker-dealer or affiliate of a broker-dealer may
be regarded as underwriting commissions or discounts under the Securities Act.
The selling shareholders have informed us that they do not have any
agreement or understanding, directly or indirectly, with any person to
distribute their securities.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 5 to read about factors you should consider before buying shares of
our common stock.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The
Date of This Prospectus
is:
__, 2009
TABLE
OF CONTENTS
PAGE
|
||
Prospectus Summary
|
||
Summary Financials
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||
Risk Factors
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||
Use of Proceeds
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Determination of Offering
Price
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Dilution
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||
Selling Shareholders
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Plan of Distribution
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Description of Securities to be
Registered
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Interests of Named Experts and
Counsel
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Description of Business
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Description of Property
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Legal Proceedings
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Market for Common Equity And Related Stockholder
Matters
|
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Index to Financial
Statements
|
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Management Discussion and Analysis of Financial
Condition and Financial Results
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Plan of Operations
|
||
Executive Compensation
|
||
Security Ownership of Certain Beneficial Owners
and Management
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||
You should only rely on the
information contained in this prospectus. We have not, and the selling
stockholders have not, authorized any other person to provide you with different
information. This prospectus is not an offer to sell, nor is it seeking an offer
to buy, these securities in any state where the offer or sale is not permitted.
The information in this prospectus is accurate only as of the date on the front
cover, but the information may have changed since that date.
PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all the information that
you should consider before investing in the common stock. You should
carefully read the entire prospectus, including “Risk Factors”, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the Financial Statements, before making an investment decision.
Overview
We were
incorporated in the State of Delaware under the name Renfrew, Inc. on July 22,
2003 as a blank check company as defined under Rule 419 of the Securities Act.
On August 2, 2005, we filed Articles of Amendment with the State of Delaware
changing our name to ASAH Corp. On January 9, 2007, we filed Articles
of Amendment with the State of Delaware changing our name to American Surgical
Holdings, Inc. (“ASHI”).
Pursuant
to a Stock Purchase Agreement and Share Exchange between us and American
Surgical Assistants, Inc., (“ASA”) dated October 10, 2005; we acquired all of
the shares of ASA, a Texas corporation, from Zak Elgamal, CEO, and Jaime
Olmo-Rivas, Executive Director. As a result of and in consideration for the
issuance of 1,714,286 shares of our common stock to Mr. Elgamal and
1,714,286 shares of our common stock to Mr. Olmo-Rivas for an aggregate
amount of 3,428,572 shares of our common stock, ASA became our wholly owned
subsidiary.
We had
operated as a blank check company until the merger in October 2005 and the
purpose for this reorganization with ASA was to obtain an operating company
which we believed had a successful business plan. Now, through ASA, we provide
professional surgical assistant services to patients, surgeons and healthcare
institutions.
Our other
wholly-owned subsidiary, ATS Billing Services, Inc. (“ATS”) was incorporated in
Texas in April 2006 to provide HIPAA-compliant billing and collection services
for healthcare industry professionals, mainly, but not exclusively, surgical
assistants. This function was transferred to ASA in 2008. ATS
is currently dormant.
Our Company
Through
ASA we provide professional surgical assistant services to patients, surgeons,
and healthcare institutions. Our high quality services result in cost savings
for patients, insurance carriers, hospitals, surgeons, and healthcare
institutions without compromising the quality of service. We are certified by
the Joint Commission.
Surgical
assistants are highly skilled, fully trained professionals credentialed through
an extensive process similar to that utilized to evaluate physicians. These
assistants are an integral part of the surgical team and they provide their
services to surgeons and their patients. These services include, but are not
limited to; identification of anatomical landmarks, securing blood vessels,
recognizing pathological situations and providing and securing adequate, safe
and proper assistance in exposure of the operative field, closure of the
surgical wound, and the application of casts and dressings. They also perform
other duties within the scope of their professional license as instructed or
delegated by the operating surgeon. ASA surgical assistants are trained in
general surgery, obstetrics and gynecology, orthopedic surgery, plastic surgery,
urology, cardiovascular surgery, neurosurgery and other surgical disciplines.
ASA’s recruiting strategies are designed to attract and retain surgical
assistant professionals from both domestic and international
sources.
We market
our services to hospitals, surgeons and healthcare facilities. Presently, we
provide service in Houston, Corpus Christi, and San Antonio, Texas, Lawton,
Oklahoma, Augusta, Georgia and Suffolk, Virginia. We plan to extend our services
to other healthcare facilities in Texas and other areas in the
country.
Our
licensed and/or certified professionals work as full time salaried employees,
hourly employees or independent contractors. Currently, we have a total of
eighty three (83) surgical assistants, of which sixty eight (68) are full or
part time employees and fifteen (15) are independent contractors. We also have
twenty-three (23) full time administrative and billing employees.
The
majority of our revenue comes in the form of Service Fees paid by third party
insurers on behalf of their clients (the patients). A smaller percentage of
Service Fee revenue is generated from payments by the patients for deductibles
and co-pays not covered by the insurers and payments from patients who
self-insure. We generate additional revenue in the form of fees earned under
contracts for “On Call Coverage” from hospitals and other healthcare
facilities.
1
At the
end of 2008, our surgical assistants were on assignment at more than sixty-four
(64) hospitals and healthcare facilities throughout Texas, Oklahoma and
Virginia. Our hospital and healthcare facility clients utilize our services so
that they can effectively manage their surgical staffing needs without having to
deal with fluctuations due to attrition, new unit openings, seasonal patient
census variations, etc. and other short and long-term staffing needs. Our
ability to meet the clients’ specific staffing needs, our flexible staffing
assignments, and our reliable and superior customer service contribute to the
facilities’ desire to enter into service contracts with us to utilize our
uniquely qualified and skilled surgical assistant professionals, This dynamic
and effective business model has been developed over more than twenty years of
continuous research and improvement, monitoring the quality of service and
examination of feedback from our clients.
Where
You Can Find Us
We
currently lease office space at 10039 Bissonnet Suite 250, Houston, Texas
77036-7852, and our telephone number is (713) 779-9800.
Terms
of Our Offering
Common
stock offered by selling security holders
|
3,060,500
shares of common stock issuable upon the exercise of warrants held by the
selling shareholders. This number represents approximately 31.4 % of our
current outstanding common stock (1).
|
|
Common
stock outstanding before the offering
|
9,746,423
shares as of December 10, 2009.
|
|
Common
stock outstanding after the offering
|
12,806,923
shares, assuming the exercise of all of the warrants registered
herein.
|
|
Terms
of the Offering
|
The
selling security holders will determine when and how they will sell the
common stock offered in this prospectus.
|
|
Termination
of the Offering
|
The
offering will conclude upon the earliest of (i) such time as all of the
common stock has been sold pursuant to the registration statement, (ii)
one year or (iii) such time as all of the common stock becomes eligible
for resale without volume limitations pursuant to Rule 144 under the
Securities Act, or any other rule of similar effect.
|
|
Use
of proceeds
|
We
are not selling any shares of the common stock covered by this
prospectus. However,
to the extent that the selling shareholders exercise, for cash, all of the
warrants covering the 3,060,500 shares of common stock registered for
resale under this prospectus, we would receive $6,121,000 in aggregate
from such exercises. We intend to use such proceeds for general corporate
and working capital purposes.
|
|
(1)
|
Based
on 9,746,423 shares of common stock outstanding as of December 10,
2009.
|
Summary
of Consolidated Financial Information
The
following table provides summary consolidated financial statement data as of and
for each of the fiscal years ended December 31, 2008 and 2007, and the unaudited
financial information for the nine months ended September 30, 2009. The
financial statement data as of and for each of the fiscal years ended December
31, 2008 and 2007 have been derived from our audited consolidated financial
statements. The results of operations for past accounting periods are not
necessarily indicative of the results to be expected for any future accounting
period. The data set forth below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” our consolidated financial statements and the related notes
included in this prospectus, and the unaudited financial statements and related
notes included in this prospectus.
Nine
Months Ended Sept 30, 2009
|
Year
ended December 31, 2008
|
Year
ended December 31, 2007
|
||||||||||
(unaudited)
|
(audited)
|
(audited)
|
||||||||||
STATEMENT
OF OPERATIONS
|
||||||||||||
Revenues
|
$ | 16,702,850 | $ | 11,279,511 | $ | 8,964,057 | ||||||
Cost
of Revenues
|
6,115,198 | 6,977,986 | 6,660,552 | |||||||||
Total
Operating Expenses
|
4,751,381 | 3,819,470 | 4,974,061 | |||||||||
Net
Income(Loss)
|
3,546,765 | (1,087,976 | ) | (3,073,187 | ) |
As
of
Sept
30, 2009
|
As
of
December
31, 2008
|
|||||||
(unaudited)
|
(audited)
|
|||||||
BALANCE
SHEET DATA
|
||||||||
Cash
|
2,727,880
|
$
|
431,731
|
|||||
Total
Assets
|
6,368,579
|
4,422,360
|
||||||
Total
Liabilities
|
1,595,361
|
3,434,415
|
||||||
Stockholders’
Equity
|
4,773,218
|
887,945
|
2
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before investing in our common stock. If any of the following risks
occur, our business, operating results and financial condition could be
seriously harmed. Please note that throughout this prospectus, the words “we”,
“our” or “us” refer to the Company and not to the selling
stockholders.
Risks
Related to Our Business
We
are dependent on a small number of insurance companies.
Approximately
eighty three percent (83%) of our revenue is generated from patients that have
insurance coverage with five (5) insurance companies. However, our clients are
the surgeons, the hospitals and the patients, not the insurance companies. We
provide our services to the patient, upon the request of the surgeon, and at the
facility of the surgeon’s and patient’s choice.
Insurance
companies may alter their claim reimbursement policies in ways that adversely
impact us.
In
general, insurance companies may, without prior notice, adjust their claim
reimbursement policies in the future in such a way as to be detrimental to
us. These changes may include changing the criteria for paying claims
and the calculation of the percentage of each claim that they will
pay.
We are
currently involved in disputes with insurance carriers over non-payment of
claims submitted.
Legislative
or regulatory reform of the healthcare system may affect our ability to provide
our services profitably.
There
have been legislative and regulatory proposals to change the healthcare system
in ways that could impact our ability to provide our services at a reasonable
fee. Policies may change and additional government regulations may be enacted,
which could adversely affect our services and personnel. We cannot predict the
likelihood, nature, or extent of government regulations that may arise from
future legislation or administrative action.
Our
operating results may fluctuate significantly in the future, which may cause our
results to fall below the expectations of securities analysts, stockholders and
investors.
Our
operating results may fluctuate significantly in the future as a result of a
variety of factors, many of which are outside of our control. These factors
include:
•
|
the
demand for our services;
|
•
|
our
ability to obtain sufficient cost-effective financing;
|
•
|
the
timely and successful implementation of programs with
customers;
|
•
|
our
ability to attract and retain personnel with the necessary technical
knowledge and with the skill sets required for effective
operations;
|
•
|
professional
liability, and other litigation including class action and derivative
action litigation;
|
•
|
the
availability of funds and timing of capital expenditures and other costs
relating to the expansion of our operations;
|
•
|
Government
regulation and legal developments regarding our business model and general
economic conditions.
|
As a
strategic response to changes in the competitive environment, we may from time
to time make service pricing, technical or marketing decisions or acquisitions
that could have a material effect on results of our operations. Due to any of
these factors, our operating results may fall below the expectations of
securities analysts, stockholders and investors in any future period, which may
cause our stock price to decline.
Our budgeted expense levels are based
in part on our expectations concerning future revenue.
The size
of future revenue depends on the choices and demand for our services, which are
difficult to accurately forecast. We may be unable to adjust our operations in a
timely manner to compensate for any unexpected shortfall in revenue.
Accordingly, a significant shortfall in demand for our services could have an
immediate and material adverse effect on our business, results of operations and
financial condition. Further, our cost of revenue, business development, and
marketing expenses will increase significantly as we expand our operations. To
the extent that such expenses precede or are not rapidly followed by increased
revenue, our business, results of operations and financial condition may be
materially adversely affected.
We
must be able to develop and implement an expansion strategy and manage our
growth.
Our
success depends in part on our ability to grow and take advantage of
efficiencies of scale. To accomplish our
growth strategy, we may be required to raise and invest additional capital and
resources and expand our geographic markets. We cannot be assured that we will
be successful in raising the required capital.
3
Our
future growth depends on our ability to develop and retain
customers.
Our
future growth depends to a large extent on our ability to effectively anticipate
and adapt to customer requirements and offer services that meet customer
demands. If we are unable to attract new customers and/or retain new
customers, our business, results of operations and financial condition may be
materially adversely affected.
We
are dependent on our key management personnel, and the loss of any of these
individuals could harm our business.
We are
dependent on the efforts of our key management and medical staff. The loss of
any of these individuals, or our inability to recruit and train additional key
personnel in a timely manner, could materially and adversely affect our business
and our future prospects. A loss of one or more of our current officers or key
personnel could severely and negatively impact our operations. We have
employment agreements with most of our key management personnel, but some of
these people are employed “at-will” and any of them may elect to pursue other
opportunities at any time. We have no present intention of obtaining key man
life insurance on any of our executive officers or key management
personnel.
We
will need to continue to attract, train and retain additional highly qualified
senior executives and technical and managerial personnel in the
future.
We
continue to seek technical and managerial staff members. There is a high demand
for highly trained and managerial staff members. If we are not able to fill
these positions, it may have an adverse affect on our
business.
If
we are unable to effectively promote our service and establish a leading
position in the marketplace, our business may suffer.
Our name
is relatively new. We believe that the importance of recognition will increase
over time. We may increase our marketing and advertising budgets to create and
maintain current and future client loyalty.
We
may conduct future offerings of our common stock and preferred stock and pay
debt obligations with our common and preferred stock which may diminish our
investors’ pro rata ownership and depress our stock price.
We
reserve the right to make future offers and sales, either public or private, of
our securities, including shares of our preferred stock, common stock or
securities convertible into common stock at prices differing from the price of
the common stock previously issued. In the event that any such future sales of
securities are affected or we use our common or preferred stock to pay principal
or interest on our debt obligations, an investor’s pro rata ownership interest
may be reduced to the extent of any such future sales.
Our
Board of Directors may issue additional shares without stockholder
approval.
Our
Articles of Incorporation, as amended, authorizes us to issue up to 10,000,000
shares of preferred stock, at par value $0.001 and up to a total of 100,000,000
shares of common stock at par value of $0.001. The Board of Directors
is authorized to determine the rights and preferences of any additional series
or class of preferred stock. The Board of Directors may, without stockholder
approval, issue shares of preferred stock with dividend, liquidation,
conversion, voting or other rights which are senior to our shares of common
stock or which could adversely affect the voting power or other rights of the
existing holders of outstanding shares of preferred stock or common stock. The
issuance of additional shares of preferred stock may also adversely affect an
acquisition or change in control of the Company.
We
have not declared any dividends on our common stock to date
The
payment of cash dividends on our common stock rests within the discretion of our
Board of Directors and will depend, among other things, upon our earnings,
unencumbered cash, capital requirements and our financial condition, as well as
other relevant factors. Payments of dividends on our outstanding shares of
preferred stock must be paid prior to the payment of dividends on our common
stock. Currently we do not have any preferred stock outstanding. We
have not in the past made any cash distributions on the common stock and
investors in our common stock cannot rely on dividend income.
There
is a limited public trading market for our common stock; the market price of our
common stock has been volatile and could experience substantial
fluctuations.
Our
common stock is currently quoted on the OTC Bulletin Board and there is a
limited public trading market for the common stock. Without an active trading
market, there can be no assurance of any liquidity or resale value of the common
stock. In addition, the market price of our common stock has been, and may
continue to be, volatile. Such price fluctuations may be affected by general
market price movements or by reasons unrelated to our operating performance or
prospects, such as, among other things, announcements concerning us or our
competitors, government regulations, and litigation or other
factors.
4
We
may be subject to litigation.
Currently,
we are not a party to any legal proceeding nor are we aware of any claim or
demand made against us that may reasonably result in a legal proceeding. We may
become involved from time to time in various legal matters arising out of our
operations in the normal course of business. On a case-by-case basis, we will
evaluate the likelihood of possible outcomes of such litigation. Based on this
evaluation, we will determine whether the recognition of a liability is
appropriate.
Insurance
coverage.
We
maintain various types of insurance including professional liability for us and
for individual providers, General Business Liability and Disability insurance.
In recent years insurance cost has been spiraling upwards, while reducing the
level of coverage. Our ability to maintain adequate insurance coverage at a
reasonable cost may be impacted by market conditions beyond our
control
Our
critical accounting policies and significant estimates made may not be
appropriate or accurate.
We have
selected accounting policies that we believe are appropriate for the business
conducted and that comply with accounting policies generally accepted in the
United States. Such accounting policies and their application may change from
time to time, as new standards and interpretations emerge or the applications of
existing standards change. Additionally, financial statements involve the use of
estimates and the application of professional judgment, which may be challenged
by auditors, regulators and investors from time to time. Qualified people
exercising due care, may make judgments at any point in time utilizing the best
available information, including the use of subject matter experts, and may
reach conclusions that are not appropriate. You are encouraged to read and
obtain a full understanding of the financial statements and related notes
contained in our securities filings and the related reports of the independent
auditor. The critical accounting policies we selected and identified may require
thorough study and assessment by you in order for you to reach a conclusion
about the appropriateness and reasonableness of the policy or estimate, given
the facts and circumstances. You should reach your own conclusion on the
appropriateness, fairness and application of the accounting policies we have
applied and estimates we have made in consultation with your financial and other
advisors before making any decision to invest in us.
As
a public company, our business is subject to numerous reporting requirements
that are currently and continuously evolving and could substantially increase
our operating expenses and divert management’s attention from the operation of
our business.
The
Sarbanes-Oxley Act of 2002 (the “Act”) has required changes in some of our
corporate governance, securities disclosure and compliance practices. In
response to the requirements of that Act, the SEC has promulgated new
rules covering a variety of subjects. Compliance with these new
rules has significantly increased our legal and financial and accounting
costs, and we expect these increased costs to continue. We are committed to
maintaining high standards of corporate governance and public disclosure. As a
result, we intend to invest all appropriate resources to comply with evolving
standards, and this investment may result in increased general and
administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.
In
addition, the requirements have taken a significant amount of management’s
and the Board of Directors’ time and resources. These developments may make it
more difficult for us to attract and retain qualified members for our board of
directors, particularly independent directors, or qualified executive
officers.
Risk
Related To Our Capital Stock
We
may never pay any dividends to shareholders.
We have
never declared or paid any cash dividends or distributions on our capital
stock.
There is
no assurance that future dividends will be paid, and, if dividends are paid,
there is no assurance with respect to the amount of any such
dividend.
Our
articles of
incorporation provide for indemnification of officers and directors at our
expense and limit their liability which may result in a major cost to us and
hurt the interests of our shareholders because corporate resources may be
expended for the benefit of officers and/or directors.
Our
articles of incorporation and applicable Delaware law provide for the
indemnification of our directors, officers, employees, and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them in
any litigation to which they become a party arising from their association with
or activities on our behalf. We will also bear the expenses of such litigation
for any of our directors, officers, employees, or agents, upon such person's
written promise to repay us if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by us which we will be unable to
recoup.
5
We have
been advised that, in the opinion of the SEC, indemnification for liabilities
arising under federal securities laws is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification for liabilities arising under federal securities laws, other
than the payment by us of expenses incurred or paid by a director, officer
or controlling person in the successful defense of any action, suit or
proceeding, is asserted by a director, officer or controlling person in
connection with the securities being registered, we will (unless in the opinion
of our counsel, the matter has been settled by controlling precedent) submit to
a court of appropriate jurisdiction, the question whether indemnification by us
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue. The legal process relating to this
matter if it were to occur is likely to be very costly and may result in us
receiving negative publicity, either of which factors is
likely to materially reduce the market and price for our shares, if such a
market ever develops.
Our
common stock is considered penny stocks, which may be subject to restrictions on
marketability, so you may not be able to sell your shares.
If our
common stock becomes tradable in the secondary market, we will be subject to the
penny stock rules adopted by the Securities and Exchange Commission that require
brokers to provide extensive disclosure to their customers prior to executing
trades in penny stocks. These disclosure requirements may cause a reduction in
the trading activity of our common stock, which in all likelihood would make it
difficult for our shareholders to sell their securities.
Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ system). Penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer’s account. The broker-dealer must also make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These
requirements may have the effect of reducing the level of trading activity, if
any, in the secondary market for a security that becomes subject to the penny
stock rules. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in our
securities, which could severely limit the market price and liquidity of our
securities. These requirements may restrict the ability of broker-dealers to
sell our common stock and may affect your ability to resell our common
stock.
Our
common stock is subject to price volatility unrelated to our
operations.
The
market price of our Common Stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our Common Stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our Common Stock.
Our
common stock is quoted on the OTC Bulletin Board which may have an unfavorable
impact on our stock price and liquidity.
Our
common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board
is a significantly more limited market than the New York Stock Exchange or
NASDAQ system. The quotation of our shares on the OTC Bulletin Board may
result in a less liquid market available for existing and potential stockholders
to trade shares of our common stock, could depress the trading price of our
common stock and could have a long-term adverse impact on our ability to raise
capital in the future.
There
is limited liquidity on the OTCBB.
When
fewer shares of a security are being traded on the OTCBB, volatility of prices
may increase and price movement may outpace the ability to deliver accurate
quote information. Due to lower trading volumes in shares of our common stock,
there may be a lower likelihood of one's orders for shares of our Common Stock
being executed, and current prices may differ significantly from the price one
was quoted at the time of one's order entry.
Our
common stock is thinly traded, so you may be unable to sell at or near asking
prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
Currently
our Common Stock is quoted in the OTC Bulletin Board market and the trading
volume we will develop may be limited by the fact that many major institutional
investment funds, including mutual funds, as well as individual investors follow
a policy of not investing in Bulletin Board stocks and certain major brokerage
firms restrict their brokers from recommending Bulletin Board stocks because
they are considered speculative, volatile and thinly traded. The OTC Bulletin
Board market is an inter-dealer market much less regulated than the major
exchanges and our Common Stock is subject to abuses, volatility and shorting.
Thus there is currently no broadly followed and established trading market for
our Common Stock. An established trading market may never develop or be
maintained. Active trading markets generally result in lower price volatility
and more efficient execution of buy and sell orders. Absence of an active
trading market reduces the liquidity of the shares traded there.
6
The
trading volume of our Common Stock has been and may continue to be limited and
sporadic. As a result of such trading activity, the quoted price for our Common
Stock on the OTC Bulletin Board may not necessarily be a reliable indicator of
its fair market value. Further, if we cease to be quoted, holders would find it
more difficult to dispose of or to obtain accurate quotations as to the market
value of our Common Stock and as a result, the market value of our Common Stock
likely would decline.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The
information contained in this report, including in the documents incorporated by
reference into this report, includes some statement that are not purely
historical and that are "forward-looking statements." Such forward-looking
statements include, but are not limited to, statements regarding our and
their management's expectations, hopes, beliefs, intentions or strategies
regarding the future, including our financial condition and results of
operations. In addition, any statements that refer to projections, forecasts or
other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. The words "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"might," "plans," "possible," "potential," "predicts," "projects," "seeks,"
"should," "will," "would" and similar expressions, or the negatives of such
terms, may identify forward-looking statements, but the absence of these
words does not mean that a statement is not forward-looking.
The
forward-looking statements contained in this report are based on current
expectations and beliefs concerning future developments and the potential
effects on the parties and the transaction. There can be no assurance that
future developments actually affecting us will be those anticipated. These that
may cause actual results or performance to be materially different from
those expressed or implied by these forward-looking statements, including
the following forward-looking statements involve a number of risks,
uncertainties (some of which are beyond the parties' control) or other
assumptions.
USE
OF PROCEEDS
The
selling security holders are selling shares of common stock covered by this
prospectus for their own account. The selling security holders will receive all
the net proceeds from the sales of the common stock offered by them under this
prospectus. We will not receive any of the proceeds from the resale of these
shares. To the extent that the selling shareholders exercise, for cash, all of
the warrants covering the 3,060,500 shares of common stock registered for resale
under this prospectus, we would receive $6,121,000 in the aggregate from
such exercises. We intend to use such proceeds for working capital, and other
general corporate purposes. We will have complete discretion over how we may use
the proceeds, if any, from any exercise of the warrants. We have
agreed to bear the expenses relating to the registration of the shares for the
selling security holders.
DETERMINATION
OF OFFERING PRICE
This
prospectus relates to the resale of up to 3,060,500 shares of our Common Stock,
par value $0.001 per share (“Common Stock”) issuable to the selling shareholders
upon the exercise of warrants purchased in July 2007. The Selling
Security holders may sell their common stock from time to time at prevailing
market prices.
Our
Common Stock is registered under Section 12(g) of the Securities Exchange Act of
1934, as amended, and is quoted on the over-the-counter market and prices are
reported on the OTC Bulletin Board under the symbol “ASRG.” On December 10,
2009, the closing price as reported was $2.81.
DILUTION
The sale
of our common stock by the selling shareholders upon exercise of the warrants
will have a dilutive impact on our shareholders. Upon the exercise of
the 3,060,500 shares of our Common Stock underlying the warrants, 12,806,923
shares will be issued and outstanding.
SELLING
SECURITY HOLDERS
We agreed
to register for resale shares of common stock underlying the warrants purchased
by the selling security holders listed below on July 2, 2007. The selling
security holders may from time to time offer and sell any or all of their shares
that are registered under this prospectus. The selling security holders and any
participating broker-dealers are “underwriters” within the meaning of the
Securities Act of 1933, as amended. All expenses incurred with respect to the
registration of the common stock will be borne by us, but we will not be
obligated to pay any underwriting fees, discounts, commissions or other expenses
incurred by the selling security holders in connection with the sales of such
shares.
The
following table sets forth information with respect to the maximum number of
shares of common stock beneficially owned by each of the selling security
holders named below and as adjusted to give effect to the sales of the shares
offered hereby. The shares beneficially owned have been determined in accordance
with rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. The information in the
table below is current as of the date of this prospectus. All information
contained in the table below is based upon information provided to us by the
selling security holders and we have not independently verified this
information. The selling security holders are not making any representation that
any shares covered by the prospectus will be offered for sale. The selling
security holders may from time to time offer and sell pursuant to this
prospectus any or all of the common stock being registered.
7
Except as
indicated below, the selling security holders have never held any position or
office with us, nor are any of the selling security holders’ associates or
affiliates of any of our officers or directors. Except as indicated below, no
selling stockholder is the beneficial owner of any additional shares of common
stock or other equity securities issued by us or any securities convertible
into, or exercisable or exchangeable for, our equity securities. Except as
listed below, no selling stockholder is a registered broker-dealer or an
affiliate of a broker-dealer.
For
purposes of this table, beneficial ownership is determined in accordance with
SEC rules, and includes voting power and investment power with respect to shares
and shares owned pursuant to warrants exercisable within 60 days. The "Number of
Shares Beneficially Owned after the Offering” column assumes the exercise of all
the common shares underlying the warrants and the sale of all shares
offered.
Name
|
Shares
Beneficially
Owned
Prior To Offering
|
Shares
to
be
Offered
|
Amount
Beneficially
Owned
After Offering
|
Percent
Beneficially
Owned
After
Offering
|
||||||||||||
Samax
Family Ltd. Partnership(1)
|
22,500
|
22,500
|
0
|
0
|
%
|
|||||||||||
Barbour,
Catherine C.
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Booth,
Robert and Miriam
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Robert
and Jacqueline Halprin JT/WROS
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Lippman,
Lisa
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
McDonald,
Evan
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Raz,
James
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Roesch,
Ben
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Schroeder,
Harold and Patricia
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Witt,
Steve
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Bodenstein,
Dr. Alvin
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Karanfilian,
James
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Ezratty,
Ira S. and Ezratty, Rochelle B.
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Burgess,
Robert E.
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Colaco,
Cleto
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Habbyshaw,
Patricia and Habbyshaw, James
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Friedman,
Jack
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
White,
Michael R.
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
Liu,
Douglas
|
30,000
|
30,000
|
0
|
0
|
%
|
|||||||||||
Gulati,
Subhash
|
40,000
|
40,000
|
0
|
0
|
%
|
|||||||||||
Dunkin,
Art
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Inghilterra,
Carmela
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Meikrantz,
James
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Curley,
John and Curley-Jennings Patricia
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
IVM
Productions c/o Alex Rosenberg (2)
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Genna,
Thomas
|
25,000
|
25,000
|
0
|
0
|
%
|
|||||||||||
John
Curley IRA
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Equidebt
Financial Group, Inc. Attn: Mark Shantzis(3)
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Giamanco,
Joseph
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Brunker,
Philip
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Marcin,
Mary Lou
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Fitzmaurice,
M. Paul and Shean, M. Lisabeth
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Solan,
Jay R.
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Garofalo,
Frank J.
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
O’Mara,
Robert
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Mirotznik,
Michael
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Sugerman,
Nathan
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Christensen,
John
|
100,000
|
100,000
|
0
|
0
|
%
|
|||||||||||
Bourge,
Dr. Robert
|
100,000
|
100,000
|
0
|
0
|
%
|
|||||||||||
Rockmore
Capital
|
100,000
|
100,000
|
0
|
0
|
%
|
|||||||||||
Jenkins,
David
|
125,000
|
125,000
|
0
|
0
|
%
|
8
David
Jenkins, TTEE David J. Jenkins Family Foundation(4)
|
125,000
|
125,000
|
0
|
0
|
%
|
|||||||||||
Sack,
Steve
|
150,000
|
150,000
|
0
|
0
|
%
|
|||||||||||
Vestal
Ventures (5)
|
475,000
|
475,000
|
0
|
0
|
%
|
|||||||||||
Dawson
James Securities, Inc.(6)
|
205,435
|
205,435
|
0
|
0
|
%
|
|||||||||||
Jr.
Keyser, Robert D.
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Poliak,
Albert
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Kaiser,
Douglas
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Salvatore,
Frank
|
50,000
|
50,000
|
0
|
0
|
%
|
|||||||||||
Hands,
Thomas
|
5,000
|
5,000
|
0
|
0
|
%
|
|||||||||||
Fox,
Willam
|
5,000
|
5,000
|
0
|
0
|
%
|
|||||||||||
Weinstein,
David
|
84,125
|
84,125
|
0
|
0
|
%
|
|||||||||||
Aulicino,
Richard
|
40,725
|
40,725
|
0
|
0
|
%
|
|||||||||||
Greenstein,
Alan
|
2,715
|
2,715
|
0
|
0
|
%
|
(1) Dr.
Andrew Marguiles is the principal of Samax Family Ltd. Partnership. Dr. Andrew
Marguiles, acting alone, has voting and dispositive power over the shares owned
beneficially by Samax Family Ltd. Partnership.
(2) Alex
Rosenberg is the principal of IVM Productions. Alex Rosenberg, acting
alone, has voting and dispositive power over the shares owned beneficially by
IVM Productions.
(3) Mark
Shantzis is the principal of Equidebt Financial Group, Inc. Mark Shantzis,
acting alone, has voting and dispositive power over the shares owned
beneficially by Equidebt Financial Group, Inc.
(4) David
Jenkins is the trustee of the David J. Jenkins Family Foundation. David Jenkins,
acting alone, has voting and dispositive power over the shares owned
beneficially by the David J. Jenkins Family Foundation
(5) Al
Lyons is the principal of Vestal Ventures. Al Lyons, acting alone, has voting
and dispositive power over the shares owned by Vestal Ventures.
(6) Frank
Salvatore is the principal of Dawson James Securities, Inc. Frank Salvatore,
acting alone, has voting and dispositive power over the shares owned
beneficially by Dawson James Securities, Inc.
Transaction
with Dawson James
On July
2, 2007, the Company completed a private placement of $2,715,000 or 2,715 Units
consisting of (i) a 15% interest bearing unsecured promissory note in
the principal amount of $100,000 payable in cash at the Maturity Date (as the
term is defined in the Note) (the “Notes”) and (ii) a five-year warrant to
purchase 100,000 shares of the Company’s common stock (“Common Stock”) at an
exercise price of $2.00 per share (the “Warrant,” and the shares issuable upon
exercise of the Warrant referred to herein as the “Warrant
Shares”). Dawson James Securities, Inc. (the “Placement Agent”)
served as placement agent for the transaction.
The funds
received in respect of the Units closed were forwarded to the Company, against
delivery of the appropriate amount of the Notes and Warrants, net of (i) the
Placement Agent commission equal to cash in an amount equal to 10% of the gross
proceeds of the Units sold in the Offering, (ii) a non-accountable expense
allowance of 3% of the gross proceeds from the sale of the Units, (iii), for
nominal consideration, five-year warrants to purchase 20,000 shares of Common
Stock for each Unit sold (the “Placement Agent Warrants”) and (iv) any
out-of-pocket costs and expenses paid or to be paid by the Placement Agent
including, but not limited to, travel, due diligence, printing, mailing, plus
legal expenses.
PLAN
OF DISTRIBUTION
The
selling security holders and any of their respective pledges, donees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling securityholder may use any one or more
of the following methods when selling shares:
▪ ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
▪ block
trades in which the broker-dealer will attempt to sell the shares as agent, but
may position and resell a portion of
the block as principal to facilitate the
transaction
▪ purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
▪ an
exchange distribution in accordance with the rules of the applicable
exchange;
▪ privately
negotiated transactions;
▪ broker-dealers
may agree with the selling securityholder to sell a specified number of such
shares at a stipulated price per share;
▪ through
the writing of options on the shares;
▪ a
combination of any such methods of sale; and
▪ any
other method permitted pursuant to applicable law.
9
The
selling security holders or any of their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling
securityholder and/or the purchasers of shares for whom such broker-dealers may
act as agents or to whom they sell as principal or both, which compensation as
to a particular broker-dealer might be in excess of customary commissions.
Market makers and block purchasers purchasing the shares will do so for their
own account and at their own risk. It is possible that a selling stockholder
will attempt to sell shares of common stock in block transactions to market
makers or other purchasers at a price per share which may be below the then
market price. The selling security holders cannot assure that all or any of the
shares offered in this prospectus will be issued to, or sold by, the selling
security holders. The selling security holders and any brokers, dealers or
agents, upon effecting the sale of any of the shares offered in this prospectus,
are "underwriters" as that term is defined under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or the rules and
regulations under such acts. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
Discounts,
concessions, commissions and similar selling expenses, if any, attributable to
the sale of shares will be borne by a selling stockholder. The selling
securityholder may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act of 1933.
The
selling security holders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgee or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act of 1933
amending the list of selling security holders to include the pledgee, transferee
or other successors in interest as selling security holders under this
prospectus.
The
selling security holders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling security holders to include the pledgee, transferee or other successors
in interest as selling security holders under this prospectus.
We are
required to pay all fees and expenses incident to the registration of the shares
of common stock. We have agreed to indemnify the selling security holders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933.
The
selling security holders acquired the securities offered hereby in the ordinary
course of business and have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder.
If we are
notified by any selling stockholder that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock, if
required, we will file a supplement to this prospectus.
If
the selling security holders use this prospectus for any sale of the shares of
common stock, they will be subject to the prospectus delivery requirements of
the Securities Act of 1933.
The
anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934 may apply to sales of our common stock and activities of the selling
security holders.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
General
We are
authorized to issue an aggregate number of One Hundred Ten Million (110,000,000)
shares of capital stock, of which 100,000,000 shares are common stock, $0.001
par value per share, and 10,000,000 share are preferred stock, $0.001 par value
per share.
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock, $0.001 par value per
share. Currently we have 9,746,423 shares of common stock issued and
outstanding.
Each
share of common stock shall have one (1) vote per share for all purpose. Our
common stock does not provide a preemptive, subscription or conversion rights
and there are no redemption or sinking fund provisions or rights. Our
common stock holders are not entitled to cumulative voting for election of Board
of Directors.
The
holders of shares of our common stock are entitled to dividends out of funds
legally available when and as declared by our board of directors. Our board of
directors has never declared a dividend and does not anticipate declaring a
dividend in the foreseeable future. Should we decide in the future to pay
dividends, as a holding company, our ability to do so and meet other obligations
depends upon the receipt of dividends or other payments from our operating
subsidiaries and other holdings and investments. In addition, our operating
subsidiaries, from time to time, may be subject to restrictions on their ability
to make distributions to us, including as a result of restrictive covenants in
loan agreements, restrictions on the conversion of local currency into U.S.
dollars or other hard currency and other regulatory restrictions. In the event
of our liquidation, dissolution or winding up, holders of our common stock are
entitled to receive, ratably, the net assets available to stockholders after
payment of all creditors.
All of
the issued and outstanding shares of our common stock are duly authorized,
validly issued, fully paid and non-assessable. To the extent that additional
shares of our common stock are issued, the relative interests of existing
stockholders will be diluted.
10
Preferred
Stock
We are
authorized to issue 10,000,000 shares of preferred stock, $0.001 par value per
share. The preferred stock may be divided into number of series as our board of
directors may determine. Our board of director is authorized to determine and
alter the rights, preferences, privileges and restrictions granted to and
imposed upon any wholly issued series of preferred stock, and to fix the number
of shares of any series of preferred stock and the designation of any such
series of preferred stock. Currently there are no preferred shares issued and
outstanding.
Dividends
We have
not paid any cash dividends to our shareholders. The declaration of
any future cash dividends is at the discretion of our board of directors and
depends upon our earnings, if any, our capital requirements and
financial position, our general economic conditions, and other pertinent
conditions. It is our present intention not to pay any cash dividends
in the foreseeable future, but rather to reinvest earnings, if any, in our
business operations.
Warrants
The
Warrants to purchase common shares were issued in conjunction with the sale of
Units offered in the private placement financing transaction which closed on
July 2, 2007, in which we issued Warrants to purchase 2,715,000 of our common
shares. Each Warrant entitles the holder to purchase one common
share. The Warrants will be exercisable in whole or in part, at an
exercise price equal to $2.00 per share (“Exercise Price”). The
Warrants may be exercised at any time upon the election of the holder, beginning
on the date of issuance and ending of the fifth anniversary of the issuance
date.
The
Warrants will be detachable and separately transferable only during the Warrant
exercise period; upon the expiration of the Warrant exercise period (the
“Expiration Date”), the Warrants will expire and become void.
If the
resale of the warrant shares by the holder is not registered within one year
from the date of the closing of the offering pursuant to an effective
registration statement under the Securities Act, the Warrant may be exercised on
a cashless basis.
The
exercise price and number of common shares to be received upon the exercise of
Warrants are subject to adjustment upon the occurrence of certain events, such
as stock splits, stock dividends or our recapitalization. In the
event of our liquidation, dissolution or winding up, the holders of Warrants
will not be entitled to participate in the distribution of our
assets.
Holders
of Warrants have no voting, pre-emptive, subscription or other rights of
shareholders in respect of the Warrants, nor shall the Holders be entitled to
receive dividends.
The
Warrants may be redeemed, at the option of the Company, at any time prior to the
Expiration Date, upon the notice to the Warrant holder, at the price of $.001
per warrant share, provided that the last sales price of the Company’s common
stock has been at least $9.00 per share, on each of ten (10) consecutive trading
days ending on the third business day prior to the date on which notice of
redemption is given (the “Measurement Period”). Notwithstanding the foregoing,
the Company may not exercise its redemption rights unless during the Measurement
Period and from the end of the Measurement Period through the redemption date,
the Company has an effective registration statement with a current prospectus on
file with the SEC pursuant to which the warrant shares may be sold.
We also
issued to the Placement Agent or their designees, for nominal consideration,
five-year warrants to purchase 543,000 shares of our common stock, exercisable
at any time at a price equal to $2.00 per share.
Options
The
following tables summarize all stock option grants as of December 31, 2008 and
September 30, 2009, and the related changes during these periods are presented
below.
Number
of
Options
|
Weighted
Average Exercise Price
|
|||||||
Stock
Options
|
||||||||
Balance
at December 31, 2008
|
783,000
|
$
|
2.33
|
|||||
Granted
|
3,850,000
|
0.08
|
||||||
Exercised
|
886,028
|
.08
|
||||||
Forfeited
|
128,000
|
2.00
|
||||||
Balance
at September 30, 2009(unaudited)
|
3,618,972
|
0.50
|
||||||
Options
exercisable on September 30, 2009(unaudited)
|
600,616
|
$
|
2.40
|
|||||
Weighted
average fair value of options granted during 2009
|
$
|
0.08
|
Transfer Agent and
Registrar
Our
independent stock transfer agent is Corporate Stock Transfer, located at 3200
Cherry Creek Drive South, Suite 430, Denver, CO 80209, and can be reached at
(303) 282-4800.
LEGAL
MATTERS
The
validity of the common stock offered by this prospectus will be passed upon for
us by Anslow & Jaclin, LLP, Manalapan, New Jersey.
11
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had, or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
The
financial statements included in this prospectus and the registration statement
have been audited by Webb & Company, P.A. to the extent and for the periods
set forth in their report appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
Information
about the Registrant
DESCRIPTION
OF BUSINESS
Overview
Business
Development
We were
incorporated in the State of Delaware under the name Renfrew, Inc. on July 22,
2003 as a blank check company as defined under Rule 419 of the Securities Act.
On August 2, 2005, we filed Articles of Amendment with the State of Delaware
changing our name to ASAH Corp. On January 9, 2007, we filed Articles
of Amendment with the State of Delaware changing our name to American Surgical
Holdings, Inc. (“ASHI”).
Pursuant
to a Stock Purchase Agreement and Share Exchange between us and American
Surgical Assistants, Inc., (“ASA”) dated October 10, 2005; we acquired all of
the shares of ASA, a Texas corporation, from Zak Elgamal, CEO, and Jaime
Olmo-Rivas, Executive Director. As a result of and in consideration for the
issuance of 1,714,286 shares of our common stock to Mr. Elgamal and
1,714,286 shares of our common stock to Mr. Olmo-Rivas for an aggregate
amount of 3,428,572 shares of our common stock, ASA became our wholly owned
subsidiary.
We had
operated as a blank check company until the merger in October 2005 and the
purpose for this reorganization with ASA was to obtain an operating company
which we believed had a successful business plan. Now, through ASA, we provide
professional surgical assistant services to patients, surgeons and healthcare
institutions.
Our other
wholly-owned subsidiary, ATS Billing Services, Inc. (“ATS”) was incorporated in
Texas in April 2006 to provide HIPAA-compliant billing and collection services
for healthcare industry professionals, mainly, but not exclusively, surgical
assistants. This function was transferred to ASA in
2008. ATS is currently dormant.
Our
Company
Through
ASA we provide professional surgical assistant services to patients, surgeons,
and healthcare institutions. Our high quality services result in cost savings
for patients, insurance carriers, hospitals, surgeons, and healthcare
institutions without compromising the quality of service. We are certified by
the Joint Commission.
Surgical
assistants are highly skilled, fully trained professionals credentialed through
an extensive process similar to that utilized to evaluate physicians. These
assistants are an integral part of the surgical team and they provide their
services to surgeons and their patients. These services include, but are not
limited to; identification of anatomical landmarks, securing blood vessels,
recognizing pathological situations and providing and securing adequate, safe
and proper assistance in exposure of the operative field, closure of the
surgical wound, and the application of casts and dressings. They also perform
other duties within the scope of their professional license as instructed or
delegated by the operating surgeon. ASA surgical assistants are trained in
general surgery, obstetrics and gynecology, orthopedic surgery, plastic surgery,
urology, cardiovascular surgery, neurosurgery and other surgical disciplines.
ASA’s recruiting strategies are designed to attract and retain surgical
assistant professionals from both domestic and international
sources.
We market
our services to hospitals, surgeons and healthcare facilities. Presently, we
provide service in Houston, San Antonio and Corpus Christi, Texas, Lawton,
Oklahoma, Augusta, Georgia and Suffolk, Virginia. We plan to extend our services
to other healthcare facilities in Texas and other parts of the
country.
Our
licensed and/or certified professionals work as full time salaried employees,
hourly employees or independent contractors. Currently, we have a total of
eighty three (83) surgical assistants, of which sixty eight (68) are full or
part time employees and fifteen (15) are independent contractors. We also have
twenty-three (23) full time administrative and billing employees.
12
The
majority of our revenue comes in the form of Service Fees paid by third party
insurers on behalf of their clients (the patients). A smaller percentage of
Service Fee revenue is generated from payments by the patients for deductibles
and co-pays not covered by the insurers and payments from patients who
self-insure. We generate additional revenue in the form of fees earned under
contracts for “On Call Coverage” from hospitals and other healthcare
facilities.
At the
end of 2008, our surgical assistants were on assignment at more than sixty-four
(64) hospitals and healthcare facilities throughout Texas, Oklahoma and
Virginia. Our hospital and healthcare facility clients utilize our services so
that they can effectively manage their surgical staffing needs without having to
deal with fluctuations due to attrition, new unit openings, seasonal patient
census variations, etc. and other short and long-term staffing needs. Our
ability to meet the clients’ specific staffing needs, our flexible staffing
assignments, and our reliable and superior customer service contribute to the
facilities’ desire to enter into service contracts with us to utilize our
uniquely qualified and skilled surgical assistant professionals, This dynamic
and effective business model has been developed over more than twenty years of
continuous research and improvement, monitoring the quality of service and
examination of feedback from our clients.
Industry
Overview
According
to the U.S. Dept of Health and Human Services, growth in national health
expenditures (NHE) in the United States is is expected to be 6.2 percent per
year for 2008 through 2018. Over the full projection period (2008-2018), average
annual health spending growth is anticipated outpace average annual growth in
the overall economy (4.1 percent) by 2.1 percentage points per year. By 2018,
national health spending is expected to reach $4.4 trillion and comprise just
over one-fifth (20.3 percent) of Gross Domestic Product (GDP).
Over the
projection period, and influenced by the recession and the leading edge of the
Baby Boom generation becoming eligible for Medicare, average annual spending
growth by public payers (7.2 percent) is expected to outpace that of private
payers (5.3 percent). As a result, the public share of total NHE is expected to
exceed 50 percent by 2016 and reach 51.3 percent by 2018.
In 2010,
NHE growth is projected to decelerate to 4.6 percent, down from 5.5 percent in
2009. This trend is largely attributable to a projected 5.5 percentage-point
decline in Medicare spending growth (8.0 percent in 2009 to 2.5 percent in 2010)
due principally to a 21-percent cut to Medicare physician payment rates required
under the Sustainable Growth Rate (SGR) formula called for in current
law.
Since
legislative intervention has prevented cuts to Medicare physician payment rates
each year since 2003, we also projected health spending based on an assumption
of constant Medicare physician payment rates for 2010 through 2018. Under the
no-payment-rate update scenario, projected Medicare spending growth in 2010
would be 6.4 percent, 3.9 percentage points faster than the current-law
projection of 2.5 percent. Likewise, under the no-payment-rate update scenario,
projected total NHE growth in 2010 would be 5.4 percent, 0.8 percentage point
higher than the current-law projection of 4.6 percent.
Over the
projection period (2008-2018), holding physician payment rates constant has only
a minor impact on total health spending growth, as projected average annual NHE
growth would reach 6.3 percent or 0.1 percentage point faster than projected NHE
spending growth under current law. Assuming no changes to Medicare physician
payment rates from 2010-2018 would also result in an expected health share of
GDP of 20.5 percent, or 0.2 percentage point higher than that projected under
current law.
NHE
growth is anticipated to begin accelerating in 2011 under current law and
eventually reach 7.2 percent by 2018. Based on a projected economic recovery,
private health spending growth is expected to rebound from 4.2 percent in 2010
to 6.1 percent by 2018. Public spending growth is also projected to accelerate,
from 5.0 percent in 2010 to 8.1 percent in 2018, in large part due to the oldest
baby boomers becoming eligible for Medicare. Medicare spending growth is
projected to accelerate from 6.2 percent in 2011 to 8.6 percent by 2018.
Although Medicaid spending growth is expected to slow from 9.6 percent in 2009
to 7.8 percent in 2012 due to projected improving economic conditions, spending
growth is expected to accelerate through 2018 to 8.9 percent as the
relatively-expensive aged and disabled eligibility groups comprise a larger
share of total Medicaid enrollment.
Our
Business Model
Since our
inception, we developed and are continually refining our business model to
improve our level of productivity and efficiency. Our model is designed to
optimize the communication with, and service to, both our surgical assistant
professionals and our hospital and healthcare facility clients.
The
critical factors contributing to the success of our business model
are:
Building a strong management
team
- The founding management of our company is comprised of a team of highly
skilled and experienced surgical assistants with extensive experience. We
continue to focus on training and professional development for all levels of
management and acquiring additional experienced members of management personnel
as needed.
Marketing and Recruitment of
additional Surgical Assistants - We
attract surgical assistants to our Company through our outstanding customer
service and relationship-oriented approach, our competitive compensation and
benefits package, and our diverse offering of work assignments that provide the
opportunity for the assistant to become involved in multiple surgical
disciplines. We believe that our recruiting strategy makes us successful and
effective at attracting some of the best available surgical
assistants.
Screening, Background Checks,
Licensing and Quality Management - Through
our Credentialing, Risk Management, and Human Resources departments, we screen
all prospective candidates prior to placement, and continue to evaluate them
both annually and randomly to ensure adequate performance and to manage risk, as
well as to determine feasibility of future placements. Our internal processes
are designed to ensure that our staff has the appropriate experience,
credentials and the necessary skill set. Our experience has shown us that
well-matched placements result in satisfied surgeons and client facilities, with
the best possible results and the safest outcome for the patients.
13
Assignments- Hospitals
and surgeons notify us of their needs on a daily basis. Service requests are
entered into our information network by our hospital account managers and
scheduling personnel. These assignments are promptly scheduled by our operations
managers, who always attempt to select the best suited surgical assistant for
the procedure, and confirm placements with the hospital, the surgeon’s office or
the facility. Our operations management team is available around the clock and
assignments are fulfilled within an average response time of thirty (30)
minutes. We pride ourselves in our understanding of the personal and distinctive
technique of each surgeon, which leads to the development of a higher standard
of interaction and remarkable familiarity with the surgeon’s preferences and
individual technique. Thus bringing superior quality to the surgical teamwork
and contributing favorably to the quality of the service and to the safest
possible outcome of the surgery to the patient.
Employee Professional Compensation
and Benefits - Our
surgical assistants are compensated at competitive rates. In our effort to
attract and retain highly qualified surgical assistants and employees, we offer
a variety of benefits. These benefits may include:
•
|
Annual
paid vacation time for full time employees
|
•
|
Workers
Compensation Insurance
|
•
|
401K
Retirement Plan for qualified employees
|
•
|
Reimbursement
for Professional Liability Insurance premium and other qualified
educational expenses
|
•
|
Major
Medical and Dental insurance available and sponsored
in part by the company
|
•
|
Flexible
Spending Account for full time employees
|
•
|
Digital
pagers and other necessary communication equipment
|
s
|
Membership
in the Houston Federal Credit Union
|
s
|
Long
Term Disability Insurance
·Personal Accident Indemnity
Plan
· Personal Sickness Indemnity
Plan
· Hospital
Protection
· Hospital Intensive Care
Protection
· Specified Health Event
Protection
· Cancer Indemnity
Insurance
·Disability Income
Protection
|
Information
Systems
Our
primary management information systems are centralized and controlled in our
corporate headquarters in Houston, Texas. We have developed and currently
operate information systems that include integrated processes for dispatching
and scheduling, billing services and hospital and contract management. These
systems provide our staff with fast, reliable, and detailed information
regarding individual cases, hospitals and clients. We are continually seeking
any available improved systems that would be feasible and advantageous for our
Company to acquire or adopt.
Regulation
The
healthcare services industry is subject to extensive and complex federal and
state laws and regulations related to professional licensure, conduct by
providers, reimbursement for services, and prohibit payment for referrals. Our
business, however, is not directly impacted by or subject to the extensive and
complex laws and regulations that generally govern the healthcare industry;
however the laws and regulations governing our client facilities could
indirectly impact our business to a certain extent. We do not receive
compensation for services to Medicare and Medicaid patients. We receive a
stipend from our contracted facilities to offset the cost of covering On-Call
services.
State
licensing for surgical assistants is relatively recent, only a few states have
licensing requirements and legislation in place. Surgical assistants employed by
ASA are either licensed by the state of Texas, or certified by one of the
national certifying boards. Those who are not yet licensed either have
applications for license pending or are currently being processed. We
continually observe all measures to ensure compliance with all state licensure
requirements and Joint Commission compliance. ASA was the first surgical
assistant services company to earn the seal of approval of The Joint
Commission.
Competition
The
surgical assistant services industry is highly competitive. We compete in
regional and local markets with similar, but much smaller firms. We also compete
with facilities that developed their own recruitment and staffing departments to
attract highly qualified healthcare professionals. We compete for hospital and
healthcare facilities driven by the quality of our providers, the timely
availability of our professionals, superior skills, the high quality and
reasonable cost of our services, our customer service, and our recruitment
expertise.
To the
best of our knowledge, throughout the state of Texas there are an estimated 600
surgical assistants of which approximately 330 are licensed by the Texas Medical
Board. Although a considerable percentage of these surgical assistants are
employed by either the surgeons or the hospitals, there remain a significant
number of independent contractors, either in solo practices or in small groups.
We have identified several surgical assistant services groups currently
operating in our region that may be potential acquisition
candidates.
14
We
believe that a larger firm enjoys a distinct competitive advantage over smaller
competitors in the professional healthcare services industry. As well,
established firms may have a larger pool of available candidates, a
substantially larger network and a more recognizable brand name, enabling it to
attract a consistent flow of new prospects. We developed a comprehensive
infrastructure with well thought-out policies and procedures to provide the
foundation for national recognition, which eventually contributed to our coveted
certification by The Joint Commission. In addition, the greater financial
resource of a larger firm allows it to offer a competitive compensation package
to its providers.
Surgical
Assistants
There are
two levels of surgical assistants:
First
Assistant:
A first
assistant is defined as the individual providing primary assistance to the
surgeon during the surgical procedure. This individual must be listed on the
Operative Record as such.
Although
descriptions may vary from institution to institution, the role of the first
assistant requires active participation during the surgical procedure. This
involves providing exposure, homeostasis, tying and suturing plus other
functions as instructed by the surgeon responsible for the patient and the
procedure. Surgical assistants practice within the scope permitted by
their license and as outlined in the job descriptions published by the American
Medical Association, the American College of Surgeons and the certifying
bodies.
Second
Assistant:
A second
assistant may be needed in certain procedures where there is a need for the
primary surgeon to have either another surgeon assisting in the first assistant
capacity or two surgical assistants.
Each
Licensed/Certified Surgical Assistant is required to maintain continued medical
education, and a certain number of procedures done for recertification purposes.
(American Board of Surgical Assistants: Standards for Recertification). The
actual number of procedures and hours required may vary according to the
specific rules and regulations of different licensing and certifying
bodies.
Included
in our comprehensive package are: reimbursement for the premium of the
professional liability insurance, paid vacation, subsidy for health insurance,
available disability and life insurance, reimbursement for continuing education,
licensing and recertification fees, etc.
We
strongly believe that we are successful in attracting and retaining the highest
quality surgical assistants due to our long-standing reputation for providing a
high quality service, our numerous job opportunities, our comprehensive benefits
package, our innovative programs and the word-of-mouth referrals from our
clients and our associates.
A
surgical assistant directly and materially assists the surgeon by exposing the
proper area of the surgical field and maintaining a clean and dry field. This
may be achieved through suctioning any excess fluids, drying the area where
the surgeon is working, securing bleeding either through clamping or ligation of
blood vessels or by other means. He or she also assists the surgeon in operating
complex equipment and devices utilized in the surgery, assists the surgeon in
applying any prosthetic devices, total joints, plates, screws, etc., and
providing a clear and steady video imaging in endoscopic procedures,
manipulating and positioning organs for proper exposure; in addition to closing
the surgical site, applying dressings, casts, immobilizers, catheters, etc.
under the instruction and supervision of the primary surgeon. The role of the
surgical assistant also includes pre and post-operative positioning of the
patient and safe transfer to and from the operating room table. Assistants are
also required by The Joint Commission to take part in the National Patient
Safety Goals during surgery.
The scope
of services we provide includes a multitude of surgical
disciplines:
•
|
General
and bariatric surgery (weight management surgery, etc.)
|
||
•
|
Obstetrics
and Gynecology, including laparoscopic procedures
|
||
•
|
Vascular
surgery: peripheral vascular
|
||
•
|
Cardiac
surgery: (Coronary Artery Bypass surgery, etc., including both open and
laparoscopic vein harvesting), valve replacement, minimally invasive
procedures, etc.
|
||
•
|
Orthopedic
surgery, including total joint replacements, spinal surgery, including
instrumentation, arthroscopic joint surgery, etc.
|
||
•
|
Neurosurgery,
both central and peripheral
|
||
•
|
Urology
and genital system
|
||
•
|
Plastic,
cosmetic and reconstructive surgery
|
15
Surgical
assistants provide highly specialized services to the patient. The basic
qualifications and performance standards for highly trained surgical assistants
are:
Extensive
knowledge of aseptic techniques and practices
|
|
•
|
Detailed
knowledge of surgical procedures and techniques in all surgical
specialties and sub-specialties, including gynecology and
obstetrics
|
•
|
Skilled
in the use of all instrumentation required for the performance of
different surgical procedures
|
•
|
Ability
to effectively communicate with other members of the patient care team at
the client institution
|
Surgical
assistants must be proficient in the use of the following
equipment:
•
|
LASERs
and smoke evacuation equipment, De-fibrillation equipment, Electro
Cardiogram and vital signs monitors, and patient warming
devices
|
|
•
|
Operating
Room tables and related attachments and accessories, Patient positioning
devices, Surgical Microscopes, Powered equipment; drills, saws,
etc. Dermatomes
|
|
•
|
Endoscopic
and Laparoscopic surgery equipment and other related equipment,
Arthroscopic surgery equipment and related equipment, medical video
equipment, cameras and accessories
|
|
•
|
Electro-surgery
units, Tourniquets, Nucleotomes and/or equivalent, Surgilav and simpulse
suction/irrigation equipment, or equivalent and Surgical
lights
|
|
•
|
Suction
and Suction Assisted Lipectomy (SAL) Equipment
|
|
•
|
Equipment
and instruments utilized in caesarian section, obstetrics gynecology and
related endoscopic procedures, Equipment utilized in different
gynecological procedures
|
|
•
|
Saline/blanket
patient warmer equipment, all surgical instrumentation and related
equipment currently utilized in the operating room
|
|
•
|
Endoscopic
Vein Harvesting equipment
|
|
Work
Environment:
Surgical
Assistants are required to:
|
||
1.
|
Wear
approved scrub attire and or required gear as needed
|
|
2.
|
Incorporate
universal precautions and National Patient Safety Goals into daily
performance of the job
|
|
3.
|
Incorporate
safety rules and regulations into the daily performance of the
job
|
|
4.
|
Physical
requirements include, but are not limited to, the ability to stand for
long periods of time, lifting objects weighing 40 pounds or more, stooping
and bending
|
|
5.
|
Encounter
certain hazardous materials including, but are not limited to, radiation,
radioactive materials, LASER beams and plume, anesthetic materials and
gases, etc.
|
|
6.
|
In
addition to scheduled cases, accepts assignment to cover emergency call
duty on 24 hour basis, including weekdays, weekends and holidays, covering
surgical procedures and labor and delivery departments as required
covering call schedule
|
Employees
As of
December 10, 2009, we have 106 employees including full-time, part-time and
independent contractors.
DESCRIPTION
OF PROPERTY
We
currently lease office space at 10039 Bissonnet Suite 250, Houston,
Texas 77036-7852. During 2001, the Company entered into a sublease
agreement with a company owned by a related party, this was resorted to mainly
because of the then Company’s lack of sufficient credit to qualify for the
lease. Effective October 1, 2006, this sublease was terminated and
the lease was assigned directly to the Company. This lease agreement was amended
in September 2007 when the Company expanded its’ leased space and extended the
lease term through December 31, 2011. Monthly lease payments
increased to $8,117 through December 2007. The lease agreement was
amended again on September 24, 2009 and the lease term was extended through
November 30, 2015. Future monthly minimum lease payments are $8,846
for 2012 through November 30, 2015.
16
Future
annual minimum lease payments are as follows:
2009
|
$
|
101,800
|
||
2010
|
105,012
|
|||
2011
|
106,152
|
|||
2012
|
106,152
|
|||
2013
|
106,152
|
|||
2013
|
106,152
|
|||
2014
and thereafter
|
203,458
|
|||
TOTAL
|
$
|
733,078
|
LEGAL
PROCEEDING
From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise, in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse effect on our business, financial condition or operating
results.
Our
common stock is currently listed on the OTC Bulletin Board under the symbol
“ASRG.OB.” Our common stock was approved to quote on the OTC Bulletin Board on
December 14, 2006 under the symbol ASAO. On January 31, 2007 the Company’s
symbol was changed to ASRG based upon the name change of the Company to American
Surgical Holdings, Inc. Trading commenced in our common stock on the OTC
Bulletin Board on March 1, 2007. All OTC Bulletin Board quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The Closing stock price on December 21, 2009 was
$2.30.
The table
below sets forth our high and low bid prices per share of common
stock. These prices represent inter-dealer quotations without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
High
|
Low
|
|||||||
2007
|
||||||||
First
Quarter
|
$
|
1.45
|
$
|
1.05
|
||||
Second
Quarter
|
$
|
2.05
|
$
|
1.00
|
||||
Third
Quarter
|
$
|
2.10
|
$
|
1.00
|
||||
Fourth
Quarter
|
$
|
1.25
|
$
|
0.90
|
||||
2008
|
||||||||
First
Quarter
|
$
|
1.50
|
$
|
0.40
|
||||
Second
Quarter
|
$
|
0.50
|
$
|
0.07
|
||||
Third
Quarter
|
$
|
0.35
|
$
|
0.08
|
||||
Fourth
Quarter
|
$
|
0.30
|
$
|
0.02
|
||||
2009
|
||||||||
First
Quarter
|
$
|
0.30
|
$
|
0.05
|
||||
Second
Quarter
|
1.25
|
0.30
|
||||||
Third
Quarter
|
1.69
|
0.50
|
Holders of Capital
Stock
As of the
date of this registration statement, we had 93 holders of our common
stock.
17
Stock Option
Grants
The
following tables summarize all stock option grants as of December 31, 2008 and
September 30, 2009, and the related changes during these periods are presented
below.
Number
of
Options
|
Weighted
Average Exercise Price
|
|||||||
Stock
Options
|
||||||||
Balance
at December 31, 2008
|
783,000
|
$
|
2.33
|
|||||
Granted
|
3,850,000
|
0.08
|
||||||
Exercised
|
886,028
|
.08
|
||||||
Forfeited
|
128,000
|
2.00
|
||||||
Balance
at September 30, 2009(unaudited)
|
3,618,972
|
0.50
|
||||||
Options
exercisable on September 30, 2009(unaudited)
|
600,616
|
$
|
2.40
|
|||||
Weighted
average fair value of options granted during 2009
|
$
|
0.08
|
Registration
Rights
We have
granted registration rights to the selling security holders and are registering
the shares included in this prospectus pursuant to the selling shareholders
request.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed with the Securities and Exchange Commission, or SEC, a registration
statement on Form S-1 under the Securities Act with respect to the common
stock offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock offered in this offering, we refer you
to the registration statement and to the attached exhibits. With respect to each
such document filed as an exhibit to the registration statement, we refer you to
the exhibit for a more complete description of the matters
involved.
You may
inspect our registration statement and the attached exhibits and schedules
without charge at the public reference facilities maintained by the SEC at 100 F
Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part
of our registration statement from the SEC upon payment of prescribed fees. You
may obtain information on the operation of the public reference room by calling
the SEC at 1-800-SEC-0330.
Our SEC
filings, including the registration statement and the exhibits filed with the
registration statement, are also available from the SEC’s website at
www.sec.gov, which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
SEC.
18
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
CONTENTS
PAGE
|
F-1
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
PAGE
|
F-2
|
CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007
|
PAGE
|
F-3
|
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND
2006
|
PAGES
|
F-4
|
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006
|
PAGES
|
F-5-F-6
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND
2006
|
PAGES
|
F-7-F-20
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of:
American
Surgical Holdings, Inc. and Subsidiaries
We have
audited the accompanying consolidated balance sheets of American Surgical
Holdings, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of operations, changes in stockholders’ equity
and cash flows for the years ended December 31, 2008, 2007 and 2006. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 consolidated financial statements referred to above present fairly
in all material respects, the financial position of American Surgical Holdings,
Inc. and subsidiaries as of December 31, 2008 and 2007 and the results of its
consolidated operations and its cash flows for the years ended December 31,
2008, 2007 and 2006 in conformity with accounting principles generally accepted
in the United States of America.
WEBB
& COMPANY, P.A.
Boynton
Beach, Florida
March 25,
2009
F-1
(formerly
ASAH Corp.)
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
AS
OF DECEMBER 31, 2008 and 2007
|
||||||||
|
||||||||
|
||||||||
ASSETS
|
2008
|
2007
|
||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 431,731 | $ | 1,145,359 | ||||
Restricted
cash
|
373,653 | - | ||||||
Accounts
receivable, net
|
3,443,471 | 2,171,908 | ||||||
Advances
to employees
|
13,100 | 9,169 | ||||||
Prepaid
expenses and other current assets
|
4,708 | 24,662 | ||||||
TOTAL
CURRENT ASSETS
|
4,266,663 | 3,351,098 | ||||||
DEFERRED
INCOME TAX RECEIVABLE
|
- | 575,408 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
55,697 | 90,298 | ||||||
DEFERRED
FINANCING COSTS, NET
|
- | 322,521 | ||||||
TOTAL
ASSETS
|
$ | 4,322,360 | $ | 4,339,325 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 217,072 | $ | 436,106 | ||||
Deferred
income tax
|
31,234 | 95,471 | ||||||
Accrued
salaries
|
452,602 | 287,146 | ||||||
Note
payable, related party
|
150,000 | - | ||||||
Convertible
Notes payable, net of unamortized discount
|
||||||||
of
$131,493 and $767,474
|
2,583,507 | 1,947,526 | ||||||
TOTAL
CURRENT LIABILITIES
|
3,434,415 | 2,766,249 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock, $0.001 par value, 10,000,000 shares
|
||||||||
authorized,
none issued and outstanding
|
- | - | ||||||
Common
stock, $0.001 par value, 100,000,000 shares
|
||||||||
authorized,
8,425,484 and 8,425,484 shares issued
|
||||||||
and
outstanding
|
8,425 | 8,425 | ||||||
Additional
paid-in capital
|
3,295,226 | 2,942,381 | ||||||
Deferred
compensation
|
(93,750 | ) | (143,750 | ) | ||||
Accumulated
deficit
|
(2,321,956 | ) | (1,233,980 | ) | ||||
TOTAL
STOCKHOLDERS' EQUITY
|
887,945 | 1,573,076 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 4,322,360 | $ | 4,339,325 | ||||
See
accompanying notes to consolidated financial
statements.
|
F-2
(formerly
ASAH Corp.)
|
||||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Revenues
|
||||||||||||
Service
fees, net
|
$ | 10,592,216 | $ | 8,243,220 | $ | 9,618,947 | ||||||
Contract
fees
|
687,295 | 720,837 | 572,500 | |||||||||
Total
net revenues
|
11,279,511 | 8,964,057 | 10,191,447 | |||||||||
Cost
of revenues
|
6,977,986 | 6,660,552 | 5,509,898 | |||||||||
GROSS
PROFIT
|
4,301,525 | 2,303,505 | 4,681,549 | |||||||||
OPERATING
EXPENSES
|
||||||||||||
General
and Administration
|
1,578,915 | 2,393,716 | 1,318,321 | |||||||||
Salaries
|
2,142,565 | 2,500,164 | 1,653,036 | |||||||||
Rent
|
97,990 | 80,181 | 109,268 | |||||||||
TOTAL
OPERATING EXPENSES
|
3,819,470 | 4,974,061 | 3,080,625 | |||||||||
NET
INCOME (LOSS) FROM OPERATIONS
|
482,055 | (2,670,556 | ) | 1,600,924 | ||||||||
Other
income (expense)
|
||||||||||||
Interest
expense
|
(1,623,750 | ) | (1,474,048 | ) | (150 | ) | ||||||
Interest
income
|
5,911 | 48,569 | 11,263 | |||||||||
TOTAL
OTHER INCOME (EXPENSE)
|
(1,617,839 | ) | (1,425,479 | ) | 11,113 | |||||||
INCOME
(LOSS) FROM OPERATIONS before prov. for inc. taxes
|
(1,135,784 | ) | (4,096,035 | ) | 1,612,037 | |||||||
(Provision
for) benefit from income taxes
|
47,808 | 1,022,848 | (651,846 | ) | ||||||||
NET
INCOME (LOSS)
|
$ | (1,087,976 | ) | $ | (3,073,187 | ) | $ | 960,191 | ||||
Net
income (loss) per share basic and diluted
|
$ | (0.13 | ) | $ | (0.37 | ) | $ | 0.12 | ||||
Weighted
average number of shares
|
||||||||||||
Outstanding
during the period -
|
||||||||||||
basic
and diluted
|
8,425,484 | 8,416,100 | 8,297,133 | |||||||||
See
accompanying notes to consolidated financial statements.
|
F-3
(formerly
ASAH Corp.)
|
||||||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
|
||||||||||||||||||||||||||||||||
Retained
|
||||||||||||||||||||||||||||||||
Additional
|
Earnings/
|
Total
|
||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-in
|
Deferred
|
(Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit)
|
Equity
|
|||||||||||||||||||||||||
Balances,
December 31, 2005
|
- | $ | - | 8,289,538 | $ | 8,289 | $ | 480,604 | $ | (243,750 | ) | $ | 879,016 | $ | 1,124,159 | |||||||||||||||||
Shares
issued for cash
|
- | - | 10,946 | 11 | 32,539 | - | - | 32,550 | ||||||||||||||||||||||||
Deferred
compensation
|
- | - | - | - | - | 50,000 | - | 50,000 | ||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | 960,191 | 960,191 | ||||||||||||||||||||||||
Balances,
December 31, 2006
|
- | - | 8,300,484 | 8,300 | 513,143 | (193,750 | ) | 1,839,207 | 2,166,900 | |||||||||||||||||||||||
Shares
issued for services
|
- | - | 100,000 | 100 | 219,900 | - | - | 220,000 | ||||||||||||||||||||||||
Shares
issued to directors
|
- | - | 25,000 | 25 | 54,975 | - | - | 55,000 | ||||||||||||||||||||||||
Warrants
issued
|
- | - | - | - | 1,957,328 | - | - | 1,957,328 | ||||||||||||||||||||||||
Options
issued for services
|
- | - | - | - | 46,410 | - | - | 46,410 | ||||||||||||||||||||||||
Options
issued to directors
|
- | - | - | - | 37,425 | - | - | 37,425 | ||||||||||||||||||||||||
Options
issued to officers
|
- | - | - | - | 113,200 | - | - | 113,200 | ||||||||||||||||||||||||
Deferred
compensation
|
- | - | - | - | - | 50,000 | - | 50,000 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (3,073,187 | ) | (3,073,187 | ) | ||||||||||||||||||||||
Balances,
December 31, 2007
|
- | - | 8,425,484 | 8,425 | 2,942,381 | (143,750 | ) | (1,233,980 | ) | 1,573,076 | ||||||||||||||||||||||
Deferred
compensation
|
- | - | - | - | - | 50,000 | - | 50,000 | ||||||||||||||||||||||||
Options
issued to officers
|
- | - | - | - | 74,089 | - | - | 74,089 | ||||||||||||||||||||||||
Options
issued for services
|
- | - | - | - | 20,214 | - | - | 20,214 | ||||||||||||||||||||||||
Options
issued to directors
|
- | - | - | - | 13,392 | - | - | 13,392 | ||||||||||||||||||||||||
Warrants
issued to noteholders
|
- | - | - | - | 245,150 | - | - | 245,150 | ||||||||||||||||||||||||
Net
Loss
|
- | - | - | - | - | - | (1,087,976 | ) | (1,087,976 | ) | ||||||||||||||||||||||
Balances,
December 31, 2008
|
- | $ | - | 8,425,484 | $ | 8,425 | $ | 3,295,226 | $ | (93,750 | ) | $ | (2,321,956 | ) | $ | 887,945 | ||||||||||||||||
See
accompanying notes to consolidated financial statements.
|
F-4
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||
(formerly
ASAH Corp.)
|
||||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
|
||||||||||||
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
(loss) income
|
$ | (1,087,976 | ) | $ | (3,073,187 | ) | $ | 960,191 | ||||
Adjustments
to reconcile net (loss) income to net cash
|
||||||||||||
(used
in) provided by operating activities:
|
||||||||||||
Depreciation
and amortization
|
40,646 | 37,677 | 31,882 | |||||||||
Provision
for uncollectible accounts
|
(50,590 | ) | 17,500 | 202,207 | ||||||||
Amortization
of deferred financing costs
|
322,521 | 390,695 | - | |||||||||
Amortization
of discount of convertible notes payable
|
881,131 | 863,632 | - | |||||||||
Deferred
compensation
|
50,000 | 50,000 | 50,000 | |||||||||
Common
stock issued for services
|
- | 220,000 | - | |||||||||
Common
stock issued to directors
|
- | 55,000 | - | |||||||||
Options
issued for services
|
20,214 | 46,410 | - | |||||||||
Options
issued to officers
|
74,089 | 113,200 | - | |||||||||
Options
issued to directors
|
13,392 | 37,425 | - | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
(Increase)Decrease
in accounts receivable, net
|
(1,220,973 | ) | (163,639 | ) | (592,463 | ) | ||||||
(Increase)
Decrease in advances to employees
|
(3,931 | ) | (3,169 | ) | 9,555 | |||||||
(Increase)
Decrease in prepaid expenses
|
19,954 | 37,240 | (45,845 | ) | ||||||||
(Increase)
Decrease in deferred income tax receivable
|
575,408 | (575,408 | ) | - | ||||||||
Increase
(Decrease) in accounts payable and accrued expenses
|
(53,578 | ) | 425,655 | 153,429 | ||||||||
Increase
(Decrease) in deferred income taxes
|
(64,237 | ) | (1,022,848 | ) | 646,776 | |||||||
Net
cash (used in) provided by operating activities
|
(483,930 | ) | (2,543,817 | ) | 1,415,732 | |||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Increase
in restricted cash
|
(373,653 | ) | - | - | ||||||||
Purchase
of property and equipment
|
(6,045 | ) | (25,846 | ) | (69,108 | ) | ||||||
Net
cash used in investing activities
|
(379,698 | ) | (25,846 | ) | (69,108 | ) | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Bank
overdraft
|
- | - | (35,352 | ) | ||||||||
Proceeds
from note payable from related party
|
150,000 | - | 5,000 | |||||||||
Repayment
of note payable from related party
|
- | - | (95,000 | ) | ||||||||
Issuance
of common stock
|
- | - | 32,550 | |||||||||
Proceeds
from increase in notes payable
|
- | 2,328,006 | ||||||||||
Net
Cash provided (used in) by financing activities
|
150,000 | 2,328,006 | (92,802 | ) | ||||||||
NET
INCREASE (DECREASE) IN CASH
|
(713,628 | ) | (241,657 | ) | 1,253,822 | |||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING
|
||||||||||||
OF
PERIOD
|
1,145,359 | 1,387,016 | 133,194 | |||||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 431,731 | $ | 1,145,359 | $ | 1,387,016 | ||||||
See
accompanying notes to consolidated financial statements.
|
F-5
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||
(formerly
ASAH Corp.)
|
||||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|||||||||
Cash
paid for income taxes
|
$ | 16,427 | $ | 575,408 | $ | - | ||||||
Cash
paid for interest expense
|
$ | 547,672 | $ | - | $ | 150.00 | ||||||
See
accompanying notes to consolidated financial statements.
|
F-6
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
NOTE 1—BUSINESS AND
ORGANIZATION, BASIS OF PRESENTATION
American
Surgical Holdings, Inc. f/k/a ASAH Corp. and Renfrew, Inc., a Delaware
corporation (the “Company”) is the parent company of American Surgical
Assistants, Inc., a Texas corporation (“ASA”) and the parent company of ATS
Billing Services, Inc., a Texas corporation (“ATS”). The Company was
incorporated in the State of Delaware under the name Renfrew, Inc. on July 22,
2003 as a blank check company as defined under Rule 419 of the Securities Act.
On August 2, 2005, the Company filed Articles of Amendment with the State of
Delaware changing its’ name to ASAH Corp. and on January 9, 2007, the Company
filed Articles of Amendment with the State of Delaware changing its’ name to
American Surgical Holdings, Inc. (“ASHI”).
The
Company completed a 1 for 1.75 common stock consolidation in January 2007 and a
1 for 2 common stock consolidation in April 2007. All share and per
share amounts have been retroactively restated for the both the 1 for 1.75 and
the 1 for 2 stock consolidations.
ASA
provides professional surgical assistants to surgery centers and hospitals in
Houston and Corpus Christi, Texas, Lawton, Oklahoma and Suffolk,
Virginia.
ATS was
formed in April 2006 to engage in HIPAA-compliant billing and collection
services for healthcare industry professionals, mainly, but not exclusively,
surgical assistants. ATS’ services include primary claim billing to
insurance companies and to patients, with follow-up through to collection in
2006 and 2007. The services provided by ATS were transferred to ASA
in 2008.
Basis of
Presentation
The
accompanying consolidated financial statements have been prepared in U.S.
dollars, in accordance with generally accepted accounting principles in the
United States (“U.S. GAAP”) for financial reporting. All inter-company accounts
and transactions have been eliminated upon consolidation. The
consolidated results for each of 2008, 2007 and 2006 include ASA and
ASHI. ATS’ operations are included from inception.
Certain
balances in the financial statements as of and for the years ended December 31,
2008, 2007 and 2006 have been reclassified to conform to the current period’s
presentation. These changes had no effect on the previously reported net income,
total assets, liabilities or stockholders’ equity.
Revenue
Recognition
The
Company recognizes revenue over the period the service is performed in
accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition
in Financial Statements” (“SAB 104”). In general, SAB 104 requires
that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists, (2) delivery has
occurred or services rendered, (3) the fee is fixed and determinable and
(4) collectability is reasonably assured.
Service
Fees, net are recorded based on established billing rates less estimated
discounts for insurance reimbursements and patient
payments. Management also uses historical collection data to assure
the collectability of the resulting accounts receivable. No revenue
is recorded for services performed for patients covered by Medicare and/or
Medicaid.
Established
billing rates are not the same as actual pricing. They generally do not reflect
what the Company is ultimately paid and therefore are not displayed in our
Consolidated Statements of Operations. The Company is typically paid
amounts based on individual insurance company rates.
The
Company also recognizes Contract Fee Revenues billed under contracts with
hospitals for providing twenty-four hour a day on call coverage for these
hospitals. These amounts are billed on a monthly basis throughout the
respective contract period as services are provided.
Cash and Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. These accounts may from time to
time exceed federally insured limits. The Company has not experienced any losses
on such accounts. At December 31, 2008 and 2007, the Company had approximately
$225,414 and $1,034,014, respectively, in excess of FDIC insurance
limits.
F-7
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
Allowance for Doubtful
Accounts
The
Company generally provides for an allowance against accounts receivable for an
amount that could become uncollectible whereby such receivables are reduced to
their estimated net realizable value. The Company estimates this allowance based
on the aging of our accounts receivable, our historical collection experience
and other relevant factors. There are various factors that can impact the
collection trends, such as changes in the number of uninsured patients, the
increased burden of co-payment to be made by patients with insurance and
business practices related to collection efforts. These factors continuously
change and can have an impact on collection trends and our estimation
process.
The
Company evaluates the collectability of its receivables at least quarterly,
using various factors including the financial condition and payment history on
patient accounts, an overall review of collections experience on accounts and
other economic factors or events expected to affect the Company’s future
collections experience.
As part
of the evaluation discussed above concerning Service Fees Revenue and the
appropriate Collection Percentage, the Company determined that an allowance was
necessary at December 31, 2008 in the amount of $210,000 compared to a reserve
of $243,355 for the twelve months ended at December 31,
2007. $190,000 of the $210,000 in 2008 and the $243,355 in 2007
were for estimated charge backs.
Advertising
Costs
Advertising
costs are expensed as incurred and include the costs of public relations
activities. These costs are included in selling, general and administrative
expenses and totaled $7,392, $8,819, and $8,396 in the years ended
December 31, 2008, 2007 and 2006, respectively.
Property and
Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation is
provided using the straight-line method over the estimated useful life of three
to five years.
Leasehold
improvements are amortized over the initial term of the lease.
Use of
Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant
estimates include revenue recognition, the allowance for doubtful accounts and
share based compensation. These estimates have the potential to have a
significant impact on our financial statements, either because of the
significance of the financial statement item to which they relate, or because
they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in
nature.
Convertible Notes
Payable
The
Company issued convertible notes payable in 2007. The conversion
feature of the notes becomes effective only if the Company commences a Qualified
Offering. Insofar as the Company has not commenced a Qualified
Offering and does not plan to do so at this time, the Company has assigned no
value to the conversion feature of the notes payable. A more detailed
discussion is contained herein at Note 6.
Credit
Risk
The
Company’s customers are surgeons, hospitals and other healthcare
facilities. The Company also has exposure related to the
collectability of patient accounts from the insurance companies who act as third
party payers. The Company has identified five insurance companies
that comprise approximately 83% of the total paid by insurance
companies. From time to time, the Company may experience difficulty
in collecting amounts due from various insurance companies on a timely
basis. Additionally, the insurance companies’ reimbursement rates may
change from time to time and may change in such a way as to be detrimental to
the Company.
F-8
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
Geographic Risk
Approximately
97% in 2008, 100% in 2007 and 2006 of the Company’s customers were concentrated
in the areas of Houston and Corpus Christi, Texas.
Sales
Risk
No single
patient accounted for over 10% of the revenues in the years ended December 31,
2008, 2007 or 2006. However, as explained above the Company does have
some concentration of risk in that approximately 83% of the third party payments
are derived from five insurance companies. Additionally, the Company
has identified two hospitals at which the Company performed over 36% of its
billable surgeries in 2008, a decrease from over 50% in 2007 and
2006. Obviously, any change that affects either group could have a
significant impact on the Company and its results of operations.
Income
Taxes
The
Company records deferred taxes in accordance with SFAS No. 109, Accounting for Income Taxes
(“SFAS 109”). The statement requires recognition of deferred tax assets and
liabilities for temporary differences between the tax bases of assets and
liabilities and the amounts at which they are carried in the financial
statements, based upon the enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Stock-Based
Compensation
The
Company accounts for its stock-based compensation under the provisions of SFAS
No.123(R) Accounting for Stock
Based Compensation. Under SFAS No. 123(R), the Company is permitted
to record expenses for stock options and other employee compensation plans based
on their fair value at the date of grant. Any such compensation cost is charged
to expense on a straight-line basis over the periods the options vest. If the
options had cashless exercise provisions, the Company utilizes variable
accounting.
Common
stock, stock options and common stock warrants issued to other than employees or
directors are recorded on the basis of their fair value, as required by SFAS
No. 123(R), which is measured as of the date required by EITF
Issue 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services. In accordance with
EITF 96-18, the stock options or common stock warrants are valued using the
Black-Scholes model on the basis of the market price of the underlying common
stock on the valuation date, which for options and warrants related to contracts
that have substantial disincentives to non-performance is the date of the
contract, and for all other contracts is the vesting date. Expense related to
the options and warrants is recognized on a straight-line basis over the shorter
of the period over which services are to be received or the vesting period.
Where expense must be recognized prior to a valuation date, the expense is
computed under the Black-Scholes model on the basis of the market price of the
underlying common stock at the end of the period, and any subsequent changes in
the market price of the underlying common stock up through the valuation date is
reflected in the expense recorded in the subsequent period in which that change
occurs.
In
December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148
also amends the disclosure requirements of SFAS No. 123(R), requiring
prominent disclosure in annual and interim financial statements regarding a
company’s method for accounting for stock-based employee compensation and the
effect of the method on reported results.
Basic and Diluted Net
Income/Loss Per Share
Basic and
diluted net (loss) or income per common share is computed based upon the
weighted average common shares outstanding as defined by Financial Accounting
Standards No. 128, “Earnings Per Share.” The Company did not have any
dilutive securities outstanding as of December 31, 2008, 2007 and
2006. In 2008 and 2007 the Company had 4,541,000 and 4,541,000
warrants and options outstanding, but the Company has excluded these common
stock equivalents from the 2008 and 2007 calculation of diluted net loss per
share because these would be anti-dilutive. The Company did not issue
any warrants or options in 2008.
Fair Value of Financial
Instruments
The
carrying amounts of the Company’s financial instruments including accounts
receivable, accounts payable, accrued expenses and notes payable approximate
their fair value due to the relatively short period to maturity for these
instruments.
F-9
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
Business
Segments
The
Company operates in one segment and therefore segment information is not
presented.
Restricted
Cash
Funds in
the escrow account are labeled as “Restricted Cash” as the Company does not have
access to the escrowed amounts under the terms of the Escrow
Agreement.
Recent Accounting
Pronouncements
In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51." This statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, with earlier adoption prohibited. This
statement requires the recognition of a non-controlling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent's equity. The amount of net income attributable to the
non-controlling interest will be included in consolidated net income on the face
of the income statement. It also amends certain of ARB No. 51's consolidation
procedures for consistency with the requirements of SFAS 141(R). This statement
also includes expanded disclosure requirements regarding the interests of the
parent and its non-controlling interest. We are currently evaluating this new
statement and anticipate that the statement will not have a significant impact
on the reporting of our results of operations.
In March
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities - an amendment
of FASB Statement No. 133. This Statement amends and expands the disclosure
requirements in SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities to provide users of financial statements with an enhanced
understanding of (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flow. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008 with early application
permitted. The Company expects to adopt SFAS No. 161 on January 1, 2009, and has
not yet determined the effect of SFAS No. 161 on its Financial
Statements.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SECs approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.
In May
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60. Diversity exists in
practice in accounting for financial guarantee insurance contracts by insurance
enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance
Enterprises. This results in inconsistencies in the recognition and measurement
of claim liabilities. This Statement requires that an insurance enterprise
recognize a claim liability prior to an event of default (insured event) when
there is evidence that credit deterioration has occurred in an insured financial
obligation. This Statement requires expanded disclosures about financial
guarantee insurance contracts. The accounting and disclosure requirements of the
Statement will improve the quality of information provided to users of financial
statements. SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The adoption of FASB 163 is not expected to have a material impact
on the Company's financial position.
In June
2008 the FASB ratified FSP No. EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities,” which
addresses whether instruments granted in share-based payment awards are
participating securities prior to vesting and, therefore, must be included in
the earnings allocation in calculating earnings per share under the two-class
method described in SFAS No. 128, “Earnings per Share.” FSP No. EITF 03-6-1
requires that unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend-equivalents be treated as participating
securities in calculating earnings per share. FSP No. EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years, and shall
be applied retrospectively to all prior periods. We do not anticipate that the
adoption of FSP No. EITF 03-6-1 will have an effect on our previously reported
losses per share from 2007 to 2008.
F-10
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
In June
2008 the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock,” which requires that
an instrument’s contingent exercise provisions be analyzed first. If this
evaluation does not preclude consideration of an instrument as indexed to the
company’s own stock, the instrument’s settlement provisions are then analyzed.
EITF No. 07-5 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, and requires reporting of a cumulative effect of a change in accounting
principle to retained earnings for all instruments existing at the effective
date to the balance of retained earnings. We currently do not anticipate
adoption of EITF No. 07-5 will have a significant effect on our
consolidated financial statements.
In June
2008 the FASB ratified EITF No. 08-3, “Accounting by Lessees for
Maintenance Deposits,” which specifies that maintenance deposits that are
contractually and substantively related to maintenance of leased assets, and
which are refundable only if the lessee performs specified maintenance
activities, shall be accounted for as deposit assets. EITF No. 08-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, with recognition of a cumulative effect of a change in
accounting principle to the opening balance of retained earnings for the first
year presented.
NOTE 2 - ACCOUNTS
RECEIVABLE
Accounts
receivable at December 31, 2008 and 2007 consisted of the
following:
2008
|
2007
|
|||||||
Trade
and other receivables
|
$
|
3,653,471
|
$
|
2,406,263
|
||||
Less: Allowance
for doubtful accounts
|
(210,000
|
)
|
(234,355
|
)
|
||||
$
|
3,443,471
|
$
|
2,171,908
|
|||||
The bad
debt expense in each of 2008, 2007 and 2006 was $50,590, $17,500 and ($16,215),
respectively.
NOTE 3 - PROPERTY AND
EQUIPMENT
Property
and equipment at December 31, 2008 and 2007 consisted of the
following:
2008
|
2007
|
|||||||
Office
equipment
|
$
|
152,006
|
$
|
145,962
|
||||
Office
furniture
|
28,813
|
36,181
|
||||||
Leasehold
improvements
|
12,010
|
12,010
|
||||||
Medical
equipment
|
10,745
|
8,980
|
||||||
Less: Accumulated
depreciation
|
(147,877
|
)
|
(112,835
|
)
|
||||
$
|
55,697
|
$
|
90,298
|
|||||
Depreciation
expense for the years ended December 31, 2008, 2007 and 2006 was $ 40,646
$37,677 and $31,882 respectively.
NOTE 4 - COMMITMENTS AND
CONTINGENCIES
Operating
Lease
During
2001, the Company entered into a sublease agreement with a company owned by
related parties for a term of seven years ending December
2008. Effective October 1, 2006, this sublease was terminated when
the lease was assigned directly to the Company. This lease agreement
as amended September 1, 2007 calls for monthly lease payments of $8,117 for the
period September 1, 2007 through December 31, 2007. Monthly rent
payments will increase to $8,304 for 2008, $8,484 for 2009, $8,751 for 2010 and
$8,846 for 2011 plus a Consumer Price Index adjustment capped at 5% plus
reimbursement of Common Area Maintenance expenses if they exceed a specified
percentage of the costs. Rent expense for the years ended December
31, 2008, 2007 and 2006 were $$97,990, $80,181, and $109,268
respectively.
Employment
Agreements
The
Company has various compensation agreements with its’ Executive Officers, Senior
Consultants and consultants. The table below summarizes the
Commitments that the Company has pursuant to these agreements in future
years. A more detailed discussion of the Officers and Senior
Consultants compensation arrangements follows the table below and also at Note
8.
F-11
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
2009
|
2010
|
2011
|
2012
|
2013
|
THEREAFTER
|
|||||||||||||||||||
Executive
Officers (1)
|
$
|
1,490,194
|
$
|
1,370,800
|
$
|
1,128,800
|
$
|
1,128,800
|
$
|
1,128,800
|
$
|
2,727,933
|
||||||||||||
Senior
Consultants (2)
|
826,708
|
498,667
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Consultants
|
12,000
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Operating
Leases
|
101,800
|
105,012
|
106,152
|
-
|
-
|
-
|
||||||||||||||||||
Convertible
Note Payable (3)
|
2,715,000
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
TOTAL
|
$
|
5,145,702
|
$
|
1,974,479
|
$
|
1,234,952
|
$
|
1,128,800
|
$
|
1,128,800
|
$
|
2,727,933
|
(1) - Mr. Elgamal, CEO, and
Mr. Olmo-Rivas, executive directors of the Company, are each entitled to receive
annual cash compensation of $564,400 plus health, disability and life insurance
coverage pursuant to Ten year employment agreements as CEO of American Surgical
Holdings and Vice president of ASA respectively, entered into on May 1, 2006
ending 2016. James A. Longaker, CFO, was hired in November 2007 at an annual
salary of $120,000 ending November 2009.
The
Company renewed, amended and revised Ten year service agreements with
corporations owned by Mr. Elgamal and Mr. Olmo-Rivas. The agreements
automatically renew at maturity unless cancelled by either party with sixty days
written notice. The corporations were each paid a monthly expense fee of $11,000
during 2007. Each agreement includes an option to purchase 5% of any shares
issued by the Company during the term of these agreements at a discounted price
equal to 25% of the closing price on the date the shares are issued by the
Company. Mr. Elgamal and Mr. Olmo-Rivas have waived their rights to
the options under the agreements for the years ended December 31, 2007, and
2006. These agreements also include an annual bonus to each valued at 2% of
the increase, year over year, of the gross revenue of the company to be paid
during the first quarter of the current fiscal year for the increase in gross
revenue in the prior year. Mr. Elgamal and Mr. Olmo have waived the
right to this bonus for the years ending December 31, 2007 and 2006. The
employment agreements for Mr. Elgamal and for Mr. Olmo-Rivas include an early
termination provision that proscribes a contract termination payment to either
officer equal to $3,000,000 if the Company terminates their service agreements
without cause or for a cause that is less than a conviction of a federal felony
prior to the expiration date, as renewed. The original agreement was dated
July 1, 2002 and the term was amended on May 1, 2006 with an expiration of ten
years from May 1, 2006.
(2) - In November 2005, Mr.
Chamberlain and Mr. Chapa, senior consultants to the Company, entered into
employment agreements and consulting agreements between the Company and
corporations owned by them individually. Pursuant to these multiple agreements,
Mr. Chamberlain and Mr. Chapa are each entitled to receive an annual combined
cash compensation of $344,000 for the employment agreement and the consulting
agreements plus health and disability insurance coverage. In
addition, their corporations are paid a monthly consulting fee of $6,000 each.
Each consulting agreement includes an option to purchase 5% of any shares issued
by the Company during the term of these agreements at a discount price equal to
25% of the closing price on the date the shares are issued by the
Company. Mr. Chamberlain and Mr. Chapa have waived their rights to
the options under the agreements for the years ended December 31, 2007 and
2006. The consulting agreements include an early termination
provision that proscribe a contract termination payment to either shareholder
equal to $3,000,000 if the Company terminates their service agreements without
cause prior to the expiration date.
(3) - In May 2007, the Company
began offering for sale a limited number of Units pursuant to a Private
Placement Memorandum (“PPM”). Each Unit consisted of (i) a one year
15% interest bearing unsecured promissory note in the principal amount of
$100,000 and (ii) a warrant to purchase 100,000 shares of the Company’s common
stock at an exercise price of $2.00 per share (the Warrants”). The
notes were extended on July 23, 2008 to December 31, 2009.
The first
12.30 Units, in the principal amount of $1,230,000 plus accrued interest of
$187,575 matures on June 7, 2008. The second 14.85 Units in the
principal amount of $1,485,000 plus accrued interest of $226,462 matures on July
2, 2008. In July 2008, the original notes were renegotiated
with half due in March of 2009 and the other half would be automatically
extended to December 2009 upon payment of the March 31, 2009 principal balance.
One half was paid in March 2009 with the other half due December
2009.
NOTE 5 - INCOME
TAXES
Income
tax expense for the years ended December 31, 2008, 2007 and 2006 reflects an
effective tax rate different from the statutory federal tax rate (generally,
34%). For the years ended December 31, 2008, 2007 and 2006 the
Company’s effective tax rate was (4.21%), (24.97%) and 40.44%,
respectively. The differences arise because some items that are
deductible for financial statement purposes are not deductible for Federal
income tax purposes. These include life insurance premiums, expenses
related to unexercised options, amortization of discount, political
contributions and 50% of meals and entertainment expenses.
F-12
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
Income
tax expense (benefit) for the periods ended December 31, 2008, 2007 and 2006 is
summarized as follows:
2008
|
2007
|
2006
|
||||||||||
Current
Federal tax (asset) liability
|
$
|
-
|
$
|
(575,408
|
)
|
$
|
466,492
|
|||||
Deferred
Federal tax (asset) liability
|
(47,808
|
)
|
(447,440
|
)
|
185,354
|
|||||||
Income
tax expense (benefit)
|
$
|
(47,808
|
)
|
$
|
(1,022,848
|
)
|
$
|
651,846
|
The table
below presents a reconciliation between the reported income taxes and the income
taxes that would be computed by applying the Company’s normal tax rate (34%) to
income before taxes for the periods ended December 31:
2008
|
2007
|
2006
|
||||||||||
Federal
income tax expense (34%)
|
$
|
(386,166
|
)
|
$
|
(1,392,652
|
)
|
$
|
564,213
|
||||
Tax
effects of:
|
||||||||||||
Nondeductible
life insurance
|
-
|
30,600
|
84,000
|
|||||||||
Compensation
based on unexercised options
|
36,616
|
40,202
|
-
|
|||||||||
Amortization
of discount
|
299,584
|
293,635
|
-
|
|||||||||
Disallowed
meals & entertainment
|
6,402
|
3,667
|
3,633
|
|||||||||
Other
|
(4,244
|
)
|
1,700
|
-
|
||||||||
Income
tax expense (benefit)
|
$
|
(47,808
|
)
|
$
|
(1,022,848
|
)
|
$
|
651,846
|
||||
Effective
Rate
|
(4.21%
|
)
|
(24.97%
|
)
|
40.44%
|
The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and liabilities at December 31, 2008, 2007 and 2006 are as
follows:
2008
|
2007
|
2006
|
||||||||||
Deferred
tax assets
|
||||||||||||
Net
operating loss carryforward
|
$
|
(172,910
|
)
|
$
|
(334,850
|
)
|
$
|
-
|
||||
Deferred
tax liabilities
|
||||||||||||
Section
481(a) adjustment
|
204,144
|
408,288
|
612,432
|
|||||||||
Other
deferred liabilities
|
-
|
22,033
|
39,414
|
|||||||||
Net
deferred tax liabilities
|
$
|
31,234
|
$
|
95,471
|
$
|
651,846
|
||||||
Gross
remaining net operating loss carryforward
|
$
|
(508,560
|
)
|
$
|
(984,854
|
)
|
$
|
-
|
||||
Gross
remaining section 481(a) adjustment
|
$
|
600,424
|
$
|
1,200,848
|
$
|
1,801,274
|
For the
year 2007, the Company’s reported a net operating loss (NOL) of $2,338,753, of
which $1,353,899 was carried back to 2006 and the Company received refunds of
prior tax payments in the amount of $575,408. After applying $476,294
of the NOL to 2008, the remaining NOL of $508,560 is available for carry forward
to reduce future tax liabilities of the Company. The Company changed
from the cash method to the accrual method in reporting taxable income in
2007. The Section 481 (a) adjustment, which is the difference between
cash and accrual methods of accounting, is spread over a three year
period. The final adjustment of $600,424 will be offset by the
remaining NOL of $508,560, which will result in taxable income as of January 1,
2009 of $91,864. That taxable income at the Federal tax rate of 34%
is shown as the deferred income tax on the liability section of the balance
sheet in the amount of $31,234.
NOTE 6 – CONVERTIBLE NOTES
PAYABLE
In May
2007, the Company began offering for sale, at a price of $100,000 per Unit, a
limited number of Units pursuant to a private placement
memorandum. Each Unit consisted of (i) a one year 15% interest
bearing unsecured promissory note (“Note”) in the principal amount of $100,000
and (ii) a warrant to purchase 100,000 shares of the Company’s common stock at
an exercise price of $2.00 per share (the Warrants”).
Dawson
James Securities, Inc. (“Dawson”) was hired as the exclusive placement agent for
the offering. For its services Dawson earned a cash commission equal
to 10% and a non-accountable expense allowance equal to 3% of the gross proceeds
of each Unit sold. In addition, for each Unit sold Dawson earned
warrants to purchase 20,000 shares of the Company’s common stock at an exercise
price of $2.00 per share.
F-13
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
The
offering had a minimum offering size of 12 Units and a maximum size of 35
Units. On June 7, 2007 the minimum was achieved with the sale and
acceptance of 12.30 Units. The net proceeds of $1,070,100 were
forwarded to the Company at that time and the balance of the proceeds, $159,900,
was paid to Dawson. The Company executed Notes in the principal
amount of $1,230,000 and issued warrants to purchase 1,230,000 shares of common
stock to the note holders. The value of these warrants was determined
by management to be $734,583. The value of the warrants was recorded as a
discount on the Notes and is being charged to interest expense and accreted to
the balance of the Notes over the life of the Notes. As at December
31, 2008 and 2007 $416,599 and $317,984 were charged to interest expense and $0
and $416,599 remain unamortized, respectively.
Upon
completion of this first round of the offering the Company issued warrants to
Dawson to purchase 246,000 shares of common stock. The value of these warrants
was determined by management to be $146,917. The value of the warrants and the
cash commission paid to Dawson was recorded as deferred financing costs and is
being amortized to interest expense over the life of the Notes. As at
December 31, 2008 and 2007 $85,701 and $61,216 were charged to
interest expense and $0 and $85,701 remain to be
amortized, respectively.
On July
2, 2007 the second and final round of the offering was completed with the
acceptance of an additional 14.85 Units. The net proceeds of $1,291,950 were
forwarded to the Company at that time and the balance of the proceeds, $193,050,
was paid to Dawson. The Company executed Notes in the principal amount of
$1,485,000 and issued warrants to purchase 1,485,000 shares of common stock to
the note holders. The value of these warrants was determined by management to be
$896,523. The value of the warrants was recorded as a discount on the Notes and
is being charged to interest expense and accreted to the balance of the Notes
over the life of the Notes. As at December 31, 2008 and 2007 $447,033 and $
449,490 were charged to interest expense and $0 and $447,033 remain unamortized,
respectively.
Upon
completion of the second round of the offering the Company issued warrants to
Dawson to purchase 297,000 shares of common stock. The value of these warrants
was determined by management to be $179,305. The value of the warrants and the
cash commission paid to Dawson was recorded as deferred financing costs and is
being amortized to interest expense over the life of the Notes. As at
December 31, 2008 and 2007 $97,800 and $81,505 were charged to interest expense
and $0 and $97,800 remain to be amortized, respectively.
In July
2008, the original notes were renegotiated with half due in March of 2009 and
the other half would be automatically extended to December 2009. One half was
paid in March 2009 with the other half due December 2009. The warrants were
re-priced with one half re-priced at 10 cents per warrant and one half repriced
at 75 cents per warrant (the half re-priced at 75 cents per warrant would have
been re-priced to 20 cents per warrant if the company did not pay half the notes
by March 31, 2009). The price was reset to $245,150. As of December 31, 2008,
$113,657 was charged to interest expense and $131,493 remains to be
amortized.
The
interest rate was 15% on the original notes and the renegotiated
notes. The maturity date of the original notes was June 30, 2007 and
the renegotiated notes were March 31, 2008 with an automatic extension to
December 31, 2008 if certain conditions were met.
The
Company incurred deferred financing costs of $34,044 associated with the
offering in the form of legal and blue sky fees.
The Notes
are convertible into the Company’s common stock if the Company commences a
Qualified Offering prior to the maturity date of the Notes. In lieu of repayment
of principal and interest on the Notes, the Holder of the Notes may acquire
Company securities in the amount of such principal and interest at a purchase
price equal to 85% of the price per security sold in the Qualified
Offering. In this regard, a Qualified Offering means the completion
of an offering or offerings of Company securities, including any offering of
debt or equity securities, or securities convertible into debt or equity
securities, in an amount not less than $3.0 million. At this time the
Company has not completed a Qualified Offering. In addition, if the Company
fails to register the shares underlying the warrants upon notice by the holders
of more that 50% of the warrants within three weeks with the Securities and
Exchange Commission, the warrant holders can require the Company to tender the
warrants to the Company for a sum equal to the number of warrants outstanding
multiplied by the current market value less the exercise price of the warrants.
As of December 31, 2008, No notice has been received by the Company. The
warrants expire at various dates through July, 2012. As of December 31, 2008,
the Company has not recorded any liability for the exercise of the
warrants.
The net
proceeds from the offering were used for general corporate and working capital
needs.
The note
payable due to a related party of $150,000 was signed on June 12, 2008 and
extended on September 12, 2008 to a new maturity date of June 15,
2009. The note incurs interest at a rate of 15%
annually. During 2008 $12,452 was charged to interest expense and
$12,452 of accrued interest is included in accrued expenses. All accrued
interest on this note as of December 31, 2008 was paid in January 2009 and the
principal and accrued interest from January 1, 2009 was paid in full during
March of 2009.
F-14
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
Modification of the
Notes
The Notes
are convertible into the Company’s common stock if the Company commences a
Qualified Offering prior to the maturity date of the Notes. In lieu of repayment
of principal and interest on the Notes, the Holder of the Notes may acquire
Company securities in the amount of such principal and interest at a purchase
price equal to 85% of the price per security sold in the Qualified
Offering. In this regard, a Qualified Offering means the
completion of an offering or offerings of Company securities, including any
offering of debt or equity securities, or securities convertible into debt or
equity securities, in an amount not less than $3.0 million. At this
time the Company has not commenced a Qualified Offering and has no plans to do
so.
The Notes
matured in June, 2008 and the discount was amortized over the life of the note.
In July 2008, the original notes were renegotiated with half due in March of
2009 and the other half would be automatically extended to December 2009 upon
payment of the March 31, 2009 principal balance. One half was paid in March 2009
with the other half due December 2009. The warrants were re-priced with one
half re-priced at 10 cents per warrant and one half repriced at 75 cents per
warrant (the half re-priced at 75 cents per warrant would have been re-priced to
20 cents per warrant if the company did not pay half the notes by March 31,
2009). The fair value of the options was reset to $245,150. As of December 31,
2008, $113,657 was charged to interest expense and $131,493 remains to be
amortized.
The
Company has agreed with Dawson James Securities, Inc., as the Note holders Agent
to the following revisions to the terms of the Notes and warrants:
The Notes
to be secured by the Company's accounts receivable and an assignment of any
proceeds received by the Company from any actions for past claims from legal
action against or settlement with insurance carriers. The proceeds from the
legal actions would be given to the note holders.
|
▪
|
The
note holders have a first priority lien. The lien and security interest of
the receivables would be released to make available as collateral for
financing facility, if, $1.0 million is paid to reduce the principal
balance outstanding.
|
|
▪
|
The
maturity date of the notes was extended to March 31, 2009. If 50% or more
of the Notes have been repaid pro rata to the Note holders, by March 31,
2009, and there are no other outstanding defaults on the provisions of the
Note, then maturity date shall be automatically extended to December 31,
2009 on any remaining balance and accrued
interest.
|
|
▪
|
The
Company will make two monthly payments into an escrow account (Restricted
Cash) jointly controlled by the Company and Dawson James Securities
Inc.
|
|
▪
|
One
monthly installment of $50,000 beginning in August, 2008 (increasing to
$65,000 beginning in January 2009) will be for the benefit of Note holders
and distributed pro rata to the Note holders. The timing of the
distribution will be determined by Dawson James Securities
Inc.
|
|
▪
|
An
additional monthly installment of $52,000 beginning in the third quarter
of 2008, a holdback of the principals compensation, is being escrowed as
additional collateral for the repayment of the
Note.
|
|
▪
|
If
50% of the Notes are not repaid by March 31, 2009, then the escrow shall
be distributed to the Note holders. If the Notes are extended to December
31, 2009, the monthly holdback escrow will continue and the escrowed
amounts held until maturity and used to pay off the principal balance of
the note then outstanding.
|
|
▪
|
within
five (5) business days of approving any individual expenses in excess of
$25,000 and/or any expenditure not in the ordinary course of business, the
Company shall deliver to the Note Holders Agent a copy of the relevant
board or audit committee minutes or written consent setting forth the
resolutions approving such
expense(s).
|
F-15
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
|
▪
|
The
Company will not, in any form or any manner, increase or add to the
compensation and/or benefits received the four principals unless
unanimously consented to by the independent members of the board of
directors.
|
As of
December 31, 2008, we are in compliance with all the covenants
As of
December 31, 2008, the Company has made a total of $373,653 to the escrow which
is broken down into two parts: (1) interest and (2)
holdbacks. Interest due to the note holders is paid on a periodic
basis.
The $2.00
per share warrants issued in 2007 to the Note holders upon the issuance of the
original notes has been modified as follows:
|
▪
|
The
exercise price has been re-priced to $0.10 for half the warrants and to
$0.75 for the remaining half of the
warrants.
|
|
▪
|
If
the Note holders have not been repaid 50% or more of their principal by
March 31, 2009, then the warrants price at $0.75 will be re-priced to $.20
per share. The Company has treated the re-pricing of these warrants as a
contingency.
|
|
▪
|
All
warrants will expire four years from the execution date of the loan
modification and any extension agreements
thereof.
|
The Note
holders received new warrants in exchange for old warrants for the extension of
the debt. The value of the new warrants issued with the debt is
recorded as a discount and amortized to interest expense. APB 14
states from the point of view of the issuer, the sales of a debt security with
warrants results in a lower cash interest cost than otherwise be possible or
permits financing not otherwise practicable.
The
incremental value of 50% of the warrants using the $0.10 exercise price is
expensed over the period from the modification date (July 23, 2008) to December
31, 2009. The incremental value of the remaining 50% of the warrants
using the $0.75 exercise price is expensed over the modification date (July 23,
2008) to March 31, 2009 The interpretation is from paragraph 51 of
SFAS 123R. The paragraph states a modification of the terms or
conditions of an equity award shall be treated as an exchange of the original
award for a new award. In substance, the entity repurchases the
original instrument by issuing a new instrument of equal or greater value,
incurring additional compensation cost for any incremental value.
Due Dates of Notes
Payable
The first
12.30 Units, in the principal amount of $1,230,000 plus accrued interest of
$187,575 matures on June 7, 2008. The second 14.85 Units in the
principal amount of $1,485,000 plus accrued interest of $226,462 matures on July
2, 2008. In July 2008, the original notes were renegotiated
with half due in March of 2009 and the other half would be automatically
extended to December 2009 upon payment of the March 31, 2009 principal balance.
One half was paid in March 2009 with the other half due December 2009. The
warrants were re-priced with one half re-priced at 10 cents per warrant and one
half repriced at 75 cents per warrant (the half re-priced at 75 cents per
warrant would have been re-priced to 20 cents per warrant if the company did not
pay half the notes by March 31, 2009). The fair value of the options was reset
to $245,150. As of December 31, 2008, $113,657 was charged to interest expense
and $131,493 remains to be amortized.
NOTE 7 – NOTES
PAYABLE
The note
due to a related party of $150,000 was signed on June 12, 2008 and extended on
September 12, 2008 to a new maturity date of June 15, 2009. The note
incurs interest at a rate of 15% annually. During 2008, $12,452 was
charged to interest expense and $12,452 of accrued interest is included in
accrued expenses.
NOTE 8 - RELATED PARTY
TRANSACTIONS
In 2007
Mr. Olmo-Rivas’s sister returned to the company’s employment from the billing
company.
In June
of 2008 Mr. Chamberlain loaned the company $150,000 (see Note 7).
The
Company has compensation arrangements in place with four of its significant
shareholders for services rendered to the Company directly by them or by
entities controlled by them (see Note 4).
Mr.
Elgamal and Mr. Olmo-Rivas, executive officers of the Company, pursuant to
multiple year employment agreements that were renewed, amended and revised in
2006 and 2007 are each entitled to receive annual cash compensation of $564,400
plus health, life and disability insurance coverage and a bonus of 2% of the
increase, year over year, of the gross revenue of the company (see Note
4).
F-16
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
The
Company renewed, amended and revised Ten year service agreements with
corporations owned by Mr. Elgamal and Mr. Olmo-Rivas. The agreements
automatically renew at maturity unless cancelled by either party with sixty days
written notice. The corporations were each paid a monthly expense fee of $11,000
during 2007. Each agreement includes an option to purchase 5% of any shares
issued by the Company during the term of these agreements at a discounted price
equal to 25% of the closing price on the date the shares are issued by the
Company. Mr. Elgamal and Mr. Olmo-Rivas have waived their rights to
the options under the agreements for the years ended December 31, 2007, and
2006. These agreements also include an annual bonus to each valued at 2% of
the increase, year over year, of the gross revenue of the company to be paid
during the first quarter of the current fiscal year for the increase in gross
revenue in the prior year. Mr. Elgamal and Mr. Olmo have waived the
right to this bonus for the years ending December 31, 2007 and 2006. The
employment agreements for Mr. Elgamal and for Mr. Olmo-Rivas include an early
termination provision that proscribes a contract termination payment to either
officer equal to $3,000,000 if the Company terminates their service agreements
without cause or for a cause that is less than a conviction of a federal felony
prior to the expiration date, as renewed.
In
November 2005, Mr. Chamberlain and Mr. Chapa, senior consultants of the Company,
entered into employment agreements with the Company and corporations owned by
them entered in to consulting agreements with the Company. Pursuant
to these multiple year agreements, Mr. Chamberlain and Mr. Chapa are each
entitled to receive annual cash compensation (salaries and/or consulting fees)
of $344,000, and health and disability insurance coverage and their closely held
corporations earn a fee of $6,000 per month. Each consulting agreement
includes an option to purchase 5% of any shares issued by the Company during the
term of these agreements at a discount price equal to 25% of the closing price
on the date the shares are issued by the Company. Mr. Chamberlain and Mr. Chapa
have waived all rights to these options for the years 2007, 2006 and 2005. The
consulting agreements include an early termination provision that proscribes a
contract termination payment to either shareholder equal to $3,000,000 if the
Company terminates the agreements without cause prior to the expiration date, as
renewed.
NOTE 9 -
EQUITY
Stock Issued for
Services
In
January 2007, the Company issued 100,000 shares of common stock for consulting
and strategic business planning services, with a fair value of
$220,000.
Deferred
Compensation
In
November 2005, the Company issued 1,428,573 shares of common stock to Mr.
Chamberlain and Mr. Chapa for future services under consulting agreements ending
in November 2010. The value of these shares was determined to be
$250,000 based on a recent cash offering price. The Company expensed
$50,000 in 2008, 2007 and 2006. The unamortized balance at December 31, 2008 of
$93,750 will be amortized on a straight-line basis over the remaining life of
the agreements.
Stock Issued for
Cash
In April
2006, the Company issued 10,089 shares of common stock to individuals for total
cash of $30,000.
In May
2006, the Company issued 857 shares of common stock to individuals for total
cash of $2,550.
Stock Issued to
Directors
In March
2007, the Company issued 25,000 shares of common stock to the lead independent
director as part of his initial board fees, with a fair value of
$55,000.
Options Issued to
Directors/Officers
In March
2007, Mr. Elgamal and Mr. Olmo-Rivas were each granted options to purchase
250,000 shares of common stock. The options vest quarterly on a
ratable basis over 3 years. The Company also granted 75,000 options
to the lead independent director and 25,000 options to each of the other two
independent directors.
Stock Options and
Warrants
The fair
market value of the stock options at the date of grant was estimated using the
Black-Scholes option-pricing model with the following assumptions:
Expected
Life
|
3
to 5 years
|
Interest
Rate
|
4.25%
|
Dividend
Yield
|
$0
|
Volatility
|
28%
|
Forfeiture
Rate
|
0
|
F-17
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
Expected
life represents the period of time that options are expected to be outstanding
and is based on the Company’s historical experience or the simplified method, as
permitted by SEC Staff Accounting Bulletin No. 107 where appropriate. The
risk-free interest rate is based on U.S. Treasury interest rates at the time of
the grant whose term is consistent with the expected life of the stock
options.
Expected
dividend yield was considered to be $0 in the option pricing formula since the
Company does not pay dividends and has no current plans to do so in the future.
Expected volatility is based on the Company’s historical experience. The
forfeiture rate was considered to be none insofar as the historical experience
of the Company is very limited. As required by SFAS No. 123(R), the Company
will adjust the estimated forfeiture rate based upon actual
experience.
The
Company recognized an expense of $107,695 and $245,150 for stock options and
warrants earned during the twelve months ended December 31, 2008,
respectively.
The
following tables summarize all stock option grants as of December 31, 2008 and
2007, and the related changes during these periods are presented
below.
Number
of
Options
|
Weighted
Average Exercise Price
|
|||||||
Stock Options
|
||||||||
Balance
at December 31, 2006
|
||||||||
Granted
|
783,000
|
$
|
2.23
|
|||||
Exercised
|
-
|
|||||||
Forfeited
|
-
|
|||||||
Balance
at December 31, 2007
|
783,000
|
2.23
|
||||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
|||||||
Forfeited
|
-
|
|||||||
Balance
at December 31, 2008
|
783,000
|
2.23
|
||||||
Options
exercisable at December 31, 2008
|
585,083
|
$
|
2.23
|
|||||
Weighted
average fair value of options granted during 2008
|
-
|
Of the
total options granted, 585,083 are fully vested, exercisable and
non-forfeitable.
F-18
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
The
following tables summarize information about stock options for the Company
at December 31, 2008 and 2007:
2008
Options Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of Exercise Price
|
Number
Outstanding
at
December 31, 2008
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
December 31, 2008
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$ | 1.00 – 2.00 | 703,000 | 1.08 | $ | 2.20 | 505,083 | $ | 2.20 | ||||||||||||||
$ | 2.01 – 3.10 | 80,000 | 1.89 | $ | 2.43 | 80,000 | $ | 2.43 |
2007
Options Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of Exercise Price
|
Number
Outstanding
at
December 31, 2007
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
December 31, 2007
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$ | 1.00 – 2.00 | 703,000 | 2.09 | $ | 2.20 | 270,750 | $ | 2.20 | ||||||||||||||
$ | 2.01 – 3.10 | 80,000 | 2.89 | $ | 2.43 | 65,000 | $ | 2.27 |
The
following tables summarize all stock warrants granted as of December 31, 2008
and 2007, and the related changes during these periods are presented
below.
Number
of
Warrants
|
Weighted
Average Exercise Price
|
|||||||
Stock Warrants
|
||||||||
Balance
at December 31, 2006
|
-
|
|||||||
Granted
|
3,258,000
|
$
|
2.00
|
|||||
Exercised
|
-
|
|||||||
Forfeited
|
-
|
|||||||
Balance
at December 31, 2007
|
3,258,000
|
2.00
|
||||||
Granted
|
||||||||
Exercised
|
||||||||
Forfeited
|
||||||||
Repriced
|
(2,715,000
|
)
|
(2.00
|
)
|
||||
Repriced
|
2,715,000
|
0.43
|
||||||
Balance
at December 31, 2008
|
3,258,000
|
0.53
|
||||||
Warrants
exercisable at December 31, 2008
|
3,258,000
|
$
|
0.53
|
|||||
Weighted
average fair value of warrants granted during 2008
|
-
|
Of the
total warrants granted, all 3,258,000 are fully vested, exercisable and
non-forfeitable.
F-19
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
2008, 2007 AND 2006
The
following tables summarize information about stock warrants for the Company
at December 31, 2008 and 2007:
2008
Warrants Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of Exercise Price
|
Number
Outstanding
at
December
31, 2008
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at
December 31, 2008
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
$ | 0.10 – 0.75 | 2,715,000 | 1.56 | $ | 0.43 | 2,715,000 | $ | 0.43 | ||||||||||||||
$ | 2.00 | 543,000 | 2.42 | $ | 2.00 | 543,000 | $ | 2.00 |
2007
Warrants Outstanding
|
Options
Exercisable
|
||||||||||
Range
of Exercise Price
|
Number
Outstanding
at December 31, 2007
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
December 31, 2007
|
Weighted
Average Exercise Price
|
||||||
$
|
2.00
|
3,258,000
|
2.71
|
$
|
2.00
|
3,258,000
|
$
|
2.00
|
NOTE 10- SUBSEQUENT
EVENTS
January
20, 2008 the independent members of the Board of Directors upon the
recommendation, of the Compensation Committee approved the reinstatement of the
expense and salary reductions taken in the second and third quarter of 2008 for
the four principals (Mr. Elgamal, Mr. Jamie Olmo-Rivas, Mr. Bland Chamberlain
and Mr. Jose Chapa) of the Company. In addition, 1,000,000 common
share options were granted to Mr. Elgamal, and Mr. Jaime
Olmo-Rivas. The Board also approved a 10% raise, a onetime bonus of
$18,000 and 800,000 common share options to Jim Longaker, CFO.
The Board
also approved 250,000 common stock options each to the other two Principals, Mr.
Chamberlain and Mr. Chapa and 100,000 common share options to each of the three
independent board members. The Board also approved the reinstatement
of their compensation from 80% to 100%.
February,
2009, we reached an agreement with Coastal Surgical Assistants
in Virginia to join the Company. The agreement
becomes effective March 1, 2009. The agreement gives the current
owner $50,000 in cash upon execution, a salary, 50,000 shares of common stock
and an incentive bonus based on profits.
In March 2009, the
$150,000 note at 15% interest to a related party with accrued interest was paid
in full.
F-20
Item
1. Financial Information
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH Corp.)
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
CONTENTS
PAGE
|
F-1
|
CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND
DECEMBER 31, 2008
|
PAGE
|
F-2
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2009 (UNAUDITED) AND 2008 (UNAUDITED)
|
PAGE
|
F-3
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY (UNAUDITED)
|
PAGE
|
F-4
– F-5
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2009 (UNAUDITED) AND 2008 (UNAUDITED)
|
PAGE
|
F-6 –
F-14
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||
(formerly
ASAH Corp.)
|
||||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
||||||||
AS
OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
|
||||||||
|
||||||||
SEPTEMBER
30,
|
DECEMBER
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
(UNAUDITED)
|
|
||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 2,727,880 | $ | 431,731 | ||||
Restricted
cash
|
- | 373,653 | ||||||
Accounts
receivable, net
|
3,510,229 | 3,443,471 | ||||||
Advances
to employees
|
35,415 | 13,100 | ||||||
Prepaid
expenses and other current assets
|
30,411 | 4,708 | ||||||
TOTAL
CURRENT ASSETS
|
6,303,935 | 4,266,663 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
39,477 | 55,697 | ||||||
HOSPITAL
CONTRACT COSTS & NON-COMPETE, NET
|
25,167 | - | ||||||
TOTAL
ASSETS
|
$ | 6,368,579 | $ | 4,322,360 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 128,491 | $ | 186,059 | ||||
Accrued
income tax
|
245,514 | 31,234 | ||||||
Accrued
salaries, bonuses & payroll taxes
|
1,221,356 | 483,615 | ||||||
Note
payable, related party
|
- | 150,000 | ||||||
Convertible
Notes payable, net of unamortized discount
|
||||||||
of
$0 and $767,474
|
- | 2,583,507 | ||||||
TOTAL
CURRENT LIABILITIES
|
1,595,361 | 3,434,415 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock, $0.001 par value, 10,000,000 shares
|
||||||||
authorized,
none issued and outstanding
|
||||||||
Common
stock, $0.001 par value, 100,000,000 shares
|
||||||||
authorized,
9,609,012 and 8,425,484 shares issued
|
||||||||
and
outstanding
|
9,609 | 8,425 | ||||||
Additional
paid-in capital
|
3,595,050 | 3,295,226 | ||||||
Deferred
compensation
|
(56,250 | ) | (93,750 | ) | ||||
Retained
earnings (Accumulated deficit)
|
1,224,809 | (2,321,956 | ) | |||||
TOTAL
STOCKHOLDERS' EQUITY
|
4,773,218 | 887,945 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 6,368,579 | $ | 4,322,360 | ||||
See
accompanying notes to condensed consolidated financial
statements.
|
F-1
(formerly
ASAH Corp.)
|
||||||||||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
FOR
THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2009
|
||||||||||||||||
(UNAUDITED)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
Sep.
30,
|
Sep.
30,
|
Sep.
30,
|
Sep.
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues,
net
|
$ | 6,724,758 | $ | 3,072,479 | $ | 16,702,850 | $ | 7,678,077 | ||||||||
Cost
of revenues
|
2,198,857 | 1,810,510 | 6,115,198 | 5,302,845 | ||||||||||||
GROSS
PROFIT
|
4,525,901 | 1,261,969 | 10,587,652 | 2,375,232 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
General
and Administration
|
317,829 | 291,429 | 1,496,391 | 1,090,429 | ||||||||||||
Salaries
|
1,172,475 | 446,890 | 3,186,009 | 1,680,924 | ||||||||||||
Rent
|
23,699 | 27,291 | 68,981 | 72,867 | ||||||||||||
TOTAL
OPERATING EXPENSES
|
1,514,003 | 765,610 | 4,751,381 | 2,844,220 | ||||||||||||
NET
INCOME ( LOSS) FROM OPERATIONS
|
3,011,898 | 496,359 | 5,836,271 | (468,988 | ) | |||||||||||
Other
income (expense)
|
||||||||||||||||
Interest
expense
|
- | (160,331 | ) | (280,583 | ) | (1,451,766 | ) | |||||||||
Interest
income
|
3,306 | 709 | 5,357 | 5,080 | ||||||||||||
TOTAL
OTHER INCOME (EXPENSE)
|
3,306 | (159,622 | ) | (275,226 | ) | (1,446,686 | ) | |||||||||
INCOME
(LOSS) FROM OPERATIONS
|
3,015,204 | 336,737 | 5,561,045 | (1,915,674 | ) | |||||||||||
(Provision
for) benefit from income taxes
|
(1,052,734 | ) | - | (2,014,280 | ) | 79,042 | ||||||||||
NET
INCOME (LOSS)
|
$ | 1,962,470 | $ | 336,737 | $ | 3,546,765 | $ | (1,836,632 | ) | |||||||
Net
income (loss) per share basic
|
$ | 0.23 | $ | 0.04 | $ | 0.42 | $ | (0.22 | ) | |||||||
Net
income (loss) per share diluted
|
$ | 0.17 | $ | 0.04 | $ | 0.40 | $ | (0.22 | ) | |||||||
Weighted
average number of shares
|
||||||||||||||||
Outstanding
during the period - basic
|
8,537,261 | 8,425,484 | 8,507,841 | 8,425,484 | ||||||||||||
Outstanding
during the period - diluted
|
11,275,979 | 8,425,484 | 8,938,964 | 8,425,484 | ||||||||||||
See
accompanying notes to condensed consolidated financial
statements
|
F-2
(formerly
ASAH Corp.)
|
||||||||||||||||||||||||||||||||
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||
FOR
THE PERIOD ENDING SEPTEMBER 30, 2009
|
||||||||||||||||||||||||||||||||
(UNAUDITED)
|
||||||||||||||||||||||||||||||||
Retained
|
||||||||||||||||||||||||||||||||
Additional
|
Earnings/
|
Total
|
||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-in
|
Deferred
|
(Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit)
|
Equity
|
|||||||||||||||||||||||||
Balances,
December 31, 2008
|
- | $ | - | 8,425,484 | $ | 8,425 | $ | 3,295,226 | $ | (93,750 | ) | $ | (2,321,956 | ) | $ | 887,945 | ||||||||||||||||
Common
Stock issued in acquisition
|
- | 100,000 | 100 | 19,900 | - | - | 20,000 | |||||||||||||||||||||||||
Deferred
compensation
|
- | - | - | - | - | 37,500 | - | 37,500 | ||||||||||||||||||||||||
Options
issued to officers
|
- | - | - | - | 162,880 | - | - | 162,880 | ||||||||||||||||||||||||
Options
issued to employees
|
- | - | - | - | 10,471 | - | - | 10,471 | ||||||||||||||||||||||||
Options
issued to directors
|
- | - | - | - | 17,024 | - | - | 17,024 | ||||||||||||||||||||||||
Stock
issued for options
|
- | - | 886,028 | 886 | 69,996 | - | - | 70,882 | ||||||||||||||||||||||||
Stock
issued for warrants
|
- | - | 197,500 | 198 | 19,553 | - | - | 19,751 | ||||||||||||||||||||||||
Net
Income
|
- | - | - | - | - | - | 3,546,765 | 3,546,765 | ||||||||||||||||||||||||
Balances,
September 30, 2009
|
- | $ | - | 9,609,012 | $ | 9,609 | $ | 3,595,050 | $ | (56,250 | ) | $ | 1,224,809 | $ | 4,773,218 | |||||||||||||||||
See
accompanying notes to condensed consolidated financial
statements.
|
F-3
(formerly
ASAH Corp.)
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
FOR
NINE MONTHS ENDING SEPTEMBER 30, 2009
|
||||||||
(UNAUDITED)
|
||||||||
SEP.
30,
|
SEP.
30,
|
|||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
(loss) income
|
$ | 3,546,765 | $ | (1,836,632 | ) | |||
Adjustments
to reconcile net (loss) income to net cash
|
||||||||
(used
in) provided by operating activities:
|
||||||||
Depreciation
and amortization
|
61,054 | 30,116 | ||||||
Provision
for uncollectible accounts
|
(19,000 | ) | - | |||||
Amortization
of deferred financing costs
|
- | 322,521 | ||||||
Amortization
of discount of convertible notes payable
|
131,493 | 571,435 | ||||||
Deferred
compensation
|
37,500 | 37,500 | ||||||
Options
issued for services
|
10,471 | 20,214 | ||||||
Options
issued to officers
|
162,880 | 58,655 | ||||||
Options
issued to directors
|
17,024 | 10,602 | ||||||
Value
of warrants issued to note holders
|
- | 245,150 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)Decrease
in accounts receivable, net
|
(47,758 | ) | (895,034 | ) | ||||
(Increase)
Decrease in advances to employees
|
(22,315 | ) | (4,005 | ) | ||||
(Increase)
Decrease in prepaid expenses
|
(25,703 | ) | 12,889 | |||||
(Increase)
Decrease in FIT receivable
|
- | 575,408 | ||||||
Increase
(Decrease) in accounts payable and accrued expenses
|
(57,568 | ) | (25,770 | ) | ||||
Increase
(Decrease) in accrued salaries & payroll taxes
|
737,741 | 280,521 | ||||||
Increase
(Decrease) in accrued taxes
|
214,280 | (95,471 | ) | |||||
Net
cash (used in) provided by operating activities
|
4,746,863 | (691,901 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
(Increase)
Decrease in restricted cash
|
373,653 | (154,120 | ) | |||||
Purchase
of hospital contracts & non-compete
|
(50,000 | ) | - | |||||
Purchase
of property and equipment
|
- | (3,941 | ) | |||||
Net
cash provided by investing activities
|
323,653 | (158,061 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment
of note payable from related party
|
(150,000 | ) | 150,000 | |||||
Issuance
of common stock for options & warrants
|
90,633 | - | ||||||
Repayment
of convertible notes payable
|
(2,715,000 | ) | - | |||||
Net
Cash used in financing activities
|
(2,774,367 | ) | 150,000 | |||||
NET
INCREASE (DECREASE) IN CASH
|
2,296,149 | (699,962 | ) | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING
|
||||||||
OF
PERIOD
|
431,731 | 1,145,359 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 2,727,880 | $ | 445,397 | ||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Cash
paid for income taxes
|
$ | 1,800,000 | $ | 16,427 | ||||
Cash
paid for interest expense
|
$ | 226,053 | $ | 423,716 | ||||
SUPLEMENTAL
NON-CASH DISCLOSURE
|
||||||||
Stock
issued in acquisition
|
$ | 20,000 | $ | - | ||||
See
accompanying notes to condensed consolidated financial
statements.
|
F-4
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
|
(formerly
ASAH Corp.)
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR
NINE MONTHS ENDING SEPTEMBER 30, 2009
|
(UNAUDITED)
|
Sept.
30, 2009
|
Sept.
30, 2008
|
|||||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
||||||
Cash
paid for income taxes
|
$ | 1,800,000 | $ | 16,427 | ||||
Cash
paid for interest expense
|
$ | 226,053 | $ | 423,716 | ||||
SUPLEMENTAL
NON-CASH DISCLOSURE
|
||||||||
Stock
issued in acquisition
|
$ | 20,000 | $ | - | ||||
See
accompanying notes to condensed consolidated financial
statements.
|
F-5
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30,
2009
(UNAUDITED)
NOTE 1 - BASIS OF
PRESENTATION
The
accompanying consolidated, condensed unaudited financial statements are
presented in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q under the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal occurring accruals)
considered necessary in order to make the financial statements not misleading,
have been included. The financial statements are presented on the accrual
basis.
These
financial statements should be read in conjunction with the Company’s audited
financial statements and the accompanying notes included in the Company’s Form
10-K for the year ended December 31, 2008, filed with the SEC. The results of
operations for the three and nine month periods ended September 30, 2009, are
not necessarily indicative of the results to be expected for any subsequent
quarter or for the entire fiscal year.
Organization
Through
our wholly owned subsidiary, ASA, Inc. we provide professional surgical
assistant services to patients, surgeons, and healthcare institutions. Our high
quality services results in cost savings for patients, insurance carriers,
hospitals, surgeons, and healthcare institutions without compromising the
quality of patient care. We are certified by The Joint Commission, (Formerly
Joint Commission on Accreditation of Healthcare Organizations
(JCAHO).
Surgical
assistants are highly skilled, fully trained professionals credentialed through
an extensive process similar to that utilized to evaluate physicians. These
assistants are an integral part of the surgical team and they provide their
services to surgeons and their patients. These services include, but are not
limited to; identification of anatomical landmarks, securing blood vessels,
recognizing pathological situations and providing and securing adequate, safe
and proper assistance in exposure of the operative field, closure of the
surgical wound, and the application of casts and dressings. They also perform
other duties within the scope of their professional license as instructed or
delegated by the operating surgeon. ASA surgical assistants are trained in
general surgery, obstetrics, gynecology, orthopedic surgery, plastic surgery,
urology, cardiovascular surgery, neurosurgery and other surgical disciplines.
ASA’s recruiting strategies are designed to attract and retain surgical
assistant professionals from both domestic and international
sources.
We market
our services to hospitals, surgeons and healthcare facilities. Presently, we
provide service in Houston, San Antonio and Corpus Christi, Texas, Lawton,
Oklahoma and Suffolk, Virginia. We plan to extend our services to other
healthcare facilities in Texas and ultimately, we plan to offer our services
throughout the country.
Our
business model is designed to accommodate various modalities to suit our
licensed and/or certified professionals to work either as full time salaried
employees, hourly employees or independent contractors. Currently, we have a
total of eighty three (83) surgical assistants, of which sixty eight (68) are
full or part time employees and fifteen (15) are independent contractors. We
also have twenty (20) full time administrative and billing
employees.
Basis
of Financial Statement Preparation
These
unaudited condensed consolidated financial statements of American Surgical
Holdings, Inc., and its subsidiaries should be read in the context of the
consolidated financial statements and notes thereto filed with the Securities
and Exchange Commission in the Company’s 2008 Annual Report on Form
10-K. In the opinion of the Corporation, the information furnished herein
reflects all known accruals and adjustments necessary for a fair statement of
the results for the periods reported herein. All such adjustments are of a
normal recurring nature. Intercompany transactions and balances have been
eliminated.
Cash
and cash equivalents
The
Company considers all highly liquid investments with an original maturity at
acquisition of three months or less to be cash equivalents.
F-6
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30,
2009
(UNAUDITED)
Use
of estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant
estimates include revenue recognition, the allowance for doubtful accounts, and
share-based compensation. These estimates have the potential to have a
significant impact on our financial statements, either because of the
significance of the financial statement item to which they relate, or because
they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in
nature.
Income
taxes
The
Company records deferred taxes in accordance with FASB Accounting Standards
Codification No. 740, Income
Taxes. The statement requires recognition of deferred tax assets and
liabilities for temporary differences between the tax bases of assets and
liabilities and the amounts at which they are carried in the financial
statements, based upon the enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Stock-based
compensation
The
Company accounts for its stock-based compensation under the provisions of FASB
Accounting Standards Codification No. 718, Compensation – Stock
Compensation. Under FASB Accounting Standards Codification No 718, the
Company is permitted to record expenses for stock options and other employee
compensation plans based on their fair value at the date of grant. Any such
compensation cost is charged to expense on a straight-line basis over the
periods the options vest. If the options had cashless exercise provisions, the
Company utilizes variable accounting.
Common
stock, stock options and common stock warrants issued to other than employees or
directors are recorded on the basis of their fair value, as required by FASB
Accounting Standards Codification No. 718, which is measured as of the date
required by FASB Accounting Standards Codification No. 505, Equity Based Payments to
Non-Employees. In accordance with FASB Accounting Standards Codification
No. 505, the stock options or common stock warrants are valued using the
Black-Scholes model on the basis of the market price of the underlying common
stock on the valuation date, which for options and warrants related to contracts
that have substantial disincentives to non-performance is the date of the
contract, and for all other contracts is the vesting date. Expense related to
the options and warrants is recognized on a straight-line basis over the shorter
of the period over which services are to be received or the vesting period.
Where expense must be recognized prior to a valuation date, the expense is
computed under the Black-Scholes model on the basis of the market price of the
underlying common stock at the end of the period, and any subsequent changes in
the market price of the underlying common stock up through the valuation date is
reflected in the expense recorded in the subsequent period in which that change
occurs.
Expected
dividend yield was considered to be $0 in the option pricing formula since the
Company does not pay dividends and has no current plans to do so in the future.
Expected volatility is based on the Company’s historical experience. The
forfeiture rate was considered to be none insofar as the historical experience
of the Company is very limited. As required by FASB Accounting Standards
Codification No. 718, the Company will adjust the estimated forfeiture rate
based upon actual experience.
The
Company recognized a fair market value of $190,375 for stock options earned for
the nine months ended September 30, 2009.
F-7
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF SEPTEMBER 30,
2009
(UNAUDITED)
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with FASB Accounting
Standards Codification No. 260, Earnings Per Share. FASB
Accounting Standards Codification No 260 requires presentation of both basic and
diluted earnings per share (EPS) on the face of the income statement. Basic EPS
is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period using the treasury stock method and
convertible preferred stock using the if-converted method. In computing diluted
EPS, the average stock price for the period is used in determining the number of
shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS excludes all dilutive potential shares if their effect is anti
dilutive. The Company’s outstanding stock options were 3,618,972 and warrants
were 3,060,500 on September 30, 2009. 1,463,356 options and 3,060,000 warrants
were excluded from the computation of diluted earnings per share on September
30, 2009 since their effect remains anti-dilutive. The Company’s outstanding
stock options and warrants of 4,541,000 on September 30, 2008 were excluded from
the computation of diluted earnings per share since their effect remains
anti-dilutive.
F-8
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF SEPTEMBER 30,
2009
(UNAUDITED)
The
following table sets forth the computation of basic earnings per
share
For
the three months ended
|
For
the nine months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
income (loss) for the period
|
$
|
1,962,470
|
$
|
336,737
|
$
|
3,546,765
|
$
|
(1,836,632
|
)
|
|||||||
Weighted
average number of shares
|
||||||||||||||||
outstanding
|
8,537,261
|
8,425,484
|
8,507,841
|
8,425,484
|
||||||||||||
Basic
earnings per share
|
$
|
0.23
|
$
|
0.04
|
$
|
0.42
|
$
|
(0.22
|
)
|
The
following table sets forth the computation of diluted earnings per
share
For
the three months ended
|
For
the nine months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
income (loss) for the period
|
$
|
1,962,470
|
$
|
336,737
|
$
|
3,546,765
|
$
|
(1,836,632
|
)
|
|||||||
Adjusted
net income (loss)
|
$
|
1,962,470
|
$
|
336,737
|
$
|
3,546,765
|
$
|
(1,836,632
|
)
|
|||||||
Weighted
average number of shares
|
||||||||||||||||
outstanding
|
8,537,261
|
8,425,484
|
8,507,841
|
8,425,484
|
||||||||||||
Diluted
warrants and options
|
2,738,718
|
-
|
431,123
|
-
|
||||||||||||
Weighted
average number of common
|
||||||||||||||||
and
common equivalent shares
|
11,275,979
|
8,425,484
|
8,938,964
|
8,425,484
|
||||||||||||
Diluted
earnings (loss) per share
|
$
|
0.17
|
$
|
0.04
|
$
|
0.40
|
$
|
(0.22
|
)
|
F-9
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF SEPTEMBER 30,
2009
(UNAUDITED)
Reclassification
Certain
amounts from prior periods have been reclassified to conform to the current
period presentation.
Revenue
Recognition
The
Company recognizes its revenue over the period the service is performed in
accordance with FASB Accounting Standards Codification No, 605, Revenue Recognition. In
general, FASB Accounting Standards Codification No. 605 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services
rendered, (3) the fee is fixed and determinable and (4) collectability
is reasonably assured.
Service
Fees, net are recorded based on established billing rates less estimated
discounts for insurance reimbursements and patient payments. Management also
uses historical collection data to assure the collectability of the resulting
accounts receivable. No revenue is recorded for services performed for patients
covered by Medicare and/or Medicaid.
Established
billing rates are not the same as actual pricing. They generally do not reflect
what the Company is ultimately paid and therefore are not displayed in our
Consolidated Statements of Operations. The Company is typically paid amounts
based on individual insurance company rate of discount.
The
Company also recognizes Contract Fee Revenue billed under contracts with
hospitals for providing around the clock On-Call coverage. These fees
are billed on a monthly basis throughout the respective contract period as
services are rendered.
Allowance for Doubtful
Accounts
The
Company generally provides for an allowance against accounts receivable for
amounts that may become uncollectible whereby such receivables are reduced to
their estimated net realizable value. The Company estimates this allowance based
on the aging of our accounts receivable, our historical collection experience,
and other relevant factors. There are various factors that can impact the
collection trends, such as changes in the number of uninsured patients, the
increased burden of co-payment to be made by patients, and insurance and
business practices related to collection efforts. These factors continuously
change and can have an impact on collection trends and our estimation
process.
The
Company evaluates the collectability of its receivables at least quarterly using
various factors including the financial condition and payment history on patient
accounts, an overall review of collections experience on accounts, and other
economic factors or events expected to affect the Company’s future collections
experience.
As part
of the evaluation discussed above concerning Revenue generated from Service Fees
and the appropriate Collection Percentage, the Company determined that an
allowance was necessary for the period ending September 30, 2009 in the amount
of $275,000 compared to $210,000 on December 31, 2008. This allowance is for
estimated charge backs.
Long-Lived Assets
Long-lived
assets and certain identifiable assets related to those assets are periodically
reviewed for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be
recoverable. If the non-discounted future cash flows of the
enterprise are less than their carrying amount, their carrying amounts are
reduced to fair value and an impairment loss is recognized. As of
September 30, 2009, the Company did not record any impairment of its long lived
assets.
Identifiable Intangible
Assets
Intangible
assets are stated at cost net of accumulated amortization and
impairment. Intangible assets other than goodwill are amortized over
estimated useful lives. Hospital contracts are amortized
over the life of the agreements, which is 6 months to 14
months. The non compete agreement is amortized over the life of the
agreement of one year. As of September 30, 2009, the Company
has recognized $ 44,833 of amortization expense related to the intangible
assets.
F-10
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(
F/K/A ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF SEPTEMBER 30,
2009
(UNAUDITED)
Recent
Accounting Pronouncements
In June
2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP. The
Codification will be the single source of authoritative U.S. generally accepted
accounting principles. The Codification does not change generally
accepted accounting principles, but is intended to make it easier to find and
research issues. The Codification introduces a new structure that
takes accounting pronouncements and organizes them by approximately 90
accounting topics. The Codification is effective for interim and
fiscal years ending after September 15, 2009. We adopted the
Codification on July 1, 2009. The adoption of this statement did not
have a material effect on our financial statements but did change our reference
to generally accepted accounting principles beginning in the third quarter of
2009.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing, and
FASB Accounting Standards Codification No. 810, Consolidation, which change
the way entities account for securitizations and special-purpose
entities. The new standards eliminate existing exceptions,
strengthen the standards relating to securitizations and special-purpose
entities, and enhance disclosure requirements. Both of these
statements are effective for fiscal years beginning after November 15,
2009. The adoption of these statements will not have a material
effect on our financial statements.
NOTE
2 BUSINESS ACQUISITIONS
During
February, 2009, we reached an agreement with a surgical assistant corporation,
to join the Company. The agreement became effective March 1,
2009. The agreement entitles the then owner to $50,000 in cash upon
execution and an incentive bonus based on profits, an annual base salary of
$117,000, 50,000 shares of common stock, and 50,000 shares of restricted shares
to be vested on the first anniversary of the closing date.
Purchase
Price
|
$
|
70,000
|
||
Non
Compete Agreement
|
$
|
10,000
|
||
Hospital
Contract
|
60,000
|
|||
$
|
70,000
|
F-11
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(
F/K/A ASAH Corp.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF SEPTEMBER 30,
2009
(UNAUDITED)
NOTE
3 – EQUITY
Stock Options and
Warrants
The fair
market value of the stock options at the date of grant was estimated using the
Black-Scholes option-pricing model with the following assumptions:
Expected
Life
|
3
to 5 years
|
|
Interest
Rate
|
2.25%
to 4.25%
|
|
Dividend
Yield
|
$0
|
|
Volatility
|
28%
To 280%
|
|
Forfeiture
Rate
|
0
|
Expected
life represents the period of time that options are expected to be outstanding
and is based on the Company’s historical experience or the simplified method, as
permitted by FASB Accounting Standards Codification No. 718, Compensation – Stock
Compensation where appropriate. The risk-free interest rate is based on
U.S. Treasury interest rates at the time of the grant whose term is consistent
with the expected life of the stock options.
Expected
dividend yield was considered to be $0 in the option pricing formula since the
Company does not pay dividends and has no current plans to do so in the future.
Expected volatility is based on the Company’s historical experience. The
forfeiture rate was considered to be none insofar as the historical experience
of the Company is very limited. As required by FASB Accounting Standards
Codification No. 718, the Company will adjust the estimated forfeiture rate
based upon actual experience.
The
Company recognized an expense of $190,375 for stock options earned during the
nine months ended September 30, 2009.
The
following tables summarize all stock option grants as of December 31, 2008 and
September 30, 2009, and the related changes during these periods are presented
below.
Number
of
Options
|
Weighted
Average Exercise Price
|
|||||||
Stock
Options
|
||||||||
Balance
at December 31, 2008
|
783,000
|
$
|
2.33
|
|||||
Granted
|
3,850,000
|
0.08
|
||||||
Exercised
|
886,028
|
.08
|
||||||
Forfeited
|
128,000
|
2.00
|
||||||
Balance
at September 30, 2009
|
3,618,972
|
0.50
|
||||||
Options
exercisable on September 30, 2009
|
600,616
|
$
|
2.40
|
|||||
Weighted
average fair value of options granted during 2009
|
$
|
0.08
|
F-12
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2009
(UNAUDITED)
The
following tables summarize information about stock options for the Company
at September 30, 2009 and December 31, 2008:
September
30, 2009 Options Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of
Exercise
Price
|
Number
Outstanding
at
September 30, 2009
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
September 30, 2009
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$
|
0.08
|
2,963,972
|
2.31
|
$
|
0.08
|
0
|
$
|
0.08
|
||||||||||||||
$
|
2.00
– 2.20
|
125,000
|
0.51
|
$
|
2.13
|
113,082
|
$
|
2.13
|
||||||||||||||
$
|
2.21
– 3.10
|
530,000
|
0.37
|
$
|
2.46
|
487,534
|
$
|
2.46
|
December
31, 2008 Options Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of
Exercise
Price
|
Number
Outstanding
at
December 31, 2008
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
December 31, 2008
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$
|
2.00
– 2.20
|
253,000
|
2.31
|
$
|
2.06
|
221,750
|
$
|
2.04
|
||||||||||||||
$
|
2.21
– 3.10
|
530,000
|
1.12
|
$
|
2.46
|
363,333
|
$
|
2.48
|
The
following tables summarize all stock warrants granted the end of December 31,
2008 and September 30, 2009, and the related changes during these periods are
presented below.
Number
of
Warrants
|
Weighted
Average Exercise Price
|
|||||||
Stock Warrants
|
||||||||
Balance
at December 31, 2008
|
3,258,000 | 0.69 | ||||||
Granted
|
- | |||||||
Exercised
|
197,500 | 0.10 | ||||||
Forfeited
|
- | |||||||
Balance
at September 30, 2009
|
3,060,500 | 0.68 | ||||||
Warrants
exercisable at September 30, 2009
|
3,060,500 | 0.68 | ||||||
Weighted
average fair value of warrants granted during 2009
|
- |
All
3,060,500 warrants are fully vested, exercisable and
non-forfeitable.
The
following tables summarize information about stock warrants for the Company
at September 30, 2009 and December 31, 2008:
September
30, 2009 Warrants Outstanding
|
Warrants
Exercisable
|
|||||||||||||||||||||
Range
of
Exercise
Price
|
Number
Outstanding
at
September
30, 2009
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
September 30, 2009
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$
|
0.10
– 0.75
|
2,517,500
|
0.81
|
$
|
0.45
|
2,517,500
|
$
|
0.45
|
||||||||||||||
$
|
2.00
|
543,000
|
1.67
|
$
|
2.00
|
543,000
|
$
|
2.00
|
F-13
AMERICAN
SURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A
ASAH, CORP.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2009
(UNAUDITED)
December
31, 2008 Warrants Outstanding
|
Warrants
Exercisable
|
|||||||||||||||||||||
Range
of Exercise Price
|
Number
Outstanding
at December 31, 2008
|
Weighted
Average Remaining
Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
December 31, 2008
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$
|
0.10
– 0.75
|
2,715,000
|
1.56
|
$
|
0.43
|
2,715,000
|
$
|
0.43
|
||||||||||||||
$
|
2.00
|
543,000
|
2.42
|
$
|
2.00
|
543,000
|
$
|
2.00
|
NOTE 4
COMMITMENTS:
The
Executive Employment Agreements of both Mr. Elgamal and Mr. Olmo-Rivas were
updated as of June 1, 2009. With an effective date of January 1, 2009
for an initial term of ten years, to be renewed as per terms of the Agreement, a
quarterly bonus based on percentage of increase in the annual revenue, year over
year, which replaces the annual bonus that was in the previous Agreements, and a
bi-annual increase of 5% with the first raise taking place on the first
anniversary of the effective date. There were no changes to any of the remaining
sections of the agreements.
NOTE 5 SUBSEQUENT
EVENTS
In
preparing these financial statements, we have evaluated events and transactions
for potential recognition or disclosure through November 5, 2009, the date the
financial statements were issued.
On
October 21, 2009, the Company exchanged 95,000 ten cent warrants to
restricted common stock.
The
Company on November 5, 2009 received a request from a former note holder to
convert 50,000 warrants into 42,411 shares of common stock under the
cashless exercise provision in the warrants.
F-14
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULT OF OPERATIONS
The
following plan of operation provides information which management believes is
relevant to an assessment and understanding of our results of operations and
financial condition. The discussion should be read along with our financial
statements and notes thereto. This section includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by words
like believe, expect, estimate, anticipate, intend, project and similar
expressions, or words which, by their nature, refer to future events. You should
not place undue certainty on these forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our
predictions.
Our
Business
We were
incorporated in the State of Delaware under the name Renfrew, Inc. on July 22,
2003 as a blank check company as defined under Rule 419 of the Securities Act.
On August 2, 2005, we filed Articles of Amendment with the State of Delaware
changing our name to ASAH Corp. and on January 9, 2007, we filed Articles of
Amendment with the State of Delaware changing our name to American Surgical
Holdings, Inc.
19
Pursuant
to a Stock Purchase Agreement and Share Exchange between us and American
Surgical Assistants, Inc. dated October 10, 2005, we acquired all the shares of
American Surgical Assistants, Inc., a Texas corporation, from Zak Elgamal and
Jaime Olmo-Rivas. As a result of, and in consideration for, the issuance of our
common stock, American Surgical Assistants, Inc. became our wholly owned
subsidiary.
We had
operated as a blank check company until the merger in October 2005 and the
purpose for this reorganization with American Surgical Assistants, Inc. was to
obtain an operating company which we believed had a successful business
plan.
Through
American Surgical Assistants, Inc., we provide professional surgical assistant
services to patients, surgeons and healthcare institutions.
In 2006
we incorporated our other subsidiary, ATS Billing Services, Inc. (ATS) to
provide HIPAA-compliant billing and collection services for healthcare industry
professionals. This function was transferred to ASA in
2008. ATS is currently dormant.
In
January 2007, the Company completed a 1 for 2 common stock consolidation and in
April 2007 the Company completed a 1 for 1.75 common stock consolidation. All
share and per share amounts have been retroactively restated for the both the 1
for 2 and the 1 for 1.75 stock consolidations.
EXECUTIVE
SUMMARY
The
Company’s revenue and net income improved in the nine months ended September 30,
2009 over the same period in 2008. Sales have more than doubled in
the period this year over the same period last year. Cash provided
from operations for the nine months ended September 30, 2009 was $4,746,863 on
$16,702,850 of sales which allowed the Company to pay off approximately
$2,900,000 of debt. As of September 30, 2009 the Company had no outstanding
notes payable. Additionally, the Company generated a net income of
21% for the nine months ended September 30, 2009 in comparison to a net loss of
24% in the nine months ended September 30, 2008. One of the
reasons for the improved performance is the Company has made improvements in
billing and appealing rejected claims. The Company has increased its
collection per procedure during 2009. As of September 30, 2009, the Company has
collected approximately $2,300,000 in additional revenue related to 2008
services and an additional $1,250,000 for services performed as of June 30,
2009. This increase in collections was above the Company’s historical
collection rate and the Company continues to aggressively pursue reimbursement
of rejected claims.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 2008
Revenue
The net
revenue for the three months ended September 30, 2009 was $ 6,724,758 compared
to $ 3,072,479 for the three months ended September 30,
2008. The net revenue for the quarter was approximately $
4,700,000 for the three months before adjustments. The Company
recorded an additional $675.000 of net revenue from the aggressive collections
of 2008 receivables. The additional money was over and above the
receivables as of December 31, 2008. The Company also realized
increase net revenue from the first quarter receivables of approximately
$340,000 and second quarter receivables of approximately
$850,000. The result was net revenue of $6,724,758.
The
Company continues to expand its business. We started coverage in two
facilities in the Commonwealth of Virginia during the first quarter of
2009. During the fourth quarter of 2009 we will begin coverage in an
additional facility in Corpus Christi. We are attempting to
open the market in two major cities in Texas. In the fourth quarter
we will have three assistants in San Antonio and two in Dallas,
Texas.
Cost
of Revenue
Our cost
of revenue significantly improved in 2009 compared to 2008. The cost
of revenue was $2,198,857 on $6,724,758 of revenue for the three months ended
September 30, 2009 as compared to a cost of $ 1,810,510 on $ 3,072,479 of
revenue for the three months ended September 30, 2008. This is a cost
of revenue of 33% in 2009 versus 59% in 2008. A significant
improvement which is mainly due to increased procedures, better revenue per
procedure, and significantly better utilization of the available human resources
and manpower.
20
Gross Profit
The
Company generated a gross profit of 67% for the three months ended September 30,
2009 in comparison to 41% over the same period ended September 30,
2008. This improvement is mainly due to steps taken by management in
2008 and 2009 to improve revenue per procedure, improved collections and an
increase in the number of procedures performed by our staff.
Operating
Expenses
Total
operating expenses during the third quarter of 2009 were $1,514,003 compared to
$765,610 during the third quarter of 2008, an increase of $748,393 a 98%
increase. The expenses other than salaries and bonuses are in line
with last year. The Company’s general and administrative expenses
were 9% or $ 26,400 higher than last year. Salaries had the largest
increase of 162% or $725,585 over last year. During the second
quarter of 2008 management volunteered to accept reductions in salary ranging
from 20% to 30% on both expenses and salaries. The compensation
committee reinstated the salaries and expenses to the former level in January
2009. In addition, the Company has almost doubled the size of its
billing staff to handle the increase production. Finally, the board
recommended a bonus to three of the Principals of $350,000. The lease
of the office space had a small increase due to the annual “cost of living”
increase.
RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 2008
Revenue
Our net
revenue increased to $ 16,702,850 for the nine months ended September 30, 2009
from $ 7,678,077 for the nine months ended September 30, 2008, an increase of $
9,024,773 or 118% from 2008 to 2009. The measures implemented by
management in the latter part of 2007 and all through 2008 and 2009 have
increased the revenue per procedure, and increased the number of procedures
performed by our assistants. The increased emphasis on
collecting receivables has resulted in additional revenue from 2009 procedures
and additional revenue from 2008 receivables that were collected over the
original estimate at December 31, 2008. The Company experienced
approximately $2,300,000 of additional revenue from collections of 2008
receivables in 2009. The net revenue in the first nine months of 2008
was depressed due to underpaying contracts with certain
carriers. These contracts are no longer in place in
2009.
Cost
of Revenue
Our cost
of revenue increased to $ 6,115,198 for the nine months ended September 30, 2009
from $ 5,302,845 for the nine months ended September 30, 2008, an increase of $
812,353. This represents a 15% increase over last year which is
a much smaller increase in comparison to the increase of 118% in net
revenue. Cost cutting measures implemented by management in the
latter part of 2007, and all through 2008 have increased the revenue per
procedure, and increased the number of procedures performed by our
assistants.
Gross
Profit
Our gross
profit was $ 10,587,652 for the nine months ended September 30, 2009 as compared
to $ 2,375,232 over the same period ended September 30, 2008, an increase of $
8,212,420 or 346%. This is the result of an increase in net
revenue equal to 118% and a cost of sales increase of 15% for the nine months
ended September 30, 2009 over the nine months ended September 30,
2008.
Operating
Expenses
Our total
operating expenses for the nine months ended September 30, 2009 were $ 4,751,381
compared to $ 2,844,220 during the nine months ended September 30, 2008, an
increase of 67% or $1,907,161. The entire increase occurred in the
second and third quarter of 2009 and was due mainly to bonuses and reinstatement
of 2008 pay cuts for management.
21
Operating
Results as a Percentage of Net Revenue
The Table
below provides a brief recap of operating results for the three months and nine
months ended September 30, 2009 and 2008 expressed as a percentage of net
revenue.
For
three months ending
|
For
nine months ending
|
|||||||||||||||
SEPTEMBER
30
|
SEPTEMBER
30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues,
net
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
||||||||
Cost
of Revenue
|
33
|
%
|
59
|
%
|
37
|
%
|
69
|
%
|
||||||||
Gross
Profit
|
67
|
%
|
41
|
%
|
63
|
%
|
31
|
%
|
||||||||
Operating
Expenses
|
22
|
%
|
25
|
%
|
28
|
%
|
37
|
%
|
||||||||
Net
Income (Loss) from Operations
|
45
|
%
|
16
|
%
|
35
|
%
|
(6
|
%)
|
||||||||
Other
(Expense) Income
|
-
|
(5
|
%)
|
(2
|
%)
|
(19
|
%)
|
|||||||||
Income
(Loss) from Operations
|
45
|
%
|
11
|
%
|
33
|
%
|
(25
|
%)
|
||||||||
Provision
for Income Taxes
|
(16
|
%)
|
0
|
%
|
(12
|
%)
|
1
|
%
|
||||||||
Net
Income (Loss)
|
29
|
%
|
11
|
%
|
21
|
%
|
(24
|
%)
|
LIQUIDITY
AND CAPITAL RESOURCES
As of
September 30, 2009, the Company had $ 2,727,880 in cash and cash equivalents on
hand compared to $431,731 on hand on December 31, 2008. Our working
capital (defined as current assets less current liabilities) at September 30,
2009 was $4,708,574 compared to $832,248 on December 31, 2008.
Our
operating activities provided cash in the amount of $ 4,746,863 for the nine
months ended September 30, 2009 compared to cash used in operations of $ 691,901
for the same period in 2008. The five major factors influencing the
increase in cash provided from operating activities were: (1) The
Company cancelled all contracts with carriers in the first and second quarter
2008. (2) Net revenue for the first nine months of 2009 was more than twice the
net revenue in 2008 (3) The collection of approximately $2,300,000 of old
receivables, (4) Improved collections on 2009 receivables and (5) the
Company signed an agreement with two third party facilitator to streamline
collections.
Critical
Accounting Policies
The
Company’s significant accounting policies are summarized in Note 1 of the
Company’s Condensed Consolidated Financial Statements included herein. Policies
determined to be significant are those policies that have the greatest impact on
the Company’s financial statements and require management to use greater degree
of judgment and estimates.
Actual
results may differ from those estimates. Management believes that given the
current facts and circumstances, it is unlikely that applying any other
reasonable judgment or estimate methodologies would cause effect on the
Company’s consolidated results of operation or financial position and liquidity
for the periods presented in this report.
22
The
preparation of financial statements in conformity with U. S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates.
Significant
estimates include revenue recognition, the allowance for doubtful accounts and
share based compensation. These estimates have the potential to have
a significant impact on the Company’s financial statements, either because of
the significance of the financial statement item to which they relate, or
because they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events what are continuous in
nature.
Recent
Accounting Pronouncements
In June
2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP. The
Codification will be the single source of authoritative U.S. generally accepted
accounting principles. The Codification does not change generally
accepted accounting principles, but is intended to make it easier to find and
research issues. The Codification introduces a new structure that
takes accounting pronouncements and organizes them by approximately 90
accounting topics. The Codification is effective for interim and
fiscal years ending after September 15, 2009. We adopted the
Codification on July 1, 2009. The adoption of this statement did not
have a material effect on our financial statements but did change our reference
to generally accepted accounting principles beginning in the third quarter of
2009.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing and
FASB Accounting Standards Codification No. 810, Consolidation, which change
the way entities account for securitizations and special-purpose
entities. The new standards eliminate existing exceptions,
strengthen the standards relating to securitizations and special-purpose
entities, and enhance disclosure requirements. Both of these
statements are effective for fiscal years beginning after November 15,
2009. The adoption of these statements will not have a material
effect on our financial statements.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to
stockholders.
Revenue
Recognition
We
generate revenue largely from patient claims submitted to and reimbursed to us
by insurance carriers. The total claims we submit to carriers are
referred to as “Total Charges.” The average percentage of the Total
Charge actually paid by insurance companies for surgical assistant services is
referred to as the “Collection Percentage.” The Collection Percentage
is based on the standard percentage of the billed amount each carrier pays for a
certain procedure and varies by carrier, procedure, and any contractual
commitments between us and the carrier. The Total Charges multiplied
by the Collection Percentage results in our actual service fees
received.
23
RESULTS
OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THE
TWELVE MONTHS ENDED DECEMBER 31, 2007
Revenue:
Revenues
increased to $11,279,511 for the twelve months ended
December 31, 2008 from $8,964,057 for the twelve months ended
December 31, 2007 an increase of $2,315,454 over the revenue for
2007 This amounts to a 26% increase in revenue. The
increase is due to a number of factors which are difficult to quantify, however,
they can be listed in management’s opinion in order of importance:
·
|
The
cancellation of the Aetna, Blue Cross, and Humana
contracts.
|
·
|
15%
increase in billable procedures in 2008 versus
2007
|
·
|
Additional
surgical procedures per surgical assistant. The Company’s
surgical assistant’s staff did not materially change in 2008 from 2007.
Thus greater utilization of the available workforce.
|
·
|
Improved
billing procedures including conversion to electronic billing whenever
possible
|
·
|
We
received a settlement from a dispute we had with an insurance company in
the amount of $98,000 net to the company after attorney’s
fees.
|
The bulk
of the increase occurred after May 15, 2008 when the Aetna contract was
cancelled. The trend is positive and management expects this to continue in
2009.
24
Cost of Revenue:
Cost of
revenue increased to $ 6,977,986 for the twelve months ended December 31, 2008
from $ 6,660,552 for the twelve months ended December 31, 2007, an increase
of $ 317,434. The increase is relatively small, 5% in
comparison to the 26% increase in revenue. The action items
management put into place the latter part of 2007 and during 2008 have allowed
the company to make more money per procedure, and to increase the number of
procedures with little to no increase in surgical assistant staff which results
in a lower cost of revenue in comparison to the increase in revenue
In 2008,
we added new hospitals in Houston; however, we continued to monitor the staffing
needs we have by reassigning some of the full time salaried assistants to
contract or PRN status. This allows us to more effectively manage our
cost of labor while efficiently utilizing the salaried assistants and using the
part time or PRN (Pro Re
Nata) assistants to fill in only as needed. Management
continually monitors staffing and compensation needs in order to maximize the
utilization and efficiency of the surgical assistants.
Gross
Profit:
Gross
profit increased to $ 4,301,525 for the twelve months ended December 31, 2008
from $ 2,303,505 for the twelve months ended December 31, 2007, an increase of
$1,998,020. The gross profit improved dramatically in the second half of the
year after the Aetna contract was cancelled. The gross profit for the
first half of 2008 was $1,174,913 and the second half was $3,126,612for a
total of $4,301,525 for the fiscal year 2008. The trend is
positive and management expects this to continue in 2009.
Operating
Expenses:
Management
has cut expenses and kept the same number of surgical assistants as last year.
In addition, the four principals and the Board of Directors took a 20% reduction
in compensation and expenses beginning in May of 2008. The end of July 2008, the
four principals took an additional 10% reduction in salaries. This along with
other measures such as reducing the number of consultants has reduced operating
expenses. Operating expenses for the twelve months ended December 31, decreased
to $ 3,819,470 from $ 4,974,061 for the twelve months ended December 31, 2007
representing a decrease of $ 1,154,591. The two main categories of operating
expenses are 1) general and administrative and 2) salaries. General and
administrative for the twelve months ended December 31, 2008 decreased to $
1,710,354 from $ 2,393,716 for the twelve months ended December 31, 2007
representing a decrease of $ 683,362 or 29%. Salaries followed the same trend.
Salaries for the twelve months ended December 31. 2008 decreased to $ 2,011,126
from $ 2,500,164 for the twelve months ended December 31, 2007 representing a
decrease of $ 489,038 or 20%.
Interest
Expense:
Interest
expense for the year ended December 31, 2008 was $ 1,623,749 compared to $
1,474,048 in the year ended December 31, 2007. Included in interest expense for
the year ended December 31, 2008 is $420,097 of interest accrued at 15% on the
face amount of both the convertible notes payable of $2,715,000 and the note
payable- related party dated June 2008 in the amount of
$150,000. $ 881,131 related to the accretion of the discount on
the Notes, and $ 322,521 of amortization of the deferred financing
costs. For the year ended December 31, 2007 interest expense was
comprised of $219,721 of interest accrued at 15% on the face amount of the
convertible notes payable of $2,715,000, $863,632 related to the accretion of
the discount on the Notes, and $390,695 of amortization of the deferred
financing costs. Interest expense as a result
increased $ 149,701 in 2008 over the fiscal year
2007. Eighty percent (80%) of the interest expense occurred in the
first six months of 2008.
Income
Tax Expense:
We
recorded an income tax benefit in 2008 in the amount of $ 47,808 compared to an
income tax benefit of $ 1,022,848 for the twelve months ended December 31, 2007.
Additional benefits will be utilized in future years to offset income required
to be recognized by us under IRC section 481, relating to a mandated change of
method from the cash to accrual basis for tax return filing purposes. The
Company has a $508,590 loss carry forward at the end of December 2008. The
Section 481 (a) adjustment is over a three year period with 2009 being the last
year. This adjustment is $600,424 and this is applied to the loss carry forward
which will result in taxable income effective January 1, 2009 of $91,864 or
$31,244 of taxes payable. This payable is shown as deferred income tax on the
balance sheet as of December 31, 2008.
25
RESULTS
OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2007 COMPARED TO THE
TWELVE MONTHS ENDED DECEMBER 31, 2006
Revenue:
Revenues
decreased to $8,964,057 for the twelve months ended December 31, 2007 from
$10,191,447 for the twelve months ended December 31, 2006 a decrease of
$1,227,390. Revenues for 2007 were negatively affected by the signing of a
contract with Aetna and the charge backs deducted by United. These
matters were discussed previously under Risk Factors and Revenue
Recognition.
Cost of Revenue:
Cost of
revenue increased to $6,660,552 for the twelve months ended December 31, 2007
from $5,509,898 for the twelve months ended December 31, 2006, an increase of
$1,150,654. This increase was primarily attributable to the increase in
professional contract services, salaries and related payroll cost paid to the
surgical assistants in the amount of $1,101,788. We also experienced an increase
in insurance, telephone, and other direct costs incurred by the surgical
assistants as they perform their duties. These increases were
partially offset by a reallocation and reclassification of some of the salaries
and other costs associated with the four principals. In 2007, the
principals devoted a significant amount of their time to management duties and
less time was spent by them performing surgical assistant duties. As
a result, a higher percentage of their attendant costs were reallocated from
cost of revenue to operating expenses.
In 2007,
we added a number of full time salaried surgical assistants in anticipation for
the then planned expansion. At that time, we had a number of prospects for
acquisitions, and targets for new hospitals to sign contracts in Houston that
looked favorable. With further due diligence, these projects did not
materialize which meant we were overstaffed in surgical assistants. As a result
of the added assistants, compensation and other related direct costs associated
with the surgical assistants increased as discussed above. We have
been addressing and continue to address and monitor this matter by reassigning
some of the full time salaried assistants to contract or PRN
status. This allows us to more effectively manage our costs while
efficiently utilizing the salaried assistants and using the part time or PRN
(Pro Re Nata)
assistants to fill in only as needed. Management continually monitors
staffing and compensation needs in order to maximize the utilization and
efficiency of the surgical assistants.
Gross
Profit:
Gross
profit decreased to $2,303,505 for the twelve months ended December 31, 2007
from $4,681,549 for the twelve months ended December 31, 2006, a decrease of
$2,378,044. Our gross margin decreased due to decreased reimbursements from a
major insurance carrier and charge backs from another carrier.
Operating
Expenses:
Operating
expenses for the twelve months ended December 31, 2007 increased to $4,974,061
from $3,080,625 for the twelve months ended December 31, 2006, representing an
increase of $1,893,436. The increase was due in part to additional management
and administrative costs (approximately $840,000), the hiring of outside
consultants to assist us in our transition to being a public company
(approximately $800,000) and the retention of the initial outside Board of
Directors (approximately $250,000). Now that we have been a public
company for more than one and a half years we are no longer relying on
consultants for transition purposes and in the future consultants will be used
sparingly.
Interest
Expense:
Interest
expense for the year ended December 31, 2007 was $1,474,048, compared to $150 in
the year ended December 31, 2006. Included in interest expense for the year
ended December 31, 2007 is $219,721 of interest accrued at 15% on the face
amount of the convertible notes payable of $2,715,000, $863,632 related to the
accretion of the discount on the Notes, and $390,695 of amortization of the
deferred financing costs.
26
Income
Tax Expense:
We
recorded an income tax benefit in 2007 in the amount of $1,022,848 compared to
an income tax expense of $651,846 for the twelve months ended December 31, 2006.
We anticipate a Federal income tax refund of approximately $575,000 based on the
net operating loss generated in 2007 and carried back to
2006. Additional benefits will be utilized in future years to offset
income required to be recognized by us under IRC section 481, relating to a
mandated change of method from the cash to accrual basis for tax return filing
purposes. Our future cash flow will be affected by the reversal of
temporary income tax deferrals.
Contractual
Obligations
The
following table summarizes the payments due under contractual obligations as of
December 31, 2008:
TOTAL
|
||||||||||||||||||||||||
2009
|
2010
|
2011
|
2012
|
2013
|
THEREAFTER
|
|||||||||||||||||||
Executive
Officers (1)
|
$
|
1,490,194
|
$
|
1,370,800
|
$
|
1,128,800
|
$
|
1,128,800
|
$
|
1,128,800
|
$
|
2,727,933
|
||||||||||||
Senior
Consultants (2)
|
826,708
|
498,667
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Consultants
(3)
|
12,000
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Operating
Leases (4)
|
101,800
|
105,012
|
106,152
|
-
|
-
|
-
|
||||||||||||||||||
Convertible
Note Payable (5)
|
2,715,000
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
TOTAL
|
$
|
5,145,702
|
$
|
1,974,479
|
$
|
1,234,952
|
$
|
1,128,800
|
$
|
1,128,800
|
$
|
2,727,933
|
Note 1 - Mr. Elgamal, CEO, and
Mr. Olmo-Rivas, executive directors of the Company, are each entitled to receive
annual cash compensation of $564,400 plus health, disability and life insurance
coverage pursuant to Ten year employment agreements as CEO of American Surgical
Holdings and Vice president of ASA respectively, entered into on May
1, 2006 ending 2016. James A. Longaker, CFO, was hired in November 2007 at
an annual salary of $120,000 ending November 2009.
The
Company renewed, amended and revised Ten year service agreements with
corporations owned by Mr. Elgamal and Mr. Olmo-Rivas. The agreements
automatically renew at maturity unless cancelled by either party with sixty days
written notice. The corporations were each paid a monthly expense fee of $11,000
during 2007. Each agreement includes an option to purchase 5% of any shares
issued by the Company during the term of these agreements at a discounted price
equal to 25% of the closing price on the date the shares are issued by the
Company. Mr. Elgamal and Mr. Olmo-Rivas have waived their rights to
the options under the agreements for the years ended December 31, 2007, and
2006. These agreements also include an annual bonus to each valued at 2% of
the increase, year over year, of the gross revenue of the company to be paid
during the first quarter of the current fiscal year for the increase in gross
revenue in the prior year. Mr. Elgamal and Mr. Olmo have waived the
right to this bonus for the years ending December 31, 2007 and 2006. The
employment agreements for Mr. Elgamal and for Mr. Olmo-Rivas include an early
termination provision that proscribes a contract termination payment to either
officer equal to $3,000,000 if the Company terminates their service agreements
without cause or for a cause that is less than a conviction of a federal felony
prior to the expiration date, as renewed.
Note 2 - In November 2005, Mr.
Chamberlain and Mr. Chapa, senior consultants to the Company, entered into
employment agreements and consulting agreements between the Company and
corporations owned by them individually. Pursuant to these multiple agreements,
Mr. Chamberlain and Mr. Chapa are each entitled to receive an annual combined
cash compensation of $344,000 for the employment agreement and the consulting
agreements plus health and disability insurance
coverage.
27
In
addition, their corporations are paid a monthly consulting fee of $6,000 each.
Each consulting agreement includes an option to purchase 5% of any shares issued
by the Company during the term of these agreements at a discount price equal to
25% of the closing price on the date the shares are issued by the
Company. Mr. Chamberlain and Mr. Chapa have waived their rights to
the options under the agreements for the years ended December 31, 2007 and
2006. The consulting agreements include an early termination
provision that proscribe a contract termination payment to either shareholder
equal to $3,000,000 if the Company terminates their service agreements without
cause prior to the expiration date.
Note 3 - The Company had
one consultant whose contract expires on April 30, 2009. The agreed
amount is $3,000 a month. This contract will not be renewed
Note 4 - See the discussion
regarding the Company’s leased office space at Item 2 above.
Note 5 - In May 2007, the
Company began offering for sale a limited number of Units pursuant to a Private
Placement Memorandum (“PPM”). Each Unit consisted of (i) a one year
15% interest bearing unsecured promissory note in the principal amount of
$100,000 and (ii) a warrant to purchase 100,000 shares of the Company’s common
stock at an exercise price of $2.00 per share (the Warrants”). The
notes were extended on July 23, 2008 to December 31, 2009.
The first
12.30 Units, in the principal amount of $1,230,000 plus accrued interest of
$187,575 matures on June 7, 2008. The second 14.85 Units in the
principal amount of $1,485,000 plus accrued interest of $226,462 matures on July
2, 2008. In July 2008, the original notes were renegotiated
with half due in March of 2009 and the other half would be automatically
extended to December 2009 upon payment of the March 31, 2009 principal balance.
One half was paid in March 2009 with the other half due December
2009
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
We had
cash on hand of $431,731 at December 31, 2008 compared to $1,145,359 at December
31, 2007, a decrease of $713,628. Our working capital (defined as current assets
less current liabilities) at December 31, 2008 was $832,247 compared to $584,849
at December 31, 2007. The cash at December 31, 2008 does not include the
restricted cash of $373,653 which will be used to pay down the note at March 31,
2009. In addition, the Company’s cash position has improved each quarter. Below
per the internal records rounded to the nearest $50,000 are our average monthly
collections per quarter in 2008.
1st
Quarter
|
$
|
650,000
|
||
2nd
Quarter
|
$
|
700,000
|
||
3rd
Quarter
|
$
|
900,000
|
||
4th
Quarter
|
$
|
1,050,000
|
Our
collections are increasing each quarter and the Company made a net income from
operations in the third and fourth quarters. Management is pleased
with the improvement in cash collections and expects this upward trend to
continue.
Accounts
receivable increased $ 1,271,563 from the year before, our collections have
improve in 2008 as compared to 2007. The increase is due mainly to
increase sales in the fourth quarter and receiving more money per
procedure. The cancellation of the Aetna, Humana and Blue Cross
contracts have improved collections.
Our
accounts payable decreased by $219,034 at December 31, 2008, over the
balance from the year before. Our cash flow has improved in the
fourth quarter and we are paying our bills upon receipt.
28
Operating
Activities
Operating
activities used $483,930 of cash during 2008 compared to cash used in operations
of $ 2,543,817 for the twelve months ended December 31,
2007.
The net
loss for the year of $1,087,976 includes noncash items in the amount of $
1,351,403. These non cash items included the fair value assigned to
the stock, options and warrants that were issued during the year as well as the
amortization of the deferred financing and discount to the notes incurred in the
sale of the Units discussed below under Financing Activities.
Additionally,
accounts receivable net of provision for uncollectible accounts increased by
$1,057,334.
Investing
Activities
The
Company purchased office furniture and equipment costing $6,045 in 2008 compared
to $25,846 in 2007.
Restricted
cash increased $373,653 under the renegotiated terms of the convertible notes
payable.
Financing
Activities
In May
2007, the Company began offering for sale, at a price of $100,000 per Unit, a
limited number of Units pursuant to a private placement
memorandum. Each Unit consisted of (i) a one year 15% interest
bearing unsecured promissory note (“Note”) in the principal amount of $100,000
and (ii) a warrant to purchase 100,000 shares of the Company’s common stock at
an exercise price of $2.00 per share (the Warrants”).
Dawson
James Securities, Inc. (“Dawson”) was hired as the exclusive placement agent for
the offering. For its services Dawson earned a cash commission equal
to 10% and a non-accountable expense allowance equal to 3% of the gross proceeds
of each Unit sold. In addition, for each Unit sold Dawson earned
warrants to purchase 20,000 shares of the Company’s common stock at an exercise
price of $2.00 per share.
The
offering had a minimum offering size of 12 Units and a maximum size of 35
Units. On June 7, 2007 the minimum was achieved with the sale and
acceptance of 12.30 Units. The net proceeds of $1,070,100 were
forwarded to the Company at that time and the balance of the proceeds, $159,900,
was paid to Dawson. The Company executed Notes in the principal
amount of $1,230,000 and issued warrants to purchase 1,230,000 shares of common
stock to the note holders. The value of these warrants was determined
by management to be $734,583. The value of the warrants was recorded as a
discount on the Notes and is being charged to interest expense and accreted to
the balance of the Notes over the life of the Notes. As at December
31, 2008 and 2007 $416,599 and $317,984 were charged to interest
expense and $0 and $416,599 remain unamortized, respectively.
Upon
completion of this first round of the offering the Company issued warrants to
Dawson to purchase 246,000 shares of common stock. The value of these warrants
was determined by management to be $146,917. The value of the warrants and the
cash commission paid to Dawson was recorded as deferred financing costs and is
being amortized to interest expense over the life of the Notes. As at December
31, 2008 and 2007 $85,701 and $61,216 were charged to interest expense and $0and
$85,701remain to be amortized, respectively.
On July
2, 2007 the second and final round of the offering was completed with the
acceptance of an additional 14.85 Units. The net proceeds of $1,291,950 were
forwarded to the Company at that time and the balance of the proceeds, $193,050,
was paid to Dawson. The Company executed Notes in the principal amount of
$1,485,000 and issued warrants to purchase 1,485,000 shares of common stock to
the note holders. The value of these warrants was determined by management to be
$896,523. The value of the warrants was recorded as a discount on the Notes and
is being charged to interest expense and accreted to the balance of the Notes
over the life of the Notes. As at December 31, 2008 and 2007 $447,033 and $
449,490 were charged to interest expense and $0 and $447,033 remain unamortized,
respectively.
Upon
completion of the second round of the offering the Company issued warrants to
Dawson to purchase 297,000 shares of common stock. The value of these warrants
was determined by management to be $179,305. The value of the warrants and the
cash commission paid to Dawson was recorded as deferred financing costs and is
being amortized to interest expense over the life of the Notes. As at
December 31, 2008 and 2007 $97,800 and $81,505 were charged to interest expense
and $0 and $97,800 remain to be amortized, respectively.
29
In July
2008, the original notes were renegotiated with half due in March of 2009 and
the other half would be automatically extended to December 2009 upon payment of
the March 31, 2009 principal balance. One half was paid in March 2009 with the
other half due December 2009. The warrants were re-priced with one half
re-priced at 10 cents per warrant and one half re-priced at 75 cents per warrant
(the half re-priced at 75 cents per warrant would have been re-priced to 20
cents per warrant if the company did not pay half the notes by March
31, 2009). The fair value of the options was reset to $245,150. As of
December 31, 2008, $113,657 was charged to interest expense and
$131,493 remains to be amortized. The Company plans on paying
the first half of the note from cash generated from operations in the first
quarter of 2009 and the second half of the note either from cash generated from
operations or from cash received from borrowings on accounts
receivable. The Notes were secured by the Company's accounts
receivable and an assignment of any proceeds received by the Company from any
actions for past claims from legal action against or settlement with insurance
carriers. The proceeds from the legal actions would be given to the note
holders.
The
interest rate was 15% on the original notes and is the same on the re-negotiated
notes. The maturity date of the original notes was June 30, 2008 and
the re-negotiated notes were one half due March 31, 2009 with an automatic
extension of the remaining amount to December 31, 2009 if certain conditions
were met.
The
Company incurred deferred financing costs of $34,044 associated with the
offering in the form of legal and blue sky fees.
The Notes
are convertible into the Company’s common stock if the Company commences a
Qualified Offering prior to the maturity date of the Notes. In lieu of repayment
of principal and interest on the Notes, the Holder of the Notes may acquire
Company securities in the amount of such principal and interest at a purchase
price equal to 85% of the price per security sold in the Qualified Offering. In
this regard, a Qualified Offering means the completion of an offering or
offerings of Company securities, including any offering of debt or equity
securities, or securities convertible into debt or equity securities, in an
amount not less than $3.0 million. At this time the Company has not completed a
Qualified Offering.
The net
proceeds from the offering were used for general corporate and working capital
needs. The 15% note payable was paid in full by the end of the second
quarter 2009.
The note
payable due to a related party of $150,000 was signed on June 12, 2008 and
extended on September 12, 2008 to a new maturity date of June 15,
2009. The note incurs interest at a rate of 15%
annually. During 2008 $12,452 was charged to interest expense and
$12,452 of accrued interest is included in accrued expenses. All accrued
interest on this note as of December 31, 2008 was paid in January 2009 and the
principal and accrued interest from January 1, 2009 was paid in full during
March of 2009.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in or disagreements with accountants on accounting or
financial disclosure matters.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table sets forth the name and age of officers and director as of
December 21, 2009. Our Executive officers are elected annually by our Board of
Director. Our executive officers hold their offices until they resign, are
removed by the Board, or his successor is elected and
qualified.
Name
|
Age
|
Position
|
||
Zak
W. Elgamal
|
60 |
Executive
Chairman, Chief Executive Officer and President
|
||
Jaime
Olmo-Rivas
|
53 |
Executive
Director, and Vice President of American Surgical Assistants,
Inc.
|
||
Henry
Y. L. Toh
|
51 |
Lead
Independent Director
|
||
Dr.
Charles W. Bailey, Jr.
|
68 |
Independent
Director
|
||
Dr.
Michael Kleinman
|
53 |
Independent
Director
|
||
James
A. Longaker
|
63 |
Chief
Financial Officer
|
30
Zak
W. Elgamal, Executive Chairman, Chief Executive Officer, and
President
Mr.
Elgamal has been the President and Director of the Company since October 31,
2003. Since 1983, Mr. Elgamal has been a Certified Surgical Assistant in
Houston, Texas. In such capacity, Mr. Elgamal has practiced as an assistant
in General, Endoscopic and Advanced Endoscopic Surgery, Orthopedic and
Endoscopic Orthopedic Surgery, Spinal Surgery, Vascular Surgery, Neurosurgery,
Gynecology, Obstetrics, Laparoscopy Assisted Gynecological Surgery, and Plastic
& Re-constructive Surgery. Since 1999, Mr. Elgamal has been President
and the Executive Director of American Surgical Assistants, L.L.P. He then
became the President of its successor American Surgical Assistants, Inc. in
Houston, Texas, which was founded to contract with hospitals for the services of
Surgical Assistants. Since 1983 he has also been the President of C.S.A.
Services, Inc. (incorporated in 1995) in Houston, Texas, which became the
General Partner in American Surgical Assistants, L.L.P.
Mr. Elgamal
received his M.D. degree (M.B., B.Ch) from the Faculty of Medicine at
Ain-Shams University in Cairo, Egypt in 1972. He also received his graduate
training in Healthcare Management in Cairo, Egypt in the early eighties. He is a
Vanguard member of the American College of Physician Executives, a member of the
American College of Healthcare Administrators, an affiliate member of the
American College of Surgeons, a member of the Advisory Council of The Joint
Commission on Staffing, and a member of the Sub-committee on Allied Health at
Memorial Hospital Healthcare System, Southwest.
Jaime
Olmo-Rivas, Executive Director and Vice President of American Surgical
Assistants, Inc
Mr.
Olmo-Rivas is the Vice President of our wholly owned subsidiary, American
Surgical Assistants, Inc. Mr. Olmo-Rivas is a highly trained cardio-vascular
surgical assistant with very special capabilities in endoscopic vein harvesting
and open heart surgery. In addition to performing surgical assisting duties, he
is responsible for everyday management and supervision of all our surgical
assistants working in the field. Mr. Olmos-Rivas, Executive Director, is
supported by three additional employees who comprise a field supervision team
which is on call 24 hours per day to receive, schedule and assign work to our
assistants. He also maintains an open line of communication with the surgeons in
various healthcare facilities to receive and act upon their feed back as needed.
He interviews prospective assistants and evaluates the quality of the existing
work force regularly.
Mr. Olmo-Rivas
graduated from medical school in the Dominican Republic in 1980. He is the
current President of the American Board of Surgical Assistants.
Henry
Y. L. Toh, Lead Independent Director
Mr. Toh
currently serves as a member of the Board of Directors of four other publicly
traded companies. Since 2001, Mr. Toh has served as a director of Teletouch
Communications Inc. Since 1992, Mr. Toh has served as an officer and director of
C2 Global Technologies Inc., a publicly held voice-over-IP company. Since
December 1998, Mr. Toh has served as a director of Idna Inc., a specialized
finance and entertainment company. Since 2004, Mr. Toh has served as a director
of Isolagen, Inc. Mr. Toh has served as an officer and director of Four M
International, Inc., a privately held offshore investment entity since 1992,
Since 2004, Mr. Toh has served as a director of Labock Technologies, Inc. Mr.
Toh began his career with KPMG Peat, Marwick from 1980 to 1992, where he
specialized in international taxation and mergers and acquisitions. Mr. Toh is a
graduate of Rice University.
Charles
W. Bailey, Jr., MD, JD, Director
Dr.
Bailey received his
law degree from the South Texas School of Law in 1980 and received his Medical
Degree from the University of Texas Medical Branch. Dr. Bailey has been in
private practice in plastic surgery since 1973. He is listed in Best Doctors in
America for the Central Region and was named by Town & Country Magazine as
one of the top Cosmetic Surgeons in the United States. From 1980 to the present,
Dr. Bailey has also been a medico-legal consultant to various law firms and
insurance companies, providing medical record review and evaluations. From 1972
through 1993, he held various teaching appointments with the University of Texas
Medical School in Houston, South Texas College of Law, and Baylor College of
Medicine. Dr. Bailey has published over 45 papers, and has held various
positions, including most recently President of the Texas Medical Association in
2003 and 2004. He is a current Delegate to the American Medical Association. Dr.
Bailey is also a member of the Mediation Panel for Federal District Courts,
Southern District of Texas.
31
Dr.
Michael Kleinman, Director
Dr.
Kleinman graduated from Rice University, attained his medical degree
at the University of Texas, Albert Einstein College of Medicine in Dallas, Texas
in 1983. He is a Board Certified surgeon with a private practice in Houston,
Texas, Clinical Assistant Professor of Surgery at Baylor University
and at the University of Texas, Physician Liaison for Memorial Care System.
Fellow of the American College of Surgeons, , Member of the American Society of
General Surgeons, the Society of American Gastrointestinal Laparoscopic Surgery,
Houston Surgical Society, Harris County Medical Society, and the American
Medical Association. Past member of Texas Medical Association, International
College of Surgeons, American College of Physician Executives, and the American
Board of Utilization Review Physicians. Physicians Recognition Award 2003,
2006, 10 citations for top doctors.
James
A. Longaker, Chief Financial Officer, CPA, CFE
James A.
Longaker, the Company’s Chief Financial Officer, was hired in November
2007. Prior to joining the Company Mr. Longaker worked from October
2006 to November 2007 as an independent consultant. From May 2005 to
October 2006, Mr. Longaker was the Chief Financial Officer of Trulite, Inc., a
research and development company. From December 2001 to May 2005 Mr.
Longaker was a partner at the Forte Group, LLC a management consulting firm that
specialized in emerging businesses. From February 1999 to December
2001, Mr. Longaker worked as a consultant with Glass and Associates serving as
an interim CFO for companies. From 1990 to 1999, Mr. Longaker had his
own consulting business. Mr. Longaker received his Bachelor’s degree
from Louisiana Polytechnic Institute in 1967 and a Master’s degree in Business
Administration in 1969 from Louisiana State University. Mr.
Longaker is a CPA and a Certified Fraud Examiner, CFE.
EXECUTIVE
COMPENSATION
The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid to the named executive officers paid by us during the period
ended December 31, 2008, 2007 and 2006.
SUMMARY
COMPENSATION TABLE
Name
and
|
Options
|
Deferred
|
Other
|
|||||||||||||||||||||||||||||||
Principal
Position
|
Year
|
Salary
|
Note
|
Bonus
|
Award
|
Note
|
Note
7
|
Note
8
|
Total
|
|||||||||||||||||||||||||
Zak
Elgamal
|
2008
|
$
|
408,390
|
1
|
$
|
50,109
|
$
|
37,045
|
$
|
175,211
|
$
|
670,756
|
||||||||||||||||||||||
Chairman
& CEO
|
2007
|
$
|
618,894
|
5
|
$
|
-
|
$
|
56,600
|
5
|
$
|
-
|
$
|
89,304
|
$
|
764,798
|
|||||||||||||||||||
(Note
1)
|
2006
|
$
|
504,072
|
5
|
$
|
40,600
|
$
|
276,000
|
$
|
820,672
|
||||||||||||||||||||||||
Jaime
Olmo-Rivas
|
2008
|
$
|
408,391
|
1
|
$
|
50,109
|
$
|
37,045
|
$
|
175,211
|
$
|
670,757
|
||||||||||||||||||||||
Vice
President
|
2007
|
$
|
642,487
|
6
|
$
|
-
|
$
|
56,600
|
6
|
$
|
70,489
|
$
|
769,576
|
|||||||||||||||||||||
(Note
1)
|
2006
|
$
|
444,605
|
6
|
$
|
40,600
|
$
|
276,000
|
$
|
761,205
|
||||||||||||||||||||||||
Bland
Chamberlain
|
2008
|
$
|
246,401
|
$
|
25,000
|
$
|
100,800
|
$
|
372,201
|
|||||||||||||||||||||||||
Senior
Consultant
|
2007
|
$
|
362,850
|
$
|
25,000
|
$
|
53,150
|
$
|
441,000
|
|||||||||||||||||||||||||
(Note
2)
|
2006
|
$
|
251,859
|
$
|
25,000
|
$
|
261,000
|
$
|
537,859
|
|||||||||||||||||||||||||
Jose
Chapa
|
2008
|
$
|
244,516
|
$
|
25,000
|
$
|
96,800
|
$
|
366,316
|
|||||||||||||||||||||||||
Senior
Consultant
|
2007
|
$
|
362,458
|
$
|
25,000
|
$
|
52,850
|
$
|
440,308
|
|||||||||||||||||||||||||
(Note
2)
|
2006
|
$
|
251,859
|
$
|
25,000
|
$
|
261,000
|
$
|
537,859
|
|||||||||||||||||||||||||
James
A. Longaker
|
2008
|
$
|
120,000
|
$
|
120,000
|
|||||||||||||||||||||||||||||
Chief
Financial Officer
|
2007
|
$
|
11,538
|
$
|
11,538
|
|||||||||||||||||||||||||||||
(Note
3)
|
2006
|
na
|
||||||||||||||||||||||||||||||||
William
McGinnis
|
2008
|
$
|
58,513
|
$
|
58,513
|
|||||||||||||||||||||||||||||
(Note
4)
|
2007
|
$
|
97,285
|
$
|
97,285
|
|||||||||||||||||||||||||||||
2006
|
na
|
32
Note 1 - Mr. Elgamal, CEO, and
Mr. Olmo-Rivas, executive directors of the Company, are each entitled to receive
annual cash compensation of $564,400 plus health, disability and life insurance
coverage pursuant to Ten year employment agreements as CEO of American Surgical
Holdings and Vice president of ASA respectively.
The
Company renewed, amended and revised Ten year service agreements with
corporations owned by Mr. Elgamal and Mr. Olmo-Rivas. The agreements
automatically renew at maturity unless cancelled by either party with sixty days
written notice. The corporations were each paid a monthly expense fee of $11,000
during 2007. Each agreement includes an option to purchase 5% of any shares
issued by the Company during the term of these agreements at a discounted price
equal to 25% of the closing price on the date the shares are issued by the
Company. Mr. Elgamal and Mr. Olmo-Rivas have waived their rights to
the options under the agreements for the years ended December 31, 2007, 2006 and
2005. These agreements also include an annual bonus to each valued at 2% of
the increase, year over year, of the gross revenue of the company to be paid
during the first quarter of the current fiscal year for the increase in gross
revenue in the prior year. Mr. Elgamal and Mr. Olmo have waived the
right to this bonus for the year ending December 31, 2007. The employment
agreements for Mr. Elgamal and for Mr. Olmo-Rivas include an early termination
provision that proscribes a contract termination payment to either officer equal
to $3,000,000 if the Company terminates their service agreements without cause
or for a cause that is less than a conviction of a federal felony prior to the
expiration date, as renewed.
Note 2 - In November 2005, Mr.
Chamberlain and Mr. Chapa, senior consultants to the Company, entered into
employment agreements and consulting agreements between the Company and
corporations owned by them individually. Pursuant to these multiple agreements,
Mr. Chamberlain and Mr. Chapa are each entitled to receive an annual combined
cash compensation of $344,000 for the employment agreement and the consulting
agreements combined, plus health and disability insurance
coverage. In addition, their corporations are paid a monthly
consulting fee of $6,000 each. Each consulting agreement includes an option to
purchase 5% of any shares issued by the Company during the term of these
agreements at a discount price equal to 25% of the closing price on the date the
shares are issued by the Company. Mr. Chamberlain and Mr. Chapa have
waived their rights to the options under the agreements for the years ended
December 31, 2007, 2006 and 2005. The consulting agreements include
an early termination provision that proscribes a contract termination payment to
either shareholder equal to $3,000,000 if the Company terminates their service
agreements without cause prior to the expiration date.
Note 3 - James A. Longaker,
CFO, was hired in November 2007 at an annual salary of $120,000.
Note 4 - William
McGinnis, Controller, was hired in January 2007 at an annual salary of
$85,000. During 2007, his salary was increased to $100,000 per year,
On July 15, 2008, Mr. McGinnis accepted employment with another firm and is no
longer associated with our company.
33
Note 5 and 6 - In March 2007,
Mr. Elgamal and Mr. Olmo-Rivas were each granted 250,000 options to purchase the
Company’s common stock. These options vest ratably over 3 years. For each
officer the fair value of the options amortized in 2008 and 2007 was $ 37,045
and $56,600 respectively.
Note 7 - In November
2005, the Company issued 1,428,573 shares of common stock to Mr. Chamberlain and
Mr. Chapa for future services under consulting agreements ending in November
2010. The value of these shares was determined to be $250,000 based
on a recent cash offering price. The Company expensed $50,000 in 2008
and 2007 and 2006. The unamortized balance at December 31, 2008 of $93,750 will
be amortized on a straight-line basis over the remaining life of the
agreements.
Note 8 - These are
the amounts paid to the respective corporations owned by the four principal
stockholders as discussed above at Notes 1 and 2.
Compensation of
Directors
Independent
directors are entitled to receive monetary and stock consideration for serving
on the board of directors. Executive directors are not entitled to director fees
of any type.
DIRECTORS
COMPENSATION TABLE
At the
initial Board of Directors meeting during March of 2007, the board established
the fees for independent directors as follows:
Annual
board fee of $36,000, plus $1,000 per meeting fee
Lead
independent director - $15,000 annually
Chair
of the Audit Committee and Governance - $10,000 annually
Chair
of the Nominating Committee - $5,000 annually
Chair
of the Compensation Committee - $5,000 annually
Mr. Toh
received an initial board fee of $25,000. In addition he was issued
25,000 shares of common stock and 75,000 options to purchase common
stock. Dr. Bailey and Dr. Kleinman each received 25,000
options.
For 2008
and 2007, the fees paid and the fair value of the stock and options granted to
the members of the Board are as follows:
Director's
Name
|
||||||||||||||||||
Principal
Position
|
Year
|
Cash
|
Stock
|
Options
|
Total
|
|||||||||||||
Mr.
Henry Toh
|
2008
|
$
|
65,592
|
$
|
-
|
8,035
|
$
|
73,627
|
||||||||||
Audit
Committee Chairman
|
2007
|
$
|
80,750
|
$
|
55,000
|
20,460
|
$
|
156,210
|
||||||||||
Lead
Director
|
2006
|
na
|
na
|
na
|
$
|
-
|
||||||||||||
Mr.
Charles Bailey
|
2008
|
$
|
39,158
|
$
|
-
|
2,678
|
$
|
41,836
|
||||||||||
Nominating
Committee Director
|
2007
|
$
|
35,750
|
$
|
-
|
8,482
|
$
|
44,232
|
||||||||||
2006
|
na
|
na
|
na
|
$
|
-
|
|||||||||||||
Mr.
Michael Kleinman
|
2008
|
$
|
47,156
|
2,678
|
$
|
49,834
|
||||||||||||
Compensation
Committee Director
|
2007
|
$
|
39,750
|
8,482
|
$
|
48,232
|
||||||||||||
2006
|
na
|
na
|
na
|
$
|
-
|
Term of
Office
Our
directors are each appointed for a one-year term to hold office or until the
next annual general meeting of our shareholders or until removed from office in
accordance with our bylaws. Our officers are appointed by our board of directors
and hold office until removed by the board.
34
Our
directors will remain in office until the next annual meeting of our
stockholders, and until their successors have been duly elected and qualified.
There are no agreements with respect to the election of Directors. We will
compensate our Directors for service on our Board of Directors, and any
committees thereof, and we will reimburse them for expenses incurred for
attendance at meetings of our Board of Directors and/or any committee of our
Board of Directors. Our Board of Directors appoints officers annually and each
Executive Officer serves at the discretion of our Board of
Directors.
Outstanding
Equity Awards at Fiscal Year-End
At year
end the unexercised stock options, warrants or other rights to purchase our
common stock made to the named executive officers are included in the Summary
Compensation Table at Item 10, Note 6 and are detailed further
below.
NAME
|
Number of
securities
underlying
unexercised
options
(#)
Exercisable
(b)
|
Number of
securities
underlying
unexercised
options
(#)
Un-exercisable
(c)
|
Equity incentive plan
awards: # of
securities
underlying
unexercised
unearned
options
(d)
|
Option
exercise
price
($)
(e)
|
Option
(f)expiration
date
|
# of
shares or
units of
stock
that have
not vested
(g)
|
Market
value of
shares
or units of
stock that
have not
vested
($) (h) |
Equity incentive planunearned
shares, units
or other rights
that have
not vested
(#)
|
Equity incentive planof unearned
shares, units
or other rights
that have
not vested
($)
(j)
|
||||||||||||
Zak W. Elgamal
|
166,667 | 83,333 | 2.42 |
1/1/2010
|
83,333 | 201,667 | |||||||||||||||
Jaime Olmo-Rivas
|
166,667 | 83,333 | 2.42 |
1/1/2010
|
83,333 | 201,667 | |||||||||||||||
Totals
|
333,333 | 166,667 | 166,667 | 403,334 |
Compensation
Discussion and Analysis
Summary
This
report is the Compensation Discussion and Analysis of our executive compensation
program and an explanation and analysis of the material elements of total
compensation paid to each of our named executive officers. Included in the
discussion is an overview and description of the following:
Our
compensation philosophy and program;
The
objectives of our compensation program;
What
the compensation program is designed to reward;
Each
element of compensation;
Why
we choose to pay each element;
How
we determine the amount or formula (where applicable), for each element;
and
How
each compensation element and our decision regarding that element fit into our
overall compensation objectives and affect decisions regarding other
elements.
35
In
reviewing our executive compensation program, we considered issues pertaining to
policies and practices for allocating between long-term and currently paid out
compensation; and those policies for allocating between cash and non-cash
compensation. We also considered the determinations for granting awards,
performance factors for the Company and our named executive officers, and how
specific elements of compensation are structured and taken into account in
making compensation decisions.
Questions
related to the benchmarking of total compensation or any material element of
compensation, the tax and accounting treatment of particular forms of
compensation and the role of executive officers (if any) in the total
compensation process also are addressed where appropriate.
General
Executive Compensation Philosophy
The
Compensation Committee of the Board of Directors, which acts pursuant to
authority delegated to it by the Board of Directors, has established our general
executive compensation philosophy.
We
compensate our executive management through a combination of salaries, merit
based performance bonuses, and long-term equity compensation that is designed to
be competitive with comparable companies within the healthcare industry. Our
executive compensation program is structured to align management’s incentives
with the long-term interests of our shareholders, and to maximize profitability
and shareholder value.
We adhere
to the following compensation policies, which are designed to support the
achievement of our business strategies:
•
|
Our
executive compensation program should strengthen the relationship between
compensation, both cash and equity-based, and performance by emphasizing
variable, at-risk compensation that is dependent upon the successful
achievement of specified corporate, business unit and individual
performance goals.
|
•
|
A
portion of each executive’s total compensation should be comprised of
long-term, at-risk compensation to focus management on the long-term
interests of shareholders.
|
•
|
An
appropriately balanced mix of at-risk incentive cash and equity-based
compensation aligns the interests of our executives with that of our
shareholders. The equity-based component promotes a continuing focus on
building profitability and shareholder value.
|
•
|
Total
compensation should enhance our ability to attract, retain, motivate and
develop knowledgeable and experienced executives upon who, in large part,
our successful operation and management depend.
|
We set
compensation by establishing targeted compensation levels for each senior
executive and allocating that compensation amount among base salary,
incentive-based compensation, and long-term equity compensation. At the highest
and most senior levels we offer incentive based compensation to reward
companywide performance and by attributing awards primarily to maximize future
profitability, stock appreciation and shareholder value.
A
fundamental core principle of our executive compensation program is the belief
that compensation paid to executive officers should be closely aligned with our
near- and long-term success, while simultaneously giving us the flexibility to
recruit and retain the most qualified key executives. Our compensation program
is structured so that it is related to our achieving corporate and operational
milestones, as well as our stock performance and other factors, direct and
indirect, all of which may influence long-term shareholder value and our
success. As a result, we have designed our total executive compensation plan to
include the following elements:
36
•
|
Annual
Base Salaries;
|
•
|
Annual
Performance-Based Cash Bonuses;
|
•
|
Long-Term
Equity -Based Compensation; and
|
•
|
Certain
Other Benefits.
|
We
utilize each of these elements of executive compensation in an attempt to attain
the proper balance between our short- and long-term successes, as well as
between our financial performance and shareholder return. We believe that the
executive compensation program for our named executive officers is consistent
with our financial performance and the performance of each named executive
officer.
Elements
of Compensation
Base
Salaries
Base
salaries for our executives are established based on the scope of their
responsibilities, taking into account competitive market compensation for
similar positions, as well as seniority of the individual, our ability to
replace the individual, our Board of Directors’ and Compensation Committee’s
assessment of the contribution and competence of the individual and other
primarily judgmental factors deemed relevant by our Board of Directors and
Compensation Committee.
Base
salaries are reviewed annually by our Compensation Committee and our Board of
Directors, and adjusted from time to time pursuant to such review or at other
appropriate times. Where possible and appropriate, salaries are realigned based
upon market levels after taking into account individual responsibilities,
performance and experience.
Bonuses
Amounts
shown as Non-Equity Incentive Plan Compensation in the Summary Compensation
Table are based the individual meeting performance criteria objectives. Our
Compensation Committee makes the final determination for all bonus payments.
Actual bonus awards are paid at a level commensurate with performance against
pre-established objectives set forth in a bonus performance grid.
We set
bonuses based on performance measures in an effort to align the interests of our
officers with those of our shareholders. Although the performance goals
established for purposes of determining bonus awards are fixed at the inception
of a period, we have and will occasionally consider additional performance
rating goals when evaluating the bonus compensation structure of our executive
management. In addition, in instances where the employee has responsibility over
a specific area, individual performance goals may be directly tied to the
overall performance of that particular area and bonus compensation may be varied
accordingly, the Agreements with Messer's. Elgamal and Olmo-Rivas provide for an
annual bonus of 2% of the year over year increase in the gross revenue to
each.
Equity
Incentive Grants
In
keeping with our philosophy of providing a total compensation package that
favors at-risk components of pay, long-term incentives comprise a significant
component of our executives’ total compensation package. These incentives are
designed to motivate and reward executives for maximizing shareholder value and
encourage the long-term employment of key employees. Our objective is to provide
executives with above-average, long-term incentive award
opportunities.
We view
stock options as our primary long-term compensation vehicle for our executive
officers. Stock options are granted at the prevailing market price on the date
of grant and will have value only if our stock price increases. Grants of stock
options generally are based upon our performance, the level of the executive’s
position, and an evaluation of the executive’s past and expected future
performance. Our Compensation Committee grants stock options periodically, but
not necessarily on an annual basis.
37
Backdating
and Spring-loading Options
We do not
backdate options or grant options retroactively. In addition, we do not
intentionally coordinate grants of options so that they are made before
announcement of favorable information, or after announcement of unfavorable
information. Our options are granted at fair market value on a fixed date or
event (such as the first day of an employee’s hire) with all required approvals
obtained in advance of or on the actual grant date. All grants to executive
officers require the approval of our Compensation Committee. We consider fair
market value to be the closing price of our common stock on the grant
date.
Other
Benefits
Severance
Benefits
We offer
severance benefits to our executive management and to the rest of our employees
on a case-by-case basis as required under the terms of each respective
employment agreement. Under our severance agreements, benefits may be provided
when there is termination for “good reason” or without “cause.” The definitions
for these terms are set forth in the respective employment
agreements.
Change
in Control
There
have been no changes of control or other provisions that provide additional
financial rewards to our executives or management.
Executive
Compensation Process
Our
Compensation Committee oversees and approves all compensation and awards made to
executive officers under our executive compensation program. The Compensation
Committee reviews the performance and compensation of the Chief Executive
Officer, President, and other named executive officers, and establishes their
compensation accordingly with consultation from others when appropriate. The
Compensation Committee also makes grants of equity compensation in the form of
stock options and restricted stock awards based in part on recommendations from
the Chief Executive Officer.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table provides the names and addresses of each person known to us to
own more than 5% of our outstanding shares of common stock as of December 10,
2009 and by the officers and directors, individually and as a group. Except as
otherwise indicated, all shares are owned directly and the shareholders listed
possesses sole voting and investment power with respect to the shares
shown.
Title
of Class
|
Name
and Address
of
Beneficial Owner
|
Amount
and Nature
of
Beneficial Owner
|
Percent
of
Class (2)
|
|||||||||
Common
|
Zak
W. Elgamal (3)
10039
Bissonnet #250 Houston, Texas 77036-7852
|
2,865,714 | 29.40 | % | ||||||||
Common
|
Jaime
Olmo-Rivas (4)
10903
Ashland Bridge Lane Sugar Land, Texas 77478
|
2,871,429 | 29.46 | % | ||||||||
Common
|
Bland
E. Chamberlain, III
4010
Fulford Court
Katy,
Texas 77450
|
857,143 | 8.79 | % | ||||||||
Common
|
Jose
J. Chapa, Jr.
8726
Cedardale Drive
Houston,
Texas 77055
|
857,143 | 8.79 | % | ||||||||
Common
|
Henry
Y. L. Toh
1111
Hermann Drive, #6E
Houston,
Texas 77004
|
25,000 | 0.25 | % | ||||||||
Officers
and Directors
As
a Group (1)
|
7,476,429 | 76.70 | % | |||||||||
|
||||||||||||
(1 | ) |
Bland
Chamberlain and Jose Chapa, Jr. are not officers or directors of the
Company and therefore such shares are not part of the officers and
directors as a group.
|
||||||||||
(2 | ) |
The
percent of class is based on 9,746,423 shares of common stock issued and
outstanding as of December 10, 2009.
|
||||||||||
(3 | ) |
Based
on the following: (i) 14,286 shares of our common stock distributed via
dividend by American Surgical Assistants, Inc. to Mr. Elgamal; (ii)
1,714,286 shares of common stock pursuant to the merger between us and
American Surgical Assistants, Inc.; and (iii) 1,128,571 shares of our
common stock for services rendered. 8,571 shares of common stock
owned by Mr. Elgamal’s wife are also included in this
amount.
|
||||||||||
(4 | ) |
Based
on the following: (i) 14,286 shares of our common stock distributed via
dividend by American Surgical Assistants, Inc. to Mr. Olmo-Rivas;
(ii) 1,714,286 shares of common stock pursuant to the merger between us
and American Surgical Assistants, Inc.; and (iii) 1,128,571 shares of our
common stock for services rendered. 14,286 shares of common stock
owned by Mr. Olmo-Rivas minor children are also included in this
amount.
|
38
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
In June
of 2008 Mr. Chamberlain loaned the company $150,000 (see Note 7 in the financial
statements).
The
Company has compensation arrangements in place with four of its significant
shareholders for services rendered to the Company directly by them or by
entities controlled by them (see Note 4 in the financial
statements).
Mr.
Elgamal and Mr. Olmo-Rivas, executive directors of the Company, pursuant to 10
year employment agreements that were renewed and amended in 2006 and 2007 are
each entitled to receive annual compensation of $564,400, plus health,
disability and life insurance benefits. Under the ESOP adopted on or about March
23, 2007 Mr. Elgamal and Mr. Olmo-Rivas each received 500,000 stock options that
vest over a three year period. Subsequent, to year-end, the non-compete
agreements with both executive officers were extended to three years from two
years. Additionally, in circumstances where either shareholder disposes of more
than 250,000 shares in any single year between 2007 and 2012, the non-compete is
automatically extended to five years. Additionally, commencing in 2007, both
officers are entitled to performance-based compensation equal to 2% of the
growth in year over year gross revenue from the prior calendar year. The
agreements provide for monthly consulting fees in the amount of $11,000 per
month payable to their closely held corporations. Each agreement includes an
option to purchase 5% of any shares issued by the Company during the term of
these agreements at a discount price equal to 25% of the closing price on the
date the shares are issued by the Company. Mr. Elgamal and Mr.
Olmo-Rivas have waived their rights to the options under the agreements for the
years ended December 31, 2007, 2006 and 2005. The agreements also
include an early termination provision that provides for a contract termination
payment equal to $3,000,000 if the Company terminates the agreement without
cause or is terminated with a cause less than a conviction of a federal felony
prior to the expiration date, as renewed. These agreements replaced
the prior agreements with Mr. Elgamal and Mr. Olmo-Rivas and with their closely
held corporations.
During
July 2005, the Company renewed service agreements with corporations owned by Mr.
Elgamal, CEO, and Mr. Olmo-Rivas, Executive Director. The agreements were
renewed for an initial term of Ten (10) years and they renew automatically
unless cancelled by either party within sixty days of maturity with a written
notice.
Mr.
Chamberlain and Mr. Chapa, senior consultants of the Company, pursuant to
multiple year agreements are entitled to receive combined annual employment and
consulting compensation of $344,000 plus health and disability insurance
benefits. In addition corporations owned by Mr. Chamberlain and Mr. Chapa have
service agreements in place whereby they earn consulting fees of $6,000 per
month. Their agreements include an option, exercisable by Mr.
Chamberlain and Mr. Chapa, to purchase 5% of any shares issued by the Company
during the term of the agreements at a discount price equal to 25% of the
closing price on the date issued by the Company. Mr. Chamberlain and
Mr. Chapa have waived their rights to the options under the agreements for the
years ended December 31, 2007, 2006 and 2005. The agreements include an early
termination provision that provides for a contract termination payment equal to
$3,000,000 if the Company terminates the agreement without cause prior to the
expiration date, as renewed.
39
Mr. Bland
Chamberlain loaned the Company $150,000 at 15% interest on June 12,
2008. The loan was renewed on September 12, 2008 with a maturity date
of June 15, 2009.
Disclosure of Commission Position on Indemnification of Securities Act Liabilities.
Our
directors and officers are indemnified as provided by the Delaware Statutes and
our Bylaws. We have agreed to indemnify each of our directors and certain
officers against certain liabilities, including liabilities under the Securities
Act of 1933. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers and
controlling persons pursuant to the provisions described above, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
We have
been advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court’s decision.
40
AMERICAN
SURGICAL HOLDINGS, INC.
3,060,500
SHARES OF COMMON STOCK
PROSPECTUS
YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE
REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS
NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
Until
_____________, all dealers that effect transactions in these securities whether
or not participating in this offering may be required to deliver a prospectus.
This is in addition to the dealer’s obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
The Date of This Prospectus
is_____, 2009
41
PART
II INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
Securities
and Exchange Commission registration fee
|
$
|
613.18
|
||
Federal
Taxes
|
$
|
0
|
||
State
Taxes and Fees
|
$
|
0
|
||
Transfer
Agent Fees
|
$
|
0
|
||
Accounting
fees and expenses
|
$
|
5,000
|
||
Legal
fees and expense
|
$
|
35,000.00
|
||
Blue
Sky fees and expenses
|
$
|
0
|
||
Miscellaneous
|
$
|
0
|
||
Total
|
$
|
40,613.18
|
All
amounts are estimates other than the Commission’s registration fee. We are
paying all expenses of the offering listed above. No portion of these expenses
will be borne by the selling shareholders. The selling shareholders, however,
will pay any other expenses incurred in selling their common stock, including
any brokerage commissions or costs of sale.
Item
14. Indemnification of Directors and Officers.
Our
directors and officers are indemnified as provided by the Delaware Statutes and
our Bylaws. We have agreed to indemnify each of our directors and certain
officers against certain liabilities, including liabilities under the Securities
Act of 1933. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers and
controlling persons pursuant to the provisions described above, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
We have
been advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless
in the opinion of our legal counsel the matter has been settled by
controlling precedent, submit the question of whether such indemnification is
against public policy to a court of appropriate jurisdiction. We will then be
governed by the court’s decision.
Item
15. Recent Sales of Unregistered Securities.
On
October 21, 2009, we exchanged 95,000 ten cent warrants to restricted
common stock.
On
November 5, 2009, we received a request from a former note holder to convert
50,000 warrants into 42,411 shares of common stock under the
cashless exercise provision in the warrants.
During
the three months ended September 30, 2009, certain warrant holders exercised
warrants for a total of 197,500 shares of common stock under the cashless
exercise provision in the warrants.
During
February, 2009, we reached an agreement with a surgical assistant corporation,
to join the Company. The agreement became effective March 1,
2009. The agreement entitles the then owner to $50,000 in cash upon
execution and an incentive bonus based on profits, an annual base salary of
$117,000, 50,000 shares of common stock, and 50,000 shares of restricted shares
to be vested on the first anniversary of the closing date. These shares of our
common stock qualified for exemption under Section 4(2) of the Securities Act of
1933 since the issuance shares by us did not involve a public offering. The
offering was not a “public offering” as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering and number of shares offered. We did not undertake an
offering in which we sold a high number of shares to a high number of investors.
In addition, the investor had the necessary investment intent as required by
Section 4(2) since they agreed to and received share certificates bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
42
On July
2, 2007, the Company completed a private placement of $2,715,000 or 2,715 Units
consisting of (i) a 15% interest bearing unsecured promissory note in
the principal amount of $100,000 payable in cash at the Maturity Date (as the
term is defined in the Note) (the “Notes”) and (ii) a five-year warrant to
purchase 100,000 shares of the Company’s common stock (“Common Stock”) at an
exercise price of $2.00 per share (the “Warrant,” and the shares issuable upon
exercise of the Warrant referred to herein as the “Warrant
Shares”). Dawson James Securities, Inc. (the “Placement Agent”)
served as placement agent for the transaction.
We claim
an exemption from the registration requirements of the Securities Act of 1933,
as amended (the “Act”) for the private placement of these securities pursuant to
Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder
since, among other things, the transaction does not involve a public offering,
each the Investors was an “accredited investor”, the Investors had access to
information about the Company and its investment, the Investors agreed to take
the securities for investment and not resale, and the Company is taking
appropriate measures to restrict the transfer of the securities.
In
January 2007, the Company issued 100,000 shares of common stock for consulting
and strategic business planning services, with a fair value of $220,000. These
shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance shares by us did not involve a public
offering. The offering was not a “public offering” as defined in Section 4(2)
due to the insubstantial number of persons involved in the deal, size of
the offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, the investor had the necessary investment intent as
required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such shares are restricted pursuant to Rule 144 of
the 1933 Securities Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
Item
16. Exhibits and Financial Statement Schedules.
EXHIBIT
NUMBER
|
DESCRIPTION
|
||
3.1
|
Articles
of Incorporation(1)
|
||
3.2
|
By-Laws(1)
|
||
5.1
|
Opinion
of Anslow & Jaclin, LLP
|
||
10.1
|
Employee
stock option plan (2)
|
||
10.2
|
Service
Agreement and Amendments for Zak Elgamal and Jaime
Olmo-Rivas(3)
|
||
10.3
|
Bland
Chamberlain Consulting Agreement and
Amendments(3)
|
||
10.4
|
Jose
Chapa Consulting Agreement and Amendments (3)
|
||
10.5
|
Master
Promissory Note dated July 23, 2008(3)
|
||
10.6
|
Form
of Promissory Note (4)
|
||
10.7
|
Form
of Warrant (4)
|
||
23.1
|
Consent
of Webb & Company P.A.
|
||
23.2
|
Consent
of Counsel
|
(1)
Incorporated by reference to our Form 10-SB, filed on August 1, 2003 (SEC File
No. 000-50354).
(2)
Incorporated by reference to the Preliminary 14(c) filed with the SEC on March
26, 2007
(3)
Incorporated by reference to our amended Form 10-K for 12/31/08 filed with the
SEC on June 9, 2008
(4)
Incorporated by reference to our Form 8-K filed with the SEC on July 3,
2007
43
Item
17. Undertakings.
(A) The
undersigned Registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a) (3) of the Securities Act of
1933;
ii.
To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5) Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
i.
Any preliminary prospectus or prospectus of the undersigned registrant relating
to the offering required to be filed pursuant to Rule 424;
ii.
Any free writing prospectus relating to the offering prepared by or on behalf of
the undersigned registrant or used or referred to by the undersigned
registrant;
iii. The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
iv. Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
44
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and authorized this registration statement
to be signed on its behalf by the undersigned, in Houston, Texas on December 22,
2009.
AMERICAN SURGICAL HOLDINGS,
INC.
/s/
Zak W.
Elgamel
|
|||
Name:
ZAK W. ELGAMAL
Position:
Chief Executive Officer
Principal
Executive Officer
|
/s/
James A.
Longaker
|
|||
Name:
JAMES A. LONGAKER, CPA
Position:
Chief Financial Officer (Principal Accounting Officer)
|
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Zak W. Elgamel and James A. Longaker and their true and
lawful attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of America
Surgical Holdings, Inc.) to sign any or all amendments (including post-effective
amendments) to this registration statement and any and all additional
registration statements pursuant to rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the SEC, granting unto each said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, as amended, this
registration statement was signed below by the following persons in the
capacities and on the dates stated.
Dated:
December 22, 2009
/s/
Jaime Olmo-Rivas
|
Director
|
Jaime
Olmo-Rivas
|
Vice
President
|
/s/
Dr. Charles Bailey
|
Director
|
Dr.
Charles Bailey
|
|
/s/
Dr. Michael Kleinman
|
Director
|
Dr.
Michael Kleinman
|
|
/s/
Henry Y. L. Toh
|
Director
|
Henry Y. L.
Toh
|
45