UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 14, 2012
Commission File Number 000-54064
University General Health System, Inc.
(Exact Name of Registrant as Specified in Charter)
| Nevada | 71-0822436 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
7501 Fannin Street
Houston, Texas 77054
(713) 375-7100
(Telephone number, including area code of agent for service)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| ITEM 4.02 | Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Report |
As previously reported in the Current Report on Form 8-K dated November 9, 2012, the Board of Directors of University General Health System Inc. (the “Company”), based on the recommendation of the management, concluded on November 5, 2012 that the previously issued consolidated financial statements for the quarter ended June 30, 2012 should not be relied upon because of errors in accounting for Series C Variable Rate Convertible Preferred Stock and the related common stock warrants. The errors identified are discussed below.
The Company anticipates that, at a minimum, it will:
| (i) | Restate the accounting of the May 2, 2011 Series C Variable Rate Convertible Preferred Stock and the related common stock warrants; management has identified embedded derivatives within the provisions of the instruments and will record such derivatives at fair market value. The warrants and conversion features related to preferred stock do not have readily determinable fair values and therefore require significant management judgment and estimation. The Company used the Binomial pricing model to estimate the fair value of warrant and preferred stock conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statement of operations. Inputs into the Binomial pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk-free interest rate and the estimated life of the financial instruments being fair valued. |
| (ii) | The Company issued preferred stock and a common stock warrant, which are classified in temporary equity on the Consolidated Balance Sheets. The preferred stock had similar characteristics of an “Increasing Rate Security” as described by Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock. Discounts on the increasing rate preferred stock are amortized over the expected life of the preferred stock (4 years), by charging imputed dividend cost against retained earnings and increasing the carrying amount of the preferred stock by a corresponding amount. The discount at the time of issuance is computed as the present value of the difference between dividends that will be payable in future periods and the dividend amount for a corresponding number of periods, discounted at a market rate for dividend yield on comparable securities. The amortization in each period is the amount which, together with the stated dividend in the period, results in a constant rate of effective cost with regard to the carrying amount of the preferred stock. |
| (iii) | Restate the Company’s earnings per share disclosures to accurately reflect the impact of the Series C Variable Rate Convertible Preferred Stock and Warrant issuance. |
The necessary adjustments to the Company’s Consolidated Statement of Income and Consolidated Balance Sheet are summarized in the tables below. The adjustments necessary to correct the errors had no effect on reported cash flow.
| As of June 30, 2012 | ||||||||||||
| As Previously | ||||||||||||
| Reported | Adjustments | Restated | ||||||||||
| (Unaudited) | ||||||||||||
| ASSETS |
||||||||||||
| Current Assets |
||||||||||||
| Cash and cash equivalents |
$ | 475,885 | $ | — | $ | 475,885 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $10,184,800 and $7,070,327 |
17,175,814 | — | 17,175,814 | |||||||||
| Inventories |
1,878,266 | — | 1,878,266 | |||||||||
| Receivables from related parties |
1,084,021 | — | 1,084,021 | |||||||||
| Prepaid expenses and other assets |
1,315,319 | — | 1,315,319 | |||||||||
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| Total Current Assets |
21,929,305 | — | 21,929,305 | |||||||||
| Long-Term Assets |
||||||||||||
| Investments in unconsolidated affiliates |
767,323 | — | 767,323 | |||||||||
| Property, equipment and leasehold improvements, net |
66,841,636 | — | 66,841,636 | |||||||||
| Intangible assets, net |
7,198,000 | — | 7,198,000 | |||||||||
| Goodwill |
28,900,818 | — | 28,900,818 | |||||||||
| Other non-current assets, net |
1,883,224 | — | 1,883,224 | |||||||||
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| Total Long-Term Assets |
105,591,001 | 105,591,001 | ||||||||||
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| Total Assets |
$ | 127,520,306 | $ | — | $ | 127,520,306 | ||||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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| Current Liabilities |
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| Accounts payable |
$ | 10,535,040 | $ | 50,773 | $ | 10,585,813 | ||||||
| Payables to related parties |
2,089,287 | — | 2,089,287 | |||||||||
| Accrued expenses |
5,339,916 | — | 5,339,916 | |||||||||
| Accrued acquisition cost |
521,401 | — | 521,401 | |||||||||
| Taxes payable |
5,149,799 | — | 5,149,799 | |||||||||
| Income tax payable |
3,840,809 | — | 3,840,809 | |||||||||
| Deferred revenue |
248,954 | — | 248,954 | |||||||||
| Lines of credit |
8,451,025 | — | 8,451,025 | |||||||||
| Notes payable, current portion |
25,528,386 | — | 25,528,386 | |||||||||
| Notes payable to related parties, current portion |
2,164,527 | — | 2,164,527 | |||||||||
| Capital lease obligations, current portion |
4,633,186 | — | 4,633,186 | |||||||||
| Capital lease obligations to related party, current portion |
253,397 | — | 253,397 | |||||||||
| Derivative liability |
— | 4,242,042 | 4,242,042 | |||||||||
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| Total Current Liabilities |
68,755,727 | 4,292,815 | 73,048,542 | |||||||||
| Long-Term Liabilities |
||||||||||||
| Notes payable, less current portion |
13,707,523 | — | 13,707,523 | |||||||||
| Notes payable to related parties, less current portion |
— | — | — | |||||||||
| Capital lease obligations, less current portion |
331,153 | — | 331,153 | |||||||||
| Capital lease obligations to related party, less current portion |
30,671,750 | — | 30,671,750 | |||||||||
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| Total Long-Term Liabilities |
44,710,426 | — | 44,710,426 | |||||||||
| Total liabilities |
113,466,153 | 4,292,815 | 117,758,968 | |||||||||
| Commitments and contingencies |
||||||||||||
| Series C, convertible preferred stock, $0.001 par value, 20,000,000 shares authorized, 4,200 and 0 shares issued and outstanding, respectively ($1,000 stated value) |
3,388,074 | 3,388,074 | ||||||||||
| Shareholders’ Equity (Deficit) |
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| Preferred, par value $0.001, 20,000,000 shares authorized, |
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| Preferred stock Series B—3,000 shares issues and outstanding |
3 | — | 3 | |||||||||
| Preferred stock Series C, convertible preferred stock—3,808 shares issues and outstanding |
4 | (4 | ) | — | ||||||||
| Common stock, par value $0.001, 480,000,000 shares authorized, |
||||||||||||
| 324,326,655 and 283,440,226 shares issued and outstanding |
324,326 | — | 324,326 | |||||||||
| Additional paid-in-capital |
58,900,069 | (4,031,004 | ) | 54,869,065 | ||||||||
| Shareholders’ receivables |
(2,409,069 | ) | — | (2,409,069 | ) | |||||||
| Accumulated deficit |
(47,883,491 | ) | (3,649,881 | ) | (51,533,372 | ) | ||||||
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| Total shareholders’ equity (deficit) |
8,931,842 | (7,680,889 | ) | 1,250,953 | ||||||||
| Noncontrolling interest |
5,122,311 | — | 5,122,311 | |||||||||
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| Total Equity (Deficit) |
14,054,153 | (7,680,889 | ) | 6,373,264 | ||||||||
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| Total Liabilities and Shareholders’ Equity (Deficit) |
$ | 127,520,306 | $ | — | $ | 127,520,306 | ||||||
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| Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 | |||||||||||||||||||||||
| As Previously | As Previously | |||||||||||||||||||||||
| Reported | Adjustments | Restatement | Reported | Adjustments | Restatement | |||||||||||||||||||
| Revenues |
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| Patient service revenues, net of contractual adjustments |
$ | 29,309,857 | $ | — | 29,309,857 | $ | 47,324,501 | $ | — | 47,324,501 | ||||||||||||||
| Provision for doubtful accounts |
(2,790,920 | ) | — | (2,790,920 | ) | (4,187,831 | ) | — | (4,187,831 | ) | ||||||||||||||
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| Net patient service revenue less provision for bad debts |
26,518,937 | — | 26,518,937 | 43,136,670 | — | 43,136,670 | ||||||||||||||||||
| Senior living revenues |
1,908,425 | — | 1,908,425 | 3,776,858 | — | 3,776,858 | ||||||||||||||||||
| Support services revenues |
395,364 | — | 395,364 | 879,064 | — | 879,064 | ||||||||||||||||||
| Other revenues |
250,351 | — | 250,351 | 367,540 | — | 367,540 | ||||||||||||||||||
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| Total revenues |
29,073,077 | — | 29,073,077 | 48,160,132 | — | 48,160,132 | ||||||||||||||||||
| Operating expenses |
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| Salaries, wages and benefits |
8,735,661 | — | 8,735,661 | 17,017,652 | — | 17,017,652 | ||||||||||||||||||
| Medical supplies |
3,859,736 | — | 3,859,736 | 6,791,861 | — | 6,791,861 | ||||||||||||||||||
| Management fees (includes related party fees of $0 for each of the three months ended and $0 and $461,814 for the six months ended) |
— | — | — | — | — | — | ||||||||||||||||||
| General and administrative expenses (includes related party expenses of $377,030 and $1,621,953 for the three months ended and $681,643 and $3,369,262 for the six months ended) |
7,667,311 | — | 7,667,311 | 11,894,814 | — | 11,894,814 | ||||||||||||||||||
| Gain on extinguishment of liabilities |
(2,806,787 | ) | — | (2,806,787 | ) | (2,903,526 | ) | — | (2,903,526 | ) | ||||||||||||||
| Depreciation and amortization (includes related party expenses of $171,290 for each of the three months ended and $342,580 for each of the six months ended) |
1,769,920 | — | 1,769,920 | 3,495,093 | — | 3,495,093 | ||||||||||||||||||
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| Total operating expenses |
19,225,841 | — | 19,225,841 | 36,295,894 | — | 36,295,894 | ||||||||||||||||||
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| Operating income |
9,847,236 | — | 9,847,236 | 11,864,238 | — | 11,864,238 | ||||||||||||||||||
| Other income (expense) |
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| Interest expense, net of interest income of $20,000 and $0 for the three months ended and $40,000 and $0 for the six months ended (includes related party interest expense $583,715 and $631,493 for the three months ended and $1,162,750 and $1,288,381 for the six months ended) |
(1,385,335 | ) | — | (1,385,335 | ) | (2,823,300 | ) | — | (2,823,300 | ) | ||||||||||||||
| Other income |
— | — | — | 11,583 | — | 11,583 | ||||||||||||||||||
| Derivative expense |
— | (1,262,106 | ) | (1,262,106 | ) | — | (1,262,106 | ) | (1,262,106 | ) | ||||||||||||||
| Change in fair market value liability |
— | 916,533 | 916,533 | — | 916,533 | 916,533 | ||||||||||||||||||
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| Income (loss) before income tax |
8,461,901 | (345,573 | ) | 8,116,328 | 9,052,521 | (345,573 | ) | 8,706,948 | ||||||||||||||||
| Income tax expense |
3,407,131 | — | 3,407,131 | 3,506,131 | — | 3,506,131 | ||||||||||||||||||
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| Income (loss) before noncontrolling interest |
5,054,770 | (345,573 | ) | 4,709,197 | 5,546,390 | (345,573 | ) | 5,200,817 | ||||||||||||||||
| Net income attributable to noncontrolling interests |
30,018 | — | 30,018 | 27,835 | — | 27,835 | ||||||||||||||||||
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| Net income (loss) attributable to the Company |
$ | 5,084,788 | $ | (345,573 | ) | $ | 4,739,215 | $ | 5,574,225 | $ | (345,573 | ) | $ | 5,228,652 | ||||||||||
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| Less: Dividend-Convertible Preferred C Stock |
— | (50,773 | ) | (50,773 | ) | — | (50,773 | ) | (50,773 | ) | ||||||||||||||
| Less: Deemed dividend-Convertible Preferred C Stock |
— | (3,845,034 | ) | (3,845,034 | ) | — | (3,845,034 | ) | (3,845,034 | ) | ||||||||||||||
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| Net income attributable to common shareholders |
$ | 5,084,788 | $ | (4,241,380 | ) | $ | 843,408 | $ | 5,574,225 | $ | (4,241,380 | ) | $ | 1,332,845 | ||||||||||
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| Basic and diluted income (loss) per share data: |
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| Basic earnings (loss) per common share |
$ | 0.02 | $ | 0.00 | $ | 0.02 | $ | 0.00 | ||||||||||||||||
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| Basic weighted average shares outstanding |
309,510,470 | 309,510,470 | 296,475,348 | 296,475,348 | ||||||||||||||||||||
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| Diluted earnings (loss) per common share |
$ | 0.02 | $ | 0.00 | $ | 0.02 | $ | 0.00 | ||||||||||||||||
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| Diluted weighted average shares outstanding |
326,817,830 | 344,731,008 | 313,782,708 | 331,695,886 | ||||||||||||||||||||
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The Board of Directors, the Company’s management and independent registered public accounting firm have discussed the matters disclosed in this Amendment.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| University General Health System, Inc. | ||||||
| Date: November 14, 2012 |
By: |
/s/ Hassan Chahadeh, M.D. | ||||
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| Name: Hassan Chahadeh, M.D. Title: Chief Executive Office | ||||||