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UGHS > SEC Filings for UGHS > Form 8-K/A on 5-Apr-2013All Recent SEC Filings

Show all filings for UNIVERSITY GENERAL HEALTH SYSTEM, INC. | Request a Trial to NEW EDGAR Online Pro

Form 8-K/A for UNIVERSITY GENERAL HEALTH SYSTEM, INC.


5-Apr-2013

Non-Reliance on Previous Financials, Audits or Interim R


ITEM 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Report

This Amendment No. 2 on Form 8-K/A is being filed by University General Health System Inc. (the "Company") with the Securities and Exchange Commission ("SEC") to amend its Current Report on Form 8-K originally filed with the SEC on November 9, 2012 and then amended on November 14, 2012. The Company, based on the recommendation of management, concluded on April 1, 2013 that the previously issued consolidated financial statements of the Company for the quarters ended June 30, 2012 and September 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.

At issuance, the Company recorded the $5,158,575 derivative liability by allocating $4,701,289 as an expense to other income/expense called "Direct Investor Expense" on the Company's Consolidated Statement of Operations. In addition, the Company recorded the fair value of the placement warrants ($88,469) as a derivative liability. The company allocated $60,698 of the fair value of the placement warrants to the contra temporary equity account and will accrete the expense to the statement of operations over two years, the remaining $27,771 of the fair value of the placements warrants was expensed at issuance. The Company believes they accounted for these features in accordance with the Derivatives Implementation Group Issue No. B6. During the quarter ended September 30, 2012, the Company recorded additional $857,674 to Direct investor expensed due to greenshoe exercises.



(iii) Restate the Company's earnings per share disclosures and calculations to accurately reflect the impact of the Series C Variable Rate Convertible Preferred Stock and Warrant issuance.

The necessary adjustments to the Company's Unaudited Consolidated Balance Sheet and Unaudited Consolidated Statement of Income are summarized in the tables below. The adjustments necessary to correct the errors had no effect on reported cash flow from operations:

                                                                        As of June 30, 2012
                                                                                As
                                           As                               Previously
                                       Previously                            Reported
                                        Reported                             per 8K/A
                                       per second                            filed on
                                         quarter         Adjustments        11/14/2012         Adjustments        As Restated
                                       (Unaudited)
              ASSETS
Current Assets
Cash and cash equivalents             $     475,885      $         -       $     475,885      $          -       $     475,885
Accounts receivable, less allowance
for doubtful accounts of
$10,184,800                              17,175,814                -          17,175,814                 -          17,175,814
Inventories                               1,878,266                -           1,878,266                 -           1,878,266
Receivables from related parties          1,084,021                -           1,084,021                 -           1,084,021
Prepaid expenses and other assets         1,315,319                -           1,315,319                 -           1,315,319

Total Current Assets                     21,929,305                -          21,929,305                 -          21,929,305
Long-Term Assets
Investments in unconsolidated
affiliates                                  767,323                -             767,323                 -             767,323
Property, equipment and leasehold
improvements, net                        66,841,636                -          66,841,636                 -          66,841,636
Intangible assets, net                    7,198,000                -           7,198,000                 -           7,198,000
Goodwill                                 28,900,818                -          28,900,818                 -          28,900,818
Other non-current assets, net             1,883,224                -           1,883,224                 -           1,883,224

Total Long-Term Assets                  105,591,001                          105,591,001                           105,591,001

Total Assets                          $ 127,520,306      $         -       $ 127,520,306      $          -       $ 127,520,306

   LIABILITIES AND SHAREHOLDERS'
         EQUITY (DEFICIT)
Current Liabilities
Accounts payable                      $  10,535,040      $     50,773      $  10,585,813      $          -       $  10,585,813
Payables to related parties               2,089,287                -           2,089,287                 -           2,089,287
Accrued expenses                          5,339,916                -           5,339,916                 -           5,339,916
Accrued acquisition cost                    521,401                -             521,401                 -             521,401
Taxes payable                             5,149,799                -           5,149,799                 -           5,149,799
Income tax payable                        3,840,809                -           3,840,809                 -           3,840,809
Deferred revenue                            248,954                -             248,954                 -             248,954
Lines of credit                           8,451,025                -           8,451,025                 -           8,451,025
Notes payable, current portion           25,528,386                -          25,528,386                 -          25,528,386
Notes payable to related parties,
current portion                           2,164,527                -           2,164,527                 -           2,164,527
Capital lease obligations, current
portion                                   4,633,186                -           4,633,186                 -           4,633,186
Capital lease obligations to
related party, current portion              253,397                -             253,397                 -             253,397
Derivative liability                             -          4,242,042          4,242,042                 -           4,242,042

Total Current Liabilities                68,755,727         4,292,815         73,048,542                 -          73,048,542
Long-Term Liabilities
Notes payable, less current portion      13,707,523                -          13,707,523                 -          13,707,523
Notes payable to related parties,
less current portion                             -                 -                  -                  -                  -
Capital lease obligations, less
current portion                             331,153                -             331,153                 -             331,153
Capital lease obligations to
related party, less current portion      30,671,750                -          30,671,750                 -          30,671,750

Total Long-Term Liabilities              44,710,426                -          44,710,426                 -          44,710,426
Total liabilities                       113,466,153         4,292,815        117,758,968                 -         117,758,968
Commitments and contingencies
Series C, convertible preferred
stock, $0.001 par value, 20,000,000
shares authorized, 3,808 shares
issued and outstanding, ($1,000
stated value)                                               3,388,074          3,388,074           (619,646 )        2,768,428
Shareholders' Equity (Deficit)
Preferred, par value $0.001,
20,000,000 shares authorized,
Preferred stock Series B - 3,000
shares issues and outstanding                     3                -                   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 shares issued and
outstanding                                 324,326                -             324,326                 -             324,326
Additional paid-in-capital               58,900,069        (4,031,004 )       54,869,065            444,842         55,313,907
Shareholders' receivables                (2,409,069 )              -          (2,409,069 )               -          (2,409,069 )
Accumulated deficit                     (47,883,491 )      (3,649,881 )      (51,533,372 )          174,804        (51,358,568 )

Total shareholders' equity
(deficit)                                 8,931,842        (7,680,889 )        1,250,953            619,646          1,870,599
Noncontrolling interest                   5,122,311                -           5,122,311                 -           5,122,311

Total Equity                             14,054,153        (7,680,889 )        6,373,264            619,646          6,992,910

Total Liabilities and Shareholders'
Equity                                $ 127,520,306      $         -       $ 127,520,306      $          -       $ 127,520,306



--------------------------------------------------------------------------------
                                                                      Three Months Ended June 30, 2012
                                                As                                   As
                                            Previously                           Previously
                                             Reported                            8K/A filed
                                            per Second                               on                                   As
                                              Quarter         Adjustments        11/14/2012        Adjustments        Restatement
Revenues
Patient service revenues, net of
contractual adjustments                    $  29,309,857      $         -          29,309,857      $         -          29,309,857
Provision for doubtful accounts               (2,790,920 )              -          (2,790,920 )              -          (2,790,920 )

Net patient service revenue less
provision for bad debts                       26,518,937                -          26,518,937                -          26,518,937
Senior living revenues                         1,908,425                -           1,908,425                -           1,908,425
Support services revenues                        395,364                -             395,364                -             395,364
Other revenues                                   250,351                -             250,351                -             250,351

Total revenues                                29,073,077                -          29,073,077                -          29,073,077
Operating expenses
Salaries, wages and benefits                   8,735,661                -           8,735,661                -           8,735,661
Medical supplies                               3,859,736                -           3,859,736                -           3,859,736
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                -           7,667,311
Gain on extinguishment of liabilities         (2,806,787 )              -          (2,806,787 )              -          (2,806,787 )
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                -           1,769,920

Total operating expenses                      19,225,841                -          19,225,841                -          19,225,841

Operating income                               9,847,236                -           9,847,236                -           9,847,236
Other income (expense)
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 )              -          (1,385,335 )
Other income                                          -                 -                  -           (139,639 )         (139,639 )
Direct investor expense                                                                    -         (4,701,289 )       (4,701,289 )
Derivative expense                                    -         (1,262,106 )       (1,262,106 )       1,262,106                 -
Change in fair market value of
derivatives                                           -            916,533            916,533                -             916,533

Income (loss) before income tax                8,461,901          (345,573 )        8,116,328        (3,578,822 )        4,537,506
Income tax expense                             3,407,131                -           3,407,131                -           3,407,131

Income (loss) before noncontrolling
interest                                       5,054,770          (345,573 )        4,709,197        (3,578,822 )        1,130,375
Net income attributable to
noncontrolling interests                          30,018                -              30,018                -              30,018

Net income (loss) attributable to the
Company                                    $   5,084,788      $   (345,573 )    $   4,739,215      $ (3,578,822 )    $   1,160,393

Less: Cash dividend-Convertible
Preferred C Stock                                     -            (50,773 )          (50,773 )              -             (50,773 )
Less: Accretion non-cash
dividend-Convertible Preferred C Stock                -         (3,845,034 )       (3,845,034 )       3,753,626            (91,408 )

Net income attributable to common
shareholders                               $   5,084,788      $ (4,241,380 )    $     843,408      $    174,804      $   1,018,212

Net income attributable to common
shareholders:
Basic and diluted income per share data
Basic earnings per common share            $        0.02                        $        0.00                        $        0.00

Basic weighted average shares
outstanding                                  309,510,470                          309,510,470                          309,510,470

Diluted earnings per common share          $        0.02                        $        0.00                        $        0.00

Diluted weighted average shares
outstanding                                  326,817,830                          344,731,008                          326,817,830



--------------------------------------------------------------------------------
                                                                       Six Months Ended June 30, 2012
                                          As Previously                          As Previously
                                           Reported per                          8K/A filed on                              As
                                          Second Quarter       Adjustments         11/14/2012        Adjustments        Restatement
Revenues
Patient service revenues, net of
contractual adjustments                  $     47,324,501      $         -           47,324,501      $         -          47,324,501
Provision for doubtful accounts                (4,187,831 )              -           (4,187,831 )              -          (4,187,831 )

Net patient service revenue less
provision for bad debts                        43,136,670                -           43,136,670                -          43,136,670
Senior living revenues                          3,776,858                -            3,776,858                -           3,776,858
Support services revenues                         879,064                -              879,064                -             879,064
Other revenues                                    367,540                -              367,540                -             367,540

Total revenues                                 48,160,132                -           48,160,132                -          48,160,132
Operating expenses
Salaries, wages and benefits                   17,017,652                -           17,017,652                -          17,017,652
Medical supplies                                6,791,861                -            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)           11,894,814                -           11,894,814                -          11,894,814
Gain on extinguishment of liabilities          (2,903,526 )              -           (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)                                   3,495,093                -            3,495,093                -           3,495,093

Total operating expenses                       36,295,894                -           36,295,894                -          36,295,894

Operating income                               11,864,238                -           11,864,238                -          11,864,238
Other income (expense)
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)                              (2,823,300 )              -           (2,823,300 )              -          (2,823,300 )
Other income                                       11,583                                11,583          (139,639 )         (128,056 )
Direct investor expense                                -                 -                   -         (4,701,289 )       (4,701,289 )
Derivative expense                                     -         (1,262,106 )        (1,262,106 )       1,262,106                 -
Change in fair market value of
derivatives                                            -            916,533             916,533                -             916,533

Income (loss) before income tax                 9,052,521          (345,573 )         8,706,948        (3,578,822 )        5,128,126
Income tax expense                              3,506,131                -            3,506,131                -           3,506,131

Income (loss) before noncontrolling
interest                                        5,546,390          (345,573 )         5,200,817        (3,578,822 )        1,621,995
Net income attributable to
noncontrolling interests                           27,835                -               27,835                -              27,835

Net income (loss) attributable to the
Company                                  $      5,574,225      $   (345,573 )    $    5,228,652      $ (3,578,822 )    $   1,649,830

Less: Cash dividend-Convertible
Preferred C Stock                                      -            (50,773 )           (50,773 )              -             (50,773 )
Less: Accretion non-cash
dividend-Convertible Preferred C Stock                 -         (3,845,034 )        (3,845,034 )       3,753,626            (91,408 )

Net income attributable to common
shareholders                             $      5,574,225      $ (4,241,380 )    $    1,332,845      $    174,804      $   1,507,649

Net income attributable to common
shareholders:
Basic and diluted income per share
data
Basic earnings per common share          $           0.02                        $         0.00                        $        0.01

Basic weighted average shares
outstanding                                   296,475,348                           296,475,348                          296,475,348

Diluted earnings per common share        $           0.02                        $         0.00                        $        0.00

Diluted weighted average shares
outstanding                                   313,782,708                           331,695,886                          313,782,708


As of September 30, 2012 As Previously Reported Adjustments Restated
(Unaudited)

                    ASSETS
Current Assets
Cash and cash equivalents                        $   5,342,072      $          -       $   5,342,072
Accounts receivable, less allowance for
doubtful accounts of $13,692,865                    23,442,899                 -          23,442,899
Inventories                                          1,493,096                 -           1,493,096
Receivables from related parties                            -                  -                  -
Prepaid expenses and other assets                    3,997,465            (84,323 )        3,913,142

Total Current Assets                                34,275,532            (84,323 )       34,191,209
Long-Term Assets
Investments in unconsolidated affiliates               847,323                 -             847,323
Property, equipment and leasehold
improvements, net                                   67,993,247                 -          67,993,247
Intangible assets, net                               6,282,500                 -           6,282,500
Goodwill                                            28,974,185                 -          28,974,185
Other non-current assets, net                        2,304,228           (168,647 )        2,135,581

Total Long-Term Assets                             106,401,483                 -         106,232,836

Total Assets                                     $ 140,677,015      $    (252,970 )    $ 140,424,045

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable                                 $  10,032,820      $          -       $  10,032,820
Payables to related parties                          2,155,945                 -           2,155,945
Accrued expenses                                     4,226,512                 -           4,226,512
Accrued acquisition cost                               521,401                 -             521,401
Taxes payable                                        3,640,381                 -           3,640,381
Income tax payable                                   6,112,440                 -           6,112,440
Deferred revenue                                       264,705                 -             264,705
Lines of credit                                             -                  -                  -
Notes payable, current portion                      21,483,002                 -          21,483,002
Notes payable to related parties, current
portion                                              2,170,143                 -           2,170,143
Capital lease obligations, current portion           2,491,850                 -           2,491,850
Capital lease obligations to related party,
current portion                                        257,713                 -             257,713
Derivative liability                                10,569,206                 -          10,569,206

Total Current Liabilities                           63,926,118                 -          63,926,118
Long-Term Liabilities
Lines of credit, less current portion               12,269,000                 -          12,269,000
Notes payable, less current portion                 21,342,197                 -          21,342,197
Notes payable to related parties, less current
portion                                                     -                  -                  -
Capital lease obligations, less current
portion                                                240,945                 -             240,945
Capital lease obligations to related party,
less current portion                                30,609,920                 -          30,609,920

Total Long-Term Liabilities                         64,462,062                 -          64,462,062
Total Liabilities                                  128,388,180                 -         128,388,180
Commitments and contingencies
Series C, convertible preferred stock, $0.001
par value, 20,000,000 shares authorized,
4,200 shares issued and outstanding, ($1,000
stated value)                                        3,797,633           (576,650 )        3,220,983
Shareholders' Equity and (Deficit)
Preferred, par value $0.001, 20,000,000 shares
authorized,
Preferred stock Series B - 3,000 shares issued
and outstanding                                              3                 -                   3
Common stock, par value $0.001, 480,000,000
shares authorized,
325,654,031 shares issued and outstanding              325,653                 -             325,653
Additional paid-in-capital                          55,178,809            391,455         55,570,264
Shareholders' receivables                           (2,429,069 )               -          (2,429,069 )
Accumulated deficit                                (49,677,189 )          (67,775 )      (49,744,964 )

Total shareholders' equity                           3,398,207            323,680          3,721,887
Noncontrolling interest                              5,092,995                 -           5,092,995

Total equity                                         8,491,202            323,680          8,814,882
. . .
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