PINX:FSPI Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

 

 FORM 10-Q

 

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

 OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

OR

£ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from

 __________to __________

 

                                  Commission File No.     000-52458                                

 

FIRST SURGICAL PARTNERS INC.

(Exact name of registrant as specified in its charter)

 

Delaware   51-0383940
(State or other jurisdiction of   (I.R.S. Employer Identification
 incorporation or organization)    Number)

 

411 First Street

Bellaire, TX  77401

(Address of principal executive offices)

 

713-665-1111

(Issuer's telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 Yes   x      No    ¨  

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes   x    No    ¨  

  

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

 

Large accelerated filer  o Accelerated filer                     o
 Non-accelerated filer    o  Smaller reporting company  x

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes ¨   No x 

 

As of May 18, 2012, the Issuer had 40,873,393 shares of its common stock outstanding.

 

 
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

 

Part I – Financial Information     
     
Item 1.  Consolidated Condensed Financial Statements (Unaudited)    
    Balance Sheets as of March 31, 2012 and December 31, 2011   3  
    Statements of Income for the three month periods ended March 31, 2012 and 2011 4  
    Statements of Cash Flows for the three month periods ended March 31, 2012 and 2011 5  
    Notes to Financial Statements 6  
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations 14  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk. 21  
Item 4.   Controls and Procedures 22  
         
Part II - Other Information    
         
Item 1.   Legal Proceedings  22  
Item 1A.   Risk Factors 24  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 24  
Item 3.   Defaults Upon Senior Securities 24  
Item 4.   Mine Safety Disclosures 24  
Item 5.   Other Information 24  
Item 6.   Exhibits 24  
         
Signatures     28  

 

2
 

 

PART I

 

Item 1. Financial Statements

  

FIRST SURGICAL PARTNERS INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

  

   As of 
   March 31,   December 31, 
   2012   2011 
         
 Assets 
           
Current Assets          
Cash and Cash Equivalents  $415,365   $1,285,723 
Accounts Receivable, net   31,984,075    30,092,100 
Inventory   1,763,738    2,121,299 
Prepaid Expenses and Other Current Assets   199,919    253,492 
           
Total Current Assets   34,363,097    33,752,614 
           
Property and Equipment, net   13,495,544    13,623,466 
           
Other Assets, net   42,073    46,535 
           
Total Assets  $47,900,714   $47,422,615 
           
Liabilities and Shareholders' Equity 
           
Current Liabilities          
Accounts Payable  $3,412,432   $5,064,495 
Due to Related Parties   4,935,929    4,137,614 
Accrued Expenses and Other Current Liabilities   1,607,233    1,447,955 
Lines of Credit   4,409,247    4,417,137 
Income Taxes Payable   7,730,665    6,566,708 
Current Portion of Long-Term Debt and Capital Lease Obligations   8,243,478    936,930 
           
Total Current Liabilities   30,338,984    22,570,839 
           
Long-Term Liabilities          
Long-Term Debt and Capital Lease Obligations, Net of Current Portion   5,652,970    13,194,943 
Due to Related Party   346,329    341,186 
Other Long-Term Liabilities   145,755    117,894 
           
Total Long-Term Liabilities   6,145,054    13,654,023 
           
Commitments and Contingencies          
           
Shareholders' Equity          
Preferred Stock, $0.0001 par value, 50,000,000 shares authorized, zero issued and outstanding, respectively   -    - 
Common Stock, $0.0001 par value, 200,000,000 shares authorized, 40,873,393 and 40,873,393 shares issued and outstanding, respectively   4,087    4,087 
Additional Paid-In Capital   9,657,660    9,657,660 
Retained Earnings   1,754,929    1,536,007 
           
Total Shareholders' Equity   11,416,676    11,197,754 
           
Total Liabilities and Shareholders' Equity  $47,900,714   $47,422,615 

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

3
 

 

FIRST SURGICAL PARTNERS INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

 

   For the Three Months Ended March 31, 
   2012   2011 
         
Net Revenue  $12,708,035   $12,623,897 
           
Operating Expenses          
Salaries and Benefits   3,102,353    3,533,060 
Medical Supplies   2,471,509    2,761,169 
Bariatric Program Sponsorship   1,200,000    1,200,000 
Depreciation   454,628    528,969 
Rent   532,793    561,951 
Management Fees   518,711    465,652 
Other Operating Expenses   1,676,043    1,630,368 
Total Operating Expenses   9,956,037    10,681,169 
Other Expenses          
Interest Expense, net   (351,600)   (295,860)
Total Other Expenses   (351,600)   (295,860)
Income Before Income Taxes   2,400,398    1,646,868 
Income Taxes   1,159,641    640,244 
Net Income  $1,240,757   $1,006,624 
Basic and Diluted Income per Common Share  $0.03   $0.03 
Weighted average number of common shares outstanding - basic and fully diluted   40,873,393    40,022,227 
Dividends declared per common share  $0.025   $0.0125 

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

4
 

 

FIRST SURGICAL PARTNERS INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Three Months Ended March 31, 
   2012   2011 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Income  $1,240,757   $1,006,624 
Adjustments to Reconcile Net Income to Net Cash          
Provided by Operating Activities:          
Depreciation and Amortization   454,628    528,969 
Amortization of Deferred Financing Costs   4,461    - 
Stock Compensation   -    468,914 
Common Shares Issued for Services   -    - 
Changes in Operating Assets and Liabilities:          
Accounts Receivable   (1,891,975)   (2,693,419)
Inventory   357,561    527,338 
Other Current Assets   73,497    (73,001)
Accounts Payable, Accrued Expenses and Other Current Liabilities   (1,487,640)   (542,556)
Due to Related Parties   778,392    - 
Other Long Term Liabilities   27,861    86,557 
Current and Deferred Taxes Payable   1,163,957    542,027 
           
Net Cash Provided by (Used in) Operating Activities   721,499    (148,547)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital Expenditures   (326,707)   (503,738)
           
Net Cash Used in Investing Activities   (326,707)   (503,738)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Borrowings on Line of Credit   41,335    751,049 
Repayments on Line of Credit   (49,224)   (40,000)
Proceeds from Issuance of Long-Term Debt   -    629,234 
Repayment of Long-Term Debt and Capital Lease Obligations   (235,426)   (260,583)
Dividends Paid   (1,021,835)   (500,000)
           
Net Cash Provided by (Used in) Financing Activities   (1,265,150)   579,700 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (870,358)   (72,585)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR   1,285,723    266,708 
CASH AND CASH EQUIVALENTS AT END OF YEAR  $415,365   $194,123 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash Paid for Interest  $338,768   $285,726 
           
Cash Paid for Taxes  $-   $200,000 

 

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 

5
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.BUSINESS AND ORGANIZATION

 

First Surgical Partners Inc., including its subsidiaries, is an operator of two ambulatory surgery centers (“ASC”), First Street Surgical Center, L.P., and First Surgical Woodlands, L.P., and a general acute care hospital, First Street Hospital, L.P., all located in the greater Houston, Texas metro area. Procedures performed include non life-threatening surgeries, such as bariatrics, reconstructive and cosmetic plastics, orthopedics, pain management, neurosurgery and podiatry, which are often completed on an outpatient or short stay basis.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

 

Accounting Principles

 

The Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted (“GAAP”) in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and Item 310(b) of regulation S-K. These financial statements should be read together with the financial statements and notes in the Company’s 2011 Form 10-K filed with the SEC on March 30, 2012. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying financial statements reflect all adjustments and disclosures, which, in the Company’s opinion, are necessary for fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of the entire year.

 

Principles of Consolidation

 

The financial statements include the accounts of First Surgical Partners, Inc. and its subsidiaries. Intercompany transactions and balances have been eliminated.

 

Use of Estimates and Assumptions

 

Future events and their effects cannot be predicted with certainty; accordingly the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired , as additional information is obtained, and as our operating environment changes. Significant estimates and assumptions are used for, but not limited to: (1) allowance for contractual revenue adjustments; (2) depreciable lives of assets; (3) economic lives and fair values of leased assets; (4) uncertain tax positions; and (5) contingency and litigation reserves. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis and may employ outside experts to assist in our evaluation, as considered necessary. Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known.

 

6
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Income Taxes

 

The Company provides for income taxes using the asset and liability method. This approach recognizes the amount of federal, state, and local taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the future tax consequence of events recognized in the consolidated financial statements and income tax returns. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates. A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Realization is dependent on generating sufficient future taxable income. The Company evaluates its tax positions and establishes assets and liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. The Company reviews these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjusts them accordingly. The Company and its corporate subsidiaries file a consolidated federal income tax return. State income tax returns are filed on a separate, combined, or consolidated basis in accordance with relevant state laws and regulations. The Company records any interest and penalties related to its federal and state tax obligations as a component of Income Tax expense within its consolidated statements of income.

 

Earnings per Share

 

The calculation of earnings per common share is based on the weighted-average number of our common shares outstanding during the applicable period. The calculation for diluted earnings per common share recognizes the effect of all potential dilutive securities that were outstanding during the respective periods, unless their impact would be antidilutive. The Company had no dilutive securities as of March 31, 2012 or 2011.

 

3.PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   As of 
   March 31   December 31, 
   2012   2011 
         
Leasehold Improvements  $14,469,589   $14,290,273 
Medical Equipment   10,859,537    10,762,368 
Furniture, Fixtures and Office Equipment   1,409,306    1,359,085 
    26,738,432    26,411,726 
           
Accumulated Depreciation   (13,242,888)   (12,788,260)
           
Property and Equipment, net  $13,495,544   $13,623,466 

 

As of March 31, 2012, and December 31, 2011, the Company had $1,420,852 and $1,859,342 of equipment cost under capital lease, respectively, with accumulated amortization of $1,351,487 and $1,774,219, respectively, resulting in net assets under capital leases of $69,365 and $85,123, respectively. All of the Company’s assets under capital lease consisted of medical equipment.

 

7
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

4.LINES OF CREDIT

 

First Street Hospital, L.P. entered into a Letter Loan Agreement (“FSH Letter Loan Agreement”) with a financial institution on January 8, 2008. The FSH Letter Loan Agreement, as amended, provides for a $1,500,000 line of credit loan and a term loan (“FSH Loans”). The FSH Letter Loan Agreement provides for FSH Loans to be secured by real property owned by First Street Holdings, L.P., a related party to the Company, as well as accounts, inventory, fixtures, equipment and general intangibles; that the loans will be guaranteed personally by certain former partners of First Street Hospital, L.P., who are current shareholders of the Company; and require First Street Hospital, L.P. to maintain a debt service coverage ratio of 1.25 to 1.0. The line of credit loan calls for monthly interest only payments which shall from day to day be equal to the lesser of (a) a fluctuating rate per annum which is equal to the Index Rate which represents the rate of interest then most recently established by J.P. Morgan Chase Bank (or its successors) as its prime rate or (b) the Maximum Rate (the maximum lawful nonusurious rate of interest which under applicable law payee is permitted to charge). The effective rate of interest at March 31, 2012 was 5.75%. The line of credit loan originally matured on January 8, 2009, but has been extended to January 8, 2013. The outstanding balance at March 31, 2012, and at December 31, 2011, was $1,480,000 and $1,455,000, respectively. Unused credit at March 31, 2012 was $20,000. The Company recognized total interest expense of $28,401 and $12,669 during the three months ended March 31, 2012 and 2011, respectively, on this line of credit.

 

First Street Surgical Center, L.P. entered into a Letter Loan Agreement (“FSSC Letter Loan Agreement”) with a financial institution on January 8, 2008. The FSSC Letter Loan Agreement provides for a $750,000 line of credit loan and a term loan (“FSSC Loans”). The FSSC Letter Loan Agreement provides for FSSC Loans to be secured by real property owned by First Street Holdings, L.P., a related party to the Company, as well as accounts, inventory, fixtures, equipment and general intangibles; that the loans will be guaranteed personally by certain former partners of First Street Surgical Center, L.P., who are current shareholders of the Company; and require First Street Surgical Center, L.P. to maintain a debt service coverage ratio of 1.25 to 1.0. The line of credit loan calls for monthly interest only payments which shall from day to day be equal to the lesser of (a) a fluctuating rate per annum which is equal to the Index Rate which represents the rate of interest then most recently established by J.P. Morgan Chase Bank (or its successors) as its prime rate or (b) the Maximum Rate (the maximum lawful nonusurious rate of interest which under applicable law payee is permitted to charge). The effective rate of interest at March 31, 2012 was 5.75%. The line of credit loan originally matured on January 8, 2009, but has been extended to January 8, 2013. The outstanding balance at March 31, 2012, and at December 31, 2011, was $705,000 and $720,000, respectively. Unused credit at March 31, 2012 was $45,000. The Company recognized total interest expense of $10,346 and $10,494 during the three months ended March 31, 2012 and 2011, respectively, on this line of credit.

 

On September 18, 2009, First Surgical Woodlands, L.P. entered into a $250,000 revolving draw secured promissory note with a financial institution. The note bears interest at 5.75% per annum. The note originally matured on September 18, 2010, but has been extended to September 18, 2012. The note is secured by all the equipment of First Surgical Woodlands, L.P. The outstanding balance at March 31, 2012, and at December 31, 2011, was $224,247 and $242,137, respectively. Unused credit at March 31, 2012 was $25,753. The Company recognized total interest expense of $4,359 and $2,718 during the three months ended March 31, 2012 and 2011, respectively, on this line of credit.

 

On March 31, 2011, First Surgical Texas entered into a $2,000,000 revolving draw unsecured promissory note with a financial institution. The line of credit loan calls for monthly interest only payments calculated based upon the financial institution’s Prime Rate. The effective rate of interest at March 31, 2012 was 5.0%. The note originally matured on March 29, 2012, but has been extended to June 27, 2012. The outstanding balance at March 31, 2012 was $2,000,000. The Company recognized total interest expense of $38,494 during the three months ended March 31, 2012, on this line of credit.

 

8
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

5.LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

 

The Company’s long-term debt and capital leases consisted of the following:

 

   As of 
   March 31   December 31, 
   2012   2011 
         
First Street Hospital, L.P.          
2008 FSH Note Payable  $6,424,332   $6,519,289 
2010 Construction Loan   4,276,090    4,322,039 
2010 Equipment Loan   1,792,177    1,845,401 
Capital Lease Obligations   47,044    68,285 
           
First Street Surgical Center, L.P.          
2008 FSSC Note Payable   1,356,805    1,376,859 
           
           
    13,896,448    14,131,873 
           
Less: Current Portion   (8,243,478)   (936,930)
           
Long-Term Portion  $5,652,970   $13,194,943 

 

Long-Term Debt

 

In connection with the FSH Letter Loan Agreement, First Street Hospital, L.P. issued a secured promissory note in the original amount of $7,822,256 on January 8, 2008, to a financial institution (the “2008 FSH Note Payable”). The 2008 FSH Note Payable bears interest at 7.70% per annum and matures on January 8, 2013. The note calls for monthly interest and principal payments of $73,747, with a balloon payment due on January 8, 2013, of $6,162,583. As of March 31, 2012, and at December 31, 2011, the Company owed $6,424,332 and $6,519,289, respectively on the 2008 FSH Note Payable, and recognized total interest expense of $126,283 and $131,886 during the three months ended March 31, 2012 and 2011, respectively.

 

On May 4, 2010, First Street Hospital, L.P. entered into a secured construction loan agreement (the “2010 Construction Loan”) with a financial institution. The loan agreement provides for advances equal to 80% of the “as completed” appraised value of the 2010 expansion of the Company’s First Street Hospital facility. Total advances under the loan agreement were $4,439,150. The loan agreement provides for the 2010 Construction Loan to be secured by real property owned by First Street Hospital, L.P., as well as accounts, inventory, fixtures, equipment and general intangibles. The loan was also guaranteed personally by certain former partners of First Street Hospital, L.P., who are current shareholders of the Company. The note bears interest at 6.50% per annum and matures on May 4, 2013. As of March 31, 2012, and at December 31, 2011, the Company owed $4,276,090 and $4,322,039, respectively on the 2010 Construction Loan, and recognized total interest expense of $70,771 and $70,937 during the three months ended March 31, 2012 and 2011, respectively.

 

In connection with the issuance of the 2010 Construction Loan facility, on November 30, 2010, First Street Hospital, L.P. entered into a secured promissory note (the “2010 Equipment Loan”) providing for a total principal amount of $1,863,062 with a financial institution. The 2010 Equipment Loan is also secured by real property owned by First Street Hospital, L.P., as well as accounts, inventory, fixtures, equipment and general intangibles. The 2010 Equipment Loan was also guaranteed personally by certain former partners of First Street Hospital, L.P., who are current shareholders of the Company. The note bears interest at 6.50% per annum and matures on November 30, 2013. As of March 31, 2012, and at December 31, 2011, the Company owed $1,792,177 and $1,845,401, respectively on the 2010 Equipment Loan, and recognized total interest expense of $30,035 and $28,837 during the three months ended March 31, 2012 and 2011, respectively.

 

9
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

In connection with the FSSC Letter Loan Agreement, First Street Surgical Center, L.P. issued a secured promissory note in the original amount of $1,652,030 on January 8, 2008, to a financial institution. The note bears interest at 7.70% per annum and matures on January 8, 2013. The note calls for monthly interest and principal payments of $15,502.88, with a balloon payment due on January 8, 2013, of $1,301,513. As of March 31, 2012, and at December 31, 2011, the Company owed $1,356,805 and $1,376,859, respectively on the note, and recognized total interest expense of $26,671 and $27,853 during the three months ended March 31, 2012 and 2011, respectively.

 

Capital Lease Obligations

 

The Company engages in a number of leasing transactions including medical equipment, computer equipment and other equipment utilized in operations. Leases meeting certain accounting criteria have been recorded as an asset and liability at the lower of fair value or the net present value of the aggregate future minimum lease payments at the inception of the lease. Interest rates used in computing the net present value of the lease payments generally ranged from 5.914% to 26.814% based on the Company’s incremental borrowing rate at the inception of the lease. The Company’s leasing transactions include arrangements for equipment with major equipment finance companies and manufacturers who retain ownership in the equipment during the term of the lease.

 

The Company was in compliance with all debt covenants as of March 31, 2012.

 

6.INCOME TAXES

 

For the three months ended March 31, 2012, the Company’s effective income tax rate of 48.3% was negatively impacted by $267,157 of interest and penalties related to the Company’s 2011 corporate tax return. The balance of the difference from the federal statutory rate of 35.0% was due primarily to temporary timing differences. For the three months ended March 31, 2011, the Company’s effective income tax rate of 38.9% differed from the federal statutory rate of 35.0% due primarily to temporary timing differences.

 

7.STOCKHOLDER’S EQUITY

 

On February 7, 2012, the Company declared a quarterly dividend on its Common Stock of $0.025 per share. The record date for this distribution was February 6, 2012, and the dividend was paid on February 9, 2012. The total dividend paid was $1,021,835.

 

10
 

 

FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

8.RELATED PARTY TRANSACTIONS

 

During the three months ended March 31, 2012 and 2011, both First Street Hospital, L.P. and First Surgical Woodlands, L.P. held management agreements with First Surgical Partners, LLC (the former General Partner of the Company’s limited partnerships and the owners of which are the Company’s Chairman of the Board and the Company’s President and Chief Executive Officer) where the Company retained the services of First Surgical Partners, LLC to assist the Company in managing and conducting day-to-day business and services. The First Surgical Woodlands, L.P. agreement was executed on February 1, 2005, with a term of five years and shall automatically renew for one additional two year period unless otherwise terminated. On March 13, 2012, the First Surgical Woodlands LP entered into an addendum to the February 1, 2005 agreement such that following the first renewal, which expired on February 2, 2012, the agreement renewed and will continue to renew for one year periods, unless otherwise terminated in writing by either party. The First Street Hospital, L.P. agreement was executed on July 25, 2006, with a term of ten years and shall automatically renew for one additional two year period unless otherwise terminated. Each agreement calls for the payment by the partnerships to First Surgical Partners, LLC a monthly fee equal to 5% of the net monthly collected revenues from the partnership’s cash collections. For the three months ended March 31, 2012 and 2011, these fees totaled $518,711 and $465,652, respectively. As of March 31, 2012, and at December 31, 2011, the Company had an outstanding balance of unpaid management fees totaling $3,104,787 and $2,817,911, respectively, included within its reported Due to Related Parties.

 

On June 1, 2006, First Street Surgical Center, L.P. entered into a $700,000 long-term line of credit with the Company’s current Chairman of the Board. The line of credit bears interest at 6.0% per annum and is unsecured. As of March 31, 2012, and at December 31, 2011, the Company owed $346,329 and $341,186, respectively on the line of credit, and recognized total interest expense of $5,143 and $4,845 during the three months ended March 31, 2012 and 2011, respectively. Amounts due under this line of credit are reported within the Company’s Due to Related Party.

 

On April 1, 2003, First Street Surgical Center, LP entered into a building lease with the Company’s current Chairman of the Board. The building lease was for an initial term of 10 years from the commencement date followed by an option to extend the initial ten year term by two consecutive five year terms. The lease agreement called for minimum monthly lease payments of $23,000 per month, subject to escalation to reflect increases in the consumer price index. For the three months ended March 31, 2012 and 2011, First Street Surgical Center, LP incurred $83,891 and $80,160, respectively, in lease expense on this lease. As of March 31, 2012, and at December 31, 2011, the Company had accrued and unpaid rent on this lease totaling $230,225 and $146,334, respectively, within its reported Due to Related Parties.

 

On September 17, 2006, First Street Hospital, LP entered into a building lease with the Company’s current Chairman of the Board. The building lease was for an initial term of 10 years from the commencement date followed by an option to extend the initial ten year term by two consecutive ten year terms. This original lease agreement calls for minimum monthly lease payments of $39,400 per month, subject to escalation to reflect increases in the consumer price index. During 2010, the hospital expanded its square footage by 23,000, adding 14 beds and two operating rooms. The expansion was opened for surgical procedures on December 15, 2010. As of March 31, 2012, a lease document or an amendment to the original lease had not been finalized or signed. However, a fair market valuation and assessment of the appropriate rent for the land underlying our recent expansion, which is owned by the Company’s current Chairman of the Board, has recently been completed with an indicative fair market lease value of $17,094 per month. The expansion project was funded 100% by First Street Hospital for $5,502,660 of which $4,436,150 was financed under long-term notes. During the three months ended March 31, 2012 and 2011, First Street Hospital, LP incurred $181,974 and $127,629, respectively, in lease expense on this lease. Included in the Company’s expense for the first quarter of 2012 was an estimated $50,000 associated with the aforementioned additional rent associated with the land underlying the expansion. As of March 31, 2012, and at December 31, 2011, the Company had accrued and unpaid rent on this lease totaling $463,949 and $218,509 within its reported Due to Related Parties.

 

As of March 31, 2012, and at December 31, 2011, the Company had accrued and unpaid distributions related to limited partner earnings prior to the acquisition of the Company of its Subsidiaries to its Chairman of the Board and its President and Chief Executive Officer totaling $940,000 and $940,300, respectively, included within its reported Due to Related Parties.

  

9.COMMITMENTS AND CONTINGENCIES

 

Litigation

 

From time to time, the Company 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.  Except as set forth below, the Company is not currently aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

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FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

The Company is currently a defendant in a lawsuit stemming from another lawsuit filed on January 7, 2011 by Aetna Health Inc. and Aetna Life in the District Court of Harris County, Texas (Case Number 201101291) (the “State Court Action”) against the Company and St. Michael’s Emergency Center, LLC (“SMEC”). SMEC is one of the Company’s off-campus emergency departments. The State Court Action primarily claimed fraud/fraudulent non-disclosure and negligent misrepresentation and sought damages, expenses and attorneys’ fees. The claims were based on the billing practices associated with the contractual affiliation agreement between the Company and SMEC. Under the affiliation, when a patient is treated at the Company’s off-campus emergency department, the resulting claims for facility fees and related fees are submitted to insurers for reimbursement under the Company’s tax identification number.  The State Court Action alleged that such facility fees and related fees are fraudulent and improper when submitted under the Company’s tax identification number because the Company and SMEC are not properly or sufficiently integrated and affiliated and because the relationship is an alleged sham. On February 14, 2011, the Company filed its original answer denying all allegations.  Further, on March 2, 2011, the Company moved to dismiss the State Court Action on the grounds that the petition raised state law claims that are preempted by the Employee Retirement Income Security Act (ERISA) and because only federal courts have jurisdiction over ERISA matters.

 

In response to the Motion to Dismiss, on April 7, 2011, Aetna Life segregated its claims and filed an additional lawsuit with the United States District Court for the Southern District of Texas (Houston Division) (Case Number 4:11-cv-01341) (the “Federal Court Action”) against the Company and SMEC asserting state law claims for fraud/fraudulent non-disclosure and negligent misrepresentation and also an ERISA claim in connection with the billing practices associated with the affiliation agreement between the Company and SMEC.

 

After filing an amended petition in the State Court Action and filing an amended complaint in the Federal Court Action, Aetna Health, Inc. and Aetna Life nonsuited the State Court Action on November 18, 2011. Aetna Health, Inc. is not a plaintiff in the Federal Court Action.

 

The current complaint in the Federal Court Action, the Second Amended Complaint, continues to assert claims against the Company and SMEC. The complaint also asserts claims against the Company’s other off-campus emergency departments (Bellaire Emergency Center, LLC, Emergency Healthcare Partners, LP, Preferred Emergency Room LP, River Oaks Emergency Center, LLC, Shertx, LLC, and The Woodlands FEC, LLC), alleging that the affiliation with these other emergency departments give rise to the same claims as the affiliation with SMEC.  The complaint asserts claims against three other parties (Diane Crumley and her related entities, Premier Health Services and Vital Weight Control, Inc.) who participated in the negotiation and formation of the affiliations between the Company and its off-campus emergency departments, claiming they are part of a conspiracy to defraud Aetna Life. The complaint also asserts claims against Brian Orsak (a representative of SMEC) and Dr. Shannon Orsak (a representative of SMEC) and alleges they are part of the conspiracy to defraud Aetna Life.

 

On December 14, 2011, the Company filed a partial motion to dismiss the Second Amended Complaint; seeking to dismiss all claims based on state law as such claims are preempted by ERISA, and seeking to require Aetna Life to proceed solely on its ERISA cause of action. On December 14, 2011, the Company also filed an answer and counterclaim to Aetna Life’s Second Amended Complaint. On December 23, 2011, Aetna Life filed a motion for judgment requesting a ruling that Aetna Life is entitled to all facility fees paid to the Company before November 2011.

 

 

On December 27, 2011, the Centers for Medicare and Medicaid Services (“CMS”) gave the Company a deadline of February 10, 2012, to show that the Company complied with Medicare’s requirement that a hospital provider must be primary engaged in providing inpatient services to be a provider within the Medicare program. According to CMS, the Company was not primarily engaged in inpatient services due to the significantly higher ratio of outpatients treated at its emergency departments. In response, on January 11, 2012, the Company informed CMS that it had decided to change the scope of its services to a more inpatient-focused model by terminating the relationship with its off-campus emergency departments. On January 13, 2012, Medicare acknowledged the Company’s proposal to avoid proposed termination from the Medicare program, and gave it until April 12, 2012 to meet the statutory Medicare definition of a hospital to remain in the Medicare program. On April 10, 2012, CMS informed the Company that, based on the progress made with the implementation of its corrective action plan, CMS was suspending the termination action on the hospital.

 

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FIRST SURGICAL PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

On January 13, 2012, the Company filed an opposition in response to Aetna Life’s motion for judgment. On February 20, 2012, Aetna Life amended its motion for judgment to seek all facility fees paid from July 25, 2009, to the present on the basis that it alleges the Company failed to meet the definition of a provider under the Medicare program during that period. The Court held an oral hearing on Aetna Life’s motion for judgment on February 21, 2012. On February 28, 2012, Aetna Life filed a notice with the court representing the amount of facility fees paid to the Company and its emergency departments from July 25, 2009, through November 10, 2011, to be $13.869 million. Aetna Life’s notice also represented that during this same period, $5.006 million was paid as ancillary fees that Aetna Life seeks to also recover. Aetna Life’s motion for judgment remains pending.

 

Discovery in the lawsuit is ongoing.   Although the lawsuit as currently pled is not clear regarding damages, Aetna Life’s notice to the court described above in connection with its motion for judgment indicates it is seeking at least $18.875 million. Aetna Life’s notice states that it paid total fees of $46.974 million to the Company and its emergency departments from January 1, 2009, through December 31, 2011, of which (a) $13.869 million are facility fees paid through November 10, 2011, and (b) $5.006 million are ancillary fees paid through November 10, 2011, totaling $18.875 million in facility and ancillary fees that Aetna Life seeks to recover through November 10, 2011, excluding punitive damages and attorney fees.  The Company has denied all claims and intends to continue to vigorously defend these claims. An estimate of the amount or range of loss or possible loss cannot be made at this time.

Certain of the co-defendants in these actions have requested that the Company provide indemnification for their legal fees and other costs or losses arising from the above litigation. An estimate of the amount or range of loss or possible loss arising from any alleged indemnification obligations cannot be made at this time.

 

10.SUBSEQUENT EVENTS

 

Bariatric Program Sponsorship Agreement

 

On April 30, 2012, the Company allowed its Bariatric Program Sponsorship Agreement with Vital Weight Control, Inc., to expire pursuant to its terms. The Company made payments totaling $1.2 million during each of the three month periods ended March 31, 2012 and 2011, and a final payment of $400,000 during April 2012.

 

On May 4, 2012, the Company entered into a new Bariatric Program Sponsorship Agreement with First Choice Weight Loss, Inc. (“First Choice”). Per the agreement, First Choice is responsible for managing the bariatric program aimed at providing an interdisciplinary approach and surgical intervention for morbid obesity. First Choice is responsible for marketing, advertising and promoting the bariatric program. The Company is responsible for providing hospital services and making all required payments under the agreement.

 

As compensation for the services rendered by First Choice, the Company is obligated to pay a program sponsorship fee of $100,000 per month. The original term of the agreement extends for 12 months after the effective date, and may be renewed for an additional 12 months at any time during the 90 days immediately preceding the expiration date.

 

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Item2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that relate to possible future events, our future performance, and our future operations. In some cases, you can identify these forward-looking statements by the use of words such as “may,” “will,” “should,” “anticipates,” “believes,” “expects,” “plans,” “future,” “intends,” “could,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other similar expressions. These statements are only our predictions. Our actual results could and likely will differ materially from these forward-looking statements for many reasons, including the risks described in our Annual Report on Form 10-K for the year ended December 31, 2011, and our quarterly reports on Form 10-Q. We cannot guarantee future results, levels of activities, performance, or achievements. We undertake no duty to update any of the forward-looking statements after the date of this document to conform them to actual results or to changes in our expectations.

 

Overview

 

We, along with our subsidiaries, own and operate two ambulatory surgery centers (“ASC”), First Street Surgical Center, L.P. (“FSSC”), and First Surgical Woodlands, L.P. (“FSW”), and a general acute care hospital, First Street Hospital, L.P. (“FSH”), all located in the greater Houston, Texas metropolitan area.  Procedures performed include non life-threatening surgeries, such as bariatrics, reconstructive and cosmetic plastics, orthopedics, pain management, neurosurgery and podiatry, which are often completed on an outpatient or short stay basis.

 

Executive Summary

 

We operate two ambulatory surgery centers and a general acute hospital that provide treatment on both an inpatient and outpatient basis.  We are a Texas-based organization with plans to expand to other areas of the country that make economic sense.  Our ASC and hospital based procedures vary, ranging from orthopedics, bariatrics, spine, general surgery, pain management, podiatry, and otolaryngology (ENT).  Our team of highly skilled physicians, nurses, radiology techs, scrub techs, physical therapists and dietitians utilize the latest in equipment and technology to give our patients successful outcomes.  All patient care is provided by the previously mentioned experts, and all care is directed by a physician order.  We have an internal case manager that monitors each hospital patient’s progress; each patient's progress is documented with a progress note, achievement of goals, functional outcomes and a thorough discussion of a discharge plan.  This interdisciplinary approach leads to a higher, more personal level of care with excellent clinical outcomes.

 

As of March 31, 2012, we had 33 affiliated physicians who provide medical care and surgical services to our patients.  In addition, as of March 31, 2012, there were an additional 73 non-affiliated physicians that use our locations for surgical procedures, many with great frequency.  With 106 total surgeons, 31.1% are shareholders or affiliated surgeons and 68.9% are non-owners or non-affiliates as of March 31, 2012. We believe surgeons choose to perform surgeries at our facilities because of (1) the input and control they have over the facilities’ operations, (2) the quality of the facilities, (3) the well trained staff, (4) the reputations of the other surgeons using the facilities, and (5) the well-respected, financially disciplined management team.  Since our formation in 2002, we have partnered with the best surgeons in their specialties covering the greater Houston area.  Since inception, and through March 31, 2012, these physicians (affiliated and non-affiliated) have performed nearly 46,000 procedures and the number of procedures performed each year continues to grow.

 

For the three months ended March 31, 2012, affiliated surgeons generated 68.1% of our revenues. The remaining balance of the revenue for the three months ended March 31, 2012, or 31.9%, was generated by non-affiliated surgeons. We expect the mix of affiliated surgeons and non-affiliated surgeons and the percentage of revenue generated by each of these groups to remain approximately the same in the near future.

 

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All surgeons bill for their professional component separately and none of that revenue is reported by us. The main source of our revenue is the facility fee component which is billed and collected under each facility upon completion of surgery. We plan on expanding the revenue generated by non-affiliated surgeons by introducing new technical innovations in spine, bariatrics, orthopedics and reconstructive surgery, which we believe will attract non-affiliated surgeons. In addition, we have adopted the First Surgical Partners Inc. 2011 Physician Purchase Plan which allows non-affiliated surgeons to purchase our equity. Furthermore, the startup and development of surgical centers and the acquisition of hospitals in competitive markets we believe will allow for our company’s growth and expansion of business through the addition of non-affiliated and affiliated surgeons. The risks associated with this aspect include surgeons’ practices not growing or even slowing down, competition for surgeons to join other facilities in the market, our inability to acquire existing facilities for business reasons, our inability to start or acquire new facilities as a result of various government regulations and the lack of interest in the new and innovative technology, which all may have a negative impact on our operations including the facility fees generated by both the affiliated and non-affiliated surgeons.

 

Key Challenges

 

The following represent the challenges facing our company going forward:

 

·Declining reimbursements - Third party payors are reimbursing less and less for our services.  We will continue to negotiate for favorable managed care contracts, as well as looking at alternative methods of reimbursements, such as direct contracting with self-insured employers and/or unions.

 

·Highly regulated industry - Over the last several years, changes in regulations regarding hospitals, specifically physician-owned hospitals, have created additional challenges from an operation perspective.  Many of these changes have resulted in limitations, including moratoriums, on physician-owned start-up hospitals.  We have analyzed the aspects of Medicare reimbursements, and the changes in Medicare reimbursements may have a slightly harmful effect on our revenues. Although the moratorium on physician-owned start-up hospitals may prevent us from developing start up hospitals, which could have a negative impact on our growth strategy, we will be able to acquire existing hospitals as well as develop surgical centers.

 

·Healthcare Reform - President Obama has identified healthcare reform as a priority.  The future of healthcare reform to our book of business is concerning, yet our business model of looking at existing facilities to acquire is still advantageous.  We will continue to look at hospitals that would benefit from our leadership and business model going forward.

 

·Accountable Care Organizations - Known as ACO's, this model of bundling payments to the facility, physician, and all other healthcare providers is concerning.  Major healthcare reform bills being contemplated now by Congress include, at the very least, consideration of this model. At this time, it is difficult, if not impossible, to determinate how the adoption of ACO’s may impact our operations, if at all. If adopted, the ACO model may require our company to engage additional accounting and billing personnel to coordinate payments, which, in turn, could have a negative impact on our net income.

 

Business Outlook

 

Outpatient surgical procedures, which incorporate both hospital and surgical cases, continue to increase.  Due to technology, patients are going home quicker, and the availability for certain procedures just five years ago necessitating a two night stay in a hospital are now done the same day.  We believe we differentiate ourselves from competitors by offering surgeons and physicians that are best of class, superior outcomes, and competitive management efficiencies.  We believe we will deliver shareholder value by focusing on the key items discussed.

 

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Payor Mix

 

We bill payors for the facility fee component that our affiliated and non-affiliated physicians provided to our patients based upon rates for specific services provided.  Our billed charges are substantially the same for all parties regardless of the party responsible for paying the bill for our services.  We determine our net patient service revenue based upon the difference between our gross fees for services and our estimated ultimate collections from payors.  Net patient service revenue differs from gross fees due to (i) managed care payments at contracted rates, (ii) government-sponsored healthcare program reimbursements at government-established rates, (iii) various reimbursement plans and negotiated reimbursements from other third-parties, and (iv) discounted and uncollectible accounts of private-pay patients.

 

Our payor mix is composed of contracted managed care, government, principally Medicare, other third-parties and private-pay patients.

 

The following is a summary of our payor mix, expressed as a percentage of net patient service revenue, exclusive of administrative fees, for the periods indicated:

 

   For the Three Months Ended 
   March 31, 
   2012   2011 
         
Commercial Carriers   72.22%   72.68%
Worker's Compensation   6.76%   4.49%
Medicare   5.66%   7.44%
Other (self pays, hardships, etc.)   15.36%   15.39%

 

Application of Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reporting of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities.  Note 2 to our audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011, provides a summary of our significant accounting policies, which are all in accordance with generally accepted accounting principles in the United States.  Certain of our accounting policies are critical to understanding our Consolidated Financial Statements because their application requires management to make assumptions about future results and depends to a large extent on management’s judgment, because past results have fluctuated and are expected to continue to do so in the future.  We believe that the application of the accounting policies described in the following paragraphs is highly dependent on critical estimates and assumptions that are inherently uncertain and highly susceptible to change.  For all of these policies, we caution that future events rarely develop exactly as estimated, and the best estimates routinely require adjustment.  On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below.

 

Use of Estimates and Assumptions

 

Future events and their effects cannot be predicted with certainty; accordingly the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.  The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired , as additional information is obtained, and as our operating environment changes.  Significant estimates and assumptions are used for, but not limited to: (1) allowance for contractual revenue adjustments; (2) depreciable lives of assets; (3) economic lives and fair values of leased assets; (4) uncertain tax positions; and (5) contingency and litigation reserves.  The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.  The Company evaluates its estimates and assumptions on a regular basis and may employ outside experts to assist in our evaluation, as considered necessary.  Actual results may differ from these estimates and assumptions used in preparation of our financial statements and changes in these estimates are recorded when known.

 

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Revenue Recognition

 

Revenues consist primarily of net patient service revenues that are recorded based upon established billing rates less allowances for contractual and other adjustments.  Revenues are recorded during the period the healthcare services are provided, based upon the estimated amounts due from the patients and third-party payors, including federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, and employers.  Estimates of contractual allowances under third-party payor arrangements are based upon the payment terms specified in the related contractual agreements.  Third-party payor contractual payment terms are generally based upon predetermined rates per diagnosis, per diem rates, or discounted fee-for-service rates.  The Company does not expect material changes in the estimate of prior period allowances for contractual and other adjustments. Further, we do not foresee changes in our estimate of unsettled amounts from third party payors as of the latest balance sheet date that could have a material effect on our financial position, results of operations or cash flows.

 

Laws and regulations governing the Medicare and Medicaid programs are complex, subject to interpretation, and are routinely modified for provider reimbursement.  All healthcare providers participating in the Medicare and Medicaid programs are required to meet certain financial reporting requirements. Federal regulations require submission of annual cost reports covering medical costs and expenses associated with the services provided by each hospital to program beneficiaries.  Annual cost reports required under the Medicare and Medicaid programs are subject to routine audits, which may result in adjustments to the amounts ultimately determined to be due to the Company under these reimbursement programs.  These audits often require several years to reach the final determination of amounts earned under the programs. 

 

We provide care to patients who are financially unable to pay for the healthcare services they receive, and because we do not pursue collection of amounts determined to qualify as charity care, such amounts are not recorded as revenues.

 

Income Taxes

 

We provide for income taxes using the asset and liability method. This approach recognizes the amount of federal, state, and local taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the future tax consequence of events recognized in the consolidated financial statements and income tax returns.  Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates.  A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized.  Realization is dependent on generating sufficient future taxable income.  We evaluate our tax positions and establish assets and liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes.  We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly.  The Company and its corporate subsidiaries file a consolidated federal income tax return.  State income tax returns are filed on a separate, combined, or consolidated basis in accordance with relevant state laws and regulations.  The Company records any interest and penalties related to its federal and state tax obligations as a component of Income Tax expense within its consolidated statements of income.

 

Other Matters

 

Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of our Consolidated Financial Statements.  All of our significant accounting policies are further described in Note 2 to our audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.  The policies described in Note 2 often require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance and are frequently reexamined by accounting standards setters and regulators.

 

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Results of Operations

 

The following table sets forth, for the periods indicated, certain information related to our operations expressed as a percentage of our net patient service revenue:

 

   For the Three Months Ended 
   March 31, 
   2012   2011 
Net Revenue   100.0%   100.0%
           
Operating Expenses          
Salaries and Benefits   24.4%   28.0%
Medical Supplies   19.4%   21.9%
Bariatric Program Sponsorship   9.4%   9.5%
Depreciation   3.6%   4.2%
Rent   4.2%   4.5%
Management Fees   4.1%   3.7%
Other Operating Expenses   13.2%   12.9%
           
Total Operating Expenses   78.3%   84.6%
           
Other Expenses          
Interest Expense, net   (2.8)%   (2.3)%
           
Total Other Expenses   (2.8)%   (2.3)%
           
Income Before Income Taxes   18.9%   13.0%
           
Income Taxes   9.1%   5.1%
           
Net Income   9.8%   8.0%

 

Three Months Ended March 31, 2012, as Compared to Three Months Ended March 31, 2011

 

Our net revenue increased $84,138 or 0.7%, to $12,708,035 for the three months ended March 31, 2012, as compared to $12,623,897 during the three months ended March 31, 2011.  Our total cases decreased to 1,430 for the three months ended March 31, 2012, as compared to 1,478 for the three months ended March 31, 2011; however, hospital cases increased by 29 from 485 to 514, respectively. Due to the nature of our case mix of procedures performed, the increase in our average revenue per procedure between the two periods was at a level that offset the nominal decrease in case volume.

 

Salaries and benefits decreased $430,707 or 12.2%, to $3,102,353 during the first three months of 2012, as compared to $3,533,060 for 2011. The primary source of this decrease was due to the fact that in March 2011 we issued 250,000 shares of our Common Stock to our Vice President, Finance for services rendered. These shares were valued at $468,914, based on the fair market value of our Common Stock on that date, and included as a component of our 2011 salaries and benefit expense.

 

Medical supplies decreased $289,660, or 10.5%, to $2,471,509 for the first three months of 2012, as compared to $2,761,169 for 2011.  This decrease was attributable to implementation of optimal medical supply stocking levels, reducing the amount of carrying costs and increasing order efficiency.

 

Our Bariatric Program Sponsorship fees were unchanged at $1,200,000 during each period presented.

 

Depreciation expense decreased $74,341, or 14.1%, to $454,628 for the three months ended March 31, 2012, as compared to $528,969 for 2011.  This decrease was attributable primarily to the reduction in depreciation rate over the two year period.

 

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Our rent expense decreased $29,158, or 5.2%, to $532,793 for 2012, as compared to $561,951 for 2011. This decrease was primarily due to changes in equipment rental leases.

 

During the three months ended March 31, 2012 and 2011, both First Street Hospital, L.P. and First Surgical Woodlands, L.P. held management agreements with First Surgical Partners, LLC (the former General Partner of the our limited partnerships and the owners of which are our Chairman of the Board and our President and Chief Executive Officer) where we retained the services of First Surgical Partners, LLC to assist us in managing and conducting day-to-day business and services. Under each agreement, the facility appointed First Surgical Partners, LLC to act as exclusive agent to handle all day to day affairs but reserved the right to make all final policy decisions that impacts the overall performance or value of the facility. First Surgical Partners, LLC is required to render all services, direction advice, supervision and assistance necessary to assure adequate performance of the facility’s ordinary and usual day-to-day services including, but not limited to, acting as general agent on behalf of the facility and designing and implementing a marketing program including preparation of marketing materials such as brochures, media advertising materials, direct mail and press releases. The marketing efforts of First Surgical Partners, LLC includes active solicitation of appropriate third party managed care contracts, such as PPO's and HMO's. Further, First Surgical Partners, LLC is required to maintain all licenses for each facility, coordinate all accounting functions acquire and maintain all insurance and manage all bank accounts, billing, information systems and vendor contracts. Each agreement calls for the payment, by the partnerships to First Surgical Partners, LLC, of a monthly fee equal to 5% of the net monthly collected revenues from the partnership’s cash collections. These fees totaled $518,711 for the three months ended March 31, 2012, as compared to $465,652 for 2011, with the increase a direct result of corresponding increases in cash collections by these two entities. The management agreements are currently in effect and we will continue to accrue such fees under the agreed upon terms set forth therein.

 

Our other operating expenses were comparable between the two periods presented.

 

We recorded net interest expense of $351,600 for the three months ended March 31, 2012, as compared to $295,860 for 2011, or an increase of 18.8%. This increase was primarily a result of higher average borrowings outstanding between the two periods.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under our credit lines and long-term debt.

 

As of March 31, 2012, we had $415,365 of cash and cash equivalents on hand as compared to $1,285,723 at December 31, 2011.  Additionally, we had net working capital of $4,024,113 at March 31, 2012, a decrease of $7,157,662 from our net working capital balance of $11,181,775 at December 31, 2011. This decrease was attributable to a $7,306,548 increase in our current portion of our long-term debt due to certain instruments maturing during the next twelve months. We are actively working to renew these facilities and expect to extend their terms.

 

We generated cash flow from operating activities of $721,499 during the three months ended March 31, 2012, as compared to a use of funds of $148,547 during 2011.  The net increase in cash flow provided from operating activities for the three months ended March 31, 2012, as compared to 2011, was primarily due to changes in our working capital components.

 

We used $326,707 and $503,738 of cash for investing activities during the three months ended March 31, 2012 and 2011, respectively.  These expenditures were primarily related to leasehold improvements and equipment purchases associated with our hospital expansion project and updating obsolete equipment at our surgical centers.

 

During the three months ended March 31, 2012, we used $1,265,150 of cash in financing activities, as compared to our generating $579,700 of cash in investing activities during the three months ended March 31, 2011.  Of the 2012 amount, $1,021,835 related to dividends paid during the year, in addition to net repayments under short and long-term debt facilities. Of the 2011 amount, advances under our lines of credit and long term debt were partially offset by partial repayments on those borrowing as well as our first quarter 2011 dividend.

 

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As of March 31, 2012, we had $90,753 available to us under our various credit lines.  We monitor the financial strength of our depositories, creditors, insurance carriers, and other counterparties using publicly available information, as well as qualitative inputs.  Based on our current borrowing capacity and compliance with the financial covenants under our credit agreements, we do not believe there is significant risk in our ability to make draws under our various credit lines, if needed.  However, no such assurances can be provided.

 

As of March 31, 2012, we have scheduled principal payments of $8,243,478 during the next twelve months, related to long-term debt and capital lease obligations (see Note 5, Long-term Debt and Capital Lease Obligations , in the accompanying unaudited consolidated condensed financial statements as of and for the three months ended March 31, 2012).  We do not believe we face near-term refinancing risk and are actively working to refinance these borrowings.  Our credit agreements governing the vast majority of our secured borrowings contain financial covenants that include a leverage ratio.  As of March 31, 2012, we were in compliance with the covenants under our various credit agreements.  If we anticipate a covenant violation, we would seek relief from our lenders, which would have some cost to us, and such relief might not be on terms favorable to those in our existing credit agreements.  Under such circumstances, there is also the potential our lenders would not grant relief to us which, among other things, would depend on the state of the credit markets at that time.  In such circumstances, a default under our various credit agreements would have a material adverse effect on our business, financial position, results of operations and cash flows.

 

We estimate that, based on current plans and assumptions, our available cash, cash flow from operations and available credit under our various credit lines is sufficient to satisfy our cash requirements under our present operating expectations for the next 12 months.

 

Contractual Obligations

 

As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.

 

Long Term Debt

 

At March 31, 2012, our long-term debt consisted of the following:

 

First Street Hospital, L.P. issued a secured promissory note in the original amount of $7,822,256 on January 8, 2008, to a financial institution (the “2008 FSH Note Payable”). The 2008 FSH Note Payable bears interest at 7.70% per annum and matures on January 8, 2013. The note calls for monthly interest and principal payments of $73,747, with a balloon payment due on January 8, 2013, of $6,162,583. As of March 31, 2012, the Company owed $6,424,332 on the 2008 FSH Note Payable.

 

On May 4, 2010, First Street Hospital, L.P. entered into a secured construction loan agreement (the “2010 Construction Loan”) with a financial institution. Total advances under the loan agreement were $4,439,150. The note calls for monthly interest and principal payments ranging from approximately $24,507 to $38,907, with a balloon payment due on May 4, 2013, of $4,099,241. The note bears interest at 6.50% per annum. As of March 31, 2012, the Company owed $4,276,090 on the 2010 Construction Loan.

 

In connection with the issuance of the 2010 Construction Loan facility, on November 30, 2010, First Street Hospital, L.P. entered into a secured promissory note (the “2010 Equipment Loan”) providing for a total principal amount of $1,863,062 with a financial institution. The note calls for monthly interest and principal payments ranging from approximately $9,419 to $27,753, with a balloon payment due on November 30, 2013, of $1,442,988. The note bears interest at 6.50% per annum. As of March 31, 2012, the Company owed $1,792,177 on the 2010 Equipment Loan.

 

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First Street Surgical Center, L.P. issued a secured promissory note in the original amount of $1,652,030 on January 8, 2008, to a financial institution. The note bears interest at 7.70% per annum and matures on January 8, 2013. The note calls for monthly interest and principal payments of $15,502.88, with a balloon payment due on January 8, 2013, of $1,301,513. As of March 31, 2012, the Company owed $1,356,805 on the note.

 

Bariatric Program Sponsorship Agreement

 

On April 30, 2012, we allowed our Bariatric Program Sponsorship Agreement with Vital Weight Control, Inc., to expire pursuant to its terms. We made payments totaling $1.2 million during each of the three month periods ended March 31, 2012 and 2011, and a final payment of $400,000 during April 2012.

 

On May 4, 2012, we entered into a new Bariatric Program Sponsorship Agreement with First Choice Weight Loss, Inc. (“First Choice”). Per the agreement, First Choice is responsible for managing the bariatric program aimed at providing an interdisciplinary approach and surgical intervention for morbid obesity. First Choice is responsible for marketing, advertising and promoting the bariatric program. We are responsible for providing hospital services and making all required payments under the agreement.

 

As compensation for the services rendered by First Choice, we are obligated to pay a program sponsorship fee of $100,000 per month. The original term of the agreement extends for 12 months after the effective date, and may be renewed for an additional 12 months at any time during the 90 days immediately preceding the expiration date.

 

Management Fees

 

Both First Street Hospital, L.P. and First Surgical Woodlands, L.P. hold management agreements with First Surgical Partners, LLC (the former General Partner of our limited partnerships and the owners of which are our Chairman of the Board and our President and Chief Executive Officer) where we retained the services of First Surgical Partners, LLC to assist us in managing and conducting day-to-day business and services.  Each agreement calls for the payment by the partnerships to First Surgical Partners, LLC of a monthly fee equal to 5% of the net monthly collected revenues from the partnership’s cash collections.  For the three months ended March 31, 2012, these fees totaled $518,711. The management agreements are currently in effect and we will continue to pay such fees under the agreed upon terms set forth therein. The First Surgical Woodlands LP agreement was executed on February 1, 2005 with a term of five years and automatically renews for one additional two year period unless otherwise terminated in writing by either party. On March 13, 2012, the First Surgical Woodlands LP entered into an addendum to the February 1, 2005 agreement such that following the first renewal, which expired on February 2, 2012, the agreement renewed and will continue to renew for one year periods, unless otherwise terminated in writing by either party. The First Street Hospital LP agreement was executed on July 25, 2006 with a term of ten years and automatically renews for an additional two year period unless otherwise terminated in writing by either party.

 

Off-Balance Sheet Arrangements

 

At March 31, 2012, we did not have any 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, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

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Item 4.Controls and Procedures.

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (our Principal Executive Officer) and our Vice President, Finance (our Principal Financial and Accounting Officer) to allow for timely decisions regarding required disclosure.

 

As of March 31, 2012, the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer (our Principal Executive Officer) and our Vice President, Finance (our Principal Financial and Accounting Officer) of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Executive Officer (our Principal Executive Officer) and our Vice President, Finance (our Principal Financial and Accounting Officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during our quarter ended March 31, 2012, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Part II – OTHER INFORMATION

 

Item 1.Legal Proceedings

 

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.  Except as set forth below, we are not currently aware of any legal proceedings or claims that we believes will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

We are currently a defendant in a lawsuit stemming from another lawsuit filed on January 7, 2011 by Aetna Health Inc. and Aetna Life in the District Court of Harris County, Texas (Case Number 201101291) (the “State Court Action”) against us and St. Michael’s Emergency Center, LLC (“SMEC”). SMEC is one of our off-campus emergency departments. The State Court Action primarily claimed fraud/fraudulent non-disclosure and negligent misrepresentation and sought damages, expenses and attorneys’ fees. The claims were based on the billing practices associated with the contractual affiliation agreement between us and SMEC. Under the affiliation, when a patient is treated at our off-campus emergency department, the resulting claims for facility fees and related fees are submitted to insurers for reimbursement under our tax identification number.  The State Court Action alleged that such facility fees and related fees are fraudulent and improper when submitted under our tax identification number because we and SMEC are not properly or sufficiently integrated and affiliated and because our relationship is an alleged sham. On February 14, 2011, we filed our original answer denying all allegations.  Further, on March 2, 2011, we moved to dismiss the State Court Action on the grounds that the petition raised state law claims that are preempted by the Employee Retirement Income Security Act (ERISA) and because only federal courts have jurisdiction over ERISA matters.  

 

In response to the Motion to Dismiss, on April 7, 2011, Aetna Life segregated its claims and filed an additional lawsuit with the United States District Court for the Southern District of Texas (Houston Division) (Case Number 4:11-cv-01341) (the “Federal Court Action”) against us and SMEC asserting state law claims for fraud/fraudulent non-disclosure and negligent misrepresentation and also an ERISA claim in connection with the billing practices associated with the affiliation agreement between us and SMEC. 

 

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After filing an amended petition in the State Court Action and filing an amended complaint in the Federal Court Action, Aetna Health, Inc. and Aetna Life nonsuited the State Court Action on November 18, 2011. Aetna Health, Inc. is not a plaintiff in the Federal Court Action.

 

The current complaint in the Federal Court Action, the Second Amended Complaint, continues to assert claims against us and SMEC. The complaint also asserts claims against our other off-campus emergency departments (Bellaire Emergency Center, LLC, Emergency Healthcare Partners, LP, Preferred Emergency Room LP, River Oaks Emergency Center, LLC, Shertx, LLC, and The Woodlands FEC, LLC), alleging that our affiliation with these other emergency departments give rise to the same claims as our affiliation with SMEC.  The complaint asserts claims against three other parties (Diane Crumley and her related entities, Premier Health Services and Vital Weight Control, Inc.) who participated in the negotiation and formation of the affiliations between us and our off-campus emergency departments, claiming they are part of a conspiracy to defraud Aetna Life. The complaint also asserts claims against Brian Orsak (a representative of SMEC) and Dr. Shannon Orsak (a representative of SMEC) and alleges they are part of the conspiracy to defraud Aetna Life.

 

On December 14, 2011, we filed a partial motion to dismiss the Second Amended Complaint; seeking to dismiss all claims based on state law as such claims are preempted by ERISA, and seeking to require Aetna Life to proceed solely on its ERISA cause of action. On December 14, 2011, we also filed an answer and counterclaim to Aetna Life’s Second Amended Complaint. On December 23, 2011, Aetna Life filed a motion for judgment requesting a ruling that Aetna Life is entitled to all facility fees paid to us before November 2011.

 

On December 27, 2011, the Centers for Medicare and Medicaid Services (“CMS”) gave us a deadline of February 10, 2012, to show that we complied with Medicare’s requirement that a hospital provider must be primary engaged in providing inpatient services to be a provider within the Medicare program. According to CMS, we were not primarily engaged in inpatient services due to the significantly higher ratio of outpatients treated at our emergency departments. In response, on January 11, 2012, we informed CMS that we had decided to change the scope of our services to a more inpatient-focused model by terminating the relationship with our off-campus emergency departments. On January 13, 2012, Medicare acknowledged our proposal to avoid proposed termination from the Medicare program, and gave us until April 12, 2012 to meet the statutory Medicare definition of a hospital to remain in the Medicare program. On April 10, 2012, CMS informed us that, based on the progress made with the implementation of our corrective action plan, CMS was suspending the termination action on the hospital.

 

On January 13, 2012, we filed an opposition in response to Aetna Life’s motion for judgment. On February 20, 2012, Aetna Life amended its motion for judgment to seek all facility fees paid from July 25, 2009, to the present on the basis that it alleges we failed to meet the definition of a provider under the Medicare program during that period. The Court held an oral hearing on Aetna Life’s motion for judgment on February 21, 2012. On February 28, 2012, Aetna Life filed a notice with the court representing the amount of facility fees paid to us and our emergency departments from July 25, 2009, through November 10, 2011, to be $13.869 million. Aetna Life’s notice also represented that during this same period, $5.006 million was paid as ancillary fees that Aetna Life seeks to also recover. Aetna Life’s motion for judgment remains pending.

 

Discovery in the lawsuit is ongoing.   Although the lawsuit as currently pled is not clear regarding damages, Aetna Life’s notice to the court described above in connection with its motion for judgment indicates it is seeking at least $18.875 million. Aetna Life’s notice states that it paid total fees of $46.974 million to us and our emergency departments from January 1, 2009, through December 31, 2011, of which (a) $13.869 million are facility fees paid through November 10, 2011, and (b) $5.006 million are ancillary fees paid through November 10, 2011, totaling $18.875 million in facility and ancillary fees that Aetna Life seeks to recover through November 10, 2011, excluding punitive damages and attorney fees.  We have denied all claims and intend to continue to vigorously defend these claims. An estimate of the amount or range of loss or possible loss cannot be made at this time.

 

23
 

 

Certain of the co-defendants in these actions have requested that we provide indemnification for their legal fees and other costs or losses arising from the above litigation. An estimate of the amount or range of loss or possible loss arising from any alleged indemnification obligations cannot be made at this time.

 

Item 1A.Risk Factors

 

Please refer to the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3.Defaults Upon Senior Securities

 

None

 

Item 4.Mine Safety Disclosure

 

None

 

Item 5.Other Information

 

None

 

Item 6.Exhibits

 

Exhibit No.   Description
     
3.1   Certificate of Incorporation of First Surgical Partners Inc. (f/k/a Arkson Nutraceuticals Corp.), as amended (4)
     
3.2   Corporate Bylaws of First Surgical Partners, Inc. (f/k/a Arkson Nutraceuticals Corp.) (3)
     
4.1   Letter Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks dated January 8, 2008 (4)
     
4.2   Secured Promissory Note issued by First Street Hospital, L.P. to the Bank of River Oaks dated January 8, 2008 (4)
     
4.3   Unsecured Promissory Note issued by First Street Hospital, L.P. to the Bank of River Oaks dated May 4, 2010 (4)
     
4.4   Secured Construction Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks dated May 4, 2010 (4)
     
4.5   Secured Promissory Note issued by First Street Surgical Center LP to Bank of River Oaks dated January 8, 2008 (4)
     
4.6   Intentionally left blank,
     
4.7   Secured Promissory Note issued by First Surgical Woodlands, L.P.  to the Bank of River Oaks dated September 18, 2009 (4)

  

24
 

  

4.8   Long-term Line of Credit between First Street Surgical Center, L.P. and Jacob Varon dated June 1, 2006. (4)
     
4.9   Secured Promissory Note issued by First Street Hospital, L.P. to Bank of River Oaks dated November 30, 2010. (4)
     
4.10   Fourth Amendment to Letter Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks dated January 8, 2008, dated effective January 8, 2011. (4)
     
4.11   Modification, Renewal and Extension Agreement to the Secured Promissory Note issued by First Street Hospital, L.P. to the Bank of River Oaks dated January 8, 2008, dated effective January 8, 2011. (4)
     
4.12   Fourth Amendment to Letter Loan Agreement by and between First Street Surgical Center LP to Bank of River Oaks dated January 8, 2008, dated effective January 8, 2011. (4)
     
4.13   First Amendment to Secured Promissory Note issued by First Surgical Woodlands, L.P.  to the Bank of River Oaks dated September 18, 2009, dated effective September 18, 2010. (4)
     
4.14   Fifth Amendment to Letter Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks dated October 31, 2011 (8)
     
4.15   Fifth Amendment to Letter Loan Agreement by and between First Street Surgical Center LP to Bank of River Oaks dated October 31, 2011 (8)
     
4.16   Sixth Amendment to Letter Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks entered into effective as of January 8, 2012 (8)
     
4.17   Sixth Amendment to Letter Loan Agreement by and between First Street Surgical Center LP to Bank of River Oaks entered into effective as of January 8, 2012 (8)
     
4.18   Modification, Renewal and Extension Agreement to the Secured Promissory Note issued by First Street Hospital, L.P. to the Bank of River Oaks dated January 8, 2008, dated effective January 8, 2012 (8)
     
4.19   Modification, Renewal and Extension Agreement to the Secured Promissory Note issued by First Street Surgical Center L.P. to the Bank of River Oaks dated January 8, 2008, dated effective January 8, 2012 (8)
     
10.1   Contribution Agreement by and between Arkson Nutraceuticals Corp. and Piper Acquisition III, Inc., dated November 4, 2010. (4)
     
10.2   Amendment to the Contribution Agreement by and between Arkson Nutraceuticals Corp. and Piper Acquisition III, Inc., dated November 24, 2010. (1)
     
10.3   Form of Non-Competition, Non-Disclosure and Non-Solicitation Agreement by and between First Surgical Texas, Inc. (f/k/a Piper Acquisition III, Inc., a wholly owned subsidiary of the Company), and former limited partners or members of First Street Hospital, L.P., First Surgical Woodlands, L.P., First Street Surgical Center, L.P. and First Surgical Partners, L.L.C.(2)
     
10.4   Form of Lock-Up Agreement by and between First Surgical Texas, Inc. (f/k/a Piper Acquisition III, Inc., a wholly owned subsidiary of the Company), and former limited partners or members of First Street Hospital, L.P., First Surgical Woodlands, L.P., First Street Surgical Center, L.P. and First Surgical Partners, L.L.C. (2)
     
10.5   Form of Voting Agreement by and between First Surgical Texas, Inc. (f/k/a Piper Acquisition III, Inc., a wholly owned subsidiary of the Company), and former limited partners or members of First Street Hospital, L.P., First Surgical Woodlands, L.P., First Street Surgical Center, L.P. and First Surgical Partners, L.L.C. (2)

  

25
 

  

10.6   Agreement entered by and between the Company and David Roff dated December 31, 2010(2)
     
10.7   Lease Agreement for First Street Surgical Center, L.P. dated April 1, 2003 (4)
     
10.8   Lease Agreement for First Street Hospital, L.P. dated September 17, 2006 (7)
     
10.9   Bariatric Program Sponsorship Agreement by and between the Company and Vital Weight Control, Inc. d/b/a NeWeigh dated May 1, 2006 (4)
     
10.10   Amendment to the Bariatric Program Sponsorship Agreement by and between the Company and Vital Weight Control, Inc. d/b/a NeWeigh dated February 13, 2008 (4)
     
10.11   Extension and Renewal of Contract Agreement by and between the Company and Vital Weight Control, Inc. d/b/a NeWeigh dated December 10, 2009 (4)
     
10.12   Management Agreement by and between First Surgical Partners LLC and First Street Hospital LP (4)
     
10.13   Management Agreement by and between First Surgical Partners LLC and First Surgical Woodlands LP (4)
     
10.14   Termination Letter from Vital Weight Control Inc. To First Street Hospital LP dated January 30, 2009 (4)
     
10.15   Reinstatement of Contract Agreement dated February 6, 2009 between Vital Weight Control Inc and First Street Hospital LP (5)
     
10.16    Letter Agreement between Jacob Varon and First Surgical Partners Inc. dated June 1, 2011 (6)
     
10.17   First Surgical Partners Inc. 2011 Physician Purchase Plan (8)
     
10.18   Amendment to Management Agreement by and between First Surgical Partners LLC and First Surgical Woodlands LP (8)
     
10.19   Fifth Amendment to Letter Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks dated October 31, 2011 (8)
     
10.20   Fifth Amendment to Letter Loan Agreement by and between First Street Surgical Center LP to Bank of River Oaks dated October 31, 2011 (8)
     
10.21   Sixth Amendment to Letter Loan Agreement by and between First Street Hospital, L.P. and the Bank of River Oaks entered into effective as of January 8, 2012 (8)
     
10.22   Sixth Amendment to Letter Loan Agreement by and between First Street Surgical Center LP to Bank of River Oaks entered into effective as of January 8, 2012 (8)
     
21.1   List of Subsidiaries (4)
31.1*   CEO Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*   CFO Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*   CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document

  

26
 

  

101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Extension Labels Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

  (1) Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 26, 2010

 

  (2) Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 6, 2011

 

  (3) Incorporated by reference to the Form 10 Registration Statement filed with the Securities and Exchange Commission on February 9, 2007

 

  (4) Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on April 15, 2011.

 

  (5) Incorporated by reference to the Form 8-K/A Current Report filed with the Securities and Exchange Commission on August 1, 2011
     
  (6) Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 15, 2011.
     
  (7) Incorporated by reference to the Form 8-K/A Current Report filed with the Securities and Exchange Commission on April 27, 2011
     
  (8) Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on March 30, 2012.

* Filed herewith. 

 

27
 

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  FIRST SURGICAL PARTNERS INC.
   
Date: May 21, 2012 /s/ Anthony F. Rotondo
  Name: Anthony F. Rotondo
  Title:   President and Chief Executive Officer and Director
             (Principal Executive Officer)
   
  /s/ Don Knight
  Name: Don Knight
  Title:   Vice President, Finance
              (Principal Financial Officer)

 

28

 

PINX:FSPI Quarterly Report 10-Q Filling

PINX:FSPI Stock - Get Quarterly Report SEC Filing of PINX:FSPI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:FSPI Quarterly Report 10-Q Filing - 3/31/2012
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