Encompass Group Affiliates (ECGA) 10-K/A 2008 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 000-30486

ENCOMPASS GROUP AFFILIATES, INC.

(Exact name of registrant as specified in its charter)

FLORIDA	65-0738251
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)
420 Lexington Avenue, Suite 2739,	10170
New York, NY	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code (646) 227-1600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of December 31, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $3,539,777 based on the average of the bid and asked prices as quoted on the OTC Bulletin Board.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at September 22, 2008
[Common Stock, No par value per share]	16,286,151,226 shares

DOCUMENTS INCORPORATED BY REFERENCE

None

Encompass Group Affiliates, Inc.

Form 10-K/A

June 30, 2008

Index

		Page
Part III
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	3

As used herein, the terms the “Company,” “Encompass Group Affiliate,” “Encompass,” “we,” “us,” or “our” refer to Encompass Group Affiliates, Inc., a Florida corporation.

Explanatory Note

This Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2008 (“Amendment”) is being filed to amend the disclosures made pursuant to Part III, Item 12 contained in the original Annual Report on Form 10-K for the year ended June 30, 2008 filed by the Company on October 14, 2008 (the “Form 10-K”). This Amendment is limited in scope to the item identified above and should be read in conjunction with Form 10-K. The Amendment does not reflect events occurring after the filing of the Form 10-K on October 14, 2008 and, other than the furnishing of the information identified above, does not modify or update the disclosure in the Form 10-K in any way.

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PART III.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

As of September 22, 2008, we had 16,286,151,226 shares of common stock, no shares of Series A-2 Preferred, 1,000 shares of Series C Preferred, 1,000 shares of Series D Preferred and 1,000 shares of Series E Preferred outstanding. The Series E Preferred is not convertible into shares of our common stock, and the holders of Series E Preferred are not entitled to any voting rights. The following table sets forth information concerning the ownership of our common and preferred stock except for Series E Preferred as of such date by each person known to us to be the beneficial owner of more than five percent of a class of our voting capital stock, by each of our directors and executive officers, and by our directors and executive officers, as a group. Due to certain factors relating to our convertible securities, the principles of the presentation below vary from the mechanics specified in Rule 13d-3 under the Exchange Act as described in Note 2 below.

	Common Stock Beneficially Owned (2)						Series C Preferred Stock Beneficially Owned					Series D Preferred Stock Beneficially Owned
Name and Address of Beneficial Owner(1)	# of Shares			% of Class			# of Shares		% of  Class			# of Shares		% of Class
5% Beneficial Owners
ACT-DE LLC(3)		78,399,417,171	(6)		70.81	%		913.79		91.379	%
Sankaty Entities(4)		7,322,678,357	(7)		6.62	%		85.35		8.535	%
Fred Baldwin		4,364,650,314	(8)		3.88	%		-		-			312.5		31.25	%
Robert Coolidge		5,036,772,818	(9)		4.55	%		-		-			562.5		56.25	%
Scott Cameron		1,079,193,459	(10)		*			-		-			125.0		12.50	%
Tritronics, LLC(5)		2,796,232,989			2.53	%
Officers and Directors
Wayne I. Danson President, CEO & Director		1,932,945,775	(11)		1.72	%							-		-
Steven J. Miller Chief Operating Officer		1,625,315,770	(12)		1.45	%
John E. Donahue VP & Chief Financial Officer		927,859,012	(13)		*	%							-		-
Wilbank J. Roche Director		216,423,810	(14)		*								-		-
John G. Ball Director		50,000,000	(15)		*			-		-			-		-
John R. Black Director		78,399,417,171	(16)		70.81	%		-		-			-		-
Thomas R. Ketteler Director		50,000,000	(17)		*			-		-			-		-
William J. Nolan IV Director		-			-			-		-			-		-
Gerald E. Wedren Director		50,000,000	(18)		*			-		-			-		-
Executive Officers and Directors as a group (9 persons)		83,251,961,538			72.69	%							-		-

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* Less than one percent (1%)

1	Except as otherwise indicated, the address of each person named in the above table is c/o Encompass Group Affiliates, Inc., 420 Lexington Avenue, New York, NY 10170.
2	Common Stock which is issuable upon the exercise of a stock option which is presently exercisable or which becomes exercisable within sixty days is considered outstanding for the purpose of computing the percentage ownership (x) of persons holding such options, and (y) of officers and directors as a group with respect to all options held by officers and directors. The number of shares of common stock and the percent of the class in the table and these notes to the table have been calculated in accordance with Rule 13d-3 under the Exchange Act, except as described in this Note 2. The percentage calculations assume that each stockholder has converted all securities he owned that are convertible into common stock at the option of the holder currently or within 60 days of September 22, 2008, and, for all beneficial owners, that all shares of the Series C and Series D Preferred Stock have been converted to Common Stock. This varies from the provisions of Rule 13d-3 which generally requires the calculations to be made on the assumption that the stockholder for whom the calculation is being made has converted his convertible securities but that none of the other stockholders have converted convertible securities. We believe that our presentation is more meaningful than the presentation specified in Rule 13d-3 as the conversion rates on our Series C Preferred and Series D Preferred are interrelated with each other, and because the Series C Preferred and Series D Preferred vote, on an as-converted basis, together with the common stock as one class.  Information is provided in the footnotes below for each holder as to the number of shares of common stock included in the table for conversion of securities. For purposes of this presentation, all shares of Series C Preferred Stock may currently be converted into 85,795,879,985 shares of common stock. All shares of Series D Preferred Stock may currently be converted into 8,633,547,671 shares of common stock.  The conversion rate for the Series C Preferred Stock is subject to downward adjustment if the return, or deemed return, per share of Series C Preferred Stock meets certain targets over a period of years described in the Certificate of Designation for the Series C Preferred Stock.  If the conversion rate for the Series C Preferred Stock is adjusted, the conversion rate for the Series D Preferred Stock will also adjust.  The number of shares issuable upon conversion of the Series C Preferred Stock and Series D Preferred Stock used in this presentation assume no downward adjustment of the conversion rates. The information presented in the table assumes full conversion of the convertible note held by Mr. Baldwin, only for the purposes of Mr. Baldwin’s beneficial ownership.  The conversion rates for the Series C and Series D Preferred Stock depend in part on whether Mr. Baldwin has converted this note.
3	As reported in a Schedule 13D/A filed with the Securities and Exchange Commission on August 7, 2008, H.I.G.-ACT, Ltd., a Cayman Islands corporation (“HIG ACT”), is the sole member of ACT-DE LLC, a Delaware limited liability company (“ACT LLC”). As the sole member of ACT LLC, HIG ACT has the power to vote and dispose of the shares of our capital stock owned by the ACT LLC and, accordingly, may be deemed the beneficial owner of such shares. H.I.G. Capital Partners III, L.P., a Delaware limited partnership (“HIG CP III”), is a shareholder of HIG ACT. As a shareholder of HIG ACT, HIG CP III has the power to vote and dispose of the shares of our capital stock owned by ACT LLC and, accordingly, may be deemed the beneficial owner of such shares. H.I.G. Advisors III, L.L.C., a Delaware limited liability company (“HIG LLC”), is the general partner of HIG CP III. As the general partner of HIG CP III, HIG LLC has the power to vote and dispose of the shares of our capital stock owned by ACT LLC and, accordingly, may be deemed the beneficial owner of such shares. H.I.G. Investment Group III, L.P., a Cayman Islands limited partnership (“HIG IG III”) is a shareholder of HIG ACT. As a shareholder of HIG ACT, HIG IG III has the power to vote and dispose of the shares of our capital stock owned by ACT LLC and, accordingly, may be deemed the beneficial owner of such shares. H.I.G. Associates III, L.P., a Cayman Island limited partnership (“HIG Associates”) is the general partner of HIG IG III. As the general partner of HIG IG III, HIG Associates has the power to vote and dispose of the shares of our capital stock owned by ACT LLC and, accordingly, may be deemed the beneficial owner of such shares. H.I.G.-GPII, Inc., a Delaware corporation (“HIG GP”) is the manager of HIG LLC and the general partner of HIG Associates. As the manager of HIG LLC and the general partner of HIG Associates, HIG GP has the power to vote and dispose of the shares of our capital stock owned by ACT LLC and, accordingly, may be deemed the beneficial owner of such shares. Anthony Tamer and Sami Mnaymneh are the Co-Presidents of HIG GP, and in that capacity direct its operations. Therefore, Anthony Tamer and Sami Mnaymneh may be deemed to be beneficial owners of shares beneficially owned by HIG GP. Each of HIG Act, HIG CP III, HIG LLC, HIG IG III, HIG Associates, HIG GP, Mr. Tamer and Mr. Mnaymneh disclaim beneficial ownership except to the extent of their pecuniary interest in the shares. The address for HIG-DE LLC is c/o H.I.G. Capital L.L.C., 855 Boylston St., 11th Floor, Boston, MA 02116. ACT-DE LLC also owns 840 shares of our Series E Preferred, which represents 84% of the outstanding shares of Series E Preferred.

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4	Includes Prospect Harbor Credit Partners, L.P., Sankaty Credit Opportunities II, L.P. and Sankaty Credit Opportunities III, L.P. The address of the Sankaty entities is 111 Huntington Avenue, Boston, MA 02199. These entities also own 160 shares of our Series E Preferred, which represents 16% of the outstanding shares of Series E Preferred.
5	Kimberly Wagner, Randy Williams and James Scarff each hold 10% of the ownership interests in Tritronics, LLC. The address of these three individuals is c/o Tritronics, Inc., 1306 Continental Drive, Abingdon, MD 21009
6	The number of common shares in the table includes 78,399,417,171 shares of common stock that may be acquired upon conversion of Series C Preferred.
7	The number of common shares in the table includes 7,322,678,357 shares of common stock that may be acquired upon conversion of Series C Preferred.
8	The number of common shares in the table includes 2,697,983,647 shares of common stock that may be acquired upon conversion of Series D Preferred and 1,666,666,667 shares of common stock which may be acquired upon conversion of a convertible note.
9	The number of common shares in the table includes 180,402,253 shares of common stock held by Mr. Coolidge and 4,856,370,565 shares of common stock that may be acquired upon conversion of Series D Preferred.
10	The number of common shares in the table includes 1,079,193,459 shares of common stock that may be acquired upon conversion of Series D Preferred.
11	The number of common shares in the table includes 309,325,499 shares of common stock held by Mr. Danson and 1,623,620,276 shares which Mr. Danson may acquire by exercising options he holds.
12	The number of common shares in the table includes 362,500,000 shares of common stock held by Mr. Miller, including 50,000,000 shares of restricted stock previously granted to Mr. Miller and 1,262,815,770 shares which Mr. Miller may acquire by exercising options he holds.
13	The number of common shares in the table includes 206,250,000 shares of common stock held by Mr. Donahue, including 50,000,000 shares of restricted stock previously granted to Mr. Donahue and 721,609,012 shares which Mr. Donahue may acquire by exercising options he holds.
14	The number of common shares in the table includes 166,423,810 shares of common stock held by Mr. Roche and 50,000,000 shares of common stock which Mr. Roche may acquire by exercising options he holds.
15	The number of common shares in the table includes 50,000,000 shares of common stock which Mr. Ball may acquire by exercising options he holds.

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16	The number of common shares in the table includes 78,399,417,171 shares that may be acquired upon conversion of 913.79 shares of Series C Preferred held by ACT-DE, LLC. Mr. Black is a Managing Director of H.I.G. Capital, L.L.C., an affiliate of ACT-DE, LLC and, as such, may be deemed to beneficially own shares of Series C Preferred Stock held by ACT-DE, LLC. In addition, Mr. Black may be deemed to beneficially own 840 shares of Series E Preferred held by ACT-DE, LLC. Mr. Black disclaims beneficial ownership of such shares.
17	The number of common shares in the table includes 50,000,000 shares of common stock which Mr. Ketteler may acquire by exercising options he holds.
18	The number of common shares in the table includes 50,000,000 shares of common stock which Mr. Wedren may acquire by exercising options he holds.

Changes in Control

On August 17, 2007 we entered into a series of transactions to effect a recapitalization which, among other transactions, included the following: 

• the acquisition of a new operating subsidiary, Vance Baldwin, Inc. for cash, a convertible note and shares of our Series D Preferred Stock;

• the offer and sale of a significant preferred stock investment of more than $6 million by ACT-DE, LLC, an affiliate of H.I.G. Capital, LLC, which, together with certain other parties, received newly designated Series C Preferred Stock, constituting at that time approximately 79.5% of the ownership interest in us (before dilution for stock options issued to management as described herein); and

• the issuance of approximately $23.5 million in senior and subordinated notes pursuant to a Note Purchase Agreement, for which Sankaty Advisors, LLC is the collateral agent.

In connection with the above-described recapitalization, we offered the holders of the Company’s Series A Convertible Preferred Stock, par value $.01 per share, Series A-1 Convertible Preferred Stock, par value $.01 per share (the “Series A-1 Preferred”), and Series B Convertible Preferred Stock, par value $.01 per share, the right to exchange such stock for the newly designated Series A-2 Preferred (the “Exchange”). In the Exchange, the existing preferred stockholders provided a full release of any claims against us, but were not required to provide any other consideration other than the surrender of their outstanding shares of preferred stock. In connection with the recapitalization, we also paid off outstanding debts to certain creditors with an aggregate payment of approximately $3,600,000 in cash. One creditor received a convertible promissory note in addition to a cash payment. Certain of these creditors then purchased shares of the Series A-2 Preferred from one of the stockholders receiving such stock pursuant to the Exchange.

There are no other arrangements known to us the operation of which may result in a change in control of Encompass.

Equity Compensation Plan Information

The following table sets forth information as of June 30, 2008 regarding all of our existing compensation plans and individual compensation arrangements pursuant to which equity securities are authorized for issuance to employees, non-employee directors or non-employees (such as directors, consultants and advisors) in exchange for consideration in the form of services:

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Plan Category	Number of securities to be issued upon exercise of  outstanding  options, warrants  and rights	Weighted-average  exercise price of outstanding  options, warrants  and rights		Number of  securities  remaining  available for future  issuance under  equity  compensation  plans (excluding  securities reflected  in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders: 2005 Stock Plan	10,923,525,261	$	.00075	4,076,474,739
Equity compensation plans not approved by security holders:	0		0	0
Total	10,923,525,261	$	.00075	4,076,474,739

Our 2005 Stock Plan was adopted by the Board of Directors on June 26, 2005. In connection with the recapitalization described herein, our Board of Directors voted to amend and restate our 2005 Stock Plan (the “2005 Plan”) on August 16, 2007. The material revision to the 2005 Plan was an increase in the number of shares of common stock available for issuance under the 2005 Plan from 700,000,000 shares to 15,000,000,000 shares. Our stockholders approved the amendments to the 2005 Stock Plan pursuant to a consent solicitation that concluded on May 5, 2008.

The objectives of the 2005 Plan are to optimize the profitability and growth of Encompass through incentives which are consistent with Encompass’s goals and which link the personal interests of participants in the 2005 Plan to those of Encompass’s stockholders; to provide participants with an incentive for excellence in individual performance; and to promote teamwork among participants. The 2005 Plan is further intended to provide flexibility to Encompass in its ability to motivate, attract, and retain the services of employees, consultants and non-employee directors who make significant contributions to Encompass’s success and to allow participants to share in the success of Encompass. All employees of Encompass and its subsidiaries (“Employees”) and members of the Board who are not Employees (“Non-Employee Directors”) are eligible to participate in the 2005 Plan. Consultants and advisors who perform services for Encompass or any of our subsidiaries (“Key Advisors”) are also eligible to participate in the 2005 Plan if the Key Advisors render bona fide services to Encompass or our subsidiaries, the services are not in connection with the offer and sale of securities in a capital-raising transaction and the Key Advisors do not directly or indirectly promote or maintain a market for Encompass’s securities.

At September 23, 2008, there were approximately 360 Employees, Non-Employee Directors and Key Advisors of Encompass and its subsidiaries eligible to participate in the 2005 Plan.

The aggregate number of shares of our common stock, which may be issued under the 2005 Plan, is 15,000,000,000 shares, subject to proportionate adjustment in the event of stock splits and similar events. There is no limitation on the number of shares which may be issued to any individual under the 2005 Plan, including any officer or director. No awards may be granted under the 2005 Plan on or after June 26, 2015. If any award granted under the 2005 Plan is canceled or terminates, expires or lapses for any reason, the number of shares subject to the award will again be available for purposes of the 2005 Plan.

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Signatures

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

Encompass Group Affiliates, Inc.
By:	/s/ Wayne I. Danson
Name:	Wayne I. Danson
Title:	President and Chief Executive Officer
Date:	January 12, 2009

In accordance with the Exchange Act, this amended report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Wayne I. Danson
Wayne I. Danson	President and Chief Executive Officer (Principal Executive Officer) and Director	January 12, 2009
/s/ John E. Donahue
John E. Donahue	Vice President and Chief Financial Officer (Principal Accounting Officer)	January 12, 2009
/s/ John Black
John Black	Director	January 12, 2009
/s/ J.G. (Pete) Ball
J.G. (Pete) Ball	Director	January 12, 2009
/s/ Thomas R. Ketteler
Thomas R. Ketteler	Director	January 12, 2009
/s/ Wilbank J. Roche
Wilbank J. Roche	Director	January 12, 2009
/s/ William J. Nolan
William J. Nolan	Director	January 12, 2009
/s/ Gerald E. Wedren
Gerald E. Wedren	Director	January 12, 2009

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EXHIBIT INDEX

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith.

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