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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED	COMMISSION FILE NO.
DECEMBER 31, 2007	0-28729

PACER HEALTH CORPORATION

(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


FLORIDA	11-3144463
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7759 N.W. 146^th Street

Miami Lakes, FL 33016

(Address of principal executive offices)

(305) 828-7660

(Issuer’s telephone number)

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK, PAR VALUE $0.0001 PER SHARE

(Title of class)

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 [X]

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 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]

Issuer's revenues for its most recent fiscal year ended December 31, 2007: $30,269,517.

Based on the closing sale price on April 14, 2008, the aggregate market value of the voting common stock held by non-affiliates of Pacer Health Corporation is $4,753,926.

The number of shares outstanding of the issuer's common stock, as of April 15, 2008 was: 592,799,337.

Transitional Small Business Disclosure Format: No.

Documents incorporated by reference: None

TABLE OF CONTENTS


		Page
PART I
Item 1	Business	1
Item 2	Properties	18
Item 3	Legal Proceedings	18
Item 4	Submission of Matters to a Vote of Security Holders	19

PART II
Item 5	Market for Registrant's Common Equity and Related Stockholder Matters	20
Item 6	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7	Financial Statements and Supplementary Data	43
Item 8	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
Item 8A (T)	Controls and Procedures	43

PART III
Item 9	Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act	44
Item 10	Executive Compensation	47
Item 11	Security Ownership of Certain Beneficial Owners and Management	50
Item 12	Certain Relationships and Related Transactions	51

PART IV
Item 13	Exhibits and Financial Statement Schedules	52
Item 14	Principal Accountant Fees and Services	55

SIGNATURES
EXHIBITS
Exhibit 21.1	Subsidiaries of Pacer Health Corporation
Exhibit 31.1	Section 302 Certification of the CEO
Exhibit 31.2	Section 302 Certification of the CFO
Exhibit 32.1	Section 906 Certification of the CEO
Exhibit 32.2	Section 906 Certification of the CFO

PART I


ITEM 1.	DESCRIPTION OF BUSINESS

Introduction

Pacer Health Corporation (“Pacer” or the “Company”) is a diversified holding company with subsidiaries operating in the healthcare services and transportation/logistics services. The Company is aggressively building its existing lines of business through internal growth and acquisitions. During 2008, the Company announced its intention to expand its operations into the transportation/logistics services. The Company is actively seeking to acquire additional companies in its existing and complementary lines of business.

The Company’s healthcare services business provides healthcare services with a primary focus on acquiring and restructuring hospitals. At December 31, 2007, we operated three (3) acute care hospitals, one (1) geriatric psychiatric hospital and one (1) rural health clinic. In all of the communities in which our acute care hospitals are located, we are the only provider of acute care hospital services. Our hospitals are geographically diversified across three (3) states: Georgia, Kentucky and Louisiana. We generated $30.269 million and $4.100 million in revenues from continuing operations during 2007 and 2006, respectively.

The Company’s transportation/logistics services business provides logistics solutions for customers including transportation, warehousing and freight brokerage services. The Company currently intends to expand its operations in this business through acquisitions of transportation/logistics businesses.

We were incorporated in Florida in 2003. Our common stock, par value $0.0001 per share, is listed on OTC Bulletin Board under the symbol “PHLH”. For information concerning our financial condition, results of operations and related financial data, you should review the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Financial Statements and Supplementary Data” sections of this document. You also should review and consider the risks relating to our business, operations, financial performance and cash flows that we describe below under “Risk Factors”.

Our principal offices are located at 7759 NW 146^th Street, Miami Lakes, Florida 33016, and our telephone number is (305) 826-7660. Our website is www.pacerhealth.com.

No material part of our revenues was derived outside of the United States in fiscal year 2007, and during said year, we had no material assets outside of the United States.

Business Strategy

Overview

The Company’s business strategy is (i) to continue to expand its current operations in its existing lines of business through internal growth and acquisitions, and (ii) to enhance and broaden its operations by entering into alternative lines of business, particularly in the transportation/logistics services industry.

In the healthcare services industry, our goal is to become a regional provider of hospital services. We intend to accomplish this by targeting and acquiring financially distressed hospitals and restructuring the operations to attempt to achieve financial viability. We believe that the acquisition of financially distressed facilities at a significant discount and their subsequent turnaround will allow us to increase significantly the value of the facilities. We intend to acquire these facilities through a combination of capital infusion, traditional financing and funds from current operations. Key elements of our strategy in the healthcare industry include:

Expand Our Healthcare Facilities and Transportation Base

We plan to expand our healthcare operations in order to increase our market share in existing markets and/or acquire healthcare facilities in new markets where we believe the opportunity exists. Our efforts to increase our healthcare facilities base include the following practices and initiatives:

Acquisitions – The success of our Company depends significantly on acquiring healthcare facilities. Through April 15, 2008, we have acquired the following facilities:

General acute care hospital in Cameron, LA;

Psychiatric hospital in Lake Charles, LA;

General acute care hospital in Barbourville, KY; and

Satellite clinic in Greensboro, GA.

We generally pursue financially distressed hospitals which are located in a non-urban market and are generally the sole provider of the market and its surrounding communities. We believe there are numerous hospitals that meet these criteria. These hospitals are primarily owned by governmental, not-for-profit, or faith based agencies.

We have a dedicated team of internal and external professionals who complete a thorough review of the hospital’s financial and operating performance, the demographics and service needs of the market and the physical condition of the facilities. Based on our historical experience, we then determine whether or not the hospital can benefit from our management services and leadership. Whether we buy or lease the existing facility or agree to construct a replacement hospital, we approach our pricing from a discounted range in order to ensure maximum working capital can be utilized at the acquired facility. We typically begin the acquisition process by entering into a non-binding letter of intent with an acquisition candidate. After we complete business and financial due diligence, we decide whether or not to enter into a definitive agreement. Once an acquisition is completed, we have an organized and systematic approach to transitioning and integrating the new hospital into our system of hospitals. At the time we acquire a hospital, we may commit to an amount of capital expenditures, such as a replacement facility, renovations, or equipment over a specified period of time.

On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc. (“HSRE”). The assets sold include all real property of Minnie G. Boswell Memorial Hospital (“MGBMH”) as well as licenses, permits and personal property, including vehicles, related to the skilled nursing operations. HSRE also agreed to assume certain liabilities, including accrued vacation for employees it subsequently hired in conjunction with the sale.

On March 7, 2008 the Company sold to St Joseph’s Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital for the aggregate purchase price of $3,547,559.71, subject to certain adjustments set forth in the Agreement. St. Joseph’s Healthcare System, Inc. also assumed certain liabilities with respect to the operation. Additionally, within thirty (30) calendar days following July 1, 2008, St. Joseph’s Healthcare System, Inc. shall submit to the Company a report identifying the amount of annual subsidy for Minnie G. Boswell Memorial Hospital approved by the Greene County Commission prior to July 1, 2008 (the “Annual Subsidy Amount”). Within 10 calendar days following the date that the Annual Subsidy Amount has been determined in accordance with the Agreement, St. Joseph’s Healthcare System, Inc. shall pay to the Company an amount equal to 50% of the Annual Subsidy Amount up to $1,500,000.

On September 29, 2006, the Company divested its majority interest in Southpark Community Hospital (“SPCH”) for a $3,000,000 note receivable to a third party, which consists primarily of shareholders of the minority interest. The terms of the agreement included assumption of all prorated liabilities and guarantees of SPCH from the Company. Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured. Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense.

Increase Market Share – We intend to attempt to increase our market share in the markets we serve. We have begun to increase our brand awareness among the doctors we serve in the markets and have done various public advertisements. We are also increasing our capital additions in order to provide additional services to patients and physicians in order to increase our patient volumes.

In the transportation/logistics services industry, the Company seeks to acquire companies that currently operate in markets serviced by major airports. In making acquisitions, the Company principally targets operations that have significant long-term contracts with established national customers. The Company may also consider acquiring companies which own significant transportation assets. However, the Company is not limited to these target criteria for acquisitions and may acquire additional transportation/logistics operations as opportunities arise.

Acquisitions

Healthcare Facilities

On December 31, 2006, our wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, consummated an agreement with the County of Knox, Kentucky (the “Agreement”) to lease all of the assets and real property used in connection with Knox County Hospital as well as delegating full and complete management responsibility and operational control for the Hospital to the Company. The Company may retain all profits from the operations of the Hospital after satisfying its lease obligations to the County of Knox and maintenance and operations expenses of the Hospital facility. The annual lease payment is equal to the amount of annual payment due by Knox County on its County of Knox, Kentucky Taxable General Obligation Refunding Bonds, Series 2006 (“Bonds”), after applying the capitalized interest which is to be paid from the proceeds of the Bonds. We estimate the annual payment for 2008 to be approximately $692,265. Additionally, at any time during the term of the Agreement, we have the option to purchase all of the Hospital assets from the County of Knox County and assume all of the liabilities (excluding certain liabilities as defined in

the Agreement) for a purchase price equal to the sum of (a) the lesser of: (i) the outstanding principal amount of the Bonds on the closing of such purchase or (ii) what the principal balance of the Bonds would have been if all lease payments and other payments to be made by the Company were used to satisfy the principal and interest due under the Bonds at the date of each such payment plus (b) any prepayment penalties on the Bonds and (c) less any funds then held in any debt service reserve fund, bond fund or any other fund or account in any way pertaining to the Bonds. The term of the Agreement ends on the earlier of (a) the date the refunding bonds are paid in full; or (b) the date the Company exercises its purchase option. The refunding bonds have a term of thirty (30) years. The County of Knox may only terminate the Agreement if (a) the Company does not make the required monthly lease payments or (b) if the Company fails to complete substantial repairs caused by a casualty.

On April 1, 2007, the Company entered into an agreement to sell, in substance, a minority interest of forty percent (40%) of its wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, to an unrelated third party. Pacer Health Management Corporation of Kentucky currently leases certain assets from the County of Knox, Kentucky. The sales price was $1.2 million, which consisted solely of cash, of which $500,000 was received on March 30, 2007 and $700,000 was received on April 20, 2007. A gain of $980,458 was included in Other Income for the six months ended June 30, 2007 and an initial minority interest of $219,542 was recorded based on forty percent (40%) of the net equity of the subsidiary on the sale date.

On December 6, 2005, our wholly-owned subsidiary, Pacer Health Holdings of Lafayette, Inc. (“Pacer Sub”) acquired a majority interest in Southpark Community Hospital, L.L.C. (“Southpark”) Pacer Sub received a sixty percent (60%) equity position in Southpark and the remaining investors of Southpark reduced their equity position to forty percent (40%) in consideration for an infusion amount up to $2,500,000 over the period of ownership, the exact amount to be reasonably determined by Pacer Sub as necessary to sustain the operations of Southpark. Pacer Sub also assumed a prorated share of the outstanding liabilities and also assumed the position of guarantor, equal to its percentage of ownership, on all notes. Pacer Sub had also agreed to reimburse certain investors who made principal and interest payments on certain third party loans on behalf of Southpark. On September 29, 2006, the Company divested its majority interest for a $3,000,000 note receivable to a third party, which consisted primarily of shareholders of the minority interest. Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured. Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense which is included in discontinued operations for the year ended December 31, 2006.

On September 1, 2005, our wholly-owned subsidiary, Pacer Health Management Corporation of Georgia, completed its asset purchase agreement with the Greene County Hospital Authority to acquire certain assets and assume certain liabilities used in the operation of Minnie G. Boswell Memorial Hospital (“MGBMH”). The total purchase amount was $1,108,676. On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc. On March 7, 2008 the Company sold to St Joseph’s Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital.

In March 2007, the Company amended its lease agreement with the Lower Cameron Hospital Service District (“LCHSD”) to provide for the funding of operational losses by the LCHSD through certain grants. These grants will be paid quarterly in 2007 and provide for a payment of $3.5 million in 2007 and $1.2 million, or such lesser amount as may be generated by tax revenues collected by the LCHSD during the then current year, beginning in 2008 through 2017. As of December 31, 2007, the Company has received all of the expected $3.5 million of grants for 2007 and such amount is included in patient revenue for the year ended December 31, 2007. As of April 15, 2008, the Company has received $300,000 of such grants for year ended December 31, 2008.

We intend to expand our regional network of healthcare facilities through the acquisition of additional financially distressed hospitals. In most cases, we believe that our initial market entry will be through the acquisition of key existing healthcare facilities in a market. We intend to retain the management of well-run facilities to benefit from their knowledge and experience. Smaller facilities may also be acquired in non-strategic locations. We believe that by acquiring existing facilities, we will build our network in a cost-efficient manner.

Transportation/Logistics

We intend to utilize internal acquisition teams, supplemented as needed by outside advisors, and our contacts in the transportation/logistics services business to identify, evaluate and acquire potential transportation/logistics. Acquisition candidates are evaluated based on stringent criteria in a comprehensive process which includes operational, legal and financial due diligence reviews.

Operations

The Company’s operations are organized primarily into two general industry segments: medical services and non-medical services.

Medical Services

Most of our general acute care hospitals provide medical and surgical services, including inpatient care, psychiatric diagnostic services and emergency services. The general acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy and physical therapy. Our psychiatric hospitals provide therapeutic programs including for adult psychiatric care, adult drug abuse treatment and counseling.

Each of our hospitals has a local board of trustees that includes members of the hospital’s medical staff as well as community leaders. Each board establishes policies concerning medical, professional and ethical practices, monitors these practices, and is responsible for reviewing these practices in order to determine that they conform to established standards. We maintain quality assurance programs to support and monitor quality of care standards and to meet accreditation and regulatory requirements. We also monitor patient care evaluations and other quality of care assessment activities on a regular basis.

Like most hospitals located in non-urban markets, our hospitals do not engage in extensive medical research and medical education programs.

Non-Medical Services

Transportation/Logistics Services

We intend to be a third party logistics provider. We intend to provide freight transportation and logistics services. We intend to provide truck and LTL (“less than truckload”) modes of transportation.

In addition to providing access to capital resources, we make available a variety of management services to all our lines of business. These services include, among other things:



	•	accounting, financial, tax and reimbursement management;

	•	administrative and clinical management and consulting;

	•	construction oversight and management;

	•	corporate ethics and compliance;

	•	education and training;

	•	employee benefits;

	•	HIPAA compliance for our healthcare facilities;

	•	human resources management;

	•	information and clinical systems;

	•	internal auditing and consulting;

	•	legal management;

	•	managed care contracting for our healthcare facilities;

	•	materials management;

	•	physician recruiting and services management for our healthcare facilities;


	•	risk management; and

	•	revenue and cash cycle management.

Marketing

Our healthcare facilities offer various medical services, specifically, general acute medical care, and geriatric psychiatric services. Our marketing effort in our healthcare facilities has been focused primarily on brand awareness among physicians. We have hired marketers who have devoted significant portions of their time developing physicians’ awareness of our facilities. Furthermore, we have advertised publicly through television, radio, newspapers and billboards in the local markets. We believe that as we continue to increase our brand awareness, our patient volume in our healthcare facilities will increase.

Competition

Generally, our hospitals, in the local and surrounding communities served by our hospitals, provide services similar to those offered by other hospitals in the area. The rates charged by our hospitals are intended to be competitive with those charged by other local hospitals for similar services. In some cases, competing hospitals are more established than our hospitals. Some competing hospitals are owned by tax-supported government agencies and some others are owned by not-for-profit entities that may be supported by endowments, charitable contributions and/or tax revenues and are exempt from sales, property and income taxes. Such exemptions and support may not always be available to our hospitals. Psychiatric hospitals frequently attract patients from areas outside their

immediate locale and, therefore, our psychiatric hospital competes with both local and regional hospitals, including the psychiatric units of other general acute care hospitals.

State certificate of need (“CON”) laws, which place limitations on a hospital’s ability to expand hospital services and facilities, make capital expenditures and otherwise make changes in operations, may also have the effect of restricting competition.

Our facilities located in Cameron, Louisiana and Barbourville, Kentucky face minimal competition while our facility located in Lake Charles, Louisiana has competition from various other treatment centers, private physician practices, and hospitals. We expect that any future healthcare facility acquisition will face similar competition from similar healthcare facilities. To the extent we are unable to compete successfully against our existing and future competitors, our healthcare line of business, operating results and financial condition may be materially adversely affected. While we believe we are and will compete effectively within the healthcare industry, additional competitors, currently and in the future, have or may enter the industry and effectively compete against us.

Intellectual Property

We are in the process of registering a variety of service marks, trademarks and trade names for use in our business, including: “Pacer Healthcare”, “Pacer Health”, “Pacer Hospital” and “Pacer Logistics”.

We regard our intellectual property and brand awareness to be an important factor in the marketing of our Company in its growth stage. We are not aware of any facts that would negatively impact our continuing use of any of our service marks, trademarks or trade names.

Insurance and Risk Management

Our business exposes us to the risk of liabilities arising out of our operations. For example, liabilities may arise out of claims of patients, employees or other third parties for personal injury or property damage occurring in the course of our operations. The healthcare industry, in general, is subject to substantial risk of malpractice claims resulting from personal injuries of patients. In our case, in particular, we face potential malpractice claims arising out of the treatment of patients who are treated in our acute care facilities. We currently maintain malpractice insurance coverage in excess of $1 million, with various levels of per claim deductibles. Currently, none of our policies require any collateral. We evaluate, based on historical data and overall trends in the industry, the level of risk we have with regards to a potential malpractice claim. We adjust our coverage based on these factors. However, we cannot provide assurances that any claims against us will be completely covered by our insurance polices. Such a claim could have an adverse impact on the healthcare line of business, financial condition, cash flows and results of operations.

Employees

On December 31, 2007, we employed over 500 full-time employees. We also engaged various doctors as independent contractors to perform the healthcare services at all of our facilities. None of our employees are represented by unions. We consider our employee relations to be good. The majority of our physicians are currently employed under exclusive contracts with the Company. Furthermore, certain key members of management are also employed under exclusive contracts which include non-compete covenants.

Regulation

All participants in the healthcare industry are required to comply with extensive government regulations at the Federal, state and local levels. Under these laws and regulations, hospitals must meet requirements for licensure and qualify to participate in government programs, including the Medicare and Medicaid programs. These requirements relate to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, rate-setting, compliance with building codes and environmental protection laws. If we fail to comply with applicable laws and regulations, we may be subject to criminal penalties and civil sanctions, and our hospitals may lose their licenses and ability to participate in government programs. In addition, government regulations frequently change. When regulations change, we may be required to make changes in our facilities, equipment, personnel and services so that our hospitals remain licensed and qualified to participate in these programs. We believe that our hospitals are in substantial compliance with current Federal, state and local regulations and standards.

Hospitals are subject to periodic inspection by Federal, state and local authorities to determine their compliance with applicable regulations and requirements necessary for licensing and certification. All of our hospitals are currently licensed under appropriate state laws and are qualified to participate in Medicare and Medicaid programs.

Utilization Review. Federal law contains numerous provisions designed to ensure that services rendered by hospitals to Medicare and Medicaid patients meet professionally recognized standards, are medically necessary and that claims for reimbursement are properly filed. These provisions include a requirement that a sampling of admissions of Medicare and Medicaid patients must be

reviewed by peer review organizations, which review the appropriateness of Medicare and Medicaid patient admissions and discharges, the quality of care provided, the validity of DRG classifications and the appropriateness of cases of extraordinary length of stay or cost. Peer review organizations may deny payment for services provided, or assess fines and also have the authority to recommend to the Department of Health and Human Services (“DHHS”) that a provider which is in substantial noncompliance with the standards of the peer review organization be excluded from participation in the Medicare program. Utilization review is also a requirement of most non-governmental managed care organizations.

Fraud and Abuse Laws. Participation in the Medicare and/or Medicaid programs is heavily regulated by Federal statutes and regulations. If a hospital fails to comply substantially with the numerous Federal laws governing a facility’s activities, the hospital’s participation in the Medicare and/or Medicaid programs may be terminated and/or civil or criminal penalties may be imposed. For example, a hospital may lose its ability to participate in the Medicare and/or Medicaid programs if it performs any of the following acts:



	•	Making claims to Medicare and/or Medicaid for services not provided or misrepresenting actual services provided in order to obtain higher payments;

	•	Paying money to induce the referral of patients or purchase of items or services where such items or services are reimbursable under a Federal or state health program; or

	•	Failing to provide appropriate emergency medical screening services to any individual who comes to a hospital’s campus or otherwise failing to properly treat and transfer emergency patients.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) broadened the scope of the fraud and abuse laws by adding several criminal statutes that are not related to receipt of payments from a Federal healthcare program. HIPAA created civil penalties for proscribed conduct, including upcoding and billing for medically unnecessary goods or services. HIPAA established new enforcement mechanisms to combat fraud and abuse. These new mechanisms include a bounty system, where a portion of the payments recovered is returned to the government agencies, as well as a whistleblower program. HIPAA also expanded the categories of persons that may be excluded from participation in Federal and state healthcare programs.

The anti-kickback provision of the Social Security Act prohibits the payment, receipt, offer or solicitation of anything of value, whether in cash or in kind, with the intent of generating referrals or orders for services or items covered by a Federal or state healthcare program. Violations of the anti-kickback statute may be punished by criminal and civil fines, exclusion from Federal and state healthcare programs, imprisonment and damages up to three times the total dollar amount involved.

The Office of Inspector General (“OIG”) of DHHS is responsible for identifying fraud and abuse activities in government programs. In order to fulfill its duties, the OIG performs audits, investigations and inspections. In addition, it provides guidance to healthcare providers by identifying types of activities that could violate the anti-kickback statute. The OIG has identified the following hospital/physician incentive arrangements as potential violations:



	•	Payment of any incentive by a hospital each time a physician refers a patient to the hospital;

	•	Use of free or significantly discounted office space or equipment;

	•	Provision of free or significantly discounted billing, nursing or other staff services;

	•	Free training (other than compliance training) for a physician’s office staff, including management and laboratory technique training;

	•	Guarantees which provide that if a physician’s income fails to reach a predetermined level, the hospital will pay any portion of the remainder;

	•	Low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital;

	•	Payment of the costs for a physician’s travel and expenses for conferences;

	•	Payment of services which require few, if any, substantive duties by the physician or which are in excess of the fair market value of the services rendered; or

	•	Purchasing goods or services from physicians at prices in excess of their fair market value.

We have a variety of financial relationships with physicians who refer patients to our hospitals, including employment contracts, independent contractor agreements and professional service agreements. The OIG is authorized to publish regulations outlining activities and business relationships that would be deemed not to violate the anti-kickback statute. These regulations are known as “safe harbor” regulations. Failure to comply with the safe harbor regulations does not make conduct illegal, but instead the safe harbors delineate standards that, if complied with, protect conduct that might otherwise be deemed in violation of the anti-kickback statute. We seek to structure each of our arrangements with physicians to fit as closely as possible within an applicable safe harbor. However, not all of our business arrangements fit wholly within safe harbors, so we cannot guarantee that these arrangements will not be scrutinized by government authorities or, if scrutinized, that they will be determined to be in compliance with the anti-kickback statute or other applicable laws. The failure of a particular activity to comply with the safe harbor regulations does not mean that the

activity violates the anti-kickback statute. We believe that our business arrangements are in compliance with the anti-kickback statute. If we violate the anti-kickback statute, we would be subject to criminal and civil penalties and/or possible exclusion from participating in Medicare, Medicaid or other governmental healthcare programs.

The Social Security Act also includes a provision commonly known as the “Stark law”. This law prohibits physicians from referring Medicare and Medicaid patients to selected types of healthcare entities in which they or any of their immediate family members have ownership or a compensation relationship. These types of referrals are commonly known as “self referrals”. Sanctions for violating the Stark law include civil monetary penalties, assessments equal to twice the dollar value of each service rendered for an impermissible referral and exclusion from Medicare and Medicaid programs. There are ownership and compensation arrangement exceptions to the self-referral prohibition. One exception allows a physician to make a referral to a hospital that is not a specialty hospital if the physician owns an interest in the entire hospital, as opposed to an ownership interest in a department of the hospital. Another exception allows a physician to refer patients to a healthcare entity in which the physician has an ownership interest if the entity is located in a rural area, as defined in the statute. There are also exceptions for many of the customary financial arrangements between physicians and facilities, including employment contracts, leases and recruitment agreements. We have structured our financial arrangements with physicians to comply with the statutory exceptions included in the Stark law and regulations.

Many states in which we operate also have adopted, or are considering adopting, laws similar to the Federal anti-kickback and Stark laws. Some of these state laws apply even if the government is not the payor. These statutes typically provide criminal and civil penalties as remedies. While there is little precedent for the interpretation or enforcement of these state laws, we have attempted to structure our financial relationships with physicians and others in light of these laws. However, if a state determines that we have violated such a law, we would be subject to criminal and civil penalties.

Corporate Practice of Medicine and Fee-Splitting. Some states have laws that prohibit unlicensed persons or business entities, including corporations or business organizations that own hospitals, from employing physicians. Some states also have adopted laws that prohibit direct or indirect payments or fee-splitting arrangements between physicians and unlicensed persons or business entities. Possible sanctions for violations of these restrictions include loss of a physician’s license, civil and criminal penalties and rescission of business arrangements. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. We attempt to structure our arrangements with healthcare providers to comply with the relevant state laws and the few available regulatory interpretations.

Emergency Medical Treatment and Active Labor Act. All of our general acute care facilities are subject to the Emergency Medical Treatment and Active Labor Act (“EMTALA”). This Federal law requires any hospital that participates in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospital’s emergency department for treatment and, if the patient is suffering from an emergency medical condition, to either stabilize that condition or make an appropriate transfer of the patient to a facility that can handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of a patient’s ability to pay for treatment. There are severe penalties under EMTALA if a hospital fails to screen or appropriately stabilize or transfer a patient or if the hospital delays appropriate treatment in order to first inquire about the patient’s ability to pay. Penalties for violations of EMTALA include civil monetary penalties and exclusion from participation in the Medicare program. In addition, an injured patient, the patient’s family or a medical facility that suffers a financial loss as a direct result of another hospital’s violation of the law can bring a civil suit against that other hospital.

During 2003, Centers for Medicare and Medicaid Service (“CMS”) published a final rule clarifying a hospital’s duties under EMTALA. In the final rule, CMS clarified when a patient is considered to be on a hospital’s property for purposes of treating the person pursuant to EMTALA. CMS stated that off-campus facilities such as specialty clinics, surgery centers and other facilities that lack emergency departments should not be subject to EMTALA, but that these locations must have a plan explaining how the location should proceed in an emergency situation such as transferring the patient to the closest hospital with an emergency department. CMS further clarified that hospital-owned ambulances could transport a patient to the closest emergency department instead of to the hospital that owns the ambulance.

CMS’s rules did not specify “on-call” physician requirements for an emergency department, but provided a subjective standard stating that “on-call” hospital schedules should meet the hospital’s and community’s needs. Although we believe that our hospitals comply with EMTALA, we cannot predict whether CMS will implement new requirements in the future and whether our hospitals will comply with any new requirements.

Federal False Claims Act. The Federal False Claims Act prohibits providers from knowingly submitting false claims for payment to the Federal government. This law has been used not only by the Federal government, but also by individuals who bring an action on behalf of the government under the law’s “qui tam” or “whistleblower” provisions. When a private party brings a qui tam action under the Federal False Claims Act, the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will intervene and take a lead in the litigation.

Civil liability under the Federal False Claims Act can be up to three times the actual damages sustained by the government plus civil penalties for each separate false claim. There are many potential bases for liability under the Federal False Claims Act, including claims submitted pursuant to a referral found to violate the anti-kickback statute. Although liability under the Federal False Claims Act arises when an entity knowingly submits a false claim for reimbursement to the Federal government, the Federal False Claims Act defines the term “knowingly” broadly. Although simple negligence generally will not give rise to liability under the Federal False Claims Act, submitting a claim with reckless disregard to its truth or falsity can constitute “knowingly” submitting a false claim.

Healthcare Reform. The healthcare industry continues to attract much legislative interest and public attention. The Medicare Modernization Act (“MMA”) introduced changes to the Medicare program. Many of MMA’s changes went into effect January 1, 2006. MMA establishes a voluntary prescription drug benefit, provides Federal subsidies to plan sponsors that provide prescription drug benefits to Medicare-eligible retirees, substantially adjusts Medicare+Choice and provides favorable payment adjustments for rural hospitals. MMA also provides favorable tax treatment for individual health savings accounts. In addition, MMA authorizes MedPAC to study the effects of rural hospital reimbursement in current and anticipated reimbursement methodologies.

In recent years, Medicaid enrollment has grown as more people became eligible for the program. At the same time, healthcare costs have been rising, forcing states to address Medicaid cost-containment. Healthcare costs, demographics, erosion of employer-sponsored health coverage and potential changes in Federal Medicaid policies continue to put pressure on state Medicaid programs. Policymakers in many states are evaluating the Medicaid programs in their states and considering reforms. Also, the number of persons without health insurance has risen. We anticipate that the Federal and state governments will continue to introduce legislative proposals to modify the cost and efficiency of the healthcare delivery system to provide coverage for more or all persons.

Conversion Legislation. Many states have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In states that do not have such legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets. These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller. These reviews and, in some instances, approval processes can add additional time to the closing of a not-for-profit hospital acquisition. Future actions by state legislators or attorneys general may seriously delay or even prevent our ability to acquire certain hospitals.

Certificates of Need. The construction of new facilities, the acquisition or expansion of existing facilities and the addition of new services and expensive equipment at our facilities may be subject to state laws that require prior approval by state regulatory agencies. These certificate of need laws generally require that a state agency determine the public need and give approval prior to the construction or acquisition of facilities or the addition of new services. We operate a hospital in the State of Kentucky which has adopted certificate of need laws. If we fail to obtain necessary state approval, we will not be able to expand our facilities, complete acquisitions or add new services at our facilities in these states. Violation of these state laws may result in the imposition of civil sanctions or the revocation of hospital licenses. All other states in which we operate do not require a certificate of need prior to the initiation of new healthcare services. In these other states, our facilities are subject to competition from other providers who may choose to enter the market by developing new facilities or services.

HIPAA Transaction, Privacy and Security Requirements. Federal regulations issued pursuant to HIPAA contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The Federal regulations are intended to protect the privacy of healthcare information and encourage electronic commerce in the healthcare industry.

Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by DHHS when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, healthcare payment and remittance advice and health claim status. We have implemented or upgraded, or are in the process of upgrading, computer systems utilizing a third party vendor, as appropriate, at our facilities and at our corporate headquarters to comply with the new transaction and code set regulations and have tested these systems with several of our payors.

HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and healthcare providers to be used in connection with the standard electronic transactions. DHHS published on January 23, 2004 the final rule establishing the standard for the unique health identifier for healthcare providers. All healthcare providers, including our facilities, were required to obtain a new National Provider Identifier to be used in standard transactions instead of other numerical identifiers beginning no later than May 23, 2007.

HIPAA regulations also require our facilities to comply with standards to protect the confidentiality, availability and integrity of patient health information, by establishing and maintaining reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. The security standards were designed to protect electronic information against reasonably anticipated threats or hazards to the security or integrity of the information and to protect the information against unauthorized use or disclosure. We expect that the security

standards will require our facilities to implement business procedures and training programs, though the regulations do not mandate use of a specific technology.

DHHS has also established standards for the privacy of individually identifiable health information. These privacy standards apply to all health plans, all healthcare clearinghouses and healthcare providers, such as our facilities, that transmit health information in an electronic form in connection with standard transactions, and apply to individually identifiable information held or disclosed by a covered entity in any form. These standards impose extensive administrative requirements on our facilities and require compliance with rules governing the use and disclosure of this health information, and they require our facilities to impose these rules, by contract, on any business associate to whom we disclose such information in order for them to perform functions on our facilities’ behalf. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary by state and could impose additional penalties. Compliance with these standards requires significant commitment and action by us.

Patient Safety and Quality Improvement Act of 2005. On July 29, 2005, the President signed the Patient Safety and Quality Improvement Act of 2005, which has the goal of reducing medical errors and increasing patient safety. This legislation establishes a confidential reporting structure in which providers can voluntarily report “Patient Safety Work Product” (“PSWP”) to “Patient Safety Organizations” (“PSOs”). Under the system, PSWP is made privileged, confidential and legally protected from disclosure. PSWP does not include medical, discharge or billing records or any other original patient or provider records but does include information gathered specifically in connection with the reporting of medical errors and improving patient safety. This legislation does not preempt state or Federal mandatory disclosure laws concerning information that does not constitute PSWP. PSOs will be certified by the Secretary of the DHHS for three-year periods after the Secretary develops applicable certification criteria. PSOs will analyze PSWP, provide feedback to providers and may report non-identifiable PSWP to a database. In addition, PSOs are expected to generate patient safety improvement strategies. We will monitor the progress of these voluntary reporting programs and we anticipate that we will participate in some form when the details are available.

Medical Malpractice Tort Law Reform. Medical malpractice tort law has historically been maintained at the state level. All states have laws governing medical liability lawsuits. Over half of the states have limits on damages awards. Almost all states have eliminated joint and several liability in malpractice lawsuits, and many states have established limits on attorney fees. In 2006, most states had bills introduced in their legislative sessions to address medical malpractice tort reform. Proposed solutions include enacting limits on non-economic damages, malpractice insurance reform, and gathering lawsuit claims data from malpractice insurance companies and the courts for the purpose of assessing the connection between malpractice settlements and premium rates. Reform legislation has also been proposed, but not adopted, at the Federal level that could preempt additional state legislation in this area.

Environmental Regulation. Our healthcare operations generate medical waste that must be disposed of in compliance with Federal, state and local environmental laws, rules and regulations. Our operations, as well as our purchases and sales of healthcare facilities, are also subject to compliance with various other environmental laws, rules and regulations. Such compliance costs are not significant and we do not anticipate that such compliance costs will be significant in the future.

Sources of Revenue

Healthcare Services

Hospital revenues depend upon inpatient occupancy levels, the medical and ancillary services ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or payment rates for such services. Charges and reimbursement rates for inpatient services vary significantly depending on the type of service (e.g., medical/surgical, or psychiatric) and the geographic location of the hospital. Inpatient occupancy levels fluctuate for various reasons, many of which are beyond our control.

We receive payment for patient services from the Federal government primarily under the Medicare program, state governments under their respective Medicaid or similar programs, managed care plans, private insurers and directly from patients.

Medicare is a Federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. Medicaid is a Federal-state program, administered by the states, which provides hospital and medical benefits to qualifying individuals who are unable to afford health care. All of our general acute care hospitals located in the United States are certified as health care services providers for persons covered under Medicare and Medicaid programs. Amounts received under Medicare and Medicaid programs are generally significantly less than established hospital gross charges for the services provided.

Our hospitals generally offer discounts from established charges to certain group purchasers of health care services, including private insurance companies, employers, HMOs, PPOs and other managed care plans. These discount programs limit our ability to increase revenues in response to increasing costs. Patients are generally not responsible for the total difference between established hospital

gross charges and amounts reimbursed for such services under Medicare, Medicaid, HMOs or PPOs and other managed care plans, but are responsible to the extent of any exclusions, deductibles or coinsurance features of their coverage.



	*Medicare*

Medicare provides hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. All of our hospitals are currently certified as providers of Medicare services. Amounts received under the Medicare program generally are often significantly less than the hospital’s customary charges for the services provided.

With the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), which was signed into law on December 8, 2003, Congress passed sweeping changes to the Medicare program. This legislation offers a prescription drug benefit for Medicare beneficiaries and also provides a number of benefits to hospitals, particularly rural hospitals. The Deficit Reduction Act of 2005 (the “DRA”), which was signed into law on February 6, 2006, includes measures related to specialty hospitals, quality reporting and pay-for-performance, the inpatient rehabilitation 75% Rule and Medicaid cuts. The Medicare, Medicaid and SCHIP Extension Act of 2007 (the “Extension Act”) was signed into law on December 29, 2007, and affects physician payments and rehabilitation services. Additionally, CMS has continued to implement changes to various Medicare payment methodologies. The major hospital provisions of MMA, DRA and the Extension Act are discussed in the subsections below.

Payments from Medicare for inpatient hospital services are generally made under the prospective payment system, commonly known as “PPS.” Under PPS, our hospitals are paid a prospectively determined amount for each hospital discharge based on the patient’s diagnosis. Specifically, each diagnosis is assigned a diagnosis related group, commonly known as a “DRG.” Each DRG is assigned a payment rate that is prospectively set using national average resources used per case for treating a patient with a particular diagnosis. DRG payments do not consider the actual resources incurred by an individual hospital in providing a particular inpatient service. This DRG assignment also affects the prospectively determined capital rate paid with each DRG.

The DRG rates are adjusted by an update factor each federal fiscal year (“FFY”), which begins on October 1. The index used to adjust the DRG rates, known as the “hospital market basket index,” gives consideration to the inflation experienced by hospitals in purchasing goods and services. The DRG rates that became effective on October 1, 2005, October 1, 2006 and October 1, 2007 were increased by 3.7%, 3.4% and 3.3%, respectively. Generally, however, the percentage increases in the DRG payments have been lower than the projected increase in the cost of goods and services purchased by hospitals.

On August 1, 2007, CMS issued its hospital inpatient prospective payment system final rule for FFY 2008. Among other things, the final rule creates 745 new severity-adjusted diagnosis-related groups (“Medicare Severity DRGs” or “MS-DRGs”) to replace Medicare’s current 538 DRGs. Under the final rule, the new MS-DRGs will be phased in over a two year period. In addition, the final rule also provides for a market basket increase of 3.3% in fiscal year 2008 for hospitals that report certain patient care quality measures and an increase of 1.3% for hospitals that do not submit this information. However, to offset the effect of the coding and discharge classification changes that CMS believes will occur as hospitals implement the MS-DRG system, the final rule also reduces Medicare payments to hospitals by 1.2% in FFY 2008 and 1.8% in both FFY 2009 and 2010. Subsequently, on September 29, 2007, President Bush signed Public Law No: 110-90, effectively decreasing these reductions for FFY 2008 and 2009 to 0.6% and 0.9%. CMS plans to conduct a “look-back” beginning in FFY 2010 and make appropriate changes to the reduction percentages based on actual claims data. CMS anticipates that the final rule will result in an increase in payments to hospitals that serve more severely ill patients and a decrease to hospitals that serve patients who are less severely ill.

Beginning in FFY 2007, DRA expanded quality reporting requirements to include additional measures and increased the reduction to the market basket to 2.0% from 0.4% for hospitals that do not report all the required data or withdraw from the program. Reductions to a non-participating hospital’s rate will apply only to the fiscal year involved. If the hospital subsequently joins the program, the prior reduction will not be taken into account in computing the update for that fiscal year. MMA and DRA restrict the application of these provisions to hospitals paid under the Inpatient PPS. The provisions do not apply to hospitals and hospital units excluded from the inpatient PPS.

MMA also made a permanent 1.6% increase in the base DRG payment rate for rural hospitals and urban hospitals in smaller metropolitan areas. In addition, MMA provided for payment relief to the wage index component of the base DRG rate. Effective October 1, 2004, MMA lowered the percentage of the DRG subject to a wage adjustment from 71% to 62% for hospitals in areas with a wage index below the national average. Several provisions will continue to affect the FFY 2008 standardized amounts including a full market basket adjusted rate for hospitals’ reporting of quality data as part of the CMS Hospital Quality Initiative and the reduction of the labor share to 62% for hospitals with a wage index below the national average. In addition, effective October 1, 2005, CMS reduced the labor-related share of the wage index from 71.1% to 69.7% for hospitals in areas with a wage index greater than the national average.

In addition, hospitals may qualify for Medicare disproportionate share payments when their percentage of low income patients exceeds specified regulatory thresholds. All of our hospitals qualify to receive Medicare disproportionate share payments. With

regards to the Medicare disproportionate share payments, these payments were increased by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, effective April 1, 2004.

We receive Medicare reimbursement for outpatient services through a PPS. Under the Balanced Budget Refinement Act of 1999, non-urban hospitals with 100 beds or less were held harmless through December 31, 2004 under this Medicare outpatient PPS. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 extended the hold harmless provision for non-urban hospitals with 100 beds or less and for non-urban sole community hospitals with more than 100 beds through December 31, 2005. The DRA extended the hold harmless provision for non-urban hospitals with 100 beds or less that are not sole community hospitals through December 31, 2008; however, it reduces the amount these hospitals would receive in hold harmless payment by 10% in 2007 and 15% in 2008.



	*Medicaid*

Medicaid programs are funded jointly by the Federal government and the states and are administered by states under approved plans. Most state Medicaid program payments are made under a PPS or are based on negotiated payment levels with individual hospitals. Medicaid reimbursement is often less than a hospital’s cost of services. The Federal government and many states are currently considering altering the level of Medicaid funding (including upper payment limits) or program eligibility that could adversely affect future levels of Medicaid reimbursement received by our hospitals. We can provide no assurance that reductions to Medicaid fundings will not have a material adverse effect on our results of operations.



	*Annual Cost Reports*

All hospitals participating in the Medicare, Medicaid programs, whether paid on a reasonable cost basis or under a PPS, are required to meet certain financial reporting requirements. Federal and, where applicable, state regulations require the submission of annual cost reports covering the revenue, costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.

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 us under these reimbursement programs. These audits often require several years to reach the final determination of amounts due to or from us under these programs. Providers also have rights of appeal, and it is common to contest issues raised in audits of prior years’ reports.



	*Commercial Insurance*

Our hospitals provide services to individuals covered by private healthcare insurance. Private insurance carriers pay our hospitals or in some cases reimburse their policyholders based upon the hospital’s established charges and the coverage provided in the insurance policy. Commercial insurers are trying to limit the costs of hospital services by negotiating discounts, including PPS, which would reduce payments by commercial insurers to our hospitals. Reductions in payments for services provided by our hospitals to individuals covered by commercial insurers could adversely affect us.

Risk Factors

Our business, financial condition, results of operations and prospects, and the prevailing market prices and performance of our common stock may be adversely affected by a number of factors, including, but not limited to, the matters discussed below.


	*Our Potential Inability to Implement Our Growth Strategy May Negatively Affect Our Operations*

Our business strategy focuses on growing revenue and operations primarily through acquisitions of various businesses. The success of our growth strategy will depend on a number of factors including our ability to:

assess the value, strengths and weaknesses of acquisition candidates;

evaluate the costs and projected returns of integrating our operations;

promptly and successfully integrate acquired businesses with existing operations; and

obtain financing to support this growth.

If we fail to successfully implement our growth strategy, our operations may negatively be impacted due to a higher cost structure resulting from our inability to leverage economies of scale and our inability to raise financing to sustain fluctuations in working capital.


	*We May Not Be Able To Identify Suitable Acquisition Candidates For Our Business*

If we are not able to identify suitable acquisition candidates or if acquisitions of suitable candidates are prohibitively expensive, we may be forced to alter our growth strategy. Our growth strategy may affect short-term cash flow and net income as we increase our indebtedness and incur additional expenses. As a result, our operating results may fluctuate and our growth strategy may not result in improving our profitability. If we fail to implement our growth strategy successfully, the market price of our common stock may decline.


	*Continued Net Losses and Working Capital Deficits Could Hinder Our Growth Strategy*

We have experienced losses during our two most recent fiscal years. Our net loss for year ended December 31, 2007 was $6.554 million and we had a working capital deficit of $1.660 million. If we continue to incur net losses in future periods and we continue to maintain a working capital deficit, we may not be able to implement our growth strategy in accordance with our present plans and our stock price may decline.


	*The Demands on Our Resources Due to Potential Growth May Negatively Impact our Operations*

Our anticipated growth could place significant demands on our managerial, operational and financial resources. These demands are due to our plans to:

acquire and integrate new businesses;

increase the number of our employees;

expand the scope of our operating and financial systems;

broaden the geographic area of our operations;

increase the complexity of our operations;

increase the level of responsibility of management personnel; and

continue to train and manage our employee base.

Our managerial, operational and financial resources, now and in the future, may not be adequate to meet the demands resulting from our expected growth. As a result of these demands, our operations may suffer.


	*We Need to Improve Our Information Systems or Our Operations Would Suffer*

We will need to make improvements to our information system and integrate information systems as a result of our current acquisitions and from potential future acquisitions. We need to acquire an enterprise-wide information system that will provide for uniform accounting. We also need to hire more accounting and information systems personnel. We may experience delays, disruptions and unanticipated expenses in implementing, integrating and operating our information systems. Failure to fully integrate and enhance our current and future information system or hire additional personnel could have a material adverse effect on our business, financial condition, results of operation and growth prospects by increasing our time to gather financial information and make business strategy and managerial decisions based upon the information.


	*We May Have Difficulties Integrating Acquired Businesses with Our Company which Could Harm Our Operations*

Until we complete and install our information system, we will use and depend upon the information and operating systems of our acquired entities. We have not been able to efficiently combine our operations with those we currently have without encountering difficulties. These difficulties result from having different and potentially incompatible operating practices, computers or other information systems. By consolidating personnel with different business backgrounds and corporate cultures into one company, we experience additional difficulties in gathering financial information. As a result, we may not be able to make business strategy and managerial decisions based upon the information.


	*We May Incur Unexpected Liabilities When We Acquire Businesses*

During the acquisition process, we may not discover some of the liabilities of the businesses we acquire. These liabilities may result from a prior owner’s non-compliance with applicable Federal, state or local laws. For example, we may be liable for the prior owner’s failure to pay taxes or comply with environmental regulations. Environmental liabilities could arise regardless of whether we own or lease our properties. While we will try to minimize our potential exposure by conducting investigations during the acquisition process, we will not be able to identify all existing or potential liabilities.


	*Without Additional Capital We Will Not Be Able to Grow*

Our ability to remain competitive, sustain our expected growth and expand our operations largely depends on our access to capital. We anticipate making numerous acquisitions of various businesses, which will require capital for the acquisition and ongoing expenditures. We also expect to make expenditures to continue integrating the acquired businesses with our existing businesses. In addition, to execute our growth strategy and meet our capital needs, we may issue additional equity securities as part of the purchase price of future acquisitions, which may have a dilutive effect on the interests of our shareholders. Additional capital may not be available on terms acceptable to us. Our failure to obtain sufficient additional capital could curtail or alter our growth strategy or delay capital expenditures.


	*Our Failure To Repay Convertible Debentures May Result In A Change Of Control*

Our ability to repay the convertible debentures is dependent upon our successful execution of our business strategy. If we do not successfully execute our business strategy, we may be unable to generate sufficient funds to repay certain convertible debentures upon maturity. If we are unable to repay certain convertible debentures, YA Global Investments, L.P. (“YA Global”) will be able to convert the outstanding principal balance into a significant amount of shares of our common stock. This amount will be enough for YA Global to assume control of the Company. If YA Global assumes control of the Company, they may choose to liquidate the operations and divest the Company of all of its operating assets in order to satisfy the outstanding principal balance and related interest.


	*Our Healthcare Revenues May Decline if Federal or State Medicare or Medicaid Programs or Commercial Insurance Providers Reduce Our Reimbursements*

In recent years, Federal and state governments made significant changes in the Medicare and Medicaid programs. Congress and some state legislators have introduced an increasing number of proposals to make major changes in the healthcare system. Medicare reform is again expected to be considered by Congress in the near future. Accordingly, future Federal and state legislation may further reduce the payments we receive for our services. Further, a number of states have incurred budget deficits and adopted legislation designed to reduce their Medicaid expenditures and to provide universal coverage and additional coverage to their residents. Some states propose to impose additional taxes on healthcare facilities to help finance or expand the various state Medicaid systems. Furthermore, insurance companies and other third parties from whom we receive payment for our services have increasingly attempted to control healthcare costs by requiring healthcare facilities to discount their fees in exchange for preferred participation in their benefit plans. We believe this trend may continue and may reduce the payments we receive for our services. As a result, our healthcare revenue could decrease.


	*We May Be Subject to Allegations That We Failed to Comply With Governmental Regulation With Respect to Our Healthcare Facilities, which Could Result in Significant Expenses or Penalties*

We are subject to many laws and regulations at the Federal, state and local government levels in our medical services division. These laws and regulations require us to meet various requirements for our healthcare facilities, including those relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, billing and cost reports, payment for services and supplies, maintenance of adequate records, privacy, compliance with building codes and environmental protection. Our healthcare facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. We believe that our healthcare facilities are properly licensed under applicable state laws and are in compliance with current applicable Federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services. If we fail to comply with applicable laws and regulations regarding, certification and accreditation, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in the Medicare, Medicaid and other Federal and state healthcare programs.


	*We May Be Subject To Allegations That Our Healthcare Facilities Failed To Comply With “Anti-Kickback Statute” Provisions, Which Could Result In Significant Expenses Or Penalties*

A section of the Social Security Act known as the “Anti-kickback Statute” prohibits healthcare providers and others from directly or indirectly soliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders for services or items covered by a Federal health care program. Courts have interpreted this statute broadly. Violations of the Anti-kickback Statute may be punished by a criminal fine of up to $25,000 for each violation or imprisonment, civil money penalties of up to $50,000 per violation and damages of up to three (3) times the total amount of the remuneration and/or exclusion from participation in Federal health care programs, including Medicare and Medicaid.

The Office of Inspector General at HHS (OIG), among other regulatory agencies, is responsible for identifying and eliminating fraud, abuse and waste. The OIG carries out this mission through a nationwide program of audits, investigations and inspections. As one means of providing guidance to health care providers, the OIG issues “Special Fraud Alerts”. These alerts do not have the force of law, but identify features of arrangements or transactions that may indicate that the arrangements or transactions violate the Anti-kickback Statute or other Federal health care laws. The OIG has identified several incentive arrangements, which, if accompanied by inappropriate intent, constitute suspect practices, including: (a) payment of any incentive by the hospital each time a physician refers a patient to the hospital, (b) the use of free or significantly discounted office space or equipment in facilities usually located close to the hospital, (c) provision of free or significantly discounted billing, nursing or other staff services, (d) free training for a physician’s office staff in areas such as management techniques and laboratory techniques, (e) guarantees which provide that, if the physician’s income fails to reach a predetermined level, the hospital will pay any portion of the remainder, (f) low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital, (g) payment of the costs of a physician’s travel and expenses for conferences, (h) coverage on the hospital’s group health insurance plans at an inappropriately low cost to the physician, (i) payment for services (which may include consultations at the hospital) which require few, if any, substantive duties by the physician, (j) purchasing goods or services from physicians at prices in excess of their fair market value, (k) rental of space in physician offices, at other than fair market value terms, by persons or entities to which physicians refer, and (l) certain “gainsharing” arrangements, i.e., the practice of giving physicians a share of any reduction in a hospital’s costs for patient care attributable in part to the physician’s efforts. The OIG has encouraged persons having information about hospitals who offer the above types of incentives to physicians to report such information to the OIG.

The OIG also issues “Special Advisory Bulletins” as a means of providing guidance to health care providers. These bulletins, along with the “Special Fraud Alerts” have focused on certain arrangements that could be subject to heightened scrutiny by government enforcement authorities, including contractual joint venture arrangements and other joint venture arrangements between those in a position to refer business, such as physicians, and those providing items or services for which Medicare or Medicaid pays.

In addition to issuing fraud alerts and special advisory bulletins, the OIG from time to time issues compliance program guidance for certain types of health care providers. In January 2005, the OIG published Supplemental Compliance Guidance for Hospitals, supplementing its 1998 guidance for the hospital industry. In the supplemental guidance, the OIG identifies a number of risk areas under Federal fraud and abuse statutes and regulations. These areas of risk include compensation arrangements with physicians, recruitment arrangements with physicians and joint venture relationships with physicians.

As authorized by Congress, the OIG has published safe harbor regulations that outline categories of activities that are deemed protected from prosecution under the Anti-kickback Statute. Currently, there are statutory exceptions and safe harbors for various activities, including the following: investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, group purchasing organizations, waiver of beneficiary coinsurance and deductible amounts, managed care arrangements, obstetrical malpractice insurance subsidies, investments in group practices, freestanding surgery centers, ambulance replenishing, and referral agreements for specialty services. The fact that conduct or a business arrangement does not fall within a safe harbor, or that it is identified in a fraud alert or as a risk area in the Supplemental Compliance Guidelines for Hospitals, does not automatically render the conduct or business arrangement illegal under the Anti-kickback Statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities. Although the Company believes that its arrangements with physicians have been structured to comply with current law and available interpretations, there can be no assurance that regulatory authorities enforcing these laws will determine these financial arrangements do not violate the Anti-kickback Statute or other applicable laws. An adverse determination could subject the Company to liabilities under the Social Security Act, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other Federal health care programs.


	*We May Be Subject to Actions Brought by Individuals on the Government’s Behalf Under the False Claims Act’s “Qui Tam” Provisions*

The “Qui Tam” or “whistleblower” provisions allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the Federal government. Claims against our healthcare facilities that may be alleged under the False Claims Act include, but are not limited to, inflated charges, submitting claims not eligible for reimbursement and submitting claims for unnecessary medical procedures. Defendants determined to be liable under the False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false

claim. There are many potential bases for liability under the False Claims Act. Liability often arises when an entity knowingly submits a false claim for reimbursement to the Federal government. The False Claims Act defines the term “knowingly” broadly. Although simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard to its truth or falsity constitutes a “knowing” submission under the False Claims Act and, therefore, will qualify for liability. In some cases, whistleblowers or the Federal government have taken the position that providers who allegedly have violated other statutes, such as the anti-kickback statute and the Stark Law, have thereby submitted false claims under the False Claims Act. These laws may also contain safe harbor provisions that describe some of the conduct and business relationships that are immune from prosecution. Some of our business arrangements may not fall within the safe harbors. This does not automatically render our arrangements illegal. However, we may be subject to scrutiny by enforcement authorities who may determine that our business arrangements are not in compliance. In addition, a number of states have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit in state court. Currently, we are not subject to these provisions. However, in the future, if these types of claims were brought forth, it could adversely affect our operations, even if ultimately proven to be without merit, as time and expense would be incurred to defend such actions.


	*If We Become Subject to Medical Malpractice and Related Legal Claims, We Could Be Required to Pay Significant Damages, Which May Not Be Covered By Insurance*

We may be subject to medical malpractice lawsuits and other claims related to our medical division. We currently maintain coverage in excess of $1 million. However, it is possible that there may be successful claims against us in the future for amounts which exceed those set forth in the coverage amounts. This could have an adverse effect on our financial condition. Furthermore, we may not be able to obtain adequate insurance coverage with acceptable deductible amounts at a reasonable cost.


	*If We Fail to Effectively Recruit and Retain Physicians, Nurses and Medical Technicians, Our Ability to Deliver Healthcare Services Efficiently Will Suffer*

Our success in the medical division, in part, depends on the number and quality of physicians on our staff as well as the maintenance of good relations with these physicians. We generally do not employ physicians. Furthermore, there is a shortage of specialty care physicians, nurses and certain medical technicians. As a result, our healthcare facilities may be forced to hire expensive contract personnel if they are unable to recruit and retain full-time employees. This shortage of specialty care physicians, nurses and medical technicians will continue to affect our ability to deliver healthcare services efficiently.


	*Our Revenue is Concentrated Geographically which Subjects the Company to Regional Risks*

Our revenue is heavily concentrated in Kentucky, Louisiana and Georgia, which makes us particularly sensitive to regulatory and economic changes in those states. Our revenue primarily consists of reimbursements from private insurance companies, Medicare and the state Medicaid programs. Our percentage of revenue in Kentucky for year ended December 31, 2007 was 48.64%. Our percentage of revenue in Georgia for year ended December 31, 2007 was 28.28%. Our percentage of revenue in Louisiana for year ended December 31, 2007 was 23.08%. We plan to acquire additional facilities in various states. Additionally, legislation and financial difficulties faced by various states can reduce our reimbursement. We cannot predict with accuracy which legislation will pass. Additionally, various state Medicaid programs are in various stages of financial difficulties and can result in lower reimbursement and correspondingly lower revenues. Accordingly, if such legislation passed, and financial difficulties of the various state Medicaid programs remain unresolved, this could have a material adverse effect on our business, financial condition, results of operation and growth prospects.


	*We May Have Difficulty Acquiring Healthcare Facilities on Favorable Terms*

The main element of our business strategy in our medical division is expansion through the acquisition of healthcare facilities. We may face significant competition to acquire strategic healthcare facilities at terms favorable to us. We may also incur or assume indebtedness as a result of the consummation of any acquisition. Our failure to acquire strategic healthcare facilities consistent with our growth plan could have a material adverse effect on our business, financial condition, results of operation and growth prospects.


	*We May Have Difficulty Acquiring Healthcare Facilities Due to Governmental Regulations*

Many states, including Kentucky, have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In other states that do not have such legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets. These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller. These reviews and, in some instances, approval processes can add additional time to the closing of a not-for-profit hospital acquisition. Future actions by state legislators or attorneys general may seriously delay or even prevent our ability to acquire certain hospitals.


	*Certificate of Need Laws and Licensing Regulations May Prohibit or Limit Any Future Expansion By Us In Some States*

Some states, including Kentucky, where we currently operate an acute care facility, require prior approval for the purchase, construction and expansion of healthcare facilities, based on a state’s determination of need for additional or expanded healthcare facilities or services. We may not be able to obtain certificates of need required for expansion activities in the future. If we fail to obtain any required certificate of need or licenses, our ability to operate or expand our medical services division could be impaired.


	*We May Experience Significant Compliance Issues Under HIPAA’s Transaction, Privacy and Security Requirements*

Federal regulations issued pursuant to HIPAA contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The Federal regulations are intended to encourage electronic commerce in the healthcare industry.

Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by the Department of Health and Human Services (“DHHS”) when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, health care payment and remittance advice and health claim status. HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and health care providers to be used in connection with the standard electronic transactions. All healthcare providers will be required to obtain a new National Provider Identifier (“NPI”) to be used in standard transactions instead of other numerical identifiers. On January 23, 2004, the DHHS published the final Standard Unique Health Identifier Rule for Health Care Providers. The Final Rule establishes a standard for assigning a unique health care provider identifier, or an NPI, and promulgates implementation specifications to guide health care providers in obtaining and using the NPI. We are currently in compliance with these regulations.

DHHS has also established standards for the privacy of individually identifiable health information. These privacy standards apply to all health plans, all health care clearinghouses and health care providers, such as our facilities, that transmit health information in an electronic form in connection with standard transactions, and apply to individually identifiable information held or disclosed by a covered entity in any form. These standards impose extensive administrative requirements on our facilities and require compliance with rules governing the use and disclosure of this health information, and they require our facilities to impose these rules, by contract, on any business associate to whom we disclose such information in order to perform functions on their behalf. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary by state and could impose additional penalties.

A violation of the HIPAA regulations could result in civil money penalties of $100 per incident, up to a maximum of $25,000 per person per year per standard. HIPAA also provides for criminal penalties of up to $50,000 and one year in prison for knowingly and improperly obtaining or disclosing protected health information, up to $100,000 and five years in prison for obtaining protected health information under false pretenses, and up to $250,000 and ten years in prison for obtaining or disclosing protected health information with the intent to sell, transfer or use such information for commercial advantage, personal gain or malicious harm. Since there is no significant history of enforcement efforts by the Federal government at this time, it is not possible to ascertain the likelihood of enforcement efforts in connection with the HIPAA regulations or the potential for fines and penalties, which may result from the violation of the regulations.

Compliance with these standards requires significant commitment and action by us and our facilities. Because some of the HIPAA regulations are proposed regulations, we cannot predict the total financial impact of the regulations on our operations.


	*Any Increase In Our Indebtedness May Limit Our Ability to Successfully Run Our Business*

We may engage in discussions with various financial institutions in the future to secure credit facilities in order to execute our growth strategy. These credit facilities may contain restrictive covenants that may limit our ability to finance future acquisitions and other expansion of our operations. These covenants may also require us to achieve and/or maintain specific financial ratios. Accordingly, our ability to respond to changing business and economic conditions may be significantly restricted by these covenants should we obtain such credit facilities. Furthermore, the restrictive covenants on these credit facilities may prevent us from engaging in transactions including acquisitions that are important to our growth strategy. These restrictions and requirements could have important consequences to our shareholders, including the following:

make us more vulnerable to economic downturns and to adverse changes in business conditions;

limit our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;

require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, reducing the funds available for our operations;

make us vulnerable to increases in interest rates should our bank credit agreement be at a variable rate of interest; and

require us to repay the indebtedness immediately if we default on any of the numerous financial and other restrictive covenants, including restrictions on our payments of dividends, limitation on our ability to incur of indebtedness and sale of assets.

Any substantial increase in our debt levels could also affect our ability to borrow funds at favorable interest rates and our future operating cash flow.


	*Other Healthcare Facilities May Provide Similar Healthcare Services, Which May Raise The Level of Competition Faced by Our Healthcare Facilities*

Competition among healthcare facilities has intensified in recent years. The healthcare industry with respect to hospitals is limited to few competitors due to the high barriers of entry resulting from governmental regulations and its capital intensive nature. Our hospitals generally have no competing hospital in the surrounding vicinity. However, more recently, hospitals have been facing increasing competition from smaller providers who are not hospitals. Specifically, we face competition from urgent care centers and other specialized care providers, including but not limited to physical therapy and diagnostic centers. We may not be able to successfully compete with all of our competitors, especially with those competitors that are larger and have greater resources. Furthermore, the presence of smaller providers may result in lower revenues which may have a material adverse effect on our business, financial condition, results of operation and growth prospects.


	*Our Executive Officers Have Limited Industry Experience, But Our Success Depends on Such Persons*

Some of our directors and executive officers have limited or no significant experience in the healthcare and transportation/logistics industries. Specifically, our Chief Executive Officer (Rainier Gonzalez) and Chief Financial Officer (John Chi) have limited healthcare and transportation/logistics industry experience while our Chief Operating Officer has limited transportation/logistics experience. Since our officers set forth the business strategy of the Company and make significant managerial decisions, our success will depend on their ability to set forth a viable and successful strategy and execute successful managerial decisions. However, our executive officers may not ultimately be successful in the healthcare and transportation/logistics industry since certain officers have limited or no healthcare and transportation/logistics industry experience. In addition, we believe that our success will depend to a significant extent upon the efforts and abilities of the management of companies that we acquire.


	*We Depend Heavily on Senior Management and Therefore the Loss of Such Persons Could Adversely Affect Our Business*

We believe that our success will depend to a significant extent upon the efforts and abilities of our Chairman and Chief Executive Officer, Rainier Gonzalez, and other members of current senior management, specifically John Chi and John Vincent, and the senior management of the companies we acquire. Our current employment agreement with Mr. Gonzalez will terminate on August 31, 2008. Our current employment agreement with Mr. Chi will terminate on July 4, 2008 and with Mr. Vincent on December 31, 2008. We do not have key person life insurance policies covering any of our employees. We will likely also depend on the senior management of any significant business that we acquire in the future. If we lose the services of one or more of these key employees before we are able to attract qualified replacement personnel, our business could be adversely affected.


	*Our Significant Stockholder Is Also Our Chief Executive Officer, and He Alone Is Able to Influence Corporate Action*

As a result of his stock ownership and board representation, Rainier Gonzalez, who is also our Chief Executive Officer and Chairman of the Board of Directors, is in a position to influence our corporate actions in a manner that could conflict with the interests of our other stockholders, including but not limited to mergers/takeovers with other companies, dividend policies, stock splits and repurchases of stock. Mr. Gonzalez owns 430,422,903 shares of our common stock, which is 72.6% of the 592,799,337 outstanding shares of our common stock on April 15, 2008.


	*Our Stock Price May Be Volatile*

The market price for our common stock has been volatile and may be affected by a number of factors, including the announcement of acquisitions or other developments by us or our competitors, quarterly variations in our or other healthcare industry participants’ results of operations, changes in earnings estimates or recommendations by securities analysts, developments in the healthcare industry, sales of a substantial number of shares of our common stock in the public market, general market conditions, general economic conditions and other factors. Some of these factors may be beyond our control or may be unrelated to our results of operations or financial condition. Such factors may lead to further volatility in the market price of our common stock.


	*Shares Eligible For Future Sale May Have a Depressing Affect on Our Stock Price*

We have a substantial number of authorized but unissued shares (337,200,663 shares) of our common stock. We expect to issue additional shares of our common stock as part of the purchase price for future acquisitions. We have issued to our employees, officers and directors restricted shares of our common stock. These shares may be resold under Rule 144. Currently, we have 454,607,449 shares of restricted stock issued to employees, officers and directors of which 10,612,350 will become unrestricted on December 31, 2008 and 7,470,528 will become unrestricted on December 31, 2009.


	*Our Common Stock Qualifies As A “Penny Stock” Under SEC Rules Which May Make It More Difficult For Our Stockholders To Resell Their Shares Of Our Common Stock*

The holders of our common stock may find it more difficult to obtain accurate quotations concerning the market value of the stock. Stockholders also may experience greater difficulties in attempting to sell the stock than if it were listed on a stock exchange or quoted on the NASDAQ National Market or the NASDAQ Small-Cap Market. Because our common stock does not trade on a stock exchange or on the NASDAQ National Market or the NASDAQ Small-Cap Market, and the market price of our common stock is less than $5.00 per share, our common stock qualifies as a “penny stock”. SEC Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an “established customer” or an “accredited investor”. This includes the requirement that a broker-dealer must make a determination on the appropriateness of investments in penny stocks for the customer and must make special disclosures to the customer concerning the risks of penny stocks. Application of the penny stock rules to our common stock affects the market liquidity of the shares, which in turn may affect the ability of holders of our common stock to resell the stock.


	*Only A Small Portion Of The Investment Community Will Purchase “Penny Stocks” Such As Our Common Stock*

Our common stock is defined by the SEC as a “penny stock” because it trades at a price less than $5.00 per share. Our common stock also meets most common definitions of a “penny stock” since it trades for less than $1.00 per share. Many brokerage firms will discourage their customers from purchasing penny stocks, and even more brokerage firms will not recommend a penny stock to their customers. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not consider a purchase of a penny stock due, among other things, to the negative reputation that attends the penny stock market. As a result of this widespread disdain for penny stocks, there will be a limited market for our common stock as long as it remains a “penny stock”. This situation may limit the liquidity of your shares.


ITEM 2.	DESCRIPTION OF PROPERTY

Our corporate headquarters are located in leased premises at 7759 NW 146^th Street, Miami Lakes, Florida 33016. As of December 31, 2007, we leased the real estate for a psychiatric hospital in Lake Charles, Louisiana; acute care hospital in Cameron, Louisiana; and the hospital in Barbourville, Kentucky. We consider these facilities to be in good operating condition and suitable for their current use. We do not expect that we will need to make significant capital expenditures on these facilities in the near future.


ITEM 3.	LEGAL PROCEEDINGS

Sharon K. Postell v. Greene County Hospital Authority d/b/a Minnie G. Boswell Memorial Hospital, Pacer Health Management Corporation of Georgia, Inc., and Anita Brown, in Her Individual Capacity

The Company has been named as a co-defendant in a lawsuit initiated by Plaintiff Sharon K. Postell on August 19, 2005. Plaintiff alleges that the Company discriminated against her based on her religion in violation of 42 U.S.C. § 1983 and Title VII. Plaintiff also claims that she was retaliated against when she complained about the religious discrimination. The last settlement demand by Plaintiff was for approximately $70,000, which the Company rejected. The case went to trial and the Company prevailed at trial and in the subsequent appeal. Currently, the Company is awaiting the determination by the Court of the awarding of reasonable attorney’s fees.

From time to time we become subject to other proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to medical services provided and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.

The Company is subject to various lawsuits and unasserted claims from patients and service providers. The Company believes that the outcome of these matters, if unfavorable, may be covered by its medical malpractice insurance coverage. Amounts due to vendors have been accrued as of December 31, 2007.

Other than as stated above, there is no current outstanding litigation in which we are involved in other than routine litigation incidental to our ongoing business.


ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company’s shareholders during the fourth quarter ended December 31, 2007.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock began trading on the NASDAQ Over-the-Counter Bulletin Board (the “OTC”) under the symbol “PHLH” on February 20, 2004. Prior to that date, our common stock traded under the symbol “INFE”.

The following table sets forth the average high and low bid prices for the common stock for each calendar quarter and subsequent interim period since January 1, 2006, as reported by the National Quotation Bureau, and represent interdealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions.


	HIGH	LOW
2008:
First Quarter	$0.02	$0.00
2007:
First Quarter	$0.03	$0.01
Second Quarter	$0.02	$0.00
Third Quarter	$0.02	$0.00
Fourth Quarter	$0.01	$0.00
2006:
First Quarter	$0.03	$0.01
Second Quarter	$0.03	$0.02
Third Quarter	$0.03	$0.02
Fourth Quarter	$0.02	$0.01

Pacer presently is authorized to issue 930,000,000 shares of common stock, par value $0.0001 per share. As of April 15, 2008, there were 592,799,337 shares of common stock issued and outstanding.

Pacer is authorized to issue 20,000,000 shares of preferred stock, par value $0.0001 per share, none of which is outstanding. One (1) share of preferred stock was previously designated as Series A Convertible Preferred, which was previously issued to Rainier Gonzalez in 2004 and since converted into 318,822,903 shares of our common stock. All of the other preferred stock is undesignated and may not be designated or issued by our Board of Directors without prior stockholder approval.

Dividends

We have never paid dividends on our common stock and we do not anticipate paying cash dividends in the foreseeable future. We intend to retain future earnings to fund the development and growth of our business. Any payment of dividend in the future will be at the discretions of our Board of Directors and will be dependent upon our earnings, financial condition, capital requirements and other factors deemed relevant by our Board of Directors. Future credit facilities may also restrict our ability to pay dividends in the future.

Stockholders

The number of registered stockholders on December 31, 2007 was 167 based on information furnished to us by our Transfer Agent.

Penny Stock

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Exchange Act. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. Penny stocks are stock:

With a price of less than $5.00 per share;

That are not traded on a “recognized” national exchange;

Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or

In issuers with net tangible assets less than $2 million (if the issuer has been in continuous operation for at least three (3) years) or $10 million (if in continuous operation for less than three (3) years), or with average revenues of less than $6 million for the last three (3) years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.

Transfer Agent

The Company’s Transfer Agent is Computershare Trust Co., Inc., located in Denver, Colorado.

Recent Sales Of Unregistered Securities

During the last three (3) years, Pacer issued the following unregistered securities:


Amount of Shares Issued	Date Issued	Issued To	Price/Purpose
8,000,000	3/8/05	D. Byrns	Price- $0.021 per share (pursuant to an employment agreement)
112,350	5/23/05	GEI Enterprises LLC	Price- $0.02 (per rental agreement)
100,000	6/8/05	M. Llano	Price- $0.03 per share (in accordance with consulting agreement for serving as Interim Vice-President of Finance)
3,000,000	7/5/05	J. Chi	Price- $0.015 per share (pursuant to an employment agreement)
100,000	7/6/05	M. Llano	Price- $0.024 per share (in accordance with consulting agreement for serving as Interim Vice-President of Finance)
50,000	8/11/05	M. Llorente	Price- $0.02 per share (Director’s fees)
50,000	8/11/05	E. Marini	Price- $0.02 per share (Director’s fees)
50,000	8/11/05	A. Jurado	Price- $0.02 per share (Director’s fees)
50,000	8/11/05	E. Pantaleon	Price- $0.02 per share (Director’s fees)
100,000	8/22/05	M. Llano	Price- $0.021 per share (in accordance with consulting agreement for serving as Interim Vice-President of Finance)
66,667	11/10/05	M. Llorente	Price- $0.015 per share (Director’s fees)
66,667	11/10/05	E. Marini	Price- $0.015 per share (Director’s fees)
66,667	11/10/05	A. Jurado	Price- $0.015 per share (Director’s fees)
66,667	11/10/05	E. Pantaleon	Price- $0.015 per share (Director’s fees)
300,000	11/14/05	M. Llano	Price- $0.015 per share (in accordance with consulting agreement for serving as Interim Vice-President of Finance)
3,000,000	11/15/05	T. Vidal	Price- $0.015 per share (pursuant to an employment agreement)


100,000	12/14/05	M. Llano	Price- $0.015 per share (in accordance with consulting agreement for serving as Interim Vice-President of Finance)
100,000	1/9/06	M. Llano	Price- $0.02 per share (in accordance with consulting agreement for serving as Interim Vice-President of Finance)
5,000,000	7/21/06	J. Chi	Price- $0.015 per share (pursuant to an employment agreement)
40,000	8/9/06	M. Llorente	Price- $0.025 per share (Director’s fees)
40,000	8/9/06	E. Marini	Price- $0.025 per share (Director’s fees)
40,000	8/9/06	A. Jurado	Price- $0.025 per share (Director’s fees)
40,000	8/9/06	E. Pantaleon	Price- $0.025 per share (Director’s fees)
2,000,000	9/30/06	T. Vidal	Price- $0.015 per share (pursuant to an employment agreement)
52,632	11/13/06	M. Llorente	Price- $0.019 per share (Director’s fees)
52,632	11/13/06	E. Marini	Price- $0.019 per share (Director’s fees)
52,632	11/13/06	A. Jurado	Price- $0.019 per share (Director’s fees)
52,632	11/13/06	E. Pantaleon	Price- $0.019 per share (Director’s fees)
2,000,000	3/19/07	J. Vincent	Price- $0.02 per share (pursuant to an employment agreement)
50,000	3/19/07	M. Llorente	Price- $0.02 per share (Director’s fees)
50,000	3/19/07	E. Marini	Price- $0.02 per share (Director’s fees)
50,000	3/19/07	A. Jurado	Price- $0.02 per share (Director’s fees)
50,000	3/19/07	E. Pantaleon	Price- $0.02 per share (Director’s fees)
5,769,231	7/9/07	YA Global Investments	Price- $0.013 per share (pursuant to debenture agreement)
200,000	7/25/07	M. Llorente	Price- $0.01 per share (Director’s fees)
200,000	7/25/07	E. Marini	Price- $0.01 per share (Director’s fees)
200,000	7/25/07	A. Jurado	Price- $0.01 per share (Director’s fees)
200,000	7/25/07	E. Pantaleon	Price- $0.01 per share (Director’s fees)
2,000,000	9/7/07	T. Vidal	Price- $0.015 per share (pursuant to an employment agreement)


133,333	11/8/07	M. Llorente	Price- $0.0075 per share (Director’s fees)
133,333	11/8/07	E. Marini	Price- $0.0075 per share (Director’s fees)
133,333	11/8/07	A. Jurado	Price- $0.0075 per share (Director’s fees)
133,333	11/8/07	E. Pantaleon	Price- $0.0075 per share (Director’s fees)
2,000,000	1/9/08	J. Vincent	Price- $0.02 per share (pursuant to an employment agreement)

Equity Compensation Plan Information

As of December 31, 2007, the Company has not adopted a formal equity compensation plan. The Company has issued restricted stock to key individuals in accordance with various consulting and employment agreements.


ITEM 6.	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-Looking Statements and Associated Risks. This Report contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience and (g) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis or Plan of Operation” and “Description of Business” as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.

You should read the following discussion in conjunction with Part I, including matters set forth in the “Risk Factors” section of this Form 10-KSB, and our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-KSB.

Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated Financial Statements in order to maintain consistency and comparability between periods presented.

Overview

Pacer Health Corporation is a diversified holding company with subsidiaries operating in the healthcare services and transportation/logistics services. The Company is aggressively building its existing lines of business through internal growth and acquisitions. During 2008, the Company announced its intention to expand its operations into the transportation/logistics services. The Company is actively seeking to acquire additional companies in its existing and complementary lines of business.

The Company’s transportation/logistics services provides logistics solutions for customers including transportation, warehousing and freight brokerage services. The Company currently intends to expand its operations in this business through acquisitions of transportation/logistics businesses.

As of December 31, 2007, we owned and/or operated the following healthcare facilities:

South Cameron Memorial Hospital, Cameron, LA;

Calcasieu-Oaks Behavioral Center, Lake Charles, LA;

South Cameron Rural Health Clinic, Grand Lakes, LA;

Minnie G. Boswell Memorial Hospital, Greensboro, GA;

Lakeside Medical Center, Greensboro, GA;

Women’s OB/GYN Center, Greensboro, GA; and

Knox County Hospital, Barbourville, KY.

We focus on acquiring financially distressed hospitals, restructuring the operations to attempt to achieve financial viability and consolidate them under the Pacer brand name. We attempt to ensure the financial viability of these healthcare facilities by applying our management experience to restructuring the daily operations. We also design and implement “best practices” across these facilities to ensure quality medical services are provided to our patients.

As a result of the communities we operate in, we continue to provide services to a high volume of indigent and underinsured patients that has increased over prior years. We believe that many factors affect the volume of indigent and underinsured patients, including the economy, inflation, recession or economic slowdown, consumer confidence, unemployment rates, changes in consumers’ health plans, and legislation affecting healthcare. Accordingly, we expect to continue to experience a high level of uncollectible accounts. Our collection efforts have improved, and we continue to focus, where applicable, on placement of patients in various government programs such as Medicaid. However, unless our business mix shifts toward a greater number of insured patients, we anticipate this high level of uncollectible accounts to continue.

Furthermore, labor, agency and supply costs remain a significant cost pressure facing us as well as the industry in general. We have made and continue to make strides in containing labor, agency and supply costs by implementing various cost control programs. However, we expect that maintaining this level of cost control in an environment of increasing volumes of indigent and underinsured patients will continue to be a challenge.

Acquisitions, Sale-Leaseback, Operating Lease and Divestiture

On December 31, 2006, our wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, consummated an agreement with the County of Knox, Kentucky to lease all of the assets and real property used in connection with Knox County Hospital as well as delegating full and complete management responsibility and operational control for the Hospital to the Company. The Company may retain all profits from the operations of the Hospital after satisfying its lease obligations to the County of Knox and maintenance and operations expenses of the Hospital facility. The annual lease payment is equal to the amount of annual payment due by Knox County on its County of Knox, Kentucky Taxable General Obligation Refunding Bonds, Series 2006, after applying the capitalized interest which is to be paid from the proceeds of the Bonds. We estimate the annual payment for 2008 to be approximately $692,265. Additionally, at any time during the term of the Agreement, we have the option to purchase all of the Hospital assets from the County of Knox County and assume all of the liabilities (excluding certain liabilities as defined in the Agreement) for a purchase price equal to the sum of (a) the lesser of: (i) the outstanding principal amount of the Bonds on the closing of such purchase or (ii) what the principal balance of the Bonds would have been if all lease payments and other payments to be made by the Company were used to satisfy the principal and interest due under the Bonds at the date of each such payment plus (b) any prepayment penalties on the Bonds and (c) less any funds then held in any debt service reserve fund, bond fund or any other fund or account in any way pertaining to the Bonds. The term of the Agreement ends on the earlier of (a) the date the refunding bonds are paid in full; or (b) the date the Company exercises its purchase option. The refunding bonds have a term of thirty (30) years. The County of Knox may only terminate the Agreement if (a) the Company does not make the required monthly lease payments or (b) if the Company fails to complete substantial repairs caused by a casualty.

On December 6, 2005, our wholly-owned subsidiary, Pacer Health Holdings of Lafayette, Inc. acquired a majority interest in Southpark Community Hospital, L.L.C. Pacer Sub received a sixty percent (60%) equity position in Southpark and the remaining investors of Southpark reduced their equity position to forty percent (40%) in consideration for an infusion amount up to $2,500,000 over the period of ownership, the exact amount to be reasonably determined by Pacer Sub as necessary to sustain the operations of Southpark. Pacer Sub also assumed a prorated share of the outstanding liabilities and also assumed the position of guarantor, equal to its percentage of ownership, on all notes. Pacer Sub had also agreed to reimburse certain investors who made principal and interest payments on certain third party loans on behalf of Southpark. On September 29, 2006, the Company divested its majority interest for a $3,000,000 note receivable to a third party, which consisted primarily of shareholders of the minority interest. Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured. Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense which is included in discontinued operations for the year ended December 31, 2006.

On September 1, 2005, our wholly-owned subsidiary, Pacer Health Management Corporation of Georgia, completed its asset purchase agreement with the Greene County Hospital Authority to acquire certain assets and assume certain liabilities used in the operation of Minnie G. Boswell Memorial Hospital. The total purchase amount was $1,108,676. On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc.

On March 7, 2008 the Company sold to St Joseph’s Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital for the aggregate purchase price of $3,547,559.71, subject to certain adjustments set forth in the agreement. St. Joseph’s Healthcare System, Inc. also assumed certain liabilities with respect to the operation. Additionally, within thirty (30) calendar days following July 1, 2008, St. Joseph’s Healthcare System, Inc. shall submit to the Company a report identifying the amount of annual subsidy for Minnie G. Boswell Memorial Hospital approved by the Greene County Commission prior to July 1, 2008. Within 10 calendar days following the date that the Annual Subsidy Amount has been determined in accordance with the agreement, St. Joseph’s Healthcare System, Inc. shall pay to the Company an amount equal to 50% of the Annual Subsidy Amount up to $1,500,000.

In March 2007, the Company amended its lease agreement with the Lower Cameron Hospital Service District to provide for the funding of operational losses by the LCHSD through certain grants. These grants will be paid quarterly in 2007 and provide for a payment of $3.5 million in 2007 and $1.2 million, or such lesser amount as may be generated by tax revenues collected by the LCHSD during the then current year, beginning in 2008 through 2017. As of December 31, 2007, the Company has received all of the expected $3.5 million of grants for 2007 and such amount is included in patient revenue for the year ended December 31, 2007. As of April 15, 2008, the Company has received $300,000 of such grants for year ended December 31, 2008.

We intend to expand our regional network through the acquisition of additional financially distressed hospitals. In most cases, we believe that our initial market entry will be through the acquisition of key existing healthcare facilities in a market. We intend to retain the management of well-run facilities to benefit from their knowledge and experience. Smaller facilities may also be acquired in non-strategic locations. We believe that by acquiring existing facilities, we will build our network in a cost-efficient manner.

The net book value of goodwill at December 31, 2007 totaled $1,216,318, which represents 8.74% of the total consolidated assets at that date. We follow the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which require us to complete impairment tests on goodwill as of December 31, 2007. Accordingly, an impairment analysis was performed that resulted in no additional impairment. Goodwill will be tested for impairment annually at December 31 or more frequently when events or circumstances indicate that an impairment may have occurred. However, earnings in future years could be materially adversely affected if management later determines the goodwill balance is impaired.

Critical Accounting Policies And Estimates

General

Management’s Discussion and Analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including but not limited to, those related to contractual allowances on revenues and related patients receivable, bad debt allowance on patients receivable, bad debt allowance on other receivables, valuation of assets acquired and liabilities assumed in acquisitions, valuation of derivatives, valuation and related impairments of goodwill, and other long-lived assets and an estimate of the deferred tax asset valuation allowance. The Company also reviews its goodwill for possible impairment. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Estimates are also based on historical experience within our business and the healthcare and transportation/logistics industry as a whole. Actual results may differ from these estimates under different assumptions or conditions. The estimates and critical accounting policies that are most important in fully understanding and evaluating our financial condition and results of operations include those listed below, as well as our valuation of equity securities used in transactions and for compensation, and our revenue recognition methods for healthcare and transportation/logistics operations.

Healthcare Patient Service Revenue Recognition

In general, the Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition. The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered, or product delivery has occurred, the sales price to the patient is fixed or determinable, and collectability is reasonably assured. The Company also follows the industry specific revenue recognition criteria as delineated in the AICPA Audit and Accounting Guide “Health Care Organizations”.

(i) Hospital Operations

The Company recognizes revenues in the period in which services are performed and billed to the patient or third party payor. Accounts receivable primarily consist of amounts due from third party payors and patients. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the amount expected to be received.

The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from our standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s consolidated statements of operations in the period of the change.

Management has recorded estimates for bad debt losses, which may be sustained in the collection of these receivables. Although estimates with respect to realization of the receivables are based on Management’s knowledge of current events, the Company’s collection history, and actions it may undertake in the future, actual collections may ultimately differ substantially from these estimates. Receivables are written off when all legal actions have been exhausted.

The Company participates in the Louisiana disproportionate share hospital (“DSH”) fund related to uncompensated care provided to a disproportionate percentage of low-income and Medicaid patients. Upon meeting certain qualifications, our facility in Louisiana become eligible to receive additional reimbursement from the fund. The reimbursement amount is determined upon submission of uncompensated care data by all eligible hospitals. Once the reimbursement amount is determined and collectability is reasonably assured, the additional reimbursement is included as revenue under SEC Staff Accounting Bulleting 104.

(ii) Management Services

The Company recognizes management service fees as services are provided.

Patient Accounts Receivable, Allowance for Contractuals, and Allowance for Doubtful Accounts

Patient Accounts Receivable at December 31, 2007 is as follows:


Patient accounts receivable	$	27,411,196
Less: Allowance for doubtful accounts		(13,871,469)
Less: Allowance for contractual discounts		(8,471,693)
Patient Accounts Receivable, net	$	5,068,034

The Company derives a significant portion of its revenues from Medicare, Medicaid and other payers that receive discounts from our standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the period in which the change in estimate occurred.

During the year ended December 31, 2007 and 2006, the Company recorded bad debt expense from patient receivables relating to continuing operations of $8,371,491 and $661,068, respectively. In addition, the Company included in discontinued operations bad debt expense of $4,937,150 and $4,904,443 for the year ended December 31, 2007 and 2006, respectively. The Company establishes an allowance for doubtful accounts to reduce the carrying value of patient receivables to their estimated net realizable value. The primary uncertainty of such allowances lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

Property And Equipment

Property and equipment are stated at cost. Equipment, major renewals and improvements greater than $5,000 are capitalized; maintenance and repairs are charged to expense as incurred. Gain or loss on disposition of property is recorded at the time of disposition.

Depreciation and amortization of fixed assets is provided for by using the straight-line method over the estimated useful lives of the assets, generally 40 years for buildings, 3-to-10 years for furniture, fixtures, and equipment and 3-to-5 years for vehicles, computer hardware, software, and communication systems. Leasehold improvements are depreciated over the lesser of useful lives or lease terms including available option periods.

Intangible Assets

Intangible assets at December 31, 2007 consisted of goodwill of $1,216,318 which is the result of the acquisitions of SCMH. Goodwill consists of the excess of purchase price over the fair value of assets and liabilities acquired in acquisitions accounted for under the purchase method of accounting.

The Company follows the provisions of SFAS No. 141, “Business Combinations” (“SFAS 141”), which requires all business combinations initiated after September 30, 2001 to be accounted for using the purchase method. Additionally, acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so.

The Company also follows the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). As required by SFAS 142, the Company has completed certain impairment tests for its recorded goodwill. These tests include determining the fair value of the Company’s single reporting unit, as defined by SFAS 142, and comparing it to the carrying value of the net assets allocated to the reporting unit. Goodwill will be tested for impairment annually at December 31 or more frequently when events or circumstances indicate that an impairment may have occurred.

Stock Based Compensation

On January 1, 2006, the Company implemented Statement of Financial Accounting Standard 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment” which replaced SFAS 123 “Accounting for Stock-Based Compensation” and superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. During 2006, all employee stock compensation is recorded at fair value using the Black-Scholes Pricing Model. In adopting SFAS 123(R), the Company used the modified prospective application (“MPA”). MPA requires the Company to account for all new stock compensation to employees using fair value, and for any portion of awards prior to January 1, 2006 for which the requisite service has not been rendered and the options remain outstanding as of January 1, 2006, the Company should recognize the compensation cost for that portion of the award the that requisite service was rendered on or after January 1, 2006. The fair value for these awards is determined based on the grant-date.

For stock directly issued to employees for services, a compensation charge is recorded against earnings over the service period measured at the date of grant based on the fair value of the stock award. During the year ended December 31, 2007 and 2006, the Company issued 5,533,332 and 7,470,528 shares of common stock, respectively, to key employees pursuant to the terms of employment agreements and other contract agreements. At December 31, 2007, 4,000,000 of these shares were unvested.

Critical Accounting Estimates

The table that follows presents information about our critical accounting estimates, as well as the effects of hypothetical changes in the material assumptions used to develop each estimate:


BALANCE SHEET OR INCOME STATEMENT CAPTION/ NATURE OF CRITICAL ESTIMATE ITEM	ASSUMPTIONS/ APPROACH USED	SENSITIVITY ANALYSIS
*Allowance for doubtful accounts and provision for doubtful accounts*
Accounts receivable primarily consist of amounts due from third-party payors and patients. Our ability to collect outstanding receivables is critical to our results of operations and cash flows. To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients. Our allowance for doubtful accounts, included in our balance sheets as of December 31, 2007 and December 31, 2006 was as follows: • December 31, 2007 — $13,871,469; and • December 31, 2006— $13,079,845.	The largest component of bad debts in our patient accounts receivable relates to accounts for which patients are responsible, which we refer to as patient responsibility accounts. These accounts include both amounts payable by uninsured patients and co-payments and deductibles payable by insured patients. In general, we attempt to collect deductibles, co-payments and self-pay accounts prior to the time of service for non-emergency care. If we do not collect these patient responsibility accounts prior to the delivery of care, the accounts are handled through our billing and collections processes. We verify each patient’s insurance coverage at the time of the scheduled admission or procedure, including eligibility, benefits and authorization / pre-certification requirements, in order to notify patients of the amounts for which they will be responsible. We attempt to verify insurance coverage within a reasonable amount of time for all emergency room visits and urgent admissions in compliance with the Emergency Medical Treatment and Active Labor Act. In general, we follow the following steps in collecting accounts receivable: • if possible, cash collection of deductibles, co-payments and self-pay accounts at the time service is provided; • billing and follow-up with third party payors; • utilization of collection agencies; and • if collection efforts are unsuccessful, write off of the patient accounts. Our policy is to write off accounts after all legal actions have been exhausted. Patient responsibility accounts represent the majority of our write-offs. Generally, we do write off accounts at the time we utilize the services of a collection agency. We determine the adequacy of the allowance for doubtful accounts reviewing our remittances against related charges. We continually adjust our reserve based on our collection history.	If self-pay revenues during 2007 were changed by one percent (1%), our 2007 after-tax income from continuing operations would change by approximately $0.001 or diluted earnings per share of $0.001. This is only one example of reasonably possible sensitivity scenarios. The process of determining the allowance requires us to estimate uncollectible patient accounts that are highly uncertain and requires a high degree of judgment. It is impacted by changes in regional economic conditions, business office operations, payor mix and trends in Federal or state governmental healthcare coverage. A significant increase in our provision for doubtful accounts (as a percentage of revenues) would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital.


*Revenue recognition / Allowance for contractual discounts*
We recognize revenues in the period in which services are provided. Accounts receivable primarily consist of amounts due from third-party payors and patients. Amounts we receive for treatment of patients covered by governmental programs, such as Medicare and Medicaid, and other third-party payors such as HMOs, PPOs and other private insurers, are generally less than our established billing rates. Accordingly, our gross revenues and accounts receivable are reduced to net realizable value through an allowance for contractual discounts. Our allowance for contractual discounts, included in our balance sheets as of December 31, 2007 and December 31, 2006 was as follows: • December 31, 2007 — $8,471,693; and • December 31, 2006 — $10,816,132. We recorded contractual allowance discounts, included in our results of continuing operations, was as follows: • December 31, 2007 — $31,224,825; and • December 31, 2006 —$13,633,127.	Revenues are recorded at estimated net amounts due from patients, third-party payors and others for healthcare services provided. Estimates for contractual allowances are calculated based solely on historical collections from payors based on the type of service provided. All contractual adjustments regardless of type of payor or method of calculation are reviewed continually and compared to actual experience.
	Governmental payors	Governmental payors
	The majority of services performed on Medicare and Medicaid patients are reimbursed at predetermined reimbursement rates except for our critical access acute care facility in Barbourville, Kentucky, which is reimbursed on a reasonable cost method. The differences between the established billing rates (i.e., gross charges) and the actual reimbursement rates are recorded as contractual discounts and deducted from gross charges. For our critical access acute care facility in Barbourville, Kentucky , there is an adjustment or settlement of the difference between the actual cost to provide the service and the actual reimbursement rates. Settlements are adjusted in future periods when settlements of filed cost reports are received. Final settlements under these programs are subject to adjustment based on administrative review and audit by third party intermediaries, which can take several years to resolve completely.	Because the laws and regulations governing the Medicare and Medicaid programs are complex and subject to change, the estimates of contractual discounts we record could change by material amounts. Adjustments related to settlements increased/(decreased) our continuing and discontinued revenues by the following amounts: • 2007 — $194,268. • 2006 — ($1,744,541). A change in the settlement of five percent (5%) would result in a charge to our results of operations of $9,713. This is only one example of reasonably possible sensitivity scenarios. The process of determining the allowance requires us to estimate reasonable costs and predetermined reimbursement rates that are highly uncertain and requires a high degree of judgment. It is impacted by changes in regional economic conditions, business office operations, payor mix and trends in Federal or state governmental healthcare coverage. A significant increase in our allowance for contractual discounts (as a percentage of revenues) would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital.
	Non-Governmental payors	Non-Governmental payors


	For most managed care plans, estimated contractual allowances are adjusted to actual contractual allowances as cash is received and claims are reconciled. Accounts receivable primarily consist of amounts due from third party payors and patients. Amounts we receive for the treatment of patients covered by HMOs, PPOs and other private insurers are generally less than our established billing rates. We include contractual allowances as a reduction to revenues in our financial statements based on payor specific identification and payor specific factors for rate increases and denials.	If our overall estimated contractual discount percentage on all of our non-governmental revenues during 2007 were changed by one percent (1%), our 2006 after-tax income from continuing operations would change by approximately $0.001 million. This is only one example of reasonably possible sensitivity scenarios. The process of determining the allowance requires us to estimate the amount expected to be received and requires a high degree of judgment. It is impacted by changes in managed care contracts and other related factors. A significant increase in our estimate of contractual discounts would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital.
*Goodwill and accounting for business combinations*
Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies. Our goodwill included in our consolidated balance sheets as of December 31, 2007 and December 31, 2006 was as follows: • December 31, 2007 — $1,216,318; and • December 31, 2006 — $1,216,318.	We follow the guidance in Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, and test goodwill for impairment using a fair value approach. We are required to test for impairment at least annually, absent some triggering event that would accelerate an impairment assessment. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of December 31 of each year. We also test for impairments when events or circumstances indicate that an impairment may have occurred. We determine fair value using a discounted cash flow analysis. These types of analyses require us to make assumptions and estimates regarding future cash flows, industry economic factors and the profitability of future business strategies. The purchase price of acquisitions are allocated to the assets acquired and liabilities assumed based upon their respective fair values and subject to change during the twelve month period subsequent to the acquisition date. Such valuations require us to make significant estimates and assumptions, including projections of future events and operating performance. Fair value estimates are derived internal calculations of estimated future net cash flows. Our estimate of future cash flows is based on assumptions and projections we believe to be currently reasonable and supportable. Our assumptions take into account revenue and expense growth rates, patient volumes, changes in payor mix, and changes in legislation and other payor payment patterns.	We performed our annual testing for goodwill impairment as of December 31, 2006 and 2007 using the methodology described here, and determined that no goodwill impairment existed. If actual future results are not consistent with our assumptions and estimates, we may be required to record goodwill impairment charges in the future. Our estimate of fair value of acquired assets and assumed liabilities are based upon assumptions believed to be reasonable based upon current facts and circumstances. If ten percent (10%) of the non-depreciable assets acquired during 2006 were allocated to a depreciable asset with an average life of twenty (20) years, depreciation expense would have increased by approximately $12,770 in 2007.
*Accounting for income taxes*

Deferred tax assets generally represent items that will result in a tax deduction in future years for which we have already recorded the tax benefit in our income statement. We assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not probable, a valuation allowance is established. To the extent we establish a valuation allowance or increase this allowance, we must include an expense as part of the income tax provision in our results of operations. Our deferred tax asset balances in our consolidated balance sheets as of December 31 for the following years were as follows:

• 2007 — $5,622,059; and

• 2006 — $3,065,302.

Our valuation allowances for deferred tax assets in our consolidated balance sheets as of December 31 for the following years were as follows:

• 2007 — $5,622,059; and

• 2006 — $3,065,302.

The first step in determining the deferred tax asset valuation allowance is identifying reporting jurisdictions where we have a history of tax and operating losses or are projected to have losses in future periods as a result of changes in operational performance. We then determine if a valuation allowance should be established against the deferred tax assets for that reporting jurisdiction.

The second step is to determine the amount of the valuation allowance. We will generally establish a valuation allowance equal to the net deferred tax asset (deferred tax assets less deferred tax liabilities) related to the jurisdiction identified in step one of the analysis. In certain cases, we may not reduce the valuation allowance by the amount of the deferred tax liabilities depending on the nature and timing of future taxable income attributable to deferred tax liabilities.

We have subsidiaries with a history of tax losses and, based upon those historical tax losses, we assumed that the subsidiaries would not be profitable in the future for income tax purposes. If our assertion regarding the future profitability of those subsidiaries were incorrect, then our deferred tax assets would be understated by the amount of the valuation allowance of $5,622,059 on December 31, 2007 and $3,173,323 on December 31, 2006.

The IRS may propose adjustments for items we have failed to identify as tax contingencies. If the IRS were to propose and sustain assessments equal to ten percent (10%) of our taxable loss for 2007, we would incur $535,296 of additional tax payments plus applicable penalties and interest.

In addition, significant judgment is required in determining and assessing the impact of certain tax-related contingencies. We establish accruals when, despite our belief that our tax return positions are fully supportable, it is probable that we have incurred a loss related to tax contingencies and the loss or range of loss can be reasonably estimated.

We adjust the accruals related to tax contingencies as part of our provision for income taxes in our results of operations based upon changing facts and circumstances, such as progress of a tax audit, development of industry related examination issues, as well as legislative, regulatory or judicial developments. A number of years may elapse before a particular matter, for which we have established an accrual, is audited and resolved.

In assessing tax contingencies, we identify tax issues that we believe may be challenged upon examination by the taxing authorities. We also assess the likelihood of sustaining tax benefits associated with tax planning strategies and reduce tax benefits based on management’s judgment regarding such likelihood. We compute the tax and related interest on each contingency. We then determine the amount of loss, or reduction in tax benefits based upon the foregoing and reflect such amount as a component of the provision for income taxes in the reporting period.

During each reporting period, we assess the facts and circumstances related to recorded tax contingencies. If tax contingencies are no longer deemed probable based upon new facts and circumstances, the contingency is reflected as a reduction of the provision for income taxes in the current period.

Reported Operating Data



	Years Ended December 31,
							2007 vs. 2006
							Variance
							Favorable /
($ in millions)	2007			2006			(Unfavorable)			% Variance


Revenue	$	29.969		$	3.624		$	26.345		727.0

Selling, general & administrative expenses		(32.470	)		(6.400	)		(26.070	)	(407.3	)
Depreciation and amortization		(.239	)		(.002	)		(.237	)
Management fees income		.300			.475			(175	)
Other income		.929			(.001	)		.930
Other interest expense		(2.080	)		(1.024	)		(1.056	)	(103.1	)

Loss from continuing operations		(3.591	)		(3.328	)		(.263	)
Minority interest		.198			.000			.198
Discontinued operations, net of gain on disposal		(3.161)			(4.309	)		(1.148	)

Net loss before income taxes	$	(6.554	)	$	(7.637	)	$	1.083		14.2

Patient Days		12,899			10,008

Results Of Operations For The Fiscal Year Ended December 31, 2006, Compared To Fiscal Year Ended December 31, 2005.

The Company had revenues from continuing operations of $30,269,517 and $4,099,602 in the years ended December 31, 2007 and 2006, respectively, an increase of $26,169,915 or 638.3%. Our revenues increased for the year ended December 31, 2007 from the year ended December 31, 2006 primarily as a result of our acquisition of our Barbourville, Kentucky. The increase was also partially a result of an increased revenue stream for our Cameron, Louisiana facility which reopened in November 2007. Revenue includes reimbursement amounts billed to Medicare, Medicaid and private insurance companies. These amounts are shown at the gross amount billed less contractual allowances. Revenue also includes management fees and other operational income. In addition, for the year ended December 31, 2007, the Company received $3,828,266 in grant money and in-kind donations related to the reopening of our Cameron, Louisiana facility.

The Company had total operating expenses from continuing operations of $32,710,171 and $6,402,026 in the years ended December 31, 2007 and 2006, respectively, an increase of $26,308,145 or 410.9%. Our expenses increased significantly for the year ended December 31, 2007 from the year ended December 31, 2006 primarily as a result of our acquisition of our Barbourville, Kentucky facility. Our bad debts expense increased due to our transition of outsourcing our patient accounting functions. Furthermore, our operating costs include increased operating expenses which we have incurred in connection with our attempts to reopen our Cameron facility as well as legal fees incurred to counsel our acquisition of our Barbourville facility. Our operating costs also remained disproportionately high during the first six months of the year ended December 31, 2007 as a result of our retention of key personnel from our Cameron facility. However, we expect our consolidated operating expenses to be proportional to our consolidated net revenues as a result of the reopening of the Cameron facility.

The Company had net losses of $6,554,083 and $7,636,744 in the years ended December 31, 2007 and 2006, respectively. The net loss per share was approximately $(0.01) and $(0.01) in the years ended December 31, 2007 and 2006, respectively. The net loss is the result of the disproportionately high cost structure we have maintained during the rebuilding process in our Cameron facility. We anticipate that we will mitigate such losses in 2008 as a result of the reopening of our Cameron facility, our sale of the Greensboro facility and the increased efficiency of our Barbourville facility.

The Company plans to expand its business over the next several years, largely through the acquisition of complementary lines of businesses. The corporate general and administrative expenses are expected to increase over this time period, due principally to expansion of corporate personnel and integration costs planned to be incurred in connection with the development and implementation of centralized operational and financial systems.

The Company incurred interest expense of $2,079,630 and $1,024,251 for the years ended December 31, 2007 and 2006, respectively, an increase of $1,055,385 or 103%. The increase is primarily due to the issuance of outstanding convertible debentures we had issued to YA Global, LP (f/k/a Cornell Capital Partners) in July 2007 and September 2007. The amortization of debt discount related to these convertible debentures is included in interest expense. For the year ended December 2007, the amortization of debt discount included in interest expense was $1,315,684. We may also incur additional debt in future years in order to facilitate acquisitions or expand corporate operations. Interest paid on this future debt could have a material adverse effect on our business, financial condition, results of operations, cash flows, and prospects.

The provision for income taxes for the years ended December 31, 2007 and 2006 was $0 and $0, respectively. Any tax benefit generated by our loss was offset by a deferred tax asset allowance. Our future effective tax rate will depend on various factors including the mix between state taxable income or losses, amounts of tax deductible goodwill and the timing of adjustments to the valuation allowance on our net deferred tax assets.

Liquidity And Capital Resources

We had cash of $46,384 and $396,033 and as of December 31, 2007 and 2006, respectively. Cash used in operations was $3,237,963 and $4,482,845 for the year ended December 31, 2007 and 2006, respectively. Additionally, we had a working capital deficit of $1,660,612. The decrease in cash and working capital was due primarily to our restructuring of our operations in our facilities, specifically Minnie G. Boswell Memorial Hospital, which was sold in March 2008. During the year, our accounts payable increased $1,014,680, our prepaid insurance increased $573,273 and our accrued wages increased $704,578, which was offset by a gain on the sale of our minority interest in Knox County Hospital of $980,458, a decrease in our Medicare payable of $477,004 and depreciation expense of $372,430. Our patient accounts receivable increased $12,181,357 and was offset by an increase in bad debts expense of $13,308,641.

Net Cash used in investing activities was $316,309 for the year ended December 31, 2007 compared to $1,032,243 provided by investing activities for the year ended December 31, 2006. Net cash provided by investing activities included proceeds of $100,000 held for the sale of Minnie G. Boswell Memorial Hospital. Net cash was also used in investing activities during the year ended December 31, 2007 was attributable to the fact that the Company purchased medical equipment and computers in the amount of $491,309.

Net Cash provided in financing activities was $3,204,623 for the year ended December 31, 2007, compared to $2,627,410 in the same period for 2006. Net cash provided in financing activities during the year ended December 31, 2007 was primarily attributable to the issuance of convertible debentures (net of related expenses) to YA Global Investors, L.P. for $3,630,502 offset by a $1,221,252 redemption of convertible debenture, an increase in cash overdraft of $439,588, proceeds of $64,000 from related party loans offset primarily by repayments of $1,000 for related party loans, repayments of $211,100 for loans payable, repayments of $2,013 for capitalized lease obligations and repayments of $633,102 for notes payable.

On July 6, 2007, the Company entered into a Securities Purchase Agreement with YA Global pursuant to which the Company sold to YA Global, and YA Global purchased from the Company, up to $5,500,000 of Secured Convertible Debentures, which shall be convertible, at a fixed convertible price of $0.02 until maturity, into shares of the Company’s common stock and warrants to acquire up to 220,000,000 additional shares of the Company’s common stock, of which $3,500,000 was funded on July 9, 2007, $1,500,000 was to be funded on the date a registration statement is filed with the U.S. Securities and Exchange Commission and $500,000 was to be funded within five (5) business days after the registration statement is declared effective.

The $3,500,000 debentures accrue interest at a rate equal to thirteen percent (13%) per annum and shall mature, unless extended by YA Global, on March 31, 2009. On the maturity date, the Company may, at its option, redeem the outstanding principal and any accrued interest in either cash or common stock. If the Company chooses to repay in common stock, the debentures are convertible at the lower of $0.02 and that price which shall be computed as 80% of the lowest daily volume weighted average price of the common stock during the fifteen (15) consecutive trading days immediately preceding the applicable payment date. The Company shall pay a redemption premium of seven and one half percent (7.5%). The Company at its option also has the right to redeem a portion or all amounts outstanding prior to the Maturity Date provided that as of the date of the holder’s receipt of a Redemption Notice (as defined therein): (i) the closing bid price is less than $.02; (ii) the Registration Statement is effective; and (iii) no event of default has occurred and be continuing. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to fifteen percent (15%) of the principal amount being redeemed and accrued interest.

In connection with the July 6, 2007 issuance of the $3,500,000 convertible debenture, the Company recorded a contra liability of $305,000 by debiting debt discount. These $305,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding. The Company also incurred additional expenses of $12,201 related to accountant and attorneys fees in connection with the financing that will be capitalized and amortized as debt issue costs. As of December 31, 2007, the Company has amortized $85,631 of debt discount. Debt discount is directly offset against the gross convertible debentures balance outstanding. The total debt discount will be amortized to interest expense over the life of the debt. Additionally, as of December 31, 2007, the Company has amortized $3,425 of debt issue costs.

The convertible debentures and warrants contain registration rights with filing and effectiveness deadlines and a liquidated damages provision. The registration statement was required to be filed within 30 days of the funding date of July 6, 2007 and was required to become effective within 180 of the funding date. The agreement contains provisions for liquidated damages, payable in cash or shares at the lender's option, 2% of the value of the convertible debentures for each 30-day period after the scheduled deadline that the Company has not met, to be capped at 24 months. Once effective, the Company must also maintain the registration statement effective until all the registrable securities have been sold by the lender.

In connection with the Securities Purchase Agreement, the Company also was obligated to issue to the Investor the Warrants to purchase, in Investor’s sole discretion, Two Hundred Twenty Million (220,000,000) shares of Common Stock at a price of $0.02 per share which expire on various dates beginning July 2012. As of December 31, 2007, all warrants have been issued to the Investor.

These warrants were valued on the loan date at their relative fair value of $1,733,186 based on a Black-Scholes option pricing model using the following assumptions: volatility 243% (based on historical volatility); expected term of five (5) years (based on contractual term for non-employees); expected dividends of $0; and risk free rate of 5.02%. The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term. Amortization for 2007 was $483,554.

On September 18, 2007, the Company amended and restated its Securities Purchase Agreement with YA Global in order to reduce the aggregate purchase price to Four Million Dollars ($4,000,000), whereby instead of YA Global funding (i) $1,500,000 on the date a registration statement is filed with the U.S. Securities and Exchange Commission and (ii) $500,000 within five (5) business days after the registration statement is declared effective, the Investor funded $500,000 on September 11, 2007.

The $500,000 convertible debentures accrue interest at a rate equal to thirteen percent (13%) per annum and shall mature, unless extended by YA Global, on March 31, 2009. On the maturity date, the Company may, at its option, redeem the outstanding principal and any accrued interest in either cash or common stock. If the Company chooses to repay in common stock, the debentures are convertible at the lower of $.02 and that price which shall be computed as 80% of the lowest daily volume weighted average price of the common stock during the fifteen (15) consecutive trading days immediately preceding the applicable payment date. The Company shall pay a redemption premium of seven and one half percent (7.5%). The Company at its option also has the right to redeem a portion or all amounts outstanding prior to the Maturity Date provided that as of the date of the holder’s receipt of a Redemption Notice (as defined therein): (i) the closing bid price is less than $0.02; (ii) the Registration Statement is effective; and (iii) no event of default has occurred and be continuing. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to fifteen percent (15%) of the principal amount being redeemed and accrued interest.

In connection with the September 11, 2007 issuance of the $500,000 convertible debenture, the Company recorded a contra liability of $40,000 by debiting debt discount. These $40,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding. The Company also incurred additional expenses of $12,297 related to accountant and attorneys fees in connection with the financing that will be capitalized and amortized as debt issue costs. As of December 31, 2007, the Company has amortized $6,562 of debt discount. Debt discount is directly offset against the gross convertible debentures balance outstanding. The total debt discount will be amortized to interest expense over the life of the debt. Additionally, as of December 31, 2007, the Company has amortized $2,017 of debt issue costs.

The Company determined that the embedded conversion options in the convertible debentures and warrants were not derivatives and qualify for equity treatment since the convertible debt is considered conventional convertible debt due to the fixed conversion price.. In addition, there was $533,186 of beneficial conversion value of the convertible debentures which was recorded as debt discount and is being amortized over the debt term. Amortization of this beneficial conversion value was $148,757 in 2007.

On April 1, 2008 the Company entered into a Securities Purchase Agreement with YA Global Investments, L.P. to which the Company sold to the YA Global Investments LP $5,786,017 of secured convertible debentures and a 5 year warrant to acquire up to 5,500,000 additional shares at an exercise price of $0.0001 per share. The Debenture shall accrue interest at 13% per annum and shall mature on April 1, 2012. The conversion price is the lesser of $0.02 and 80% of the lowest daily volume weighted average price of the Common Stock during the 20 trading days immediately preceding each conversion date. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 15% of the principal amount being redeemed, and accrued interest.

The Company intends to implement its business strategy largely by the acquisition of complementary businesses. The Company intends to finance the costs of its business acquisitions and capital expenditures with a combination of debt and equity capital, as well as cash generated from internal operations. Specifically, we expect to finance the cost of future business acquisitions by paying cash and issuing shares of our common stock to the sellers of these businesses in approximately equal values; however, this combination may change for any given transaction.

The Company believes that cash flows from operating activities will provide adequate funds to meet the ongoing cash requirements of its existing business over the next 12 months. However, failure to successfully raise additional capital or incur debt could limit the planned expansion of our existing business in the short-term. We cannot provide assurance that the occurrence of unplanned events, including temporary or long-term adverse changes in global capital markets, will not interrupt or curtail our short-term or long-term growth plans.

Inflation

Our business will be affected by general economic trends. During the past year, we have not experienced noticeable effects of inflation.

Seasonality

The healthcare industry has historically been unaffected by seasonal changes. We do not expect seasonal changes to have a material effect on our business, financial condition, results of operation and growth prospects.

Impact Of Recently Issued Accounting Standards

As of January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No.109, Accounting for Income Taxes” (“FIN 48”).

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No.157 defines fair value and applies to other accounting pronouncements that require or permit fair value measurements and expands disclosures about fair value measurements. SFAS No.157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS No.157 on its Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No.115”. SFAS No.159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No.159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No.159, if elected, on its Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R is a revision to SFAS No. 141 and includes substantial changes to the acquisition method used to account for business combinations (formerly the “purchase accounting” method), including broadening the definition of a business, as well as revisions to accounting methods for contingent consideration and other contingencies related to the acquired business, accounting for transaction costs, and accounting for adjustments to provisional amounts recorded in connection with acquisitions. SFAS No. 141R retains the fundamental requirement of SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating the requirements of SFAS No. 141R.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS.

As of December 31, 2007, the following contractual obligations were outstanding:

The following table summarizes our payment obligations under certain contracts at December 31, 2007:


Payments Due by Period
	Total	Less Than one Year	1-3 Years	3-5 Years	More Than 5 Years
Total Medicare payable (Note 9)*	3,167,873	1,820,026	1,347,847	--	--
Notes Payable (Note 7)*	2,844,781	741,501	380,757	1,722,523	--
Operating lease commitments (Note 10)*	10,072,388	1,638,690	6.326,012	2,107,686	--
Total	16,085,042	4,200,217	8,054,616	3,830,209	--

* See Notes to Consolidated Financial Statements.

Off-Balance Sheet Arrangements.

None.


ITEM 7.	FINANCIAL STATEMENTS

The Consolidated Financial Statements of Pacer and of its subsidiaries are attached to this Report.


ITEM 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 8A. (T)	CONTROLS AND PROCEDURES

Evaluation Of Disclosure Controls And Procedures

Pacer’s Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of Pacer’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report, have concluded that as of such date, Pacer’s disclosure controls and procedures were adequate and effective to ensure that material information relating to Pacer that is required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and accumulated and communicated to Pacer’s management, including its Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes In Internal Controls Over Financial Reporting

In connection with the evaluation of Pacer’s internal controls during our last fiscal quarter, Pacer’s Principal Executive Officer and Principal Financial Officer have determined that there are no changes to Pacer’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially effect, the Company’s internal controls over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report

PART III


ITEM 9.	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

As of April 15, 2008, the Directors and executive officers of Pacer, their age, positions in Pacer, the dates of their initial election or appointment as directors or executive officers, and the expiration of the terms are as follows:


Name of Director/ Executive Officer	Age	Position(s)	Period Served

Rainier Gonzalez	35	Chairman, CEO and President	June 2003 to date
Eric Pantaleon, M.D.	46	Director	July 2003 to date
Alfredo Jurado	33	Director	July 2003 to date
Marcelo Llorente	31	Director	March 2005 to date
Eugene Marini	46	Director	March 2005 to date
John Vincent	41	Chief Operating Officer	January 2007 to date
J. Antony Chi	34	Chief Financial Officer	July 2004 to date

There are no family relationships between or among the directors, executive officers or any other person. None of Pacer’s directors or executive officers is a director of any company that files reports with the SEC. None of Pacer’s directors have been involved in legal proceedings.

Pacer’s directors are elected at the annual meeting of stockholders and hold office until their successors are appointed. Pacer’s officers are appointed by the Board of Directors (the “Board”) and serve at the pleasure of the Board and are subject to employment agreements, if any, approved and ratified by the Board.

Rainier Gonzalez, President, Chief Executive Officer and Chairman. Mr. Gonzalez has been President, Chief Executive Officer, Secretary and Chairman of the Company since June 26, 2003. Prior to founding Pacer Health Corporation, Mr. Gonzalez served as a principal in two (2) South Florida financial services firms, both of which he also helped found in 2002. From 2000 to 2002, Mr. Gonzalez served as vice president of business development, and principal, for Brick Mountain LLC, an Internet company that was sold to Jupiter Media (Nasdaq: JUPM). From 1999 to 2000, he was an associate in the Washington D.C. law firm of Sidley Austin Brown & Wood, where he worked in the securitization and structured finance department. Mr. Gonzalez earned his bachelor’s degree in political science from Florida International University in 1995, and his law degree, magna cum laude, from the Indiana University School of Law in 1998. Prior to joining Sidley Austin Brown & Wood, he worked as a law clerk for Federal Judge Denny Chin of the Southern District of New York.

Eric Pantaleon, M.D., Director. Dr. Pantaleon has been a Director of the Company since July 2003. Dr. Pantaleon has been a pediatrician in private practice since 1994, and is an active member of the American Academy of Pediatrics. He is also a pediatric clinical instructor at the University of Miami - Jackson Memorial Medical Center, and serves as an assistant pediatric clinical instructor at Nova Southeastern University. From 1990 to 1993, he was a resident in training at the Jersey Shore Medical Center, where he served on the hospital’s Medical Education Committee and was president of the Residents House Staff. Dr. Pantaleon completed both his pre-medical and doctoral education at the Universidad Nacional Pedro Henriquez Urena in Santo Domingo, Dominican Republic.

Alfredo Jurado, Esq., Director. Mr. Jurado has been a Director of the Company since July 2003. Mr. Jurado is currently an attorney in private practice and an active member of the Florida Bar. Prior to that, he was a co-owner and general counsel for a Miami-based financial services firm, which he joined in 2002. From 1998 to 2002, Mr. Jurado worked for the Florida State Attorney’s Office, where he served as a county court prosecutor, a county court supervisor and, most recently, a felony trial unit prosecutor in Florida’s 17th Judicial Circuit. In 1997, he served as a certified legal intern in the 11th Judicial Circuit of the Florida State Attorney’s Office, and in 1996, he served as a law clerk for the Honorable Judge Scott Silverman, also of the 11th Judicial Circuit. Mr. Jurado earned his bachelor’s degree in criminal science from Florida International University in 1995, and his law degree, cum laude, from Nova Southeastern University, Shepard Broad Law Center, in 1998.

Eugene Marini, Director. Mr. Marini has been a Director of the Company since March 2005. Mr. Marini was the former Chief Executive Officer of Oakridge Outpatient and Surgical Center, which he joined in 2004. Prior to joining Oakridge, Mr. Marini was Director of Operations at Catholic Health Services, Inc. from 2001 through 2004 where he oversaw the operations of three nursing homes, two (2) acute care rehabilitation hospitals, two (2) home health agencies and two (2) adult living facilities. In 1999, Mr. Marini was recruited by Ruben King-Shaw, then Secretary of the Agency for Healthcare Administration of the State of Florida, to restructure the Agency’s Managed Care and Health Quality Division. From 1994 to 1997, Mr. Marini was Chief Executive Officer of West Gables Rehabilitation Hospital, a 60 bed acute rehabilitation facility and 120 bed sub-acute facility, which he brought into JCAHO compliance. Mr. Marini also served as Vice-President of Operations and Business Development at the Miami Heart Institute and Chief Executive Officer at Doctors Hospital of Hollywood. Mr. Marini holds a master’s degree in public health and a bachelor’s degree in health administration from Florida International University. He is a licensed nursing home administrator and member of the American College of Healthcare Executives.

Rep. Marcelo Llorente, Esq., Director. Rep. Llorente has been a Director of the Company since March 2005. Rep. Llorente currently represents District 116 in the Florida House of Representatives, to which he was elected to in 2002 and is currently the Chairman of the Judicial Committee. Rep. Llorente is also an attorney with the law firm of Bryant, Miller & Olive, P.A., where he specializes in the areas of public finance and affordable housing. Rep. Llorente is a member of the Florida Bar, American Bar Association, and Cuban-American Bar Association. Rep. Llorente has been active in the “Amor en Acion: (Love in Action)” Latin American Missionary Group. He also served as a Volunteer Law Student in the Leon County Teen Court program and as a certified legal intern providing legal representation to domestic violence victims through Florida State University’s Children Advocacy Center. Rep. Llorente graduated cum laude from Tulane University with a bachelor’s degree and holds a law degree from Florida State University College of Law.

John Vincent, Chief Operating Officer. Mr. Vincent has been with the Company since August 2004. Prior to becoming Chief Operating Officer, Mr. Vincent served as Pacer Health’s chief nursing officer and director of hospital operations. Mr. Vincent started with the Company as the director of nursing for South Cameron Memorial Hospital. Prior to that, he served as the manager of the emergency department, operating room, medical surgical, and intensive care unit at Women and Children’s Hospital in Lake Charles, Louisiana from 1994 to 2004. Prior to his work at Women and Children’s, he served as the emergency department technician and then the emergency department charge nurse at Lake Charles Memorial Hospital from 1989 to 1994. Mr. Vincent holds a degree in nursing from Louisiana State University, as well as a master’s in nursing administration from Regents College, New York. Mr. Vincent is currently a member of the Emergency Nurses’ Association and American Heart Association and is a certified ACLS and PALS instructor and an instructor for basic life support and trauma nursing.

J. Antony Chi, Chief Financial Officer. Mr. Chi has been with the Company since July 2004. His prior experience includes working at PriceWaterhouseCoopers LLP from 1997 to 1998 and Ernst & Young LLP from 1998 to 1999. He has also worked at LNR Property Corporation from 1999 to 2000, Gerald Stevens Inc. from 2000 to 2001, and most recently, AutoNation, Inc., which he joined in 2001, prior to joining the Company. Mr. Chi holds a bachelor’s degree from New York University. Mr. Chi is currently a Certified Public Accountant in the State of Maryland.

Board Meetings And Committees

During the fiscal year ended December 31, 2007, the Board met four (4) times. All the members of the Board attended the meetings.

Audit Committee

We have a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The members of our Committee are Messrs. Marini, Jurado and Llorente. All three (3) members of the committee are independent. Mr. Marini is our audit committee financial expert and is independent as defined under the applicable SEC Rules.

Compensation Committee

We have a separately-designated standing compensation committee. The members of our Committee are Messrs. Marini and Jurado. Both members of the committee are independent.

Compensation Of Directors

For his or her service on the Board, each director receives $1,000 per quarter as reimbursement of expenses, payable in cash or restricted stock, at the option of the Company.

Section 16(a) Beneficial Ownership

Reporting Compliance

Section 16(a) of the Exchange Act and the rules promulgated thereunder require Pacer’s officers and Directors, and persons who beneficially own more than ten percent (10%) of a registered class of Pacer’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish Pacer with copies thereof.

Based on its reviews of the copies of the Section 16(a) forms received by it, or written representations from certain reporting persons, Pacer believes that, during the last fiscal year, the officers, directors and greater than ten percent (10%) beneficial owners of Pacer timely complied with the Section 16(a) filing requirements.

Code Of Ethics

On April 14, 2004, the Board adopted a written Code of Ethics designed to deter wrongdoing and promote honest and ethical conduct, full, fair and accurate disclosure, compliance with laws, prompt internal reporting and accountability to adherence to the Code of Ethics. This Code of Ethics was filed with the SEC as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 2003.


ITEM 10.	EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information with respect to the total compensation earned by, or paid to, Rainier Gonzalez, the Company’s President and Chief Executive Officer, J. Antony Chi, Chief Financial Officer and John Vincent, Chief Operating Officer (collectively, the Named Executive Officers”), for the fiscal years ended December 31, 2007, 2006 and 2005. No other executive officer of the Company earned total salary and bonus in excess of $100,000 during any such fiscal years.


Name and Principal Position	Year	Salary	Bonus	Stock Award	Option Award	Non-Equity Incentive Plan Compensation	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation	Total
R. Gonzalez, CEO	2007	$306,044	--	$150,000 ⁽²⁾	--	--	--	$16,607 ⁽¹⁾	$322,651
	2006	$250,000	--	--	--	--	--	$20,342 ⁽¹⁾	$270,342
	2005	$191,200	--	--	--	--	--	$20,192 ⁽¹⁾	$211,392

J. Chi, CFO	2007	$150,000	--	--	--	--	--	--	$150,000
	2006	$150,000	--	--	--	--	--	--	$150,000
	2005	$150,000	--	--	--	--	--	--	$150,000

J. Vincent, COO	2007	$120,000	--	$40,000	--	--	--	--	$120,000
	2006	$108,000	--	--	--	--	--	--	$108,000
	2005	$106,000	--	--	--	--	--	--	$106,000

____________

⁽¹⁾

This represents an automobile allowance issued to Mr. Gonzalez per the employment agreement dated January 1, 2004 and renewed through August 31, 2008.

⁽²⁾

This represents a grant of 30,000,000 fully vested common shares upon renewal of Mr. Gonzalez’s employment agreement for the year ended December 31, 2007.

Narrative Disclosures

Pacer currently has an employment agreement with its Chief Executive Officer, Rainier Gonzalez. The agreement commenced on January 1, 2004 and was subsequently revised in December 27, 2007 to provide for a base salary of $350,000 per annum, retroactive to June 1, 2007. The agreement expires on August 31, 2008.

Pacer currently has an employment agreement with its Chief Financial Officer, J. Antony Chi. The agreement commenced on July 5, 2004 and provides for a base salary of $150,000 per annum and ten million (10,000,000) shares to be issued ratably over a three (3) year period. The agreement expires on July 4, 2008.

Pacer currently has an employment agreement with its Chief Operating Officer, John Vincent. The agreement commenced on January 1, 2007 and provides for a base salary of $120,000 per annum and ten million (10,000,000) shares to be issued ratably over a three (3) year period. The agreement expires on December 31, 2008.

Grants of Plan Based Awards

The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the grants of plan based awards of the Company as of December 31, 2007.


		Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards
Name and Principal Position	Grant Date	Threshold	Target	Maximum	Threshold	Target	Maximum	All Other Stock Awards; Number of Shares of Stock or Units	All Other Option Awards; Number of Securities Underlying Options	Exercise or Base Price of Option Awards
R. Gonzalez, CEO	12/27/07	--	--	--	--	--	--	$150,000; 30,000,000	--	--

J. Chi, CFO	7/4/04	--	--	--	--	--	--	$150,000; 10,000,000	--	--

J. Vincent, COO	1/1/07	--	--	--	--	--	--	$200,000 10,000,000	--	--

Narrative Disclosures

Pacer currently has an employment agreement with its Chief Executive Officer, Rainier Gonzalez. The agreement commenced in December 27, 2007 and provides for the issuance of thirty million (30,000,000) shares.

Pacer currently has an employment agreement with its Chief Financial Officer, J. Antony Chi. The agreement commenced on July 5, 2004 (the “effective date”) and provides for ten million (10,000,000) shares to be issued over a three (3) year period, with two million (2,000,000) on the effective date, three million (3,000,000) one year from the effective date and five million (5,000,000) 2 years from the effective date. All shares cliff vest one year from the issuance date.

Pacer currently has an employment agreement with its Chief Operating Officer, John Vincent. The agreement commenced on January 1, 2007 (the “effective date”) and provides for ten million (10,000,000) shares to be issued ratably over a three (3) year period, with two million (2,000,000) on the effective date, three million (3,000,000) one year from the effective date and five million (5,000,000) 2 years from the effective date. All shares cliff vest one year from the issuance date.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the outstanding equity awards of the Company as of December 31, 2007.


	Option Awards					Stock Awards
Name and Principal Position	Number of Securities Underlying Unexercised Options Exercisable	Number of Securities Underlying Unexercised Options Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options	Option Exercise Price	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested	Market Value of Shares or Units of Stock That Have Not Vested	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units of Other Rights That Have Not Vested
R. Gonzalez, CEO	--	--	--	--	--	--	--	--	--

J. Chi, CFO	--	--	--	--	--	--	--	--	--

J. Vincent, COO	--	--	--	--	--	10,000,000	$200,000	--	--

Option Exercises and Stock Vested

The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the option exercises and stock vested of the Company as of December 31, 2007.


	Option Awards		Stock Awards
Name and Principal Position	Number of Shares Acquired on Exercise	Value Realized on Exercise	Number of Shares Acquired on Vesting	Value Realized
R. Gonzalez, CEO	--	--	30,000,000	$150,000

J. Chi, CFO	--	--	5,000,000	$50,000

J. Vincent, COO	--	--	--	--

Director Compensation Table

The following table sets forth information with respect to the total compensation paid to the Company’s Directors for the fiscal years ended December 31, 2007.


Name	Fees Earned or Paid in Cash	Stock Award	Option Award	Non-Equity Incentive Plan Compensation	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation	Total
Eric Pantaleon, M.D.	--	$4,000	--	--	--	--	$4,000

Alfredo Jurado, Esq.	--	$4,000	--	--	--	--	$4,000

Rep. Marcelo Llorente	--	$4,000	--	--	--	--	$4,000

Eugene Marini	--	$4,000	--	--	--	--	$4,000

Rainier Gonzalez, Chairman	--	--	--	--	--	--	--


ITEM 11.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect of the beneficial ownership as of April 14, 2008 for each officer and director of Pacer and for each person who is known to Pacer to be the beneficial owner of more than 5% of Pacer’s common stock.


Name and Address of Beneficial Owner (2)	Title of Class	Amount and Nature of Beneficial Ownership	Percentage of Class(1)
Rainier Gonzalez	Common	430,422,903	72.61%
7759 N.W. 146th Street
Miami Lakes, FL 33016

Dr. Eric Pantaleon	Common	1,538,316	*
7759 N.W. 146th Street
Miami Lakes, FL 33016

Alfredo Jurado	Common	1,425,966	*
7759 N.W. 146th Street
Miami Lakes, FL 33016

Eugene M. Marini 7759 N.W. 146 Street Miami Lakes, FL 33016	Common	627,632	*

Rep. Marcelo Llorente 7759 NW 146^th Street Miami Lakes, FL 33016	Common	592,632	*

J. Antony Chi 7759 N.W. 146 Street Miami Lakes, FL 33016	Common	10,000,000	*

John Vincent 7759 N.W. 146 Street Miami Lakes, FL 33016	Common	10,000,000	*
	All Officers And Directors As A Group (7 Persons)	454,607,449	76.69%

_______________

Less than one percent (1%).

(1)

Applicable percentage of ownership is based on 592,799,337 shares of our common stock outstanding as of April 14, 2008 for each stockholder. Beneficial ownership is determined in accordance within the rules of the SEC and generally includes voting of investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of April 15, 2008 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2)

Unless otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN

The following table sets forth the securities that have been authorized under equity compensation plans as of December 31, 2007.


EQUITY COMPENSATION PLAN INFORMATION
	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	--	--	--
Equity compensation plans not approved by security holders	--	--	--
TOTAL	--	--	--


ITEM 12.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

During the past two (2) years, Pacer has not entered into a transaction with a value in excess of $60,000 with a director, officer or beneficial owner of five percent (5%) or more of Pacer’s common stock, except as disclosed in the following paragraphs.

During the year ended December 31, 2007 and 2006, the Company received funds of $64,000 and $849,000 from its Chairman of the Board and Chief Executive Officer. These advances received bear a flat interest rate of three percent (3%) and have no due date. During the year ended December 31, 2007 and 2006, the Company repaid $1,000 and $865,529 of the outstanding amount. At December 31, 2007, the Company had outstanding loans payable of $63,000 to this individual.

The Company currently outsources its patient accounting function, which includes the issuance of patient bills to third party payors and the accounting of receipts, to a company owned by certain officers of the Company, including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. The Company pays to the professional billing firm four percent (4%) of its net collected revenue. For the year ended December 31, 2007, the Company has been billed $865,855 by the billing company.

The following directors are independent: Mr. Eugene Marini, Mr. Marcelo Llorente, Mr. Alfredo Jurado, Esq. and Dr. Eric Pantaleon, M.D. Mr. Rainier Gonzalez is not an independent director as he serves as the Company’s Chief Executive Officer.


ITEM 13.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

See Index to the Company’s Financial Statements attached which are filed as a part of this Report following the signature pages hereto.

(b)

Exhibits


Exhibit No.	Description	Location
2.1	Merger Agreement, dated July 26, 2003, between among others, Infe, Inc. and Pacer Health Corporation	Incorporated by reference to Exhibit 99.1 to Form 8-K filed on July 3, 2003
2.2	Asset Purchase Agreement dated April 14, 2003 between Pacer Health Corporation and AAA Medical Center, Inc.	Incorporated by reference to Exhibit 2.2 to Form 10-QSB filed on October 20, 2003
2.3	Promissory Note, Amendment No. 1, Entered Into By Pacer Health Corporation in Favor of AAA Medical Center, Inc. dated June 23, 2003 between Infe, Inc. and Daniels Corporate Advisory Company, Inc.	Incorporated by reference to Exhibit 2.3 to Form 10-QSB filed on October 20, 2003
3.1	Articles of Incorporation of Infocall Communications Corp.	Incorporated by reference to Exhibit 3(i) to Form 10-SB/12G filed on December 30, 1999.
3.2	Articles of Amendment to Articles of Incorporation of Infocall Communications Corp.	Incorporated by reference to Exhibit 3(i)(1) to Form 10-SB/12G filed on December 30, 1999.
3.3	Amended and Restated Articles of Incorporation of Infocall Communications Corp.	Incorporated by reference to Exhibit 3.4 to Form SB-2 filed on September 15, 2000
3.4	Certificate of Amendment to Certificate of Incorporation of Infe, Inc.	Incorporated by reference to Exhibit 1.1 to Form 10-QSB filed on October 15, 2001
3.5	Articles of Amendment to Articles of Incorporation of Infe, Inc.	Incorporated by reference to Exhibit 3.5 to Form 10-QSB filed on October 20, 2003
3.6	Articles of Amendment to Amended and Restated Articles of Incorporation of Infe, Inc.	Incorporated by reference to Exhibit 3.6 to Form SB-2 filed on January 16, 2004.
3.7	Bylaws of Infe, Inc.	Incorporated by reference to Exhibit 3.7 to Form SB-2 filed on January 16, 2004.
4.1	Specimen Stock Certificate	Incorporated by reference to Exhibit 4.1 to Form SB-2 filed on September 15, 2000.
10.1	Securities Purchase Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LP	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.2	Investor Registration Rights Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LP	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.3	Secured Convertible Debenture, dated effective April 1, 2006, issued to Cornell Capital Partners, LP	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.4	Amended and Restated Security Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LP	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.5	Form of Subsidiary Security Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LP	Incorporated by Reference to Form 8-K filed on April 7, 2006


10.6	Insider Pledge and Escrow Agreement, dated effective April 1, 2006, by and among Rainier Gonzalez, the Company, Cornell Capital Partners, LP and David Gonzalez, Esq.	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.7	Warrant, dated effective April 1, 2006, issued to Cornell Capital Partners, LP	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.8	Irrevocable Transfer Agent Instructions, dated effective April 1, 2006, between and among the Company, Cornell Capital Partners, LP and Transfer Agent	Incorporated by Reference to Form 8-K filed on April 7, 2006
10.9	Purchase Agreement, dated September 29, 2006, by and between Pacer Holdings of Lafayette, Inc. and Southpark Holdings II, LLC	Incorporated by Reference to Exhibit 10.21 to Form 10-QSB/A filed on March 23, 2007
10.10	Promissory Note dated September 29, 2006 by and between Pacer Holdings of Lafayette, Inc. and Southpark Holdings II, LLC	Incorporated by Reference to Exhibit 10.22 to Form 10-QSB/A filed on March 23, 2007
10.11	Asset Purchase Agreement, dated September 29, 2006, by and among Health Systems real Estate, Inc., Greene County Nursing Center, LLC and Pacer Health Management Corporation of Georgia	Incorporated by Reference to Exhibit 10.23 to Form 10-QSB/A filed on March 23, 2007
10.12	Lease, dated September 29, 2006, by and between Health Systems Real Estate, Inc. and Pacer Health Management Corporation of Georgia	Incorporated by Reference to Exhibit 10.24 to Form 10-QSB/A filed on March 23, 2007
10.13	Bill of Sale, dated September 29, 2006, by and between Health Systems Real Estate, Inc. and Pacer Health Management Corporation of Georgia	Incorporated by Reference to Exhibit 10.25 to Form 10-QSB/A filed on March 23, 2007
10.14	Assignment and Assumption Agreement For Resident Trust Funds, dated September 29, 2006, by and between Pacer Health Management Corporation of Georgia and Greene County Nursing Center, LLC	Incorporated by Reference to Exhibit 10.26 to Form 10-QSB/A filed on March 23, 2007
10.15	Assignment and Assumption Agreement, dated September 29, 2006, by and among Pacer Health Management Corporation of Georgia, Health Systems Real Estate, Inc. and Greene County Nursing Center, LLC	Incorporated by Reference to Exhibit 10.27 to Form 10-QSB/A filed on March 23, 2007
10.16	Interim Reimbursement Letter, dated September 29, 2006, from Greene County Nursing Center, LLC to Pacer Health Management Corporation of Georgia	Incorporated by Reference to Exhibit 10.28 to Form 10-QSB/A filed on March 23, 2007
10.17	Letter of Intent between Revival Healthcare, Inc. and Registrant dated December 9, 2003.	Incorporated by reference to Exhibit 10.10 to Form SB-2 filed on January 16, 2004.
10.18	Management and Acquisition Agreement, dated February 2, 2004, by and between Pacer Health Management Corporation and Camelot Specialty Hospital of Cameron, LLC.	Incorporated by reference to Form 8-K filed on February 11, 2004.
10.19	Asset Purchase Agreement, dated March 22, 2004, by and between Pacer Health Management Corporation and Camelot Specialty Hospital of Cameron, L.L.C.	Incorporated by Reference to Form 8-K filed on April 5, 2004
10.20	Hospital Operating Lease Agreement, dated December 31, 2006 and effective as of December 31, 2006, by and among Pacer Health Management Corporation of Kentucky, Knox Hospital Corporation and The County of Knox, Kentucky	Incorporated by Reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K as filed with the SEC on January 12, 2007


10.21	Securities Purchase Agreement dated as of July 6, 20067, by and between the Company and Cornell Capital Partners, L.P.	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.22	Convertible Debenture, dated as of July 6, 2007, issued by the Company to Cornell Capital Partners, L.P.	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.23	Warrant, dated as of July 6, 2007, issued by the Company to Cornell Capital Partners, L.P.	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.24	Security Agreement, dated as of July 6, 2007, by and between the Company, the Company’s subsidiaries made a party thereto and Cornell Capital Partners, L.P.	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.25	Pledge & Escrow Agreement, dated as of July 6, 2007, by and between the Pledgors named therein, David Gonzalez, Esq. as escrow agent and Cornell Capital Partners, L.P.	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.26	Registration Rights Agreement, dated as of July 6, 2007, by and between the Company and Cornell Capital Partners, L.P.	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.27	Irrevocable Transfer Agent Instructions, dated as of July 6, 2007, by and among the Company, Cornell Capital Partners, L.P., David Gonzalez ,Esq. as escrow agent and Computershare Transfer Company, Inc., as transfer agent	Incorporated by Reference to Form 8-K filed on July 6, 2007.
10.28	Amended and Restated Securities Purchase Agreement, dated September 18, 2007, by and between the Company and YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.)	Incorporated by Reference to Exhibit 10.28 to Form 10-QSB filed on November 19, 2007
10.29	Convertible Debenture, dated as of September 18, 2007, issued by the Company to YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.)	Incorporated by Reference to Exhibit 10.29 to Form 10-QSB filed on November 19, 2007
10.30	Asset Purchase Agreement, dated March 7, 2008, by and among Pacer Health Management Corporation of Georgia and Saint Joseph’s at East Georgia, Inc.	Incorporated by Reference to Form 8-K filed on April 3, 2008.
10.31	General Assignment, Bill of Sale and Assumption of Liabilities, dated March 7, 2008, by and between Pacer Health Corporation and Saint Joseph’s at East Georgia, Inc.	Incorporated by Reference to Form 8-K filed on April 3, 2008.
10.32	Limited Warrant Deed and Quit Claim Deed for the Owned Real Property, dated March 7, 2008, by and between Pacer Health Management Corporation of Georgia and Saint Joseph’s at East Georgia, Inc.	Incorporated by Reference to Form 8-K filed on April 3, 2008.
10.33	Sublease as to the Leased Real Property, dated March 7, 2008, by and between Saint Joseph’s at East Georgia, Inc. and Pacer Health Management Corporation of Georgia	Incorporated by Reference to Form 8-K filed on April 3, 2008.
10.34	First Amendment to Lease and Lessor Consent to Sublease Agreement, dated March 7, 2008, by and among Health Systems Real Estate, Inc., Pacer Health Management Corporation of Georgia and Pacer Health Corporation	Incorporated by Reference to Form 8-K filed on April 3, 2008.


10.35	Restrictive Covenant Agreement, dated March 7, 2008, by and between Pacer Health Corporation and Saint Joseph’s at East Georgia, Inc.	Incorporated by Reference to Form 8-K filed on April 3, 2008.
10.36	Guaranty, dated March 7, 2008, by and between Pacer Health Corporation and Saint Joseph’s at East Georgia, Inc.	Incorporated by Reference to Form 8-K filed on April 3, 2008.
10.37	Securities Purchase Agreement, dated April 1, 2008, by and between the Company and YA Global Investments, L.P.	Incorporated by Reference to Form 8-K filed on April 8, 2008.
10.38	Debenture, dated April 1, 2008, issued by the Company to YA Global Investments, L.P.	Incorporated by Reference to Form 8-K filed on April 8, 2008.
10.39	Warrant, dated April 1, 2008, issued by the Company to YA Global Investments, L.P.	Incorporated by Reference to Form 8-K filed on April 8, 2008.
10.40	Amended and Restated Security Agreement, dated April 1, 2008, by and among the Company, the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.	Incorporated by Reference to Form 8-K filed on April 8, 2008.
10.41	Registration Rights Agreement, dated April 1, 2008, by and between the Company and YA Global Investments, L.P.	Incorporated by Reference to Form 8-K filed on April 8, 2008.
10.42	Irrevocable Transfer Agent Instructions, dated April 1, 2008, by and among the Company, YA Global Investments, L.P., David Gonzalez, Esq. and Computershare Trust Company, N.A., as transfer agent	Incorporated by Reference to Form 8-K filed on April 8, 2008.
10.43	Escrow Agreement, dated April 1, 2008, by and among the Company, Yorkville Advisors LLC, YA Global Investments, L.P. and David Gonzalez, Esq., as escrow agent	Incorporated by Reference to Form 8-K filed on April 8, 2008.
14.1	Code of Ethics	Incorporated by Reference to Form 10-KSB filed on April 14, 2004.
21.1	Subsidiaries of the Registrant	Provided herewith
31.1	Section 302 Certification of Principal Executive Officer	Provided herewith
31.2	Section 302 Certification of Principal Financial Officer	Provided herewith
32.1	Section 906 Certification of Principal Executive Officer	Provided herewith
32.2	Section 906 Certification of Principal Financial Officer	Provided herewith


ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

For the fiscal years ended December 31, 2007 and 2006, Pacer incurred fees to Salberg & Company, P.A. of $159,000 and $149,000, respectively, for auditing and review work.

Audit Related Fees

For the fiscal years ended December 31, 2007 and 2006, Pacer incurred fees to Salberg & Company, P.A. for audit related work including registration related reviews and acquisition audits of $10,000 and $13,000, respectively.

Salberg & Company, P.A. has provided no other services to Pacer other than those described above. The Board pre-approved all work to be done by Salberg & Company, P.A., which included audit work and review of various filings with the SEC.

SIGNATURES

In accordance with the requirements of the Exchange Act, as amended, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PACER HEALTH CORPORATION


April 15, 2008	By: /s/ Rainier Gonzalez
	Rainier Gonzalez, Chief Executive Officer and President


April 15, 2008	By: /s/ J. Antony Chi
	J. Antony Chi, Chief Financial Officer

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




April 15, 2008	By: /s/ Rainier Gonzalez
	Rainier Gonzalez, Director


April 15, 2008	By: /s/ Eric Pantaleon, M.D.
	Eric Pantaleon, M.D., Director


April 15, 2008	By: /s/ Alfredo Jurado
	Alfredo Jurado, Director


April 15, 2008	By: /s/ Marcelo Llorente
	Marcelo Llorente, Director


April 15, 2008	By: /s/ Eugene Marini
	Eugene Marini, Director

Pacer Health Corporation And Subsidiaries

Consolidated Financial Statements

December 31, 2007

TABLE OF CONTENTS



Report Of Independent Registered Public Accounting Firm	F-1
Financial Statements
Consolidated Balance Sheet	F-2
Consolidated Statements Of Operations	F-3
Consolidated Statements of Changes in Stockholder’s Equity (Deficiency)	F-4
Consolidated Statements Of Cash Flows	F-5
Notes To Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

To the Board of Directors and Shareholders of:

Pacer Health Corporation

We have audited the accompanying consolidated balance sheet of Pacer Health Corporation as of December 31, 2007, and the related consolidated statements of operations, changes in stockholders’ equity (deficiency), and cash flows for the years ended December 31, 2007 and 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pacer Health Corporation at December 31, 2007, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.

/s/ SALBERG & COMPANY, P.A.

Boca Raton, Florida

April 14, 2008

F-1


Pacer Health Corporation and Subsidiaries
Consolidated Balance Sheet
December 31, 2007

ASSETS

Current Assets
Cash	$	46,384
Patient accounts receivable, net		5,068,034
Other accounts receivable		448,953
Supplies		668,556
Prepaid expenses		334,530
Assets held for sale from discontinued operations		1,369,697
Total Current Assets		7,936,154

Property and equipment, net		4,778,044

Other Assets
Deposits		275
Debt costs, net		19,055
Goodwill		1,216,318
Total Other Assets		1,235,648

Total Assets	$	13,949,846

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities
Bank overdraft liability	$	757,246
Accounts payable		3,565,034
Accounts payable, related party		65,648
Accrued wages and related payroll taxes		1,970,185
Accrued interest payable		240,411
Deposit held for sale of asset		100,000
Accrued rent		2,675
Accrued expenses		151,001
Capital leases, current portion		16,888
Notes payables, current portion		250,764
Settlements payable, current portion		136,333
Loans payable, current portion		325,000
Medicare payable, current portion		1,820,026
Finance obligation on sale-leaseback of real property, current portion		15,516
Liabilities of discontinued operations		117,039
Shareholder loan payable		63,000


Total Current Liabilities		9,596,766

Long Term Liabilities
Capital leases		80,898
Note payable, net of current portion		86,063
Settlements payable, net of current portion		155,556
Convertible debenture, net of debt discount of $1,886,869		2,113,131
Medicare payable, net of current portion		1,347,847
Finance obligation on sale-leaseback of real property		1,780,764
Total Long Term Liabilities		5,564,259

Total Liabilities		15,161,025

Commitments and Contingencies (Note 10)

Minority Interest in Consolidated Subsidiary Company		8,612,814

Stockholders' Equity (Deficiency)
Preferred stock, Series A, $0.0001 par value, 20,000,000
shares authorized, none issued and outstanding		-
Common stock, $0.0001 par value, 930,000,000 shares authorized
585,799,337 issued and outstanding		58,580
Common stock issuable (30,000,000 shares)		3,000
Additional paid in capital		6,589,325
Accumulated deficit		(16,474,898)
Total Stockholders' Equity (Deficiency)		(9,823,993)

Total Liabilities and Stockholders' Equity (Deficiency)	$	13,949,846
See accompanying notes to consolidated financial statements
F-2


Pacer Health Corporation and Subsidiaries
Consolidated Statements of Operations

		For Year Ended December 31,
		2007		2006
Revenues
Patient services revenues, net	$	29,969,517	$	3,624,602
Management services fees		300,000		475,000
Total Revenues		30,269,517		4,099,602

Operating Expenses
Advertising		46,740		19,410
Amortization of debt costs		10,202		19,688
Bad debt expense		8,371,491		661,068
Contract labor		1,871,908		496,118
Depreciation		238,552		2,691
Insurance		797,560		328,233
Liquidated damages		235,000		185,000
Loan fee		541,154		65,569
Medical supplies		3,090,934		341,429
Patient expenses		393,607		18,564
Professional fees		729,659		616,613
Rent		1,653,731		355,383
Repairs and maintenance		455,505		17,589
Salaries and wages		12,409,288		2,578,133
Travel		348,326		411,837
Utilities		452,421		59,340
General and administrative		1,064,093		225,361
Total Operating Expenses		32,710,171		6,402,026

Loss from Operations		(2,440,654)		(2,302,424)

Other Income (Expense)
Loss on settlement of debt		(298,748)		-
Gain on disposal of assets		980,458		65,100
Change in fair value of derivatives		87,086		(70,593)
Writeoff of preacquisition liabilities		99,583		-
Other income		60,746		4,101
Interest expense		(2,079,630)		(1,024,251)
Total Other Expense, net		(1,150,512)		(1,025,643)

Minority Interest in Net Income/(Loss) of Consolidated Subsidiaries		198,542		-

Loss from Continuing Operations	$	(3,392,624)	$	(3,328,067)


Discontinued Operations
Loss from operations of discontinued component
(including gain on disposal of $4,433,895 in 2006)			(3,161,459)		(4,308,677)
Loss from Discontinued Operations			(3,161,459)		(4,308,677)

Net Loss		$	(6,554,083)	$	(7,636,744)

Net Loss Per Share - Basic and Diluted

Loss from continuing operations		$	(0.01)	$	(0.01)
Loss from discontinued operations		$	(0.01)	$	(0.01)

Net Loss Per Share - Basic and Diluted		$	(0.01)	$	(0.01)

Weighted average number of shares outstanding
	during the period - basic and diluted		583,248,780		575,951,576

See accompanying notes to consolidated financial statements
F-3


Pacer Health Corporation and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
Years Ended December 31, 2007 and 2006



	Preferred Stock Series A		Common Stock		Common Stock Issuable		Paid-in	Accumulated	Deferred
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Deficit	Compensation	Total

Balance December 31, 2005	-	$ -	573,026,246	$57,302	-	$ -	$2,148,422	$ (2,284,071)	$ (60,000)	$(138,347)

Reclassification of warrants to warrant liability							(5,415)			(5,415)

Reclassification of embedded conversion option liability to equity							197,547			197,547

Stock issued to employees in connection with employment agreements			7,000,000	700			104,300		(105,000)	-

Stock issued for consulting services	-	-	100,000	10			1,490			1,500

Stock issued for directors fees			370,528	37			7,963			8,000

Amortization of deferred compensation	-	-	-	-					102,500	102,500

Reclass upon implementation of SFAS 123(R)	-	-	-	-			(62,500)		62,500	-

Membership Interest Contribution received	-	-	-	-			110,289			110,289



Net Loss								(7,636,744)		(7,636,744)

Balance December 31, 2006	-	$ -	580,496,774	$58,049	-	$ -	$ 2,502,096	$ (9,920,815)	$ -	$(7,360,670)

Cancellation of stock previously issued			(2,000,000)	(200)			200			-

Stock issued to employees in connection with employment agreements			-	-	30,000,000	3,000	217,000		(70,000)	150,000

Stock issued for directors fees			1,533,332	153			15,847			16,000

Amortization of deferred compensation	-	-	-	-					107,500	107,500

Reclass upon implementation of SFAS 123(R)	-	-	-	-			37,500		(37,500)	-

Redeemed portion of embedded conversion option liability due to debenture conversion							135,657			135,657

Reclass of warrant liability due to extinguishment of debt							121,757			121,757

Reclass of embedded conversion option liability due to extinguishment of debt							1,303,473			1,303,473


Issuance of convertible debentures and warrants (debt discount)							2,266,372			2,266,372

Conversion of secured debenture			5,769,231	577			29,423			30,000

Minority interest dividends							(40,000)			(40-,000)

Net Loss								(6,554,083)		(6,554,083)

Balance December 31, 2007	-	$ -	585,799,337	$ 58,580	30,000,000	$ 3,000	$ 6,589,325	$ (16,474,898)	$ -	$(9,823,993)

See accompanying notes to consolidated financial statements
F-4


Pacer Health Corporation and Subsidiaries
Consolidated Statements of Cash Flows


						Year Ended December 31,
						2007		2006
Cash Flows from Operating Activities:
	Net Income/(Loss)				$	(6,554,083)	$	(7,636,744)
	Adjustments to reconcile net income/(loss) to net cash used in
		operating activities:
			Amortization of debt discount to interest expense			1,165,294		650,392
			Amortization of debt issue costs			12,581		19,688
			Bad debt expense			13,308,641		3,956,709
			Depreciation			372,430		1,215,380
			Minority interest			(198,542)		-
			Gain on writeoff of pre-recapitalization liabilties			(99,583)		-
			Gain on sale of nursing home assets			-		(637,196)
			Gain on partial sale of subsidiary			(980,458)		(1,433,895)
			Amortization of stock based expenses			107,500		102,500
			Stock issued to employees for services			150,000		-
			Stock issued for services			16,000		9,500
			Change in fair market value of derivatives			(87,086)		70,593
		Changes in operating assets and liabilities:
			(Increase) decrease in:
				Patient receivables		(12,181,357)		(5,499,028)
				Other receivables		(268,236)		(186,686)
				Supplies		72,856		(49,286)
				Prepaids and other current assets		573,273		439,430
			Increase (decrease) in:
				Accounts payable		1,014,680		2,014,364
				Settlements payable		32,889		(6,500)
				Accrued interest payable		156,096		75,946
				Accrued wages payable		704,548		1,108,861
				Accrued expenses		(89,997)		(95,485)
				Accrued rent		(179,000)		428
				Accrued liquidated damages		235,000		185,000
				Accrued professional fees		(40,550)		40,550
				Escrow		-		(575,000)
				Medicare payable		(477,004)		1,744,873
				Other current liabilities		(3,855)		2,761
				Net Cash Used in Operating Activities		(3,237,963)		(4,482,845)

Cash Flows from Investing Activities:
				Acquisition of property, plant and equipment		(491,309)		(239,479)
				Deposit paid for future acquisitions				(75,000)
				Receipt of refund of deposit		75,000
				Deposit held for future sale of assets		100,000		-
				Cash acquired in acquisition of subsidiaries		-		340,389
				Cash overdraft on disposed subsidiary		-		226,333
				Proceeds from sale of nursing home asset		-		780,000
				Net Cash Provided by/(Used in) Investing Activities		(316,309)		1,032,243

Cash Flows from Financing Activities:
				Proceeds from loan payable - related party		64,000		849,000
				Repayments of loan payable - related party		(1,000)		(865,529)
				Cash overdraft		439,588		317,658
				Proceeds from issuance of convertible debenture and related capitalized expenses		3,630,502		1,732,758


		Repayment of convertible debenture		(1,221,252)		(250,000)
		Proceeds from property sale treated as financing		-		1,810,000
		Repayments of loans payable		(211,100)		(832,599)
		Repayments of capitalized lease obligations		(2,013)		(287,285)
		Minority interest capital contribution		1,200,000		639,739
		Repayments of note payable		(633,102)		(566,610)
		Proceeds from note payable		-		80,278
		Distributions to minority interest		(61,000)		-
		Net Cash Provided by Financing Activities		3,204,623		2,627,410

Net Increase/(Decrease) in Cash				(349,649)		(823,192)

Cash, Beginning of Year			$	396,033	$	1,219,225

Cash, End of Year			$	46,384	$	396,033

Supplemental Disclosure of Cash Flow Information:
Cash Paid for:
	Interest		$	1,148,633	$	1,028,847
	Taxes		$	-	$	-
Supplemental Disclosure of Non Cash Investing and Financing Activities:
	Insurance policies financed and recorded as prepaid insurance		$	382,869	$	487,178
	Financed equipment purchases		$	12,947	$	75,653
	Financed land additions		$	-	$	505,822
	Warrant liability recorded as debt discount		$	2,266,372	$	627,200
	Embedded conversion option liability recorded as debt discount		$	-	$	1,142,313
	Reclassification of warrant value to liabilities from equity		$	-	$	5,414
	Reclassification of embedded conversion option liability to equity		$	-	$	197,547
	Reclassification of deferred compensation to additional paid-in capital		$	107,500	$	62,500

See accompanying notes to consolidated financial statements
F-5


Cash	$	460,188
Accounts receivable, net		1,197,343
Supplies		262,685
Prepaid insurance		102,372
Fixed assets		731,107
Liabilities		(1,645,019)

Purchase Price	$	1,108,676


Cash	$	126,726
Accounts receivable, net		1,390,059
Inventory		120,000
Prepaid insurance and other current assets		142,356
Fixed assets		16,032,505
Goodwill		4,250,224
Liabilities		(19,611,870)
Purchase Price	$	2,450,000

Goodwill (see adjustment below to acquired Goodwill relating to minority interest)		4,250,224
Minority interest portion of Goodwill charged to Additional Paid-In Capital		(720,090)
Goodwill recorded	$	3,530,134


Land	$	127,699
Building and improvements		3,773,443
Equipment		1,299,772
Furniture & Fixtures		5,000
Less: accumulated depreciation		(427,870)
Property and Equipment, net	$	4,778,044


Insurance Note Payable dated July 2007, original principal of $70,088, annual interest rate of 6.750%, maturity date April 2008.	$	26,839
Insurance Note Payable dated December 2007, original principal of $90,545, annual interest rate of 6.600%, maturity date October 2008.		75,165
Note payable dated July 31, 1994, original principal of $37,150, annual interest rate of 6.941%, originally due July 15, 2011.		11,763
Construction loan (land) – dated June 2006, original principal of $536,100, original term 24 months, annual interest rate 12%, quarterly interest only payments, principal due at maturity.		325,000
Insurance Note Payable dated April 2007, original principal of $104,706, annual interest rate of 6.750%, maturity date January 2008.		10,677
Insurance Note Payable dated September 2007, original principal of $34,532, interest rate of 11.242%, maturity date May 2008.		15,706
Note Payable dated August 2006, original principal of $131,577, annual interest rate of 9.00%, maturity date August 2011.		101,954
Capital lease (medical equipment) – original principal of $99,799, original term 60 months, annual interest rate 8.0609%.		97,786
Insurance Note Payable dated June 2007, original principal of $212,458, annual interest rate of 8.640%, maturity date February 2008.		48,406
Insurance Note Payable dated December 2007, original principal of $46,317, maturity date August 2008.		46,317


Total	$	759, 613
Current Portion	$	592,652
Long Term Portion	$	166,961


Finance obligation on sale leaseback of real property on September 29, 2006 for $1,810,000	$	1,796,280


	For the Period Ended December 31, 2001	For the Period Ended December 31, 2003	For the Period Ended December 31, 2004	For the Period Ended December 31, 2005	For the Period Ended December 31, 2006
Principal Outstanding at December 31, 2007	$491,598	$523,481	$625,143	$1,018,462	$162,850
Long Term Principal	--	--	$393,614	$762,270	--
Monthly Payment Amount	$11,247	$16,596	$17,873	$29,582	$4,075
Maturity Date	September 2009	January 2008	January 2011	June 2011	March 2012


	Medicaid Payable	For the Period Ended December 31, 2005
Principal Outstanding at December 31, 2007	$145,249	$6,875
Long Term Principal	--	--
Monthly Payment Amount	$4,152	$12,500
Maturity Date	Various	January 2008


	For the Period Ended June 30, 2000	For the Period Ended June 30, 2005 (Medicaid)	For the Period Ended November 30, 2005
Principal Outstanding at December 31, 2007	$151,833	$132,152	$75,060
Long Term Principal	--	$90,619	$32,169
Monthly Payment Amount	$8,096	$3,776	$3,574
Maturity Date	September 2009	December 2010	September 2009



Period Ending December 31:
2007	$	1,638,690
2008		2,110,774
2009		2,107,659
2010		2,107,579
2011		2,107,686
Thereafter		--

	$	10,072,388


	Convertible Debenture Issued April 1, 2006	Convertible Debenture Issued May 5, 2006
Principal liability	1,000,000	1,000,000
Debt issue costs	37,923	14,319
Debt discount from lender fees	115,000	100,000
Debt discount from embedded conversion option	257,800	884,513
Debt discount from warrants issued with convertible debenture	627,200	-
Initial embedded convertible option liability	257,800	884,513
Initial warrant liability	627,200	-
Initial warrant liability reclassed from equity	5,415	-


		2007		2006
Computed “expected” tax expense (benefit)	$	(2,228,388)	$	(2,596,493)
State taxes net of Federal benefits		(236,219)		(276,815)
Other non-deductible items		15,870		3,733
Change in valuation allowance		2,448,737		2,869,676
Other		-		(102)
	$	-	$	-


Deferred tax (assets)/liabilities:
Accrued vacation	$	(21,632)
Depreciation		(98,341)
Reserve for bad debts		(530,092)
Net operating loss carryforward		(4,971,994)
Total gross deferred tax assets		(5,622,059)
Less valuation allowance		5,622,059
Net deferred tax assets	$	-


EXHIBIT 21.1	SUBSIDIARIES OF PACER HEALTH CORPORATION


Date: April 15, 2008	By: /s/ Rainier Gonzalez
	Name: Rainier Gonzalez
	Title: Chief Executive Officer


Date: April 15, 2008	By: /s/ J. Antony Chi
	Name: J. Antony Chi
	Title: Chief Financial Officer