_

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934, AS AMENDED:

For the Quarterly Period Ended June 30, 2008

_________________________________

Commission File No. 000-28729

_________________________________

PACER HEALTH CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Florida	11-3144463
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

15050 NW 79^th Court, Suite 201, Miami Lakes, FL	33016
(Address of Principal Executive Offices)	(Zip Code)

(305) 828-7660
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

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

As of August 14, 2008, the issuer had 593,999,337 shares of common stock, par value of $0.001, issued and outstanding.

TABLE OF CONTENTS

PART I

Item 1. Financial Statements .

Item 2. Management’s Discussion and Analysis or Plan of Operation.

Item 4. Controls and Procedures .

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 3. Defaults Upon Senior Securities .

Item 4. Submission of Matters to a Vote of Security Holders .

Item 5. Other Information.

Item 6. Exhibits .

SIGNATURES

PART I

Item 1. Financial Statements


Pacer Health Corporation and Subsidiaries
Consolidated Balance Sheet

ASSETS

		June 30,		December 31,
		2008		2007
		(Unaudited)
Current Assets
Cash	$	544,057	$	46,384
Patient accounts receivables, net		5,025,028		5,068,034
Transportation trade receivables		1,514,700		-
Other receivables		1,105,978		448,953
Due from factor		389,534		-
Medicare receivable		937,507		-
Supplies		705,348		668,556
Prepaid expenses		1,197,725		334,530
Note receivable, current portion		200,000		-
Assets held for sale from discontinued operations		-		1,369,697
Total Current Assets		11,619,877		7,936,154

Property and equipment, net		5,536,318		4,778,044

Other Assets
Note receivable, net of current portion		200,000		-
Deposits		100,239		275
Debt issue costs, net		16,895		19,055
Goodwill		1,278,018		1,216,318
Total Other Assets		1,595,152		1,235,648

Total Assets	$	18,751,347	$	13,949,846

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities
Accounts payable	$	3,685,379	$	3,630,682
Bank overdraft liability		1,091,322		757,246
Accrued wages and related payroll taxes		2,511,211		1,970,185


Accrued interest payable	401,002	240,411
Accrued rent	11,766	2,675
Accrued expenses	124,535	151,001
Deposit held for sale of asset	-	100,000
Settlements payable, current portion	-	136,333
Capital leases, current portion	71,963	16,888
Factor liability on transferred accounts receivable	1,810,270	-
Notes payable, current portion	800,052	250,764
Loans payable, current portion	-	325,000
Medicare payable, current portion	1,002,922	1,820,026
Finance obligation on sale-leaseback of real property, current portion	17,642	15,516
Patient deposits	1,434	-
Shareholder loan payable	13,000	63,000
Escrow	305,105	-
Warrant liability	2,861,994	-
Embedded conversion option liability	5,270,919	-
Liabilities of discontinued operations	-	117,039
Total Current Liabilities	19,980,516	9,596,766

Long Term Liabilities
Security deposits	41,328	-
Settlements payable, net of current portion	-	155,556
Capital leases	75,044	80,898
Notes payable, net of current portion	64,110	86,063
Medicare payable, net of current portion	1,798,326	1,347,847
Finance obligation on sale-leaseback of real property, net of current portion	1,771,377	1,780,764
Convertible debentures, net of debt discount of $5,643,540	3,542,477	2,113,131
Total Long Term Liabilities	7,292,662	5,564,259

Total Liabilities	27,273,178	15,161,025

Minority Interest in Consolidated Subsidiary Company	8,612,814	8,612,814

Commitments and Contingencies (Note 12)

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
588,199,337 and 585,799,337 issued and outstanding
at June 30, 2008 and December 31, 2007, respectively	58,820	58,580
Common stock issuable (30,000,000 shares)	3,000	3,000
Additional paid in capital	5,616,544	6,589,325


Accumulated deficit		(22,813,009)		(16,474,898)
Total Stockholders' Equity (Deficiency)		(17,134,645)		(9,823,993)

Total Liabilities and Stockholders' Equity (Deficiency)	$	18,751,347	$	13,949,846

See accompanying notes to unaudited consolidated financial statements.


Pacer Health Corporation and Subsidiaries
Consolidated Statements of Operations


		Three Months Ended June 30,				Six Months Ended June 30,
		2008		2007		2008		2007
Revenue
Patient services revenues, net	$	7,993,466	$	7,047,691	$	15,694,977	$	15,123,157
Transportation services
revenue		2,142,545		-		2,142,545		-
Management services fees		-		75,000		50,000		150,000
Total Revenues		10,136,011		7,122,691		17,887,522		15,273,157

Operating Expenses
Advertising		8,995		14,606		19,090		21,829
Amortization of Debt Costs		-		1,171		-		4,682
Bad debt expense		2,166,359		1,483,608		3,912,811		2,893,340
Contract labor		808,622		645,354		1,682,593		1,061,762
Depreciation		72,796		56,878		137,488		122,627
Direct transportation expenses		1,611,746		-		1,611,746		-
Insurance		389,702		197,193		691,251		339,436
Liquidated Damages		-		100,000		-		205,000
Loan fee		49,998		(63,034)		49,998		71,830
Medical Supplies		782,690		1,039,206		1,405,516		1,645,481
Patient Expenses		129,728		111,087		256,212		202,521
Professional fees		233,460		268,859		422,067		440,858
Rent		719,844		371,946		1,134,350		882,171
Repairs and Maintenance		176,581		111,363		359,944		226,965
Salaries and wages		3,919,788		3,001,629		7,372,218		5,859,632
Travel		99,765		114,332		180,000		149,068
Utilities		151,350		110,067		336,134		168,662
General and administrative		472,212		377,864		673,117		593,878
Total Operating Expenses		11,793,636		7,942,129		20,244,535		14,889,742

Net Income/(Loss) from Operations		(1,657,625)		(819,438)		(2,357,013)		383,415

Other Income (Expense)
Other Income / (Expense)		(15,193)		31,510		26,945		32,079
Writeoff of preacquisition
liabilities		-		-		-		99,583
Gain on settlement payable		-		-		90,000		-
Gain on Sale of Minority
Interest		500,000		980,458		500,000		980,458
Redemption fee		-		-		(44,449)		-
Gain on purchase of notes		-		-		-		-
receivable		659,822		-		659,822		-
Change in fair market value of
Derivatives		(2,942,084)		(285,635)		(2,942,084)		(29,451)
Loss on foreclosure		(3,807,537)		-		(3,807,537)		-

Interest expense

(814,142)

(418,178)

(1,475,003)

(719,611)

Total Other Income /

(Expense), net

(6,419,134)

308,155

(6,992,306)

363,058

Minority Interest in Net

Income of Consolidated

Subsidiary Company

198,542

Net Income/(Loss) from

Continuing Operations

(8,076,759)

(312,741)

(9,349,319)

945,015

Discontinued Operations

Gain/(loss) from operations of

Discontinued component

(including gain on disposal

of $4,433,895)

1,502,969

210,283

3,011,208

(1,207,905)

1,502,969

210,283

3,011,208

(1,207,905)

Net Income/(Loss)

(6,573,790)

(102,458)

(6,338,111)

(262,890)

Net Income/(Loss) Per Share -

Basic and Diluted

Income/(Loss) from continuing

operations

(0.01)

(0.00)

(0.02)

0.00

Income/(Loss) from discontinued

operations

0.00

0.01

(0.00)

Net Income/(Loss) Per Share -

Basic and Diluted

(0.01)

(0.00)

(0.01)

(0.00)

Weighted average number of shares outstanding

during the period - basic

and diluted

587,969,503

580,696,774

587,957,579

581,107,824

See accompanying notes to unaudited consolidated financial statements


Pacer Health Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)


						Six Months Ended June 30,
						2008		2007
Cash Flows from Operating Activities:
	Net Income/(Loss)				$	(6,338,112)	$	(262,890)
	Adjustments to reconcile net income/(loss) to net cash used in
		operating activities:
			Amortization of debt discount to interest expense			787,534		432,661
			Amortization of debt issue costs			6,612		7,061
			Bad debt expense			4,449,663		5,102,965
			Gain on writeoff of pre-recapitalization liabilities			-		(99,583)
			Gain on sale of subsidiary			(2,352,917)		(980,458)
			Gain on purchase of note receivable			(659,822)		-
			Loss on settlement of debt			3,807,537		-
			Depreciation			164,295		187,112
			Minority interest			-		(198,542)
			Amortization of unvested stock expenses			45,000		72,500
			Stock issued for services			4,000		4,000
			Change in fair market value of derivatives			2,942,084		29,451

		Changes in operating assets and liabilities:
			(Increase) decrease in:
				Accounts receivables		(4,839,009)		(6,114,941)
				Transportation trade receivables		15,741		-
				Medicare receivable		(937,507)		(361,906)
				Other receivables		(738,963)		(128,322)
				Supplies		(19,557)		206,811
				Prepaids and other current assets		(148,931)		263,548
			Increase (decrease) in:
				Accounts payable		54,697		1,574,389
				Settlements payable		(291,889)		103,056
				Accrued interest payable		160,591		39,692
				Accrued wages payable		455,184		392,319
				Accrued expenses		(26,466)		13,404
				Accrued rent		9,091		45,409
				Accrued preacquisition expenses		(750,000)		-
				Accrued penalties and liquidated damages		-		205,000
				Medicare payable		(366,626)		(821,162)
				Escrow		305,105		-
				Other current liabilities		12,434		(11,736)
				Net Cash Used in Operating Activities		(4,250,231)		(300,162)



Cash Flows from Investing Activities:
		Acquisition of property, plant and equipment		(343,697)		(224,633)
		Purchase of notes receivable		(3,011,017)		-
		Proceeds from sale of assets		3,198,903		-
		Receipt of refund of deposit		-		75,000
		Cash acquired in purchase		141,580		-
		Purchase of staffing subsidiary		(61,700)		-
		Net Cash Used in in Investing Activities		(75,931)		(149,633)

Cash Flows from Financing Activities:
		Proceeds from loan payable - related party		75,000		-
		Repayments of loan payable - related party		(125,000)		-
		Cash overdraft		334,078		1,995
		Minority interest capital contribution		-		1,200,000
		Factored borrowing		491,293		-
		Repayments on factored borrowings		(140,301)		-
		Debt issuer costs		(12,385)		-
		Debt lender fees		(325,000)
		Proceeds from issuance of convertible debenture		5,786,017		-
		Repayments of convertible debenture		(592,067)		(250,000)
		Repayments of loans payable		(325,000)		-
		Repayments of capitalized lease obligations		(14,039)		-
		Repayments of note payable		(266,261)		(210,944)
		Distribution to minority interest		(62,500)		(21,000)
		Net Cash Provided by Financing Activities		4,823,835		720,051

Net Increase in Cash				497,673		270,256

Cash, Beginning of Period			$	46,384	$	78,375

Cash, End of Period			$	544,057	$	348,631

Supplemental Disclosure of Cash Flow Information:
Cash Paid for:
	Interest		$	327,405	$	434,547
	Taxes		$	-	$	-
Supplemental Disclosure of Non Cash Investing and Financing Activities:
	Net Liabilities Assumed in Foreclosure		$	136,698	$	-
	Issuance of Note Payable for Insurance Policies		$	816,017	$	313,393
	Issuance of Note Payable for Equipment		$	-	$	12,947

See accompanying notes to unaudited consolidated financial statements

Pacer Health Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2008

(Unaudited)

Note 1 Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim consolidated financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of our consolidated financial position and results of operations.

It is Management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair consolidated financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

For further information, refer to the audited consolidated financial statements and footnotes of the Company for the year ending December 31, 2007 included in the Company’s Annual Report on Form 10-KSB.

At June 30, 2008, the Company had a working capital deficit of $8,360,639, which resulted primarily from a warrant liability of $2,861,994 and an embedded conversion option liability of $5,270,919. Additionally, for the six months ended June 30, 2008, the Company had a net loss of $6,388,112 and a negative cash flow from operations of $4,250,231. The net loss was primarily the result of the loss on foreclosure of $3,807,537 and a change in fair market value of derivatives of $2,942,084. Management anticipates the turnaround of the non-medical services division to contribute to an increase in net income and positive cash flows for the remainder of 2008. Management also anticipates positive cash flows from the additional grants of $600,000 from the revised lease agreement with the Lower Cameron Hospital Service District. (See Note 2) Accordingly, management anticipates positive income and cash flows in 2008 and does not believe that substantial doubt exists about the Company’s ability to continue as a going concern.

Note 2 Nature of Operations and Summary of Significant Accounting Policies

Pacer along with its subsidiaries (collectively, the “Company”) began its activities in May 2003. The Company acquires financially distressed businesses in the healthcare industry and the transportation and logistics industry. The Company’s medical division provides healthcare services in non-urban areas through its hospital, psychiatric centers, and clinics. The Company’s non-medical division is a third party logistics provider that provides transportation, warehousing and logistics solutions.

In the healthcare industry, the Company currently owns and operates:

a non-urban hospital in Cameron, Louisiana;

a non-urban health clinic in Grand Lakes, Louisiana;

a geriatric psychiatric center in Lake Charles, Louisiana; and

operates a non-urban hospital in Barbourville, Kentucky.

In the transportation and logistics industry, the Company owns warehouse terminals in:

Inwood, New York;

Atlanta, Georgia;

Miami, Florida;

Columbus, Ohio;

Pittsburgh, Pennsylvania; and

Charlotte, North Carolina

Pacer Health Corporation (“Pacer”), a Florida corporation, has eighteen (18) subsidiaries:

Pacer Health Services, Inc. (a Florida corporation formed on May 5, 2003),

Pacer Health Management Corporation (a Louisiana corporation formed on February 1, 2004),

Pacer Holdings of Louisiana, Inc. (a Florida corporation formed on March 3, 2004),

Pacer Holdings of Georgia, Inc. (a Florida corporation formed on June 26, 2004),

Pacer Health Management Corporation of Georgia (a Georgia corporation formed on June 28, 2004),

Pacer Holdings of Arkansas, Inc. (a Florida corporation formed on October 26, 2004),

Pacer Health Psychiatric, Inc. (a Louisiana Corporation formed on September 16, 2005),

Pacer Health Management of Florida LLC (a Florida limited liability company formed on December 19, 2005),

Pacer Holdings of Lafayette, Inc. d/b/a Pacer Health Holdings of Lafayette, Inc. (a Louisiana corporation formed on November 28, 2005),

Pacer Holdings of Kentucky, Inc. (a Florida corporation formed on March 9, 2006),

Pacer Health Management Corporation of Kentucky (a Kentucky corporation formed on March 20, 2006),

Woman's OB-GYN Center, Inc. (a Georgia corporation formed on October 30, 2006),

Lake Medical Center, Inc. (a Georgia corporation formed on October 30, 2006),

Lakeside Regional Hospital, Inc. (a Georgia corporation formed on April 16, 2007),

Pacer Management of Kentucky, LLC (a Kentucky limited liability company formed on April 18, 2007),

Pacer Psychiatry of Calcasieu, Inc. (a Louisiana Corporation formed on May 7, 2007),

Brick Mountain Logistics LLC d/b/a Cargo Connections Logistics (a Florida limited liability company formed on March 26, 2008), and

Pacer Staffing, Inc. (a Florida corporation formed May 9, 2008).

On April 1, 2008 the Company entered into a Non-Recourse Assignment with YA Global Investments, L.P. (“YA Global”) whereby YA Global sold to the Company certain secured convertible debentures issued by Cargo Connections Logistics Holding, Inc. (“Cargo”) The Company paid to YA Global $3,011,017 for the assignment. The face value of the debentures was $2,396,500 and related accrued interest, redemption premium and liquidated damages

totaled $1,274,399 for a total receivable purchased on $3,670,839. The Company recorded a gain on this purchase of $659,822. On May 13, 2008, the Company initiated foreclosure action upon default of the note payable by Cargo. In satisfaction of the full face value of the note payable and related accruals receivable, the Company assumed certain assets and liabilities related to the operation of Cargo of which there was no fair value value. Accordingly, the Company recognized a loss on the foreclosure of $3,807,537, which includes funds advanced prior to foreclosure, in accordance with FASB Statement 15. (See Note 3)

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 year ended December 31, 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 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. (See Note 3) 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 $3,298,904, subject to certain adjustments set forth in the Agreement. St. Joseph’s Healthcare System, Inc. also assumed certain liabilities with respect to the operation. (See Note 3) 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 or a maximum of $750,000.

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 had 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 June 30, 2008, the Company has received $600,000 of such grants for the year ended December 31, 2008.

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 unaudited interim 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 unaudited 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 became 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.

Transportation Service Revenue Recognition

The Company recognizes revenues when the services are completed. This generally occurs when the shipment is delivered to its final destination by the Company or when warehouse services are completed. Costs related to such revenue are included in operating expenses.

New Accounting Pronouncements

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.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 160 characterizes minority interests in consolidated subsidiaries as non-controlling interests and requires the classification of minority interests as a component of equity. Under SFAS No. 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings. The effective date for SFAS No. 160 is for annual periods beginning on or after December 15, 2008. Early adoption and retroactive application of SFAS No. 160 to fiscal years preceding the effective date are not permitted. Management is evaluating the impact of SFAS No. 160 on the Company’s consolidated financial statements.

Note 3 Acquisitions, Sale-Leaseback, Operating Lease with Minority Interest and Divestiture

On September 1, 2005 (“Acquisition Date”), the Company completed its acquisition of MGBMH. Under the terms of the acquisition agreement, the Company acquired the business and certain identifiable assets and assumed certain liabilities. At the Acquisition Date, MGBMH was a provider of healthcare services with a primary focus on hospitals and nursing homes. MGBMH owns and operates a non-urban hospital and nursing home. The Company operates this hospital doing business as “Minnie G. Boswell Memorial Hospital”.

The Company accounted for this acquisition using the purchase method of accounting in accordance with SFAS No. 141. The purchase price of the facility was $1,108,676, including $108,676 in direct costs of the acquisition. In connection with the acquisition, the Company applied a receivable due to it from MGBMH of $1,086,807 and waived receipt of the additional $86,807 from the seller as a charge to management income.

The results of operations of MGBMH are included in the consolidated results of operations of the Company from the Acquisition Date.

The initial allocation of fair value of the assets acquired and liabilities assumed was done on September 1, 2005 and revised as of September 30, 2006 as follows:


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

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 for 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. The sale price was $2,600,000, resulting in a gain of $637,196, which is included in Other Income for year ended December 31, 2006, and a deferred gain of $1,534,524 which is included in the $1,810,000, which is treated as a financing obligation for accounting purposes (see below). The Company received $2,590,000 as a result of a $10,000 credit withheld by HSRE for assumed accrued vacation. In connection with the transaction, HSRE entered into a operating lease with the Company whereby HSRE leases the real property comprising of the real property related to the acute care facility back to the Company pursuant to a five (5) year triple net lease which would call for annual lease payments equal to $480,000, provided that the Company shall have the right to terminate the lease at the end of thirty-six (36) months if the Company provides HSRE with ninety (90) days written notice prior to such 36th month (see renewal provisions below). As lessor, HSRE takes a perfected security interest in all of the tangible personal property and general intangibles used in connection with the operation of the acute care hospital to secure the Company’s obligations under the lease. If HSRE effectuates a sale of the tangible real and personal property located at the current Hospital/Nursing Home site in the future, then HSRE agrees to pay to the Company an amount equal to fifty percent (50%) of the cash net proceeds (gross cash proceeds less all expenses of the sale) from such sale.

The sale-leaseback of the real property has been accounted for as a financing lease, wherein the property remains on the books and continues to be depreciated. The deferred gain of $1,534,524 and future gain of $275,475, totaling the $1,810,000 on this transaction are recorded as liabilities on the books and interest expense and a reduction in principal are recognized for each lease payment made. The balance was $1,789,019 at June 30, 2008. The Company had the option to renew the lease at the end of the lease term subject to certain conditions. The lease may be renewed for two (2) separate five-year terms with a written notice not earlier than nine (9) months and not later than ninety days prior to the expiration of the original lease term. The rent for the renewal periods will be reset in accordance to a rental amount formula based upon the fair market value as of the date of the renewal. (See below regarding sublease.)

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 revised purchase price of $3,298,904, subject to certain adjustments set forth in the Agreement. St. Joseph’s Healthcare System, Inc. also assumed certain liabilities with respect to the operation. A gain of $2,352,917 was recognized on the sale. The Company also subleased to St.

Joseph’s Healthcare System, Inc. the real property it leases from HSRE. Under the sublease, the sublessee assumes all of the rights, obligations and liabilities of the sublessor except as specifically excluded. The sublease allows the sublessor to continue in the future participation of appreciation in value of the property. 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 or a maximum of $750,000.

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 leased 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 year ended December 31, 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 April 1, 2008 the Company entered into a Non-Recourse Assignment with YA Global whereby YA Global sold to the Company certain secured convertible debentures issued by Cargo. The Company paid to YA Global $3,011,017 for the assignment. The face value of the debentures was $2,396,500 and related accrued interest, redemption premium and liquidated damages totaled $1,274,399 for a total receivable purchased on $3,670,839. The Company recorded a gain on this purchase of $659,822. On May 13, 2008, the Company executed foreclosure action upon default of the note payable by Cargo. In

satisfaction of the full face value of the note payable and related accruals receivable, the Company assumed certain assets and liabilities related to the operation of Cargo of which there was no fair value value. Accordingly, the Company recognized a loss on the foreclosure of $3,807,537, which includes funds advanced prior to foreclosure, in accordance with FASB Statement 15.

The fair value assets acquired and liabilities assumed at May 12, 2008 upon foreclosure were as follows:


Cash	$	141,580
Accounts receivable, net		1,055,944
Other receivables		360,125
Other current assets		15,736
Fixed assets		258,023
Other non-current assets		81,363
Amounts due to factor		(1,069,848)
Loans payable		(73,588)
Payroll liabilities		(49,946)
Capital lease liabilities		(63,259)
Security deposits liabilities		(42,828)
Bank overdraft liability		(550,000)
Other liabilities		(200,000)
Net liabilities assumed		(136,698)

Debentures and related accruals receivable	$	3,670,839
Loss on foreclosure		(3,807,537)

On May 13, 2008, the Company sold a minority interest of forty percent (40%) of its wholly-owned subsidiary, Brick Mountain Logistics, to an unrelated third party. The sales price was $500,000, which consisted of cash of $100,000, which was received on February 14, 2008, and a note receivable of $400,000 which is payable by the issuer in eight (8) quarterly payments of $50,000. A gain of $500,000 was included in Other Income for the three and six months ended June 30, 2008 and no minority interest was recorded based on the net equity of the subsidiary on the sale date.

On April 1, 2008, the Company purchased a physician and nurse staffing agency for $61,700. The agency was previously owned by the Chief Executive Officer, the Chief Operating Officer, and an employed physician of the Company. The Company allocated the entire purchase price to goodwill.

Note 4 Accounts Receivable, Allowance for Contractuals, and Allowance for Doubtful Accounts

Patient accounts Receivable at June 30, 2008 is as follows:


Patient accounts receivable	$	31,264,907
Less: Allowance for doubtful accounts		(17,920,688)
Less: Allowance for contractual discounts		(8,319,191)
Patient accounts Receivable, net	$	5,025,028

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 three months ended June 30, 2008 and 2007, the Company recorded bad debt expense from patient receivables relating to continuing operations of $2,166,359 and $1,483,608, respectively. During the six months ended June 30, 2008 and 2007, the Company recorded bad debt expense from patient receivables relating to continuing operations of $3,875,440 and $2,893,340, respectively. In addition, the Company included in discontinued operations bad debt expense of $536,833 and $1,221,682 for the six months ended June 30, 2008 and 2007, 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.

Transportation accounts receivables at June 30, 2008 is as follows:


		Transportation Trade Receivables
Accounts receivable	$	1,989,700
Less: Allowance for doubtful accounts		(475,000)
Accounts Receivable, net	$	1,514,700

During the three and six months ended June 30, 2008 and 2007, the Company recorded bad debt expense from transportation trade receivables of $37,371 and $0, respectively.

Note 5 Property, Plant and Equipment, net

Property, plant and equipment at June 30, 2008 is as follows:


Land	$	127,699
Building and improvements		4,164,840
Equipment		1,816,652
Furniture & Fixtures		17,913
Less: accumulated depreciation		(590,786)
Property and Equipment, net	$	5,536,318

Depreciation expense for the three months ended June 30, 2008 and 2007 was $72,796 and $56,878. Depreciation expense for the six months ended June 30, 2008 and 2007 was $137,488 and $122,627, respectively. In addition, the Company recorded, for the six months ended June 30, 2008, depreciation expense of $26,806 and $64,486, respectively, which was included in discontinued operations.

Note 6 Loan Payable-Related Party

During the six months ended June 30, 2008 and 2007, the Company received funds of $75,000 and $0 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 six months ended June 30, 2008 and 2007, the Company repaid $125,000 and $0 of the outstanding amount. At June 30, 2008, the Company had outstanding loans payable of $13,000 to this individual.

Note 7 Notes, Loans and Capital Lease Obligations Payable

On June 30, 2008, the Company had the following outstanding notes and loans payable:


Insurance Note Payable dated June 2008, annual interest rate of 5.25%, maturity date June 2009.	$	632,299
Capital lease (truck trailers) – maturity date February 2009.		46,800
Capital lease (handling equipment) – annual interest rate of 9.90%, maturity date August 2009.		10,695
Note Payable dated March 2004, annual interest rate of prime rate plus 2.50%, maturity date December 2010.		62,543
Note Payable dated May 2003, annual interest rate 4.07%		11,045
Insurance Note Payable dated December 2007, original principal of $90,545, annual interest rate of 6.600%, maturity date October 2008.		34,728
Insurance Note Payable dated January 2008, original principal of $26,145, maturity date May 2008.		13,072
Note Payable dated August 2006, original principal of $131,577, annual interest rate of 9.00%, maturity date August 2011.		89,901
Capital lease (medical equipment) – original principal of $99,799, original term 60 months, annual interest rate 8.0609%.		89,512
Insurance Note Payable dated December 2007, original principal of $46,317, maturity date August 2008.		20,577


Total	$	1,011,169
Current Portion	$	872,015
Long Term Portion	$	139,154

At June 30, 2008, the Company had the following financing obligation:


Finance obligation on sale leaseback of real property on September 29, 2006 for $1,810,000	$	1,789,019

The sale-leaseback of the real property has been accounted for as a financing lease, wherein the property remains on the books and continues to be depreciated. The gain on this transaction will be recognized at the end of the lease term including renewal periods. The Company has the option to renew the lease at the end of the lease term subject to certain conditions. The Company will pay $480,000 annually to the lessor which is treated as an interest expense and principal reduction for each payment using the effective interest method of amortization. (See Note 3) The Company subleased the property to St. Joseph’s Healthcare System, Inc. (See Note 3) Under the terms of the sublease, the sublessee will pay

$40,000 monthly base rent. Accordingly, the Company expects to receive approximately $480,000 in annualized rent income through the expiration of the lease.

Maturities of the Company’s debt at June 30, 2008 were as follows:



2008	$	872,015
2009		55,675
2010		46,199
2011		27,415
2012		9,865
Thereafter		--

	$	1,011,169

Note 8 Settlements Payable and Writeoff of Accounts Payable

In connection with its acquisition of MGBMH, the Company is defending a lawsuit filed on September 30, 2004 against Greene County Hospital Authority and MGBMH by Alliance Emergency Group (“Alliance”) and Greene Emergency Physicians (“GEP”) in the Superior Court of Dekalb County, Georgia. Alliance and GEP allege that in June 2004 Defendants breached its ER physician staffing contract. As of December 31, 2006, the Company had reserved $250,000 for the lawsuit. On February 15, 2007, the Company reached a settlement agreement with Alliance and GEP for $650,000, of which $250,000 was paid on March 1, 2007 and the remaining $400,000 is payable over thirty-six (36) months and accrued as settlement payable. A payment of $250,000 was applied against the reserve and the balance of the reserve is $0 as of June 30, 2008. In accordance with the settlement agreement, the Company paid this amount in full in March 2008 as a result of the sale of MGBMH to St. Joseph’s Healthcare System, Inc.

As a result of its recapitalization that resulted from its reverse merger in 2003, the Company assumed certain outstanding liabilities. Since the assumption of the debt, the various creditors have not sought any collection actions against the Company. Accordingly, as a result of the expiration of the statute of limitation, the Company was written off these accounts payable and recognized a gain of $99,583 in the six months ended June 30, 2007.

Note 9 Medicare and Medicaid Payable and Medicare Receivable

Medicare liabilities resulted primarily from our submission of a cost report for our Cameron / Lake Charles, Louisiana facility for the standalone period March 22, 2004 to December 31, 2004 (in the amount of $641,099) and the year ended December 31, 2005 (in the amount of $1,311,837) and from our assumption of Medicare liabilities as a result of business acquisitions (see Note 3). As of June 30, 2008, the Company had a Medicare receivable of $188,472 for our Cameron / Lake Charles, Louisiana facility for the year ended December 31, 2006. The receivable is currently used to offset the current Medicare liability and is therefore netted against the Medicare liability in the accompanying consolidated financial statements. Medicare liabilities result from Medicare audits or our submission of cost reports to Medicare. Medicare liabilities represent amounts due to Medicare as a result of excess cost reimbursements by Medicare. The Company determines the liability based upon the completion of the cost report or the audit settlement report we receive from Medicare and records the liability in that year. We have reviewed and continue to review Medicare reimbursements to ensure that we have been properly reimbursed and have reflected any adjustment through the contractual allowances. The

Company has current Medicare liabilities of $1,002,922 and long term Medicare liabilities of $1,798,326. The long term portion relates to negotiated payment plans from our Cameron / Lake Charles, Louisiana facility and Barbourville, Kentucky facility.

The majority of services performed on Medicare and Medicaid patients are reimbursed at predetermined reimbursement rates except for our critical access acute care hospital 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. Generally, we are audited approximately every two (2) years. However, the time between audits differs based upon facility and the cost report filed and can change from year to year without prior notice.

Our Lake Charles, Louisiana facility has negotiated four (4) payment plans with respect to its Medicare payable for the cost report periods ended December 31, 2001, 2003, 2004 and 2005. The facility established the payment plan for the cost report period ended December 31, 2006 in April 2007. A summary of the significant terms of the plans are as follows:


	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 June 30, 2008	$448,661	$429,529	$536,319	$959,693	$155,230
Long Term Principal	$365,651	$306,908	$361,555	$627,633	$113,489
Monthly Payment Amount	$11,247	$14,519	$20,412.15	$29,582	$4,075
Maturity Date	October 2012	June 2011	June 2011	June 2011	March 2012

We continue to pay the Medicaid liability of our former Greensboro, Georgia facility which has attempted to negotiate a payment plan with respect to its Medicaid payable for various periods. A summary of the significant terms of the plan is as follows:


	Medicaid Payable
Principal Outstanding at June 30, 2008	$117,457
Long Term Principal	--
Monthly Payment Amount	$4,152
Maturity Date	Various

For the cost report period beginning January 1, 2007 through December 31, 2007, our Georgia facility, which is reimbursed on a cost reimbursement method, was due from the Medicare program $937,507 as a result of the cost report filed for that period. As of June 30, 2008, this amount has not been received. This amount was recorded as a Medicare receivable in current assets.

Our Barbourville, Kentucky facility has negotiated four (4) payment plans with respect to its Medicare and Medicaid payable for the cost report periods ended December 31, 2005 and for its Medicaid payable for various periods. A summary of the significant terms of the plans are as follows:


	For the Period Ended June 30, 2006	For the Period Ended June 30, 2007 (Medicaid)	For the Period Ended June 30, 2005	For the Period Ended November 30, 2005
Principal Outstanding at June 30, 2008	$111,802	$172,737	$44,051	$53,614
Long Term Principal	$23,787	--	--	$10,723
Monthly Payment Amount	$8,096	$7,588	$22,025	$3,574
Maturity Date	September 2009	--	August 2008	September 2009

Note 10 Factor Liability on Transferred Accounts Receivable

Factor Liability Assumed in Foreclosure of Notes Receivable

In conjunction with the foreclosure of the notes receivables from Cargo Connection, the Company assumed the liability entered into by Cargo Connection with Wells Fargo Bank, National Association ("WFBA"). The liability provides that WFBA shall serve as a factor to Cargo Connection by purchasing certain of the Cargo Connection's accounts receivable, and provide a maximum factoring capacity of $3,000,000.

The agreement provides that WFBA purchase certain accounts receivable and extend credit with a maximum borrowing amount of $3,000,000. The facility automatically renews annually unless either party provides 30 days’ prior notice of cancellation. The facility provides for the purchase of up to 95% of eligible accounts receivable of Cargo Connection less a fixed discount of .35%, along with a variable discount calculated by WFBC’s prime rate plus 1% per annum for the time period from the initial payment to date of receipt of collections. If a receivable is outstanding over 90 days, under recourse provisions, Cargo Connection is required to buy back the receivable from the factor. At June 30, 2008, the net amount due to WFBA was $460,879.

2008 Factor Agreement

On June 19, 2008, the Company entered into a new factoring agreement with WFBA. The liability provides that WFBA shall serve as a factor to the Company by purchasing certain accounts receivable of the Company, and provide a maximum factoring capacity of $3,000,000.

The agreement provides that WFBA purchase certain accounts receivable and extend credit with a maximum borrowing amount of $3,000,000. The facility automatically renews annually unless either party provides 30 days’ prior notice of cancellation. The facility provides for the purchase of up to 95% of eligible accounts receivable of the Company minus a fixed discount of approximately .35%, along with a variable discount calculated by WFBC’s prime rate plus 1% per annum for the time period from the initial payment to date of receipt of collections. If a receivable is outstanding over 90 days, under recourse provisions, the Company is required to buy back the receivable from the factor. The Company must also submit a minimum of $1,000,000 of eligible invoices in each calendar month. At June 30, 2008, the net amount due to WFBA was $1,349,391. For the three and six months ended June 30, 2008, the finance charges expense were $5,549.

At June 30, 2008, reserve amounts held back by the factor totaled $389,534 and are reflected as Due from Factor, a current asset.

Note 11 Escrow

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 and assumed certain liabilities with respect to the operation. As a result of a failure to timely notify Medicare of the acquisition, the Company received certain funds for payment of patient services from Medicare that were attributable to services provided by St. Joseph’s Healthcare System, Inc. The Company is currently in the process of remitting the funds to St. Joseph’s Healthcare System, Inc. The amount due to St. Joseph’s Healthcare System, Inc. as of June 30, 2008 is $305,105.

Note 12 Commitments and Contingencies

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.

Lease Commitments

The Company leases real property under various leases most of which have terms from one (1) to five (5) years. The Company accounts for leases under SFAS No. 13, “Accounting for Leases”, and other related authoritative literature.

Expenses under real property leases were $518,397 and $268,038 for the three months ended June 30, 2008 and 2007, respectively. Expenses under real property leases were $917,340 and $657,674 for the six months ended June 30, 2008 and 2007, respectively. The leases require payment of real estate taxes and insurance in addition to rent. Most of the leases contain renewal options and escalation clauses. Lease expense is recognized on a straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements and the estimation of future lease commitments.

Future minimum lease obligations under non-cancelable real property leases with initial terms in excess of one (1) year at June 30, 2008 are as follows:



Period Ending June 30:
2007	$	3,338,118
2008		3,185,485
2009		3,048,706
2010		3,080,028
2011		3,112,269
Thereafter		--

	$	15,764,606

Note 13 Stockholders’ Deficiency

(A) Common Stock

On March 19, 2007, the Company issued 2,000,000 shares of its common stock to its Chief Operating Officer in accordance with an employment agreement. The shares were valued at $0.02 per share, or $40,000, based on the quoted trading price of the Company’s common stock on the grant date in 2007. The shares cliff vested one year from the grant date and therefore were not considered issued and outstanding until they vested. The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital.

On March 19, 2007, the Company issued to its four (4) independent Directors 50,000 shares each of its common stock in payment of the Director’s fees. The shares were valued at $0.02 per share based on the quoted closing trading price of the Company’s common stock on the grant date and had a total fair value of $4,000 which was expensed.

In July 2007, the Company issued to YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) 5,769,231 shares of its common stock in conversion of $30,000 of its outstanding convertible debenture. The shares were valued at $0.0052 per share based on ninety-five (95%) of the lowest volume weighted average price of the Company’s common stock for the thirty (30) trading days immediately preceding the conversion date in accordance with the convertible debenture. The conversion was recorded as a redemption of the outstanding convertible debenture.

On July 25, 2007, the Company issued to its four (4) independent Directors 200,000 shares each of its common stock in payment of the Director’s fees. The shares were valued at $0.01 per share based on the quoted closing trading price of the Company’s common stock on the grant date and had a total fair value of $8,000 which was expensed.

On September 7, 2007, the Company issued 2,000,000 shares of its common stock to its Director of Corporate Operations in accordance with an employment agreement. The shares were valued at $0.015 per share based on the quoted trading price of the Company’s common stock on the grant date in 2005. The shares cliff vest in one (1) year from the issuance date and therefore are not considered issued and outstanding until they vest. The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital.

On November 8, 2007, the Company issued to its four (4) independent Directors 133,333 shares each of its common stock in payment of the Director’s fees. The shares were valued at $0.0075 per share based on the quoted closing trading price of the Company’s common stock on the grant date and had a total fair value of $4,000 which was expensed.

On January 9, 2008, the Company issued 3,000,000 shares of its common stock to its Chief Operating Officer in accordance with an employment agreement. The shares were valued at $0.02 per share, or $40,000, based on the quoted trading price of the Company’s common stock on the grant date in 2007. The shares cliff vest in one year from the grant date and therefore are not considered issued and outstanding until they vest. The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital.

The Company intends to issue to its Chief Executive Officer 30,000,000 shares of its common stock in accordance with a revised employment agreement. These shares were granted in 2007. As of June 30, 2008, these shares have not been issued and are recorded as common stock issuable.

On January 1, 2008, 2,000,000 shares of common stock previously granted and issued became vested.

On April 14, 2008, the Company issued to its four (4) independent Directors 100,000 shares each of its common stock in payment of the Director’s fees. The shares were valued at $0.01 per share based on the quoted closing trading price of the Company’s common stock on the grant date and had a total fair value of $4,000 which was expensed.

In the first quarter of 2007, pursuant to a settlement agreement, the Company received back and cancelled 2,000,000 of its shares of common stock originally issued in a prior year to a former employee.

(B)

Common Stock Warrants

On June 20, 2002, the predecessor to the Company had issued 950,000 stock warrants to various consultants in exchange for their services. These warrants have a strike price of $.50 per share. All of the warrants expire over a five-year period. These warrants were not cancelled as a result of the recapitalization transaction with Pacer and thus are considered deemed issuance of options as part of the recapitalization with no net accounting effect. On June 20, 2007, these warrants expired.

On April 1, 2006 the Company issued 35,000,000 warrants in connection with the issuance of convertible debentures. The warrants have an exercise price of $0.02 and expire in five (5) years from the issuance date. The warrants may be exercised on a cashless basis. In July 2007, the warrant’s fair value of $121,757 was reclassified from a warrant liability to additional paid in capital as a result of the debt extinguishment (See Note 15). In connection with the financing on April 1, 2008, the warrants were revalued at $138,512 using a relative fair value method based on a Black-Scholes option pricing method using the following assumptions: volatility 146% (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 2.65%. The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term.

On July 6, 2007, the Company issued 220,000,000 warrants in connection with convertible debentures. The warrants have various exercise prices of $0.02 to $0.03 and expire in three (3) to five (5) years from the issuance date. The warrants may be exercised on a cashless basis. In connection with the financing on April 1, 2008, the warrants were revalued at $833,111 using a relative fair value method based on a Black-Scholes option pricing method using the following assumptions: volatility 146% (based on historical volatility); expected term of three (3) or five (5) years (based on contractual term for non-employees); expected dividends of $0; and risk free rate of 1.94% (3 year term) or 2.65% (5 year term). The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term.

On April 1, 2008 the Company issued 5,500,000 warrants in connection with the issuance of convertible debentures. The warrants have an exercise price of $0.0001 and expire in five (5) years from the issuance date. The warrants may be exercised on a cashless basis. These warrants were valued at $32,767 using a relative fair value method based on a Black-Scholes option pricing method using the following assumptions: volatility 146% (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 2.65%. The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term.

Note 14 Related Party Transactions

During the three months ended June 30, 2008 and 2007, the Company received funds of $0 and $0 from its Chairman of the Board and Chief Executive Officer. During the six months ended June 30, 2008 and 2007, the Company received funds of $75,000 and $0 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 three months ended June 30, 2008 and 2007, the Company repaid $0 and $0 of the outstanding amount. During the six months ended June 30, 2008 and 2007, the Company repaid $125,000 and $0 of the outstanding amount. At June 30, 2008, the Company had outstanding loans payable of $13,000 to this individual.

On March 19, 2007, the Company issued 2,000,000 shares of common stock to its Chief Operating Officer in accordance with an employment agreement. The shares were valued at $0.02 per share, or $40,000, based on the quoted trading price of the Company’s common stock on the grant date in 2007. The shares cliff vested one year from the grant date and therefore were not considered issued and outstanding until they vested. The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital.

On March 19, 2007, the Company issued to its four independent Directors 50,000 shares each of its common stock in payment of the Director’s fees. The shares were valued at $0.02 per share based on the quoted closing trading price of the Company’s common stock on the grant date and had a total fair value of $4,000 which was expensed.

On July 25, 2007, the Company issued to its four independent Directors 200,000 shares each of its common stock in payment of the Director’s fees. The shares were valued at $0.01 per share based on the quoted closing trading price of the Company’s common stock on the grant date and had a total fair value of $8,000 which was expensed.

On September 7, 2007, the Company issued 2,000,000 shares of its common stock to its Director of Corporate Operations in accordance with an employment agreement. The shares were valued at $0.015 per share based on the quoted trading price of the Company’s common stock on the grant date in 2005. The shares cliff vest in one year from the issuance date and therefore are not considered issued and outstanding until they vest. The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital.

On January 1, 2008, 2,000,000 previously granted shares of common stock issued to the Company’s Chief Operating Officer cliff vested.

The Company intends to issue to its Chief Executive Officer 30,000,000 shares of its common stock in accordance with a revised employment agreement. As of June 30, 2008, these shares have not been issued and are recorded as common stock issuable.

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 three and six months ended June 30, 2008, the Company has been billed $190,367 and $515,815, respectively, by the billing company.

Note 15 Convertible Debentures

2006 Securities Purchase Agreement

On April 1, 2006, the Company executed a Securities Purchase Agreement with YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) whereby it would issue $2,000,000 of secured convertible debentures. On April 1, 2006, pursuant to the Securities Purchase Agreement, the Company issued a three (3) year convertible debenture totaling $1,000,000 to Cornell secured by all of the assets and property of the Company. The debenture accrues interest at a rate of ten percent (10%) per year. The debentures are convertible at the holder’s option until the maturity date. The conversion price is equal to the lower of (a) $0.05 or (b) 95% of the lowest volume weighted average price of the Company’s common stock for the thirty (30) trading days immediately preceding the conversion date.

In connection with the April 1, 2006 issuance of the $1,000,000 convertible debenture, the Company recorded a contra liability of $115,000 by debiting debt discount. These $115,000 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 $37,923 related to accountant and attorneys fees in connection with the financing that was paid directly from the debt funding which was capitalized and will be amortized as debt issue costs. On September 29, 2006 the Company repaid $250,000 of this debenture. As a result $197,547 of the embedded conversion option liability was reclassified to additional paid-in capital, $7,111 of debt issue costs were expensed and $187,500 of debt discount was expensed. Debt discount is directly offset against the gross convertible debentures balance outstanding. On May 15, 2007, the Company repaid an additional $250,000 of this debenture.

On May 5, 2006, pursuant to the Securities Purchase Agreement, the Company issued a three (3) year convertible debenture totaling $1,000,000 to YA Global secured by all of the assets and property of the Company. The debenture accrues interest at a rate of 10% per year. The debentures are convertible at the holder’s option until the maturity date. The conversion price is equal to the lower of (i) $0.05 or (ii) 95% of the lowest volume weighted average price of the common stock for the 30 trading days immediately preceding the conversion date.

In connection with the May 5, 2006 issuance of the $1,000,000 convertible debenture, the Company recorded a contra liability of $100,000 by debiting debt discount. These $100,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding. 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. The Company also incurred additional expenses of $14,319 related to accountant and attorneys fees in connection with the financing that was paid directly from the debt funding which was capitalized and will be amortized as debt issue costs.

In conjunction with the Securities Purchase Agreement, the Company issued a five year warrant to YA Global to purchase 35,000,000 shares of its common stock at an exercise price of $0.02. The warrants may be exercised on a cashless basis.

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 sixty (60) days of the initial funding date of April 1, 2006 and was required to become effective within one-hundred twenty (120) of the initial funding date. The deadline was not met. Accordingly, the Company was required to accrue as liquidated damages, payable in cash or shares at the lender's option, two percent (2%) of the value of the convertible debentures for each 30-day period after the scheduled deadline as applicable. Once effective, the Company must also maintain the registration statement effective until all the registrable securities have been sold by the lender (the "Registration Period").

The Company evaluated whether or not the secured convertible debentures contain embedded conversion options which meet the definition of derivatives under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” and related interpretations. The Company concluded that since the secured convertible debentures had a variable conversion rate, the Company could not guarantee it would have enough authorized shares pursuant to the criteria of EITF 00-19 and therefore the embedded conversion option must be accounted for as a derivative. In addition the liquidated damage penalty in the Registration Rights Agreement would cause derivative classification as the Company considers the Registration Rights Agreement to be part of the convertible debentures contract both to be accounted for as a single unit considering the criteria EITF 05-4 “The Effects of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF 00-19”. In addition, all prior existing non-employee options or warrants (950,000) must be classified as liabilities for the same reason. The Company recorded an embedded conversion options liability and warrant liability relating to 35,000,000 warrants at the April 1, 2006 funding date with a debt discount. In addition, $5,415 of the fair value of 950,000 existing warrants was reclassified to warrant liabilities from stockholders’ equity at the funding date. Those warrants expired effective June 20, 2007.

In December 2006, the FASB issued FSP EITF 00-19-2, "Accounting for Registration Payments" which was effective immediately. This FSP amends EITF 00-19 to require potential registration payment arrangements be treated as a contingency pursuant to FASB Statement 5 rather than at fair value. We considered the effect of this standard on the above embedded conversion option and warrant classification as a liability and determined that the accounting would not have changed as a result of this standard; since the variable rate on the convertible debentures still cause derivative treatment and the liquidated damages liability had been recorded. Therefore, there was no effect of implementing this standard.

The following table summarizes the assets and liabilities recorded in conjunction with the issuance of the convertible debentures at the respective issuance dates:


	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	-

The change in fair value recognized as other income/(expense) of the embedded conversion option and warrant liabilities for year ended December 31, 2007 and 2006 was $87,086 and $(70,593), respectively.

In July 2007, pursuant to the 2006 Securities Purchase Agreement, the Company issued 5,769,231 shares to YA Global upon conversion of $30,000 of principal of a convertible debenture issued on April 1, 2006. (See Note 13)

In July 2007, the 2006 convertible debentures totaling $1,470,000 (excluding related debt discount of $893,333) and related liabilities were extinguished and new convertible debentures were issued (see below).

On July 6, 2007, the fair value of embedded conversion options and warrants totaling $1,425,230 was reclassified to additional paid in capital as a result of the debt extinguishment of these convertible debentures (see below). In addition, remaining debt discount and remaining debt issue costs of $893,333 and $25,415, respectively, were expensed.

2007 Securities Purchase Agreement

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 shall be 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, 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 was capitalized and will be amortized as debt issue costs. As of June 30, 2008, the Company has amortized $173,186 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 June 30, 2008, the Company has amortized $6,927 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 is 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 various prices from $0.02 to $0.03 per share which expire on various dates beginning July 2012. As of June 30, 2008, all warrants have been issued to the Investor.

These warrants were valued on the loan date at their relative fair value of $2,266,372 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. The amount amortized as of June 30, 2008 was $1,278,831.

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 shall 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 shall be 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 shall also have 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 was capitalized and will be amortized as 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.

On March 7, 2008, the Company repaid $600,000 of its outstanding convertible debentures to YA Global. In addition to the repayment, the Company paid interest of $138,636, legal fees of the lender of $7,050 and an additional $44,449 as a redemption premium. A summary of the repayment is listed below:


Principal repayment – July 2007 debenture	$	100,000
Redemption premium – July 2007 debenture	$	6,949
Interest repayment – July 2007 debenture	$	120,650
Principal repayment – September 2007 debenture	$	500,000
Redemption premium – September 2007 debenture	$	37,500
Interest repayment – September 2007 debenture	$	17,986
Legal fees	$	7,050

Total Payment:	$	790,135

2008 Securities Purchase Agreement

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 debentures are secured by substantially all of the assets of the Company and its subsidiaries. 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. Upon conversion, 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 warrants are exercisable immediately for the cash exercise price or may be cashless exercised if at the time of exercise the warrants are not subject to an effective registration statement or an event of default has occurred.

In connection with the April 1, 2008 issuance of the $5,786,017 convertible debenture, the Company recorded a contra liability of $325,000 by debiting debt discount. These $325,000 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 $12,385 related to attorneys fees in connection with the financing that was capitalized and will be amortized as debt issue costs. As of June 30, 2008, the Company has amortized $20,020 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 June 30, 2008, the Company has amortized $763 of debt issue costs.

The conversion price of the debentures and exercise price of the warrants is subject to anti-dilution provisions as defined in the agreement. If the Company sells or is deemed to have sold any shares of common stock for consideration per share less than a price equal to the conversion or warrant exercise price then such conversion or exercise price shall be reduced to the sale price.

At closing, $300,000 of the proceeds was placed into escrow to periodically fund the investment manager, an affiliate of the lender, until the funds are full disbursed or until the securities are fully disposed of by the lender, in which case, any remaining escrow funds will be returned to the Company. The Company also paid $25,000 in a structuring fee to the affiliate of the lender.

The debentures and warrants contain registration rights for 280,000,000 shares with a filing deadline of thirty (30) days from the funding date and effectiveness deadline of 120 days from the funding date. There are also effectiveness maintenance requirements, as defined. If the above deadlines or maintenance requirements are not met, the Company will pay liquidated damages equal to 2% of the outstanding principal balance for each month of default up to a maximum of 24%.

In addition, all prior existing non-employee options or warrants must be classified as liabilities for the same reason.

The following table summarizes the assets and liabilities recorded in conjunction with the issuance of the convertible debentures at the respective issuance dates:


	Convertible Debenture Issued April 1, 2008
Principal liability	5,786,017
Debt issue costs	12,385
Debt discount from lender fees	325,000
Debt discount from embedded conversion option	4,186,438
Debt discount from warrants issued with convertible debenture	32,767
Initial embedded convertible option liability	4,186,438
Initial warrant liability	32,767
Warrant liability reclassed from equity	971,623

The change in fair value recognized as other income/(expense) of the embedded conversion option and warrant liabilities (including warrants issued in previous financing arrangements) for three and six months ended June 30, 2008 was $2,942,084.

Note 16 Segments

For the six months ended June 30, 2008, the Company operates in two reportable business segments - (1) healthcare operations and (2) transportation and logistics services. The healthcare operations segment operates rural hospitals and provides medical care as well geriatric psychiatric healthcare to various patients. The transportation and logistics services operates warehouses and trucks that provide transportation, warehousing and third party logistics services. The Company's reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations.

Information with respect to these reportable business segments for the six months ended June 30, 2008 is as follows.


		For the Six Months Ended June 30, 2008

Net Revenues:
Hospital Operations	$	15,694,977
Corporate Level		50,000
Transportation and Logistics Services		2,142,545

Consolidated Net Revenue	$	17,887,522

Operating Expenses:

Hospital Operations	$	16,401,600
Corporate Level		1,173,254


Transportation and Logistics Services		2,532,193

Consolidated Operating Expenses	$	20,107,047

Depreciation:
Hospital Operations	$	132,534
Corporate Level		1,070
Transportation and Logistics Services		3,885

Consolidated Depreciation	$	137,488


Other Income:
Hospital Operations	$	7,901
Corporate Level		(5,489,198)
Transportation and Logistics Services		8,442

Consolidated Other Income	$	(5,472,855)

Interest Expense:

Hospital Operations	$	239,418
Corporate Level		1,235,472
Transportation and Logistics Services		113

Consolidated Interest Expense	$	1,475,003


Net Loss:

Hospital Operations (includes discontinued operations)	$	1,946,087
Corporate Level		(7,898,995)
Transportation and Logistics Services		(385,204)

Net Loss	$	(6,338,112)

Total Assets at June 30, 2008:

Hospital Operations	$	13,486,119
Corporate Level		1,389,004
Transportation and Logistics Services		3,876,224

Consolidated Asset Total	$	18,751,347

Note 17 Income Taxes

There was no income tax expense for the three and six months ended June 30, 2008, due to the Company’s utilization of net operating loss carryforwards.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), as well as our other reports filed with the U.S. Securities and Exchange Commission (“SEC”) and our press releases and other communications, contain forward-looking statements which reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements include all statements regarding our expected financial position, results of operations, cash flows, dividends, financing plans, strategy, budgets, capital and other expenditures, competitive positions, growth opportunities, benefits from new technology, plans and objectives of management, and markets for stock. In addition to general economic, business and market conditions, we are subject to risks and uncertainties that could cause such forward-looking statements to prove incorrect, including those stated in the “Risk Factors” section of the Company’s Form 10-KSB for the period ended December 31, 2007 and the following:

Our ability to integrate acquired businesses.

Our ability to implement our strategic business plan and generate positive cash flows.

Unexpected liabilities incurred in our acquisitions.

Our ability to obtain financing for future growth.

Our dependence on additional capital for future growth.

Governmental regulations that could reduce our ability to receive full reimbursement of medical services or provide additional non-reimbursable medical services.

Our ability to develop and maintain business relationships with employees and vendors.

General

We are 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 expanded its operations into the transportation/logistics services through the acquisition of Cargo Connections Logistics. 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 June 30, 2008, we operated two (2) 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 two (2) states: Kentucky and Louisiana.

The Company’s transportation/logistics services business provides logistics solutions for customers including transportation, warehousing and freight brokerage services. The Company currently has operations in the following cities:

Inwood, New York,

Atlanta, Georgia,

Columbus, Ohio,

Miami, Florida,

Pittsburgh, Pennsylvania, and

Charlotte, North Carolina.

Our principal offices are located at 15050 NW 79^th Court, Miami Lakes, Florida 33016, and our telephone number is (305) 826-7660. Our website is www.pacerhealth.com.

No material part of our revenues were derived outside of the United States in the six (6) months ended June 30, 2008, and during that period, we had no material assets outside the United States.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read with along with the accompanying Unaudited Consolidated Financial Statements.

Acquisitions, Sale-Leaseback, Operating Lease and Divestiture

On April 1, 2008 the Company entered into a Non-Recourse Assignment with YA Global Investments, L.P. whereby YA Global sold to the Company certain secured convertible debentures issued by Cargo Connections Logistics Holding, Inc. (“Cargo”) The Company paid to YA Global $3,011,017 for the assignment. The face value of the debentures was $2,396,500 and related accrued interest, redemption premium and liquidated damages totaled $1,274,399 for a total receivable purchased on $3,670,839. The Company recorded a gain on this purchase of $659,822. On May 13, 2008, the Company initiated foreclosure action upon default of the note payable by Cargo. In satisfaction of the full face value of the note payable and related accruals receivable, the Company assumed certain assets and liabilities related to the operation of Cargo of which there was no fair value value. Accordingly, the Company recognized a loss on the foreclosure of $3,807,537, which includes funds advanced prior to foreclosure, in accordance with FASB Statement 15.

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, 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 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 $3,298,904, 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 or a maximum of $750,000.

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 had 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 June 30, 2008, the Company has received $600,000 of such grants for the year ended December 31, 2008.

Critical Accounting Policies And Estimates

Management’s Discussion and Analysis of our unaudited interim consolidated financial condition and results of operations are based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited interim 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 and accounts 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 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 operations.

Intangible Assets

Intangible assets at June 30, 2008 consisted of goodwill of $1,278,018 which is the result of the acquisition of SCMH and Pacer Staffing. 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 six months ended June 30, 2008, the Company issued 3,000,000 unvested shares which vest in one year and 2,000,000 vested shares of common stock, respectively, to key employees pursuant to the terms of employment agreements and other contract agreements.

Patient Service Revenue Recognition

(i) Hospital Operations

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 unaudited consolidated statements of operations in the period of the change.

(ii) Management Services

The Company recognizes management service fees as services are provided.

Transportation Service Revenue Recognition

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

Patient accounts Receivable at June 30, 2008 is as follows:


Patient accounts receivable	$	31,264,907
Less: Allowance for doubtful accounts		(17,920,688)
Less: Allowance for contractual discounts		(8,319,191)
Patient accounts Receivable, net	$	5,025,028

The Company derives a significant portion of its patient services 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 three months ended June 30, 2008 and 2007, the Company recorded bad debt expense from patient receivables relating to continuing operations of $2,128,988 and $1,483,608, respectively. During the six months ended June 30, 2008 and 2007, the Company recorded bad debt expense from patient receivables relating to continuing operations of $3,875,440 and $2,893,340, respectively. In addition, the Company included in discontinued operations bad debt expense of $536,833 and $1,221,682 for the six months ended June 30, 2008 and 2007, 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.

Transportation accounts receivables at June 30, 2008 is as follows:


		Transportation Trade Receivables
Accounts receivable	$	1,989,700
Less: Allowance for doubtful accounts		(475,000)
Accounts Receivable, net	$	1,514,700

During the three months ended June 30, 2008 and 2007, the Company recorded bad debt expense from transportation trade receivables of $37,371 and $0, respectively. During the six months ended June 30, 2008 and 2007, the Company recorded bad debt expense from trade receivables of $37,371 and $0, respectively.

Results Of Operations For The Three (3) Months Ended June 30, 2008 and June 30, 2007.

Net Revenue

Net revenues for continuing operations for the three (3) months ended June 30, 2008 and 2007, were $10,136,011 and $7,122,691, comprised of patient service revenues of $7,993,466 and $7,047,691; transportation services revenues of $2,142,545 and $0; and management services fees $0 and $75,000, respectively. Patient service revenue of $1,489,764 (primarily consisting of cost report adjustments and disproportionate share income) and $3,603,688 for MGBMH was included in discontinued operations for the three (3) months ended June 30, 2008 and 2007, respectively. The increase in patient revenue was primarily due to the reopening of our acute care facility in our Cameron, Louisiana and an increase in patient volume in our geriatric psychiatric facility in Lake Charles, Louisiana. Total revenue also increased due to the acquisition of Cargo Connections Logistics. We anticipate revenues to grow in the fiscal year ending December 31, 2008, primarily as a result from adding additional revenue streams from new services and acquisitions.

Operating Expenses

Operating expenses for continuing operations for the three (3) months ended June 30, 2008 and 2007 were $11,793,636 and $7,942,129, respectively. Operating expenses of $9,214 and $3,353,834 for MGBMH was included in discontinued operations for the three (3) months ended June 30, 2008 and 2007, respectively. Operating expenses increased primarily due to the reopening of our acute care facility in Cameron, Louisiana and our acquisition of Cargo Connections Logistics. We anticipate that our continued efforts to leverage our cost structure, particularly in the areas of compensation and other selling, general and administrative expenses will reduce expenses in the future. Additionally, we continue to centralize certain key accounting and administrative activities in our facilities, which we expect will reduce our operating costs and improve our operating efficiency over time. During the three (3) months ended June 30, 2008, operating expenses consisted principally of $3,919,788 in salaries, wages and benefits, $2,166,359 in bad debt expenses, $1,611,746 of direct transportation expenses, $808,622 in contract labor, $72,796 in depreciation, $389,702 in insurance expenses, $782,690 in medical supplies, $233,460 of professional fees, $719,844 in rent expenses and $1,088,629 of other operating and general and administrative expenses. We anticipate operating expenses to increase in the fiscal year ending December 31, 2008 primarily as result of adding new lines of service in our existing facilities and the acquisition of new businesses.

Other Income/(Expense)

Other income/(expense) for the three (3) months ended June 30, 2008 and 2008 was $(6,419,135) and $308,154, respectively, which included a loss on the change in the fair market value of derivatives of $2,942,084; a loss on foreclosure of $3,807,537; a gain on the sale of minority interest of $500,000; and a gain on the purchase of notes receivable of $659,822. Interest expense for the three (3) months ended June 30, 2008 and 2007 was $814,142 and $418,178, respectively. Interest expense of $116,320 and $56,060 for MGBMH was included in discontinued operations for the three (3) months ended June 30, 2008 and 2007, respectively.

Net Loss

Our net loss for the three (3) months ended June 30, 2008 and 2007 was $6,573,791 and $102,458. The increase in net loss is primarily the result of our acquisition of Cargo Connections Logistics, which generated a loss on foreclosure of $3,807,537 as well as the change in fair market value of derivatives, which generated a loss of $2,942,084. During the three (3) months ended June 30, 2008, our discontinued operations had a net income of $1,502,969, which was included in discontinued operations.

Results Of Operations For The Six (6) Months Ended June 30, 2008 and June 30, 2007.

Net Revenue

Net revenues for continuing operations for the six (6) months ended June 30, 2008 and 2007, were $17,887,552 and $15,273,157, comprised of patient service revenues of $15,694,977 and $15,123,157; transportation services revenues of $2,142,545 and $0; and management services fees $50,000 and $150,000, respectively. Patient service revenue of $2,743,205 and $6,587,912 for MGBMH was included in discontinued operations for the six (6) months ended June 30, 2008 and 2007, respectively. The increase in patient revenue was primarily due to the reopening of our acute care facility in our Cameron, Louisiana and an increase in patient volume in our geriatric psychiatric facility in Lake Charles, Louisiana. Total revenue also increased due to the acquisition through foreclosure of Cargo Connections Logistics. We anticipate revenues to grow in the fiscal year ending December 31, 2008, primarily as a result from adding additional revenue streams from new services and acquisitions.

Operating Expenses

Operating expenses for continuing operations for the six (6) months ended June 30, 2008 and 2007 were $20,244,535 and $14,889,742, respectively. Operating expenses of $1,951,588 and $7,311,052 for MGBMH was included in discontinued operations for the six (6) months ended June 30, 2008 and 2007, respectively. Operating expenses increased primarily due to the reopening of our acute care facility in Cameron, Louisiana and our acquisition of Cargo Connections Logistics. We anticipate that our continued efforts to leverage our cost structure, particularly in the areas of compensation and other selling, general and administrative expenses will reduce expenses in the future. Additionally, we continue to centralize certain key accounting and administrative activities in our facilities, which we expect will reduce our operating costs and improve our operating efficiency over time. During the six (6) months ended June 30, 2008, operating expenses consisted principally of $7,372,218 in salaries, wages and benefits, $3,912,811 in bad debt expenses, $1,682,593 in contract labor, $1,611,746 in direct transportation expense, $137,488 in depreciation, $691,251 in insurance expenses, $1,405,516 in medical supplies, $422,067 of professional fees, $1,134,350 in rent expenses and $1,874,495 of other operating and general and administrative expenses. We anticipate operating expenses to increase in the

fiscal year ending December 31, 2008 primarily as result of adding new lines of service in our existing facilities and the acquisition of new businesses.

Other Income/(Expense)

Other income/(expense) for the six (6) months ended June 30, 2008 and 2008 was $(6,992,307) and $363,057, respectively, which included a loss on the change in the fair market value of derivatives of $2,942,084; a loss on foreclosure of $3,807,537; a gain on the sale of minority interest of $500,000; a gain on the purchase of notes receivable of $659,822; a gain on settlements payable of $90,000; and a redemption fee of $44,449. Interest expense for the six (6) months ended June 30, 2008 and 2007 was $1,475,003 and $719,611, respectively. Interest expense of $272,414 and $101,254 for MGBMH was included in discontinued operations for the six (6) months ended June 30, 2008 and 2007, respectively.

Net Loss

Our net loss for the six (6) months ended June 30, 2008 and 2007 was $6,338,112 and $262,890. The increase in net loss is primarily the result of our acquisition of Cargo Connections Logistics, which generated a loss on foreclosure of $3,807,537 as well as the change in fair market value of derivatives, which generated a loss of $2,942,084. During the six (6) months ended June 30, 2008, our discontinued operations had a net income of $3,011,208, which was included in discontinued operations.

Liquidity And Capital Resources

We had cash of $544,057 at June 30, 2008. Net Cash used in operating activities during the six month period ended June 30, 2008 was $4,250,231, compared to $300,162 for the same period a year earlier. During the three months ended June 30, 2008, the net cash used was mainly the result of an increase in accounts receivable of $4,823,268, increase in Medicare receivables of $937,507, decrease in settlements payable of $291,889, decrease in Medicare payable of $366,626 offset primarily by a increase in accrued wages of $384,547, increase in escrow of $305,105, change in fair market value of derivatives of $2,942,084, amortization of debt discount of $787,534, loss on foreclosure of $3,807,537, gain on purchase of note receivable of $659,822, gain on sale of subsidiary of $2,352,917 and bad debt expense and depreciation expense of $4,449,663 and $164,295, respectively.

Net Cash used in investing activities was $75,931 for the six months ended June 30, 2008, compared to $149,633 for the same period in 2007. Net cash used in investing activities during the six months ended June 30, 2008 was attributable to the purchase of equipment in the amount of $343,697, purchase of notes receivable of $3,011,017, proceeds from the sale of assets of MGBMH of $3,198,903 and purchase of our staffing subsidiary of $61,700.

Net Cash provided by financing activities was $4,823,835 for the six months ended June 30, 2008, compared to cash provided of $720,051 in the same period for 2007. Net cash provided in financing activities during the six months ended June 30, 2008 consisted of proceeds from convertible debentures of $5,786,017, debt lender fees of $325,000, debt issuer costs of $12,385, proceeds from shareholder loans of $75,000, repayments of shareholder loans of $125,000, a redemption of convertible debentures of $592,067, factored borrowings of $491,293, repayments on factored borrowings of $140,301, repayments of $266,261 for notes payable, repayments of loans payable of $325,000 and increase in cash overdraft of $334,078.

The Company believes that future cash flows from operating activities and from issuances of debt and common stock will provide adequate funds to meet the ongoing cash requirements of its existing

business over the next twelve (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.

Item 4. Controls and Procedures

(A)

Evaluation Of Disclosure Controls And Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

(B)

Changes In Internal Controls Over Financial Reporting

There was no change in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have begun to centralize certain key accounting and administrative activities, which we expect will streamline our internal control over financial reporting. The initial or “core” phase consists of implementing a standard data processing platform in the facilities and centralizing to a shared services center certain key accounting processes (accounts payable, bank account reconciliations, and certain accounts receivable). We expect to have fully implemented the core phase on or around December 31, 2008.

PART II. OTHER INFORMATION

Item 1. 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

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

Convertible Debentures

2006 Securities Purchase Agreement

In December 2006, the FASB issued FSP EITF 00-19-2, "Accounting for Registration Payments" which was effective immediately. This FSP amends EITF 00-19 to require potential

registration payment arrangements be treated as a contingency pursuant to FASB Statement 5 rather than at fair value. We considered the effect of this standard on the above embedded conversion option and warrant classification as a liability and determined that the accounting would not have changed as a result of this standard; since the variable rate on the convertible debentures still cause derivative treatment and the liquidated damages liability had been recorded. Therefore, there was no effect of implementing this standard.

The following table summarizes the assets and liabilities recorded in conjunction with the issuance of the convertible debentures at the respective issuance dates:


	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 Securities Purchase Agreement

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 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.

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. The amount amortized as of June 30, 2008 was $955,571.

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.


Principal repayment – July 2007 debenture	$	100,000
Redemption premium – July 2007 debenture	$	6,949
Interest repayment – July 2007 debenture	$	120,650
Principal repayment – September 2007 debenture	$	500,000
Redemption premium – September 2007 debenture	$	37,500


Interest repayment – September 2007 debenture	$	17,986
Legal fees	$	7,050

Total Payment:	$	790,135

2008 Securities Purchase Agreement

The following table summarizes the assets and liabilities recorded in conjunction with the issuance of the convertible debentures at the respective issuance dates:


	Convertible Debenture Issued April 1, 2008
Principal liability	5,786,017
Debt issue costs	12,385
Debt discount from lender fees	325,000
Debt discount from embedded conversion option	4,186,438
Debt discount from warrants issued with convertible debenture	32,767
Initial embedded convertible option liability	4,186,438
Initial warrant liability	32,767
Warrant liability reclassed from equity	971,623

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. 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 Chief Executive Officer	Provided herewith
32.2	Section 906 Certification of Chief Financial Officer	Provided herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated: August 14, 2008	PACER HEALTH CORPORATION

	By: /s/ Rainier Gonzalez
	Rainier Gonzalez
	Chief Executive Officer


Dated: August 14, 2008

	By: /s/ J. Antony Chi
	J. Antony Chi
	Chief Financial Officer


EXHIBIT 21.1	SUBSIDIARIES OF PACER HEALTH CORPORATION