U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-KSB




þ ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      fiscal year ended December 31, 2007




 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934




Commission
      file number: 000-30556


___________________




FLAGSHIP
      GLOBAL HEALTH, INC.


(Name
      of
      small business issuer in its charter)


Delaware
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              11-3210792
                (I.R.S.
                  Employer
                Identification
                  No.)220
                  West 42ndStreet, 23rdFloor
                New
                  York, New York
                (Address
                  of principal executive offices)
              
              10036
                (Zip
                  Code)


(212)
      340-9100


(Issuer's
      Telephone Number)




Securities
      registered under Section 12(b) of the Exchange Act: None




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




Title
                of each class
              
              Common
                Stock, $.001 Par Value





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.


 ̈




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


Yes þ No  ̈








Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.


 ̈




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


Yes  ̈ No þ




The
      issuer's revenues for the fiscal year ended December 31, 2007 were $306,102 .




The
      aggregate market value of the common stock held by non-affiliates, based on
      the
      average of the bid and asked prices of the common stock as of March 27, 2008
      was
      approximately **$**9,673,000 .




As
      of
      March 27, 2008, the number of shares outstanding of the issuer's common stock
      is 69,482,630 shares.




Transitional
      Small Business Disclosure Format (Check one):


Yes  ̈ No þ


2


**FLAGSHIP
      GLOBAL HEALTH, INC.**




**TABLE
      OF CONTENTS TO ANNUAL REPORT**


**ON
      FORM 10-KSB**


**YEAR
      ENDED DECEMBER 31, 2007**






Item
                1.
            Description
                of Business.
            4Item
                2.
            Description
                of Property.
            10Item
                3.
            Legal
                Proceedings.
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            11Item
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities.
            11Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation.
            14Item
                7.
            Financial
                Statements.
            24Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure.
            24Item
                8A(T).
            Controls
                and Procedures.
            24Item
                8B.
            Other
                Information
            25Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act.
            26Item
                10.
            Executive
                Compensation.
            29Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.
            33Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence.
            36Item
                13.
            Exhibits.
            36Item
                14.
            Principal
                Accountant Fees and Services.
            38




3




**PART
      I**




**Item
      1. Description of Business.**




Flagship
      Global Health, Inc. (“Flagship”, the “Company” or “we”) (formerly known as
      Patients & Physicians, Inc., formerly known as Finity Holdings, Inc.) was
      incorporated in the State of Delaware on February 5, 1993. On June 27,
      2006, the Company closed an Exchange Agreement (the “Share Exchange”) with all
      of the stockholders of Flagship Patient Advocates, Inc. (“Advocates”) (formerly
      known as Flagship Healthcare Management, Inc., formerly known as U.S. Open
      Healthcare Management Inc.), a corporation incorporated in the State of Delaware
      on February 5, 2004, whereby the Company issued 55,710,255 shares of newly
      issued common stock in exchange for all of the issued and outstanding capital
      stock of Advocates. Upon completion of the Share Exchange, Advocates’
stockholders controlled approximately 99% of the then issued and outstanding
      Common Stock of the Company. Prior to the Share Exchange, the Company was a
      shell company.




Following
      the Share Exchange, the business activities of Advocates were the activities
      of
      Flagship. As a result of these factors, this transaction has been treated as
      a
      reverse merger and a capital transaction, equivalent to the issuance of stock
      by
      Advocates for the Company’s net assets and, accordingly, the historical
      financial statements prior to June 27, 2006 are those of Advocates. All
      shares and per share data prior to the Share Exchange have been restated to
      reflect the stock issuances and the effect of the closing of the Share
      Exchange.




On
      January 12, 2007, a Certificate of Ownership and Merger was filed with the
      Secretary of State of the State of Delaware, pursuant to which the Company
      merged with its wholly owned subsidiary, Advocates. As a result of the merger,
      the Company assumed all the obligations of Advocates and the operations of
      Advocates were dissolved. As the surviving entity, the Company changed its
      name
      to Flagship Global Health, Inc. on January 12, 2007.




**Flagship’s
      Business**




Flagship
      is an international membership-based, healthcare management company dedicated
      to
      obtaining the highest quality of healthcare for its members, whether they are
      at
      home or traveling. Acting as a member’s healthcare advocate, Flagship is focused
      on providing priority access to renowned and clinically acclaimed physicians,
      which are typically difficult to access. Rather than simply providing names,
      Flagship offers physician referrals, priority scheduled appointments, emergent
      care needs, a personal electronic internet-based medical record repository,
      air
      evacuation and personalized advocacy services to its members, all linked by
      a
      sophisticated and proprietary information management system. For Flagship,
      healthcare advocacy means bringing about the delivery of exceptional quality
      medicine to each of our members. The Company derives revenue from the sale
      of
      annual memberships through a combination of various service
      offerings.




*Flagship’s
      Products*




Flagship
      offers seven services to our members bundled in several membership packages.
      The
      service offerings include Emergency Care Hotline, Flagship Global Health IDTM,
      Emergency Air Evacuation, Priority Appointments with Leading Specialists,
      Medical Records Management, Medical Travel Planning and Comprehensive Executive
      Physicals. Packages are as follows:




**Specialist
                Care Direct**TM*******Platinum***
            **Specialist
                Care Direct**TM*******Gold***
            **Specialist
                Care Direct**TM*******Silver***
            **Emergency
                Care Direct**TM
            **Entry
                Level**Emergency
                Care Hotline
            *
            *
            *
            *
            *Flagship
                Global Health IDTM
            *
            *
            *
            *
            *Emergency
                Air Evacuation
            *
            *
            *
            *Priority
                Appointments With Specialists
            *
            *
            *Medical
                Records Management
            *
            *Medical
                Travel Planning
            *
            *Comprehensive
                Executive Physicals
            *




4




An
      additional service was introduced in late 2007 for Second Opinion Medical
      Consultation. This model takes advantage of Flagship’s renowned specialists. In
      October 2007 Flagship entered into a Second Opinion Medical Consultation
      Agreement with Quinn-healthcare of Ireland. Under this service, Flagship
      provides second opinion services to eligible Quinn-healthcare policyholders
      for
      serious medical conditions. Members eligible for the service are required to
      provide all necessary medical documentation including a treating physician’s
      summary of the patient’s condition, related test reports, radiology, laboratory,
      pathology, and other similar information. Upon receipt of complete medical
      records, Flagship reviews and identifies the appropriate Flagship physician
      expert reviewer to provide a second opinion. The physician expert provides
      a
      written report to the member. Quinn-healthcare is a multinational organization
      with substantial interests in a range of diverse industry sectors throughout
      Central and Western Europe. Flagship recognizes revenue on a per-member-per
      month basis.




*Flagship’s
      Services*




**Emergency
      Care Hotline**


Flagship's
      24/7 global support service is available when members are in an emergency room
      or unexpectedly hospitalized. With just one phone call, our clinical team of
      experienced registered nurses and physicians can assist members and their
      families to make informed decisions about care and treatment. We will even
      speak
      directly to ER personnel on a member’s behalf, with translation services in over
      140 languages.




**Flagship
      Global Health IDTM**


Flagship
      Global Health ID is a secure, web-based, repository for personal health
      information. Members carry a Flagship Global Health ID Card at all times, so
      emergency personnel anywhere in the world can access vital health information
      through the Internet in the event that the member is unconscious or otherwise
      unable to communicate. Flagship Global Health ID is also a lifetime personal
      health record that contains valuable information about past and present health
      issues. Members can enter their medical history and update their record through
      a standard web browser and decide with whom and how it is shared. When visiting
      a new doctor, members can simply print out a copy of their medical record or
      provide the doctor with password-protected access to the information
      on-line.




**Emergency
      Air Evacuation**


Flagship’s
      24/7 medical air evacuation service is available if members are hospitalized
      more than 150 miles away from home. It provides medically equipped aircraft
      staffed with a trained medical team configured as flying intensive-care units.
      This service is available from virtually anywhere in the world at no extra
      cost
      to our members who carry this service in their membership. Under certain
      conditions, members can also be transported from their home hospital to
      specialty hospitals in the United States.




**Priority
      Appointments with Leading Specialists**


Our
      own
      highly personalized and responsive referral center is staffed by a clinical
      team
      of physicians and registered nurses who help research cutting edge “Medical
      Intelligence” for members that is not normally available on the
      Internet and to find them the best specialists for serious medical situations.
      We understand that life-threatening illnesses don’t wait; that is why we secure
      priority appointments with our specialists ― often within about one week of a
      member’s call. In
      addition, a team clinician will follow-up with members after their appointment
      to discuss outcomes and next steps.




5




**Medical
      Records Management**


Compiling
      and maintaining personal medical information can be a daunting task. We work
      with our Gold and Platinum Level members to compile their medical history from
      multiple sources and create one comprehensive, up-to-date health record. We
      then
      store this information online using our proprietary technology platform Flagship
      Global Health ID.




**Medical
      Travel Planning**


If
      you
      have medical conditions that require special care and attention while traveling
      or working away from their home or overseas, our medical-care specialist team
      will develop a personalized medical-care travel plan. We provide assistance
      in
      locating and arranging quality care for serious medical treatments, and for
      supplies and services such as purchase of diabetic supplies, renal dialysis,
      oxygen refills for those suffering emphysema, and more.




**Comprehensive
      Physical Examination**


Flagship
      will arrange a comprehensive physical examination and diagnostic evaluation
      at
      one of our leading executive-health facilities located around the country.
      These
      facilities include Cooper Clinic in Dallas, Emory Executive Health in Atlanta,
      George Washington University Medical Center in Washington DC, Greenbrier Clinic
      in WV, Sharp Rees-Stealy Medical Group in San Diego, Summit Medical Center
      in NJ
      and Virginia Mason Medical Center in Seattle.




**The
      Market**




Flagship
      is a part of a new and rising class of companies that collectively make up
      a new
      sector called consumer driven healthcare (“CDH”). The combination of poor
      quality outcomes in healthcare, consumer demand for choices in medical care
      and
      the burden of individuals paying an ever increasing portion of medical bills
      has
      been fueling the CDH movement. While Flagship should appeal to all demographics,
      a key opportunity is the “baby-boomer” population, those born between 1946 and
      1964. The “baby boomer” population represents approximately 30% of the U.S.
      population, but owns more than two-thirds of the nation’s wealth. The “baby
      boomers” are also the key opinion leaders in the U. S. economy as they not only
      influence others with their own buying habits, but also often directly control
      the purchases for their children and elderly parents.




*Marketing
      Strategy*




Flagship
      is a patient advocacy and healthcare management company that helps discerning
      individuals make better and more informed decisions regarding their health
      care.
      This is analogous to financial advisors helping them with their finances and
      architects helping them build their homes. Flagship’s product positioning is
      best defined by its dedication to clinical advocacy and not financial or
      administrative help, which are offered by health insurance companies and others.
      Flagship provides health advocacy and extends to its members the privilege
      of
      access to outstanding healthcare specialists through annual memberships.
      Flagship’s products and services appeal to anyone, regardless of income, who
      values high quality healthcare and understands that s erious
      medical situations can arise at any time and that, in the current healthcare
      environment, all consumers ― independent of their demographics ― are subject to
      significant risk in the lack of quality medical care.




6




*Competition*




To
      date,
      we are not aware of any direct competition from companies offering the same
      line-up of products and services as Flagship. There are five categories that
      include companies offering some variation of the products and services offered
      by Flagship.




·
            Institution-Based
                Primary and Specialty Healthcare Providers comprised of a single
                hospital,
                a group of clinics or a network of medical centers aiming to provide
                personalized access to emergency, episodic or chronic care. These
                competitors provide guidance services that primarily include access
                to
                their own institutions’ resources. The institutions most often determine
                which physician the patient will see. Examples include the executive
                registry of most leading hospitals and clinics and Pinnacle
                Healthcare.




·
            “Best
                Physician” Identifiers are third parties utilizing a combination of
                physician rankings by the media and cross references among physicians
                to
                identify “best physicians.” Typically, there is a membership fee charged
                to both the patient (for access) and the physicians (for listing)
                in these
                arrangements. Physicians are typically chosen based on the list published
                by medical institutions with which the physicians are affiliated.
                Examples
                include Best Doctors and MediGuide.




·
            Web
                Search Services compile and offer lists of physicians with basic
                data
                about each physician and on-line information on illnesses and medical
                procedures. An example is WebMD.




·
            Billing
                and Insurance Facilitators services include review of benefits,
                negotiation of procedures and claim disputes on behalf of the
                member/patient. An example is Health
                Advocates.




·
            Concierge
                Medicine generally refers to a practice model whereby a primary care
                physician charges an annual fee to an exclusive set of patients in
                their
                locale. Concierge Medicine programs allow primary care doctors to
                reduce
                their practice size and increase the time spent with their patients.
                This
                type of service is designed for consumers who are seeking personalized
                healthcare alternatives and is gaining interest from physicians who
                are
                tired of dealing with health care insurance providers and HMO’s. Examples
                include MDVIP and MD2.
                Because Concierge Physicians practice at the primary care end of
                the
                healthcare spectrum, they are not typically competitive to Flagship
                and
                may, in fact offer a potential market for collaboration for offering
                Flagship services as embedded or optional to their annual
                fee.




*Sales
      Strategy*




Flagship’s
      sales strategy is a three-pronged simultaneous approach each targeting a
      different channel to access the potential Flagship member: Insurance and
      Benefits Planning Brokers, Second Opinion Opportunities and Embedded
      Products.




**Insurance
      and Benefits Planning Brokers.** Small,
      medium and large sized businesses rely heavily on agents to help structure
      employee benefit plans. These independent agents are trusted advisors and
      already have relationships within the principal decision makers of companies
      who
      can balance the medical coverage cost issues vs. maintaining and improving
      employee health. These agents represent multiple insurance companies and are
      always looking for new product offerings to go along with the other products
      they sell. Flagship services are an ideal complement to a broad range of
      employee benefit and financial planning services and appeal to a large
      percentage of agents in this field. Because Flagship is not insurance, it is
      an
      easy addition to the portfolio of a number of representatives who do not need
      insurance selling licensure to promote Flagship. A number of new programs have
      been implemented within Flagship to address the needs of this large distribution
      opportunity including clear collateral material as handouts and presentations
      as
      well as a web resource portal dedicated for broker information. New compensation
      plans have been structured that offer an attractive multi-year income stream
      from renewals. Revenue will be derived from the sale of Flagship’s products to
      individual and corporate members.




7




**Second
      Opinion Opportunities.** Flagship
      introduced the Second Opinion Medical Consultation service in late 2007. This
      model takes advantage of Flagship’s renowned specialists. Under this service,
      Flagship provides access to second opinion services to eligible members for
      serious medical conditions. Members eligible for the service are required to
      provide all necessary medical documentation including a treating physician’s
      summary of the patient’s condition, related test reports, radiology, laboratory,
      pathology, and other similar information. Upon receipt of complete medical
      records, Flagship reviews and identifies the appropriate Flagship physician
      expert reviewer to provide a second opinion. The physician expert provides
      a
      written report to the member. Flagship recognizes revenue on a per-member-per
      month basis. With the successful implementation of the Second Opinion model
      with
      Quinn-healthcare, Flagship is poised to address this need with a number of
      insurance carriers across the globe. These potential relationships are typically
      made without any external distribution intermediaries and contractually are
      handled by corporate Flagship staff to flowchart the respective responsibilities
      of each party and the member. Quinn-healthcare currently has over 460,000
      members eligible for this Second Opinion benefit. Upon execution of an
      agreement, Account Management is required as an ongoing part of the
      relationship. Revenue is earned on a per-member per-month basis.




**Embedded
      Products.** Flagship
      opportunities for distribution include embedding Flagship full or partial
      services into insurance policies sold to policyholders, student insurance plans
      and travel packages of various kinds. In addition, Flagship has entered into
      several joint marketing agreements with third party marketers. Under the terms
      of these agreements, Flagship and the marketers will establish Flagship Product
      Programs through alliances, associations or affinity groups. The third party
      marketers are responsible for paying Flagship’s membership fees.




*Intellectual
      Property*




Flagship
      currently has one registered trademark and five trademarks applications pending
      before the U.S. Patent and Trademark Office. The registered trademark
“Medcierge” (application no. 78/416,139, registration no. 3,149,553) was
      registered on September 26, 2006. Currently pending are applications for the
      trademarks “Flagship Global Health”, “Emergency Care Direct”, “Specialist Care
      Direct”, and “Emergency Care One”, with application nos. 77/299,154, 77/073,244,
      77/073,240 and 77/376,549, respectively.




Additionally,
      an application for the trademark   is
      currently pending with application no. 77/377,228.




Flagship’s
      technology platform is considered to be an important strategic asset as it
      delivers important functionality that allows consistent focus on the highest
      levels of service to our members. Each component of the platform is designed
      to
      provide targeted functionality that streamlines access to critical information
      and coordinates interaction among the stakeholders. The Company offers the
      following applications:




·
            Workbench:
                assists the Flagship Clinical Specialist by providing a sophisticated
                search engine that combines the medical needs of the member with
                the
                unique practice capabilities of each physician in the network. The
                search
                engine takes into account numerous factors regarding the referral
                including:


§
            The
                member’s preferences, such as distance to travel, physician gender, and
                office access requirements (e.g., wheel chair
                access)


§
            The
                member’s clinical needs


§
            The
                physician’s specialty and
                subspecialty


§
            Unique
                procedures and/or disease states the physician has indicated as key
                areas
                of excellence


§
            Numerous
                other factors, such as hospital affiliations and research
                interests




8




Taking
      all these factors into account, the search engine produces a list of physicians
      for the referral. The Workbench then facilitates specialist contact with the
      physician’s office in making an appointment for the member.




·
            Flagship
                Global Health ID:
                a
                secure web application accessed using a standard internet browser,
                providing the member with access and control over a wide variety
                of
                personal health information. The information is managed and controlled
                by
                the member, but can be made accessible to other stakeholders (such
                as the
                police in the event of an emergency, a member’s relatives or network
                physician) when pre-authorized by the member. Flagship Global Health
                ID
                provides a centralized repository for key member health information,
                including:


§
            Personal
                medical history (diagnoses, procedures, allergies, immunizations,
                etc.)


§
            Family
                medical history


§
            Consent
                and Authorization forms


§
            Documents
                including:


-
              Medical-legal
                    documents such as living wills and medical powers of
                    attorney
 -
              Clinical
                  documents such as physician summary notes, test results, instruction
                  forms
 -
              Medical
                  images


·
            Communications
                Infrastructure:
                utilizes Computer Telephony Integration, including virtual call
                distribution to provide 24/7 communications among the stakeholders.
                This
                allows Flagship to employ its staff (on-call doctors, triage nurses,
                call
                center supervisors, and others) using a flexible virtual network
                that
                minimizes our reliance on any single call center or physical location.
                All
                internet communications are protected using the latest security protocols
                to ensure the integrity and privacy of every communication link within
                the
                system.




**Employees**




We
      have
      20 full time employees. In addition we currently have agreements with 4 general
      insurance agents who act as wholesalers to networks of brokers. The general
      insurance agents currently contractually represent over 3,200 brokers. Our
      employees include: three employees in sales and marketing, three employees
      in
      membership services, two employees in IT, six employees in the call center,
      two
      employees in international and four employees in executive and administrative
      positions.




**Government
      Regulation**




The
      business of the Company is subject to certain governmental regulations,
      including without limitation, anti-kickback laws, regulation of the medical
      profession, and privacy and security of patient health records.


·
              Anti-kickback
                  Laws: Federal and state laws govern patient referrals, physician
                  financial
                  relationships and inducements to healthcare providers and patients.
                  Federal and a number of state anti-kickback laws prohibit persons
                  or
                  entities from offering, paying, soliciting or receiving anything
                  of value,
                  directly or indirectly, for the referral of patients covered by
                  federal
                  and state healthcare programs.
 
 ·
              Medical
                  Professional Regulation: The practice of most healthcare professions
                  requires licensing under applicable state law. In addition, the
                  laws in
                  some states prohibit business entities from practicing
                  medicine.
  9
  ·
              Privacy
                  and Security of Personal Information: Under the Health Insurance
                  Portability and Accountability Act of 1996, or HIPAA, Congress
                  established
                  a set of federal national privacy standards for the protection
                  by health
                  plans, healthcare clearinghouses, healthcare providers and their
                  business
                  associates of individually identifiable health
                  records.





For
      additional discussion of such regulation and its impact on the Company’s
      business, see the section entitled “Risk Factors” commencing on page 19 of
      this Form 10-KSB.




**Additional
      Information**




We
      are
      obligated to file periodic, quarterly and annual reports with the Securities
      and
      Exchange Commission (“SEC”) pursuant to the Exchange Act. The public may read
      and copy any materials that we file with the SEC at the SEC’s Public Reference
      Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
      information on the operation of the Public Reference Room by calling the SEC
      at
      1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
      and information statements, and other information regarding issuers that file
      electronically with the SEC. We file electronically with the SEC. The address
      of
      that site is http://www.sec.gov.




**Item
      2. Description of Property.**




The
      Company does not own any real property. In November 2004, we subleased
      office space for our headquarters at 432 Park Avenue South, 13 th Floor,
      New York, NY 10016. The lease is for approximately 9,000 square feet for a
      six
      year term through November 2010 with an annual rent of approximately
      $290,000. In November 2006, we moved to our current location and subleased
      this space to a third party for approximately the same amount as our annual
      rent
      liability.




On
      July 31, 2006, the Company entered into a sublease for our headquarters at
      220 West 42 nd Street,
      23 rd and
      24 th Floors,
      New York, NY 10036. The lease is for approximately 10,690 square feet for a
      ten
      and one half year term through 2016, with variable annual rent increases
      throughout the lease term from approximately $410,000 to $590,000. In addition,
      on October 24, 2006 the Company entered into a sublease for the
      22 nd floor at
      220 West 42 nd Street,
      New York, NY 10036. The lease is for approximately 6,487 square feet for a
      five
      year term with variable annual rent increases throughout the lease term from
      approximately $264,000 to $317,600. The Company believes that this office space
      will provide sufficient space for its operations for the near
      future.




On
      November 1, 2006, the Company entered into a lease for office space in
      China. The lease is for approximately 286 square meters for a two year term.
      The
      annual rent is approximately $44,600.




In
      the
      opinion of the Company’s management, each of the properties identified above is
      adequately covered by insurance.




The
      Company does not have a policy with respect to investments in (i) real estate
      or
      interests in real estate, (ii) investments in real estate mortgages, or (iii)
      securities of or interests in persons primarily engaged in real estate
      activities, as the Company does not invest in such assets in the ordinary course
      of its business.




**Item
      3. Legal Proceedings.**




A
      former
      independent contractor, Thomas Zakrzewsky (the “Plaintiff”), filed a lawsuit
      against the Company, among others, in the Supreme Court, State of New York
      on
      December 13, 2005. The Plaintiff alleges that he was promised employment with
      the Company and performed services for the Company based on these promises.
      The
      Plaintiff is seeking compensatory and punitive damages, including the issuance
      of additional shares of stock for these services and attorney fees in an
      aggregate amount that could reach approximately $1,800,000. The Company believes
      this lawsuit is without merit and intends to defend it vigorously. In
      management’s opinion the final resolution of this matter will not have material
      impact on the consolidated financial position or results of operations of the
      Company.




10




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




During
      the quarter ended December 31, 2007, no matters were submitted to a vote of
      the Company’s stockholders.




**PART
      II**




**Item
      5. Market for Common Equity, Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities.**




Our
      common stock currently trades on the Over the Counter Bulletin Board ("OTCBB")
      under the symbol FGHH. The following are the high and low bid information for
      our common stock for each quarter within the last two fiscal years.


Fiscal
                Year Ended
              2007
            
            Fiscal
                Year Ended
              2006*High
            Low
            
            High
            LowFirst
                Quarter
            $2.75
            $0.37
            
            $3.75
            $1.50Second
                Quarter
            $2.60
            $0.76
            
            $20.00
            $1.88Third
                Quarter
            $2.37
            $0.65
            
            $23.75
            $8.75Fourth
                Quarter
            $1.25
            $0.58
            
            $11.00
            $0.25


*
      The
      quotes above have been adjusted for a one (1) for one hundred twenty five (125)
      reverse stock split approved on June 27, 2006 by the shareholders. The
      quotations reflect inter-dealer prices, without retail mark-up, markdown or
      commission and may not represent actual transactions. Immediately after the
      reverse stock split, Flagship closed the Share Exchange on June 27, 2006,
      with all of the stockholders of Advocates whereby Flagship issued 55,710,255
      shares of newly issued common stock in exchange for all of the issued and
      outstanding stock of Advocates.




As
      of
      March 27, 2008, we had approximately 184 shareholders of record.




We
      have
      never declared or paid a dividend. We do not anticipate that we will declare
      or
      pay any dividends in the future.


11


**Securities
      Authorized for Issuance under Equity Compensation Plans**




The
      following table discloses information as of December 31, 2007 with respect
      to compensation plans (including individual compensation arrangements) under
      which the Company’s equity securities are authorized for issuance.




Plan
                Category
            
            (a)
              Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            (b)
              Weighted-average
                exercise price of outstanding options, warrants and rights
            
            I
              Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column (a)Equity
                compensation plans approved by security holders (1)
            
            
            10,018,250
            
            $
            1.10
            
            
            8,232,855Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            0
            
            
            0Total
            
            
            10,018,250
            
            $
            1.10
            
            
            8,232,855





(1)
      Consists of securities available for issuance pursuant to Flagship Amended
      and
      Restated 2006 Stock Option and Grant Plan, which has been approved by our Board
      and stockholders.




**Recent
      Sales of Unregistered Securities**




In
      January 2005, March 2005 and April 2005, Flagship entered into a
      Securities Purchase Agreement with individual investors (the “Series B
      Investors”) to purchase a total of 5,205,764 of Flagship’s Series B Preferred
      Stock at a price of $0.65 per share for an aggregate purchase price of
      $3,383,748. The Series B Investors included Brian Stafford, Michael Holland,
      Roy
      Geronemus, Norman Krischer, Everett, LLC, Ron Insana, Edmund Hajiim, William
      R.
      Grant, Awad & Associates LP II, Andrew O’Keefe, Michael Meyer, Justin
      Palmer, Marcus Loo, Barry Hartman, William Drake, III, Douglas Stafford, Debra
      Estrada, Bruce McShane and Frank Cammisa.




In
      March 2005, Flagship issued a total of 3,031,250 shares of common stock to
      certain members of management to settle $606,250 of compensation costs accrued
      during the year ended December 31, 2004. The issuance of common stock
      included 1,041,667 shares issued to Fred Nazem, 625,000 shares issued to Stephen
      O’Brien, 687,500 shares issued to Benjamin Safirstein, and 677,083 shares issued
      to Richard Howard.




In
      January 2006, Flagship entered into an agreement with certain investors to
      invest $7,100,000 in Secured Convertible Term Notes (the “Notes”) in Flagship.
      The Notes are convertible into common stock at $0.90 per share. In connection
      with the issuance of the Notes, Flagship issued to the investors 7,968,950
      shares of common stock. The investors also received seven year warrants
      representing the right to purchase 2,042,777 shares of common stock of Flagship
      with an exercise price of $0.92 per share. The investors and their investment
      included Laurus Master Fund, Ltd, $4,100,000, Fred Nazem, $1,000,000, OldIron
      Sports and Entertainment Company, Inc., $500,000, Brandon Fradd, $500,000,
      Valhalla Investment Partners, LP, $250,000, Daniel Keller, $100,000, Joseph
      Gatti, $100,000, John Keating, $100,000, Roger London, $100,000, Mark Gardy,
      $100,000, Edward Giles, $100,000, Pike Sullivan, $100,000, and Benjamin
      Safirstein, $50,000.




In
      June 2006, Flagship issued notes payable to Apollo Medical Partners, LP and
      Apollo Medical Offshore Partners, LP in the amounts of $2,700,000 and
      $1,300,000, respectively (the “Term Notes”). The Term Notes, including all
      accrued interest, shall become convertible into the form of securities issued
      in
      a subsequent round of financing at the price per share of the securities issued
      in such subsequent financing.




12




In
      October 2006, the Company issued 500,000 shares of common stock and
      warrants, representing the right to acquire 250,000 shares of common stock
      at an
      exercise price of $1.00 per share to Bruce McShane in connection with his equity
      investment of $1,000,000 in Flagship.




In
      November 2006, Flagship issued 100,000 shares of common stock and warrants,
      representing the right to acquire 50,000 shares of common stock at an exercise
      price of $1.00 per share to Roy Geronemus in connection with his equity
      investment of $200,000 in Flagship; 335,000 shares of common stock and warrants,
      representing the right to acquire 167,500 shares of common stock at an exercise
      price of $1.00 per share to Apollo Medical Partners, LP in connection with
      its
      equity investment of $670,000 in Flagship; and 165,000 shares of common stock
      and warrants, representing the right to acquire 82,500 shares of common stock
      at
      an exercise price of $1.00 per share to Apollo Medical Offshore Partners, LP
      in
      connection with its equity investment of $330,000 in Flagship.




In
      January 2007, Flagship issued 326,923 shares of common stock and warrants,
      representing the right to acquire 163,462 shares of common stock at an exercise
      price of $1.00 per share to Apollo Medical Partners, LP in connection with
      its
      equity investment of $653,846 in Flagship; and 173,077 shares of common stock
      and warrants, representing the right to acquire 86,539 shares of common stock
      at
      an exercise price of $1.00 per share to Apollo Medical Offshore Partners, LP
      in
      connection with its equity investment of $346,154 in Flagship.




In
      February 2007, Flagship issued 5,000 shares of common stock and warrants,
      representing the right to acquire 2,500 shares of common stock at an exercise
      price of $1.00 per share to Asher Kimchi in connection with his equity
      investment of $10,000 in Flagship; 10,000 shares of common stock and warrants,
      representing the right to acquire 5,000 shares of common stock at an exercise
      price of $1.00 per share to Asher Kimchi in connection with his equity
      investment of $20,000 in Flagship; and 50,000 shares of common stock and
      warrants, representing the right to acquire 25,000 shares of common stock at
      an
      exercise price of $1.00 per share to Mark Gardy in connection with his equity
      investment of $100,000 in Flagship.




In
      April 2007, Flagship issued a warrant representing the right to acquire
      200,000 shares of common stock at an exercise price of $2.00 in connection
      with
      a loan received from Roger London in the amount of $400,000; a warrant
      representing the right to acquire 200,000 shares of common stock at an exercise
      price of $2.00 in connection with a loan received from David Chiu in the amount
      of $400,000; and a warrant representing the right to acquire 125,000 shares
      of
      common stock at an exercise price of $2.00 in connection with a loan received
      from Fred Nazem in the amount of $250,000.




In
      May
      2007, Flagship issued a warrant representing the right to acquire 200,000 shares
      of Common Stock at an exercise price of $2.00 in connection with a loan received
      from OldIron Sports and Entertainment Company, Inc. in the amount of $400,000;
      and 200,000 shares of common stock and warrants, representing the right to
      acquire 100,000 shares of common stock at an exercise price of $1.00 per share
      to Roger London in connection with the conversion of a $400,000 Short Term
      Note.




In
      June 2007, Flagship issued 90,000 shares of common stock and warrants,
      representing the right to acquire 45,000 shares of common stock at an exercise
      price of $1.00 per share to Apollo Medical Partners, LP in connection with
      its
      equity investment of $180,000 in Flagship; 45,000 shares of common stock and
      warrants, representing the right to acquire 22,500 shares of common stock at
      an
      exercise price of $1.00 per share to Apollo Medical Offshore Partners, LP in
      connection with its equity investment of $90,000 in Flagship; 1,463,317 shares
      of common stock and warrants, representing the right to acquire 731,659 shares
      of common stock at an exercise price of $1.00 per share to Apollo Medical
      Partners, LP in connection with its conversion of an outstanding promissory
      note
      and accrued interest totaling $2,926,634 in Flagship; and 704,560 shares of
      common stock and warrants, representing the right to acquire 352,280 shares
      of
      common stock at an exercise price of $1.00 per share to Apollo Medical Offshore
      Partners, LP in connection with its conversion of an outstanding promissory
      note
      and accrued interest totaling $1,409,120 in Flagship.




13




In
      July 2007, Flagship issued a total of 6,809,258 shares of common stock and
      warrants representing the right to acquire 2,042,777 shares of common stock
      at
      an exercise price of $3.00 per share to investors in connection with a net
      equity investment of $14,185,226. The investors included FrontPoint Healthcare
      Fund, L.P., FrontPoint Healthcare Fund 2X, L.P., FrontPoint Healthcare Horizons
      Fund, L.P. and FrontPoint Healthcare Long Horizons Fund, L.P.




With
      respect to the sales of unregistered securities referenced above, all
      transactions were exempt from registration pursuant to Section 4(2) of the
      Securities Act and Regulation D promulgated under the 1933 Act. In each
      instance, the purchaser had access to sufficient information regarding Flagship
      so as to make an informed investment decision. More specifically, we had a
      reasonable basis to believe that each purchaser was an “accredited investor” as
      defined in Regulation D of the 1933 Act and otherwise had the requisite
      sophistication to make an investment in our securities. Unless otherwise
      disclosed the above selling stockholders are not broker-dealers or affiliates
      of
      broker-dealers.




**Use
      of Proceeds From Recent Registration Statement**




The
      Company filed a registration statement on Form SB-2 on December 5, 2007 to
      register for resale up to 7,107,462 shares of common stock that may be offered
      and sold from time to time by certain selling stockholders, of which 2,808,940
      shares of common stock are issuable upon the exercise of outstanding warrants.
      The file number associated with this registration statement is 333-147852,
      the
      effective date and offering date were December 18, 2007 and the aggregate
      offering price was $5,757,044. The registration statement was a
      selling stockholders’ registration statement, and, from the effective date
      of the registration statement to December 31, 2007, the Company has not incurred
      any expenses in connection with the issuance and distribution of the securities
      registered.




The
      Company will receive no proceeds from the sale of shares of common stock in
      the
      offering, but it may receive net proceeds of up to approximately $3,526,440
      upon
      the exercise, if any, of outstanding warrants, which will be used for working
      capital and general corporate purposes.




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




This
      Annual Report on Form 10-KSB and certain information incorporated herein by
      reference contain forward-looking statements within the meaning of the Private
      Securities Litigation Reform Act of 1995, Section 27A of the Securities the
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934, as amended. All statements included or incorporated by reference in this
      Annual Report on Form 10-KSB, other than statements that are purely
      historical, are forward-looking statements. In some cases, forward-looking
      statements are identified by words such as we “expect,” “anticipate,” “target,”
“project,” “believe,” “goals,” “estimates,” and “intend.” Variations of these
      types of words and similar expressions are intended to identify these
      forward-looking statements. These forward looking statements include statements
      about our outlook for fiscal year 2008, including our anticipated gross margins;
      research and development expenses; selling, general and administrative expenses,
      and operating profitability. In addition, any statements that refer to our
      plans, expectations, strategies or other characterizations of future events
      or
      circumstances are forward-looking statements. Readers are cautioned that these
      forward-looking statements are predictions and are subject to risks,
      uncertainties and assumptions that are difficult to predict. Therefore, actual
      results may differ materially and adversely from those expressed in any
      forward-looking statements. Among the important factors that could cause actual
      results to differ materially from those indicated by our forward-looking
      statements are those discussed in our *Risk
      Factors* and
      elsewhere in this report, as well as in the documents filed by us with the
      Securities and Exchange Commission, specifically the most recent reports on
      Form 10-QSB and 8-K, each as it may be amended from time to time. We
      undertake no obligation to revise or update publicly any forward-looking
      statement for any reason.




Certain
      reclassifications have been made to prior periods to conform to the fiscal
      year
      2007 presentation.




14




**Overview**




Flagship
      Global Health, Inc. (“Flagship”, the “Company” or “we”) (formerly known as
      Patients & Physicians, Inc., formerly known as Finity Holdings, Inc.) was
      incorporated in the State of Delaware on February 5, 1993. On June 27,
      2006, the Company closed an Exchange Agreement (the “Share Exchange”) with all
      of the stockholders of Flagship Patient Advocates, Inc. (“Advocates”) (formerly
      known as Flagship Healthcare Management, Inc., formerly known as U.S. Open
      Healthcare Management Inc.), a corporation incorporated in the State of Delaware
      on February 5, 2004, whereby the Company issued 55,710,255 shares of newly
      issued common stock in exchange for all of the issued and outstanding capital
      stock of Advocates. Upon completion of the Share Exchange, Advocates’
stockholders controlled approximately 99% of the then issued and outstanding
      Common Stock of the Company. Prior to the Share Exchange, the Company was a
      shell company.




Following
      the Share Exchange, the business activities of Advocates were the activities
      of
      Flagship. As a result of these factors, this transaction has been treated as
      a
      reverse merger and a capital transaction, equivalent to the issuance of stock
      by
      Advocates for the Company’s net assets and, accordingly, the historical
      financial statements prior to June 27, 2006 are those of Advocates. All
      shares and per share data prior to the Share Exchange have been restated to
      reflect the stock issuances and the effect of the closing of the Share
      Exchange.




On
      January 12, 2007, a Certificate of Ownership and Merger was filed with the
      Secretary of State of the State of Delaware, pursuant to which the Company
      merged with its wholly owned subsidiary, Advocates. As a result of the merger,
      the Company assumed all the obligations of Advocates and the operations of
      Advocates were dissolved. As the surviving entity, the Company changed its
      name
      to Flagship Global Health, Inc. on January 12, 2007.




Flagship
      is an international membership-based, healthcare management company dedicated
      to
      obtaining the highest quality of healthcare for its members, whether they are
      at
      home or traveling. Acting as a member’s healthcare advocate, Flagship is focused
      on providing priority access to renowned and clinically acclaimed physicians,
      which are typically difficult to access. Rather than simply providing names,
      Flagship offers physician referrals, priority scheduled appointments, emergent
      care needs, a personal electronic internet-based medical record repository,
      air
      evacuation and personalized advocacy services to its members, all linked by
      a
      sophisticated and proprietary information management system. For Flagship,
      healthcare advocacy means bringing about the delivery of exceptional quality
      medicine to each of our members. The Company derives revenue from the sale
      of
      annual memberships through a combination of various service
      offerings.




**General
      Discussion on Results of Operations and Analysis of Financial
      Condition**




***For
      the years ended December 31, 2007 and 2006***




*Revenue*




Subscription
      revenue for 2007 increased by $232,683 to $306,102 in 2007 as compared to
      $73,419 in 2006. The increase was primarily the result of the Company entering
      into two contracts in 2007 which generated revenue in the fourth quarter in
      addition to memberships sold in prior years generating a full year of revenue
      compared to prior years where memberships only generated revenue for a portion
      of the year.




*Gross
      Profit*




Gross profit
      was 81% in 2007 up from 78% in 2006. This increase was attributable to the
      increase in sales and certain costs of sales being allocated over a larger
      revenue base.




15




*Total
      Costs and Expenses*




Total costs
      and expenses for the year ended December 31, 2007 were $10,500,827,
      compared to $9,646,499 for the year ended December 31, 2006, an increase of
      $854,328 or 8.9%. The increase in expenses incurred during the year ended
      December 31, 2007 as compared to 2006 are set forth in greater detail below
      and in the accompanying consolidated financial statements attached.




*Membership
      Services*




Membership
      services expenses decreased by $123,475 to $2,118,768 in 2007, as compared
      to
      $2,242,243 in 2006. This decrease of 5.5% is attributable to a reduction in
      personnel, resulting in a decrease in wages and benefits of approximately
      $420,800 and related decrease in travel and entertainment of approximately
      $28,000. These decreases were offset by an increase in the number of Chiefs
      and
      Regional Medical Directors employed by the Company as we prepared for an
      increase in memberships, resulting in an increase of approximately $88,000
      in
      stipends paid to Specialty Chiefs and Regional Medical Directors in 2007. There
      was also an increase in the amortization expenses related to stock-based
      compensation expense of approximately $233,400 due to the issuance of options
      to
      employees.




*Selling,
      General and Administrative*




Selling,
      general and administrative expenses increased by $962,221 to $8,264,201 in
      2007,
      as compared to $7,301,980 in 2006. The increase of 13.2% included an increase
      in
      occupancy costs of approximately $534,000. This increase, a result of the
      Company moving to new headquarters in late 2006, is offset by sublease income
      of
      approximately $325,000 reported in other income. In addition, the Company
      incurred increases of approximately $987,000 related to professional fees and
      investor relations as a result of being a public company and requirements to
      file three registration statements during 2007. There were also increases of
      approximately $132,000 in computer maintenance as a result of outsourcing this
      function and $47,000 related to updating the Company’s existing web site. These
      increases were offset by decreases of approximately $186,000 related to salaries
      and related costs as a result of a reduction in personnel, the loss on the
      sale of equipment in 2006 of approximately $89,000 and a reduction in
      amortization of stock-based compensation expense of approximately $261,000.
      The
      Company also incurred a one-time charge in 2006 of $240,000 related to the
      cost
      of merging with the public shell.




*Other
      Income and Expense*




Interest
      income increased by approximately $186,000 to $252,711 in 2007, as compared
      to
      $66,730 in 2006. The increase in interest income is a result of the Company
      having more cash on hand during 2007 due to the FrontPoint Financing that took
      place in July 2007.




Interest
      expense increased by approximately $59,000 in 2007 to $837,948, as compared
      to
      $779,319 in 2006. This was a result of an increase in the interest rate payable
      on the Convertible Notes as a result of an increase in the prime rate during
      2007 and the assumption of short term borrowings that took place in April and
      May 2007. These increases were offset by decreases related to the reduction
      in
      the outstanding principal on the Convertible Notes which were repaid on a
      monthly basis beginning in July 2007, conversions of principal into equity
      and the conversion of the outstanding Apollo Notes into equity in
      June 2007.




Amortization
      of debt discounts and debt issuance costs decreased by approximately $45,000
      to
      $2,848,754 in 2007, versus $2,893,937 for the same period last year. This
      decrease was related to a decrease in the Convertible Notes outstanding during
      2007. The costs allocated to the debt are charged to operations over the term
      of
      the debt using the effective interest method, which produces a constant periodic
      rate of return. These decreases were offset by debt discounts related to the
      short term borrowings charged to operations in 2007.




16




Other
      income, net increased to $384,981 in 2007, as compared to $40,640 in 2006.
      This
      increase was primarily related to sublease income generated as a result of
      the
      Company moving to its new headquarters in November 2006 and subleasing the
      vacated space.




**Liquidity
      and Capital Resources**




At
      December 31, 2007 the Company had working capital of approximately
      $3,807,000, compared to a working capital deficit of approximately $5,073,000
      at
      December 31, 2006. The increase in working capital at December 31,
      2007 is primarily attributable to an increase in the cash position of the
      Company of approximately $7,570,000 as a result of various financings that
      occurred in 2007 and the conversion of the Apollo Notes of $4,000,000 into
      equity in June 2007. This was offset by an increase in the current portion
      of the Convertible Notes of approximately $1,492,000 and a repayment of notes
      payable of approximately $1,309,000.




During
      2007, we used a total of $7,738,401 in cash to support our operating activities.
      The use of cash in 2007 was primarily used to cover working capital required
      to
      operate the Company’s business activity offset by minimal income from membership
      revenues. Investing activities use of cash increased by approximately $319,000
      to $431,649 in 2007 from $112,587 in 2006. The increase in 2007 was a result
      of
      leasehold improvements and furniture purchases related to the new office space
      and the purchase of equipment for the Company’s operations in
      China.




During
      2007, cash generated from financing activities increased by approximately
      $5,693,000 to $15,739,811 in 2007 as compared to $10,046,713 in 2006. In 2007,
      the Company received net proceeds of $15,585,226 from various financings
      including: proceeds from the July 2007 FrontPoint Financing of
      approximately $14,185,000; proceeds from the Interim Financing of $1,800,000;
      and proceeds from the short term Bridge Notes of $1,050,000. This was offset
      by
      the repayment of the notes payable of $1,309,165. In 2006 the Company received
      net proceeds of $10,389,369 from three financings including: the
      January 2006 financing resulting in net proceeds of $4,181,400; the
      investment of $4,000,000 in June 2006 in the form of short term notes; and
      the sale of common stock and warrants in 2006 for $2,207,969.




The
      Company currently has approximately $1,500,000 on deposit in China and is in
      the
      process of repatriating these funds. Due to statutory regulation in China,
      this
      process may take time to complete. In the event that the Company is not able
      to
      repatriate these funds on a timely basis, it will have a significant impact
      on
      our ability to fund the Company’s continuing operations.




As
      of
      December 31, 2007, we had restricted cash of $824,117 which was used to
      secure certain obligations under our lease agreement for our principal offices
      located in New York, NY.




**Going
      Concern**




Our
      consolidated financial statements have been prepared assuming we will continue
      as a going concern. We have experienced net losses of $13,300,512 and
      $13,154,965 for the years ended December 31, 2007 and 2006,
      respectively, and $37,906,717 for the period from inception (July 9, 2002)
      to
      December 31, 2007. Although we had working capital of $3,806,676 at
      December 31, 2007, the losses from operations, among other factors, raise
      substantial doubt about our ability to continue as a going concern. Our
      financial statements do not include any adjustment that might result from the
      outcome of this uncertainty. Assurances cannot be given that adequate financing
      can be obtained to meet our capital needs. If we are unable to generate profits
      and unable to continue to obtain financing to meet our working capital
      requirements, we may have to curtail our business sharply or cease operations
      altogether. Our continuation as a going concern is dependent upon our ability
      to
      generate sufficient cash flow to meet our obligations on a timely basis, to
      obtain additional financing and, ultimately, to attain profitability. We expect
      our gross margins to decrease in 2008 to approximately 61% as forecasted cost
      of revenue anticipate the increases in sales commissions associated with
      revenue generated from various sales strategies. We expect expenses in 2008
      to
      be substantially the same as 2007 as infrastructure is sufficient for us to
      meet
      the operating needs of our current membership base and the forecasted increase
      in the coming year as well as operating requirements. In the event that we
      are
      able to achieve our forecast for 2008, the Company will be cash flow positive
      in
      the fourth quarter of 2008. If we are unable to meet the forecast, the Company
      could have significant cash needs. Presently, the Company is considering various
      alternatives, including pursuing a private placement financing, as well as
      various sales strategies to improve cash from operations, in order to provide
      for the future working capital needs of the Company. Should the Company not
      be
      able to fund its working capital needs through a financing or increase in sales,
      we will be adversely affected and we may have to cease operations.




17




**Critical
      Accounting Policies**




**Revenue
      Recognition**




We
      derive
      revenue from the sale of memberships to individuals and institutions for access
      to its healthcare service offerings.




The
      Company recognizes revenues in accordance with SEC Staff Accounting Bulletin
      No. 101, *Revenue
      Recognition in Financial Statements* (“SAB
      No. 101”) as amended by SEC Staff Accounting Bulletin No. 104, *Revenue
      Recognition* ,
      revised
      and updated (“SAB No. 104”). SAB No. 104 stipulates that revenue
      generally is realized or realizable and earned, once persuasive evidence of
      an
      arrangement exists, delivery has occurred or services have been rendered, the
      fee is fixed or determinable and collectibility is reasonably assured. The
      Company sells memberships to individuals and institutions for access to its
      healthcare service offerings. The Company recognizes revenue ratably over the
      term of the membership.




To
      date,
      the Company memberships have been marketed only through its in-house sales
      force
      and a network of independent brokers.




In
      the
      broker channel, the Company recognizes revenue when the broker distributor
      sells
      the Company’s memberships, provided we have satisfied all other terms and
      conditions.




**Stock-Based
      Compensation**




We
      have
      adopted Statement of Financial Standards (“SFAS”) No. 123(R) (revised
      2004), *Share-Based
      Payment* (“SFAS
      No. 123(R)”), which requires the recognition of compensation expense for
      employee stock options and other share-based payments. SFAS No. 123(R) was
      issued in December 2004. Under this method of adoption, expense related to
      employee stock options and other share-based payments is recognized over the
      relevant service period based on the fair value of each stock option
      grant.




Due
      to
      the Company’s limited history as a public company, the Company has estimated
      expected volatility based on the historical volatility of certain comparable
      companies as determined by management. The risk-free interest rate assumption
      is
      based upon observed interest rates appropriate for the expected term of the
      Company’s employee stock options. The dividend yield assumption is based on the
      Company’s intent not to issue a dividend under its dividend policy. The expected
      term is based on the simplified method in accordance with Staff Accounting
      Bulletin No. 107 on Share-Based Payment.




We
      have
      accounted for non-employee compensation expense in accordance with Emerging
      Issues Task Force (“EITF”) Issue No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* (“EITF
      96-18”), which requires non-employee stock options to be measured at their fair
      value as of the earlier of the date at which a commitment for performance to
      earn the equity instruments is reached (“performance commitment date”) or the
      date at which performance is complete (“performance completion date”).
      Accounting for non-employee stock options, which involve only performance
      conditions when no performance commitment date or performance completion date
      has occurred as of the interim financial reporting date, requires measurement
      at
      the instruments then-current fair value.




The
      fair value of each stock option grant to
      employees is estimated on the date of grant. The fair value of each stock option
      grant to non-employees is estimated on the applicable performance commitment
      date, performance completion date, or interim financial reporting date.




18






**Risk
      Factors**




*You
      should carefully consider the risks described below before investing in the
      Company. We consider these risks to be significant to your decision whether
      to
      invest in our common stock at this time. If any of the following risks actually
      occur, our business, results of operations and financial condition could be
      seriously harmed, the trading price of our common stock could decline and you
      may lose all or part of your investment.*




**Risks
      Relating To Our Business**




***The
      Company’s business is difficult to evaluate because it has a limited operating
      history.***




The
      Company has a limited operating history and participates in a relatively new
      and
      rapidly evolving market. The business has undergone significant transformation
      during its short history as a result of changes in the services and products
      offered, changes in market conditions, and changes in our targeted membership,
      and is expected to continue to change for similar reasons. We cannot assure
      you
      that our current business strategy will be successful in the long
      term.




Many
      companies with business plans based on providing similar healthcare products
      and
      services have failed to be successful. We have experienced significant losses
      since inception and, even if demand from members exists, we cannot assure you
      that our business will be successful.




***The
      Company has a history of significant losses and may not be profitable in the
      future and has going concern considerations.***




Flagship
      has a history of net losses and has an accumulated deficit of $37,906,717 from
      inception (July 9, 2002) through December 31, 2007. This amount does not
      include losses of Flagship prior to the Share Exchange, as defined herein.
      Furthermore, developing the Company’s business strategy and expanding the
      Company’s services will require additional capital, which may or may not be
      available to the Company. You should not rely solely on the public market
      valuation of the Company and the views of security analysts and investors for
      assessing the operational, business and financial success of the Company.
      Fluctuations in our quarterly operating results or our inability to achieve
      or
      maintain profitability may cause volatility in the price of our common
      stock in the public market. In light of these factors, among others, our
      independent registered public accounting firm has stated that there is
      substantial doubt about our ability to continue as a going concern in their
      opinion dated March 26, 2008 on our audited consolidated financial
      statements. The financial statements do not include any adjustments that might
      result for the outcome of this uncertainty.




***The
      Company may be unable to fund future growth.***




The
      Company’s business strategy calls for expansion through an increase in sales of
      memberships by its internal and external sales forces. To this end, the Company
      has decided to invest substantial funds to increase its sales and marketing
      resources in order to grow revenues .
      In
      order to implement this strategy, the
      Company will require funding for additional personnel, capital expenditures
      and
      other expenses, as well as for working capital purposes. Financing may not
      be
      available to the Company on favorable terms ,
      if at all.
      If adequate funds are not available on acceptable terms, then the Company may
      not be able to meet its business objectives for expansion. This, in turn, could
      harm the Company’s business, results of operations and financial condition. In
      addition, if the Company raises additional funds through the issuance of equity
      or convertible debt securities, or a combination thereof, then the shareholders
      will suffer dilution, and any new securities may have
      rights, preferences and privileges senior to those of our common stock.
      Furthermore, if the Company raises capital or acquires businesses by incurring
      indebtedness, the
      Company will become subject to the risks associated with indebtedness, including
      interest rate fluctuations and any financial or other covenants that the
      Company’s lender may require. Moreover, if the Company’s strategy to increase
      its sales and marketing resources in order to grow revenues does not produce
      the
      desired result, then the Company may incur significant ,
      unrecoverable expenses .




19




***The
      Company’s growth*** ***may*** ***be limited if it is unable to attract and retain qualified
      personnel.***




The
      Company’s business is largely dependent on the skills, experience and
      performance of key members of the Company’s senior management team. The Company
      plans to increase its sales and marketing personnel, as well as enter into
      agreements with independent third parties to sell products and services in
      order
      to grow revenue. The Company believes that its success depends largely on its
      ability to attract and retain highly-skilled and qualified technical, managerial
      and marketing personnel and enter into agreements with third parties. The
      market for
      highly skilled medical, sales, marketing and support personnel is highly
      competitive as a result of the limited availability of technically-qualified
      personnel with the requisite understanding of the markets which the Company serves. The inability to hire
      or
      retain qualified personnel may hinder
      the Company’s ability to implement its business strategy and may harm
      its business.




***Lengthy
      sales and implementation cycles for the Company’s products and services makes it
      difficult to forecast revenues and, as a result, may have an adverse impact
      on
      the Company’s business.***




The
      period from the Company’s initial contact with potential corporate buyers to the
      consummation of an agreement to offer the Company’s products and
      services to its employees is difficult to predict. These sales may be
      subject to delays due to a client’s internal procedures for approving such
      expenditures and other factors beyond the Company’s control. Implementation may
      be subject to delays based on the availability of the internal resources of
      the
      client that are needed, acceptance by potential members and other factors
      outside of the Company’s control. As a result, the Company has limited ability
      to forecast the timing of revenue from new members. This, in turn, makes it
      more
      difficult to predict the Company’s financial performance from quarter to
      quarter.




During
      the sales cycle and the implementation period, the Company may expend
      substantial time, effort and money preparing contract proposals and negotiating
      contracts without receiving any related revenue. In addition, many of the
      expenses related to providing the Company’s services are relatively fixed in the
      short term, including personnel costs, fixed overhead, and technology and
      infrastructure costs. As a result, the Company may be unable to adjust spending
      quickly enough to offset any unexpected revenue shortfall or delay, in which
      case the Company’s results of operations would suffer. In addition, in an
      attempt to enhance the Company’s long-term competitive position, the Company may
      from time to time make decisions regarding pricing, marketing, services and
      technology that could have a near-term adverse effect on the Company’s operating
      results.




***The
      Company may face significant competition for its products and
      services.***




While
      the
      Company’s products and services are relatively new, the greater healthcare
      markets in which the Company operates are intensely competitive, continually
      evolving and, in some cases, subject to rapid change. The Company expects the
      intensity of competition and the pace of change either to be maintained or
      at
      least be increased in the future. Many of the Company’s potential competitors
      may have greater financial, technical, product development, marketing and other
      resources than the Company. These organizations may be better known than the
      Company and may have more customers or users than the Company does. The Company
      cannot provide assurance that the Company will be able to compete successfully
      against these organizations or any alliances they have formed or may
      form.




20




***If
      the Company is unable to provide priority access to high quality healthcare
      that
      attracts and retains members, the Company’s revenues will be
      reduced.***




Interest
      in the Company’s products and services is based upon the Company’s ability to
      provide members with referrals and priority access to the Company’s network
      physicians. Although the Company has been able to continue to maintain and
      expand this network, if the Company is unable to continue to do so for any
      reason, the value of a membership would diminish and membership interest in
      the
      Company products and services would be adversely affected. Similarly, the
      Company’s ability to maintain or increase the number of highly qualified
      physicians in its network is based upon the Company’s ability to provide the
      physicians with incentive to continue to participate in the network. We cannot
      assure you that the Company will be able to retain qualified physicians to
      provide referral and priority access to members. If the Company is unable to
      provide high quality physicians to its members, the quality of the Company’s
      products and services will be reduced.




***The
      Company is exposed to the general condition of the healthcare
      market.***




The
      Company’s business is subject to global economic conditions, and in particular,
      market conditions in the healthcare industry. The Company’s operations may be
      adversely affected by
      the
      continued declines
      in employee benefit spending by large corporations and small to medium sized
      businesses .
      If
      global economic conditions worsen, or a prolonged slowdown in providing such
      benefits exists, then the Company may experience adverse operating
      results.




***The
      Company’s products and services may not achieve acceptance in the
      marketplace.***




The
      Company intends to offer its membership based products and services to large
      corporations, small to medium sized businesses and individuals. The markets
      for
      these products are relatively new, unpredictable and rapidly evolving. Lack
      of
      acceptance in the marketplace for these new products and services could have
      a
      material adverse effect on the Company’s business, results of operations and
      financial condition.




***Government
      regulation of healthcare creates risks and challenges with respect to Flagship’s
      compliance efforts and business strategies.***




The
      healthcare industry is highly regulated and is subject to changing political,
      legislative, regulatory and other influences. Existing and new Federal and
      state
      laws and regulations affecting the healthcare industry could create unexpected
      liabilities for the Company and cause the Company to incur additional costs
      and
      restrict the Company’s operations. Many healthcare laws are complex and their
      application to specific products and services may not be clear. In particular,
      many existing healthcare laws and regulations, when enacted, did not anticipate
      the healthcare products and services that the Company provides. However, these
      laws and regulations may nonetheless be applied to the Company’s products and
      services. As an international company, the Company may conduct business in
      a
      number of countries and thus may be subjected to local business practices,
      laws and regulations. The Company’s presence in the Chinese market in
      particular is a significant risk to our business. Management’s failure to
      accurately anticipate the application of these laws and regulations, or other
      failures to comply, could create liability, result in adverse publicity and
      negatively affect our businesses. Some of the risks the Company faces from
      healthcare regulation are as follows:




·
            *Anti-kickback
                Laws*


There
      are
      federal and state laws that govern patient referrals, physician financial
      relationships and inducements to healthcare providers and patients. The federal
      healthcare programs anti-kickback law prohibits any person or entity from
      offering, paying, soliciting or receiving anything of value, directly or
      indirectly, for the referral of patients covered by Medicare, Medicaid and
      other
      federal healthcare programs or the leasing, purchasing, ordering or arranging
      for or recommending the lease, purchase or order of any item, good, facility
      or
      service covered by these programs. Many states also have similar anti-kickback
      laws that are not necessarily limited to items or services for which payment
      is
      made by a federal healthcare program.




21




The
      laws
      in this area are broadly written and it is often difficult to determine
      precisely how the laws will be applied in specific circumstances. Penalties
      for
      violating the federal anti-kickback law include imprisonment, fines and
      exclusion from participating, directly or indirectly, in Medicare, Medicaid
      and
      other federal healthcare programs. Any determination by a state or federal
      regulatory agency that any of the
      Company’s practices violate any of these laws could subject the
      Company to civil
      or criminal penalties and require the Company to change or terminate some
      portions of its business and could have an adverse effect on the
      Company’s business. Even an unsuccessful challenge by regulatory authorities of the
      Company’s practices could result in adverse publicity and be costly for the
      Company to
      defend.




·
            *Medical
                Professional Regulation*


The
      practice of most healthcare professions requires licensing under applicable
      state law. In addition, the laws in some states prohibit business entities
      from
      practicing medicine. If a state determines that some portion of the
      Company’s business
      violates these laws, it may seek to have the Company discontinue those portions
      or subject the
      Company to
      penalties or licensure requirements. Any determination that the
      Company is a
      healthcare provider and has acted improperly as a healthcare provider may result
      in liability to the
      Company .




***The
      Company faces potential liability related to the privacy and security of
      personal information it collects from consumer and healthcare professionals
      through its websites.***




Internet
      user privacy has become a major issue both in the United States and abroad. The
      Company has
      privacy policies posted on its website that the
      Company believes
      comply with applicable laws requiring notice to users about the
      Company’s information collection, use and disclosure practices. However, whether and
      how
      existing privacy and consumer protection laws in various jurisdictions apply
      to
      the Internet is still uncertain and may take years to resolve. Any legislation
      or regulation in the area of privacy of personal information could affect the
      way the
      Company operates
      its website and could harm its business. Further, the
      Company cannot
      assure you that the privacy policies and other statements on its website or
      its
      practices will be found sufficient to protect the
      Company from
      liability or adverse publicity relating to the privacy and security of personal
      information.




Under
      the
      Health Insurance Portability and Accountability Act of 1996, or HIPAA, Congress
      established a set of federal national privacy standards for the protection
      by
      health plans, healthcare clearinghouses, healthcare providers and their business
      associates of individually identifiable health records. While the
      Company’s members
      own and control their own personal health records, the
      Company’s maintenance of these records using Flagship Global Health ID TM may
      subject the
      Company to HIPAA
      regulations. Furthermore, legislation regarding HIPAA is evolving and often
      confusing as it applies to new businesses such as the
      Company .
      Violation of HIPAA could result in substantial penalties that could adversely
      affect the
      Company’s future.




22




**Risks
      Related to Our Stock Being Publicly Traded**




***We
      incur costs as a result of being a publicly-traded
      company.***




As
      a
      publicly-traded company, we incur legal, accounting and other expenses,
      including costs associated with the periodic reporting requirements applicable
      to a company whose securities are registered under the Securities Exchange
      Act
      of 1934, or the Exchange Act, recently adopted corporate governance
      requirements, including requirements under the Sarbanes-Oxley Act of 2002,
      and
      other rules implemented relatively recently by the Securities and Exchange
      Commission (the “SEC”) and the National Association of Securities Dealers (the
“NASD”).




***We
      do not intend to pay dividends on our Common Stock.***




We
      have
      never declared or paid any cash dividend on our common stock. We currently
      intend to retain any future earnings and do not expect to pay any dividends
      in
      the foreseeable future.




***Penny
      stock rules could make it hard to resell your shares.***




The
      Company’s common stock is traded on the
      OTCBB.  An investor may find it more difficult to dispose of shares or
      obtain accurate quotations as to the market value of our Common Stock. In
      addition, rules promulgated by the SEC impose various practice requirements
      on
      broker-dealers who sell securities that fail to meet certain criteria set forth
      in those rules to persons other than established customers and accredited
      investors. Consequently, the liquidity of the Company’s securities could be
      impaired, not only in the number of securities which could be bought and sold,
      but also through delays in the timing of transactions, reduction in security
      analysts’ and the news media’s coverage of the Company, and lower prices for the
      Company’s securities than might otherwise be attained.




***Volatility
      in Our Common Share Price May Subject Us to Securities
      Litigation.***




The
      market for our common stock is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      In the past, plaintiffs have often initiated securities class action litigation
      against a company following periods of volatility in the market price of its
      securities. We may, in the future, be the target of similar litigation.
      Securities litigation could result in substantial costs and liabilities and
      could divert management's attention and resources.




***Our
      stock price may be volatile, which may result in losses to our
      shareholders.***




The
      stock markets have experienced significant price and trading volume
      fluctuations, and the market prices of companies listed on the OTCBB have been
      volatile in the past and have experienced sharp share price and trading volume
      changes. The trading price of our common stock is likely to be volatile and
      could fluctuate widely in response to many of the following factors, some of
      which are beyond our control:




·
                variations
                    in our operating results;
 ·
                changes
                    in expectations of our future financial performance, including
                    financial
                    estimates by securities analysts and
                    investors;
 ·
                changes
                    in operating and stock price performance of other companies in
                    our
                    industry;
 ·
                additions
                    or departures of key personnel; and
 ·
                future
                    sales of our common stock.
  Domestic
        and international stock markets often experience significant price and volume
        fluctuations. These fluctuations, as well as general economic and political
        conditions unrelated to our performance, may adversely affect the price of
        our
        common stock.


23




***The
      Company lacks internal accounting personnel.***




The
      Company’s Chief Financial Officer is solely responsible for the accounting and
      reporting functions for the Company and outsources certain of its accounting
      and
      finance functions to an independent third party. Although the Company currently
      has limited segregation of duties regarding the Company’s accounting and
      reporting functions, with the guidance of an outside consulting firm we have
      designed and implemented improvements in our internal controls over financial
      reporting. Our consultants have concluded that the Company’s use of an
      outsourcing firm for certain accounting functions provides reasonable accounting
      resources to provide us with the expertise needed to assist the Company in the
      preparation of its financial statements.




**Item
      7. Financial Statements.**




Reference
      is made to page F-1 herein for the Index to the Consolidated Financial
      Statements.




**Item
      8. Changes In and Disagreements With Accountants on Accounting and Financial
      Disclosure.**




None.




**Item
      8A(T). Controls and Procedures.** ****




**Evaluation
      of Disclosure Controls and Procedures**




The
      Company’s management has established disclosure controls and procedures designed
      to ensure that information it is required to disclose in the reports that it
      files or submits under the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”) is recorded, processed, summarized and reported within time
      periods specified in the Securities and Exchange Commission rules and forms.
      Such disclosure controls and procedures include, without limitation, controls
      and procedures designed to ensure that information the Company is required
      to
      disclose in the reports that it files or submits under the Exchange Act is
      accumulated and communicated to the Company’s management to allow timely
      decisions regarding required disclosure.




Based
      on
      an evaluation of the Company’s disclosure controls and procedures as of
      December 31, 2007 made by management, under the supervision and with the
      participation of the Chief Executive Officer and Chief Financial Officer, the
      Chief Executive Officer and Chief Financial Officer have concluded that the
      Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
      and 15d-15(e) promulgated under the Exchange Act) were effective as of
      December 31, 2007.




**Management’s
      Report on Internal Control Over Financial Reporting**




The
      Company’s management is responsible for establishing and maintaining adequate
      internal control over financial reporting for the Company, as such term is
      defined in Rule 13a-15(f) promulgated under the Exchange Act. Internal control
      over financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with accounting
      principles generally accepted in the United States of America. Internal control
      over financial reporting includes those policies and procedures that (i) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the Company’s assets;
      (ii) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of the financial statements in accordance with
      accounting principles generally accepted in the United States of America, and
      that receipts and expenditures are being made only with proper authorizations;
      and (iii) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of the Company’s
      assets that could have a material effect on the financial statements.




24




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




The
      Company’s management, under the supervision of and with the participation of the
      Chief Executive Officer and the Chief Financial Officer, assessed the
      effectiveness of the Company’s internal control over financial reporting as of
      December 31, 2007 based on criteria for effective control over financial
      reporting described in Internal Control — Integrated Framework (1992)
      created by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO). Based on this assessment, and the Company’s completion of its plan to
      remediate the previously reported material weaknesses identified by its
      independent registered public accounting firm with respect to the Company’s
      financial statements for the year ended December 31, 2006, the Company’s
      management concluded that the Company’s internal control over financial
      reporting was effective as of December 31, 2007.




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




**Changes
      in Internal Control Over Financial Reporting**




No
      changes in our internal control over financial reporting occurred during the
      quarter ended December 31, 2007 that has materially affected or is
      reasonably likely to materially affect our internal control over financial
      reporting.




**Item
      8B. Other Information**




None.




25




**PART
      III**




**Item
      9. Directors, Executive Officers, Promoters and Control Persons; Compliance
      with
      Section 16(a) of the Exchange Act.**




As
      of
      March 27, 2008, set forth below are the names of Flagship’s directors and
      officers, their ages, all positions and offices that they hold with Flagship,
      the period during which they have served as such, and their business experience
      during at least the last five years.




Name
            Age
            PositionJohn
                H. Flood III
            56
            President,
                Chief Executive Officer and DirectorRichard
                Howard
            58
            ChairmanRichard
                P. Torykian, Sr.
            66
            DirectorMichael
                Holland
            63
            DirectorBrian
                Stafford
            59
            DirectorBarbara
                McNeil, MD
            64
            DirectorPhilip
                Barak
            56
            Senior
                VP - Chief Financial Officer and Corporate SecretaryClayton
                Larsen
            49
            Senior
                VP - Marketing and SalesMark
                Gardy, MD
            47
            Senior
                VP - Chief Medical Officer


________________________




*John
      H. Flood III.* Mr.
      Flood has been the President of Flagship since May 2006. On November 21,
      2007, Mr. Flood was appointed as the Chief Executive Officer of Flagship. On
      December 12, 2007, Mr. Flood was also elected as a Director of Flagship. Mr.
      Flood will continue in his capacity as President of Flagship as well. He had
      been an EVP and Chief Marketing Officer of Patients & Physicians since
      February 2006 and had served in the same capacity for Flagship since
      February 2005. For the six months prior, he served as a consultant to the
      Company. From 1994 - 2004 Mr. Flood was the managing partner of Flood Donohue
      Johnston & McShane where he specialized in transactional law, negotiated
      physician employment contracts and also practiced in the areas of sports and
      entertainment law. From 1984 - 1994 he worked for NFL Properties, the
      centralized marketing company of the National Football League where he served
      as
      company counsel, Executive Vice President of Business Affairs and President.
      While at NFL Properties, the company grew from relatively modest sales in 1984
      to over a billion dollars in retail sales by 1994. Mr. Flood has served on
      the Nominating Committee for the Harvard University Board of Overseers, Harvard
      University’s New York Schools and Scholarships Committee, has been a Board
      Member and Selector of the Lawrenceville School Alumni Association and has
      served as a Board Member of St. Michael’s Heart Research Institute in Newark,
      NJ. He received his AB in Psychology from Harvard University and his JD from
      the
      University of Virginia School of Law. He is admitted to the bar in the states
      of
      New York and New Jersey.




26




*Richard
      Howard* .
      On
      December 12, 2007, Mr. Howard was appointed as the new Chairman of Flagship.
      Richard Howard presently serves as the Managing Director of BHL Strategies,
      a
      consulting firm that provides management services to companies and nonprofit
      organizations.  Mr. Howard served on the Board of Directors of Flagship
      from November 2004 to July 2007 and was the President of Flagship from
      July 2004 to August 2005. From 2003 to 2004, he was the Managing
      Director of BHL Strategies, a consulting firm that provides management
      services to companies and nonprofit organizations. From 1985 to 2003, he worked
      for Genesis Health Ventures, Inc. At various times during his seventeen years
      with Genesis he served as Vice Chairman, President and Chief Operating Officer.
      He also served as a member of the Board for all seventeen years. He received
      a
      BS in Economics and Corporate Finance from the Wharton School at the University
      of Pennsylvania.




*Richard
      P. Torykian, Sr* .
      Mr.
      Torykian has been a Director of Flagship since February 2006. He has served
      as the Director for Lazard Capital Markets, LLC and Lazard Asset Management
      from
      1985 to the present. He is a member of the Board of Sponsors, Mercy Hospital,
      Rockville Centre, NY and was the founding chairman of the Chaminade High School
      Development Fund and advisor to the Catholic Big Brothers of New York City.
      He
      is a trustee of the Intrepid Sea-Air-Space Museum headquartered aboard the
      USS
      Intrepid. Mr. Torykian received his BA in Chemistry from St. Michaels College
      in
      1961, MS in Chemical Engineering from St. Joseph’s University in 1963 and
      MBA in Finance from Adelphia University in 1970.




*Michael
      Holland.* Michael
      Holland has been a Director of Flagship since February 2006. He is the
      Chairman of Holland & Company, a private investment firm he founded in 1995
      in New York City and the President and Founder of the Holland Balanced Fund.
      He
      began his career at J.P. Morgan in 1968 where he spent twelve years managing
      both equity and fixed income assets for major institutional clients as well
      as
      wealthy individuals. He served as Chief Executive Officer of First Boston Asset
      Management in the early 1980’s and later served as Chairman of Salomon Brothers
      Asset Management. Mr. Holland has been Chairman of a number of mutual funds,
      a
      General Partner of the Blackstone Group and a CEO of Blackstone Alternative
      Asset Management, and is the former Vice Chairman of Oppenheimer & Co., Inc.
      He is on the Board of The China Fund, a NYSE-listed company, the Vanguard
      Charitable Endowment and the State Street Master Trust Fund. Mr. Holland
      graduated from Harvard University with a concentration in English in 1966.
      In
      1968 he received his M.B.A. in finance from Columbia University.




*Brian
      Stafford.* Mr.
      Stafford has been a Director of Flagship since February 2006. He was
      Director of the United States Secret Service from March 1999 until he retired
      in
      January 2003. From 2003 to 2005 Mr. Stafford served on the Board
      of Seisint Corporation.  Seisint was acquired by LexisNexis in 2005 and he
      has been employed by LexisNexis since that time and serves as their Vice
      Chairman.  He has also served on the Board of Directors of Ceramic
      Protection Corporation, a publicly traded company trading on the Canadian
      Exchange since 2007 and served on the Board of Good Harbor Special
      Acquisition Corporation, a publicly traded SPAC from 2006 until it ceased
      operations in 2007. Mr. Stafford began his tenure with the Secret Service
      in 1971 as a field office special agent rising in the ranks during his career
      to
      supervisory position in both protective and investigative assignments, including
      Special Agent in Charge of the Presidential Protection Division. Mr. Stafford
      serves on the Board of Trustees of Mount Union College in Alliance, Ohio where
      he received a BA degree in 1969 and an honorary Doctorate in Human Letters.




*Barbara
      McNeil, MD.* Dr.
      Barbara McNeil has been a Director of Flagship since February 2006. She has
      worked in the fields of health policy and radiology (nuclear medicine) for
      over
      25 years at Harvard Medical School and the Brigham and Women’s Hospital. She
      serves on the Board of Cardiovascular Therapeutics (CVTX); in this capacity
      she
      serves on the Audit Committee and is chair of the Nominating and Governance
      Committee. She is also on the Board of Edwards Lifesciences Corp. (EW). Prior
      to
      this Dr. McNeil was the founding head of the Department of Health Care Policy
      at
      Harvard Medical School, the largest research unit in this area at Harvard
      University for over ten years she ran the Center for Cost-Effective Care at
      the
      Brigham and Women’s Hospital. Dr. McNeil practices nuclear medicine at the
      Brigham and Women’s Hospital and works actively with the chief of the department
      on general strategic issues within radiology. She received her AB degree from
      Emmanuel College in 1962 and her MD in 1966 and PhD degree in 1972 from Harvard
      University. She also attended the Advanced Management Program (AMP) at Harvard
      Business School in 1986. At Harvard Medical School she was one of the first
      tenured women.




27




*Philip
      Barak.* Mr.
      Barak
      has been the Chief Financial Officer and Corporate Secretary of Flagship since
      February 2005. For over the past twenty years he has been a General Partner
      and Chief Financial Officer of Nazem & Company, a venture capital firm
      founded in 1976. During that time he served on the Boards of Directors of
      several public and private companies and worked with venture backed companies
      in
      structuring and negotiating financings. He holds a BS in Accounting from Rider
      University and is a Certified Public Accountant and a member of the AICPA and
      NYSSCPA.




*Clayton
      Larsen* .
      Mr.
      Larsen has been the Senior Vice President of Marketing and Sales at Flagship
      Global Health since October 2007. Prior to his work for Flagship, Mr.
      Larsen was a senior executive with FUJIFILM Medical Systems ("Fuji") from 1996
      through 2007 where he was instrumental in the development, marketing and
      commercial release of Fuji's Synapse Picture Archive and Communication System
      (PACS). Before Fuji, Larsen was employed by Acuson Corporation from 1988 to
      1996, last serving as Vice President of New Market Development, a leading
      ultrasound technology company that was later acquired by Siemens. From
      1981-1988, he specialized in sales and marketing of ultrasound and nuclear
      medicine for Picker International. Mr. Larsen holds a bachelor's degree in
      molecular biophysics and biochemistry from Yale University. He was previously
      presented with the International In Awe Award for Marketer of the Year by the
      Medical Marketing Association.




*Mark
      Gardy, MD* .
      Dr.
      Gardy has been a Senior Vice President and the Chief Medical Officer since
      February 2008. From 2004 to 2008 he served as Medical Director, Managing
      Director and Chief of Clinical Services. For the prior 10 years Dr Gardy was
      a
      partner of Emergency Medical Associates, one of the nation’s premier providers
      of emergency services to hospitals and health systems. Dr. Gardy is the team
      emergency physician for the New York Giants of the National Football League
      and
      is experienced in emergency and traumatic care of the injured athlete. He is
      among the first emergency physicians to be associated with professional football
      and to be on the sideline at NFL games providing immediate medical attention
      to
      the professional athlete. He has also served as team physician for the New
      Jersey Storm of the National Lacrosse League and The New Jersey Pride of Major
      League Lacrosse. Dr. Gardy received his MD from The Chicago Medical School.
      He
      completed his training in Emergency Medicine at the Level I Trauma Center of
      New
      York's St. Luke's Roosevelt Hospital Center and is a member of the American
      College of Emergency Physicians.




**Compliance
      with Section 16(a) of the Securities Exchange Act of 1934**




Section
      16(a) of the Securities and Exchange Act of 1934 requires our executive officers
      and directors and persons who own more than 10% of a registered class of our
      equity securities, to file with the SEC initial statements of beneficial
      ownership on Form 3, reports of changes in ownership on Form 4 and annual
      reports concerning their ownership on Form 5. Executive officers, directors
      and
      greater than 10% stockholders are required by the SEC regulations to furnish
      us
      with copies of all Section 16(a) reports they file.




During
      the fiscal year ended December 31, 2007, Fred Nazem, Benjamin Safirstein,
      John H. Flood, III and Philip Barak each did not file a Form 4, relating to
      the
      change in their beneficial ownership as a result of the issuance of options
      and
      the principal payments made on their junior convertible notes, on a timely
      basis.




**Audit
      Committee**




On
      July 31, 2006, the Company adopted an Audit Committee Charter. The Audit
      Committee is responsible for making recommendations to the Board as to the
      selection and independence of our external auditor, maintaining communication
      between the Board and the independent auditor, reviewing the annual audit report
      submitted by the independent auditor and determining the nature and extent
      of
      problems, if any, presented by such audit warranting consideration by our Board.
      The current members of the Audit Committee are Mr. Michael Holland, Chairman,
      Mr. Brian Stafford and Mr. Richard Torykian. Membership on the Audit Committee
      is intended to be restricted to directors who are independent of management
      and
      free from any relationship that, in the opinion of the Board, could interfere
      with the exercise of independent judgment as a committee member. The Audit
      Committee does not have an audit committee financial expert because our equity
      securities are not currently listed on an exchange or automated quotation system
      that require its listed companies to appoint an audit committee financial
      expert.




28




**Code
      of Ethics**




On
      July 31, 2006, the Company adopted a Code of Ethics that applies to all its
      employees including its executive officers. The Company’s Code of Ethics was
      filed as an exhibit to the Company’s Form 8-K, filed on August 2, 2006.




**Item
      10. Executive Compensation.**




The
      following table sets forth information concerning all cash and non-cash
      compensation awarded to, earned by or paid to the named executive officers
      of
      the Company, who served during the fiscal year ended December 31, 2007, for
      services in all capacities to the Company:





SUMMARY
                COMPENSATION TABLEName
                & Principal Position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)(1)
            
            Non-Equity
                Incentive Plan Compensation
              ($)
            
            Nonqualified
                deferred compensation earnings
              ($)
            
            All
                other Compensation
              ($)
            
            Total
              ($)Fred
                F. Nazem, Chairman, CEO (2)
            
            
            2007
              2006
            
            $
              $
            284,374
              274,999
            
            $
              $
            0
              100,000
            
            $
              $
            0.00
              0.00
            
            $
              $
            642,000
              173,405
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
                (2
              0.00
                (2
            )
              )
            $
              $
            926,374
              548,404John
                H. Flood President, CEO
            
            
            2007
              2006
            
            $
              $
            259,576
              250,000
            
            $
              $
            0
              120,000
            
            $
              $
            0.00
              0.00
            
            $
              $
            256,800
              69,362
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
                (3
              0.00
            )
            $
              $
            516,376
              439,362Benjamin
              Safirstein,
                EVP(5)
            
            
            2007
              2006
            
            $
              $
            207,500
              200,000
            
            $
              $
            0
              10,000
            
            $
              $
            0.00
              0.00
            
            $
              $
            173,340
              69,362
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
                (4
              0.00
                (4
            )
              )
            $
              $
            380,840
              279,362Philip
                Barak
              Sr.
                VP-CFO, Corporate Secretary
            
            
            2007
              2006
            
            $
              $
            220,192
              200,000
            
            $
              $
            0
              10,000
            
            $
              $
            0.00
              0.00
            
            $
              $
            340,489
              43,870
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
              0.00
            
            $
              $
            0.00
              0.00
            
            $
              $
            560,681
              253,870





(1)
      See
      Note 3 of the Notes to Consolidated Financial Statements.


(2)
      Mr.
      Nazem served as a director of the Company until his resignation effective
      December 7, 2007, but without compensation for director services. Mr. Nazem
      also resigned as the CEO effective November 21, 2007.


(3)
      Mr.
      Flood joined the Board of Directors on December 12, 2007, but was not paid
      any
      compensation for director services.


(4)
      Mr.
      Safirstein also served as a director of the Company during fiscal year 2007,
      but
      without compensation for director services. Mr. Safirstein resigned from his
      positions as director and Chief Medical Officer on February 6,
      2008.




29




**Employment
      Agreements**




On
      March
      14, 2008, the Company's Board of Directors approved and entered into employment
      agreements with John H. Flood, III, the Company’s Chief Executive Officer and
      President, Philip Barak, the Company’s Senior Vice President and Chief Financial
      Officer, Mark Gardy, MD, the Company’s Senior Vice President and Chief Medical
      Officer, and Clay Larsen the Company’s Senior Vice President of Marketing and
      Sales.




John
      H.
      Flood’s employment agreement with the Company was effective as of
      February 28, 2008. The term of his employment with the Company is a period
      of three (3) years, with automatic one (1) year extensions thereafter, unless
      otherwise terminated pursuant to his employment agreement. Mr. Flood’s
      employment contract stipulates that he will serve as the Company’s Chief
      Executive Officer. Flood will receive a base salary at the annual rate of
      $275,000, and he will be eligible to receive annual bonuses.




Philip
      Barak’s employment agreement with the Company was effective as of
      February 28, 2008. The term of his employment with the Company is a period
      of one (1) year, with automatic one (1) year extensions thereafter, unless
      otherwise terminated pursuant to his employment agreement. Mr. Barak’s
      employment contract stipulates that he will serve as the Company’s Chief
      Financial Officer. Mr. Barak will receive a base salary at the annual rate
      of
      $220,000, and he will be eligible to receive annual bonuses.




Dr.
      Mark
      Gardy’s employment agreement with the Company was effective as of
      February 28, 2008. The term of his employment with the Company is a period
      of one (1) year, with automatic one (1) year extensions thereafter, unless
      otherwise terminated pursuant to his employment agreement. Dr. Gardy’s
      employment contract stipulates that he will serve as the Company’s Senior Vice
      President and Chief Medical Officer. Dr. Gardy will receive a base salary at
      the
      annual rate of $260,000, and he will be eligible to receive annual bonuses.




Clay
      Larsen’s employment agreement with the Company was effective as of
      February 28, 2008. The term of his employment with the Company is a period
      of one (1) year, with automatic one (1) year extensions thereafter, unless
      otherwise terminated pursuant to his employment agreement. Mr. Larsen’s
      employment contract stipulates that he will serve as the Company’s Senior Vice
      President of Marketing and Sales. Mr. Larsen will receive a base salary at
      the
      annual rate of $225,000, and he will be eligible to receive annual bonuses.




All
      other
      employees are issued an employment letter setting forth the terms of employment
      including salary, benefits and vacation time. With respect to such other
      employees, the Company does not have any agreements pertaining to severance.
      Each employee is required to execute a Confidentiality and Non-Competition
      and
      Non-Disclosure Agreement, which lasts for a period of 12 months following the
      date of the employee’s termination from the Company.




Messrs.
      Flood, Barak and Gardy participate in the Company’s defined contribution plan,
      the Flagship Global Health, Inc. 401(k) Plan (the “Plan”). The Plan became
      effective January 1, 2005. Eligible employees are able to make
      contributions to the Plan up to the maximum allowable by law, which for 2007
      was
      generally $15,500. The Company did not make any contributions to the
      Plan.




The
      Company recognizes compensation costs associated with stock options over each
      employee’s service period, which in all cases is the vesting period for such
      stock option grants. The 2007 stock option awards generally vest annually over
      a
      four (4) year period from the date of grant. In certain instances, certain
      performance conditions must be satisfied in order for the option awards to
      fully
      vest.




30


The
      following table sets forth information with respect to outstanding equity awards
      at December 31, 2007 held by the persons named in the Summary Compensation
      Table:





OUTSTANDING
                EQUITY AWARDS AT FISCAL YEAR-END (1)Option
                Awards
            Stock
                AwardsName
            Number
                of Securities Underlying Unexercised Options
              (#)
                Exercisable
            Number
                of Securities Underlying Unexercised Options (#)
                Unexercisable
            Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options (#)
            Option
                Exercise Price
              ($)
            Option
                Expiration Date
            Number
                of Shares or Units of Stock That Have Not Vested (#)
            Market
                Value of Shares or Units of Stock That Have Not Vested ($)
            Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                That Have Not Vested (#)
            Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or
                Other Rights That Have Not Vested ($)Fred
                F. Nazem(14)
            62,500
              100,000
              125,000
            0(7)
              0(8)
              0(2)
            
            $0.99
              $0.99
              $2.20John
                H. Flood III
            600,000
              25,000
              50,000
              0
            200,000(10)
              75,000(7)
              150,000(2)
              400,000(5)
            
            $0.20
              $0.90
              $2.00
              $2.00Benjamin
              Safirstein(15)
            100,000
              25,000
              0
              33,750
              0
            100,000(11)
              75,000(7)
              100,000(9)
              101,250(2)
              265,000(5)
            
            $0.20
              $0.90
              $0.90
              $2.00
              $2.00Philip
                Barak
            100,000
              18,750
              50,000
              0
              150,000
            0(13)
              56,250(7)
              0(8)
              125,000(3)
              0(4)
            
            $0.035
              $0.90
              $0.90
              $2.00
              $2.00






31




(1)
            See
                Note 3 of the Notes to Consolidated Financial
                Statements.


(2)
            Represents
                stock option grants for the year ended December 31, 2007; such
                options vest 25% on the grant date, the 25% each year
                thereafter.


(3)
            Represents
                stock option grants for the year ended December 31, 2007; such
                options vest annually over four years beginning on the first anniversary
                from the date of grant.


(4)
            Represents
                stock options granted for the year ended December 31, 2007; such
                options vested upon the completion of certain performance criteria.
                The
                requisite performance criteria was
                met.


(5)
            Represents
                stock options granted for the year ended December 31, 2007; such
                options vested upon the completion of certain performance criteria.
                The
                requisite performance criteria was not
                met.


(6)
            Not
                used.


(7)
            Represents
                stock options granted for the year ended December 31, 2006; such
                options vested annually over four years beginning on the first anniversary
                from the date of grant.


(8)
            Represents
                stock options granted for the year ended December 31, 2006; such
                options vested upon the completion of certain performance criteria.
                The
                requisite performance criteria was
                met.


(9)
            Represents
                stock options granted for the year ended December 31, 2006; such
                options vested upon the completion of certain performance criteria.
                The
                requisite performance criteria was not
                met


(10)
            Represents
                stock option grants for the year ended December 31, 2005; such
                options vest 25% on the grant date, the 25% each year
                thereafter.


(11)
            Represents
                stock options granted for the year ended December 31, 2005; such
                options vested annually over four years beginning on the first anniversary
                from the date of grant.


(12)
            Not
                used.


(13)
            Represents
                stock option grants for the year ended December 31, 2003; such
                options vest 25% on the grant date, the 25% each year
                thereafter


(14)
            Mr.
                Nazem resigned as the Chief Executive Officer effective November 21,
                2007.


(15)
            Dr.
                Safirstein resigned as the Chief Medical Officer effective
                February 6, 2008.




**Compensation
      of Directors**




The
      following table sets forth information with respect to director’s compensation
      for the fiscal year ended December 31, 2007:




DIRECTOR
                COMPENSATION




Name
            
            Fees
                Earned or Paid in Cash
              ($)
            
            Stock
                Awards ($)
            
            Option
                Awards ($)
            
            Non-Equity
                Incentive Plan Compensation
              ($)
            
            Nonqualified
                Deferred Compensation Earnings
            
            All
                Other Compensation
              ($)
            
            Total
              ($)Barbara
              McNeil,
                MD
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            
            
            
            
            
            
            
            
            $
            0Brian
              Stafford
            
            $
            0
            
            $
            0
            
            $
            128,400
            
            
            
            
            
            
            
            
            
            
            $
            128,400Michael
                Holland
            
            $
            0
            
            $
            0
            
            $
            128,400
            
            
            
            
            
            
            
            
            
            
            $
            128,400Michael
                Huckabee (1)
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            
            
            
            
            
            
            
            
            $
            0Richard
              Howard
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            
            
            
            
            
            
            
            
            $
            0Richard
                Torykian
            
            $
            0
            
            $
            0
            
            $
            128,400
            
            
            
            
            
            
            
            
            
            
            $
            128,400




(1)
      Mr.
      Huckabee resigned as a director effective March 12, 2008.




32




Non-employee
      Directors for the Company do not receive any monetary compensation for
      attendance at meetings or for committee service. Non-employee Directors receive
      non-qualified stock options as follows:




Initial
      Grant: Upon initial election to the Board, a Non-employee Director shall receive
      a non-qualified stock option grant to purchase 100,000 shares of stock with
      an
      exercise price equal to the fair market value as of the date of grant. The
      option shall vest as to 25,000 shares on the date of grant, 25,000 shares on
      the
      first anniversary of the date of grant, 25,000 shares on the second anniversary
      of the date of grant, and 25,000 shares on the third anniversary of the date
      of
      grant, as long as the Board member is still a member of the Board as of such
      date. The option shall have a term of ten years.




Second
      Grant: On the first anniversary of becoming a director, each Non-employee
      Director shall be entitled to receive a second non-qualified stock option grant
      to purchase 100,000 shares of stock with an exercise price equal to the fair
      market value as of the date of grant. The option shall vest as to 25,000 shares
      on the date of grant, 25,000 shares on the first anniversary of the date of
      grant, 25,000 shares on the second anniversary of the date of grant, and 25,000
      shares on the third anniversary of the date of grant, as long as the Board
      member is still a member of the Board as of such date. The option shall have
      a
      term of ten years.




The
      Board
      of Directors may also consider granting additional non-qualified stock options
      to Non-employee Directors on an annual basis. These options shall vest 25%
      on
      the date of grant, 25% on the first anniversary of the date of grant, 25% on
      the
      second anniversary of the date of grant, and 25% on the third anniversary of
      the
      date of grant, as long as the Board member is still a member of the Board as
      of
      such date. The option shall have a term of ten years.





Additionally,
      the Chairman of the Board and the Chairmen of the Committees of the Board of
      Directors are entitled to receive an annual non-qualified stock option grant
      to
      purchase 50,000 shares of common stock and 20,000 shares of common stock,
      respectively. These options shall vest 25% on the date of grant and 25% each
      year thereafter.




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




The
      following table sets forth certain information with respect to the beneficial
      ownership of the common stock of the Company as of March 27, 2008, for: (i)
      each person who is known by the Company to beneficially own more than 5 percent
      of the Company’s common stock, (ii) all directors and officers individually and
      all directors and officers as a group. Each person named below has sole voting
      and investment power with respect to the shares sh own
      unless otherwise indicated.




33




Title
                of Class
            Name
                and Address of Beneficial Owner*
            Amount
                of Beneficial Ownership
            Percentage
                of Class




Common
                Stock
            Fred
                Nazem
              44
                E. 73rdStreet
              New
                York, NY 10021
            21,480,981
            (1)
            30.34%Common
                Stock
            Stephen
                J. O’Brien, MD
              300
                North Street
              Greenwich,
                CT 06830
            11,316,230
            (2)
            16.29%Common
                Stock
            Laurus
                Master Fund, Ltd.
              c/o
                M&C Corporate
              Services
                Limited
              P.O.
                Box 309 GT
              Ugland
                House
              George
                Town
              South
                Church Street
              Grand
                Cayman, Cayman Islands
            4,535,841
            (3)
            6.38%Common
                Stock
            FrontPoint
                Partners, LLC
              Two
                Greenwich Plaza
              Greenwich,
                CT 06830
            6,809,258
            (4)
            9.80%Common
                Stock
            Brandon
                Fradd
              68
                Jane Street, Suite 2E
              New
                York, NY 10014
            5,437,409
            (9)
            7.59%Common
                Stock
            Benjamin
                Safirstein, MD
              237
                S. Mountain Road
              Montclair,
                NJ 07042
            2,297,317
            (6)
            3.30%Common
                Stock
            John
                H. Flood, III
            3,976,700
            (5)
            5.59%Common
                Stock
            Philip
                Barak
            837,500
            (7)
            1.20%Common
                Stock
            Mark
                Gardy, MD
            385,098
            (11)
            0.55%Common
                Stock
            Richard
                Howard
            572,083
            
            0.82%Common
                Stock
            Brian
                Stafford
            245,673
            (8)
            0.35%Common
                Stock
            Richard
                Torykian
            168,750
            (8)
            0.24%Common
                Stock
            Michael
                Holland
            243,673
            (8)
            0.35%Common
                Stock
            Michael
                Huckabee
            100,000
            (12)
            0.14%Common
                Stock
            Barbara
                McNeil, MD
            100,000
            (10)
            0.14%**All
                Directors and Officers as a Group**
              **(10
                persons)**
            **6,631,477**
            
            **9.15%**




*Except
      as otherwise noted, the address is that of the Company




(1)  Includes
      372,263 shares held by Nazem, Inc., a company that Mr. Nazem owns 100%, the
      conversion of a $666,667 Secured Convertible Term Note at $0.90 per share into
      740,741 shares of common stock, the exercise of 504,656 common stock warrants,
      which have an exercise price of $0.92 per share and expire on January 31, 2013,
      125,000 common stock warrants, which have an exercise price of $2.00 per share
      and expire on April 30, 2012, 25,944 shares held in the Alexander Gharib Nazem
      Trust, 25,944 shares held in the Taraneh Gharib Nazem Trust, Mr. Nazem’s
      children and 1,247,938 shares held by the Nazem Family Foundation. Susie Gharib
      Nazem, Mr. Nazem’s wife is the Trustee of the Trusts. Susie Gharib Nazem and Mr.
      Nazem are the trustees of the Foundation. Mr. Nazem disclaims beneficial
      ownership of the shares held in trust for his children and the shares held
      by
      the Foundation.  Mr. Nazem resigned as the Company's CEO effective November
      21, 2007 and also served as a director of the Company until his resignation
      effective December 7, 2007.




(2)  Dr.
      O’Brien has entered into a Voting Trust Agreement whereby the Board of Directors
      has the right to vote all of the shares owned by Dr. O’Brien.




34




(3)  Includes
      shares of common stock and warrants to purchase shares of common stock held
      by
      Laurus Master Fund, Ltd, Valens U.S. SPV I, LLC and Valens Offshore Fund SPV
      I
      Ltd. and includes the conversion of a $847,656 Secured Convertible Term Note
      at
      $0.90 per share into 941,840 shares of common stock and the exercise of 621,118
      common stock warrants, which have an exercise price of $0.92 per share and
      expire on January 31, 2013.




(4)  Includes
      shares of common stock held by FrontPoint Healthcare Fund, L.P., FrontPoint
      Healthcare Fund 2X, L.P., FrontPoint Healthcare Horizons Fund, L.P. and
      FrontPoint Healthcare Long Horizons Fund, L.P. FrontPoint Healthcare Fund GP,
      LLC ("FHC GP") is the general partner of FrontPoint Healthcare Fund, L.P.,
      FPP Healthcare Fund 2X GP, LLC ("FHC 2X GP") is the general partner of
      FrontPoint Healthcare Fund 2X, L.P., FrontPoint Healthcare Horizons Fund GP,
      LLC
      ("FHH GP") is the general partner of FrontPoint Healthcare Horizons Fund, L.P.
      and FrontPoint Healthcare Long Horizons Fund GP, LLC ("FHLH GP") is the general
      partner of FrontPoint Healthcare Long Horizons Fund, L.P.  FrontPoint
      Partners LLC is the managing member of each of FHC GP, FHC 2X GP, FHH GP
      and FHLH GP (each, a "GP" and, together, the "GPs"), and as such has voting
      and dispositive power over the securities held by the aforementioned funds.
      The GPs are indirect wholly-owned subsidiaries of Morgan Stanley as parent
      holding company.  Morgan Stanley disclaims beneficial ownership of the
      securities held by the fund except for its pecuniary interest
      therein.




(5)  Includes
      800,000 options exercisable at $0.20 per share, 50,000 options exercisable
      at
      $0.90 per share and 50,000 options exercisable at $2.00 per share. In addition,
      it includes the conversion of a $312,500 Secured Convertible Term Note at $0.90
      per share into 347,222 shares of common stock and the exercise of 252,330 common
      stock warrants, which have an exercise price of $0.92 and expire on January
      31,
      2013, and the exercise of 200,000 common stock warrants, which have an exercise
      price of $2.00 per share and expire on May 3, 2012, held by OldIron Sports
      and
      Entertainment Company, Inc., of which Mr. Flood is a 50% owner.




(6)  Includes
      100,000 options exercisable at $0.20 per share, 50,000 options exercisable
      at
      $0.90 per share and 33,750 options exercisable at $2.00 per share. In addition,
      it includes the exercise of 13,587 common stock warrants, which have an exercise
      price of $0.92 per share and expire on January 31, 2013, and 1,300,000
      shares held by the Safirstein Family Trust 1991 for the benefit of Dr.
      Safirstein’s children. Sheila Safirstein, Dr. Safirstein’s wife, is the Trustee
      of the Trust. Dr. Safirstein disclaims beneficial ownership of these
      shares. Dr. Safirstein resigned from his positions as director and Chief
      Medical Officer on February 6, 2008.




(7)  Includes
      100,000 options exercisable at $0.035 per share, 87,500 options exercisable
      at
      $0.90 per share and 150,000 options exercisable at $2.00 per share.




(8)  Includes
      93,750 options exercisable at $0.20 per share and 75,000 options exercisable
      at
      $2.00 per share.




(9)  Includes
      the conversion of a $312,500 Secured Convertible Term Note at $0.90 per share
      into 347,222 shares of common stock and the exercise of 135,870 common stock
      warrants, which have an exercise price of $0.92 and expire on January 31,
      2013, held by Mr. Fradd. In addition, it includes 2,215,240 shares of common
      stock and the exercise of 1,107,621 common stock warrants, which have an
      exercise price of $1.00 per share and expire at various dates from
      November 29, 2013 through January 26, 2014, held by Apollo Medical
      Partners, LP and 1,087,637 shares of common stock and the exercise of 543,819
      common stock warrants, which have an exercise price of $1.00 per share and
      expire at various dates from November 29, 2013 through January 26,
      2014, held by Apollo Medical Offshore, partners, LP. Mr. Brandon Fradd controls
      the shares for both entities.




(10)  Includes
      50,000 options exercisable at $0.90 per share and 50,000 options exercisable
      at
      $2.00 per share.




(11)  Includes
        the conversion of a $66,667 Secured Convertible Term Note at $0.90 per share
        into 74,074 shares of common stock, the exercise of 27,174 common stock
        warrants, which have an exercise price of $0.92 and expire on January 31,
        2013, the exercise of 25,000 common stock warrants, which have an exercise price
        of $1.00 and expire on February 8, 2014, 45,000 options exercisable at
        $0.20 per share and 50,000 options exercisable at $0.90 per share.


(12)  Includes
        5,000 options exercisable at $0.90 per share and 50,000 options exercisable
        at
        $2.00 per share.  Mr. Huckabee resigned as a director effective March 12,
        2008.


35







**Item
      12. Certain Relationships and Related Transactions, and Director
      Independence.**




As
      of the
      date hereof, Michael Holland, Brian Stafford, Richard Howard, Richard Torykian,
      Barbara McNeil and John Flood constitute the Company’s Board of Directors. All
      members of the Company’s Board of Directors, excluding John Flood, are
      independent directors of the Company, and as such, they satisfy the definition
      of independence in accordance with SEC rules and NASDAQ listing standards.
      Fred
      Nazem and Benjamin Safirstein were members of the Company’s Board of Directors
      until their resignations on December 7, 2007 and February 6, 2008,
      respectively. Mssrs. Nazem and Safirstein did not qualify as independent under
      SEC rules and NASDAQ listing standards.




**Item
      13. Exhibits.** ****




Exhibits.
      The following exhibits of the Company are included herein or incorporated by
      reference.




Exhibit
                No.
            DescriptionExhibit
                2.1
            Share
                Exchange Agreement dated January 30, 2006 between Finity Holdings,
                Inc.
                and Flagship Healthcare Management, Inc. (incorporated by reference
                to the
                Company’s Form 8-K, filed February 3, 2006)Exhibit
                3.1.1(1)
            Amendment
                to the Amended and Restated Certificate of Incorporation of the Company,
                dated May 21, 2007.Exhibit
                3.1.2
            Certificate
                of Ownership and Merger, dated January 12, 2007, between Patients
                & Physicians, Inc. and Flagship Patient Advocates, Inc. (incorporated
                by reference to Exhibit 3.1 to the Company’s Form 8-K, filed
                January 24, 2007).Exhibit
                3.1.3(1)
            Amended
                and Restated Certificate of Incorporation of the Company, dated
                June 27, 2006.Exhibit
                3.2
            Amended
                and Restated Bylaws of the Company (incorporated by reference to
                Exhibit
                3.2 to the Company’s Form 8-K, filed January 24,
                2008).Exhibit
                9.1(1)
            Voting
                Trust Agreement of Stephen J. O’Brien, M.D.Exhibit
                10.1
            Amended
                and Restated 2006 Stock Option and Grant Plan (incorporated by reference
                to the Company’s Definitive Schedule 14C Information Statement, filed on
                April 26, 2007).Exhibit
                10.2
            Audit
                Committee Charter adopted July 31, 2006 (incorporated by reference to
                Exhibit 10.1 to the Company’s Form 8-K, filed August 2,
                2006).




36




Exhibit
                10.3
            Compensation
                Committee Charter, adopted July 31, 2006 (incorporated by reference
                to Exhibit 10.2 to the Company’s Form 8-K, filed August 2,
                2006).Exhibit
                10.4
            Corporate
                Governance and Nominating Committee Charter, adopted July 31, 2006
                (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K,
                filed August 2, 2006).Exhibit
                10.5
            Sublease,
                dated July 31, 2006, between SFX Entertainment, Inc. and Flagship
                Patient Advocates, Inc. (incorporated by reference to Exhibit 10.1
                to the
                Company’s Form 8-K, filed August 17, 2006).Exhibit
                10.6
            Consulting
                Agreement by and between Flagship Global Health, Inc. and Parabolic,
                LLC,
                dated February 16, 2007 (incorporated by reference to Exhibit 10.1 to
                the Company’s Form 8-K, filed February 22, 2007).Exhibit
                10.7
            Securities
                Purchase Agreement, by and among the Company, FrontPoint Healthcare
                Fund,
                L.P., FrontPointHealthcareFund 2X, L.P., FrontPoint Healthcare Horizons Fund, L.P. and FrontPoint
                Healthcare Long Horizons Fund, L.P. entered into July 17, 2007
                (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K,
                filed July 23, 2007).Exhibit
                10.8
            Form
                of Warrant Agreement, by and among the Company, FrontPoint Healthcare
                Fund, L.P., FrontPoint Healthcare Fund 2X, L.P., FrontPoint Healthcare
                Horizons Fund, L.P. and FrontPoint Healthcare Long Horizons Fund,
                L.P.
                entered into July 17, 2007 (incorporated by reference to Exhibit 10.2
                to the Company’s Form 8-K, filed July 23, 2007).Exhibit
                10.9
            Registration
                Rights Agreement, by and among the Company, FrontPoint Healthcare
                Fund,
                L.P., FrontPoint Healthcare Fund 2X, L.P., FrontPoint Healthcare
                Horizons
                Fund, L.P. and FrontPoint Healthcare Long Horizons Fund, L.P. entered
                into
                July 17, 2007 (incorporated by reference to Exhibit 10.3 to the
                Company’s Form 8-K, filed July 23, 2007).Exhibit
                10.10
            Amended
                Warrant Agreement, by and among the Company, FrontPoint Healthcare
                Fund,
                L.P., FrontPoint Healthcare Fund 2X, L.P., FrontPoint Healthcare
                Horizons
                Fund, L.P. and FrontPoint Healthcare Long Horizons Fund, L.P. entered
                into
                September 6, 2007 (incorporated by reference to Exhibit 10.1 to the
                Company’s Form 8-K, filed September 12, 2007).Exhibit
                10.11
            Employment
                Agreement by and between John H. Flood, III and Flagship Global Health,
                Inc., dated February 28, 2008 (incorporated by reference to Exhibit
                10.1 to the Company’s Form 8-K, filed March 20,
                2008).Exhibit
                10.12
            Employment
                Agreement by and between Philip Barak and Flagship Global Health,
                Inc.,
                dated February 28, 2008 (incorporated by reference to Exhibit 10.2 to
                the Company’s Form 8-K, filed March 20,
                2008).




37




Exhibit
                10.13
            Employment
                Agreement by and between Dr. Mark Grady and Flagship Global Health,
                Inc.,
                dated February 28, 2008 (incorporated by reference to Exhibit 10.3 to
                the Company’s Form 8-K, filed March 20, 2008).Exhibit
                10.14
            Employment
                Agreement by and between Clay Larsen and Flagship Global Health,
                Inc.,
                dated February 28, 2008 (incorporated by reference to Exhibit 10.4 to
                the Company’s Form 8-K, filed March 20, 2008).Exhibit
                14.1
            Code
                of Ethics of the Company (incorporated by reference to Exhibit 14
                to the
                Company’s Form 8-K, filed August 2, 2006).Exhibit
                31.1(1)
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002Exhibit
                31.2(1)
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002Exhibit
                32.1(1)
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
                Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002Exhibit
                32.2(1)
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
                Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002


___________


(1)
      Filed
      herewith.




**Item
      14. Principal Accountant Fees and Services.**




**Audit
      Fees**




The
      aggregate fees billed or to be billed for professional services rendered by
      our
      independent registered public accounting firm for the audit of our annual
      financial statements, review of financial statements included in our quarterly
      reports and other fees that are normally provided by the accounting firm in
      connection with statutory and regulatory filings or engagements for the fiscal
      years ended December 31, 2007 and 2006 were $157,000 and $182,800,
      respectively.




**Audit
      Related Fees**




There
      were no fees billed or to be billed for assurance and related services by our
      independent registered public accounting firm that are reasonably related to
      the
      performance of the audit or review of our financial statements, other than
      those
      previously reported in this Item 14, for the fiscal years ended
      December 31, 2007 and 2006.




**Tax
      Fees**




There
      were no fees billed for professional services rendered by our independent
      registered public accounting firm for tax compliance, tax advice and tax
      planning for the fiscal years ended December 31, 2007 and
      2006.




38




**All
      Other Fees**




None.




**Audit
      Committee**




It
      is the
      policy of the Company for all work performed by its independent registered
      public accounting firm to be approved in advance by the Company’s Board of
      Directors and its Audit Committee. All of the services described above in this
      Item 14 were approved in advance by the Board of Directors and the Audit
      Committee during 2007 and 2006.




39





**SIGNATURES**




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


**FLAGSHIP
              GLOBAL HEALTH, INC.**By:
            /s/
              John
              H. Flood IIIJohn
                H. Flood III
              President
                and Chief Executive Officer


Date:
      March 28, 2008




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


Signature
              
              Title
              Date/s/
                  John H. Flood III
              
              Chief
                  Executive Officer
              March
                  28, 2008John
                  H. Flood III
              
              (Principal
                  Executive Officer)/s/
                  Philip E. Barak
              
              Chief
                  Financial Officer
              March
                  28, 2008Philip
                  E. Barak
              
              (Principal
                  Financialand
                  Accounting Officer)/s/
                  Michael Holland
              
              Director
              March
                  28, 2008Michael
                  Holland/s/
                  Richard Howard
              
              Director
              March
                  28, 2008Richard
                  Howard/s/
                  Barbara McNeil
              
              Director
              March
                  28, 2008Barbara
                  McNeil/s/
                  Brian Stafford
              
              Director
              March
                  28, 2008Brian
                  Stafford/s/
                  Richard Torykian
              
              Director
              March
                  28, 2008Richard
                  Torykian




40




**Flagship
      Global Health, Inc. and Subsidiary**


**(Formerly
      known as Patients & Physicians, Inc.)**


**(A
      Development Stage Company)**





**INDEX**


Report
                  of Independent Registered Public Accounting Firm
              F-2Consolidated
                  Financial Statements:Consolidated
                  Balance Sheet, as of December 31, 2007
              F-3Consolidated
                  Statements of Operations, for the years ended December 31, 2007 and
                  2006 and for the period from inception (July 9, 2002) to December 31,
                  2007
              F-4Consolidated
                  Statement of Stockholders’ Equity (Deficit), for the period from inception
                  (July 9, 2002) to December 31, 2007
              F-5Consolidated
                  Statements of Cash Flows, for the years ended December 31, 2007 and
                  2006 and for the period from inception (July 9, 2002) to December 31,
                  2007
              F-8Notes
                  to Consolidated Financial Statements
              F-9
                  - F-27


F-1




**Report
      of Independent Registered Public Accounting Firm**





Board
      of
      Directors and Stockholders


Flagship
      Global Health, Inc.




We
      have
      audited the accompanying consolidated balance sheet of Flagship Global Health
      Inc. and Subsidiary (formerly known as Patients & Physicians, Inc.) (a
      development stage company) as of December 31, 2007, and the related
      consolidated statements of operations, stockholders’ equity (deficit) and cash
      flows for the years ended December 31, 2007 and 2006 and for the period
      from inception (July 9, 2002) to December 31, 2007. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Flagship Global
      Health, Inc. and Subsidiary (formerly known as Patients & Physicians, Inc.)
      as of December 31, 2007, and their consolidated results of operations and
      cash flows for the years ended December 31, 2007 and 2006 and for the
      period from inception (July 9, 2002) to December 31, 2007, in conformity
      with accounting principles generally accepted in the United States of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 to the
      consolidated financial statements, the Company is in the development stage
      and
      has incurred substantial losses from inception. These matters raise substantial
      doubt about the Company’s ability to continue as a going concern. Management's
      plans in regard to these matters are also described in Note 1. The consolidated
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty




/s/
      J.H.
      Cohn LLP


Jericho,
      New York


March 26,
      2008





F-2





**Flagship
      Global Health, Inc. and Subsidiary**


**(Formerly
      known as Patients & Physicians, Inc.)**


(A
      Development Stage Company)


**Consolidated
      Balance Sheet**


**As
      of December 31, 2007**








**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            8,511,494Prepaid
                expenses and other current assets
            
            
            335,451Total
                current assets
            
            
            8,846,945Property
                and equipment, net
            
            
            594,917Other
                assets
            
            
            43,132Restricted
                cash
            
            
            824,117**Total
                assets**
            
            $
            10,309,111**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities:**Accounts
                payable
            
            $
            470,085Accrued
                liabilities
            
            
            536,823Notes
                payable, current portion, net of unamortized discount
            
            
            4,033,361Total
                current liabilities
            
            
            5,040,269Notes
                payable, net of current portion and unamortized discount
            
            
            1,430,109Deferred
                rent liability
            
            
            416,058**Total
                liabilities**
            
            
            6,886,436**COMMITMENTS
                AND CONTINGENCIES****Stockholders'
                Equity:**Preferred
                stock, $0.001 par value: 25,000,000 shares authorized, 0
                sharesissued
                and outstanding at December 31, 2007
            
            
            -Common
                stock, $0.001 par value: 175,000,000 shares authorized,69,482,630
                shares issued and outstanding at December 31, 2007
            
            
            69,484Additional
                paid-in capital
            
            
            41,259,908Deficit
                accumulated during the development stage
            
            
            (37,906,717
            )Total
                stockholders' equity
            
            
            3,422,675**Total
                liabilities and stockholders' equity**
            
            $
            10,309,111See
                Notes to Consolidated Financial Statements


F-3




**Flagship
        Global Health, Inc. and Subsidiary**
 **(Formerly
        known as Patients & Physicians, Inc.)**
 (A
        Development Stage Company)


**Consolidated
      Statements of Operations**


**For
      the years ended December 31, 2007 and 2006**


**and
      for the period from inception (July 9, 2002) to December 31,
      2007**





For
                the period from inception (July 9, 2002) to December 31,
                2007Years
                Ended December 31,2007
            
            2006Subscription
                revenue
            
            $
            306,102
            
            $
            73,419
            
            $
            384,715Cost
                of revenue
            
            
            56,777
            
            
            15,999
            
            
            75,425Gross
                profit
            
            
            249,325
            
            
            57,420
            
            
            309,290Costs
                and expenses:Membership
                services
            
            
            2,118,768
            
            
            2,242,243
            
            
            7,728,918Selling,
                general and administrative
            
            
            8,264,201
            
            
            7,301,980
            
            
            23,115,532Loss
                on sale of equipment
            
            
            -
            
            
            88,953
            
            
            88,953Impairment
                of long-lived assets
            
            
            117,858
            
            
            13,323
            
            
            623,235Total
                costs and expenses
            
            
            10,500,827
            
            
            9,646,499
            
            
            31,556,638Loss
                from operations
            
            
            (10,251,502
            )
            
            (9,589,079
            )
            
            (31,247,348
            )Interest
                income
            
            
            252,711
            
            
            66,730
            
            
            332,177Amortization
                of debt discounts anddebt
                issuance costs
            
            
            (2,848,754
            )
            
            (2,893,937
            )
            
            (5,742,691
            )Interest
                expense
            
            
            (837,948
            )
            
            (779,319
            )
            
            (1,674,476
            )Other
                income, net
            
            
            384,981
            
            
            40,640
            
            
            425,621Loss
                before provision for income taxes
            
            
            (13,300,512
            )
            
            (13,154,965
            )
            
            (37,906,717
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            (13,300,512
            )
            
            (13,154,965
            )
            $
            (37,906,717
            )Accretion
                of preferred stock
            
            
            -
            
            
            (193,858
            )Net
                loss attributable to common stockholders
            
            $
            (13,300,512
            )
            $
            (13,348,823
            )Weighted
                average number of shares outstanding, basic
              and
                diluted
            
            
            64,211,737
            
            
            49,350,388Net
                loss per share, basic and diluted
            
            $
            (0.21
            )
            $
            (0.27
            )See
                Notes to Consolidated Financial
                Statements


F-4




**Flagship
      Global Health, Inc. and Subsidiary**


**(Formerly
      known as Patients & Physicians, Inc.)**


**(A
      Development Stage Company)**


**Consolidated
      Statement of Stockholders’ Equity (Deficit)**


**For
      the period from inception (July 9, 2002) to December 31,
      2007**





Common
                Stock
            
            Additional
                Paid-in
            
            Deficit
                Accumulated During the Development
            
            Total
                Stockholders’ EquityShares
            
            Amount
            
            Capital
            
            Stage
            
            (Deficit)**Balances
                at July 9, 2002 (inception)**
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Issuance
                of common stock to founders at $0.001 per share in
                August 2002
            
            
            16,000,000
            
            
            16,000
            
            
            -
            
            
            -
            
            
            16,000Sale
                of common stock at $0.044 per share in August 2002
            
            
            2,857,150
            
            
            2,857
            
            
            122,143
            
            
            -
            
            
            125,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (107,271
            )
            
            (107,271
            )**Balances
                at December 31, 2002**
            
            
            18,857,150
            
            
            18,857
            
            
            122,143
            
            
            (107,271
            )
            
            33,729Issuance
                of common stock in exchange for goods and services at $0.056 per
                share in
                August 2003
            
            
            13,678,910
            
            
            13,679
            
            
            746,321
            
            
            -
            
            
            760,000Issuance
                of common stock to employees at $0.056 per share in
                August 2003
            
            
            1,510,000
            
            
            1,510
            
            
            82,386
            
            
            -
            
            
            83,896Cancellation
                of founders’ shares at $0.001 per share in
                August 2003
            
            
            (3,510,000
            )
            
            (3,510
            )
            
            3,510
            
            
            -
            
            
            -Issuance
                of options to purchase common stock to employees for
                services
            
            
            -
            
            
            -
            
            
            37,243
            
            
            -
            
            
            37,243Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (495,895
            )
            
            (495,895
            )**Balances
                at December 31, 2003**
            
            
            30,536,060
            
            
            30,536
            
            
            991,603
            
            
            (603,166
            )
            
            418,973Exercise
                of stock options at $0.035 per share in August 2004
            
            
            1,000,000
            
            
            1,000
            
            
            34,000
            
            
            -
            
            
            35,000Value
                of warrants issued in connection with the sale of Redeemable Series
                A
                Convertible Preferred Stock
            
            
            -
            
            
            -
            
            
            143,066
            
            
            -
            
            
            143,066Accretion
                of Redeemable Series A Convertible Preferred Stock
            
            
            -
            
            
            -
            
            
            (16,223
            )
            
            -
            
            
            (16,223
            )Issuance
                of options to purchase common stock to employees for
                services
            
            
            -
            
            
            -
            
            
            95,162
            
            
            -
            
            
            95,162Issuance
                of options to purchase common stock to non-employees for
                services
            
            
            -
            
            
            -
            
            
            275,951
            
            
            -
            
            
            275,951Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,248,897
            )
            
            (3,248,897
            )**Balances
                at December 31, 2004**
            
            
            31,536,060
            
            
            31,536
            
            
            1,523,559
            
            
            (3,852,063
            )
            
            (2,296,968
            )Exercise
                of stock options at $0.20 per share in September 2005
            
            
            250
            
            
            -
            
            
            50
            
            
            -
            
            
            50Accretion
                of Redeemable Series A Convertible Preferred Stock
            
            
            -
            
            
            -
            
            
            (19,473
            )
            
            -
            
            
            (19,473
            )Accretion
                of Redeemable Series B Convertible Preferred Stock
            
            
            -
            
            
            -
            
            
            (4,255
            )
            
            -
            
            
            (4,255
            )Stock
                issued in lieu of compensation at $0.525 per share in
                March 2005
            
            
            3,031,250
            
            
            3,031
            
            
            1,588,375
            
            
            -
            
            
            1,591,406Issuance
                of options to purchase common stock to employees for
                services
            
            
            -
            
            
            -
            
            
            243,470
            
            
            -
            
            
            243,470Issuance
                of options to purchase common stock to non-employees for
                services
            
            
            -
            
            
            -
            
            
            321,179
            
            
            -
            
            
            321,179Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,599,177
            )
            
            (7,599,177
            )**Balances
                at December 31, 2005**
            
            
            34,567,560
            
            
            34,567
            
            
            3,652,905
            
            
            (11,451,240
            )
            
            (7,763,768
            )Allocation
                of value to common stock issued in connection with convertible debt
                financings at $.001 per share in January 2006
            
            
            7,968,950
            
            
            7,969
            
            
            3,127,729
            
            
            -
            
            
            3,135,698Allocation
                of value to warrants issuedin
                connection with convertible debt financings
            
            
            -
            
            
            -
            
            
            457,671
            
            
            -
            
            
            457,671Allocation
                of value to beneficial conversion feature in connection with convertible
                debt financings
            
            
            -
            
            
            -
            
            
            1,695,111
            
            
            -
            
            
            1,695,111




F-5


**Flagship
      Global Health, Inc. and Subsidiary**


**(Formerly
      known as Patients & Physicians, Inc.)**


**(A
      Development Stage Company)**


**Consolidated
      Statement of Stockholders’ Equity (Deficit)**


**For
      the period from inception (July 9, 2002) to December 31,
      2007**





Common
                Stock
            
            Additional
                Paid-in
            
            Deficit
                Accumulated During the Development
            
            Total
                Stockholders’ EquityShares
            
            Amount
            
            Capital
            
            Stage
            
            (Deficit)Conversion
                of Redeemable Series A Convertible Preferred Stock in connection
                with
                acquisition
            
            
            7,755,481
            
            
            7,755
            
            
            2,117,244
            
            
            -
            
            
            2,124,999Conversion
                of Redeemable Series B Convertible Preferred Stock in connection
                with
                acquisition
            
            
            5,205,764
            
            
            5,206
            
            
            3,379,400
            
            
            -
            
            
            3,384,606Issuance
                of shares in connection with acquisition in June 2006
            
            
            174,130
            
            
            174
            
            
            (250
            )
            
            -
            
            
            (76
            )Exercise
                of vested options at $0.89 per share in January 2006
            
            
            2,500
            
            
            2
            
            
            2,223
            
            
            -
            
            
            2,225Exercise
                of vested options at $0.10 per share in May 2006
            
            
            75,000
            
            
            75
            
            
            7,425
            
            
            -
            
            
            7,500Exercise
                of vested options at $0.20 per share in May 2006
            
            
            12,500
            
            
            13
            
            
            2,487
            
            
            -
            
            
            2,500Exercise
                of vested options at $0.10 per share in June 2006
            
            
            110,000
            
            
            110
            
            
            10,890
            
            
            -
            
            
            11,000Exercise
                of vested options at $0.20 per share in June 2006
            
            
            12,500
            
            
            13
            
            
            2,487
            
            
            -
            
            
            2,500Accretion
                of Redeemable Series A Convertible Preferred Stock
            
            
            -
            
            
            -
            
            
            (160,241
            )
            
            -
            
            
            (160,241
            )Accretion
                of Redeemable Series B Convertible Preferred Stock
            
            
            -
            
            
            -
            
            
            (33,617
            )
            
            -
            
            
            (33,617
            )Issuance
                of shares to broker in connection with Share Exchange at $.001 per
                share
                in June 2006
            
            
            1,200,000
            
            
            1,200
            
            
            (1,200
            )
            
            -
            
            
            -Issuance
                of shares to PEMMS in connection with acquisition of assets at $.62
                per
                share in July 2006
            
            
            300,000
            
            
            300
            
            
            185,700
            
            
            -
            
            
            186,000Issuance
                of options to purchase common stock to employees for
                services
            
            
            -
            
            
            -
            
            
            1,075,008
            
            
            -
            
            
            1,075,008Issuance
                of options to purchase common stock to non-employees for
                services
            
            
            -
            
            
            -
            
            
            284,596
            
            
            -
            
            
            284,596Issuance
                of common stock and warrants in connection with interim financing
                at $2.00
                per unit in October 2006
            
            
            500,000
            
            
            500
            
            
            999,500
            
            
            -
            
            
            1,000,000Issuance
                of common stock and warrants in connection with interim financing
                at $2.00
                per unit in November 2006
            
            
            600,000
            
            
            600
            
            
            1,199,400
            
            
            -
            
            
            1,200,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (13,154,965
            )
            
            (13,154,965
            )**Balances
                at December 31, 2006**
            
            
            58,484,385
            
            $
            58,484
            
            $
            18,004,468
            
            $
            (24,606,205
            )
            $
            (6,543,253
            )




F-6




**Flagship
      Global Health, Inc. and Subsidiary**


**(Formerly
      known as Patients & Physicians, Inc.)**


**(A
      Development Stage Company)**


**Consolidated
      Statement of Stockholders’ Equity (Deficit)**


**For
      the period from inception (July 9, 2002) to December 31,
      2007**





Common
                Stock
            
            Additional
                Paid-in
            
            Deficit
                Accumulated During the Development
            
            Total
                Stockholders’ EquityShares
            
            Amount
            
            Capital
            
            Stage
            
            (Deficit)Issuance
                of common stock and warrants in connection with interim financing
                at $2.00
                per unit in January 2007
            
            
            500,000
            
            
            500
            
            
            999,500
            
            
            -
            
            
            1,000,000Issuance
                of common stock and warrants in connection with interim financing
                at $2.00
                per unit in February 2007
            
            
            65,000
            
            
            65
            
            
            129,935
            
            
            -
            
            
            130,000Issuance
                of common stock and warrants at $2.00 per unit in connection with
                conversion of Short Term Note in May 2007
            
            
            200,000
            
            
            200
            
            
            399,800
            
            
            -
            
            
            400,000Issuance
                of common stock and warrants at $2.00 per unit in
                June 2007
            
            
            135,000
            
            
            135
            
            
            269,865
            
            
            -
            
            
            270,000Issuance
                of common stock and warrants at $2.00 per unit in connection with
                debt and
                interest conversion in June 2007
            
            
            2,167,877
            
            
            2,168
            
            
            4,333,586
            
            
            -
            
            
            4,335,754Exercise
                of vested options at $0.10 per share in June 2007
            
            
            7,500
            
            
            8
            
            
            742
            
            
            -
            
            
            750Exercise
                of vested options at $0.20 per share in June 2007
            
            
            10,000
            
            
            10
            
            
            1,990
            
            
            -
            
            
            2,000Exercise
                of vested options at $0.035 per share in October 2007
            
            
            100,000
            
            
            100
            
            
            3,400
            
            
            -
            
            
            3,500Exercise
                of warrants at $1.00 per share in July 2007
            
            
            7,500
            
            
            8
            
            
            7,492
            
            
            -
            
            
            7,500Issuance
                of common stock and warrants at $2.20 per unit
                in July 2007
            
            
            6,809,258
            
            
            6,809
            
            
            14,178,417
            
            
            -
            
            
            14,185,226Issuance
                of common stock in connection with conversion of Convertible Notes
                at
                $0.90 per share in June 2007
            
            
            47,222
            
            
            47
            
            
            42,453
            
            
            -
            
            
            42,500Issuance
                of common stock in connection with conversion of Convertible Notes
                at
                $0.90 per share in July 2007
            
            
            554,631
            
            
            555
            
            
            498,613
            
            
            -
            
            
            499,168Issuance
                of common stock in connection with conversion of Convertible Notes
                at
                $0.90 per share in August 2007
            
            
            111,111
            
            
            111
            
            
            99,889
            
            
            -
            
            
            100,000Issuance
                of common stock in connection with conversion of Convertible Notes
                at
                $0.90 per share in September 2007
            
            
            125,001
            
            
            125
            
            
            112,376
            
            
            -
            
            
            112,501Issuance
                of common stock in exchange for services at $1.95 per share in
                June 2007
            
            
            130,645
            
            
            131
            
            
            254,627
            
            
            -
            
            
            254,758Issuance
                of common stock in exchange for services at $0.95 per share in
                October 2007
            
            
            27,500
            
            
            28
            
            
            26,097
            
            
            -
            
            
            26,125Issuance
                of options to purchase common stock to employees for
                services
            
            
            -
            
            
            -
            
            
            1,192,785
            
            
            -
            
            
            1,192,785Issuance
                of options to purchase common stock to non-employees for
                services
            
            
            -
            
            
            -
            
            
            139,516
            
            
            -
            
            
            139,516Allocation
                of value to warrants issued in conjunction with Bridge
                Notes
            
            
            -
            
            
            -
            
            
            309,477
            
            
            -
            
            
            309,477Allocation
                of value to warrants issued in conjunction with Short Term
                Notes
            
            
            -
            
            
            -
            
            
            127,440
            
            
            -
            
            
            127,440Allocation
                of value to beneficial conversion feature in connection with Short
                Term
                Notes
            
            
            -
            
            
            -
            
            
            127,440
            
            
            -
            
            
            127,440Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (13,300,512
            )
            
            (13,300,512
            )**Balances
                at December 31, 2007**
            
            
            69,482,630
            
            $
            69,484
            
            $
            41,259,908
            
            $
            (37,906,717
            )
            $
            3,422,675See
                Notes to Consolidated Financial
                Statements


F-7




**Flagship
      Global Health, Inc. and Subsidiary**


**(Formerly
      known as Patients & Physicians, Inc.)**


(A
      Development Stage Company)


**Consolidated
      Statements of Cash Flows**


**For
      the years ended December 31, 2007 and 2006**


**and
      for the period from inception (July 9, 2002) to December 31,
      2007**





For
                    the period from inception (July 9, 2002) to December 31,
                  2007Years
                    Ended December 31,2007
                
                2006**OPERATING
                    ACTIVITIES**Net
                    loss
                
                $
                (13,300,512
                )
                $
                (13,154,965
                )
                $
                (37,906,717
                )Adjustments
                    to reconcile net loss to net cash used in operating activities:Share-based
                    compensation expense
                
                
                1,332,301
                
                
                1,359,604
                
                
                3,664,910Amortization
                    of debt discounts and debt issuance costs
                
                
                2,848,754
                
                
                2,893,937
                
                
                5,742,691Depreciation
                    and amortization expense
                
                
                259,289
                
                
                237,061
                
                
                786,637Deferred
                    rent liability
                
                
                143,342
                
                
                195,327
                
                
                416,058Loss
                    on sale of equipment
                
                
                -
                
                
                88,953
                
                
                88,953Common
                    stock issued in exchange for services
                
                
                280,883
                
                
                -
                
                
                532,566Common
                    stock issued as payment for interest expense and accrued interest
                    payable
                
                
                335,754
                
                
                -
                
                
                335,754Preferred
                    stock issued in exchange for services
                
                
                -
                
                
                -
                
                
                85,000Common
                    stock issued to employees
                
                
                -
                
                
                -
                
                
                83,896Common
                    stock issued to founders
                
                
                -
                
                
                -
                
                
                16,000Common
                    stock issued to employees in lieu of compensation
                
                
                -
                
                
                -
                
                
                985,156Note
                    payable in lieu of compensation
                
                
                -
                
                
                -
                
                
                165,000Impairment
                    of long-lived assets
                
                
                117,858
                
                
                13,323
                
                
                623,235Changes
                    in operating assets and liabilities:Prepaid
                    expenses and other current assets
                
                
                (172,492
                )
                
                166,968
                
                
                (335,451
                )Other
                    non current assets
                
                
                (18,966
                )
                
                (1,265
                )
                
                (20,231
                )Restricted
                    cash
                
                
                -
                
                
                (689,117
                )
                
                (824,117
                )Accounts
                    payable and accrued liabilities
                
                
                435,388
                
                
                (240,563
                )
                
                1,613,083Net
                    cash used in operating activities
                
                
                (7,738,401
                )
                
                (9,130,737
                )
                
                (23,947,577
                )**INVESTING
                    ACTIVITIES**Purchases
                    of property and equipment
                
                
                (431,649
                )
                
                (137,587
                )
                
                (1,508,188
                )Proceeds
                    from the sale of equipment
                
                
                -
                
                
                25,000
                
                
                25,000Net
                    cash used in investing activities
                
                
                (431,649
                )
                
                (112,587
                )
                
                (1,483,188
                )**FINANCING
                    ACTIVITIES**Proceeds
                    from stockholders
                
                
                -
                
                
                (18,130
                )
                
                83,763Proceeds
                    from issuance of common stock and warrants
                
                
                15,585,226
                
                
                2,206,018
                
                
                17,918,195Proceeds
                    from exercise of stock options
                
                
                6,250
                
                
                25,725
                
                
                67,025Proceeds
                    from exercise of warrants
                
                
                7,500
                
                
                -
                
                
                7,500Proceeds
                    from issuance of Redeemable Series A ConvertiblePreferred
                    Stock
                
                
                -
                
                
                -
                
                
                1,735,000Costs
                    associated with issuance of Redeemable Series A Convertible Preferred
                    Stock
                
                
                -
                
                
                -
                
                
                (52,871
                )Proceeds
                    from exercise of warrants to purchase Redeemable Series A Convertible
                    Preferred Stock
                
                
                -
                
                
                137,120
                
                
                305,000Proceeds
                    from issuance of Redeemable Series B ConvertiblePreferred
                    Stock
                
                
                -
                
                
                -
                
                
                3,383,748Costs
                    associated with issuance of Redeemable Series B Convertible Preferred
                    Stock
                
                
                -
                
                
                -
                
                
                (37,015
                )Proceeds
                    from issuance of notes payable
                
                
                400,000
                
                
                4,000,000
                
                
                7,335,000Bank
                    overdraft, net
                
                
                -
                
                
                (68,478
                )
                
                -Debt
                    issuance costs
                
                
                -
                
                
                (166,942
                )
                
                (225,321
                )Repayments
                    of notes payable
                
                
                (1,309,165
                )
                
                (250,000
                )
                
                (1,809,165
                )Proceeds
                    from issuance of convertible bridge notes, net
                
                
                1,050,000
                
                
                -
                
                
                1,050,000Proceeds
                    from issuance of secured convertible term notes, net
                
                
                -
                
                
                4,181,400
                
                
                4,181,400Net
                    cash provided by financing activities
                
                
                15,739,811
                
                
                10,046,713
                
                
                33,942,259**Net
                    increase in cash and cash equivalents**
                
                
                7,569,761
                
                
                803,389
                
                
                8,511,494**Cash
                    and cash equivalents at beginning of period**
                
                
                941,733
                
                
                138,389
                
                
                -**Cash
                    and cash equivalents at end of period**
                
                $
                8,511,494
                
                $
                941,733
                
                $
                8,511,494**Supplemental
                    cash flow information**Cash
                    payments for interest
                
                $
                619,587
                
                $
                593,399
                
                $
                1,212,986See
                    Notes to Consolidated Financial
                    Statements





F-8


**Notes
        to Consolidated Financial Statements**




**1.**
                **Nature
                    of Business and Basis of
                    Presentation**





Flagship
      Global Health, Inc (“Flagship”) (formerly known as Patients & Physicians,
      Inc.) was organized on February 5, 1993, and commenced operations on July 9,
      2002.





On
      June 27, 2006, Flagship closed an Exchange Agreement (the "Share Exchange")
      with all of the stockholders of Flagship Patient Advocates, Inc. (“Advocates”)
      (formerly U.S. Open Healthcare Management, Inc.) whereby Flagship acquired
      all
      of the issued and outstanding capital stock of Advocates. Upon completion of
      the
      Share Exchange, Advocates’ stockholders controlled approximately 99% of the then
      issued and outstanding common stock. Prior to the Share Exchange, Flagship
      was a
      shell company. Post the Share Exchange, Advocates business activities were
      the
      activities of Flagship. As a result of these factors, this transaction has
      been
      treated as a reverse merger and a capital transaction, equivalent to the
      issuance of stock by Advocates for Flagship’s net assets and, accordingly, the
      historical financial statements prior to June 27, 2006 are those of
      Advocates. All shares and per share data prior to the Share Exchange have been
      restated to reflect the stock issuances and the effect of the closing of the
      Share Exchange.





On
      January 12, 2007, a Certificate of Ownership and Merger was filed with the
      Secretary of State of the State of Delaware, pursuant to which Flagship merged
      with Advocates, its wholly owned subsidiary. As a result of the merger, Flagship
      assumed all the obligations of Advocates and the operations of Advocates were
      dissolved. As the surviving entity, Patients & Physicians, Inc. changed its
      name to Flagship Global Health, Inc. on January 12, 2007.





During
      2007, the Company established a wholly-owned subsidiary, Flagship Global
      Health-China, Inc. (“Flagship China”), in the People’s Republic of China
      (“PRC”). The purpose of establishing the subsidiary was to expand the Company’s
      worldwide operations and to provide the Company with a vehicle for making
      investments in joint ventures in the PRC in entities operating in related areas
      to the Company’s business.





Flagship
      is an international membership-based, healthcare management company dedicated
      to
      obtaining the highest quality of healthcare for its members, whether they are
      at
      home or traveling. Acting as a member’s healthcare advocate, Flagship is focused
      on providing priority access to renowned and clinically acclaimed physicians,
      which are typically difficult to access. Rather than simply providing names,
      Flagship offers physician referrals, priority scheduled appointments, emergent
      care needs, a personal electronic Internet-based medical record repository,
      air
      evacuation and personalized advocacy services to its members, all linked by
      a
      sophisticated and proprietary information management system. For Flagship,
      healthcare advocacy means bringing about the delivery of exceptional quality
      medicine to each of our members. The Company derives revenue from the sale
      of
      annual memberships through a combination of various service
      offerings.




Flagship
      has not generated significant revenues through December 31, 2007 and is
      considered to be a development stage company in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 7, *Accounting
      and Reporting by Development Stage Enterprises* .




F-9




**Notes
        to Consolidated Financial Statements**


The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. The Company has experienced net losses
      of $37,906,717 since inception (July 9, 2002) to December 31, 2007.
      Although the Company had working capital of $3,806,676 at December 31,
      2007, the net losses, among other factors, raise substantial doubt about its
      ability to continue as a going concern.





Although
      the Company completed an equity financing in July 2007 and realized net
      proceeds of $14,185,226 (Note 7), management recognizes that Flagship’s
      continuation as a going concern is dependent upon its ability to generate
      sufficient cash flow to allow Flagship to continue the development of its
      business plan and satisfy its obligations on a timely basis. Although there
      can
      be no assurance, management believes that such cash flows will be funded by
      additional equity and/or debt financings through the time in which Flagship
      emerges from the development stage and generates sufficient positive cash flows
      from its operations. Our consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





All
      references to “Company” shall apply to Flagship Global Health, Inc. and
      subsidiary.





**2.**
            **Summary
                of Significant Accounting
                Policies**




**Consolidation**




The
      consolidated financial statements include the accounts of Flagship and its
      wholly-owned subsidiary, Flagship China. All significant intercompany
      transactions and balances have been eliminated in consolidation.





**Use
      of Estimates**




The
      preparation of the Company’s consolidated financial statements in conformity
      with accounting principles generally accepted in the United States of America
      (“GAAP”) requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosure of contingent assets
      and liabilities at the date of the financial statements and the reported amounts
      of revenues, if any, and expenses during the reporting period. The accounting
      estimates that require management’s most difficult and subjective judgments
      include capitalization of certain assets, depreciable/amortizable lives,
      impairment of long-lived assets, the expected volatility of common stock, and
      the fair value of common stock and options issued for services as well as the
      allocation of proceeds from the issuance of debt and equity instruments. Because
      of the uncertainty inherent in such estimates, actual results may differ from
      these estimates.




**Restricted
      Cash**




Restricted
      cash of $824,117 on the accompanying consolidated balance sheet as of
      December 31, 2007 pertains to cash being held to secure letters of credit,
      related to the Company’s office space operating leases (Note 10).




F-10


**Notes
        to Consolidated Financial Statements**




**Cash
      and Cash Equivalents**




The
      Company considers all investments with a maturity of three months or less when
      purchased to be cash equivalents.




**Property
      and Equipment**




Property
      and equipment, consisting principally of computer equipment and capitalized
      purchased and internally developed software programs, are recorded at cost.
      Depreciation and amortization are provided for, using the straight-line method,
      in amounts sufficient to relate the cost of depreciable and amortizable assets
      to operations over their estimated useful lives. Repairs and maintenance are
      charged to operations as incurred.




A
      summary
      of the estimated useful lives of the property and equipment is presented
      below:





Estimated
                useful livesComputer
                hardware
            3
                yearsComputer
                software
            3
                yearsEquipment
            5
                yearsVehicles
            5
                yearsFurniture
                and fixtures
            6
                yearsLeasehold
                improvements
            Shorter
                of life of asset or lease term




The
      Company has adopted Statement of Position 98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* .
      This
      statement requires that certain costs incurred in purchasing or developing
      software for internal use be capitalized as internal use software development
      costs and included in fixed assets. Amortization of the software begins
      as software is ready for its intended use.




**Depreciable/Amortizable
      Tangible Long-Lived Assets**




When
      events or changes in circumstances require, the Company assesses the likelihood
      of recovering the cost of tangible long-lived assets based on its expectations
      of future profitability, undiscounted cash flows and management’s plans with
      respect to the operations.




**Amortization
      of Debt Discounts**




Debt
      discounts are amortized and charged to operations over the term of the debt
      using the effective interest method, which produces a constant periodic rate
      of
      return.




**Concentrations
      of Credit Risk**




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist of cash and cash equivalents. The Company reduces credit risk
      by
      placing its cash and cash equivalents with major financial institutions with
      high credit ratings. At times, such amounts may exceed Federally insured limits
      of $100,000.




F-11


**Notes
        to Consolidated Financial Statements**


**Fair
      Value of Financial Instruments**




The
      fair
      value of the Company’s assets and liabilities that qualify as financial
      instruments under SFAS No. 107, *Disclosures
      about Fair Value of Financial Instruments,* (“SFAS
      No. 107”) approximate their carrying amounts presented in the accompanying
      consolidated balance sheet at December 31, 2007.




**Revenue
      Recognition**




The
      Company recognizes revenues in accordance with SEC Staff Accounting Bulletin
      No. 101, *Revenue
      Recognition in Financial Statements* (“SAB
      No. 101”) as amended by SEC Staff Accounting Bulletin No. 104, *Revenue
      Recognition* ,
      revised
      and updated (“SAB No. 104”), which stipulates that revenue generally is
      realized or realizable and earned, once persuasive evidence of an arrangement
      exists, delivery has occurred or services have been rendered, the fee is fixed
      or determinable and collectibility is reasonably assured. The Company sells
      memberships to individuals and institutions for access to its healthcare service
      offerings. The Company recognizes revenue ratably, over the life of the
      membership.




**Goodwill
      and Acquired Assets**




***Goodwill***




During
      2006 the Company allocated the cost to acquire PEMMS Limited (“PEMMS) in excess
      of the fair value of net assets acquired to Goodwill. Under SFAS No. 142 *Goodwill
      and Other Intangible Assets* (“SFAS
      No. 142”), goodwill is not amortized but is reviewed for impairment
      annually. The Company performs an annual goodwill impairment evaluation, or
      more
      frequently if events or changes in circumstances indicate that goodwill may
      be
      impaired. Application of the goodwill impairment evaluation requires significant
      judgments including estimation of future cash flows, which is dependent on
      internal forecasts. Changes in these estimates and assumptions could materially
      affect the determination of fair value and/or conclusions on goodwill
      impairment.




The
      Company performed its annual goodwill impairment evaluation in the fourth
      quarter of 2007 in accordance with SFAS No. 142. Based on its evaluation, the
      Company determined that there was no implied fair value of the goodwill compared
      to a carrying value of $61,912. In accordance with the goodwill impairment
      test
      as prescribed under SFAS No. 142 the entire amount of goodwill is deemed to
      be
      impaired. Accordingly, the entire amount was written off during the year ended
      December 31, 2007.




***Intangible
      Assets***




Intangible
      assets are accounted for under the provisions of SFAS No. 144 “ *Accounting
      for the Impairment or Disposal of Long-Lived Assets* (“SFAS
      No. 144”). Intangible assets arose from the acquisition of PEMMS and
      consist of customer relationships that are amortized, on a straight-line basis,
      over five years. The Company follows the disclosure requirements of SFAS
      No. 142. Intangible assets are reviewed for impairment under the provisions
      of SFAS No. 144, whenever events or changes in circumstances indicate that
      the carrying amount may not be recoverable.




F-12




**Notes
        to Consolidated Financial Statements**





The
      Company evaluated the carrying value of its intangible assets during the fourth
      quarter of 2007 in accordance with SFAS No. 144. In its evaluation the Company
      determined that the carrying value of the intangible assets is not recoverable
      since it exceeds the sum of the undiscounted cash flows expected to result
      from
      the use and eventual disposition of the intangible assets. Accordingly the
      net
      amount of the intangible assets written off at December 31, 2007 was
      $33,917. During the years ended December 31, 2007 and 2006, the Company
      recorded amortization expense of $11,000 and $10,083, respectively.




***Software***




Development
      efforts pursued during 2007 relating to new technology made it unlikely that
      the
      Company would derive any future benefit from certain computer software acquired
      as part of the PEMMS transaction. Accordingly, the net amount of the computer
      software of $22,029 was written off at December 31, 2007. During the years
      ended December 31, 2007 and 2006, the Company recorded amortization expense
      of $20,333 and $18,638, respectively.




**Stock-Based
      Compensation**




The
      Company accounts for share-based compensation to employees and directors in
      accordance with SFAS No. 123(R), *Share-Based
      Payment* (“SFAS
      No. 123(R)”), which requires the recognition of compensation expense for
      employee stock options and other share-based payments. Under SFAS
      No. 123(R), expense related to employee stock options and other share-based
      payments is recognized over the relevant service period based on the fair value
      of each stock option grant.





The
      Company has accounted for non-employee compensation expense in accordance with
      Emerging Issues Task Force (“EITF”) Issue No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* (“EITF
      96-18”), which requires non-employee share based compensation to be measured at
      their fair value as of the earlier of the date at which a commitment for
      performance to earn the equity instruments is reached (“performance commitment
      date”) or the date at which performance is complete (“performance completion
      date”). Non-employee stock options which involve only performance conditions
      when neither the performance commitment date nor performance completion date
      has
      occurred as of the interim financial reporting date are accounted for by
      measuring the instrument’s then-current fair value. As of December 31,
      2007, the Company accounted for 2,545,000 options under the guidance of EITF
      96-18.




**Income
      Taxes**




Income
      taxes are accounted for under the asset and liability method in accordance
      with
      SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”). Deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases and operating loss and tax credit carry forwards. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date. A valuation allowance is established to reduce deferred tax
      assets to the amounts expected to be realized.




F-13


**Notes
        to Consolidated Financial Statements**




In
      July 2006, the FASB issued FIN No. 48, *Accounting
      for Uncertainty in Income Taxes, and Interpretation of FASB Statement
      No. 109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in a company’s financial statements and prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in an income tax return. FIN 48
      also provides guidance in derecognition, classification, interest and penalties,
      accounting in interim periods, disclosures and transition. FIN 48 is effective
      for fiscal years beginning after December 15, 2006. The adoption of FIN 48
      did
      not have a significant effect on the Company’s consolidated financial
      statements.




**Foreign
      Currency Translation**




The
      Company accounts for the operations of its China subsidiary in accordance with
      SFAS No. 52 *Foreign
      Currency Translation* (“SFAS
      No. 52”). The Company has determined that the functional currency for its
      subsidiary is the US Dollar. In accordance with SFAS No. 52 transactions
      are measured and recorded in US Dollars using the exchange rate in effect at
      the
      date the transaction is recognized. At the balance sheet date, balances recorded
      in a currency other than US Dollars have been adjusted to reflect the current
      exchange rate. During 2007, foreign currency transaction gains of approximately
      $55,000 are reported in other income in the accompanying consolidated statement
      of operations.




**Net
      Loss Per Share**




Net
      loss
      per share is computed based on the weighted average number of shares of common
      stock outstanding during the period.





Basic
      loss per share is computed by dividing loss available to common stockholders
      by
      the weighted average common shares outstanding for the period. Diluted earnings
      per share reflects the potential dilution that could occur if securities or
      other contracts to issue common stock were exercised or converted into common
      stock or resulted in the issuance of common stock that then shared in the
      earnings of the entity. Since the effect of outstanding warrants, options and
      debt conversion features is antidilutive, due to the losses of the Company,
      they
      have been excluded from the Company’s computation of net loss per share for the
      years ended December 31, 2007 and 2006. Therefore, basic and diluted loss
      per share were the same for years ended December 31, 2007 and 2006. The
      total number of potentially dilutive securities excluded from the calculation
      of
      diluted loss per share for the years ended December 31, 2007 and 2006 was
      22,368,434 and 17,554,313, respectively.




F-14




**Notes
        to Consolidated Financial Statements**




**Registration
      Payment Arrangements**




The
      Company accounts for registration rights included in financing agreements in
      accordance with FASB Staff Position EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* (“EITF
      00-19-2”). In accordance with EITF 00-19-2, the Company examines the probability
      that the registration of all shares of common stock in connection with future
      possible exercises of outstanding warrants to remain effective.




**Recent
      Accounting Pronouncements Issued, Not Yet Adopted**




In
      September 2006, the FASB issued FASB Statement No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”), which defines fair value, establishes a framework for measuring
      fair value under GAAP, and expands disclosures about fair value measurements.
      SFAS No. 157 applies to other accounting pronouncements that require or
      permit fair value measurements. The new guidance is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      for interim periods within those fiscal years. The Company is evaluating the
      potential impact, if any, of the adoption of SFAS No. 157 on its
      consolidated financial statements.





In
      February 2007, FASB issued Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities* (“SFAS
      No. 159”). SFAS No. 159 provides a “Fair Value Option” under which a
      company may irrevocably elect fair value as the initial and subsequent
      measurement attribute for certain financial assets and liabilities. SFAS
      No. 159 will be available on a contract-by-contract basis with changes in
      fair value recognized in earnings as those changes occur. SFAS No. 159 is
      effective for fiscal years beginning after November 15, 2007. SFAS
      No. 159 also allows early adoption provided that the entity also adopts the
      requirements of SFAS No. 157. The Company does not believe the adoption of
      SFAS No. 159 will have a material impact, if any, on its consolidated
      financial statements.





In
      December 2007, the FASB released two new rules, SFAS No. 141 (R), *Business
      Combinations* ("SFAS
      No. 141 (R)") effective for 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), and SFAS No. 160, *Non-Controlling
      Interests in Consolidated Financial Statement* s
      ("SFAS
      No. 160") (effective for annual periods beginning December 15, 2008). These
      new
      rules are products of a joint project between the FASB and the International
      Accounting Standards Board and continue the movement toward the greater use
      of
      fair values in financial reporting. SFAS No. 141 (R) will significantly
      change how future business acquisitions are accounted for and will impact
      financial statements both on the acquisition date and in subsequent periods.
      SFAS No. 160 will change the accounting and reporting for minority
      interests, which will be recharacterized as non-controlling interests and
      classified as a component of equity .




Management
      does not believe that any other recently issued, but not yet effected,
      accounting standards if currently adopted would have a material effect on the
      Company’s consolidated financials statements.




F-15


**Notes
        to Consolidated Financial Statements**




**3.**
              **Stock-Based
                  Compensation**


The
      Company issues stock-based compensation to its officers, directors, employees
      and consultants under its Amended and Restated 2006 Stock Option and Grant
      Plan
      (the “Stock Option Plan”). There are 19,622,000 shares authorized under the
      Stock Option Plan. The maximum life of options granted is generally ten
      years and the options generally vest over a period of four years. The Board
      of
      Directors of the Company may approve other vesting schedules. Vested options
      may
      be exercised in whole or in part. The exercise price is determined by the Board
      of Directors at the time that the options are granted, which is typically at
      the
      end of the quarter.




A
      summary
      of stock-based compensation expense recognized during the years ended
      December 31, 2007 and 2006 is presented below:


Year
                  Ended December 31,2007
              
              2006Membership
                  Services
              
              $
              264,366
              
              $
              67,134Selling,
                  General and Administrative
              
              
              928,419
              
              
              1,007,874Non-Employees
              
              
              139,516
              
              
              284,596Total
                  Options Expense
              
              $
              1,332,301
              
              $
              1,359,604




Stock-based
      compensation expense related to non-employees is included in membership services
      in the accompanying consolidated statements of operations.





A
      summary
      of options activity for the year ended December 31, 2007 is presented
      below:




Options
            
            Weighted
                Average Exercise PriceOutstanding,
                December 31, 2006
            
            
            7,213,250
            
            $
            0.72Granted
            
            
            4,320,000
            
            $
            2.00Exercised
            
            
            (117,500
            )
            $
            0.05Forfeited
                or expired
            
            
            (1,397,500
            )
            $
            1.69Outstanding,
                December 31, 2007
            
            
            10,018,250
            
            $
            1.08Exercisable,
                December 31, 2007
            
            
            4,802,000
            
            $
            0.81





Outstanding
      stock options at December 31, 2007, include 1,685,000 stock options which
      will vest based on performance criteria and whose measurement has not been
      achieved.





The
      fair
      value of each stock option grant to employees is estimated on the date of grant.
      A Black-Scholes option-pricing model, applying the following range of
      assumptions, was used to estimate the fair value for employee stock options
      issued:




F-16


**Notes
        to Consolidated Financial Statements**


Year
                Ended December 31,2007
            
            2006Expected
                volatility
            
            
            81%
                - 82
            %
            
            68.83%
                - 83.95
            %Risk-free
                rate
            
            
            3.45%
                - 5.03
            %
            
            4.58%
                - 5.03
            %Expected
                term of options
            
            
            5.51
                years
            
            
            5
                - 10 yearsDividend
                yield
            
            
            0
            %
            
            0
            %




Due
      to
      the Company’s limited history as a public company, the Company has estimated
      expected volatility based on the historical volatility of certain comparable
      companies as determined by management. The risk-free interest rate assumption
      is
      based upon observed interest rates appropriate for the expected term of the
      Company’s employee stock options. The dividend yield assumption is based on the
      Company’s intent not to issue a dividend under its dividend policy. The expected
      term is based on the simplified method in accordance with SEC Staff Accounting
      Bulletin No. 107, *Share-Based
      Payment.*




The
      weighted average grant-date fair value of the options granted was $1.67 per
      share and $1.29 per share for the years ended December 31, 2007 and 2006,
      respectively.




The
      options outstanding at December 31, 2007 have exercise prices ranging from
      $0.035 to $2.20 per share, a weighted average remaining contractual life of
      approximately 7.4 years and an intrinsic value of $4,530,750.




The
      options which are exercisable at December 31, 2007 have a weighted average
      remaining contractual life of approximately 7.6 years, and an intrinsic value
      of
      $1,425,375.




Options
      which are exercisable as of December 31, 2007 and options expected to vest
      thereafter total 8,755,000, have a weighted average exercise price of $1.00,
      remaining contractual life of approximately 7.4 years, and an aggregate
      intrinsic value of $2,016,125. The options expected to vest reflect an estimated
      forfeiture rate.




The
      options exercised during the year ended December 31, 2007 had an intrinsic
      value of $136,600 at the date of exercise.




As
      of
      December 31, 2007, there was $2,237,304 of total deferred compensation cost
      related to options issued to employees that will be recognized in expense over
      a
      weighted average period of 1.6 years.




**4.**
            **Property
                and equipment, net**





Property
      and equipment, net, consisted of the following at December 31,
      2007:




F-17




**Notes
        to Consolidated Financial Statements**


Asset
            
            AmountComputer
                hardware
            
            $
            224,791Computer
                software
            
            
            380,579Equipment
            
            
            99,226Vehicle
            
            
            193,843Furniture
                and fixtures
            
            
            138,378Leasehold
                improvements
            
            
            114,5601,151,377Less:
                accumulated depreciation and amortization
            
            
            (556,460
            )$
            594,917




Depreciation
      and amortization expense related to the above was $248,289 and $226,978 for
      the
      years ended December 31, 2007 and 2006, respectively.




**5.**
            **Accrued
                Liabilities**





Accrued
      liabilities consisted of the following at December 31, 2007:





Accrued
                professional fees
            
            $
            167,903Deferred
                revenue
            
            
            87,527Accrued
                interest payable
            
            
            100,443Other
                accrued liabilities
            
            
            180,950$
            536,823




**6.**
            **Debt**




Debt
      financings consist of the following as of December 31, 2007:




Principal
            
            Unamortized
                Debt Discount
            
            NetLaurus
                Convertible Notes
            
            $
            3,075,000
            
            $
            (307,574
            )
            $
            2,767,426Junior
                Convertible Notes
            
            
            1,961,665
            
            
            (201,128
            )
            
            1,760,537Bridge
                Notes
            
            
            1,050,000
            
            
            (114,493
            )
            
            935,507$
            6,086,665
            
            $
            (623,195
            )
            
            5,463,470Less
                current portion
            
            
            
            
            
            
            
            
            4,033,361Long-term
                portion
            
            
            
            
            
            
            
            $
            1,430,109




F-18


**Notes
        to Consolidated Financial Statements**




*Convertible
      Bridge Notes*





The
      Company issued an aggregate of $1,050,000 of 9% convertible notes in the second
      quarter of 2007 (the “Bridge Notes”). Total unpaid principal, together with all
      accrued interest is due one year from the issuance date of each. The Bridge
      Note
      holders received 525,000 warrants to purchase shares of the Company’s common
      stock at an exercise price of $2.00 per share and a five year term. In the
      event
      the Company completes the closing of a financing, as defined, at any time prior
      to the maturity of the Bridge Notes, the Bridge Note holders may, at their
      sole
      option, convert the remaining outstanding principal and accrued interest, into
      the form of securities issued in such next round of financing on the same terms
      and conditions and the same price per share of the securities issued in such
      financing. The Company allocated the $1,050,000 of proceeds from the Bridge
      Notes based on the computed relative fair values of the debt and the warrants
      issued to the Bridge Note holders. The warrants were valued using a
      Black-Scholes Option pricing model with the following assumptions: (1) common
      stock fair values ranging from $1.05 - $1.50 per share on the date of issuance,
      (2) expected volatility of 81%, (3) risk free rates ranging from 4.51% to 4.55%
      on the date of issuance, (4) life of 5 years and (5) no dividend, which resulted
      in a fair value of $438,813 for the warrants. The resulting relative fair value
      of the warrants was $309,477. Accordingly, the resulting relative fair value
      allocated to the debt component at the date of issuance was $740,523. Since
      the
      conversion of the Bridge Notes is contingent upon the completion of a future
      event no beneficial conversion was recorded at the time of issuance.




*Short
      Term Note*




In
      April 2007, the Company issued a $400,000 short term note (the “Short Term
      Note”). The Short Term Note bears interest at 9%. The Short Term Note holder
      received a warrant to purchase 200,000 shares of the Company’s common stock at
      an exercise price of $2.00 per share and a five year term. The Short Term Note
      was converted into common stock under the same terms and conditions as the
      Interim Financing in May 2007. The warrant was valued using a Black-Scholes
      option pricing model with the following assumptions: (1) common stock fair
      value
      of $1.50 per share on the date of issuance, (2) expected volatility of 81%,
      (3)
      risk free rate of 4.56% on the date of issuance, (4) life of 5 years and (5)
      no
      dividend, which resulted in a fair value of $187,027 for the warrant. The result
      was a relative fair value of the warrant of $127,440, and a beneficial
      conversion feature of $127,440. Accordingly, the net carrying value of the
      debt
      component at the date of issuance was $145,120. In May 2007, the Short Term
      Note
      was converted into 200,000 shares of common stock and a warrant to purchase
      to
      purchase 100,000 shares of the Company’s common stock at an exercise price of
      $1.00 per share and a term of seven years. Upon conversion of the Short Term
      Note the Company recorded a charge to operations for the total debt discount
      of
      $254,880, which is included in amortization of debt discounts and debt issuance
      costs.




*Laurus
      and Junior Convertible Notes*




In
      2006
      Flagship entered into a securities purchase agreement (the “Laurus Securities
      Agreement”) with Laurus Master Fund, Ltd. (“Laurus”). Under the Laurus
      Securities Agreement, Laurus purchased from Flagship a secured convertible
      term
      note (the “Laurus Convertible Note”) in an aggregate principal amount of
      $4,100,000. The Laurus Convertible Note bears interest at 1.0% above the prime
      rate, with a minimum interest rate of 7%, and is convertible in whole or in
      part
      into common stock of the Company at a fixed conversion price of $0.90 per share
      at the election of Laurus. During July 2007, Laurus converted principal of
      $270,000 of the Laurus Convertible Note in exchange for 300,000 shares of the
      Company’s common stock and the Company recorded a charge to operations for the
      amortization of debt discount of $34,802.




F-19




**Notes
        to Consolidated Financial Statements**




In
      2006
      Flagship entered into a securities purchase agreement (the “Junior Securities
      Agreement”) with certain holders of Flagship’s short-term notes. Under the
      Junior Securities Agreement, the note holders (the “Junior Note Holders”) agreed
      to convert $3,000,000 of the short-term notes previously issued into secured
      convertible term notes (the “Junior Convertible Notes”) in Flagship. The Junior
      Convertible Notes bear interest at 1.0% above the prime rate, with a minimum
      interest rate of 7% and are convertible in whole or in part into common stock
      of
      the Company at a fixed conversion price of $0.90 per share at the election
      of
      each of the Junior Note Holders. During June 2007, two Junior Note Holders
      converted principal of $42,500 of Junior Convertible Notes in exchange for
      47,222 shares of the Company’s common stock. Additionally, several Junior Note
      Holders converted principal of $441,669 of Junior Convertible Notes in exchange
      for 490,743 shares of the Company’s common stock during the third quarter of
      2007 and the Company recorded a charge to operations for the amortization of
      debt discount of $62,125.




Flagship
      was originally required to repay the Laurus Convertible Notes and Junior
      Convertible Notes (collectively the “Convertible Notes”) on a monthly basis over
      a 24 month period beginning on February 1, 2007. In 2007 holders of the
      Convertible Notes and the Company executed waivers (the “Waivers”) whereby the
      parties agreed that the first monthly payment would be deferred until
      July 1, 2007. All deferred payments would be payable in January 2009.
      As consideration for the Waiver, the Company agreed to pay a fee of
      approximately $57,500 to the Convertible Note holders. The Company will amortize
      the fee for the remaining time the Convertible Notes are outstanding. The
      Company has determined that the changes in the repayment of the debt per the
      Waivers did not substantially change the Convertible Notes. As of
      December 31, 2007 $18,158 of the fee has been amortized on the accompanying
      consolidated statements of operations and charged to interest expense. The
      Company has accounted for this transaction in accordance with EITF Issue No.
      96-19 *Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt
      Instruments* .
      No
      adjustment to the consolidated financial statements was necessary as a result
      of
      such modification. During 2007, Flagship repaid $1,309,165 in principal on
      the
      Convertible Notes. In connection with the original issuance of the Convertible
      Notes, the Company issued warrants to purchase 1,902,174 shares of common stock
      at an exercise price of $0.92 per share and a term of seven years.





*Debt
      Discounts and Debt Issuance Costs*




During
      the years ended December 31, 2007 and 2006, $2,758,288 and $2,781,983,
      respectively, of debt discounts were amortized and included in amortization
      of
      debt discounts and debt issuance costs on the accompanying consolidated
      statements of operations. During the years ended December 31, 2007 and
      2006, $90,466 and $111,954 respectively, of debt issuance costs have been
      amortized and are included in amortization of debt discounts and debt issuance
      costs on the accompanying consolidated statements of operations.




F-20


**Notes
        to Consolidated Financial Statements**




**7.**
              **Capital
                  Stock**


*Increase
      in Authorized Shares*




In
      April 2007, a majority of the stockholders of Flagship approved an increase
      in the number of authorized shares of common stock from 125,000,000 shares
      to
      175,000,000 shares and the number of authorized shares of preferred stock from
      5,000,000 shares to 25,000,000 shares.




*Interim
      Financings and Sales of Common Stock and Warrants*





On
      June
      7, 2006, the Company issued notes payable to Apollo Medical Partners, LP and
      Apollo Medical Offshore Partners, LP in the amounts of $2,700,000 and
      $1,300,000, respectively (the “Apollo Notes”). Pursuant to the terms of the
      Apollo Notes, the principal and accrued interest were convertible into the
      form
      of securities issued in the next round of financing on the same terms and
      conditions as such financing, provided that the Company raised an additional
      $4,000,000.





In October 2006,
      the Company commenced a private placement to raise up to $8,000,000 in interim
      financing (the “Interim Financing”) by issuing up to 4,000,000 newly issued
      shares of the Company’s common stock at a price of $2.00 per share and up to
      1,000,000 warrants to purchase shares of common stock at an exercise price
      of
      $1.00 per share and a term of seven years. The investors received warrants
      to
      purchase one share of the Company’s common stock for every two shares of common
      stock purchased.





The
      table
      below summarizes the investment activity related to the Interim
      Financing:





Date
            
            Investment
                Amount
            
            Shares
                of common stock issued
            
            Warrants
                issued to purchase common stockOctober 2006
            
            $
            1,000,000
            
            
            500,000
            
            
            250,000November 2006
            
            
            1,200,000
            
            
            600,000
            
            
            300,000January 2007
            
            
            1,130,000
            
            
            565,000
            
            
            282,500April 2007
            
            
            400,000
            
            
            200,000
            
            
            100,000June 2007
            
            
            270,000
            
            
            135,000
            
            
            67,500Total
            
            $
            4,000,000
            
            
            2,000,000
            
            
            1,000,000








In
      June 2007, upon the closing of the required minimum of $4,000,000 of
      additional capital, the Apollo Notes, including all accrued interest, converted
      into common stock on the same terms as the Interim Financing. As a result,
      in
      June 2007 the Company issued 2,167,877 shares of its common stock and
      warrants to purchase 1,083,939 shares of common stock at $2.00 per unit for
      an
      aggregate of $4,335,754 ($4,000,000 of principal and $335,754 of accrued
      interest). The warrants have a term of seven years and an exercise price of
      $1.00 per share.





F-21


**Notes
        to Consolidated Financial Statements**




*FrontPoint
      Financing*





In
      July 2007 the Company sold 6,809,258 shares of its common stock and issued
      2,042,777 warrants to purchase common stock at a price of $2.20 per unit, for
      an
      aggregate of $14,980,367 (the “FrontPoint Financing”) to FrontPoint Healthcare
      Fund, L.P., FrontPoint Healthcare Fund 2X, L.P., FrontPoint Healthcare Horizons
      Fund, L.P. and FrontPoint Healthcare Long Horizons Fund, L.P. (collectively,
      “FrontPoint”). The warrants are exercisable beginning July 16, 2008, have
      an exercise price of $3.00 per share and a term of four years. The Company
      incurred $795,141 of financing costs related to the FrontPoint Financing and,
      accordingly, has recorded such costs as an offset to additional paid-in capital
      on the accompanying consolidated balance sheet.





In
      accordance with the terms and conditions of the FrontPoint Financing, the
      Company and FrontPoint entered into a Registration Rights Agreement (the
“Registration Rights Agreement”). Pursuant to the Registration Rights Agreement,
      the Company agreed to register the FrontPoint’s shares of common stock issued
      under the Securities Purchase Agreement and the common stock underlying the
      warrants. The Company’s registration was filed with the SEC and became effective
      on September 19, 2007. The Company expects the registration of such shares
      to remain effective and therefore no contingent liability has been recorded
      as
      of December 31, 2007.





**8.**
            **Warrants**





Outstanding
      warrants to purchase common stock issued in connection with financings consist
      of the following at December 31, 2007:





Warrants
            
            Exercise
                Price
            
            ExpirationWarrants
                issued in connection with Convertible Notes
            
            
            1,902,174
            
            $
            0.92
            
            
            1/31/2013Warrants
                issued in connection with the Interim Financing
            
            
            1,000,000
            
            $
            1.00
            
            
            VariousWarrants
                issued in connection with Apollo Notes conversion
            
            
            1,083,939
            
            $
            1.00
            
            
            6/7/2014Warrants
                issued in connection with Short Term Note
            
            
            200,000
            
            $
            2.00
            
            
            4/30/2012Warrants
                issued in connection with Bridge Notes
            
            
            525,000
            
            $
            2.00
            
            
            VariousWarrants
                issued in connection with FrontPoint Financing
            
            
            2,042,777
            
            $
            3.00
            
            
            7/16/20116,753,890




**9.**
                **Registration
                    rights**


The
      Company entered into registration rights agreements with Laurus, the Junior
      Note
      Holders, FrontPoint and investors in the Interim Financing covering the
      registration of the common stock issued pursuant to these financings and the
      common stock underlying the Convertible Notes and the warrants issued to the
      investors. The Company filed registration statements on Form SB-2 in connection
      with the aforementioned registrations which were all declared effective by
      the
      SEC. The Company is required to use its best efforts to keep the registration
      statements continuously effective until the date which is the earlier of when
      (i) all registrable securities have been sold or (ii) all registrable securities
      covered by such registration statement may be sold immediately without
      registration under the Securities Act and without volume restrictions. The
      Company expects the registration of such shares to remain effective and
      therefore no contingent liability has been recorded as of December 31,
      2007. All costs incurred subsequent to the completion of the financings incurred
      in connection with the aforementioned registrations and keeping the registration
      statements effective are treated as period costs and included in the
      consolidated statements of operations.




F-22
 
  **Notes
            to Consolidated Financial Statements**


**10.**
            **Commitments
                and contingencies**





*Pending
      litigation*





A
      former
      independent contractor (the “Plaintiff”) has filed a lawsuit against the Company
      and Flagship, among others. The Plaintiff alleges that he was promised
      employment with the Company and performed services to Flagship based on these
      promises. The Plaintiff is seeking compensatory and punitive damages, including
      the issuance of additional shares of stock for these services and attorney
      fees
      in an aggregate amount of approximately $1,800,000. The Company believes this
      lawsuit is without merit and intends to defend it vigorously. In management’s
      opinion the final resolution of this matter will not have a material impact
      on
      the consolidated financial position or consolidated results of operations of
      the
      Company.





*Leases*





The
      Company leases office space under operating leases, which expire through
      December 31, 2016. As of December 31, 2007, future minimum annual
      payments under these leases were as follows:




2008
            
            $
            1,041,0002009
            
            
            1,044,0002010
            
            
            1,096,0002011
            
            
            751,0002012
            
            
            499,000Thereafter
            
            
            2,216,000$
            6,647,000




Rent
        expense is recognized over the term of the lease on a straight-line basis.
        Total
        rent expense was $1,111,847 and $555,899 for the years ended December 31,
        2007 and 2006, respectively.
  Pursuant
        to the terms of a sublease, the Company receives sublease income relating
        to
        certain space vacated in 2006. Such sublease income is approximately $323,000,
        $329,000 and $307,000 in 2008, 2009 and 2010, respectively, which approximates
        the rent expense related to such space and is for the remaining term of the
        lease. The Company recognized sublease income of $325,238 and $40,640 for
        the
        years ended December 31, 2007 and 2006, respectively. The Company
        recognizes sublease income in other income on the consolidated statements
        of
        operations.


F-23
 
 **Notes
            to Consolidated Financial Statements**




**11.**
              **Retirement
                  Plan**


The
      Company has a 401(k) Profit Sharing Plan (the “Plan”) available for
      substantially all employees who have been with the Company for a minimum
      of six months. Employees may contribute up to the annual Internal Revenue
      Service dollar limit. Company contributions to the Plan are at the
      discretion of the Company.  The Company has not made any contributions to
      the Plan to date.




**12.**
              **Income
                  Taxes**


A
      reconciliation of the statutory U.S. federal income tax rate to the
      Company’s effective tax was as follows:




Years
                Ended December 31,2007
            
            2006Statutory
                U.S. rate
            34.0%
            
            34.0%State
                and city income taxes, net of federal benefit
            11.0%
            
            11.0%Non-deductible
                stock-based compensation expense
            (3.1%)
            
            (3.1%)Effect
                of valuation allowance
            (41.9%)
            
            (41.9%)Total
                income tax expense (benefit)
            0.0%
            
            0.0%




F-24




**Notes
        to Consolidated Financial Statements**


Significant
      components of the Company’s deferred tax assets at December 31, 2007 are as
      follows:




Net
                operating loss carry-forwards
            
            $
            14,209,000Stock-based
                compensation expense
            
            
            1,649,200Impairment
                of assets
            
            
            280,500Beneficial
                conversion feature
            
            
            (75,600
            )Deferred
                rent
            
            
            187,200Other,
                net
            
            
            34,000Deferred
                tax assets, net
            
            
            16,284,300Effect
                of valuation allowance
            
            
            (16,284,300
            )Net
                deferred tax assets
            
            $
            -




The
      following table summarizes the change in the valuation allowance:




Years
                Ended December 31,2007
            
            2006Valuation
                allowance at beginning of year
            
            $
            (10,187,800
            )
            $
            (5,125,300
            )Charged
                to provision for income taxes
            
            
            (6,096,500
            )
            
            (5,062,500
            )Valuation
                allowance at end of year
            
            $
            (16,284,300
            )
            $
            (10,187,800
            )




At
      December 31, 2007, the Company had net operating loss carry-forwards of
      approximately $31,576,000, which expire through 2027, subject to certain
      limitations. A full valuation allowance has been established because of the
      uncertainty regarding the Company’s ability to generate income sufficient to
      utilize the tax losses during the carryforward period.




Under
      the
      provision of EITF No. 05-08, *Income
      Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion
      Feature* ,
      the
      beneficial conversion feature results in a temporary basis difference for the
      purpose of applying SFAS No. 109, *Accounting
      for Income Taxes* .
      The
      EITF reached a consensus that requires the temporary difference to be recorded
      as an adjustment to additional paid-in capital. The deferred
      tax benefit resulting from the amortization of the beneficial conversion
      feature has been fully reserved for because of the lack of objective evidence
      supporting its realization. When, and if, such amounts become realizable they
      will be recorded as a component of additional paid-in capital.






**13.**
            **Related
                Party Transactions**




In
      March 2005, Flagship issued 3,031,250 shares of common stock to certain
      members of management to settle $606,250 of compensation costs accrued during
      the year ended December 31, 2004. The stock was issued at $0.525 per share
      and resulted in additional compensation expense of approximately $985,156.
      The
      individuals receiving common stock included Fred F. Nazem, co-founder and former
      Chairman and Chief Executive Officer, Dr. Stephen J. O’Brien, co-founder and
      former officer, Richard Howard, director and former President, and Dr. Benjamin
      Safirstein, former director and EVP- Chief Medical Officer of the
      Company.




F-25
 
  **Notes
          to Consolidated Financial Statements**


Mr.
      Fred
      F. Nazem is the sole stockholder and President of Nazem, Inc. From its inception
      through August 2005, Flagship occupied space in the Nazem, Inc. offices.
      During that time, Flagship paid monthly rent of $5,940 to Nazem, Inc. for the
      use of such space. In addition, Nazem, Inc. incurred certain operating expenses
      on behalf of Flagship and Flagship reimbursed Nazem, Inc. for the payment of
      such expenses on its behalf.




On
      several occasions during the past two years, Fred F. Nazem made loans to
      Flagship for working capital needs. The following summarizes these loans and
      their status: (i) a loan of $250,000 was made in December 2004 and repaid in
      February 2005; (ii) a loan of $10,000 was made in January 2005 and was
      repaid in August 2006; (iii) loans of $200,000 made in July 2005,
      $500,000 made in August 2005 and $300,000 was made in September 2005; all
      of which were converted into the Junior Convertible Notes; and (iv) a loan
      of
      $250,000 made in April 2007 which is still outstanding. In connection with
      the April 2007 loan, Mr. Nazem received warrants to purchase 125,000 shares
      of common stock. The warrants have a five year term and are exercisable at
      $2.00
      per share. Mr. Nazem converted $41,667 of Junior Convertible Notes into common
      stock in August 2007 at a conversion price of $0.90 per share.




In
      July 2005, OldIron Sports and Entertainment Company, Inc. (“OIS”) loaned
      Flagship $500,000. This loan was converted into the Junior Convertible Notes.
      In
      May 2007, OIS loaned Flagship $400,000, which is still outstanding. In
      connection with the May 2007 loan, OIS received warrants to purchase 200,000
      shares of common stock. The warrants have a five year term and are exercisable
      at $2.00 per share. Mr. John H. Flood, III, President and Chief Executive
      Officer of the Company, owns 50% of OIS.




In
      December 2005, Mr. John H. Flood, III loaned Flagship $75,000 for working
      capital purposes. This loan was repaid in February 2006.




In
      November 2005, Dr. Benjamin Safirstein loaned Flagship $50,000. This loan
      was converted into the Junior Convertible Notes. Dr. Safirstein converted his
      Junior Convertible Note into common stock in July 2007 at a conversion
      price of $0.90 per share.




As
      part
      of the Laurus Convertible Note, Fred F. Nazem, John H. Flood, III and certain
      stockholders (the “Guarantors”) of the Company, provided a limited guaranty of
      the Company’s obligation to Laurus. The Guarantors received an aggregate of
      1,951,596 shares of common stock and warrants to purchase 465,839 shares of
      common stock, valued at $176,767, for providing such guaranty (Note
      15).




In
      January 2006, Dr. Mark Gardy, an employee of Flagship and Dr. Roger London,
      a former employee of Flagship, each loaned Flagship $100,000. These loans were
      converted into the Junior Convertible Notes. In August 2007, Dr. London
      converted his Junior Convertible Note into common stock at a conversion price
      of
      $0.90 per share.




F-26


**Notes
        to Consolidated Financial Statements**




**14.**
            **Supplemental
                Disclosure of Non-Cash Investing and Financing
                Activities**




Years
                Ended December 31,
            
            For
                the period from inception (July 9, 2002) to
                December 31,2007
            
            2006
            
            2007Value
                of contributions in-kind relating to Redeemable Series A Convertible
                Preferred Stock issued
            
            $
            -
            
            $
            -
            
            $
            85,000Value
                of contributions in-kind relating to common stock issued
            
            $
            -
            
            $
            -
            
            $
            760,000Value
                of warrants issued in connection with Redeemable Series A Convertible
                Preferred Stock
            
            $
            -
            
            $
            -
            
            $
            143,066Common
                stock issued to founders
            
            $
            -
            
            $
            -
            
            $
            16,000Accretion
                of Redeemable Series A Convertible Preferred Stock
            
            $
            -
            
            $
            160,241
            
            $
            195,937Accretion
                of Redeemable Series B Convertible Preferred Stock
            
            $
            -
            
            $
            33,617
            
            $
            37,872Common
                stock issued in lieu of compensation
            
            $
            -
            
            $
            -
            
            $
            1,591,406Common
                stock issued in exchange for services
            
            $
            280,883
            
            $
            -
            
            $
            280,883Conversion
                of Redeemable Series A Convertible Preferred Stock and Redeemable
                Series B
                Convertible Preferred Stock to common stock
            
            $
            -
            
            $
            5,509,605
            
            $
            5,509,605Issuance
                of shares in connection with acquisition
            
            $
            -
            
            $
            (76
            )
            $
            (76
            )Issuance
                of common stock in connection with financing
            
            $
            -
            
            $
            1,951
            
            $
            1,951Issuance
                of common stock in connection with the share exchange
            
            $
            -
            
            $
            1,200
            
            $
            1,200Cancellation
                of founders’ shares
            
            $
            -
            
            $
            -
            
            $
            3,510Allocation
                of value to common stock, issued in connection with
                acquisition
            
            $
            -
            
            $
            186,000
            
            $
            186,000Allocation
                of value to common stock, issued in connection with convertible debt
                financings
            
            $
            -
            
            $
            3,135,698
            
            $
            3,135,698Allocation
                of value to warrants issued in connection with debt
                financings
            
            $
            436,917
            
            $
            457,671
            
            $
            894,588Conversion
                of Convertible Notes to common stock
            
            $
            754,169
            
            $
            -
            
            $
            754,169Conversion
                of Apollo Notes to equity
            
            $
            4,000,000
            
            $
            -
            
            $
            4,000,000Conversion
                of interest expense and accrued interest payable
            
            $
            335,754
            
            $
            -
            
            $
            335,754Conversion
                of Short Term Note to equity
            
            $
            400,000
            
            $
            -
            
            $
            400,000Value
                of beneficial conversion feature in connection with debt
                financings
            
            $
            127,440
            
            $
            1,695,111
            
            $
            1,822,551Conversion
                of short term notes into Junior Convertible Notes
            
            $
            -
            
            $
            3,000,000
            
            $
            3,000,000




**15.**
              **Subsequent
                  Events**


On
      January 24, 2008, the Company prepaid $2,000,000 of the outstanding
      principal related to the Laurus Convertible Note. In exchange for this
      prepayment and other consideration provided by the Guarantors, Laurus agreed
      to
      waive the prepayment penalty and to release the Guarantors from the limited
      guaranties.




On
        March
        14, 2008, the Board of Directors of the Company approved and entered into
        employment agreements with John H. Flood, III, the Company’s Chief Executive
        Officer and President, Philip Barak, the Company’s Chief Financial Officer, Mark
        Gardy, MD, the Company’s Senior Vice President and Chief Medical Officer, and
        Clay Larsen, the Company’s Senior Vice President of Marketing and
        Sales.




F-27