##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 Commission File Number: 000-50348
 NATIONSHEALTH, INC.
  Delaware
    
    06-1688360(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)13630 NW 8thStreet, Suite 210, Sunrise, FL
    
    33325(Address of principal executive offices)
    
    (Zip Code)
 (954) 903-5000
  (Title of each class)
    
    (Name of each exchange on which registered)Common Stock, $0.0001 par value per share
    
    The NASDAQ Capital Market
  
 o þ
 o þ
 þ o
 o
  Large accelerated filer
o

   

    Accelerated filer o

    

    Non-accelerated filer   o

    

    Smaller Reporting Company
þ
 o þ
   Documents Incorporated By Reference




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##### 



NATIONSHEALTH, INC.
 FORM 10-K
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
 INDEX
 PagePART IItem 1   Business
    
    
    1Item 1A   Risk Factors
    
    
    5Item 1B   Unresolved Staff Comments
    
    
    13Item 2   Properties
    
    
    13Item 3   Legal Proceedings
    
    
    13Item 4   Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5   Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    14Item 7   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 8   Financial Statements and Supplementary Data
    
    
    31Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    60Item 9A(T)   Controls and Procedures
    
    
    60Item 9B   Other Information
    
    
    60PART IIIItem 10   Directors, Executive Officers and Corporate Governance
    
    
    61Item 11   Executive Compensation
    
    
    61Item 12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    61Item 13   Certain Relationships and Related Transactions, and Director Independence
    
    
    62Item 14   Principal Accountant Fees and Services
    
    
    62PART IVItem 15   Exhibits, Financial Statement Schedules
    
    
    63SIGNATURES
    
    
    64Exhibit 10.37Exhibit 10.56Exhibit 10.63Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I
 
 Item 1. Business.
 Business
   Medical Products Segment
 Home Delivery of Medical Products
     1




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Insurance Services Segment
   Patient Service Organization
    2




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Competition
   
    
    other durable medical equipment providers;
 
    
    retail pharmacies;
 
    
    healthcare product distributors;
 
    
    pharmacy benefit management companies and prescription drug plans with in-house
pharmacies; and
 
    
    other companies that provide customer enrollment and services to prescription drug
plans.
 Government Regulation
 General
   Medicare
    3




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HIPAA
   Pharmacy
  Seasonality
  Employees
  Website
 www.nationshealth.com
  4




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Item 1A. Risk Factors.
 Risks Related to Our Business
 We have a limited operating history and are subject to the risks of a new enterprise.
  
    
    No history of profitability;
 
    
    The evolving nature of the healthcare marketplace and the Medicare and Medicaid
regulatory environment;
 
    
    The risks of competition, technological change or evolving patient preferences; and
 
    
    The sufficiency and availability of capital.
 We could experience significantly reduced revenues and earnings if Medicare changes, delays,
reduces or denies reimbursement.
  Competitive bidding for DMEPOS and supplies may reduce our revenues and earnings.
    5




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We have invested significant capital and dedicated substantial resources to launch our insurance
services to Medicare prescription drug and managed care providers, which may not be successful.
   If we do not have sufficient capital to fund additional advertising and/or acquisitions, our
ability to grow our business will be substantially diminished
  If we are unable to grow our business and manage growth successfully, we may not achieve
profitability.
  The profitability of our Medical Products business will decrease if we do not receive recurring
orders from patients.
   6




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We could experience significantly reduced revenues and profit from sales of diabetes products if
improved technologies developed for glucose monitoring eliminate the need for consumable testing
supplies.
  Due to our size and limited operating history, we depend substantially on certain key personnel.
  Certain executive officers have rights under employment agreements that could require us to make
substantial payments to them.
   7




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If any of our information technology platforms malfunction, our business and profitability may be
seriously harmed.
  We may have difficulties in achieving volume-based discounts or finding replacement supplies if we
lose any agreement with our suppliers of medical products.
   8




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##### Table of Contents



Risks Related to Our Industry
 If we do not comply with applicable government regulations, we may be prohibited from selling our
products and could experience significantly reduced revenues and profit.
      The cost of efforts to comply with HIPAA regulations and the possible consequence of non-compliance
could adversely affect our operations and profit significantly.
   9




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Our accounts receivable are subject to significant collection risk due to third-party payors.
  Our business could suffer from rising insurance costs, the unavailability of insurance or other
events.
    Risks Related to Owning Our Equity Securities
 Future sales of our common stock may depress our stock price.
   10




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Voting control by our executive officers, directors and other affiliates may limit your ability to
influence the outcome of director elections and other matters requiring stockholder approval.
  If we fail to maintain an effective system of internal control in the future, we may not be able to
accurately report our financial results or prevent fraud. As a result, investors may lose
confidence in our financial reporting.
  Compliance with changing regulations relating to corporate governance and public disclosure may
result in additional expenses.
   11




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Our common stock may continue to have a volatile public trading price and low trading volume.
   
    
    Public announcements by us, our competitors or others
    
    Regulatory developments concerning the availability of reimbursement pursuant to
Medicare
    
    Public concern about the safety or efficacy of pharmaceuticals
    
    General market conditions and comments by securities analysts
    
    Quarterly fluctuations in our revenues and financial results
    
    Low trading volume associated with the number of shares that are publicly traded
 Anti-takeover provisions in our governing documents and under Delaware law may make an acquisition
of us more difficult.
     If our common stock continues to trade at a per share price of less than $1.00, our common stock
will be subject to delisting from The NASDAQ Capital Market.
   12




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties.
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   13




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Market Information
  Common Stock
    
    
    Warrants
    
    
    UnitsHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowYear Ended December
31, 2006First quarter
    
    $
    7.96
    
    
    $
    3.71
    
    
    $
    2.95
    
    
    $
    0.63
    
    
    $
    11.00
    
    
    $
    5.50Second quarter
    
    $
    4.45
    
    
    $
    1.94
    
    
    $
    0.68
    
    
    $
    0.20
    
    
    $
    5.85
    
    
    $
    2.30Third quarter
    
    $
    3.24
    
    
    $
    1.56
    
    
    $
    0.43
    
    
    $
    0.11
    
    
    $
    4.81
    
    
    $
    1.66Fourth quarter
    
    $
    2.75
    
    
    $
    1.05
    
    
    $
    0.25
    
    
    $
    0.06
    
    
    $
    3.00
    
    
    $
    1.11Year Ended December
31, 2007First quarter
    
    $
    1.93
    
    
    $
    1.33
    
    
    $
    0.14
    
    
    $
    0.04
    
    
    $
    3.00
    
    
    $
    1.25Second quarter
    
    $
    1.69
    
    
    $
    1.28
    
    
    $
    0.10
    
    
    $
    0.02
    
    
    $
    3.00
    
    
    $
    1.01Third quarter
    
    $
    1.59
    
    
    $
    0.68
    
    
    $
    0.14
    
    
    $
    0.01
    
    
    $
    2.10
    
    
    $
    0.75Fourth quarter
    
    $
    0.74
    
    
    $
    0.29
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
  Holders of Record
  Dividends
   14




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Issuer Purchases of Equity Securities
  Total
    
    
    Average
    
    
    Total Number of
    
    
    Maximum NumberNumber of
    
    
    Price
    
    
    Shares Purchased as
    
    
    of Shares that MayShares
    
    
    Paid per
    
    
    Part of Publicly
    
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    
    Share
    
    
    Announced Plans
    
    
    Under the PlansOctober 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 2007
    
    
    9,423
    
    
    $
    0.60
    
    
    
    
    
    
    
    December 2007
    
    
    11,320
    
    
    $
    0.69
    
    
    
    
    
    
    
    Total
    
    
    20,743
    
    
    $
    0.65
    
    
    
    
    
    
    
    
 Recent Sales of Unregistered Securities
   
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
   Medical Products Segment
 Diabetes Supplies
   15




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Pharmacy
  Other Medical Products
    Retail Program
  Discount Prescription Drug Card Services
  Insurance Services Segment
   16




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Results of Operations
  2007
    
    
    2006
    
    
    2005$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Net product sales
    
    $
    46,070
    
    
    
    59.4
    %
    
    $
    44,788
    
    
    
    51.4
    %
    
    $
    68,688
    
    
    
    78.5
    %Prescription drug card revenue
    
    
    
    
    
    
    0.0
    
    
    
    3,983
    
    
    
    4.6
    
    
    
    8,619
    
    
    
    9.8Service revenue
    
    
    31,450
    
    
    
    40.6
    
    
    
    38,445
    
    
    
    44.1
    
    
    
    10,249
    
    
    
    11.7Total revenue
    
    
    77,520
    
    
    
    100.0
    
    
    
    87,216
    
    
    
    100.0
    
    
    
    87,556
    
    
    
    100.0Cost of product sales
    
    
    20,866
    
    
    
    26.9
    
    
    
    18,854
    
    
    
    21.6
    
    
    
    29,689
    
    
    
    33.9Cost of services
    
    
    12,221
    
    
    
    15.8
    
    
    
    31,907
    
    
    
    36.6
    
    
    
    22,219
    
    
    
    25.4Gross Profit
    
    
    44,433
    
    
    
    57.3
    
    
    
    36,455
    
    
    
    41.8
    
    
    
    35,648
    
    
    
    40.7Operating Expenses:Patient acquisition and related costs
    
    
    3,731
    
    
    
    4.8
    
    
    
    3,382
    
    
    
    3.9
    
    
    
    18,077
    
    
    
    20.6Patient service and fulfillment
    
    
    9,544
    
    
    
    12.3
    
    
    
    8,286
    
    
    
    9.5
    
    
    
    14,427
    
    
    
    16.5General and administrative
    
    
    24,753
    
    
    
    31.9
    
    
    
    27,940
    
    
    
    32.0
    
    
    
    26,323
    
    
    
    30.1Provision for doubtful accounts
    
    
    1,991
    
    
    
    2.5
    
    
    
    3,625
    
    
    
    4.2
    
    
    
    7,575
    
    
    
    8.7Depreciation and amortization
    
    
    6,419
    
    
    
    8.3
    
    
    
    5,231
    
    
    
    6.0
    
    
    
    1,626
    
    
    
    1.9Impairment of investment in joint
venture
    
    
    
    
    
    
    
    
    
    
    1,292
    
    
    
    1.5
    
    
    
    
    
    
    
    0.0Gain on sales of business lines
    
    
    (338
    )
    
    
    (0.4
    )
    
    
    (5,000
    )
    
    
    (5.7
    )
    
    
    (15,508
    )
    
    
    (17.7
    )46,100
    
    
    
    59.5
    
    
    
    44,756
    
    
    
    51.3
    
    
    
    52,520
    
    
    
    60.0Loss from Operations
    
    
    (1,667
    )
    
    
    (2.2
    )
    
    
    (8,301
    )
    
    
    (9.5
    )
    
    
    (16,872
    )
    
    
    (19.3
    )Other expense, net
    
    
    (4,259
    )
    
    
    (5.5
    )
    
    
    (2,977
    )
    
    
    (3.4
    )
    
    
    (2,947
    )
    
    
    (3.4
    )Net Loss
    
    $
    (5,926
    )
    
    
    (7.6
    %)
    
    $
    (11,278
    )
    
    
    (12.9
    %)
    
    $
    (19,819
    )
    
    
    (22.7
    %)
  17




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2007 Compared to 2006
 Revenue.
  Cost of Product Sales .
 Cost of Services.
 Gross Profit Margin.
 Patient Acquisition and Related Costs.
  18




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Patient Service and Fulfillment .
 General and Administrative .
 Provision for Doubtful Accounts.
 Depreciation and Amortization .
 Gain on Sales of Business Lines .
  19




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Other Expense, Net.
 Net Loss.
 2006 Compared to 2005
 Revenue.
 Cost of Product Sales .
 Cost of Services.
 Gross Profit Margin.
  20




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Patient Acquisition and Related Costs.
  Patient Service and Fulfillment .
  General and Administrative .
 Provision for Doubtful Accounts.
  21




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Depreciation and Amortization .
  Impairment of Investment in Joint Venture.
 Gain on Sales of Business Lines.
  Other Expense, Net.
 Net Loss.
 Liquidity and Capital Resources
   22




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23




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24




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Risk Factors
 Off-Balance-Sheet Arrangements
  Critical Accounting Policies
   Revenue Recognition and Accounts Receivable
 Medical Product Sales
   25




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Insurance Services
  Allowances for Doubtful Accounts
    26




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Aging of Accounts Receivable as of December 31, 2007< 30
    
    
    31 - 60
    
    
    61 - 120
    
    
    > 120Payor
    
    Days
    
    
    Days
    
    
    Days
    
    
    Days
    
    
    TotalMedicare
    
    $
    1,924
    
    
    $
    276
    
    
    $
    490
    
    
    $
    1,611
    
    
    $
    4,301Commercial parties and
Medicaid
    
    
    1,862
    
    
    
    935
    
    
    
    772
    
    
    
    4,165
    
    
    
    7,734Patients
    
    
    273
    
    
    
    216
    
    
    
    392
    
    
    
    2,920
    
    
    
    3,801Other (1)
    
    
    3,071
    
    
    
    58
    
    
    
    
    
    
    
    2
    
    
    
    3,131Total gross accounts
receivable
    
    $
    7,130
    
    
    $
    1,485
    
    
    $
    1,654
    
    
    $
    8,698
    
    
    
    18,967Less: Allowances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,974Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,993
 (1)
    
    Primarily represents amounts due from CIGNA and other clients of our Insurance Services
segment. Patient Acquisition and Related Costs
 Reporting on Advertising Costs
   27




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Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities
 Notice From NASDAQ
    28




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Important Factors That May Affect Future Operations and Results
   
    
    Expected future operations, revenue, gross margins and expenses
    
    Credit facilities and projected cash needs
    
    Sales opportunities, strategic relationships and marketing plans
    
    Estimates of potential markets for our products and services, including the
anticipated drivers for future growth
    
    Assessment of the impact of future accounting pronouncements
   
    
    Our ability to successfully maintain our Insurance Services segment
    
    Competitive bidding for DME and supplies
    
    Increases in the costs of medical products dispensed
    
    Our history of operating losses and the possibility that we will incur significant
additional operating losses
    
    An ability to raise the capital that we will need to sustain our operations
    
    Our ability to attract new patients and retain existing patients
    
    Identification of, and competition for, growth and expansion opportunities
    
    Compliance with, or changes in, government regulation and legislation, or
interpretations thereof, including, but not limited to, pharmacy licensing requirements
and healthcare reform legislation, including HIPAA
  29




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
    
    An inability to establish and maintain successful collaborative relationships could
adversely affect our ability to generate revenue
    
    Adverse developments in any investigation related to the pharmaceutical industry
    
    Competition and technological change that may make our products and technologies
less attractive or obsolete
    
    Our ability to obtain and maintain intellectual property protection for our
technologies
    
    Adverse resolution of current or future lawsuits or investigations
    
    Significant fluctuations in our revenue and operating results, which have occurred
in the past and which could continue to fluctuate in the future
    
    Any loss or inability to hire and retain qualified personnel
    
    Our exposure to product liability in excess of our insurance coverage
    
    Any failure to maintain an effective system of internal controls in the future could
adversely affect our ability to accurately report financial results or prevent fraud
    
    Compliance with changing regulation of corporate governance and public disclosure
may result in additional expenses
    
    Our common stock may continue to have a volatile public trading price and low
trading volume
    
    Anti-takeover provisions in our governing documents and under Delaware law may make
an acquisition of us more difficult
    
    Our common stock may be delisted from the NASDAQ Capital Market resulting in reduced
liquidity
   30




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Item 8. Financial Statements and Supplementary Data.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    32Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    33Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
    
    
    34Consolidated Statements of Stockholders Equity (Deficiency) for the years ended December 31, 2007, 2006 and 2005
    
    
    35Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    
    36Notes to Consolidated Financial Statements
    
    
    37
  31




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Report of Independent Registered Public Accounting Firm
 
    Share-Based
Payment
 
 
  32




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NATIONSHEALTH, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,925
    
    
    $
    4,224Accounts receivable, net of allowances of $7,974 and $12,451,
respectively
    
    
    10,993
    
    
    
    6,075Inventory
    
    
    2,557
    
    
    
    1,636Prepaid expenses and other current assets
    
    
    1,253
    
    
    
    1,313Total current assets
    
    
    16,728
    
    
    
    13,248Property and equipment, net
    
    
    4,666
    
    
    
    3,557Customer contract intangible, net
    
    
    7,755
    
    
    
    11,632Acquired customer lists, net
    
    
    3,090
    
    
    
    363Other intangible assets, net
    
    
    907
    
    
    
    Goodwill
    
    
    1,075
    
    
    
    Restricted cash
    
    
    1,899
    
    
    
    300Other assets, net
    
    
    1,360
    
    
    
    1,288Total assets
    
    $
    37,480
    
    
    $
    30,388LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    6,314
    
    
    $
    3,026Accrued expenses
    
    
    4,553
    
    
    
    9,054Promissory note payable, net
    
    
    1,478
    
    
    
    Current portion of long-term debt
    
    
    2,810
    
    
    
    Current portion of capital lease obligations
    
    
    679
    
    
    
    15Line of credit
    
    
    2,500
    
    
    
    2,500Total current liabilities
    
    
    18,334
    
    
    
    14,595Long-Term Liabilities:Convertible notes, related party, net
    
    
    7,715
    
    
    
    6,316Long-term debt
    
    
    3,980
    
    
    
    Obligations under capital leases
    
    
    1,396
    
    
    
    2Promissory note payable, net
    
    
    
    
    
    
    1,328Other long-term liabilities
    
    
    1,212
    
    
    
    780Total long-term liabilities
    
    
    14,303
    
    
    
    8,426Commitments and ContingenciesStockholders Equity:Preferred stock, $0.0001 par value; 50,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, $0.0001 par value; 250,000,000 shares authorized;
29,408,763 and 28,906,708 issued and 29,318,591 and 28,837,760
outstanding, respectively
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    74,218
    
    
    
    70,816Accumulated deficit
    
    
    (69,378
    )
    
    
    (63,452
    )Total stockholders equity
    
    
    4,843
    
    
    
    7,367Total liabilities and stockholders equity
    
    $
    37,480
    
    
    $
    30,388
 The accompanying notes are an integral part of these consolidated financial statements.
  33




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NATIONSHEALTH, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenue:Net product sales
    
    $
    46,070
    
    
    $
    44,788
    
    
    $
    68,688Prescription drug card revenue
    
    
    
    
    
    
    3,983
    
    
    
    8,619Service revenue
    
    
    31,450
    
    
    
    38,445
    
    
    
    10,24977,520
    
    
    
    87,216
    
    
    
    87,556Cost of product sales
    
    
    20,866
    
    
    
    18,854
    
    
    
    29,689Cost of services
    
    
    12,221
    
    
    
    31,907
    
    
    
    22,219Gross Profit
    
    
    44,433
    
    
    
    36,455
    
    
    
    35,648Operating Expenses:Patient acquisition and related costs
    
    
    3,731
    
    
    
    3,382
    
    
    
    18,077Patient service and fulfillment
    
    
    9,544
    
    
    
    8,286
    
    
    
    14,427General and administrative
    
    
    24,753
    
    
    
    27,940
    
    
    
    26,323Provision for doubtful accounts
    
    
    1,991
    
    
    
    3,625
    
    
    
    7,575Depreciation and amortization
    
    
    6,419
    
    
    
    5,231
    
    
    
    1,626Impairment of investment in joint venture
    
    
    
    
    
    
    1,292
    
    
    
    Gain on sales of business lines
    
    
    (338
    )
    
    
    (5,000
    )
    
    
    (15,508
    )46,100
    
    
    
    44,756
    
    
    
    52,520Loss from Operations
    
    
    (1,667
    )
    
    
    (8,301
    )
    
    
    (16,872
    )Other Income (Expense):Interest income
    
    
    155
    
    
    
    257
    
    
    
    150Interest expense, related party
    
    
    (2,708
    )
    
    
    (2,448
    )
    
    
    (1,878
    )Interest expense
    
    
    (1,706
    )
    
    
    (786
    )
    
    
    (1,219
    )(4,259
    )
    
    
    (2,977
    )
    
    
    (2,947
    )Net Loss
    
    $
    (5,926
    )
    
    $
    (11,278
    )
    
    $
    (19,819
    )Loss per share  basic and diluted
    
    $
    (0.21
    )
    
    $
    (0.40
    )
    
    $
    (0.75
    )Weighted average shares outstanding  basic and diluted
    
    
    28,350
    
    
    
    27,895
    
    
    
    26,345
 The accompanying notes are an integral part of these consolidated financial statements.
  34




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##### Table of Contents



NATIONSHEALTH, INC.
 
 CONSOLIDATED STATEMENTS OF
 STOCKHOLDERS EQUITY (DEFICIENCY)
 (In thousands)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    Unearned
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    TotalBalance, December 31, 2004
    
    
    26,175
    
    
    $
    3
    
    
    $
    32,315
    
    
    $
    
    
    
    $
    (32,355
    )
    
    $
    (37
    )Discount on convertible notes, related
party
    
    
    
    
    
    
    
    
    
    
    10,611
    
    
    
    
    
    
    
    
    
    
    
    10,611Issuances of common stock
    
    
    577
    
    
    
    
    
    
    
    3,888
    
    
    
    
    
    
    
    
    
    
    
    3,888Repurchases of common stock
    
    
    (56
    )
    
    
    
    
    
    
    (389
    )
    
    
    
    
    
    
    
    
    
    
    (389
    )Restricted stock awards
    
    
    377
    
    
    
    
    
    
    
    2,921
    
    
    
    (2,761
    )
    
    
    
    
    
    
    160Warrants issued to CIGNA
    
    
    
    
    
    
    
    
    
    
    15,768
    
    
    
    
    
    
    
    
    
    
    
    15,768Warrant exercises
    
    
    737
    
    
    
    
    
    
    
    3,686
    
    
    
    
    
    
    
    
    
    
    
    3,686Accelerated vesting of stock options
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Stock options issued to consultant
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    71Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,819
    )
    
    
    (19,819
    )Balance, December 31, 2005
    
    
    27,810
    
    
    
    3
    
    
    
    68,949
    
    
    
    (2,761
    )
    
    
    (52,174
    )
    
    
    14,017Issuances of common stock
    
    
    52
    
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    
    
    
    
    395Repurchases of common stock
    
    
    (36
    )
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    (75
    )Restricted stock awards, net of
forfeitures
    
    
    610
    
    
    
    
    
    
    
    1,328
    
    
    
    
    
    
    
    
    
    
    
    1,328Warrant exercises
    
    
    400
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Reclassification of unearned
compensation
upon adoption of SFAS No. 123 (R)
    
    
    
    
    
    
    
    
    
    
    (2,761
    )
    
    
    2,761
    
    
    
    
    
    
    
    Employee stock options, net of
forfeitures
    
    
    
    
    
    
    
    
    
    
    963
    
    
    
    
    
    
    
    
    
    
    
    963Employee stock option exercises
    
    
    2
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,278
    )
    
    
    (11,278
    )Balance, December 31, 2006
    
    
    28,838
    
    
    
    3
    
    
    
    70,816
    
    
    
    
    
    
    
    (63,452
    )
    
    
    7,367Issuance of common stock for
acquisition
    
    
    474
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    479Repurchases of common stock
    
    
    (31
    )
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Restricted stock awards, net of
forfeitures
    
    
    38
    
    
    
    
    
    
    
    720
    
    
    
    
    
    
    
    
    
    
    
    720Accelerated vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    1,566
    
    
    
    
    
    
    
    
    
    
    
    1,566Employee stock options, net of
forfeitures
    
    
    
    
    
    
    
    
    
    
    673
    
    
    
    
    
    
    
    
    
    
    
    673Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,926
    )
    
    
    (5,926
    )Balance, December 31, 2007
    
    
    29,319
    
    
    $
    3
    
    
    $
    74,218
    
    
    $
    
    
    
    $
    (69,378
    )
    
    $
    4,843
 The accompanying notes are an integral part of these consolidated financial statements.
  35




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##### Table of Contents



NATIONSHEALTH, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash Flows from Operating Activities:Net loss
    
    $
    (5,926
    )
    
    $
    (11,278
    )
    
    $
    (19,819
    )Adjustments to reconcile net loss to net cash and cash equivalents used in
operating activities:Gain on sales of business lines
    
    
    (338
    )
    
    
    (5,000
    )
    
    
    (15,508
    )Provision for doubtful
accounts
    
    
    1,991
    
    
    
    3,625
    
    
    
    7,575Provision for sales allowances and returns
    
    
    1,459
    
    
    
    2,210
    
    
    
    2,086Reserve for (recovery of) costs related to billings in process
    
    
    761
    
    
    
    (280
    )
    
    
    1,663Depreciation and amortization
    
    
    7,151
    
    
    
    5,747
    
    
    
    1,709Amortization of note
discount
    
    
    1,549
    
    
    
    1,177
    
    
    
    787Amortization of deferred loan costs and other non-cash interest charges,
net
    
    
    569
    
    
    
    264
    
    
    
    571Stock-based compensation
    
    
    2,959
    
    
    
    2,291
    
    
    
    309Impairment of investment in joint venture
    
    
    
    
    
    
    1,292
    
    
    
    Changes in operating assets and liabilities:Accounts
receivable
    
    
    (6,164
    )
    
    
    (3,115
    )
    
    
    (7,323
    )Inventory
    
    
    (157
    )
    
    
    (351
    )
    
    
    32Prepaid expenses and other assets
    
    
    (1,122
    )
    
    
    737
    
    
    
    (2,220
    )Accounts payable and accrued expenses
    
    
    (3,341
    )
    
    
    (15,644
    )
    
    
    7,557Deferred revenue
    
    
    
    
    
    
    (1,335
    )
    
    
    1,335Net cash and cash equivalents used in operating activities:
    
    
    (609
    )
    
    
    (19,660
    )
    
    
    (21,246
    )Cash Flows from Investing Activities:Proceeds from sales of business lines
    
    
    
    
    
    
    7,600
    
    
    
    14,400Dissolution of (investment in) joint venture
    
    
    
    
    
    
    1,530
    
    
    
    (1,530
    )Maturity (purchases) of available for sale investments, net
    
    
    
    
    
    
    923
    
    
    
    (823
    )Investment released from trust
    
    
    
    
    
    
    
    
    
    
    2,000Acquisition of property and equipment
    
    
    (1,056
    )
    
    
    (1,669
    )
    
    
    (2,393
    )Acquisition of Diabetes Care and Education, Inc., net of cash acquired
    
    
    (2,494
    )
    
    
    
    
    
    
    Asset acquisitions
    
    
    (2,856
    )
    
    
    (280
    )
    
    
    Net cash and cash equivalents provided by (used in) investing activities:
    
    
    (6,406
    )
    
    
    8,104
    
    
    
    11,654Cash Flows from Financing Activities:Proceeds from issuance of convertible notes, related party
    
    
    
    
    
    
    
    
    
    
    15,000Proceeds from issuances of common stock
    
    
    
    
    
    
    
    
    
    
    3,500Proceeds from exercise of warrants
    
    
    
    
    
    
    2,000
    
    
    
    3,686Draws on term loan
    
    
    6,789
    
    
    
    
    
    
    
    Deposit of restricted cash under credit facility
    
    
    (1,500
    )
    
    
    
    
    
    
    Net draws on (repayments of) lines of credit
    
    
    
    
    
    
    100
    
    
    
    (119
    )Payment of debt issuance costs
    
    
    (100
    )
    
    
    (100
    )
    
    
    (907
    )Repurchases of common stock
    
    
    (36
    )
    
    
    (75
    )
    
    
    (389
    )Principal payments under capital lease obligations
    
    
    (437
    )
    
    
    (133
    )
    
    
    (112
    )Proceeds from exercise of employee stock options
    
    
    
    
    
    
    17
    
    
    
    Net cash and cash equivalents provided by financing activities
    
    
    4,716
    
    
    
    1,809
    
    
    
    20,659Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (2,299
    )
    
    
    (9,747
    )
    
    
    11,067Cash and Cash Equivalents, Beginning of Year
    
    
    4,224
    
    
    
    13,971
    
    
    
    2,904Cash and Cash Equivalents, End of Year
    
    $
    1,925
    
    
    $
    4,224
    
    
    $
    13,971Supplemental Disclosure of Cash Flow Information:Interest Paid
    
    $
    2,036
    
    
    $
    1,578
    
    
    $
    1,534Non-cash Financing Activities:Payment of bonuses with stock
    
    $
    
    
    
    $
    395
    
    
    $
    Issuance of promissory note for joint venture termination fee
    
    $
    
    
    
    $
    1,500
    
    
    $
    Assets acquired under capital leases
    
    $
    2,426
    
    
    $
    
    
    
    $
    262
 The accompanying notes are an integral part of these consolidated financial statements.
  36




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##### Table of Contents



NATIONSHEALTH, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2007
 1. BUSINESS AND BASIS OF PRESENTATION
 Business
  Principles of Consolidation
  Reclassifications
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Cash and Cash Equivalents
  Restricted Cash
  Accounts Receivable
   37




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##### Table of Contents



Inventory
  Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets
 Revenue Recognition
    38




---



##### Table of Contents



Patient Acquisition and Related Costs
   Patient Service and Fulfillment Expenses
  Loss Per Share
   39




---



##### Table of Contents



Use of Estimates
  Fair Value of Financial Instruments
    Concentrations of Credit Risk
    Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes
  40




---



##### Table of Contents



Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities
 3. LIQUIDITY AND PROFITABILITY CONSIDERATIONS
   Credit Facility
   Cost Reductions
   41




---



##### Table of Contents



Sales of Lines of Business
  Summary
  4. CIGNA AGREEMENT
      42




---



##### Table of Contents



5. BUSINESS COMBINATION
   AssetsCurrent assets
    
    $
    2,331Provider contracts and relationships
    
    
    930Customer list
    
    
    880Non-compete agreement
    
    
    90Goodwill
    
    
    1,075Total assets acquired
    
    
    5,306LiabilitiesCurrent liabilities
    
    
    (1,982
    )Long-term debt
    
    
    (24
    )Total liabilities assumed
    
    
    (2,006
    )Net assets acquired
    
    $
    3,300
    Year Ended December 31,2007
    
    
    2006(in thousands)Total revenue
    
    $
    84,169
    
    
    $
    94,849Net loss
    
    $
    (6,464
    )
    
    $
    (11,893
    )Loss per share, basic and diluted
    
    $
    (0.23
    )
    
    $
    (0.42
    )
  43




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##### Table of Contents



6. US BIO JOINT VENTURE
   7. SALES OF LINES OF BUSINESS
    44




---



##### Table of Contents



8. PROPERTY AND EQUIPMENT
  Estimated Useful
    
    December 31,Life (Years)
    
    2007
    
    
    2006(in thousands)Office and computer equipment
    
    3-5
    
    $
    3,533
    
    
    $
    2,138Furniture and fixtures
    
    5
    
    
    922
    
    
    
    806Leasehold improvements
    
    Up to 5
    
    
    917
    
    
    
    705Software
    
    3
    
    
    4,987
    
    
    
    3,32910,359
    
    
    
    6,978Less accumulated depreciation
and amortization
    
    
    
    
    5,693
    
    
    
    3,421$
    4,666
    
    
    $
    3,557
   9. INTANGIBLE ASSETS
    45




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##### Table of Contents



2007
    
    
    2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(in thousands)Customer contract
    
    $
    16,156
    
    
    $
    (8,401
    )
    
    $
    7,755
    
    
    $
    16,156
    
    
    $
    (4,524
    )
    
    $
    11,632Provider contracts and
relationships
    
    
    930
    
    
    
    (103
    )
    
    
    827
    
    
    
    
    
    
    
    
    
    
    
    Acquired customer lists
    
    
    3,935
    
    
    
    (845
    )
    
    
    3,090
    
    
    
    374
    
    
    
    (11
    )
    
    
    363Non-compete agreement
    
    
    90
    
    
    
    (10
    )
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    $
    21,111
    
    
    $
    (9,359
    )
    
    $
    11,752
    
    
    $
    16,530
    
    
    $
    (4,535
    )
    
    $
    11,995
  Year ending December 31,2008
    
    $
    5,2532009
    
    
    5,0642010
    
    
    1,0122011
    
    
    423
 10. ACCRUED EXPENSES
  December 31,2007
    
    
    2006Accrued compensation
    
    $
    1,425
    
    
    $
    2,310Accrued refunds
    
    
    1,216
    
    
    
    1,583Accrued fulfillment costs
    
    
    
    
    
    
    1,356Accrued purchase price adjustment
    
    
    
    
    
    
    1,000Other
    
    
    1,912
    
    
    
    2,820$
    4,553
    
    
    $
    9,069
 11. CREDIT FACILITY
   46




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##### Table of Contents



Balance Sheet Classification of Borrowings Outstanding
under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box
Arrangement.
    47




---



##### Table of Contents



12. CONVERTIBLE NOTES
     48




---



##### Table of Contents



13. STOCKHOLDERS EQUITY
 Preferred Stock
  Warrants
     49




---



##### Table of Contents



Common Stock Reserved
  14. EMPLOYEE STOCK COMPENSATION AND BENEFIT PLANS
    Accounting for Stock Issued to Employees Share-Based Payment
  50




---



##### Table of Contents



Accounting for Stock-Based Compensation, Accounting for Stock-Based
Compensation  Transition and Disclosure,
 Net loss, as reported
    
    $
    (19,819
    )Add: Stock-based employee compensation expense
included in net loss
    
    
    78Deduct: Total stock-based compensation expense
determined under fair value based method for all awards
    
    
    (1,132
    )Pro forma net loss
    
    $
    (20,873
    )Loss per share  basic and dilutedAs reported
    
    $
    (0.75
    )Pro forma
    
    $
    (0.79
    )
   2007 Grants
    
    2006 Grants
    
    2005 GrantsWeighted average expected volatility
    
    76%
    
    58%
    
    49%Range of expected volatility
    
    70% - 80%
    
    50% - 70%
    
    45% - 50%Range of risk free interest rate
    
    3.71% - 4.91%
    
    4.35% - 5.13%
    
    3.88% - 4.44%Expected term
    
    5.0 years
    
    5.0 years
    
    5.0 yearsExpected annual forfeiture rate
    
    20%
    
    20%
    
    0%Expected dividend rate
    
    0%
    
    0%
    
    0%
   51




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##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualShares
    
    
    Price
    
    
    Term (years)Outstanding at beginning of year
    
    
    1,370,507
    
    
    $
    5.67Granted
    
    
    310,500
    
    
    
    1.12Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (165,002
    )
    
    
    3.61Expired
    
    
    (75,386
    )
    
    
    6.94Outstanding at end of year
    
    
    1,440,619
    
    
    $
    4.86
    
    
    
    3.86Vested and exercisable at end of year
    
    
    766,263
    
    
    $
    6.45
    
    
    
    3.15Vested and expected to vest at end of year
    
    
    1,229,082
    
    
    $
    5.28
    
    
    
    3.67
   WeightedAverageGrant DateShares
    
    
    Fair ValueNonvested restricted stock grants at beginning of year
    
    
    794,362
    
    
    $
    3.86Granted
    
    
    90,000
    
    
    
    1.52Vested
    
    
    (521,454
    )
    
    
    4.35Forfeited
    
    
    (45,000
    )
    
    
    2.15Nonvested restricted stock grants at end of year
    
    
    317,908
    
    
    
    2.65
   52




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##### Table of Contents



Employee Savings Plan
  15. INCOME TAXES
   December 31,2007
    
    
    2006Deferred tax assets:Net operating loss carry forwards
    
    $
    14,170
    
    
    $
    10,910Stock-based compensation
    
    
    2,464
    
    
    
    3,597Allowances for doubtful accounts, claims denials and returns
    
    
    3,074
    
    
    
    5,098Accrued payroll
    
    
    374
    
    
    
    539Other
    
    
    1,125
    
    
    
    1,337Total deferred tax assets
    
    
    21,207
    
    
    
    21,481Less valuation allowance
    
    
    (20,218
    )
    
    
    (20,875
    )989
    
    
    
    606Deferred tax liabilities:Finite-lived intangible assets
    
    
    (634
    )
    
    
    Software development costs
    
    
    (285
    )
    
    
    (501
    )Other
    
    
    (70
    )
    
    
    (105
    )Total deferred tax liabilities
    
    
    (989
    )
    
    
    (606
    )Net deferred taxes
    
    $
    
    
    
    $
    
   53




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Tax at U.S. statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal benefit
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %Non-deductible items
    
    
    (4.2
    %)
    
    
    (1.2
    %)
    
    
    (0.9
    %)Write-off of deferred tax asset to
non-deductible items
    
    
    (31.3
    %)
    
    
    (13.3
    %)
    
    
    
    %Change in valuation allowance
    
    
    (2.0
    %)
    
    
    (23.0
    %)
    
    
    (36.6
    %)Income tax expense
    
    
    
    %
    
    
    
    %
    
    
    
    %
  16. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
 Leases and Debt Maturities
     54




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##### Table of Contents



Capital
    
    
    Operating
    
    
    DebtYear Ending December 31,
    
    Leases
    
    
    Leases
    
    
    Maturities2008
    
    $
    962
    
    
    $
    1,722
    
    
    $
    4,3092009
    
    
    958
    
    
    
    1,753
    
    
    
    2,8092010
    
    
    580
    
    
    
    1,273
    
    
    
    5,8712011
    
    
    54
    
    
    
    471
    
    
    
    2012
    
    
    45
    
    
    
    231
    
    
    
    10,300Thereafter
    
    
    
    
    
    
    250
    
    
    
    2,599
    
    
    $
    5,700
    
    
    $
    23,289Less: amounts representing interest
    
    
    524Net present value of capital
lease obligations
    
    $
    2,075
 Letter of Credit
  Employment Agreements
  
    
    An amount equal to the then current annual base salary for twenty-four months;
    
    In the event of the executives disability, medical insurance during the period the
executives spouse or the executive is eligible to receive benefits under COBRA;
    
    Immediate vesting of all stock options or restricted stock previously granted to the
executive;
    
    Require the Company to purchase from the executive up to $3,000,000 worth of shares of
the Companys common stock. In lieu of a cash payment, the Company may arrange for the sale
of the shares to a third party or register the resale of the shares, in which case the
executive shall receive at least $3,000,000. If the Company decides to purchase the shares
from the executive and one or both of the other executives exercises their rights to sell
at the same time, then the Company may pay the funds to the executives over two or three
years, as appropriate, in equal amounts pro-rata among the executives.
  55




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##### Table of Contents



Medicare Audit
  17. SEGMENT INFORMATION
   56




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Revenue:Medical Products (1)
    
    $
    46,070
    
    
    $
    48,771
    
    
    $
    77,307Insurance Services
    
    
    31,450
    
    
    
    38,445
    
    
    
    10,249Consolidated revenue
    
    $
    77,520
    
    
    $
    87,216
    
    
    $
    87,556Segment profit (loss):Medical Products (2)
    
    $
    3,290
    
    
    $
    9,520
    
    
    $
    5,066Insurance Services
    
    
    11,871
    
    
    
    (1,304
    )
    
    
    (14,086
    )Unallocated amounts:Gain on sales of business lines
    
    
    338
    
    
    
    5,000
    
    
    
    15,508Impairment of investment in
joint venture
    
    
    
    
    
    
    (1,292
    )
    
    
    Other corporate expenses
    
    
    (17,166
    )
    
    
    (20,225
    )
    
    
    (23,360
    )Consolidated loss from operations
    
    $
    (1,667
    )
    
    $
    (8,301
    )
    
    $
    (16,872
    )
 (1)
    
    Revenue for the Medical Products segment includes net revenue from the Prescription
Drug Card Business, which was sold on September 5, 2006 (see Note 7).(2)
    
    Segment profit for Medical Products for the year ended December 31, 2006 includes a
gain of approximately $977,000 related to the settlement of a vendor obligation.
    57




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##### Table of Contents



2007
    
    
    2006Medical Products
    
    $
    17,892
    
    
    $
    7,790Insurance Services
    
    
    12,531
    
    
    
    15,074Unallocated
    
    
    7,057
    
    
    
    7,524Consolidated assets
    
    $
    37,480
    
    
    $
    30,388
 18. MAJOR SUPPLIERS
  Percentage
    
    
    Amountof
    
    
    ofPurchases
    
    
    PurchasesYear Ended December 31, 2007Supplier C
    
    
    24
    %
    
    
    5,420Supplier B
    
    
    22
    %
    
    
    4,996Supplier G
    
    
    12
    %
    
    
    2,798Supplier H
    
    
    11
    %
    
    
    2,45269
    %
    
    $
    15,666Year Ended December 31, 2006Supplier A
    
    
    25
    %
    
    $
    3,964Supplier B
    
    
    24
    %
    
    
    3,931Supplier D
    
    
    20
    %
    
    
    3,137Supplier E
    
    
    12
    %
    
    
    2,000Supplier F
    
    
    10
    %
    
    
    1,67991
    %
    
    $
    14,711Year Ended December 31, 2005Supplier A
    
    
    32
    %
    
    $
    8,815Supplier B
    
    
    21
    %
    
    
    5,646Supplier C
    
    
    10
    %
    
    
    2,83063
    %
    
    $
    17,291
  58




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19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(in thousands, except per share data)2007Revenue
    
    $
    18,752
    
    
    $
    17,025
    
    
    $
    18,175
    
    
    $
    23,568Gross profit
    
    
    10,619
    
    
    
    10,640
    
    
    
    10,470
    
    
    
    12,704Net loss
    
    
    (1,188
    )
    
    
    (524
    )
    
    
    (3,771
    ) (1)
    
    
    (443
    )Loss per
share  basic and diluted *
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.13
    )
    
    $
    (0.02
    )2006Revenue
    
    $
    25,015
    
    
    $
    19,616
    
    
    $
    19,796
    
    
    $
    22,789Gross profit
    
    
    649
    
    
    
    10,536
    
    
    
    13,133
    
    
    
    12,137Net (loss) income
    
    
    (13,530
    )
    
    
    (4,997
    ) (2)
    
    
    6,020
    (3)
    
    
    1,229
    (4)(Loss)
earnings per share  basic and diluted *
    
    $
    (0.49
    )
    
    $
    (0.18
    )
    
    $
    0.22
    
    
    $
    0.04
 *
    
    For 2006, the sum of the quarterly earnings (loss) per share amounts differs from the amounts
reflected in the accompanying consolidated statement of operations due to rounding.(1)
    
    Results for the quarter ended September 30, 2007 reflect approximately $1,566,000 of
stock-based compensation expense associated with the acceleration of vesting of certain
restricted stock awards and a gain of approximately $338,000 related to the finalization of
the purchase price related to the sale of the Companys Discount Prescription Drug Card
Business (see Note 7).(2)
    
    Results for the quarter ended June 30, 2006 reflect an impairment charge of approximately
$733,000 to write down the investment in the Companys joint venture to its estimated net
realizable value as of June 30, 2006 (see Note 6) and a gain of approximately $1,688,000 from
a vendor settlement related to amounts that had been accrued in a prior quarter.(3)
    
    Results for the quarter ended September 30, 2006 reflect a gain of approximately $5,000,000
related to the sale of the Companys Discount Prescription Drug Card Business (see Note 7), a
gain of approximately $977,000 from the termination of a distribution agreement with a vendor,
and an additional impairment charge of approximately $559,000 to write down the investment in
the Companys joint venture to its estimated net realizable value as of September 30, 2006
(see Note 6).(4)
    
    Results for the quarter ended December 31, 2006 reflect approximately $475,000 of expense
related to executive severance and the reversal of approximately $800,000 related to year-end
bonus amounts that had been accrued in prior quarters. 
  59




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A(T). Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Managements Report on Internal Control Over Financial Reporting
      (c) Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
   60




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  Code of Ethics
 www.nationshealth.com
 
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Securities Authorized for Issuance Under Equity Compensation Plans
  Weighted-average
    
    
    Number of securities
remaining available forNumber of securities to
    
    
    exercise price of
    
    
    future issuance underbe issued upon exercise
    
    
    outstanding
    
    
    equity compensation plansof outstanding options,
    
    
    options, warrants
    
    
    (excluding securitieswarrants and rights
    
    
    and rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    1,440,619
    
    
    $
    4.86
    
    
    
    1,473,438Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,440,619
    
    
    $
    4.86
    
    
    
    1,473,438
  61




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
   62




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##### Table of Contents



PART IV
 
 Item 15. Exhibits.
        63




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##### Table of Contents



SIGNATURES
  NATIONSHEALTH, INC.By:
    /s/ Glenn M. ParkerGlenn M. Parker, M.D.Chief Executive Officer   Name
    
    Title
    
    Date/s/ Glenn M. Parker

Glenn M. Parker
    
    Chief Executive Officer and
Director (Principal Executive
Officer)
    
    March 28, 2008/s/ Timothy Fairbanks

Timothy Fairbanks
    
    Chief Financial Officer and
Director (Principal Financial
Officer)
    
    March 28, 2008/s/ Bryan Happ
    
    Chief Accounting Officer
    
    March 28, 2008Bryan Happ
    
    (Principal Accounting Officer)/s/ Arthur R. Spector
    
    Chairman of the Board of Directors
    
    March 28, 2008Arthur R. Spector/s/ Lewis P. Stone
    
    Director, President and Chief Information Officer
    
    March 28, 2008Lewis P. Stone/s/ Elliot F. Hahn
    
    Director
    
    March 28, 2008Elliot F. Hahn, Ph.D./s/Gary D. Small
    
    Director
    
    March 28, 2008Gary D. Small/s/ Raymond N. Steinman
    
    Director
    
    March 28, 2008Raymond N. Steinman/s/ Michael D. Tabris
    
    Director
    
    March 28, 2008Michael D. Tabris/s/ Mark H. Rachesky
    
    Director
    
    March 28, 2008Mark H. Rachesky, M.D./s/ Don K. Rice
    
    Director
    
    March 28, 2008Don K. Rice/s/ Richard R. Howard
    
    Director
    
    March 28, 2008Richard R. Howard/s/ George F. Raymond
    
    Director
    
    March 28, 2008George F. Raymond
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NATIONSHEALTH, INC.
EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    
    
    Amended and Restated Agreement and Plan of Merger dated as of
August 10, 2004 among Millstream Acquisition Corporation, N
Merger L.L.C. and NationsHealth Holdings, L.L.C. Filed as
Annex A to the Companys Definitive Proxy Statement (File No.
000-50348) filed August 13, 2004 and incorporated herein by
reference.2.2
    
    
    
    Amended and Restated Asset Purchase Agreement, dated September
3, 2005, by and between Lincare Inc., Med 4 Home Inc., United
States Pharmaceutical Group, LLC and NationsHealth, Inc.
Certain schedules referenced in the Amended and Restated Asset
Purchase Agreement have been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of any omitted schedule
will be furnished supplementally to the Securities and
Exchange Commission upon request. Filed as Exhibit 2.1 to the
Companys Form 10-Q (File No. 000-50348) filed November 14,
2005 and incorporated herein by reference.2.3
    
    
    
    Stock Purchase Agreement, dated as of September 4, 2007, by
and between United States Pharmaceutical Group, L.L.C. and
Susan Hill. Filed as Exhibit 99.1 to the Companys Form 8-K
(File No. 000-50348) filed September 10, 2007 and incorporated
herein by reference.3.1
    
    
    
    Second Restated Certificate of Incorporation of Millstream
Acquisition Corporation. Filed as Exhibit 3.3 to the
Companys Form 8-A12G/A (File No. 000-50348) filed September
8, 2004 and incorporated herein by reference.3.2
    
    
    
    By-Laws of NationsHealth, Inc., as amended and restated on
August 31, 2004. Filed as Exhibit 3.4 to the Companys Form
8-A12G/A (File No. 000-50348) filed September 8, 2004 and
incorporated herein by reference.4.1
    
    
    
    Specimen Common Stock Certificate. Filed as Exhibit 4.1 to
the Companys Registration Statement on Form S-1 (File No.
333-105388), as amended, originally filed on May 19, 2003 and
incorporated herein by reference.4.2
    
    
    
    Specimen Warrant Certificate. Filed as Exhibit 4.2 to the
Companys Registration Statement on Form S-1 (File No.
333-105388), as amended, originally filed on May 19, 2003 and
incorporated herein by reference.4.3
    
    
    
    Form of Unit Purchase Option granted to Representative. Filed
as Exhibit 4.3 to the Companys Form S-1 (File No.
333-105388), as amended, originally filed on May 19, 2003 and
incorporated herein by reference.4.4
    
    
    
    Form of Warrant Agreement between Continental Stock Transfer &
Trust Company and the Company. Filed as Exhibit 4.4 to the
Companys Form S-1 (File No. 333-105388), as amended,
originally filed on May 19, 2003 and incorporated herein by
reference.4.5
    
    
    
    Specimen Unit Certificate. Filed as Exhibit 4.5 to the
Companys Form S-1 (File No. 333-105388), as amended,
originally filed on May 19, 2003 and incorporated herein by
reference.4.6
    
    
    
    7 3/4% Secured Convertible Note issued by NationsHealth, Inc. to
MHR Capital Partners (100) LP dated February 28, 2005. Filed
as Exhibit 4.1 to the Companys Form 8-K (File No. 000-50348)
filed March 4, 2005 and incorporated herein by reference.4.7
    
    
    
    7 3/4% Secured Convertible Note issued by NationsHealth, Inc. to
MHR Capital Partners LP dated February 28, 2005. Filed as
Exhibit 4.2 to the Companys Form 8-K (File No. 000-50348)
filed March 4, 2005 and incorporated herein by reference.
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Exhibit No.
    
    Description4.8
    
    
    
    7 3/4% Secured Convertible Note issued by NationsHealth, Inc. to
OTQ LLC dated February 28, 2005. Filed as Exhibit 4.3 to the
Companys Form 8-K (File No. 000-50348) filed March 4, 2005
and incorporated herein by reference.4.9
    
    
    
    Warrant Agreement, dated as of May 4, 2005, by and between
NationsHealth, Inc. and Connecticut General Life Insurance
Company. Filed as Exhibit 4.1 to the Companys Form 8-K (File
No. 000-50348) filed May 11, 2005 and incorporated herein by
reference.4.10
    
    
    
    Warrant Clarification Agreement, dated March 28, 2007, to the
Warrant Agreement, dated as of August 25, 2003, by and between
NationsHealth, Inc. and Continental Stock Transfer & Trust
Company. Filed as Exhibit 4.10 to the Companys Form 10-K
(File No. 000-50348) filed March 30, 2007 and incorporated
herein by reference.4.11
    
    
    
    Unit Purchase Option Clarification Agreement, dated March 28,
2007, to the Unit Purchase Option, dated as of August 25,
2003, by and between NationsHealth, Inc. and Earlybird
Capital, Inc. Filed as Exhibit 4.10 to the Companys Form 10-K
(File No. 000-50348) filed March 30, 2007 and incorporated
herein by reference.10.1*
    
    
    
    Employment Agreement made as of March 9, 2004, by and between
Millstream Acquisition Corporation and Glenn M. Parker, M.D.
Filed as Exhibit 5.02(d) to the Companys Form 8-K (File No.
000-50348) filed September 7, 2004 and incorporated herein by
reference.10.2*
    
    
    
    Employment Agreement made as of March 9, 2004, by and between
Millstream Acquisition Corporation and Robert Gregg. Filed as
Exhibit 5.02(e) to the Companys Form 8-K (File No. 000-50348)
filed September 7, 2004 and incorporated herein by reference.10.3*
    
    
    
    Employment Agreement made as of March 9, 2004, by and between
Millstream Acquisition Corporation and Lewis Stone. Filed as
Exhibit 5.02(f) to the Companys Form 8-K (File No. 000-50348)
filed September 7, 2004 and incorporated herein by reference.10.4*
    
    
    
    Employment Agreement made as of April 15, 2005, by and between
NationsHealth, Inc. and Gregory J. Couto. Filed as Exhibit
99.1 to the Companys Form 8-K (File No. 000-50348) filed
April 21, 2005 and incorporated herein by reference.10.5*
    
    
    
    Employment Agreement made as of April 15, 2005, by and between
NationsHealth, Inc. and Tracy M. Schmidt, Esq. Filed as
Exhibit 99.2 to the Companys Form 8-K (File No. 000-50348)
filed April 21, 2005 and incorporated herein by reference.10.6*
    
    
    
    Employment Agreement made as of April 15, 2005, by and between
NationsHealth, Inc. and Tim Fairbanks. Filed as Exhibit 99.3
to the Companys Form 8-K (File No. 000-50348) filed April 21,
2005 and incorporated herein by reference.10.7*
    
    
    
    Employment Agreement made as of February 3, 2006, by and
between NationsHealth, Inc. and Robert E. Tremain. Filed as
Exhibit 10.1 to the Companys Form 8-K (File No. 000-50348)
filed February 9, 2006 and incorporated herein by reference.10.8
    
    
    
    Indemnification and Escrow Agreement, dated as of August 30,
2004, among Millstream Acquisition Corporation, Continental
Stock Transfer & Trust Company, as Escrow, RGGPLS Holding,
Inc., and Arthur Spector. Filed as Exhibit 5.02(g) to the
Companys Form 8-K (File No. 000-50348) filed September 7,
2004 and incorporated herein by reference.10.9
    
    
    
    Lease Agreement with Liberty Property Limited Partnership
dated December 23, 2002, for the property located at 13650
N.W. 8th Street, Sunrise, Florida. Filed as Exhibit
10.5 to the Companys Form 10-KSB (File No. 000-50348) filed
March 25, 2005 and incorporated herein by reference.10.10
    
    
    
    Assignment of Lease Agreement with Liberty Property Limited
Partnership for the property located at 13650 N.W.
8th Street, Sunrise, Florida, dated February 19,
2004. Filed as Exhibit 10.6 to the Companys Form 10-KSB (File
No. 000-50348) filed March 25, 2005 and incorporated herein by
reference.
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Exhibit No.
    
    Description10.11
    
    
    
    Lease Agreement with Liberty Property Limited Partnership
dated February 9, 2004, for the property located at 13630 N.W.
8th Street, Sunrise, Florida. Filed as Exhibit 10.7
to the Companys Form 10-KSB (File No. 000-50348) filed March
25, 2005 and incorporated herein by reference.10.12
    
    
    
    Assignment of Lease Agreement with Liberty Property Limited
Partnership for the property located at 13630 N.W.
8th Street, Sunrise, Florida, dated February 19,
2004. Filed as Exhibit 10.8 to the Companys Form 10-KSB (File
No. 000-50348) filed March 25, 2005 and incorporated herein by
reference.10.13
    
    
    
    Sublease Agreement with D & K Healthcare Resources Inc. dated
May 19, 2004, for the premises located at 2955 West Corporate
Lakes Boulevard, Weston, Florida. Filed as Exhibit 10.9 to the
Companys Form 10-KSB (File No. 000-50348) filed March 25,
2005 and incorporated herein by reference.10.14
    
    
    
    First Amendment of Sublease Agreement with D & K Healthcare
Resources Inc. for the premises located at 2955 West Corporate
Lakes Boulevard, Weston, Florida, dated May 1, 2006. Filed as
Exhibit 10.3 to the Companys Form 10-Q (File No. 000-50348)
filed August 14, 2006 and incorporated herein by reference.10.15
    
    
    
    Sublease Agreement with Asset Management Outsourcing, Inc.
dated August 3, 2005, for the property located at 7067C West
Broward Boulevard Plantation, Florida 33317. Filed as Exhibit
10.8 to the Companys Form 10-Q (File No. 000-50348) filed
November 14, 2005 and incorporated herein by reference.10.16
    
    
    
    Industrial Lease Agreement between Industrial Property Fund
III, L.P. as Landlord, and NationsHealth, Inc. and United
States Pharmaceutical Group, L.L.C. collectively, as Tenant,
commencing on September 4, 2006. Filed as Exhibit 10.4 to the
Companys Form 10-Q (File No. 000-50348) filed November 13,
2006 and incorporated herein by reference.10.17
    
    
    
    Property Lease between Orange Blossom Investments, LLC, and
NationsHealth, Inc., dated October 13, 2006. Filed as Exhibit
10.10 to the Companys Form 10-Q (File No. 000-50348) filed
November 13, 2006 and incorporated herein by reference.10.18
    
    
    
    Lease Agreement between NationsHealth, Inc., as Lessee, and
Farnam Street Financial, Inc., as Lessor, dated February 5,
2007. Filed as Exhibit 99.1 to the Companys Form 8-K (File
No. 000-50348) filed February 9, 2007 and incorporated herein
by reference.10.19*
    
    
    
    NationsHealth, Inc. 2005 Long-Term Incentive Plan effective as
of April 25, 2005. Filed as Exhibit 10.1 to the Companys
Form 8-K (File No. 000-50348) filed June 17, 2005 and
incorporated herein by reference.10.20*
    
    
    
    RGGPLS Holding, Inc. Stock Bonus Plan & Trust effective
December 30, 2004. Filed as Exhibit 10.1 to the Companys
Form S-8 (File No. 333-126197) filed June 28, 2005 and
incorporated herein by reference.10.21*
    
    

   
    Amendment No. 1 to RGGPLS Holding, Inc. Stock Bonus Plan &
Trust effective February 28, 2005. Filed as Exhibit 10.2 to
the Companys Form S-8 (File No. 333-126197) filed June 28,
2005 and incorporated herein by reference.10.22*
    
    
    
    NationsHealth, Inc. 2004 Incentive Stock Plan, dated August
30, 2004. Filed as Annex I to the Companys Schedule 14A
(File No. 000-50348) filed August 13, 2004 and incorporated
herein by reference.10.23
    
    
    
    Second Amended and Restated Revolving Credit and Security
Agreement among NationsHealth, Inc., United States
Pharmaceutical Group, L.L.C., NationsHealth Holdings, L.L.C.
and CapitalSource Finance LLC dated as of March 21, 2006.
Filed as Exhibit 10.1 to the Companys Form 8-K (File No.
000-50348) filed March 27, 2006 and incorporated herein by
reference.
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Exhibit No.
    
    Description10.24
    
    
    First Amendment to Second Amended and Restated Revolving
Credit and Security Agreement dated August 11, 2006, by and
between CapitalSource Finance LLC, United States
Pharmaceutical Group, L.L.C., NationsHealth Holdings, L.L.C.
and NationsHealth, Inc. Filed as Exhibit 10.7 to the
Companys Form 10-Q (File No. 000-50348) filed November 13,
2006 and incorporated herein by reference.10.25
    
    
    Waiver, Consent and Second Amendment to Second Amended and
Restated Revolving Credit and Security Agreement dated
September 27, 2006, by and between CapitalSource Finance LLC,
United States Pharmaceutical Group, L.L.C., NationsHealth
Holdings, L.L.C. and NationsHealth, Inc. Filed as Exhibit
10.8 to the Companys Form 10-Q (File No. 000-50348) filed
November 13, 2006 and incorporated herein by reference.10.26
    
    
    Third Amendment to Second Amended and Restated Revolving
Credit and Security Agreement dated October 2, 2006, by and
between CapitalSource Finance LLC, United States
Pharmaceutical Group, L.L.C., NationsHealth Holdings, L.L.C.
and NationsHealth, Inc. Filed as Exhibit 10.9 to the
Companys Form 10-Q (File No. 000-50348) filed November 13,
2006 and incorporated herein by reference.10.27**
    
    
    Amended and Restated Preferred Vendor Agreement by and among
Connecticut General Life Insurance Company, United States
Pharmaceutical Group, L.L.C. and NationsHealth, Inc., dated as
of May 26, 2006. Filed as Exhibit 10.2 to the Companys Form
10-Q (File No. 000-50348) filed August 14, 2006 and
incorporated herein by reference.10.28**
    
    
    Limited Liability Company Agreement of NationsHealth Specialty
Rx, LLC, dated August 3, 2005, by and between US Bioservices
Corporation and NationsHealth, Inc. Filed as Exhibit 10.1 to
the Companys Form 10-Q (File No. 000-50348) filed November
14, 2005 and incorporated herein by reference.10.29
    
    
    Agreement to Dissolve Limited Liability Company and Promissory
Note, dated as of September 27, 2006, between NationsHealth,
Inc. and US Bioservices Corporation. Filed as Exhibit 10.1 to
the Companys Form 8-K (File No. 000-50348) filed October 3,
2006 and incorporated herein by reference.10.30*
    
    
    Amendment to the Employment Agreement Between NationsHealth,
Inc. and Robert E. Tremain dated as of March 8, 2006. Filed
as Exhibit 10.25 to the Companys Form 10-K (File No.
000-50348) filed March 31, 2006 and incorporated herein by
reference.10.31*
    
    
    Amendment to the Employment Agreement Between NationsHealth,
Inc. and Robert E. Tremain dated as of June 14, 2006. Filed
as Exhibit 10.1 to the Companys Form 8-K (File No. 000-50348)
filed June 14, 2006 and incorporated herein by reference.10.32*
    
    
    Amendment to the Employment Agreement Between NationsHealth,
Inc. and Robert E. Tremain dated as of October 5, 2006. Filed
as Exhibit 10.5 to the Companys Form 10-Q (File No.
000-50348) filed November 13, 2006 and incorporated herein by
reference.10.33*
    
    
    Separation Agreement and General Release dated December 16,
2005, between Robert Gregg and NationsHealth, Inc. Filed as
Exhibit 10.1 to the Companys Form 8-K (File No. 000-50348)
filed December 22, 2005 and incorporated herein by reference.10.34*
    
    
    Separation Agreement and Waiver and General Release of Claims
dated June 30, 2006, between NationsHealth, Inc. and Tracy M.
Schmidt, Esq. Filed as Exhibit 10.1 to the Companys Form
10-Q (File No. 000-50348) filed August 14, 2006 and
incorporated herein by reference.10.35*
    
    
    Separation Agreement and General Release dated October 5,
2006, between NationsHealth, Inc. and Gregory Couto. Filed as
Exhibit 10.1 to the Companys Form 8-K (File No. 000-50348)
filed October 16, 2006 and incorporated herein by reference.
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Exhibit No.
    
    Description10.36*
    
    
    Separation Agreement and General Release dated November 20,
2006, between NationsHealth, Inc. and Robert E. Tremain.
Filed as Exhibit 99.1 to the Companys Form 8-K (File No.
000-50348) filed November 28, 2006 and incorporated herein by
reference.10.37*
    
    
    Employment Agreement, dated December 26, 2006, between
NationsHealth, Inc. and Joshua Weingard. +10.38*
    
    
    Employment Agreement, dated April 27, 2007, between
NationsHealth, Inc. and Rodney Carson. Filed as Exhibit 10.1
to the Companys Form 8-K (File No. 000-50348) filed May 3,
2007 and incorporated herein by reference.10. 39
    
    
    Stockholders Agreement, dated as of March 9, 2004, as amended
on June 2, 2004, among Millstream Acquisition Corporation,
RGGPLS Holding, Inc. and GRS Holdings, L.L.C. Filed as Annex
E to the Companys Schedule 14A (File No. 000-50348) filed
August 13, 2004 and incorporated herein by reference.10.40
    
    
    Registration Rights Agreement, dated as of March 9, 2004, as
amended on June 2, 2004, by and among Millstream Acquisition
Corporation, RGGPLS Holding, Inc., GRH Holdings, L.L.C., and
Becton, Dickinson and Company. Filed as Annex F to the
Companys Schedule 14A (File No. 000-50348) filed August 13,
2004 and incorporated herein by reference.10.41
    
    
    Amended and Restated Governance Agreement, dated as of August
10, 2004, among Millstream Acquisition Corporation, RGGPLS
Holding, Inc., and Arthur Spector. Filed as Exhibit 5.02(a)
to the Companys Form 8-K (File No. 000-50348) filed September
7, 2004 and incorporated herein by reference.10.42*
    
    
    Form of Stock Option Agreement under the NationsHealth, Inc.
2004 Stock Option Plan. Filed as Exhibit 10.12 to the
Companys Form 10-QSB (File No. 000-50348) filed November 10,
2004 and incorporated herein by reference.10.43
    
    
    Securities Purchase Agreement, dated as of May 4, 2005, by and
between NationsHealth, Inc. and Connecticut General Life
Insurance Company. Filed as Exhibit 4.2 to the Companys Form
8-K (File No. 000-50348) filed May 11, 2005 and incorporated
herein by reference.10.44
    
    
    Stock Purchase Agreement, dated August 18, 2005, by and
between NationsHealth, Inc. and US Bioservices Corporation.
Filed as Exhibit 10.1 to the Companys Form 8-K (File No.
000-50348) filed August 24, 2005 and incorporated herein by
reference.10.45
    
    
    Registration Rights Agreement, dated August 18, 2005, by and
between NationsHealth, Inc. and US Bioservices Corporation.
Filed as Exhibit 10.2 to the Companys Form 8-K (File No.
000-50348) filed August 24, 2005 and incorporated herein by
reference.10.46
    
    
    Registration Rights Agreement, dated as of November 4, 2005,
by and among NationsHealth, Inc. and the Holders of
Registrable Securities. Filed as Exhibit 10.2 to the
Companys Form 8-K (File No. 000-50348) filed November 10,
2005 and incorporated herein by reference.10.47*
    
    
    Form of Stock Option Agreement under the NationsHealth, Inc.
2005 Long-Term Incentive Plan. Filed as Exhibit 10.4 to the
Companys Form 10-Q (File No. 000-50348) filed November 14,
2005 and incorporated herein by reference.10.48*
    
    
    Form of Restricted Stock Unit Agreement under the
NationsHealth, Inc. 2005 Long-Term Incentive Plan. Filed as
Exhibit 10.5 to the Companys Form 10-Q (File No. 000-50348)
filed November 14, 2005 and incorporated herein by reference.10.49*
    
    
    Form of Restricted Stock Agreement under the NationsHealth,
Inc. 2005 Long-Term Incentive Plan. Filed as Exhibit 10.6 to
the Companys Form 10-Q (File No. 000-50348) filed November
14, 2005 and incorporated herein by reference.
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Exhibit No.
    
    Description10.50*
    
    
    Form of Stock Appreciation Right Agreement under the
NationsHealth, Inc. 2005 Long-Term Incentive Plan. Filed as
Exhibit 10.7 to the Companys Form 10-Q (File No. 000-50348)
filed November 14, 2005 and incorporated herein by reference.10.51
    
    
    Investment Unit Purchase Agreement, dated February 28, 2005,
by and among NationsHealth, Inc., NationsHealth Holdings,
L.L.C., United States Pharmaceutical Group, L.L.C., MHR
Capital Partners LP, OTQ LLC and MHR Capital Partners
(100) LP. Filed as Exhibit 10.1 to the Companys Form 8-K
(File No. 000-50348) filed March 4, 2005 and incorporated
herein by reference.10.52
    
    
    Lease Agreement between NationsHealth, Inc., as lessee and
Farnam Street Financial, Inc., as lessor, dated February 5,
2007. Filed as Exhibit 99.1 to the Companys Form 8-K (File
No. 000-50348) filed February 9, 2007 and incorporated herein
by reference.10.53
    
    
    Third Amended and Restated Revolving Credit, Term Loan and
Security Agreement dated among United States Pharmaceutical
Group, L.L.C., NationsHealth Holdings, L.L.C., NationsHealth,
Inc., and CapitalSource Finance LLC, dated April 11, 2007.
Filed as Exhibit 10.1 to the Companys Form 8-K (File No.
000-50348) filed April 12, 2007 and incorporated herein by
reference.10.54
    
    
    Acknowledgement by Robert Gregg to NationsHealth, Inc. dated
July 16, 2007. Filed as Exhibit 10.1 to the Companys Form
10-Q (File No. 000-50348) filed August 14, 2007 and
incorporated herein by reference.10.55
    
    
    Form of Stock Option Agreement under the NationsHealth, Inc.
2004 Stock Option Plan, effective August 15, 2007. Filed as
Exhibit 10.1 to the Companys Form 10-Q (File No. 000-50348)
filed November 14, 2007 and incorporated herein by reference.10.56
    
    
    Lease Agreement between United States Pharmaceutical Group,
L.L.C., as lessee and Oakland 2600/2700, LLC, as lessor, dated
December 4, 2007. +10.57
    
    
    Senior Subordination Agreement, dated as of February 28, 2005,
by MHR Capital Partners LP, MHR Capital Partners (100) LP and
OTQ LLC, MHR Capital Partners LP in its capacity as collateral
agent, in favor of CapitalSource Finance LLC, and for certain
purposes RGGPLS Holding, Inc. Filed as Exhibit 10.2 to the
Companys Form 8-K (File No. 000-50348) filed March 4, 2005
and incorporated herein by reference.10.58
    
    
    Registration Rights Agreement, dated February 28, 2005,
between NationsHealth, Inc. and the parties specified on the
signature pages thereof. Filed as Exhibit 10.4 to the
Companys Form 8-K (File No. 000-50348) filed March 4, 2005
and incorporated herein by reference.10.59
    
    
    Stockholders Agreement, dated February 28, 2005, by and among
NationsHealth, Inc., RGGPLS Holding, Inc., GRH Holdings,
L.L.C, MHR Capital Partners LP, OTQ LLC and MHR Capital
Partners (100) LP. Filed as Exhibit 10.5 to the Companys Form
8-K (File No. 000-50348) filed March 4, 2005 and incorporated
herein by reference.10.60
    
    
    Consent and Waiver, dated as of February 28, 2005, among
NationsHealth, Inc. and the stockholders of NationsHealth,
Inc. named on the signature pages thereto. Filed as Exhibit
10.6 to the Companys Form 8-K (File No. 000-50348) filed
March 4, 2005 and incorporated herein by reference.10.61
    
    
    Asset Purchase Agreement, dated as of September 5, 2006, by
and among NationsHealth, Inc., United States Pharmaceutical
Group, L.L.C. and HealthTran LLC. Filed as Exhibit 99.1 to the
Companys Form 8-K (File No. 000-50348) filed September 6,
2006 and incorporated herein by reference.10.62
    
    
    Agreement of Termination, dated as of September 13, 2006, by
and among NationsHealth, Inc., United States Pharmaceutical
Group, L.L.C. and Becton, Dickinson and Company. Filed as
Exhibit 99.1 to the Companys Form 8-K (File No. 000-50348)
filed September 13, 2006 and incorporated herein by reference.
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Exhibit No.
    
    Description10.63
    
    
    Fifth Amendment to the Third Amended and Restated Credit Agreement,
dated as of March 27, 2008, by and among United States Pharmaceutical
Group, LLC dba NationsHealth, NationsHealth Holdings, LLC,
NationsHealth, Inc. and Diabetes Care and Education, Inc. and
CapitalSource Finance, LLC. +21
    
    
    Subsidiaries of the Registrant.+23.1
    
    
    Consent of Ernst & Young LLP.+24.1
    
    
    Limited Power of Attorney appointing Joshua Weingard or
Timothy Fairbanks attorneys-in-fact, dated September 19, 2007,
by and on behalf of Robert Gregg, filed as Exhibit 24.1 to
Robert Greggs Form 4 filed on September 20, 2007, and
incorporated herein by reference.31.1
    
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.+31.2
    
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.+32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.≠
 *
    
    Management contract or compensatory plan or arrangement.**
    
    Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934.+
    
    Filed herewith.≠
    
    Furnished herewith.  71