SECURITIES AND EXCHANGE COMMISSION



WASHINGTON, D.C. 20549



FORM 10-KSB



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934



|FOR THE FISCAL YEAR ENDED | COMMISSION FILE NO.
|------------------------- | -------------------
|DECEMBER 31, 2004         | 0-28729            



PACER HEALTH CORPORATION

(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)



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



7759 N.W. 146th Street

Miami Lakes, FL 33016

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)



Issuers telephone number:  (305) 828-7660



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



COMMON STOCK, PAR VALUE $0.0001 PER SHARE

(TITLE OF CLASS)



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 Pacer Health Corporation was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X]

NO [ ]

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Pacer Healths knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

[  ]

Check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ]

NO [X]

Based on the closing sale price on April 14, 2005, the aggregate market value of the voting common stock held by non-affiliates of Pacer Health Corporation is $15,409,500.

Indicate the number of shares outstanding of each of the issuers classes of common stock, as to the latest practicable date:

|Class        | Outstanding Shares at April 15, 2005
|------------ | ------------------------------------
|Common Stock | 570,722,228                         









TABLE OF CONTENTS



|PART I     |                                                                                                                 | 
|---------- | --------------------------------------------------------------------------------------------------------------- | 
|Item 1     | Business                                                                                                        | 
|Item 2     | Properties                                                                                                      | 
|Item 3     | Legal Proceedings                                                                                               | 
|Item 4     | Submission of Matters to a Vote of Security Holders                                                             | 
|           |                                                                                                                 | 
|PART II    |                                                                                                                 | 
|Item 5     | Market for Registrant's Common Equity and Related Stockholder Matters                                           | 
|Item 6     | Management's Discussion and Analysis of Financial Condition and Results of Operations                           | 
|Item 7     | Financial Statements                                                                                            | 
|Item 8     | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            | 
|Item 8A    | Controls and Procedures                                                                                         | 
|           |                                                                                                                 | 
|PART III   |                                                                                                                 | 
|Item 9     | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act | 
|Item 10    | Executive Compensation                                                                                          | 
|Item 11    | Security Ownership of Certain Beneficial Owners and Management                                                  | 
|Item 12    | Certain Relationships and Related Transactions                                                                  | 
|           |                                                                                                                 | 
|PART IV    |                                                                                                                 | 
|Item 13    | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                | 
|Item 14    | Principal Accountant Fees and Services                                                                          | 
|           |                                                                                                                 | 
|SIGNATURES |                                                                                                                 | 







PART I

Forward Looking Statements



This Annual Report on Form 10-KSB contains forward-looking statements relating to Pacer Health Corporation (Pacer) which represent Pacers current expectations or beliefs including, but not limited to, statements concerning Pacers operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-KSB that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as may, anticipation, intend, could, estimate, or continue or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of Pacer to continue its growth strategy and competition, certain of which are beyond Pacers control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.



Any forward-looking statement speaks only as of the date on which such statement is made, and Pacer undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.



Item 1.

Business.

--------

General



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



On June 26, 2003, Pacer Health Services, Inc. was acquired by Pacer Health Corporation (f/k/a INFe, Inc.) in a transaction accounted for as a recapitalization of Pacer Health Services, Inc.  For accounting purposes, Pacer Health Services, Inc. was the acquirer because the former stockholders of Pacer Health Services, Inc. received the larger portion of the common stockholder interests and voting rights in the combined enterprise when compared to the common stockholder interests and voting rights retained by the pre-merger stockholders of Pacer Health Corporation (f/k/a INFe, Inc.).  As a result, Pacer Health Services, Inc. is re-capitalized to reflect the authorized stock of the legal parent, Pacer Health Corporation (f/k/a INFe, Inc.).  Since Pacer Health Services, Inc. was the acquirer, for accounting purposes, Pacers November fiscal year end has been changed to Pacer Health Services, Inc.s December 31, fiscal year end.  Accordingly, our financial statements discussed below represent the financial statements of Pacer Health Services, Inc. which reflect the re-capitalization and includes the period from inception to the fiscal year end.  Our principal offices are located at 7759 NW 146th Street, Miami Lakes, Florida 33016, and our telephone number is (305) 826-7660.  Our website is www.pacerhealth.com.



On May 26, 2003, we acquired AAA Medical Center, Inc. (AAA).  The facility provides rehabilitative therapy to patients of various ages.  The rehabilitative therapy is designed to assist the patient to overcome various sustained injuries.  On October 12, 2004, as a result of our decision to focus on healthcare organizations with inpatient capabilities, we sold AAA Medical Center, Inc. to an unrelated third party.  We have reclassified the results of the sale and corresponding impairment charge to goodwill as Discontinued Operations.  We have included additional details about these charges in the Managements Discussion and Analysis of Financial Condition and Results of Operations in this document, as well as in the Notes to our Consolidated Financial Statements.



On March 22, 2004, our wholly-owned subsidiary, Pacer Health Management Corporation, entered into an Asset Purchase Agreement with Camelot Specialty Hospital of Cameron, LLC to acquire certain assets used in the operation of South Cameron Memorial Hospital.  We have included additional details about the acquisition, including our purchase price allocation, in the Notes to our Consolidated Financial Statements.



On June 24, 2004, the Company entered into a binding letter of intent to purchase Minnie G. Boswell Memorial Hospital (MGBMH) in Greensboro, Georgia.  In accordance with the letter of intent, the purchase price of the hospital will be the fair market value as ratified by the Attorney General of the State of Georgia.  As consideration for the purchase price, Pacer will assume any outstanding liabilities with the exception of any hospital debt associated with bond issuances, including waiving any fees due to Pacer.  The purchase will consummate upon approval by the Attorney General of the State of Georgia in accordance with the Georgia Hospital Acquisition Act which we anticipate should be finalized by the 2005 year end.



No material part of our revenues were derived outside of the United States in the 2004 fiscal year, and during that year, we had no material assets outside the United States.



Industry Overview



The Non-Urban Healthcare Industry



The majority of large hospital providers operate in urban markets.  Management believes that The size of these markets along with the amount of operators results in high entry barriers, which  often prevents new market entrants from becoming or maintaining competitive and profitable.  Rural, non-urban healthcare providers serve communities with smaller populations and fewer operators in the market.  This environment allows non-urban healthcare providers low entry barriers and often little to no outside competition.



The Healthcare Industrys Size and Opportunity



Size.  The domestic healthcare industry is a large and growing industry.  Healthcare spending currently represent approximately 15% of the gross domestic product, and according to the Center for Medicare and  Medicaid Service (CMS) - Office of the Actuary, this industry is expected to grow by a projected average annual 7.3% to $3.4 trillion by the year 2012 thereby representing 18.4% of the GDP.  Furthermore, in the same study, hospital spending is expected to nearly double from approximately $520 million to $934.3 million.



Opportunity to Create a Regional Network.  We believe that the domestic healthcare industry presents opportunities for innovation, differentiation and the creation of regional networks due to the following industry characteristics:



Highly fragmented.  The domestic healthcare industry market is highly fragmented made up of many economically independent entities. We believe that the growing societal demands for quality healthcare services and for greater administrative efficiency has resulted in a need for reducing the various typical practices among the disparate healthcare entities.



Opportunity to Grow the Market.  We believe the healthcare industry also presents opportunities to expand the range of healthcare services we can provide to our patients.  We believe the following several factors will lead to this opportunity.



-

Increased Per Capita Spending.  According to the Centers for Medicare and Medicaid Services, annual healthcare spending by 2011 will rise to $9,216 per capita in the United States of America - double the amount spent per capita in 2000. This trend is expected to continue to grow in future years.



-

Future Favorable Demographics.  We believe that favorable demographics should generate additional industry growth.  Census estimates of population projections of people aged 85 and over and who will need assistance with the activities of daily living range from 18.2 million to 31.1 million by the year 2050.







BUSINESS STRATEGY



Our goal is to become a regional provider of hospital services.  We intend to accomplish this by targeting and acquiring financially distressed hospitals and restructuring the operations to attempt to achieve financial viability.  We intend to acquire these facilities through a combination of capital infusion, traditional financing and funds from current operations.  Key elements of our strategy include:



Expand Our Healthcare Facilities Base.  We plan to expand our healthcare operations in order to increase our market share in existing markets and/or acquire healthcare facilities in new markets where we believe the opportunity exists.  Through March 31, 2005, we have acquired a hospital and psychiatric unit in Cameron, Louisiana and are finalizing our acquisition of a hospital and skilled nursing facility in Greensboro, Georgia.  Our strategy is to develop a regional network of hospitals in numerous markets.



Enhance the Operational Efficiencies.   We intend to create an inter-entity network of our healthcare facilities that provides high quality healthcare services as well as greater administrative efficiency by implementing Best Practices.  Through our inter-entity network, we believe we can design and share Best Practices developed and acquired in certain entities and distribute and implement it efficiently among all our entities.



Improve Expense Management.  We intend to reduce or eliminate duplicate resources that are unnecessary.  We also intend to review the cost structure of any acquisition to reduce or eliminate unnecessary expenses.  Furthermore, we intend to implement Best Practices across all of our entities in order to minimize expenses while increasing the value we can deliver to our patients and providers.



OPERATIONS



On March 22, 2004, the Company entered into an asset purchase agreement with Camelot Specialty Hospital of Cameron, LLC (Cameron).  Under the terms of the asset purchase, the Company acquired the business and certain assets and assumed certain liabilities of Cameron.  As consideration for the acquisition, the Company issued 50,000,000 shares of its common stock having a fair value of $1,100,000.



On June 24, 2004, the Company entered into a binding letter of intent to purchase Minnie G. Boswell Memorial Hospital in Greensboro, Georgia.  In accordance with the letter of intent, the purchase price of the hospital will be the fair market value as ratified by the Attorney General of the State of Georgia.  As consideration for the purchase price, Pacer will assume any outstanding liabilities with the exception of any hospital debt associated with bond issuances, including waiving any fees due to Pacer.  The purchase will consummate upon approval by the Attorney General in the State of Georgia in accordance with the Georgia Hospital Acquisition Act which we anticipate should be finalized by the 2005 year end. The Company is currently managing the Hospital under an interim management agreement.



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



COMPETITION



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



We are in the initial stages of registering a variety of service marks, trademarks and trade names for use in our business, including:



Pacer Healthcare

Pacer Health

Pacer Hospital



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



EMPLOYEES



On December 31, 2004 we employed approximately 115 full-time employees.  We also employed various doctors as independent contractors to perform the healthcare services at our medical hospital in Cameron, Louisiana and psychiatric hospital in Lake Charles, Louisiana.  None of our employees are represented by unions.  We consider our employee relations to be in good standing.



REGULATION



We are subject to extensive federal, state and local laws and regulations that are applicable to various healthcare facilities.  Under these laws, healthcare facilities must meet various requirements for licensure.  Furthermore, healthcare facilities must meet extensive requirements to ensure continued participation in government programs, including but not limited to Medicare and Medicaid.  Failure to comply with these requirements can result in loss of licensure, loss of participation in government programs, loss of payments, as well as civil and criminal sanctions.  New laws and regulations may increase our cost of compliance and doing business and may have a material adverse effect on our business.  We believe we are in compliance with current federal, state and local laws and regulations.



Fraud and Abuse Laws. Our participation in the Medicare and/or Medicaid programs is heavily regulated by federal statute and regulation.  Under these regulations, if a healthcare facility fails to comply substantially with the numerous federal laws governing a facilitys activities, the facilitys participation in the Medicare and/or Medicaid programs may be terminated and/or civil or criminal penalties may be imposed.  For example, a healthcare facility may lose its ability to participate in the Medicare and/or Medicaid programs if it performs any of the following acts:



-

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

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

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



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



A provision of the Social Security Act, known as the anti-kickback (or fraud and abuse) statute, prohibits the payment, receipt, offer or solicitation of money with the intent of generating referrals or orders for services or items covered by a federal or state healthcare program.  Violations of the anti-kickback statute are punishable by criminal and civil fines, exclusion from federal and state healthcare programs, and damages up to three times the total dollar amount involved.



The Office of Inspector General is authorized to publish regulations outlining activities and business relationships that would be deemed not to violate the anti-kickback statute.  These regulations are known as the safe harbor regulations. The safe harbor regulations do not make conduct illegal, but rather delineate standards that, if complied with, protect conduct that might otherwise be deemed in violation of the anti-kickback statute.



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



-

payment of any incentive by a healthcare facility each time a physician refers a patient to the facility;

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use of free or significantly discounted office space or equipment for physicians in facilities usually located close to the healthcare facility;

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

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free training for a physicians office staff, including management and laboratory technique training;

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guarantees which provide that if the physicians income fails to reach a predetermined level, the healthcare facility will pay any portion of the remainder;

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low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the healthcare facility;

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payment of the costs of a physicians travel and expenses for conferences;

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

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



We have a variety of financial relationships with physicians who may refer patients to our hospitals.  Physicians may also own our stock.  We also have contracts with physicians providing for a variety of financial arrangements, including leases, independent contractor agreements and professional service agreements.



We intend to use our best efforts to structure each of our arrangements, especially each of our business arrangements with physicians, to fit as closely as possible to an applicable safe harbor.  However, all of our business arrangements may not fit wholly within the safe harbors and thus we cannot guarantee that these arrangements will not be scrutinized by government authorities or, if scrutinized, that they will be determined to be in compliance with the anti-kickback statute or other applicable laws.  The failure of a particular arrangement to comply with the safe harbor regulations does not mean that the arrangement violates the anti-kickback statute.  We believe that all of our business arrangements are substantially in compliance with the anti-kickback statute. If we violate the anti-kickback statute, we could be subject to criminal and civil penalties and/or possible exclusion from participating in Medicare, Medicaid or other governmental healthcare programs.



The Social Security Act also includes a provision commonly known as the Stark Law.  This law prohibits physicians from referring Medicare and Medicaid patients to selected types of healthcare facilities in which they or any of their immediate family members have ownership or other financial interests.  These types of referrals are commonly known as self-referrals.  Sanctions for violating the Stark Law include civil monetary penalties, assessments equal to twice the dollar value of each service and exclusion from Medicare and Medicaid programs.  There are ownership and compensation arrangement exceptions to the self-referral prohibition.  One exception allows a physician to make a referral to a healthcare facility if the physician owns an interest in the entire healthcare facility, as opposed to an ownership interest in a department of the healthcare facility. Another exception allows a physician to refer patients to a healthcare facility in which the physician has an ownership interest if the facility is located in a rural area, as defined in the statute.  There are also exceptions for many of the customary financial arrangements between physicians and providers, including employment contracts, leases and recruitment agreements.  The federal government released regulations interpreting some, but not all, of the provisions included in the Stark Law in January 2002, and the government has said it intends to release additional regulations in the future that will provide a full interpretation of this law.  We have structured our financial arrangements with physicians to comply with the statutory exceptions included in the Stark Law and subsequent regulations in its current form.  However, the future issuance of regulations may interpret provisions of the Stark Law in a manner different from the manner in which we have currently interpreted them.  We cannot predict the final form that these regulations will take or the effect those regulations will have on us, including any possible restructuring of our existing relationships with physicians.



Many states in which we intend to operate in also have adopted, or are considering adopting, laws similar to the Stark Law.  Some of these state laws apply even if the payment for care does not come from the government.  These statutes typically provide for criminal and civil penalties as remedies as well as loss of licensure.  While there is little precedent for the interpretation or enforcement of these state laws, we have attempted to structure our financial relationships with physicians and others in light of these laws.  However, if a state determines that we have violated such a law, we could be subject to criminal and civil penalties in addition to possible licensure revocation.



Corporate Practice of Medicine and Fee-Splitting.  Some states have laws that prohibit unlicensed persons or business entities, including corporations or business organizations that own healthcare facilities, from employing physicians.  Some states also have adopted laws that prohibit direct or indirect payments or fee-splitting arrangements between physicians and unlicensed persons or business entities.  Possible sanctions for violations of these restrictions include loss of a physicians license, civil and criminal penalties and rescission of business arrangements.  These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies.  We structure our arrangements with healthcare providers to comply with the relevant state law.  However, we cannot assure you that governmental officials charged with the responsibility for enforcing these laws will not assert that we, or transactions in which we are or may be involved, are in violation of these laws.  These laws may also be interpreted in a manner inconsistent with our current interpretations by the various state courts.



Emergency Medical Treatment and Active Labor Act.  Some of our current facilities and potential acquisitions may be subject to the Emergency Medical Treatment and Active Labor Act (EMTALA).  The EMTALA imposes requirements as to the care that must be provided to anyone who comes to healthcare facilities providing emergency medical services seeking care before they may be transferred to another facility or otherwise denied care.  This federal law requires any healthcare facility that participates in the Medicare program to conduct an appropriate medical screening examination of every person who is presented to the facilitys emergency department for treatment and, if the patient is suffering from an emergency medical condition, to either stabilize that condition or make an appropriate transfer of the patient to a facility that can handle the condition.  The obligation to screen and stabilize emergency medical conditions exists regardless of a patients ability to pay for treatment.  Sanctions for failing to fulfill these requirements include exclusion from participation in Medicare and Medicaid programs as well as civil monetary penalties.  In addition, the law creates private civil remedies that enable an individual who suffers personal harm as a direct result of a violation of the law to sue the offending facility for damages and equitable relief.  A healthcare facility that suffers a financial loss as a direct result of another participating facility's violation of the law also has a similar right.  Although we believe that our practices are in compliance with the law, we can give no assurance that governmental officials responsible for enforcing the law or others will not assert we are in violation of these laws.



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



Civil liability under the federal False Claims Act can be up to three times the actual damages sustained by the government plus civil penalties for each separate false claim.  There are many potential bases for liability under the federal False Claims Act.  Although liability under the federal False Claims Act arises when an entity knowingly submits a false claim for reimbursement to the federal government, the federal False Claims Act defines the term knowingly broadly.  Although simple negligence generally will not give rise to liability under the federal False Claims Act, submitting a claim with reckless disregard to its truth or falsity can constitute knowingly submitting a false claim.



Healthcare Reform.  The healthcare industry continues to attract much legislative interest and public attention.  In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the healthcare system.  Proposals that have been considered include cost controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses and mandatory health insurance coverage for employees.  The costs of implementing some of these proposals would be financed, in part, by reductions in payments to healthcare providers under Medicare, Medicaid and other government programs.  We cannot predict the course of future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs and the effect that any legislation, interpretation, or change may have on us.



Conversion Legislation.  Many states, including those where we may in the future acquire healthcare facilities, have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities.  In other states that do not have specific legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets from waste.  These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller.  These review processes can add additional time to the closing of a future healthcare facility acquisition.  There can be no assurance, however, that future actions on the by state legislators or attorneys general will not seriously delay or even prevent our ability to acquire healthcare facilities.  If these activities are widespread, they could have a negative impact on our ability to acquire additional hospitals.



Certificates of Need.  The acquisition or construction of new facilities and the addition of new services and expensive equipment at our facility may be subject to state certificate of need laws that require prior approval by state regulatory agencies.  These laws generally require that a state agency determine the public need and give approval prior to the acquisition or construction of facilities or the addition of new services.  If we fail to obtain necessary state approval, we will not be able to expand our facility, complete acquisitions or add new services.  Violation of these state laws may result in the imposition of civil sanctions or the revocation of the facilitys licenses.



Privacy and Security Requirements of the Health Insurance Portability and Accountability Act of 1996.  The Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) require the use of uniform electronic data standards for the exchange of information between two parties to carry out financial and administrative activities related to healthcare, including healthcare claims and payment transactions submitted or received electronically.  These provisions are intended to improve the efficiency and effectiveness of the healthcare industry by enabling the efficient electronic transmission of certain health information.  On August 17, 2000, final regulations were published by the Centers for Medicare and Medicaid Services (a division of the Department of Health and Human Services) establishing electronic data transmission standards that all healthcare providers must use when submitting or receiving certain healthcare transactions electronically.  Compliance with these regulations was required by October 16, 2003.  We are currently substantially in compliance with these regulations.  We cannot predict with accuracy the impact that future interpretation of these regulations will have on us.



The Administrative Simplification Provisions also require the Centers for Medicare and Medicaid Services to adopt standards to protect the security and privacy of health-related information.  The Centers for Medicare and Medicaid Services promulgated final regulations containing security standards on February 20, 2003, but compliance with these regulations is not required until April 21, 2005.  These final security regulations would require healthcare providers to implement administrative, physical and technical safeguards to protect the integrity, confidentiality and availability of electronically received, maintained or transmitted individually identifiable health-related information.  In addition, the Centers for Medicare and Medicaid Services released final regulations containing privacy standards in December 2000.  These privacy regulations became effective April 14, 2001, and compliance with these regulations was required by April 14, 2003.  In addition, on August 14, 2002, the Centers for Medicare and Medicaid Services made additional changes to the privacy regulations to remove consent requirements which were anticipated to hinder access to care as well as to clarify other provisions related to oral communications, parental access to their childrens records and to prohibit certain marketing without patient authorization.  The privacy regulations, including modifications, will extensively regulate the use and disclosure of individually identifiable health-related information and a patients rights to his or her health information.  The security regulations and the privacy regulations could impose significant costs on our current facilities and future acquisitions in order to comply with these standards.  We cannot predict with accuracy the impact that these final regulations, when fully implemented, will have on us.  If we violate these provisions of HIPAA, we can be subject to monetary fines, penalties and criminal sanctions.







PAYMENT



Medicare.  Under the Medicare program, healthcare facilities are paid for inpatient and outpatient services performed by them.



Payments for inpatient acute services are generally made pursuant to a prospective payment system. Under PPS, healthcare facilities are paid a prospectively determined amount for each discharge based on the patients diagnosis.  Specifically, each discharge is assigned to a diagnosis related group, commonly known as a DRG, based on the patients condition and treatment during the relevant inpatient stay.  This assignment also affects the prospectively determined capital rate paid with each DRG.  Each DRG is assigned a payment rate that is prospectively set using national average costs per case for treating a patient for a particular diagnosis.  DRG payments do not consider the actual costs incurred by a facility in providing a particular inpatient service.  However, DRG and capital payments are adjusted by a predetermined geographic adjustment factor assigned to the geographic area in which the healthcare facility is located.  In addition to DRG and capital payments, healthcare facilities may qualify for outlier payments when the relevant patients treatment costs exceed a specified threshold.  Certain healthcare facilities may qualify for disproportionate share payments when their percentage of low-income patients exceed specified thresholds.



The DRG rates are adjusted by an update factor each federal fiscal year, which begins on October 1.  The index used to adjust the DRG rates gives consideration to the inflation experienced in purchasing goods and services.  For several years, however, the percentage increases in the DRG payments have been lower than the projected increase in the costs of goods and services purchased by healthcare facilities.  DRG rate increases were 0.0% for federal fiscal year 1998, 0.5% for federal fiscal year 1999, 1.1% for federal fiscal year 2000, 3.4% for federal fiscal year 2001, 2.75% for federal fiscal year 2002, 2.95% for federal fiscal year 2003, and 3.4% for federal fiscal year 2004.



As a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, hospitals are allowed to receive full market basket updates for federal fiscal years 2005, 2006 and 2007 if hospitals provide the Centers for Medicare and Medicaid Services specific data relating to the quality of services provided.  The Act also made a permanent increase in the base DRG payment rate (1.6%) for rural hospitals and urban hospitals in smaller metropolitan areas. In addition, the Act provided for payment relief to the wage index component of the base DRG rate.  As of October 1, 2004, the Act lowered the percentage of the DRG subject to a wage adjustment from 71% to 62% for hospitals in areas with a wage index below the national average.



Outpatient services have traditionally been paid at the lower of customary charges or on a reasonable cost basis. The Balanced Budget Refinement Act of 1999 established a PPS for outpatient services that commenced on August 1, 2000. Outpatient services are assigned ambulatory payment classifications, which are readjusted no less than annually.



The Balanced Budget Refinement Act of 1999 eliminated the anticipated average reduction of 5.7% for various Medicare outpatient payments under the Balanced Budget Act of 1997.  Under the Balanced Budget Refinement Act of 1999, outpatient payment reductions for non-urban healthcare facilities with 100 beds or less were mitigated through a hold harmless provision until December 31, 2003.  Payment reductions under Medicare outpatient PPS of non-urban hospitals with greater than 100 beds and urban healthcare facilities will be mitigated through a corridor reimbursement approach, where a percentage of such reductions were reimbursed through December 31, 2003.



Prior to the implementation of the prospective payment systems, payments to exempt hospitals and units, such as inpatient psychiatric, rehabilitation, mandated swing bed facilities and skilled nursing services, were based upon reasonable costs, subject to a cost per discharge target and maintenance of minimum levels of care.  The Balanced Budget Act of 1997 established a PPS for Medicare skilled nursing facilities and swing bed facilities that commenced in July 1998 and was implemented progressively through June 2003.  Under the Benefits Improvement and Protection Act of 2000, the skilled nursing facility PPS was increased to the skilled nursing facility market basket minus 0.5% for fiscal years 2002 and 2003. BIPA also required rates for certain categories to be increased by 6.7% effective April 1, 2001, which is still in effect.  The Balanced Budget Refinement Act of 1999 provided for a 20% increase for certain categories effective April 1, 2000, which also is still in effect.



The Balanced Budget Act of 1997 mandated a PPS for inpatient rehabilitation hospital services.  A PPS system for Medicare inpatient rehabilitation services is being phased in over two years beginning January 1, 2002.  The limits are updated annually through a market basket index.



Furthermore, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), offers a prescription drug benefit for Medicare beneficiaries and also provides a number of benefits to hospitals, particularly rural hospitals.





Medicaid.  Most state Medicaid payments are made under a PPS or under programs that negotiate payment levels with individual hospitals.  Medicaid is currently funded jointly by state and federal government.  The federal government and many states are currently considering significantly reducing Medicaid funding, while at the same time expanding Medicaid benefits. Effective April 1, 2002, the federal government reduced the upper payment limits of Medicaid reimbursements made to the states. This could adversely affect future levels of Medicaid payments received by our healthcare facilities.



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



Annual cost reports required under the Medicare and some Medicaid programs are subject to routine governmental audits.  These audits may result in adjustments to the amounts ultimately determined to be due to the healthcare facilities under these reimbursement programs.  Finalization of these audits often takes several years.  Providers can appeal any final determination made in connection with an audit.



Commercial Insurance.  Our healthcare facility provides services to individuals covered by private healthcare insurance.  Private insurance carriers pay our facility or in some cases reimburse their policyholders based on the facilitys established charges and the coverage provided in the insurance policy.  Commercial insurers are trying to limit the payments for healthcare services by negotiating discounts.  Reductions in payments for services provided by our facility to individuals covered by commercial insurers could adversely affect us.



RISK FACTORS



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



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



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



-

assess the value, strengths and weaknesses of acquisition candidates;

-

evaluate the costs and projected returns of integrating our operations;

-

promptly and successfully integrate acquired businesses with existing operations; and

-

obtain financing to support this growth.



If we fail to successfully implement our growth strategy, our operations may negatively be impacted and therefore our growth would be hampered.



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



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



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



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



-

acquire and integrate healthcare facilities;

-

increase the number of our employees;

-

expand the scope of our operating and financial systems;

-

broaden the geographic area of our operations;

-

increase the complexity of our operations;

-

increase the level of responsibility of management personnel; and

-

continue to train and manage our employee base.



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



Our Financial Results May Not Be Indicative of Future Results.



The financial statements contained herein may not be indicative of our future financial condition, operating results, growth trends or prospects.   Our prospects must be evaluated in light of the risks, expenses and difficulties frequently encountered by companies in the early stages of a new growth strategy.  Our strategy of building a regional network of healthcare facilities may not lead to growth, profitability or increased market prices for our common stock.



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



We will need to make improvements to our information system and integrate information systems from any acquisition we make in the future.  We also need to hire more accounting and information systems personnel.  We may experience delays, disruptions and unanticipated expenses in implementing, integrating and operating our information systems.  Failure to fully integrate and enhance our current and future information system or hire additional personnel could have a material adverse effect on our business, financial condition, results of operation and growth prospects.



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



Until we complete and install our information system, we will use and depend upon the information and operating systems of our acquired entities.  We may not be able to efficiently combine our operations with those we currently have without encountering difficulties.  These difficulties could result from having different and potentially incompatible operating practices, computers or other information systems.  By consolidating personnel with different business backgrounds and corporate cultures into one company, we may experience additional difficulties.  As a result, we may not achieve anticipated cost savings and operating efficiencies and we may have difficulties managing, operating and integrating our businesses.



We May Incur Unexpected Liabilities When We Acquire Businesses.



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



Without Additional Capital We Will Note Be Able to Grow.



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







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



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





We May Be Subject to Allegations That We Failed to Comply With Governmental Regulation, which Could Result in Significant Expenses or Penalties.



We are subject to many laws and regulations at the federal, state and local government levels.  These laws and regulations require us to meet various requirements, including those relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, billing and cost reports, payment for services and supplies, maintenance of adequate records, privacy, compliance with building codes and environmental protection.  These laws may also contain safe harbor provisions that describe some of the conduct and business relationships that are immune from prosecution. Some of our business arrangements may not fall within the safe harbors. This does not automatically render our arrangements illegal.  However, we may be subject to scrutiny by enforcement authorities.  If we fail to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in the Medicare, Medicaid and other federal and state healthcare programs.



We May Be Subject to Actions Brought by Individuals on the Governments Behalf Under the False Claims Acts Qui Tam Provisions.



The Qui Tam or whistleblower provisions allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal government.  Defendants determined to be liable under the False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim.  There are many potential bases for liability under the False Claims Act.  Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government.  The False Claims Act defines the term knowingly broadly.  Although simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard to its truth or falsity constitutes a knowing submission under the False Claims Act and, therefore, will qualify for liability.  In some cases, whistleblowers or the federal government have taken the position that providers who allegedly have violated other statutes, such as the anti-kickback statute and the Stark Law, have thereby submitted false claims under the False Claims Act.  In addition, a number of states have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit in state court.  These types of claims could adversely affect our operations, even if ultimately proven to be without merit, as time and expense would be incurred to defend such actions.



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



We may be subject to medical malpractice lawsuits and other claims.  We expect to maintain liability insurance in amounts that we believe are appropriate for our operations to mitigate such risk.  However, it is possible that there may be successful claims against us in the future for amounts which exceed those set forth in the coverage amounts.  This could have an adverse effect on our financial condition. Furthermore, we may not be able to obtain adequate insurance coverage with acceptable deductible amounts at a reasonable cost.



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



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



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



Our revenue is heavily concentrated in Louisiana, which makes us particularly sensitive to regulatory and economic changes in that state.  Our revenue primarily consists of reimbursements from private insurance companies, Medicare and the state Medicaid programs.  Legislation and financial difficulties faced by various states can reduce our reimbursement.  We cannot predict with accuracy which legislation will pass. However, such legislation, if passed, and financial difficulties of the various state Medicaid programs could have a material adverse effect on our business, financial condition, results of operation and growth prospects.



We May Have Difficulty Acquiring Healthcare Facilities on Favorable Terms.



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



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



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



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



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



We May Experience Significant Compliance Issues Under The HIPAA Transaction, Privacy and Security Requirements.



Federal regulations issued pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA) contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The federal regulations are intended to encourage electronic commerce in the healthcare industry.



Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by the Department of Health and Human Services (DHHS) when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, health care payment and remittance advice and health claim status.  HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and health care providers to be used in connection with the standard electronic transactions. All healthcare providers will be required to obtain a new National Provider Identifier (NPI) to be used in standard transactions instead of other numerical identifiers beginning no later than May 23, 2007; healthcare providers may begin applying for NPIs on May 23, 2005. We cannot predict whether our facilities may experience payment delays during the transition to the new identifier. Our facilities have fully implemented use of the Employer Identification Number as the standard unique health identifier for employers. DHHS has not yet issued proposed rules that establish the standard for unique health identifiers for health plans or individuals. Once these regulations are issued in final form, we expect to have approximately two years to become fully compliant, but cannot predict the impact of such changes at this time.



HIPAA regulations also require our facilities to comply with standards to protect the confidentiality, availability and integrity of patient health information, by establishing and maintaining reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. The security standards were designed to protect electronic information against reasonably anticipated threats or hazards to the security or integrity of the information and to protect the information against unauthorized use or disclosure. We expect that the security standards will require our facilities to implement additional business procedures and training programs, though the regulations do not mandate use of a specific technology.



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



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



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



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



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



-

make us more vulnerable to economic downturns and to adverse changes in business conditions, such  as further limitations on reimbursement under Medicare and Medicaid programs;

-

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

-

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

-

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

-

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



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



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



Competition among healthcare facilities has intensified in recent years.  We face competition from other specialized care providers, including but not limited to physical therapy and diagnostic center.  We may not be able to successfully compete with our competitors, especially with those competitors that are larger and have greater resources.



Other Healthcare Facilities May Use Equipment and Services That Are More Specialized Than Those Available At Our Facilities.



Other healthcare facilities may maintain and use equipment and services that are more specialized or advanced than those at our facilities.  Therefore, it may be difficult for us to compete with such facilities in attracting and retaining patients.



Our Directors and Executive Officers Have Limited Industry Experience.



Some of our directors and executive officers have no significant experience in the healthcare industry.  Our directors and executive officers may not ultimately be successful in the healthcare industry.  In addition, we believe that our success will depend to a significant extent upon the efforts and abilities of the management of companies that we acquire.



We Depend Heavily on Senior Management.



We believe that our success will depend to a significant extent upon the efforts and abilities of our Chairman and Chief Executive Officer, Rainier Gonzalez, and other members of current senior management, including our current Vice-President of Finance David Byrns, and the senior management of the companies we acquire.  Our employment agreement with Mr. Gonzalez will terminate on December 31, 2005.  We do not have key person life insurance policies covering any of our employees.  We will likely also depend on the senior management of any significant business that we acquire in the future.  If we lose the services of one or more of these key employees before we are able to attract qualified replacement personnel, our business could be adversely affected.



Our Significant Stockholder Is Able to Influence Corporate Action.



As a result of his stock ownership and board representation, Rainier Gonzalez, who is also our Chief Executive Officer, will be in a position to influence our corporate actions such as mergers or takeover attempts in a manner that could conflict with the interests of our other stockholders.  Rainier Gonzalez owns 430,422,903 shares of common stock which is 75.4% of the outstanding shares of the 570,722,228 common stock on April 14, 2005.  In addition, Mr. Gonzalez holds the Chairman position in our Board of Directors.



Our Stock Price May Be Volatile.



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



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



We have a substantial number of authorized but unissued shares of our common stock.  We expect to issue additional shares of common stock as part of the purchase price for future acquisitions. We have issued to our employees, officers and directors restricted shares of our common stock.  Any actual sale or any perception that sales of a substantial number of shares may occur could adversely affect the market price of our common stock and could impair our ability to raise capital through an offering of equity securities.





ITEM 2. PROPERTIES



Our corporate headquarters are located in leased premises at 7759 NW 146th Street, Miami Lakes, FL 33016. On December 31, 2004, we leased the real estate for our medical hospital in Cameron, Louisiana as well as our psychiatric hospital in Lake Charles, Louisiana.  We consider these facilities to be in good operating condition and suitable for their current use.  We do not expect that we will need to make significant capital expenditures on these facilities in the near future.



ITEM 3.  LEGAL PROCEEDINGS.



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



The Company is subject to various lawsuits and unasserted claims from patients and service providers.  The Company believes that the outcome of these matters, if unfavorable, may be covered by its medical malpractice insurance coverage.  Amounts due to vendors have been accrued as of December 31, 2004.



During 2004, the Company settled various matters pertaining to its preacquisition liabilities assumed.

.



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



No matters were submitted to a vote of the Companys shareholders during the year ended December 31, 2004.



PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.



Our Common stock began trading on the NASDAQ Over-the-Counter (OTC) Market under the symbol PHLH on February 20, 2004.  Prior to that date, our common stock traded under the symbol INFE.  The Number of registered stockholders on December 31, 2004 was 172 based on information furnished to us by our transfer agent.



The following table sets forth the average high and low bid prices for the common stock for each calendar quarter and subsequent interim period since January 1, 2003, as reported by the National Quotation Bureau, and represent interdealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions.



|               |  | HIGH |  | LOW  
|-------------- |  | ---- |  | -----
|2005:          |  |      |  |      
|First Quarter  |  | $.02 |  | $<.01
|2004:          |  |      |  |      
|First Quarter  |  | $.03 |  | $.02 
|Second Quarter |  | $.03 |  | $.02 
|Third Quarter  |  | $.02 |  | $.01 
|Fourth Quarter |  | $.02 |  | $.01 
|2003:          |  |      |  |      
|First Quarter  |  | $.04 |  | $.01 
|Second Quarter |  | $.06 |  | $.01 
|Third Quarter  |  | $.09 |  | $.02 
|Fourth Quarter |  | $.05 |  | $.02 



Pacer presently is authorized to issue 930,000,000 shares of Common Stock with $0.0001 par value.  As of April 15, 2005, there were 570,722,228 shares of common stock issued and outstanding.



Pacer is authorized to issue 20,000,000 shares of $0.0001 par value preferred stock, none of which is outstanding. One share of preferred stock was previously designated as Series A Convertible Preferred, which share was previously issued to Rainier Gonzalez and since converted into 318,822,903  shares of common stock.  All of the other preferred stock is undesignated and may not be designated or issued by the Board of Directors absent prior stockholder approval.



Dividends

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



Penny Stock



Our common stock is deemed to be penny stock as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934.  These requirements may reduce the potential market for our common stock by reducing the number of potential investors.  This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them.  This could cause our stock price to decline.  Penny stocks are stock:



•

With a price of less than $5.00 per share;

•

That are not traded on a recognized national exchange;

•

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

•

In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $10.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.



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



SALES OF UNREGISTERED SECURITIES



During the year ended December 31, 2004, Pacer issued the following unregistered securities:



|Amount of Shares Issued | Date Issued | Issued To                        | Price/Purpose                                
|----------------------- | ----------- | -------------------------------- | ---------------------------------------------
|2,000,000               | 1/7/04      | J. Scafidi                       | Price- $0.021 per share
Settlement Agreement 
|476,190                 | 1/7/04      | Newbridge Securities Corporation | Price- $0.021per share
Placement Agent Fee   
|318,822,903             | 1/8/04      | R. Gonzalez                      | Conversion of Preferred Stock                
|1,600,000               | 1/27/04     | J. Dodrill                       | Price- $0.02 per share
Settlement Agreement  
|25,000                  | 1/28/04     | V. Blanco                        | Price- $0.02 per share
Satisfaction of Loan  
|2,000,000               | 2/4/04      | D. Byrns                         | Price- $0.02 per share
Employment Agreement  
|50,000                  | 2/9/04      | J. Stanger                       | Price- $0.025 per share
Consulting Services  
|50,000,000              | 2/10/04     | Butterworth Investments          | Price- $0.022 per share
Acquisition Agreement
|1,000,000               | 2/23/04     | J. Getter                        | Price- $0.029 per share
Consulting Services  
|600,000                 | 3/29/04     | J. Stanger                       | Price- $0.018 per share
Consulting Services  
|200,000                 | 6/7/04      | G. Williams, J. Peterson         | Price- $0.025 per share
Consulting Services  
|2,000,000               | 10/11/04    | J. Chi                           | Price- $0.01 per share
Employment Agreement  
|40,000                  | 10/11/04    | T. Vidal                         | Price- $0.01 per share
Employment Agreement  



During the year ended December 31, 2003, pursuant to the Securities Purchase Agreement, the Company issued a two year convertible debenture totaling $250,000 to Cornell secured by all of the assets and property of the Company.  In connection with the issuance, the Company recorded a contra liability of $25,000 by debiting debt discount.  Debt discount will be directly offset against the gross convertible debentures balance outstanding.  These costs are fees and expenses paid to the lender in connection with obtaining the debt funding.  Furthermore, the Company recorded a beneficial conversion feature of $147,024.  The beneficial conversion feature will be directly offset against the gross convertible debentures balance outstanding.  The Company entered into a Redemption Agreement on November 30, 2004.  (See footnotes to attached Consolidated Financial Statements).



In connection with the Standby Equity Distribution Agreement, the Company issued Cornell a compensation convertible debenture in the amount of $390,000 convertible into shares of common stock at a conversion price equal to the lowest closing bid price during the 3 day trading period immediately preceding the conversion date, as a one-time commitment fee.  The note was settled on November 30, 2004.  (See footnotes to attached Consolidated Financial Statements).



The shares were sold pursuant to an exemption under Section 4(2) of the Securities Act.





ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





GENERAL



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



On June 26, 2003, Pacer Health Services, Inc. was acquired by Pacer Health Corporation (f/k/a INFe, Inc.) in a transaction accounted for as a recapitalization of Pacer Health Services, Inc.  For accounting purposes, Pacer Health Services, Inc. was the acquirer because the former stockholders of Pacer Health Services, Inc. received the larger portion of the common stockholder interests and voting rights in the combined enterprise when compared to the common stockholder interests and voting rights retained by the pre-merger stockholders of Pacer Health Corporation (f/k/a INFe, Inc.).  As a result, Pacer Health Services, Inc. is re-capitalized to reflect the authorized stock of the legal parent, Pacer Health Corporation (f/k/a INFe, Inc.).  Since Pacer Health Services, Inc. was the acquirer, for accounting purposes, Pacers November fiscal year end has been changed to Pacer Health Services, Inc.s December 31, fiscal year end.



ACQUISITIONS



On May 26, 2003, Pacer acquired AAA Medical Center, Inc. (AAA), a medical treatment center, for an installment note payable of $800,000 originally due September 26, 2003.  We have satisfied the note payable by issuing approximately 26.7 million shares of restricted common stock to AAA on October 30, 2003.  The merger was accounted for under the purchase method of accounting and included in our financial statements from the date of acquisition.  On October 12, 2004, we sold AAA to an unrelated third party.  We have accounted for the operations as discontinued operations.



On March 22, 2004, the Company entered into an asset purchase agreement with Camelot Specialty Hospital of Cameron, LLC (Cameron).  Under the terms of the asset purchase, the Company acquired the business and certain assets and assumed certain liabilities of Cameron.  As consideration for the acquisition, the Company issued 50,000,000 shares of its common stock having a fair value of $1,100,000.



On June 24, 2004, the Company entered into a binding letter of intent to purchase Minnie G. Boswell Memorial Hospital in Greensboro, Georgia.  In accordance with the letter of intent, the purchase price of the hospital will be the fair market value as ratified by the Attorney General of the State of Georgia.  As consideration for the purchase price, Pacer will assume any outstanding liabilities with the exception of any hospital debt associated with bond issuances, including waiving any fees due to Pacer.  The purchase will consummate upon approval by the Attorney General in the State of Georgia in accordance with the Georgia Hospital Acquisition Act. The Company is currently managing the Hospital under an interim management agreement.



The net book value of goodwill at December 31, 2004 totaled $1,216,318, which represents 30.9% of the total assets at that date.  This amount is after a goodwill impairment charge of $545,024 (as disclosed on the statement of cash flows) and $200,000 for the years ended December 31, 2004 and 2003, respectively, which was related to the sale of our discontinued operations, AAA Medical Center.  We follow the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which require us to complete impairment tests on goodwill as of December 31, 2004.  Accordingly, an impairment analysis was performed that resulted in no additional impairment.  Goodwill will be tested for impairment annually at December 31 or more frequently when events or circumstances indicate that an impairment may have occurred.  However, earnings in future years could be materially adversely affected if management later determines the goodwill balance is impaired.





CRITICAL ACCOUNTING POLICIES AND ESTIMATES



Managements discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  At each balance sheet date, management evaluates its estimates, including but not limited to, those related to allowance for contractuals and bad debts, accrued liabilities, and the valuation allowance offsetting deferred income taxes.  The Company also reviews its goodwill for possible impairment; such an impairment was determined to exist as of September 30, 2004, in connection with our disposal of AAA Medical Center, of which the actual disposal date was October 12, 2004, and goodwill was written down by $545,024.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  The estimates and critical accounting policies that are most important in fully understanding and evaluating our financial condition and results of operations include those listed above, as well as our valuation of equity securities used in transactions and for compensation, and our revenue recognition methods for healthcare operations.



PATIENT SERVICE REVENUE RECOGNITION



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



The Companys Hospital has agreements with third-party payors that provide for payments to the Hospital at amounts different from its established rates.  A summary of the payment arrangements with major third-party payors follows:



Medicare:  Inpatient acute care services and outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates.  These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors.  Inpatient nonacute services and defined capital and medical education costs related to Medicare beneficiaries are paid based on a cost reimbursement methodology.  The Hospital is reimbursed for cost reimbursable items at a tentative rate with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicare fiscal intermediary.  The Hospital claims Medicare payments based on an interpretation of certain disproportionate share rules.



Medicaid:  Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed under a cost reimbursement methodology.  The Hospital is reimbursed at a tentative rate with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicaid fiscal intermediary.



Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation.  As a result, there is at least a reasonable possibility that recorded estimates could change by a material amount in the near term.



The Hospital also has entered into payment agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations.  The basis for payment to the Hospital under these agreements includes prospectively determined rates per discharge, discounts from established charges, and prospectively determined daily rates.



Patient service revenue from hospital operations is recognized when the goods or services are provided to the patient and billed to the patient or third party payor.  Patient service revenue is reported net of estimated contractual allowances.  These third-party contractual adjustments are accrued on an estimated basis in the period the services are provided, and revenues in future periods are adjusted based on final settlements with the third party payors.  Management has recorded estimates for bad debt losses, which may be sustained in the collection of these receivables.  Although estimates with respect to realization of the receivables are based on Managements knowledge of current events, the Companys collection history, and actions it may undertake in the future, actual collections may ultimately differ substantially from these estimates.  Receivables are written off when all legal actions have been exhausted.



PROPERTY AND EQUIPMENT



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



Depreciation and amortization of fixed assets is provided for by using the straight-line method over the estimated useful lives of the assets, generally 30 years for buildings, 3 to 10 years for furniture, fixtures, and equipment and 3 to 5 years for vehicles, computer hardware, software, and communication systems.  Leasehold improvements are depreciated over the lesser of useful lives or lease terms including available option periods.



STOCK BASED COMPENSATION



The Company accounts for stock based compensation under the provisions of SFAS No. 123, "Accounting for Stock Based Compensation".  For stock and options issued to employees, and for transactions with non-employees in which services were performed in exchange for the Companys common stock, the transactions are recorded on the basis of fair value of the services received or the fair value of the equity instruments issued, whichever was more readily measurable.



In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," was issued. This pronouncement amends SFAS No. 123, Accounting for Stock-Based Compensation," and provides guidance to companies that wish to voluntarily change to the fair value based method of accounting for stock-based employee compensation, among other provisions.  The Company accounts for its employee stock based compensation under the fair value based method provisions of SFAS No. 123; therefore, the issuance of SFAS No. 148 did not have any impact on the Company's financial position, results of operations or cash flows.



For stock directly issued to employees for services, a compensation charge is recorded against earnings over the service period measured at the date of grant based on the fair value of the stock award.  Certain stock issuances were issued as a result of employment agreements entered into by the Company.



On June 20, 2002, INFe had issued 950,000 warrants to various consultants in exchange for their services.  These warrants have an exercise price of $.50 per share and expire over a five-year period.  The warrants were assumed by the Company in the reverse merger.  No warrants were granted during the period ended December 31, 2004.





RESULTS OF OPERATIONS



Upon the consummation of the reverse merger between INFe and Pacer Health Services, the Company redefined the manner in which the operating results are evaluated and reported. The results of operations for INFe through the acquisition date were no longer included with the results of operations for Pacer as the transaction was accounted for as a recapitalization of Pacer.   In addition, as a result of the discontinued operations of AAA Medical Group, most of our statement of operations line items for the year ended December 31, 2003 have been removed and combined into Loss on Discontinued Operations.



The table below presents the results of operations of Pacer Health Corporation and Subsidiaries for the year ended December 31, 2004.  All results of operations for INFe in 2004 are included as a component of the consolidated results of operations.





|                                             | For the Period Ended December 31, 2004
|-------------------------------------------- | --------------------------------------
|Patient Service Revenues, net                | 7,581,505                             
|Operating Expenses                           |                                       
|Advertising                                  | 2,418                                 
|Amortization of debit issue costs            | 25,616                                
|Amortization of equity line commitment
fee   | 390,000                               
|Bad debt expense                             | 1,505,836                             
|Contract labor                               | 1,058,084                             
|Depreciation                                 | 16,040                                
|Insurance                                    | 279,681                               
|Medical Supplies                             | 533,738                               
|Professional Fees                            | 534,434                               
|Rent                                         | 512,527                               
|Salaries and wages                           | 2,714,145                             
|General and administrative                   | 972,707                               
|Net Income/(Loss) from Operations            | (963,721)                             
|Other Income/Expenses                        |                                       
|Management Fee                               | 650,000                               
|Other                                        | 89,344                                
|Gain on debt settlement                      | 1,432,707                             
|Interest expense                             | (329,082)                             
|Net Income/(Loss) from Continuing Operations | 879,248                               
|Loss from Discontinued Operations            | (488,354)                             
|Net Income/(Loss)                            | 390,894                               









Our revenues and operating expenses increased significantly for the year ended December 31, 2004 from the year ended December 31, 2003 primarily as a result of our acquisition of the medical hospital in Cameron, Louisiana and psychiatric hospital in Lake Charles, Louisiana.



Revenue includes reimbursement amounts billed to Medicare, Medicaid and private insurance companies.   These amounts are shown at the gross amount billed less contractual allowances.  Revenue was $7,581,505 and $0, for the years ended December 31, 2004 and 2003, respectively.    Revenue of $199,789 was included in discontinued operations for the year ended December 31, 2003.  The increase in revenue is a result of the Companys acquisitions.



Salaries and wages consist of wages paid to employees.  The amount of salaries and wages were $2,714,145 and $31,840, for the years ended December 31, 2004 and 2003, respectively.  Salaries and wages of $35,420 was included in discontinued operations for the year ended December 31, 2003.



Contract labor consists primarily of payments to doctors, nurses, therapists and other medical personnel.  Contract labor was $1,058,084 and $0 for the years ended December 31, 2004 and 2003. Contract labor of $63,426 was included in discontinued operations for the year ended December 31, 2003.



Medical Supplies consists of supplies used in the treatment of patients.  Medical supplies were $533,738 and $0 for the years ended December 31, 2004 and 2003, respectively. Medical supplies of $3,802 was included in discontinued operations for the year ended December 31, 2003.



Professional fees for the years ended December 31, 2004 and 2003 were $534,434 and $140,673, respectively.  Accounting and auditing fees for the years ended December 31, 2004 and 2003 were $146,341 and $6,439, respectively and legal fees of $321,735 and $43,687, respectively..



General and administrative costs for the years ended December 31, 2004 and 2003 were $972,707 and $96,767, respectively.  General and administrative costs of $102,906 was included in discontinued operations for the year ended December 31, 2003.  This consisted of office supplies, utilities and other administrative costs.



Depreciation and amortization for the years ended December 31, 2004 and 2003 were $16,040 and $370.  Depreciation of $1,333 was included in discontinued operations.  This consisted primarily of depreciation of medical and office equipment.



Rent Expense consists of rent for medical equipment, our corporate facility, our medical hospital in Cameron, Louisiana and our psychiatric facility in Lake Charles, Louisiana.  Rent was $512,527 and $21,830, for the year ended December 31, 2004 and 2003, respectively.



Non-cash compensation expense of $106,450 and $131,000 was recorded for the years ended December 31, 2004 and 2003.  This non-cash compensation consisted of restricted and unrestricted stock issued to employees and consultants as payment for their services.  The restricted stock will fully vest no earlier than one year from the date of issuance.



The Company had other income of $2,172,051 for the year ended December 31, 2004, consisting of $650,000 in management fees, other income and gain on debt settlement relating to preacquisition liabilities and settlement of Cornell debentures.  The Company did not have other income in the year ended December 31, 2003.



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



The Company incurred interest expense of $329,082 and $26,590 for the years ended December 31, 2004 and 2003, respectively, primarily due to the interest on the convertible debentures we had issued to Cornell Capital Partners, LP and have since subsequently settled.  We may also incur additional debt in future years in order to facilitate acquisitions or expand corporate operations.   Interest paid on this future debt could have a material adverse effect on our business, financial condition, results of operations, cash flows, and prospects.



The provision for income taxes for the years ended December 31, 2004 and 2003 was $0 and $0, respectively.  Any tax benefit generated by our loss was offset by a deferred tax asset allowance.  Our future effective tax rate will depend on various factors including the mix between state taxable income or losses, amounts of tax deductible goodwill and the timing of adjustments to the valuation allowance on our net deferred tax assets.



LIQUIDITY AND CAPITAL RESOURCES



We had cash of $1,023,028 and $124,625 as of December 31, 2004 and 2003, respectively.   Cash generated from operations was $682,124 for the year ended December 31, 2004 and cash used in operations was $110,413 for the year ended December 31, 2003.  The increase in cash was due primarily to our restructuring of our operations in our medical hospital in Cameron, Louisiana and our psychiatric facility in Lake Charles, Louisiana.



Cash used in investing activities resulted primarily from capital expenditures and assumptions of liabilities.  Capital expenditures during the years ended December 31, 2004 and 2003 were $74,082 and $1,100.  Capital expenditures include computer hardware, medical vehicles, and medical equipment.  We also deposited $149,760 for medical equipment which was placed in service in January 2005.  We also assumed a $82,439 overdraft liability in the 2004 period in connection with our acquisition of in our medical hospital in Cameron, Louisiana and our psychiatric facility in Lake Charles, Louisiana.



Cash provided from financing activities was $552,559 and $233,480 for the years ended December 31, 2004 and December 31, 2003 respectively.  This includes advances from our principal shareholder, net of repayments, and our settlement of outstanding convertible debentures, net of any proceeds received for the year ended December 31, 2004.





In June 2003, in connection with the merger between INFe and a total of 111,600,000 shares of common stock and one share of preferred stock were issued to the stockholders of Pacer Health Services.  The share of preferred stock has since been converted into 318,822,903 shares of common stock.



In connection with the March 22, 2004 acquisition of Cameron (see Note 6), the Company acquired a Medicare payable totaling $1,134,716.  The Medicare payable consisted of amounts due to Medicare as a result of cost reimbursements by Medicare in excess of what the Company was entitled to.  During the year ended December 31, 2004, the Company repaid $80,727.  At December 31, 2004 the outstanding balance due was $1,053,989.



On September 22, 2004, the Company entered into a settlement agreement with respect to our outstanding liability for the stand alone year ended December 31, 2003.  The terms of the payments extend through July 2007.  The amount due from January 2006 through July 2007 is $289,014 which has been appropriately reclassified to Long-term Liabilities.



In December 2003, the Company executed a Securities Purchase Agreement whereby it would issue $500,000 of secured convertible debentures.  On December 29, 2003, pursuant to the Securities Purchase Agreement, the Company issued a two year convertible debenture totaling $250,000 to Cornell secured by all of the assets and property of the Company.  In connection with the issuance, $80,000 of distributed funds were misclassified as then current period expenses.  The Company has restated its December 31, 2003 audited consolidated financial statements as presented on Form 10-KSB.  The Company  recorded a contra liability of $25,000 by debiting debt discount.   These $25,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  In addition, the Company had computed a beneficial conversion feature on this convertible debenture totaling $147,024.  The beneficial conversion feature is also treated in the same manner as a debt discount.  Debt discounts are directly offset against the gross convertible debentures balance outstanding.  The total debt discount of $172,024 will be amortized to interest expense over the life of the debt.  During the year ended December 31, 2004, amortization was $79,030.  The note was settled on November 30, 2004.



On January 30, 2004, pursuant to the Securities Purchase Agreement, the Company issued a convertible debenture totaling $125,000 to Cornell.  The debenture accrues interest at a rate of 5% per year.  The debentures are convertible at the holders option until the maturity date and if not converted by that maturity date, the debentures will automatically convert.  The conversion price is equal to the lower of (i) 120% of the closing bid price of the common stock as of the closing date or (ii) 80% of the lowest closing bid price of the common stock for the 5 trading days immediately preceding the conversion date. In connection with the issuance of the $125,000 convertible debenture, the Company recorded a contra liability of $12,500 by debiting debt discount.  Debt discount is directly offset against the gross convertible debentures outstanding.  These costs are fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The debt discount will be amortized over the life of the debt to interest expense.  During the year ended December 31, 2004, amortization was $5,223.  The note was settled on November 30, 2004.



During the year ended December 31, 2004, the Company recorded accrued interest with respect to this convertible debenture totaling $5,223 with a corresponding charge to operations for related interest expense.



Additionally, upon issuance of the convertible debenture, the Company computed $67,308 of interest expense for a beneficial conversion feature and charged additional paid in capital for the same amount.



On December 29, 2003, the Company entered into a Standby Equity Distribution Agreement (SEDA) with Cornell.  Under the terms of this agreement, the Company could issue and sell to Cornell common stock for a total purchase price of up to $10,000,000.  In addition, the Company entered into a Placement Agent Agreement on December 29, 2003 with a registered broker-dealer.  Pursuant to the Placement Agent Agreement, Pacer paid to the registered broker-dealer a one-time placement agent fee of 476,190 shares of common stock.  The shares were valued at $10,000 and treated as an offering cost directly charged to additional paid-in capital.



In connection with the SEDA, the Company issued Cornell a compensation convertible debenture in the amount of $390,000 convertible into shares of common stock at a conversion price equal to the lowest closing bid price during the 3 day trading period immediately preceding the conversion date, as a one-time commitment fee.  During the year ended December 31, 2004, the Company recognized $178,750 as an equity line commitment fee expense.  In connection with the issuance of the $390,000 compensation convertible debenture, the Company computed a beneficial conversion feature value totaling $16,250.  During the year ended December 31, 2004, the Company amortized $16,250 to interest expense attributable to the $16,250 beneficial conversion feature recorded as a debt discount pursuant to the issuance of the $390,000 compensation convertible debenture.  On November 30, 2004, the Company settled the outstanding compensation convertible debenture and amortized the remaining outstanding balance of $211,250 in deferred loan commitment fees as equity line commitment fee expense.  Total amortization of the equity line commitment fee was $390,000 for the year ended December 31, 2004.  It is unlikely that the Company will draw funds under the SEDA.



On November 30, 2004, the Company settled all of its outstanding convertible debentures totaling $765,000 excluding related debt discount of $133,330 with Cornell Capital.  In connection with the settlement, the Company has already paid Cornell $150,000 as of December 31, 2004.  In accordance with the settlement plan, the Company is required to pay $130,000 on each date of February 15, 2005, May 15, 2005 and August 15, 2005.  The payment due on February 15, 2005 has been paid.



The following is a summary of the settlement with Cornell:



|Debentures settled                                                      | $765,000 
|----------------------------------------------------------------------- | ---------
|Add: fair value of beneficial conversion feature at extinguishment date | 149,748  
|Less:  debt discount, net                                               | (29,140) 
|Less: debt issue costs, net                                             | (79,638) 
|                                                                        |          
|Debentures, net                                                         | $805,970 
|                                                                        |          
|Add: accrued interest                                                   | 34,386   
|Add:  liquidated damages                                                | 52,500   
|                                                                        |          
|Total debt to be settled                                                | $892,856 
|                                                                        |          
|Less:  Total to be paid pursuant to agreement                           | (540,000)
|                                                                        |          
|Gain on debt settlement                                                 | $352,856 



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



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



INFLATION



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



SEASONALITY



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



IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, a revision of SFAS 123. The standard requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees and is effective for interim or annual periods beginning after June 15, 2005. In accordance with the revised statement, we will be required to recognize the expense attributable to equity based compensation granted or vested subsequent to June 30, 2005. We are evaluating the requirements of SFAS 123R. We have not yet determined the full effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the amounts we currently determine under SFAS 123.





ITEM 7. FINANCIAL STATEMENTS.



The consolidated financial statements of Pacer required by Regulation S-B are attached to this report.  Reference is made to Item 13 below for an index to the financial statements.



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



On May 25, 2004, Pacer Health Corporation  received written notice that Ahearn,  Jasco +  Company  had  declined  to  stand  for  reappointment  as the Company's  auditors for the year ended December 31, 2004 and as the  independent accountants  for  the  reviews  of the  Company's  quarter  information  for the quarters  ending during the fiscal year ending December 31, 2004.  On June 3, 2004, we filed Form 8-K discussing the change in accountants.



Pursuant  to a  resolution  of the  Board  of  Directors,  the  Company appointed Salberg & Company,  P.A. as the Company's  independent  accountants on June 3, 2004.  Salberg & Company, P.A. replaced Ahearn, Jasco + Company, P.A., which had previously served as the Company's independent accountants.



Prior to the date of this report,  Salberg & Company, P.A. has not been engaged as an independent accountant to audit either the financial statements of the Company or any of its subsidiaries,  nor has it been consulted regarding the application  of  accounting  principles  to any  specified  transaction,  either completed or proposed,  or the type of audit  opinion that might be rendered on the  Company's  financial  statements,  or any matter  that was the subject of a disagreement or reportable event.



The reports  of  Ahearn,  Jasco  +  Company,  P.A.  on  the  financial statements  for the years  ended  December  31, 2003 did not include any adverse opinion or disclaimer of opinion,  or any  qualification  or  modification as to uncertainty, audit scope or accounting principles, except for the addition of an explanatory  paragraph  regarding  the  Company's  ability to continue as a going concern.



During the years ended  December  31, 2003 and through the date of this report,  there were no disagreements with Ahearn,  Jasco + Company,  P.A. on any matter of accounting principles or practices, financial statement disclosure, or auditing  scope or  procedure  which,  if not  resolved to the  satisfaction  of Ahearn,  Jasco + Company,  P.A.,  would have caused it to make  reference to the subject matter of such disagreement in their reports on the financial statements for such years.



ITEM 8A. CONTROLS AND PROCEDURES

(A)

Evaluation Of Disclosure Controls And Procedures

Our former auditors in May 2004 advised management that during the course of the audit, they noted deficiencies in internal controls relating to (i) weakness in our financial reporting process as a result of a lack of adequate staffing in the accounting department; (ii) weakness in our financial reporting process as a result of our accounting system; (iii) weakness in our financial reporting process as a result of insufficient controls over non-accounting documents; (iv) weakness in our financial reporting process as a result of a lack of segregation of duties; and (v) weakness in our financial reporting process as a result of a lack of supporting evidence and record retention.

Our former auditors have advised management that they believe each of these internal controls may constitute a material weakness as defined in Statement of Auditing Standards No. 60.  They believe that certain of these internal control weaknesses may also constitute deficiencies in our disclosure control.

Our current auditors advised management that during the course of the December 31, 2004 audit, they concluded that our internal control structure has improved.  Our current auditors have concluded that   deficiencies (i), (iii) and (v) noted above no longer constitute a material weakness as defined in Statement of Auditing Standards No. 60.  With regards to deficiencies (ii) and (iv) noted above, our current auditors have advised management that they believe these internal controls need to be further addressed so as not to constitute a material weakness.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Companys disclosure controls and procedures.  The Companys disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Companys  disclosure control objectives.  Based on the statements listed above, management has and will continue to perform substantial additional procedures designed to ensure that these internal controls weaknesses do not lead to material misstatements in our consolidated financial statements.  Based on these additional procedures, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported as specified in Securities and Exchange Commission rules and forms.

We will continue to evaluate the effectiveness of our internal controls and procedures on an ongoing basis, and will take further action as appropriate.

(A)

Changes in Internal Controls Over Financial Reporting



In connection with the evaluation of the Companys internal controls during the Companys year ended December 31, 2004, the Companys Chief Executive Officer and Chief Financial Officer have determined that there are no changes to the Companys internal controls over financial reporting that has materially affected, or is reasonably likely to materially effect, the Companys internal  controls over financial reporting.



PART III





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



As of April 15, 2005, the directors and executive officers of Pacer, their age, positions in Pacer, the dates of their initial election or appointment as directors or executive officers, and the expiration of the terms are as follows:



|Name of Director/
Executive Officer | Age | Position                               | Period Served        
|----------------------------------- | --- | -------------------------------------- | ---------------------
|                                    |     |                                        |                      
|Rainier Gonzalez                    | 32  | Chairman, CEO, President and Secretary | June 2003 to date    
|Eric Pantaleon, M.D.                | 42  | Director                               | July 2003 to date    
|Alfredo Jurado                      | 32  | Director                               | July 2003 to date    
|Marcello Llorente                   | 28  | Director                               | March 2005 to date   
|Eugene Marini                       | 43  | Director                               | March 2005  to date  
|J. Antony Chi                       | 31  | Chief Financial Officer                | July 2004 to date    
|David L. Byrns                      | 46  | Vice-President of Finance              | February 2004 to date



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



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



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



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



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



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



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



J. Antony Chi, Chief Financial Officer.  Mr. Chi has been with the Company since July 5, 2004.  His prior experience includes two Big 4 accounting firms, specifically, PriceWaterhouseCoopers LLP from 1997 to 1998 and Ernst & Young LLP from 1998 to 1999.  He has also worked at LNR Property Corporation from 1999 to 2000, Gerald Stevens Inc. from 2000 to 2001, and most recently, AutoNation, Inc. prior to joining Pacer Health.  Mr. Chi holds a bachelors degree from New York University.  Mr. Chi is currently a Certified Public Accountant in the State of Maryland.



David L. Byrns, Vice-President of Finance.  Mr. Byrns has been with the Company since February 1, 2004.  From 2002 until joining the Company, Mr. Byrns served as interim CFO of South Shore Hospital, a 196-bed, not-for-profit medical center in Miami Beach, Florida.  From 1992 to 2002, he served as CFO, COO and systems administrator at Palm Springs General Hospital, one of the few privately-owned, for-profit medical facilities in Florida.  In this capacity, he managed all of the hospitals financial operations, cash management, information systems, insurance, ancillary departments and regulatory agency reporting. Byrns previously served as controller at Hollywood Medical Center, where he managed financial operations, information systems, budgeting and regulatory agency reporting.  He also was an assistant controller at the east regional office of Nu-Med, where his responsibilities included consolidation of financial statements for seven rural hospitals in five states.  Byrns holds a bachelors degree in business administration from the University of Louisville, as well as a masters degree in hospital management from St. Thomas University.  He served in the United States Army for nine years while completing his education, and achieved the rank of staff sergeant before his honorable discharge in 1985.



Board Meetings And Committees

During the fiscal year ended December 31, 2004, the Board of Directors of the Company met on at least one occasion.  All the members of the Board attended the meetings.  The Board does not have an acting Compensation Committee or Audit Committee.  There are no other committees of the Boards of Directors.



Compensation Of Directors

For his or her service on the Board of Directors, each director shall be compensated as follows: (i) seven hundred dollars ($700.00) for each meeting of the Board of Directors attended by such director for reimbursement of expenses; and (ii) twenty-five thousand dollars ($25,000.00), per annum, in the form of common stock, vested after a period of one year from the date of such directors appointment to the Board of Directors.  To date, the Directors have voted to waive any compensation until further notice.



Section 16(a) Beneficial Ownership

Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder require Pacers officers and directors, and persons who beneficially own more than ten percent of a registered class of Pacers equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish Pacer with copies.



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



CODE OF ETHICS



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



ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth information with respect to the total compensation earned by, or paid to, Rainier Gonzalez, the Companys President and Chief Executive Officer, David L. Byrns, Vice-President of Finance, J. Antony Chi, Chief Financial Officer, and Thomas Richfield, the Companys former President and Chief Executive Officer (the Named Executive Officers) for the fiscal years ended December 31, 2004, 2003, and 2002.  No other executive officer of the Company earned total salary and bonus in excess of $100,000 during any such fiscal years.







|                                              | Annual Compensation | Long Term Compensation
|--------------------------------------------- | ------------------- | ----------------------
|Name and Principal Position                   | Year                | Salary                
|Rainier Gonzalez, Chairman, CEO and President | 2004                | $191,200              
|                                              | 2003                | $          --         
|                                              |                     |                       
|David L. Byrns, Vice-President of Finance     | 2004                | $150,000              
|                                              |                     |                       
|J. Antony Chi, Chief Financial Officer        | 2004                | $150,000              
|                                              |                     |                       
|Thomas Richfield, Chairman,                   | 2002                | $200,000(1)           
|CEO and President                             | 2001                | $200,000(3)           
|                                              | 2000                | $200,000(5)           



(1)

In lieu of payment of the base salary of $200,000, Mr. Richfield who no longer is associated with the Company was issued 5,000,000 shares of common stock valued at $100,000, as reflected in the Long Term Compensation section of the compensation table, and the Company further accrued for $100,000 of salary as at November 30, 2002, which was settled as a result of the merger with Pacer.

(2)

Represents 5,000,000 shares of common stock (post-split) valued at $100,000 in lieu of salary and 232,672 shares of common stock valued at $8,144 in lieu of bonus.

(3)

In lieu of payment of the base salary, Mr. Richfield was issued 2,000,000 shares of common stock valued at $100,000, as reflected in the Long Term Compensation section of the compensation table, and the Company further accrued for $100,000 of salary as at November 30, 2001, which was settled as a result of the merger with Pacer.

(4)

Represents 2,000,000 shares (pre-split) valued at $100,000 in lieu of salary and 411,451 shares (of which 295,756 were pre-split and 115,695 were post-split) valued at $32,801 in lieu of a bonus.

(5)

In lieu of payment of the base salary, Mr. Richfield was issued 250,000 shares of common stock (pre-split) valued at $200,000, as reflected in the Long Term Compensation section of the compensation table.

(6)

Represents 250,000 shares of common stock (pre-split) valued at $200,000 in lieu of salary and 495,136 shares (pre-split) valued at $185,881 in lieu of bonus.



Based on the information available to the Companys current management, the above executive compensation reflected as being paid to Mr. Richfield reflects the actual compensation paid to Mr. Richfield who is a former executive officer of the Company.



Aggregated Options Exercises In Fiscal 2004 And Year-End Option Values

There were no Option Exercises in the last two fiscal years.



The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the value of unexercised options to purchase common stock of the Company held as of December 31, 2004.

|                    | Shares Acquired on Exercise | Value Realized | Number of Securities Underlying Unexercised Options at 12/31/2004 
Exercised/Unexercised | Value of Unexercised Shares In the Money Options at 12/31/2004(1)Exercised/Unexercised
|------------------- | --------------------------- | -------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|                    |                             |                |                                                                                          |                                                                                       
|Thomas M. Richfield | --                          | --             | --                                                                                       | --                                                                                    
|Rainier Gonzalez    | --                          | --             | --                                                                                       | --                                                                                    



(1)

The fair market value of the Company's common stock at the close of business on December 31, 2004 was $0.01.



Stock Plan

On June 2, 2003, the Company filed a Form S-8 Registration Statement to register 8,000,000 shares underlying its 2003 Stock Plan.  On February 21, 2003, the Company filed a Form S-8 Registration Statement to register 6,000,000 shares underlying its 2003 Stock Incentive Plan.  On June 21, 2002, the Company filed a Form S-8 Registration Statement to register 1,000,000 shares underlying its 2002 Stock Incentive Plan.  All shares registered under the stock plans have been issued.





Employment Agreements

Pacer currently has an employment agreement with its Chief Executive Officer, Rainier Gonzalez.  The agreement commenced on January 1, 2004 and provides for a base salary of $191,200 per annum.



Pacer currently has an employment agreement with its Vice-President of Finance, David L. Byrns.  The agreement commenced on February 1, 2004 and provides for a base salary of $150,000 per annum and ten million shares to be issued ratably over a three year period.



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







ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The following table sets forth information with respect of the beneficial ownership as of April 15, 2005 for each officer and director of Pacer and for each person who is known to Pacer to be the beneficial owner of more than 5% of Pacers common stock.



|Security Ownership of Certain Beneficial Owners and Management
|--------------------------------------------------------------
|Title of Class                                                
|Common                                                        
|                                                              
|                                                              
|Common                                                        
|                                                              
|                                                              
|Common                                                        
|                                                              
|                                                              
|Common                                                        
|Common                                                        
|Common                                                        
|Common                                                        
|All Officers And Directors 
As A Group (6) Persons            
|                                                              



_______________



*

Less than 1%.

(1)

Applicable percentage of ownership is based on 570,722,228 shares of common stock outstanding as of April 15, 2005 for each stockholder.  Beneficial ownership is determined in accordance within the rules of the Commission and generally includes voting of investment power with respect to securities.  Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of April 15, 2005 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.



Securities Authorized For Issuance Under Equity Compensation Plan

The following table sets forth the securities that have been authorized under equity compensation plans as of December 31, 2004.



|                                                           | Number 
Of Securities 
To Be Issued 
Upon Exercise 
Of Outstanding Options, Warrants And Rights | Weighted-Average 
Exercise Price 
Of Outstanding Options, 
Warrants And Rights | Number 
Of Securities 
Remaining Available 
For Future Issuance 
Under Equity Compensation Plans 
(Excluding Securities Reflected 
In Column (a))
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------
|                                                           | (a)                                                                                             | (b)                                                                            | (c)                                                                                                                                              
|Equity compensation plans approved by security holders     | --                                                                                              | --                                                                             | --                                                                                                                                               
|Equity compensation plans not approved by security holders | --                                                                                              | --                                                                             | --                                                                                                                                               
|TOTAL                                                      | --                                                                                              | --                                                                             | --                                                                                                                                               
|                                                           |                                                                                                 |                                                                                |                                                                                                                                                  





ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



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



In January 2005, the Company repaid $268,000 to its principal stockholder for previously advanced funds.



During the year ended December 31, 2004, the Company received loans at various times from its principal shareholder, who also serves as its Chief Executive Officer and Chairman of the Board.  As of December 31, 2004, the amount due to the principal shareholder was $272,579.  The funds received from these loans were used for general working capital.



During the year ended December 31, 2004, the Company purchased advertising and marketing services from a company in which the former owner of AAA is a shareholder.  For the year ended December 31, 2004, the Company incurred and paid $9,130 of advertising services from this company, which has been included as a component of discontinued operations.



During the year ended December 31, 2003, the Company purchased advertising and marketing services from a company in which the former owner of AAA is a shareholder.  For the fiscal year ended December 31, 2003, we incurred $79,343 of advertising services from this company.



As described below, Thomas M. Richfield, our past president and chief executive officer, has been compensated for services through the issuance of our common stock:



During the six month period ended May 31, 2003, Mr. Richfield was issued 116,336 shares of restricted common stock valued at $16,380 as a bonus for such period.



During the year ended November 30, 2002, Mr. Richfield earned 5,000,000 (post split) shares of restricted common stock valued at $100,000.00.



During the year ended November 30, 2001, Mr. Richfield earned 411,451 shares (of which, 295,756 were pre-split and 115,695 were post-split) of restricted common stock as a bonus for the year. These shares were valued at $32,801.





ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



Documents Filed As Part Of This Report:



(a)

See Index to Consolidated Financial Statements attached, which are filed as part of this report.



(b)

Reports on 8-K.   No Form 8-K (or amendment to Form 8-K) was filed during the 4th quarter of the fiscal year.



(c)

Exhibits.



|Exhibit No. | Description                                                                                                                                                                                         | Location                                                                                  
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------
|2.1         | Merger Agreement, dated July 26, 2003, between among others, Infe, Inc. and Pacer Health Corporation                                                                                                | Incorporated by reference to Exhibit 99.1 to Form 8-K filed on July 3, 2003               
|2.2         | Asset Purchase Agreement dated April 14, 2003 between Pacer Health Corporation and AAA Medical Center, Inc.                                                                                         | Incorporated by reference to Exhibit 2.2 to Form 10-QSB filed on October 20, 2003         
|2.3         | Promissory Note, Amendment No. 1, Entered Into By Pacer Health Corporation in Favor of AAA Medical Center, Inc. dated June 23, 2003 between Infe, Inc. and Daniels Corporate Advisory Company, Inc. | Incorporated by reference to Exhibit 2.3 to Form 10-QSB filed on October 20, 2003         
|3.1         | Articles of Incorporation of Infocall Communications Corp.                                                                                                                                          | Incorporated by reference to Exhibit 3(i) to Form 10-SB/12G filed on December 30, 1999.   
|3.2         | Articles of Amendment to Articles of Incorporation of Infocall Communications Corp.                                                                                                                 | Incorporated by reference to Exhibit 3(i)(1) to Form 10-SB/12G filed on December 30, 1999.
|3.3         | Amended and Restated Articles of Incorporation of Infocall Communications Corp.                                                                                                                     | Incorporated by reference to Exhibit 3.4 to Form SB-2 filed on September 15, 2000         
|3.4         | Certificate of Amendment to Certificate of Incorporation of Infe, Inc.                                                                                                                              | Incorporated by reference to Exhibit 1.1 to Form 10-QSB filed on October 15, 2001         
|3.5         | Articles of Amendment to Articles of Incorporation of Infe, Inc.                                                                                                                                    | Incorporated by reference to Exhibit 3.5 to Form 10-QSB filed on October 20, 2003         
|3.6         | Articles of Amendment to Amended and Restated Articles of Incorporation of Infe, Inc.                                                                                                               | Incorporated by reference to Exhibit 3.6 to Form SB-2 filed on January 16, 2004.          
|3.7         | Bylaws of Infe, Inc.                                                                                                                                                                                | Incorporated by reference to Exhibit 3.7 to Form SB-2 filed on January 16, 2004.          
|4.1         | Specimen Stock Certificate                                                                                                                                                                          | Incorporated by reference to Exhibit 4.1 to Form SB-2 filed on September 15, 2000.        
|10.1        | Securities Purchase Agreement dated December 29, 2003 among the Registrant and the Buyers                                                                                                           | Incorporated by reference to Exhibit 10.1 to Form SB-2 filed on January 16, 2004.         
|10.2        | Escrow Agreement dated December 29, 2003 among the Registrant, the Buyers, and Butler Gonzalez LLP                                                                                                  | Incorporated by reference to Exhibit 10.2 to Form SB-2 filed on January 16, 2004.         
|10.3        | Secured Debenture Dated December 29, 2003 between the Registrant and Cornell Capital Partners LP                                                                                                    | Incorporated by reference to Exhibit 10.3 to Form SB-2 filed on January 16, 2004.         
|10.4        | Security Agreement Dated December 29, 2003 between Registrant and Buyers                                                                                                                            | Incorporated by reference to Exhibit 10.4 to Form SB-2 filed on January 16, 2004.         
|10.5        | Investor Registration Rights Agreement dated December 29, 2003 between the Registrant and the Investors                                                                                             | Incorporated by reference to Exhibit 10.5 to Form SB-2 filed on January 16, 2004.         
|10.6        | Standby Equity Distribution Agreement dated December 29, 2003 between the Registrant and Cornell Capital Partners LP                                                                                | Incorporated by reference to Exhibit 10.6 to Form SB-2 filed on January 16, 2004.         
|10.7        | Registration Rights Agreement dated December 29, 2003 between the Registrant and Cornell Capital Partners, LP                                                                                       | Incorporated by reference to Exhibit 10.7 to Form SB-2 filed on January 16, 2004.         
|10.8        | Escrow Agreement dated December 29, 2003 among the Registrant, Cornell Capital Partners, LP and Butler Gonzalez, LLP                                                                                | Incorporated by reference to Exhibit 10.8 to Form SB-2 filed on January 16, 2004.         
|10.9        | Placement Agent Agreement dated December 29, 2003 among the Registrant, Newbridge Securities Corporation and Cornell Capital Partners LP                                                            | Incorporated by reference to Exhibit 10.9 to Form SB-2 filed on January 16, 2004.         
|10.10       | Letter of Intent between Revival Healthcare, Inc. and Registrant dated December 9, 2003.                                                                                                            | Incorporated by reference to Exhibit 10.10 to Form SB-2 filed on January 16, 2004.        
|10.11       | Management and Acquisition Agreement, dated February 2, 2004, by and between Pacer Health Management Corporation and Camelot Specialty Hospital of Cameron, LLC.                                    | Incorporated by reference to Form 8-K filed on February 11, 2004.                         
|10.12       | Asset Purchase Agreement, dated March 22, 2004, by and between Pacer Health Management Corporation and Camelot Specialty Hospital of Cameron, L.L.C.                                                | Incorporated by Reference to Form 8-K filed on April 5, 2004                              
|14.1        | Code of Ethics                                                                                                                                                                                      | Incorporated by Reference to Form 10-KSB filed on April 14, 2004.                         
|31.1        | Certification by Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  | Provided herewith.                                                                        
|31.2        | Certification by Chief Financial pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          | Provided herewith.                                                                        
|32.1        | Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                       | Provided herewith                                                                         



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



For the year ended December 31, 2003 and the first quarter of 2004, Pacer incurred fees to Bagell Josephs & Co. of  $32,000 for auditing work, services related to the SEC Registration statement on Form SB-2, review of various other SEC Filings, and quarterly reviews on SEC Forms 10-QSB.  Bagell Josephs & Co. has provided no other services to Pacer other than those described above.  The board of directors had pre-approved all work to be done by Bagell Josephs & Co., which included audit work, registration statement services, review of various other SEC Filings and quarterly reviews of SEC Forms 10-QSB.



During the period April 1, 2004 through September 7, 2004, Pacer incurred fees to Ahearn Jasco + Company, P.A. of $19,500 for auditing work and services related to the review of various SEC Filings.  Ahearn Jasco + Company, P.A. has provided no other services to Pacer other than those described above.  The board of directors had pre-approved all work to be done by Ahearn Jasco + Company, P.A., which included audit work and review of various SEC Filings.



For the year ended December 31, 2004 Pacer incurred fees to Salberg & Co. of $65,000 for auditing and review work.  Salberg & Co. has provided no other services to Pacer other than those described above.  The board of directors had pre-approved all work to be done by Salberg & Co., which included audit work and review of various SEC Filings.















TABLE OF CONTENTS









REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





FINANCIAL STATEMENTS



Consolidated Balance Sheet





Consolidated Statements of Operations





Consolidated Statements of Changes in Stockholders Equity (Deficiency)





Consolidated Statements of Cash Flows







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.





To the Board of Directors and Shareholders of:

Pacer Health Corporation



We have audited the accompanying consolidated balance sheet of Pacer Health Corporation as of December 31, 2004, and the related consolidated statements of operations, changes in stockholders equity (deficiency), and cash flows for the year then ended..  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 audit.



We conducted our audit 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 consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pacer Health Corporation at December 31, 2004, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.







/s/ SALBERG & COMPANY, P.A.

Boca Raton, Florida

April 11, 2005







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors of

Pacer Health Corporation



We have audited the accompanying consolidated statements of operations, changes in stockholders equity (deficiency), and cash flows of Pacer Health Corporation and its subsidiaries (collectively, the Company) for the period May 12, 2003 (inception) through December 31, 2003.  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 audit.



We conducted our audit 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 audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations, changes in stockholders equity (deficiency) and cash flows of Pacer Health Corporation and its subsidiaries for the period Mary 12, 2003 (inception) through December 31, 2003 in conformity with U.S. generally accepted accounting principles.



As discussed in Note 16 to the accompanying consolidated financial statements, the Company has restated its financial statements for the year ended December 31, 2003.



/s/ Ahearn, Jasco + Company, P.A.



AHEARN, JASCO + COMPANY, P.A.

Certified Public Accountants



Pompano Beach, Florida

April 3, 2004, except for the information related

to the restatement presented in Note 16, for

which the date is December 15, 2004







Item 1.  Financial Statements



|PACER HEALTH CORPORATION AND SUBSIDIARIES                     
|--------------------------------------------------------------
|CONSOLIDATED BALANCE SHEET                                    
|December 31, 2004                                             
|                                                              
|ASSETS                                                        
|                                                              
|                                                              
|Current Assets                                                
|Cash                                                          
|Patient receivables, net                                      
|Other receivable, net                                         
|Deposits                                                      
|Total Current Assets                                          
|                                                              
|Property and equipment, net                                   
|                                                              
|Other Assets                                                  
|Goodwill, net                                                 
|Total Other Assets                                            
|                                                              
|Total Assets                                                  
|                                                              
|LIABILITIES AND STOCKHOLDERS' EQUITY                          
|                                                              
|Current Liabilities                                           
|Accounts payable                                              
|Settlements payable                                           
|Accrued wages                                                 
|Accrued interest payable                                      
|Accrued professional Fees                                     
|Accrued expenses                                              
|Note payable                                                  
|Medicare payable, current portion                             
|Advances payable                                              
|Total Current Liabilities                                     
|                                                              
|Long Term Liabilities                                         
|Medicare payable, net of current portion                      
|Loan payable - related party                                  
|Accrued interest payable - related party                      
|Total Long Term Liabilities                                   
|                                                              
|Total Liabilities                                             
|                                                              
|Commitments and Contingencies                                 
|                                                              
|Stockholders' Equity                                          
|Preferred stock, Series A, $0.0001 par value, 20,000,000      
|shares authorized, none issued and outstanding                
|Common stock, $0.0001 par value, 930,000,000 shares authorized
|570,722,228 issued and 567,722,228 outstanding                
|Additional paid in capital                                    
|Accumulated deficit                                           
|                                                              
|Less:  Deferred compensation                                  
|Total Stockholders' Equity                                    
|                                                              
|Total Liabilities and Stockholders' Equity                    









Pacer Health Corporation and Subsidiaries

Consolidated Statements of Operations



|                                                |                                            |                                   |             | Year ended December 31,
|----------------------------------------------- | ------------------------------------------ | --------------------------------- | ----------- | -----------------------
|                                                |                                            |                                   |             | 2004                   
|                                                |                                            |                                   |             |                        
|Patient Services Revenues, net                  | $                                          | 7,581,505                         | $           | -                      
|                                                |                                            |                                   |             |                        
|Operating Expenses                              |                                            |                                   |             |                        
|                                                | Advertising                                |                                   | 2,418       |                        
|                                                | Amortization of debt issue costs           |                                   | 25,616      |                        
|                                                | Amortization of equity line commitment fee |                                   | 390,000     |                        
|                                                | Bad debt expense                           |                                   | 1,505,836   |                        
|                                                | Contract labor                             |                                   | 1,058,084   |                        
|                                                | Depreciation                               |                                   | 16,040      |                        
|                                                | Insurance                                  |                                   | 279,681     |                        
|                                                | Medical Supplies                           |                                   | 533,738     |                        
|                                                | Professional fees                          |                                   | 534,434     |                        
|                                                | Rent                                       |                                   | 512,527     |                        
|                                                | Salaries and wages                         |                                   | 2,714,145   |                        
|                                                | General and administrative                 |                                   | 972,707     |                        
|                                                |                                            | Total Operating Expenses          |             | 8,545,226              
|                                                |                                            |                                   |             |                        
|Net Income/(Loss) from Operations               |                                            | (963,721)                         |             | (291,480)              
|                                                |                                            |                                   |             |                        
|Other Income                                    |                                            |                                   |             |                        
|                                                | Management fee                             |                                   | 650,000     |                        
|                                                | Other                                      |                                   | 89,344      |                        
|                                                | Gain on debt settlement                    |                                   | 1,432,707   |                        
|                                                |                                            | Total Other Income                |             | 2,172,051              
|                                                |                                            |                                   |             |                        
|Other Expense                                   |                                            |                                   |             |                        
|                                                | Interest expense                           |                                   | (329,082)   |                        
|                                                |                                            | Total Other Expense               |             | (329,082)              
|                                                |                                            |                                   |             |                        
|                                                |                                            | Total Other Income/(Expense), net |             | 1,842,969              
|                                                |                                            |                                   |             |                        
|Net Income/(Loss) from Continuing Operations    | $                                          | 879,248                           | $           | (318,070)              
|                                                |                                            |                                   |             |                        
|Discontinued Operations                         |                                            |                                   |             |                        
|Loss from operations of discontinued component  |                                            |                                   |             |                        
|(including loss on disposal of $0)              |                                            | (488,354)                         |             | (236,605)              
|Loss on Discontinued Operations                 |                                            | (488,354)                         |             | (236,605)              
|                                                |                                            |                                   |             |                        
|Net Income/(Loss)                               | $                                          | 390,894                           | $           | (554,675)              
|                                                |                                            |                                   |             |                        
|Net Income/(Loss) Per Share - Basic and Diluted |                                            |                                   |             |                        
|                                                |                                            |                                   |             |                        
|Income/(Loss) from continuing operations        | $                                          | 0.00                              | $           | (0.00)                 
|Income/(Loss) from discontinued operations      | $                                          | (0.00)                            | $           | (0.00)                 
|                                                |                                            |                                   |             |                        
|Net Income/(Loss) Per Share - Basic and Diluted | $                                          | 0.00                              | $           | (0.01)                 
|                                                |                                            |                                   |             |                        
|Weighted average number of shares outstanding   |                                            |                                   |             |                        
|                                                | during the year - basic and diluted        |                                   | 549,819,123 |                        

































































|Pacer Health Corporation and Subsidiaries                                                                 
|----------------------------------------------------------------------------------------------------------
|Consolidated Statements of Changes in Stockholders Equity/(Deficiency)                                   
|For the Period from May 12, 2003 (inception) to December 31, 2003 and For the Year Ended December 31, 2004
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|Balance May 12, 2003                                                                                      
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|Issuance of compensation debenture and related deferred loan commitment fee                               
|                                                                                                          
|Beneficial conversion feature                                                                             
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|Recapitalization from Merger                                                                              
|                                                                                                          
|Issuance of stock for Services                                                                            
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|Settlement of Note Payable for AAA Medical Center                                                         
|                                                                                                          
|Net loss, 2003                                                                                            
|                                                                                                          
|Balance December 31, 2003                                                                                 
|                                                                                                          
|Cancellation of collateral                                                                                
|                                                                                                          
|Stock issued in connection with legal settlements                                                         
|                                                                                                          
|Stock issued as placement agent fee                                                                       
|                                                                                                          
|Conversion of Preferred Stock to Common Stock                                                             
|                                                                                                          
|Stock issued to settle note payable                                                                       
|                                                                                                          
|Stock issued to employees in connection with employment agreements                                        
|                                                                                                          
|Deferred compensation related to issuance of stock to employees                                           
|                                                                                                          
|Stock issued for consulting services                                                                      
|                                                                                                          
|Stock issued to acquire South Cameron Memorial Hospital                                                   
|                                                                                                          
|Stock issued for finders fees                                                                             
|                                                                                                          
|Beneficial Conversion Feature                                                                             
|                                                                                                          
|Fair value of beneficial conversion feature due to extinguishment                                         
|                                                                                                          
|Settlement of compensation debenture due to extinguishment                                                
|                                                                                                          
|Net Income, 2004                                                                                          
|                                                                                                          
|Balance December 31, 2004                                                                                 

|Pacer Health Corporation and Subsidiaries                                   
|----------------------------------------------------------------------------
|Consolidated Statements of Cash Flows                                       
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|Cash Flows from Operating Activities:                                       
|Net Income/(Loss)                                                           
|Adjustments to reconcile net income/(loss) to net cash provided by/(used in)
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|Cash Flows from Investing Activities:                                       
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|Cash Flows from Financing Activities:                                       
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|Net Increase/(Decrease) in Cash                                             
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|Cash at End of Year                                                         
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|Supplemental Disclosure of Cash Flow Information                            
|Cash Paid for:                                                              
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Pacer Health Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2004





Note 1   Nature of Operations and Summary of Significant Accounting Policies



(A) Nature of Operations



Pacer Health Corporation f/k/a INFe, Inc.(Pacer), a Florida corporation, has seven subsidiaries, Pacer Health Services, Inc. (a Florida corporation formed on May 5, 2003), Pacer Health Management Corporation (a Louisiana Corporation formed on February 1, 2004), Pacer Holdings of Louisiana, Inc. (a Florida corporation formed on March 3, 2004), Pacer Holdings of Georgia, Inc. (a Florida corporation formed on June 26, 2004), Pacer Health Management Corporation of Georgia (a Georgia corporation formed on June 28, 2004), Pacer Health Management Corporation of Arkansas (an Arkansas corporation formed on October 26, 2004) and Pacer Holdings of Arkansas, Inc. (a Florida corporation formed on October 26, 2004). Pacer along with its subsidiaries (collectively, the Company) began its activities in May 2003. The Company acquires financially distressed hospitals.  The Company currently owns and operates a non-urban hospital, a non-urban health clinic and a geriatric psychiatric center in Cameron and Lake Charles, Louisiana.  Additionally, the Company manages a non-urban hospital and nursing home in Green County, Georgia.  The Company is attempting to build a regional network of hospitals designed to provide healthcare services to various individuals.



On May 26, 2003, Pacer completed its acquisition of AAA Medical Center, Inc. ("AAA"), a medical treatment center, for $800,000 consisting of an installment note payable of $800,000. The acquisition was accounted for under the purchase method of accounting.  The Company issued 26,667,000 restricted shares of its common stock on October 30, 2003 in full settlement of this note.  On October 12, 2004, the Company sold AAA to an unrelated 3rd party.   (See Notes 15 and 17)



On June 26, 2003, Pacer Health Services, Inc. was acquired by Pacer (f/k/a INFe, Inc.) in a transaction accounted for as a recapitalization of Pacer Health Services, Inc.  For accounting purposes, Pacer Health Services, Inc. is the acquirer because the former stockholders of Pacer Health Services, Inc. received the larger portion of the common stockholder interests and voting rights in the combined enterprise when compared to the common stockholder interests and voting rights retained by the pre-merger stockholders of Pacer (f/k/a INFe, Inc.).  As a result, Pacer Health Services, Inc. is re-capitalized to reflect the authorized stock of the legal parent, Pacer (f/k/a INFe, Inc.).  Since Pacer Health Services, Inc. is the acquirer, for accounting purposes, Pacers November fiscal year end has been changed to Pacer Health Services, Inc.s December 31, fiscal year end.



On March 22, 2004, the Company entered into an asset purchase agreement with Camelot Specialty Hospital of Cameron, LLC (Cameron).  Under the terms of the asset purchase, the Company acquired the business and certain assets and assumed certain liabilities of Cameron.  As consideration for the acquisition, the Company issued 50,000,000 shares of its common stock having a fair value of $1,100,000, (See Note 6)



On June 24, 2004, the Company entered into a binding letter of intent to purchase Minnie G. Boswell Memorial Hospital in Greensboro, Georgia.  In accordance with the letter of intent, the purchase price of the hospital will be the fair market value as ratified by the Attorney General of the State of Georgia.  As consideration for the purchase price, Pacer will assume any outstanding liabilities with the exception of any hospital debt associated with bond issuances, including waiving any fees due to Pacer.  The purchase will consummate upon approval by the Attorney General in the State of Georgia in accordance with the Georgia Hospital Acquisition Act. The Company is currently managing the Hospital under an interim management agreement.  (See Note 6 and Note 9)



(B) Use of Estimates



The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions about the future outcome of current transactions, which may affect the reporting and disclosure of these transactions.  Accordingly, actual results could differ from those estimates used in the preparation of these financial statements.



Significant estimates in 2004 include contractual allowances on revenues and related patients receivable, bad debt allowance on patients receivable, bad debt allowance on other receivables, valuation of assets acquired and liabilities assumed in acquisitions, valuation and related impairments of goodwill, and other long-lived assets and an estimate of the deferred tax asset valuation allowance.



(C) Principles of Consolidation



The consolidated financial statements include the accounts of Pacer and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.



(D) Cash and Cash Equivalents



For the purpose of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.



(E) Property and Equipment



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



Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, generally 30 years for buildings, 3 to 10 years for furniture, fixtures, and equipment and 3 to 5 years for vehicles, computer hardware, software, and communication systems.  Leasehold improvements are depreciated over the lesser of useful lives or lease terms including available option periods.



(F) Long-Lived Assets



The Company reviews long-lived assets and certain identifiable assets related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable.  If the undiscounted future cash flows of the long-lived assets are less than the carrying amount, their carrying amounts are reduced to fair value and an impairment loss is recognized.



(G) Intangibles and Other Long-Lived Assets



The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.  Goodwill represents the excess of the cost of the Companys acquired subsidiaries or assets over the fair value of their net assets at the date of acquisition.  Under Statement of Financial Accounting Standards (SFAS) No. 142, goodwill is no longer subject to amortization over its estimated useful life; rather, goodwill is subject to at least an annual assessment for impairment applying a fair-value based test.  During the year ended December 31, 2004, the Company recognized and charged to operations an impairment charge of $545,024.  There were impairment charges of $200,000 recognized during the year ended December 31, 2003.  The impairment charges were  related to the goodwill of AAA Medical Group, Inc., which in 2004 has been accounted for as a discontinued operation (See Note 17).



(H) Revenue Recognition and Patients Receivable



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



The Companys Hospital has agreements with third-party payors that provide for payments to the Hospital at amounts different from its established rates.  A summary of the payment arrangements with major third-party payors follows:



Medicare:  Inpatient acute care services and outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates.  These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors.  Inpatient nonacute services and defined capital and medical education costs related to Medicare beneficiaries are paid based on a cost reimbursement methodology.  The Hospital is reimbursed for cost reimbursable items at a tentative rate with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicare fiscal intermediary.  The Hospital claims Medicare payments based on an interpretation of certain disproportionate share rules.



Medicaid:  Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed under a cost reimbursement methodology.  The Hospital is reimbursed at a tentative rate with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicaid fiscal intermediary.



Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation.  As a result, there is at least a reasonable possibility that recorded estimates could change by a material amount in the near term.



The Hospital also has entered into payment agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations.  The basis for payment to the Hospital under these agreements includes prospectively determined rates per discharge, discounts from established charges, and prospectively determined daily rates.



Patient service revenue from hospital operations is recognized when the goods or services are provided to the patient and billed to the patient or third party payor.  Patient service revenue is reported net of estimated contractual allowances.  These third-party contractual adjustments are accrued on an estimated basis in the period the services are provided, and revenues in future periods are adjusted based on final settlements with the third party payors.  Management has recorded estimates for bad debt losses, which may be sustained in the collection of these receivables.  Although estimates with respect to realization of the receivables are based on Managements knowledge of current events, the Companys collection history, and actions it may undertake in the future, actual collections may ultimately differ substantially from these estimates.  Receivables are written off when all legal actions have been exhausted.  (See Note 3)



(I) Stock Based Compensation



The Company accounts for stock based compensation under the provisions of SFAS No.  123, "Accounting for Stock Based Compensation".  For stock and options issued to employees, and for transactions with non-employees in which services were performed in exchange for the Companys common stock, the transactions are recorded on the basis of fair value of the services received or the fair value of the equity instruments issued, whichever was more readily measurable.



In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," was issued. This pronouncement amends SFAS No. 123, Accounting for Stock-Based Compensation," and provides guidance to companies that wish to voluntarily change to the fair value based method of accounting for stock-based employee compensation, among other provisions.  The Company accounts for its employee stock based compensation under the fair value based method provisions of SFAS No. 123.  During the year ended December 31, 2004 and 2003, there were no grants of stock options to either employees or non-employees.



For stock directly issued to employees for services, a compensation charge is recorded against earnings over the service period measured at the date of grant based on the fair value of the stock award.  During the year ended December 31, 2004 and 2003, the Company issued 4,040,000 and no shares, respectively, of common stock to key employees pursuant to the terms of an employment agreement.  (See Notes 12(A) and Note 13 (A)).



(J) Basic and Diluted Net Income (Loss) Per Share



Basic net income (loss) per common share (Basic EPS) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year.  Diluted net income per share (Diluted EPS) reflects the potential dilution that could occur if stock options or other contracts to issue common stock, such as convertible notes, were exercised or converted into common stock.  At December 31, 2004, there were warrants for 950,000 shares of common stock, which may dilute future earnings per share.  There is no calculation of fully diluted earnings per share for 2003 due to the Company net losses in 2003. There was no incremental share effect of these warrants on diluted eps in 2004 under the treasury method as the exercise price exceeded the average trading price during 2004.  At December 31, 2004, there were 3,000,000 shares previously issued as collateral that are considered contingently returnable shares and accordingly not considered outstanding and not included in the computation of net loss per share (see Note 13(D)). These 3,000,000 shares are not considered to be common stock equivalents.



Additionally, pursuant to the terms of certain employment agreements for three individuals who have received restricted stock awards, the vesting date for shares issued is one year subsequent to the receipt of said shares.  The employee must provide services for one year in order to be fully vested in their stock award.  As a result, the Company has only included those shares that have been earned and correspond to the employees current service period.  As such, these shares are included in basic and diluted earnings per share in the ratio of; quantity of shares received multiplied by days in service period divided by 365.





(K) Advertising



In accordance with Accounting Standards Executive Committee Statement of Position 93-7, (SOP 93-7) costs incurred for producing and communicating advertising of the Company, are charged to operations as incurred.  Advertising expense for the years ended December 31, 2004 and 2003 were $2,418 and $0, respectively.



(L) Income Taxes



The Company accounts for income taxes under the Financial Accounting Standards No. 109 Accounting for Income Taxes (Statement 109).  Under Statement 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.  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.  Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment date.



(M) Fair Value of Financial Instruments



Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value.  For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.



The carrying amounts of the Companys short-term financial instruments, including patient receivables, other receivables, accounts payable, loan payable  related party, note payable and advances payable approximate fair value due to the relatively short period to maturity for these instruments.



(N) Segments



The Company has adopted the provisions of SFAS No. 131, Disclosures About Segments of An Enterprise and Related Information.This statement requires public enterprises to report financial and descriptive information about its reportable operating segments and establishes standards for related disclosures about product and services, geographic areas, and major customers.  (See Notes 15 and 17).



(O) Concentrations



The Company maintains its cash in bank deposit accounts, which, at times exceed federally insured limits.  As of December 31, 2004, the Company had deposits of $860,793 in excess of federally insured limits.  The Company has not experienced any losses in such accounts through December 31, 2004.



(P) Recent Accounting Pronouncements





In December 2004, the FASB issued SFAS 123 (revised 2004) Share-Based Payment.  This Statement requires that the cost resulting from all share-based transactions be recorded in the financial statements.  The Statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The Statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions.  The Statement replaces SFAS 123 Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees.  The provisions of this Statement will be effective for the Company beginning with its fiscal year ending 2005.  Since the Company currently follows SFAS 123 for employee stock based compensation there is no material impact on the Companys financial position, results of operations or cash flows.



(Q) Reclassifications



Certain amounts in the year 2003 consolidated financial statements have been reclassified to conform to the year 2004 consolidated presentation.



Note 2   Basis of Presentation



The consolidated financial statements include the accounts of Pacer Health Corporation and its wholly owned subsidiaries.  The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).  The preparation of financial statements in conformity with GAAP requires management to (i) make estimates and assumptions that affect the reported amounts of assets and liabilities, (ii) disclose contingent assets and liabilities at the date of the financial statements, (iii) prepare the financial statements as a going concern (see Note 19) and (iv) report amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.



Note 3  Patient Accounts Receivable, Allowance for Contractuals, and Allowance for  Doubtful Accounts



Patient Accounts Receivable at December 31, 2004 was as follows:



|Patient accounts receivable  Cameron | $ | 2,818,431  
|------------------------------------- | - | -----------
|Allowance for contractual discounts   |   | (1,521,952)
|Allowance for doubtful accounts       |   | (259,296)  
|Patient Accounts Receivable, net      | $ | 1,037,183  



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



During the year ended December 31, 2004 the Company recorded a bad debt expense for doubtful accounts relating to its patient receivables of $1,296,286.  The Company establishes an allowance for doubtful accounts to reduce the carrying value of patient receivables to their estimated net realizable value. The primary uncertainty of such allowances lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.  During the year ended December 31, 2003, the Company recorded a bad debt expense for doubtful accounts of $49,573, which is included in discontinued operations.



Note 4  Property and Equipment, net



Property and equipment at December 31, 2004 is as follows:



|Furniture and fixtures         | $ | 5,000   
|------------------------------ | - | --------
|Equipment                      |   | 130,019 
|Less: accumulated depreciation |   | (16,410)
|Equipment, net                 | $ | 118,609 



Depreciation expense for the year ended December 31, 2004 was $16,040.  Depreciation expense for the year ended December 31, 2003, net of $1,333 included in discontinued operations, was $370.



In 2004, the Company advanced $149,760 towards the purchase price of certain medical equipment.  This is included in deposits at December 31, 2004.  The asset was placed into service on January 1, 2005.



Note 5 Debt Issue Costs, net



During the year ended December 31, 2003, the Company issued a convertible debenture totaling $250,000 to Cornell Capital Partners, LP (Cornell).  The Company recorded an asset of $55,000 as debt issue costs.  The Company also recorded a debt discount of $25,000. (See Note 11(A))  These costs are fees and expenses incurred in connection with obtaining the debt funding from entities other than the lender.  The debt issue costs will be amortized to debt issue cost expense over the life of the debt beginning in 2004.  During the year ended December 31, 2004, amortization was $25,616.  The convertible debenture was settled on November 30, 2004 (See Note 11(C)) and the Company ceased amortizing debt issue costs.   The balance of $29,140 at the extinguished date is including the net gain on debt settlement.



See Note 11(A) for discussion of remaining portion of the $80,000, which was classified as a $25,000 debt discount.  This portion was also extinguished on November 30, 2004 (See Note 11(c)).



Note 6  Acquisitions and Goodwill



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



The Company also follows the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).  As required by SFAS 142, the Company has completed during fiscal 2003 and 2004 certain impairment tests for its recorded goodwill.  These tests include determining the fair value of the Companys single reporting unit, as defined by SFAS 142, and comparing it to the carrying value of the net assets allocated to the reporting unit.  An impairment charge of approximately $200,000 was recorded in June 2003 resulting from the required impairment test of the goodwill recorded in May 2003 from the AAA acquisition, which has been included in discontinued operations.  Goodwill will be tested for impairment annually at December 31, or more frequently when events or circumstances indicate that impairment may have occurred.  During the year ended December 31, 2004, the Company recognized and charged to operations an impairment loss of $545,024 in connection with the discontinued operations (See Note 17).  The impairment loss has been included on the statement of operations as a component of loss from discontinued operations.



On March 22, 2004 (the Acquisition Date), the Company entered into an Asset Purchase Agreement with Camelot Specialty Hospital of Cameron, LLC (Cameron).  Under the terms of the Asset Purchase Agreement, the Company acquired the business and certain identifiable assets and assumed certain liabilities (see allocation below).  At the Acquisition Date, Cameron was a provider of healthcare services with a primary focus on hospitals, psychiatric facilities, and medical centers.  Cameron owns and operates a rural hospital, a rural health clinic, and a geriatric psychiatric center.  The Company operates this hospital doing business as South Cameron Memorial Hospital.



The Company accounted for this acquisition using the purchase method of accounting in accordance with SFAS No. 141.  On the Acquisition Date, the purchase price was $1,100,000.  The purchase price was paid with 50,000,000 shares of the Companys common stock and valued at $.022 per share based on the average quoted trading price during the acquisition period.  The purchase price initially exceeded the fair value of net assets acquired by $737,256.  The excess has been applied to goodwill.  The Company expects that the goodwill will not be deductible for income tax purposes.  Pursuant to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets goodwill has an indefinite life and accordingly will not be amortized but will be reviewed periodically for impairment.  During the year ended December 31, 2004, the Companys continued evaluation of the purchase price allocation revealed that an additional $479,062 in goodwill should be recorded primarily based on a revaluation of other receivables acquired and the medicare liability assumed.  Additionally, the Company reviewed the amount recorded to goodwill for Cameron and has determined that no impairment charge is required to be taken at December 31, 2004.



The results of operations of South Cameron Memorial Hospital are included in the consolidated results of operations of the Company since the Acquisition Date.



The revised final allocation of the fair value of the assets acquired and liabilities assumed as of December 31, 2004 were as follows:



|Patient accounts receivable, net | $ | 962,502    
|-------------------------------- | - | -----------
|Prepaids and deposits            |   | 90,165     
|Property and equipment, net      |   | 48,170     
|Goodwill                         |   | 1,216,318  
|Cash overdraft                   |   | (82,439)   
|Medicare payable                 |   | (1,134,716)
|                                 |   |            
|Purchase price                   | $ | 1,100,000  



See Note 13(A) for related common stock issuance of 50,000,000 shares for acquisition.



Total consolidated goodwill of $1,216,318 is the result of the acquisition of Cameron.  Of the goodwill previously recorded for AAA, $545,024 was reduced due to an impairment loss (see Notes 1(G), 15 and 17).



The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Cameron had occurred at May 5, 2003 (inception):



|                                      | Period Ended
|------------------------------------- | ------------
|                                      |             
|Net Revenues                          | $           
|Net (Loss) Income                     | $           
|Net (Loss) Income per Share  Basic   | $           
|Net (Loss) Income per Share  Diluted | $           



Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at May 5, 2003 (inception) and is not intended to be a projection of future results.



On June 24, 2004, the Company entered into a binding letter of intent to purchase Minnie G. Boswell Memorial Hospital (MGBMH) in Greensboro, Georgia.  In accordance with the letter of intent, the purchase price of the hospital will be the fair market value as ratified by the Attorney General of the State of Georgia.  As consideration for the purchase price, Pacer will assume any outstanding liabilities with the exception of any hospital debt associated with bond issuances, including waiving any fees due to Pacer.  The purchase will consummate upon approval by the Attorney General of the State of Georgia in accordance with the Georgia Hospital Acquisition Act.



At December 31, 2004, the Company was managing the operations of MGBMH pursuant to the terms of an Offer Letter and an interim services agreement.  The Company agreed to manage the day to day operations of MGBMH until the purchase is consummated.  The term of the interim services agreement, as dictated in the Offer Letter, is for an initial term of 18 months or until the purchase transaction is consummated.  The agreement can be renewed for an additional 18 months if the purchase is not completed pursuant to the Georgia Hospital Acquisition Act.  The County will pay the Company a monthly service fee for management fees and indigent care expenses.  All unpaid service fees are being deferred and will be used to offset the final purchase price (See Note 1(A)).  Upon the purchase of MGBMH, the Company shall waive any deferred fees under the terms of the interim services agreement



Also see Note 9 for advances payable and Note 18 for repayments.



Note 7  Loan Payable-Related Party



During the year ended December 31, 2004, the Company received funds of $20,000 and repaid for prior loans $63,441 to a related party who is the President, Chief Executive Officer, Chairman of the Board of Directors and principal stockholder of the Company.  The advances received bear interest at 8%, are unsecured and due on demand.  The Company received and executed a note payable for $250,000 from a Company, of which the President, Chief Executive Officer, Chairman of the Board of Directors and principal stockholder of the Company is the principal shareholder.  The note bears no interest but carries a finance charge of 7.2% of the borrowed balance.  The Company has accrued $18,000 in finance charges related to this note.  The balance due to this related party at December 31, 2004 was $272,029 and related accrued interest and finance charges was $21,226.   In January 2005, $268,000 was repaid to the affiliated company.  (See Notes 14 and 18.)



Note 8  Notes Payable



The Company issued a note payable on December 21, 2004 to an unrelated third party for the principal amount of $50,000 to be repaid by January 20, 2005.  The note provides for an annual interest rate of 26% per annum on the unpaid principal.  The Company has accrued interest of $3,000 with respect to this note.  The Company has paid the note principal and accrued interest in full on January 20, 2005.  Total repayment was for $53,000.  (See Note 18).



Note 9 Advances Payable



Minnie G. Boswell Memorial Hospital (MGBMH) is a participant in the Indigent Care Trust Fund (ICTF) in the State of Georgia, which administers the disproportionate share hospital payments (DSH).  MGBMH is required to make an intergovernmental transfer approximately equal to the value of the previous years uncompensated care as a match to draw down federal DSH dollars.  The amount MGBMH was required to transfer in December of 2004 was approximately $950,000.  MGBMH remitted to the Company funds of which $244,000 was allocated  for the intergovernmental transfer.  The Company anticipated to provide the remainder balance of approximately $700,000 intergovernmental transfer due on behalf of MGBMH.  Prior to the remittance coming due, the State of Georgia amended the disproportionate share amount on an interim basis pending an audit of designated hospitals.  The amended disproportionate share amount was remitted to the State of Georgia in January 2005 and all proceeds thereof including the remitted amount were transferred by the state to MGBMH.



Note 10  Medicare Payable



In connection with the March 22, 2004 acquisition of Cameron (see Note 6), the Company acquired a Medicare payable totaling $1,134,716.  The Medicare payable consisted of amounts due to Medicare as a result of cost reimbursements by Medicare in excess of what the Company was entitled to.  During the year ended December 31, 2004, the Company repaid $80,727.  At December 31, 2004 the outstanding balance due was $1,053,989.



On September 22, 2004, the Company entered into a settlement agreement with respect to our outstanding liability for the stand alone year ended December 31, 2003.  The terms of the payments extend through July 2007.  The amount due from January 2006 through July 2007 is $289,014 which has been appropriately reclassified to Long-term Liabilities.



Note 11   Convertible Debentures and Standby Equity Distribution Agreement



(A)  Convertible Debentures, net



In December 2003, the Company executed a Securities Purchase Agreement whereby it would issue $500,000 of secured convertible debentures.  On December 29, 2003, pursuant to the Securities Purchase Agreement, the Company issued a two year convertible debenture totaling $250,000 to Cornell secured by all of the assets and property of the Company.  The Company recorded a contra liability of $25,000 by debiting debt discount.   The Company also recorded  $80,000 in debt issue costs.  (See Note 5)  These $25,000 in costs are fees and expenses paid directly to the lender in connection with obtaining the debt funding.  In addition, the Company has computed a beneficial conversion feature on this convertible debenture totaling $147,024.  The beneficial conversion feature is also treated in the same manner as a debt discount.  Debt discount was directly offset against the gross convertible debentures balance outstanding (see reconciliation below).  The total debt discount of $172,024 will be amortized to interest expense over the life of the debt.  During the year ended December 31, 2004, amortization was $79,030.  The principal portion of the note and related accrued interest was settled on November 30, 2004.  (See Note 11(C).  See Note 6 for discussion of remaining portion of the $80,000, which is classified as a $55,000 debt issue cost.



On January 30, 2004, pursuant to the Securities Purchase Agreement, the Company issued a convertible debenture totaling $125,000 to Cornell.  The debenture accrues interest at a rate of 5% per year.  The debentures are convertible at the holders option until the maturity date and if not converted by that maturity date, the debentures will automatically convert.  The conversion price is equal to the lower of (i) 120% of the closing bid price of the common stock as of the closing date or (ii) 80% of the lowest closing bid price of the common stock for the 5 trading days immediately preceding the conversion date.



In connection with the issuance of the $125,000 convertible debenture, the Company recorded a contra liability of $12,500 by debiting debt discount.  Debt discount will be directly offset against the gross convertible debentures outstanding.  These costs are fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The debt discount will be amortized over the life of the debt to interest expense.  During the year ended December 31, 2004, amortization was $5,223.  The principal portion of the note and related accrued interest was settled on November 30, 2004.  (See Note 11(C).)



During the year ended December 31, 2004, the Company recorded accrued interest with respect to this convertible debenture totaling $5,223 with a corresponding charge to operations for related interest expense.



Additionally, upon issuance of the convertible debenture, the Company computed $67,308 of interest expense for a beneficial conversion feature and charged additional paid in capital for the same amount.  (See Note 13(C).)



(B) Standby Equity Distribution Agreement



On December 29, 2003, the Company entered into a Standby Equity Distribution Agreement (SEDA) with Cornell.  Under the terms of this agreement, the Company could issue and sell to Cornell common stock for a total purchase price of up to $10,000,000.  In addition, the Company entered into a Placement Agent Agreement on December 29, 2003 with a registered broker-dealer.  Pursuant to the Placement Agent Agreement, Pacer paid to the registered broker-dealer a one-time placement agent fee of 476,190 shares of common stock.  The shares were valued at $10,000 and treated as an offering cost directly charged to additional paid-in capital.  (See Note 13(A).)  It is unlikely that the Company will draw funds under the SEDA.



In connection with the SEDA, the Company issued Cornell a compensation convertible debenture in the amount of $390,000 convertible into shares of common stock at a conversion price equal to the lowest closing bid price during the 3 day trading period immediately preceding the conversion date, as a one-time commitment fee.  During the year ended December 31, 2004, the Company recognized $178,750 as amortization of equity line commitment fee.  In connection with the issuance of the $390,000 compensation convertible debenture, the Company computed a beneficial conversion feature value totaling $16,250.  During the year ended December 31, 2004, the Company amortized $16,250 to interest expense attributable to the $16,250 recorded as debt discount pursuant to the $390,000 compensation convertible debenture.  On November 30, 2004, the Company settled the outstanding compensation convertible debenture and amortized the remaining outstanding balance of $211,250 to amortization of equity line commitment fee.



(C) Termination



On November 30, 2004, the Company settled all of its outstanding convertible debentures totaling $765,000 excluding related debt discount of $133,330 withCornell Capital (See Note 11 (A)).  In connection with the settlement, the Company has already paid Cornell $150,000 during the year ended December 31, 2004.  In accordance with the settlement plan, the Company is required to pay $130,000 on each date of February 15, 2005, May 15, 2005 and August 15, 2005.  (See Note 18)



The following is a summary of the settlement with Cornell:

|Debentures settled                                                      | $765,000 
|----------------------------------------------------------------------- | ---------
|Add: fair value of beneficial conversion feature at extinguishment date | 149,748  
|Less:  debt discount, net                                               | (29,140) 
|Less: debt issue costs, net                                             | (79,638) 
|                                                                        |          
|Debentures, net                                                         | $805,970 
|                                                                        |          
|Add: accrued interest                                                   | 34,386   
|Add:  liquidated damages                                                | 52,500   
|                                                                        |          
|Total debt to be settled                                                | $892,856 
|                                                                        |          
|Less:  Total to be paid pursuant to agreement                           | (540,000)
|                                                                        |          
|Gain on debt settlement                                                 | $352,856 





Note 12  Commitments and Contingencies



(A) Employment Agreements





On January 1, 2004, the Company entered into an employment agreement with its President and principal stockholder.  Under the terms of the agreement, this individual will serve as CEO and Chairman of the Board.  Compensation is set at $191,200 per annum (see Notes 7 and 14).



On February 1, 2004, the Company entered into an employment agreement with an individual to serve as its Vice President of Finance.  Compensation is set at $150,000 per annum.  Additionally, this individual is entitled to a total of 10,000,000 shares of common stock vesting as follows; 2,000,000 shares on February 1, 2004 (see Note 13(A)), 3,000,000 shares on February 1, 2005 and 5,000,000 shares on February 1, 2006 (see Notes 14).



On July 5, 2004, the Company entered into an employment agreement with an individual to serve as its Chief Financial Officer.  Compensation is set at $150,000 per annum.  Additionally, this individual is entitled to a total of 10,000,000 shares of common stock vesting as follows; 2,000,000 shares on July 5, 2004, 3,000,000 shares on July 5, 2005 and 5,000,000 shares on July 5, 2006 (see Notes 13 (A),14 and 19).  The 2,000,000 shares were issued in October 2004.



Additionally, pursuant to the terms of these employment agreements, the individuals  have received restricted stock awards, the vesting date for these shares issued is one year subsequent to the receipt of said shares.  The employee must provide services for one year in order to be fully vested in their stock award.  As a result, the Company has only included those shares that have been earned and correspond to the employees current service period.  As such, these shares are included in basic and diluted earnings per share in the ratio of; quantity of shares received multiplied by days in service period divided by 365.





(B) Legal Matters





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



The Company is subject to various lawsuits and unasserted claims from patients and service providers.  The Company believes that the outcome of these matters, if unfavorable, may be covered by its medical malpractice insurance coverage.  Amounts due to vendors have been accrued as of December 31, 2004.



During 2004, the Company settled various matters pertaining to its preacquisition liabilities assumed.  (See Note 21)





(C) Operating Lease



Total rent expense for continuing operations for the year ended December 31, 2004 was $512,527.  During the year ended December 31, 2003, the Company recognized rent expense, net of $18,450 included in discontinued operations, of $21,830.



This includes rent expense for the medical equipment, corporate facility, medical treatment facility, rural hospital, and geriatric psychiatric center.





Note 13 Stockholders Equity



(A) Common Stock Issuances During 2004



On January 7, 2004, the Company issued 2,000,000 shares of its common stock at $.021 per share in connection with a settlement in order to terminate the services of a former consultant.  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $42,000.



On January 7, 2004, the Company issued 476,190 shares of its common stock as a Placement Agent Fee, having a fair value of $10,000 based on the quoted trading price on the grant date (see Note 11(B)).  The shares were treated as an offering cost and accordingly, the $10,000 was charged to additional paid-in capital.



On January 8, 2004, the Companys President, Chief Executive Officer, and principal stockholder converted one share of preferred stock for 318,822,903 shares of common stock.  The conversion was accounted for at par.  The Company debited additional paid-in capital and credited common stock for $31,882 (see Note 14).



On January 27, 2004, the Company issued 1,600,000 shares of previously issuable common stock.  These shares were presented as issued at December 31, 2003 (see Note 12(B)).



On January 28, 2004, the Company issued 25,000 shares of its common stock valued at $.02 per share, based on the quoted trade price on the settlement date, to satisfy an outstanding note payable totaling $500.  Accordingly, there was no gain or loss on the exchange.



On February 4, 2004, the Company issued 2,000,000 shares of its common stock to its Vice President of Finance at $.02 per share in connection with an employment agreement (see Note 12(A)).  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $40,000 which was expensed.



On February 9, 2004, the Company issued 50,000 shares of its common stock to a consultant at $.025 per share in connection with a consulting agreement.  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $1,250 which was expensed.



On February 10, 2004, the Company issued 50,000,000 shares of its common stock in connection with the acquisition of net assets at $.022 per share (see Note 6).  The actual acquisition closed on March 22, 2004..  The shares were valued based on the average quoted trading price of the Companys common stock during the acquisition period and had a fair value of $1,100,000.



On February 23, 2004, the Company issued 1,000,000 shares of its common stock in connection with the acquisition of net assets at $.029 per share (see Note 6).  The shares were paid to a consultant who assisted in finding Cameron as an acquisition candidate.  The actual acquisition closed on March 22, 2004.  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $29,000 which was expensed.



On March 29, 2004, the Company entered into a six-month consulting agreement with an individual to provide general business services.  The individual was entitled to an advance payment of 600,000 shares valued at $.018 per share.  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $10,800.  At December 31, 2004 the Company had expensed $10,800.



On June 7, 2004, the Company issued an aggregate 200,000 shares of its common stock to two separate individuals for web development services rendered.  The shares were valued at $.025 per share based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $5,000 which was expensed.



On July 5,, 2004, the Company issued 2,000,000 shares of its common stock to its Chief Financial Officer at $.015 per share in connection with an employment agreement (see Note 12(A)).  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $30,000 which was expensed.



On August 12, 2004, the Company issued 40,000 shares of its common stock to its Director of Corporate Operations at $.044 per share in connection with an employment agreement originally entered into on August 12, 2003.  The shares were valued based on the quoted trading price of the Companys common stock on the grant date and had a fair value of $1,760 which was expensed.



(B) Common Stock Issuances During 2003



On November 6, 2003, the Companys shareholders approved an increase in the number of  authorized common stock from 200,000,000 to 930,000,000.



In June 2003, in connection with the merger of INFe with Pacer the Company issued to Pacers sole stockholder 111,600,000 shares of common stock and 1 share of preferred stock, which has since been converted, in accordance with its terms, into 318,822,903 shares of common stock.



On October 29, 2003, the Company issued 1,666,668 restricted shares of its common stock to its directors as payment for its directors fees.  In addition, 1,000,000 shares of restricted common stock was also issued to employees as compensation for services.



On October 30, 2003, we issued 26,666,700 shares of restricted common stock in full settlement of the outstanding note payable issued for the acquisition of AAA Medical Group, Inc.



On December 23, 2003, the Company issued 1,000,000 restricted shares of its common stock to satisfy a $10,000 note payable.  In addition, we issued 100,000 restricted shares for loan fees in conjunction with our attempts to obtain a bridge loan.



(C) Beneficial Conversion Feature



In 2004, the Company recorded $83,558 of additional paid-in capital relating to a beneficial conversion feature (see Note 11(A)).



(D) Stock Held As Collateral



The Company previously issued 3,000,000 shares as collateral for a promissory note valued at $135,000.  The shares are deemed to be issued but not outstanding for purposes of computing net loss per share (see Note 2(J)).



(E)  Common Stock Warrants



On June 20, 2002, the predecessor to the Company had issued 950,000 stock warrants to various consultants in exchange for their services.  These warrants have a strike price of $.50 per share.  All of the warrants expire over a five-year period.  No warrants were granted during the periods ended December 31, 2004 and 2003.



These warrants were not cancelled as a result of the recapitalization transaction with Pacer and thus are considered deemed issuance of options as part of the recapitalization with no net accounting effect.





Note 14 Related Party Transactions





During the year ended December 31, 2003, the Company purchased advertising and marketing services from a company in which the former owner of AAA is a shareholder.  For the fiscal year ended December 31, 2003, we incurred $79,343 of advertising services from this company.



On January 1, 2004, the Company entered into an employment agreement with its President and principal stockholder (see Notes 7 and 12(A)).



On January 8, 2004, the Companys President and principal stockholder converted one share of preferred stock to 318,822,903 shares of common stock (see Note 13(A)).



On February 1, 2004, the Company entered into an employment agreement with an individual to serve as its Vice President of Finance (see Note 12(A)).



On July 5, 2004, the Company entered into an employment agreement with its Chief Financial Officer (see Notes 12(A)).



During the year ended December 31, 2004, the Company received funds of $270,000 and repaid $63,441 to a related party who is the President, Chief Executive Officer, Chairman of the Board of Directors and principal stockholder of the Company.  (See Notes 7 and 18).



During the year ended December 31, 2004, the Company purchased advertising and marketing services from a company in which the former owner of AAA is a shareholder.  For the year ended December 31, 2004, the Company incurred and paid $9,130 of advertising services from this company, which has been included as a component of discontinued operations.



During the year ended December 31, 2004, we incurred rent expense for corporate office space totaling $25,680.  The monthly amount of $2,140 is due and payable to our landlord who is a related party of a director of the Company.  The terms of this lease are month to month.



During the year ended December 31, 2004, the Company received funds of $20,000 and repaid for prior loans $63,441 to a related party who is the President, Chief Executive Officer, Chairman of the Board of Directors and principal stockholder of the Company.  The advances received bear interest at 8%, are unsecured and due on demand.  The Company received and executed a note payable for $250,000 from a Company, of which the President, Chief Executive Officer, Chairman of the Board of Directors and principal stockholder of the Company is the principal shareholder.  The note bears no interest but carries a finance charge of 7.2% of the borrowed balance.  The Company has accrued $18,000 in finance charges related to this note.  The total balance due to this related party for all funds provided at December 31, 2004 was $272,029 and related accrued interest and finance charges was $21,226.   In January 2005, $268,000 was repaid to the affiliated company.  (See Notes 7 and 18.)



Note 15 Segments and Concentrations



In connection with the sale of AAA in October 2004 (see Notes 17) the Company only has one reportable and identifiable segment.  Therefore, the presentation of segment analysis pursuant to SFAS No. 131 is not required.  Hospital operations are conducted in Louisiana (Cameron) representing the results of operations of one hospital.



These operations also reflect a 100% concentration in the source of revenues that the Company currently recognizes.   The hospital group in Louisiana includes a rural hospital and provides medical care as well geriatric psychiatric healthcare to various patients.



Note 16 Restatement



In June 2004, the Company became aware of certain matters that required the restatement of its December 31, 2003 consolidated financial statements.  This restatement was filed with the SEC on Form 10-KSB/A on January 3, 2005.  The following summarizes the items restated; appropriate conforming changes were made to the footnotes and other disclosures.



A.

Reclassification of $80,000 in debt issue costs previously expensed at December 31, 2003.

B.

Recomputing the beneficial conversion feature in connection with the $250,000 convertible debenture issued to Cornell on December 29, 2003, and reclassifying the amount previously expensed.

C.

Recording a liability and deferred commitment fee (component of equity) for $390,000 related to a compensation convertible debenture with Cornell.

D.

Recording a debt discount of $16,250 related to the beneficial conversion feature of the $390,000 compensation convertible debenture.



As a result of these changes, the Companys restated December 31, 2003 consolidated financial statements reflected a reduction in net loss of $298,750 and corresponding increases to debt issue costs of $55,000 and debt discount of $25,000, a net decrease of $71,726 ($218,750 previously expensed less the recomputed amount of $147,024) for the recomputation of the beneficial conversion feature (netted against the $250,000 convertible debenture) and an increase in additional paid in capital of $71,726, a net increase in long term liabilities of $201,726 (includes debt discount of $25,000 and the beneficial conversion feature of $147,024 and $16,250 netted against the $390,000) and an increase in deferred loan commitment fees (contra equity) of $390,000.



Note 17 Discontinued Operations



On October 12, 2004, the Company sold AAA to an unrelated third party.  The results of AAA have been presented as discontinued operations.  Pursuant to the terms of the sale, the Company sold all assets except for any patient accounts receivable existing as of the date of the sale.  In connection with the sale, during the year ended December 31, 2004, the Company has recognized and charged to operations an impairment of goodwill totaling $545,024. The impairment of goodwill was necessary since the carrying cost exceeded the fair value of this intangible asset. The Company reports the results of AAAs operations pursuant to SFAS 144; as such, the long-lived assets relating to the Companys physical therapy operations are being classified and reported as discontinued operations.



Note 18 Subsequent Events



In January 2005, the Company repaid $268,000 to its principal stockholder for previously advanced funds.  (See Note 7)



In January 2005, the Company repaid $53,000 to an unrelated party  for previously advanced funds. (See Note 8)



On January 14, 2005, the Company entered into a settlement agreement with a former auditor of INFe, Inc.  INFe was accused of failing to pay upon a promissory note in the amount of $55,000 which was issued to a former service provider.  The terms of the settlement call for an immediate payment of $45,000, which the Company has paid on February 20, 2005.



On February 10, 2005, the Company paid $130,000 to Cornell Capital pursuant to the terms of the debt settlement agreement.  (See Note 11(C) )



Note 19 Management Evaluations of Business Operations



In 2003the Company issued financial statements that reflected substantial doubts about its ability to continue as a going concern.  In 2004 the Company acquired additional assets and operations of Cameron and  executed a turn-around strategy.  As a result of the execution of this strategy, management has generated a positive cash flow from operations and net income for the year ended December 31, 2004.  The Company also had a positive working capital as of December 31, 2004.



Prior losses, as well as other factors, are reviewed to determine whether substantial doubts exist as to the Companys ability to continue as a going concern.  Management has reviewed these factors and mitigated them by implementing a turnaround of operations, a comprehensive cost reduction program, implementing various programs to generate additional revenue, and settling outstanding debt.



As a result, management does not believe substantial doubt exists about the Companys ability to continue as a going concern.



Note 20 Income Taxes



There was no income tax expense for the years ended December 31, 2004 and 2003 due to the Companys utilization of net operating loss carryforwards.



The Companys tax expense differs from the expected tax expense for the year ended December 31, 2004, (computed by applying the Federal Corporate tax rate of 34% to loss before taxes), as follows:









|                                          |   | 2004      |   | 2003     
|----------------------------------------- | - | --------- | - | ---------
|Computed expected tax expense (benefit) | $ | 147,623   | $ | (209,520)
|Change in valuation allowance             |   | (147,623) |   | 209,500  
|                                          | $ | -         | $ | -        



The effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2004 are as follows:





|Deferred tax assets:            |   |         
|------------------------------- | - | --------
|Net operating loss carryforward |   | (61,877)
|Total gross deferred tax assets |   | (61,877)
|Less valuation allowance        |   | 61,877  
|Net deferred tax assets         | $ | -       



During the year ended December 31, 2004, the Company reported net income.  The Company has not recorded a provision for income taxes since the tax effect of the net operating loss carryforward exceeded the provision.



The Company has a net operating loss carryforward of approximately $162,000 available to offset future taxable income expiring 2024.  In addition, the Company  has net operating loss carryforwards from the pre-merger tax filings of INFe that the company does not expect to materially realize as a result of certain provisions of the tax law , specifically Internal Revenue Code Section 382, that limit the net operating loss carryforwards available for use in any given year in the event of a significant change in ownership interest.  As such, the Company did not record any portion of the pre-merger INFe net operating loss carryforward.   Accordingly, all deferred tax assets created by net operating loss carryforwards are offset in their entirety by a deferred tax asset valuation allowance.



The valuation allowance at December 31, 2003 was approximately $209,500.  The net change in valuation allowance during the year ended December 31, 2004 was a decrease of $147,623.



Note 21 Gain on the Settlement of Debt



For the year ended December 31, 2004,  the Company settled certain outstanding liabilities and realized a gain on debt settlement as follows:



|Gain on Settlement of Preacquisition Liabilities         | $         1,079,851
|-------------------------------------------------------- | -------------------
|Gain on Settlement of Outstanding Convertible Debentures | 352,856            
|Total Gain on Settlement of Debt                         | $         1,432,707





EXHIBIT 31.1

OFFICERS CERTIFICATE
PURSUANT TO SECTION 302*

I, Rainier Gonzalez, Chief Executive Officer, certify that:

1.

I have reviewed this form 10-KSB for the fiscal year ended December 31, 2004 of Pacer Health Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.

The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Omitted;

(c)

Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and

5.

The small business issuers other certifying officer(s) and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting.



|Date:
__________ __, 2005 | By:
/s/ Rainier Gonzalez      
|------------------------- | ------------------------------
|                          | Name: Rainier Gonzalez        
|                          | Title:
Chief Executive Officer
|                          |                               





*The introductory portion of paragraph 4 of the Section 302 certification that refers to the certifying officers responsibility for establishing and maintaining internal control over financial reporting for the company, as well as paragraph 4(b), have been omitted in accordance with Release No. 33-8545 (March 2, 2005) because the compliance period has been extended for small business issuers until the first fiscal year ending on or after July 15, 2006.







EXHIBIT 31.2

OFFICERS CERTIFICATE
PURSUANT TO SECTION 302*

I, John Chi, Chief Financial Officer, certify that:

1.

I have reviewed this form 10-KSB for the fiscal year ended December 31, 2004 of Pacer Health Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.

The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Omitted;

(c)

Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and

5.

The small business issuers other certifying officer(s) and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting.



|Date:
__________ __, 2005 | By:
/s/ John Chi              
|------------------------- | ------------------------------
|                          | Name:
John Chi                
|                          | Title:
Chief Financial Officer
|                          |                               





*The introductory portion of paragraph 4 of the Section 302 certification that refers to the certifying officers responsibility for establishing and maintaining internal control over financial reporting for the company, as well as paragraph 4(b), have been omitted in accordance with Release No. 33-8545 (March 2, 2005) because the compliance period has been extended for small business issuers until the first fiscal year ending on or after July 15, 2006.







EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Pacer Health Corporation (the Company) on Form 10-KSB for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

|Date  __________ __, 2005 | By:        /s/ Rainier Gonzalez
|------------------------- | -------------------------------
|                          | Name:
Rainier Gonzalez         
|                          | Title:
Chief Executive Officer 
|                          |                                
|                          |                                
|                          |                                





A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Pacer Health Corporation and will be retained by Pacer Health Corporation and furnished to the Securities and Exchange Commission or its staff upon request.