UNITED STATES SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 20549  FORM 10-KSB  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934  FOR THE FISCAL YEAR ENDEDCOMMISSION FILE NO.DECEMBER 31, 20070-28729  PACER HEALTH CORPORATION (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)  FLORIDA11-3144463(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)  (305) 828-7660 (Issuers telephone number)  Securities registered under Section 12(g) of the Exchange Act:  COMMON STOCK, PAR VALUE $0.0001 PER SHARE (Title of class)   Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes [  ]  No [X]  Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports); and, (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]  Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]  Issuer's revenues for its most recent fiscal year ended December 31, 2007: $30,269,517.  Based on the closing sale price on April 14, 2008, the aggregate market value of the voting common stock held by non-affiliates of Pacer Health Corporation is $4,753,926.  The number of shares outstanding of the issuer's common stock, as of April 15, 2008 was: 592,799,337.    Transitional Small Business Disclosure Format: No.  Documents incorporated by reference:   None   TABLE OF CONTENTS    PagePART IItem 1Business1Item 2Properties18Item 3Legal Proceedings18Item 4Submission of Matters to a Vote of Security Holders19PART IIItem 5Market for Registrant's Common Equity and Related Stockholder Matters20Item 6Management's Discussion and Analysis of Financial Condition and Results of Operations26Item 7Financial Statements and Supplementary Data43Item 8Changes in and Disagreements with Accountants on Accounting and Financial Disclosure43Item 8A (T)Controls and Procedures43PART IIIItem 9Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act44Item 10Executive Compensation47Item 11Security Ownership of Certain Beneficial Owners and Management50Item 12Certain Relationships and Related Transactions51PART IVItem 13Exhibits and Financial Statement Schedules52Item 14Principal Accountant Fees and Services55SIGNATURESEXHIBITSExhibit 21.1Subsidiaries of Pacer Health CorporationExhibit 31.1Section 302 Certification of the CEOExhibit 31.2Section 302 Certification of the CFOExhibit 32.1Section 906 Certification of the CEOExhibit 32.2Section 906 Certification of the CFO    PART I  ITEM 1.DESCRIPTION OF BUSINESS  Introduction  Pacer Health Corporation (Pacer or the Company) is a diversified holding company with subsidiaries operating in the healthcare services and transportation/logistics services.  The Company is aggressively building its existing lines of business through internal growth and acquisitions.  During 2008, the Company announced its intention to expand its operations into the transportation/logistics services.  The Company is actively seeking to acquire additional companies in its existing and complementary lines of business.  The Companys healthcare services business provides healthcare services with a primary focus on acquiring and restructuring hospitals.  At December 31, 2007, we operated three (3) acute care hospitals, one (1) geriatric psychiatric hospital and one (1) rural health clinic. In all of the communities in which our acute care hospitals are located, we are the only provider of acute care hospital services. Our hospitals are geographically diversified across three (3) states: Georgia, Kentucky and Louisiana. We generated $30.269 million and $4.100 million in revenues from continuing operations during 2007 and 2006, respectively.  The Companys transportation/logistics services business provides logistics solutions for customers including transportation, warehousing and freight brokerage services.  The Company currently intends to expand its operations in this business through acquisitions of transportation/logistics businesses.  We were incorporated in Florida in 2003. Our common stock, par value $0.0001 per share, is listed on OTC Bulletin Board under the symbol PHLH.  For information concerning our financial condition, results of operations and related financial data, you should review the Managements Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Supplementary Data sections of this document. You also should review and consider the risks relating to our business, operations, financial performance and cash flows that we describe below under Risk Factors.  Our principal offices are located at 7759 NW 146th Street, Miami Lakes, Florida 33016, and our telephone number is (305) 826-7660.  Our website is www.pacerhealth.com.  No material part of our revenues was derived outside of the United States in fiscal year 2007, and during said year, we had no material assets outside of the United States.  Business Strategy  Overview  The Companys business strategy is (i) to continue to expand its current operations in its existing lines of business through internal growth and acquisitions, and (ii) to enhance and broaden its operations by entering into alternative lines of business, particularly in the transportation/logistics services industry.  In the healthcare services industry, our goal is to become a regional provider of hospital services.  We intend to accomplish this by targeting and acquiring financially distressed hospitals and restructuring the operations to attempt to achieve financial viability.  We believe that the acquisition of financially distressed facilities at a significant discount and their subsequent turnaround will allow us to increase significantly the value of the facilities.  We intend to acquire these facilities through a combination of capital infusion, traditional financing and funds from current operations.  Key elements of our strategy in the healthcare industry include:  Expand Our Healthcare Facilities and Transportation Base  We plan to expand our healthcare operations in order to increase our market share in existing markets and/or acquire healthcare facilities in new markets where we believe the opportunity exists.  Our efforts to increase our healthcare facilities base include the following practices and initiatives:   · Acquisitions The success of our Company depends significantly on acquiring healthcare facilities.  Through April 15, 2008, we have acquired the following facilities:  · General acute care hospital in Cameron, LA;  · Psychiatric hospital in Lake Charles, LA; · General acute care hospital in Barbourville, KY; and   1  · Satellite clinic in Greensboro, GA.   We generally pursue financially distressed hospitals which are located in a non-urban market and are generally the sole provider of the market and its surrounding communities.  We believe there are numerous hospitals that meet these criteria. These hospitals are primarily owned by governmental, not-for-profit, or faith based agencies.  We have a dedicated team of internal and external professionals who complete a thorough review of the hospitals financial and operating performance, the demographics and service needs of the market and the physical condition of the facilities. Based on our historical experience, we then determine whether or not the hospital can benefit from our management services and leadership. Whether we buy or lease the existing facility or agree to construct a replacement hospital, we approach our pricing from a discounted  range in order to ensure maximum working capital can be utilized at the acquired facility. We typically begin the acquisition process by entering into a non-binding letter of intent with an acquisition candidate. After we complete business and financial due diligence, we decide whether or not to enter into a definitive agreement. Once an acquisition is completed, we have an organized and systematic approach to transitioning and integrating the new hospital into our system of hospitals.  At the time we acquire a hospital, we may commit to an amount of capital expenditures, such as a replacement facility, renovations, or equipment over a specified period of time.  On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc. (HSRE).  The assets sold include all real property of Minnie G. Boswell Memorial Hospital (MGBMH) as well as licenses, permits and personal property, including vehicles, related to the skilled nursing operations.  HSRE also agreed to assume certain liabilities, including accrued vacation for employees it subsequently hired in conjunction with the sale.  On March 7, 2008 the Company sold to St Josephs Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital for the aggregate purchase price of $3,547,559.71, subject to certain adjustments set forth in the Agreement.  St. Josephs Healthcare System, Inc. also assumed certain liabilities with respect to the operation.   Additionally, within thirty (30) calendar days following July 1, 2008, St. Josephs Healthcare System, Inc. shall submit to the Company a report identifying the amount of annual subsidy for Minnie G. Boswell Memorial Hospital approved by the Greene County Commission prior to July 1, 2008 (the Annual Subsidy Amount).  Within 10 calendar days following the date that the Annual Subsidy Amount has been determined in accordance with the Agreement, St. Josephs Healthcare System, Inc. shall pay to the Company an amount equal to 50% of the Annual Subsidy Amount up to $1,500,000.   On September 29, 2006, the Company divested its majority interest in Southpark Community Hospital (SPCH) for a $3,000,000 note receivable to a third party, which consists primarily of shareholders of the minority interest.  The terms of the agreement included assumption of all prorated liabilities and guarantees of SPCH from the Company.  Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured.  Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense.   · Increase Market Share  We intend to attempt to increase our market share in the markets we serve.  We have begun to increase our brand awareness among the doctors we serve in the markets and have done various public advertisements.  We are also increasing our capital additions in order to provide additional services to patients and physicians in order to increase our patient volumes. In the transportation/logistics services industry, the Company seeks to acquire companies that currently operate in markets serviced by major airports.  In making acquisitions, the Company principally targets operations that have significant long-term contracts with established national customers.  The Company may also consider acquiring companies which own significant transportation assets.  However, the Company is not limited to these target criteria for acquisitions and may acquire additional transportation/logistics operations as opportunities arise.         Acquisitions  Healthcare Facilities  On December 31, 2006, our wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, consummated an agreement with the County of Knox, Kentucky (the Agreement) to lease all of the assets and real property used in connection with Knox County Hospital as well as delegating full and complete management responsibility and operational control for the Hospital to the Company.  The Company may retain all profits from the operations of the Hospital after satisfying its lease obligations to the County of Knox and maintenance and operations expenses of the Hospital facility.  The annual lease payment is equal to the amount of annual payment due by Knox County on its County of Knox, Kentucky Taxable General Obligation Refunding Bonds, Series 2006 (Bonds), after applying the capitalized interest which is to be paid from the proceeds of the Bonds.  We estimate the annual payment for 2008 to be approximately $692,265.  Additionally, at any time during the term of the Agreement, we have the option to purchase all of the Hospital assets from the County of Knox County and assume all of the liabilities (excluding certain liabilities as defined in  2  the Agreement) for a purchase price equal to the sum of (a) the lesser of: (i) the outstanding principal amount of the Bonds on the closing of such purchase or (ii) what the principal balance of the Bonds would have been if all lease payments and other payments to be made by the Company were used to satisfy the principal and interest due under the Bonds at the date of each such payment plus (b) any prepayment penalties on the Bonds and (c) less any funds then held in any debt service reserve fund, bond fund or any other fund or account in any way pertaining to the Bonds.  The term of the Agreement ends on the earlier of (a) the date the refunding bonds are paid in full; or (b) the date the Company exercises its purchase option.  The refunding bonds have a term of thirty (30) years.   The County of Knox may only terminate the Agreement if (a) the Company does not make the required monthly lease payments or (b) if the Company fails to complete substantial repairs caused by a casualty.  On April 1, 2007, the Company entered into an agreement to sell, in substance, a minority interest of forty percent (40%) of its wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, to an unrelated third party.  Pacer Health Management Corporation of Kentucky currently leases certain assets from the County of Knox, Kentucky.  The sales price was $1.2 million, which consisted solely of cash, of which $500,000 was received on March 30, 2007 and $700,000 was received on April 20, 2007.  A gain of $980,458 was included in Other Income for the six months ended June 30, 2007 and an initial minority interest of $219,542 was recorded based on forty percent (40%) of the net equity of the subsidiary on the sale date.  On December 6, 2005, our wholly-owned subsidiary, Pacer Health Holdings of Lafayette, Inc. (Pacer Sub) acquired a majority interest in Southpark Community Hospital, L.L.C. (Southpark)  Pacer Sub received a sixty percent (60%) equity position in Southpark and the remaining investors of Southpark reduced their equity position to forty percent (40%) in consideration for an infusion amount up to $2,500,000 over the period of ownership, the exact amount to be reasonably determined by Pacer Sub as necessary to sustain the operations of Southpark.  Pacer Sub also assumed a prorated share of the outstanding liabilities and also assumed the position of guarantor, equal to its percentage of ownership, on all notes.  Pacer Sub had also agreed to reimburse certain investors who made principal and interest payments on certain third party loans on behalf of Southpark. On September 29, 2006, the Company divested its majority interest for a $3,000,000 note receivable to a third party, which consisted primarily of shareholders of the minority interest.  Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured.  Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense which is included in discontinued operations for the year ended December 31, 2006.  On September 1, 2005, our wholly-owned subsidiary, Pacer Health Management Corporation of Georgia, completed its asset purchase agreement with the Greene County Hospital Authority to acquire certain assets and assume certain liabilities used in the operation of Minnie G. Boswell Memorial Hospital (MGBMH).  The total purchase amount was $1,108,676.  On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc.   On March 7, 2008 the Company sold to St Josephs Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital.  In March 2007, the Company amended its lease agreement with the Lower Cameron Hospital Service District (LCHSD) to provide for the funding of operational losses by the LCHSD through certain grants.  These grants will be paid quarterly in 2007 and provide for a payment of $3.5 million in 2007 and $1.2 million, or such lesser amount as may be generated by tax revenues collected by the LCHSD during the then current year, beginning in 2008 through 2017.   As of December 31, 2007, the Company has received all of the expected $3.5 million of grants for 2007 and such amount is included in patient revenue for the year ended December 31, 2007.  As of April 15, 2008, the Company has received $300,000 of such grants for year ended December 31, 2008.  We intend to expand our regional network of healthcare facilities through the acquisition of additional financially distressed hospitals.  In most cases, we believe that our initial market entry will be through the acquisition of key existing healthcare facilities in a market.  We intend to retain the management of well-run facilities to benefit from their knowledge and experience.  Smaller facilities may also be acquired in non-strategic locations.  We believe that by acquiring existing facilities, we will build our network in a cost-efficient manner.  Transportation/Logistics  We intend to utilize internal acquisition teams, supplemented as needed by outside advisors, and our contacts in the transportation/logistics services business to identify, evaluate and acquire potential transportation/logistics.  Acquisition candidates are evaluated based on stringent criteria in a comprehensive process which includes operational, legal and financial due diligence reviews.  Operations  The Companys operations are organized primarily into two general industry segments: medical services and non-medical services.  Medical Services   3  Most of our general acute care hospitals provide medical and surgical services, including inpatient care, psychiatric diagnostic services and emergency services. The general acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy and physical therapy.  Our psychiatric hospitals provide therapeutic programs including for adult psychiatric care, adult drug abuse treatment and counseling.  Each of our hospitals has a local board of trustees that includes members of the hospitals medical staff as well as community leaders. Each board establishes policies concerning medical, professional and ethical practices, monitors these practices, and is responsible for reviewing these practices in order to determine that they conform to established standards. We maintain quality assurance programs to support and monitor quality of care standards and to meet accreditation and regulatory requirements. We also monitor patient care evaluations and other quality of care assessment activities on a regular basis.  Like most hospitals located in non-urban markets, our hospitals do not engage in extensive medical research and medical education programs.  Non-Medical Services  Transportation/Logistics Services  We intend to be a third party logistics provider. We intend to provide freight transportation and logistics services.  We intend to provide truck and LTL (less than truckload) modes of transportation.   In addition to providing access to capital resources, we make available a variety of management services to all our lines of business. These services include, among other things:  accounting, financial, tax and reimbursement management;administrative and clinical management and consulting;construction oversight and management;corporate ethics and compliance;education and training;employee benefits;HIPAA compliance for our healthcare facilities;human resources management;information and clinical systems;internal auditing and consulting;legal management;managed care contracting for our healthcare facilities;materials management;physician recruiting and services management for our healthcare facilities;risk management; andrevenue and cash cycle management.  Marketing  Our healthcare facilities offer various medical services, specifically, general acute medical care, and geriatric psychiatric services.  Our marketing effort in our healthcare facilities has been focused primarily on brand awareness among physicians.  We have hired marketers who have devoted significant portions of their time developing physicians awareness of our facilities.  Furthermore, we have advertised publicly through television, radio, newspapers and billboards in the local markets.  We believe that as we continue to increase our brand awareness, our patient volume in our healthcare facilities will increase.  Competition  Generally, our hospitals, in the local and surrounding communities served by our hospitals, provide services similar to those offered by other hospitals in the area.  The rates charged by our hospitals are intended to be competitive with those charged by other local hospitals for similar services. In some cases, competing hospitals are more established than our hospitals. Some competing hospitals are owned by tax-supported government agencies and some others are owned by not-for-profit entities that may be supported by endowments, charitable contributions and/or tax revenues and are exempt from sales, property and income taxes. Such exemptions and support may not always be available to our hospitals.  Psychiatric hospitals frequently attract patients from areas outside their  4  immediate locale and, therefore, our psychiatric hospital competes with both local and regional hospitals, including the psychiatric units of other general acute care hospitals.  State certificate of need (CON) laws, which place limitations on a hospitals ability to expand hospital services and facilities, make capital expenditures and otherwise make changes in operations, may also have the effect of restricting competition.  Our facilities located in Cameron, Louisiana and Barbourville, Kentucky face minimal competition while our facility located in Lake Charles, Louisiana has competition from various other treatment centers, private physician practices, and hospitals.  We expect that any future healthcare facility acquisition will face similar competition from similar healthcare facilities.  To the extent we are unable to compete successfully against our existing and future competitors, our healthcare line of business, operating results and financial condition may be materially adversely affected.  While we believe we are and will compete effectively within the healthcare industry, additional competitors, currently and in the future, have or may enter the industry and effectively compete against us.  Intellectual Property  We are in the process of registering a variety of service marks, trademarks and trade names for use in our business, including: Pacer Healthcare, Pacer Health, Pacer Hospital and Pacer Logistics.  We regard our intellectual property and brand awareness to be an important factor in the marketing of our Company in its growth stage.  We are not aware of any facts that would negatively impact our continuing use of any of our service marks, trademarks or trade names.  Insurance and Risk Management  Our business exposes us to the risk of liabilities arising out of our operations.  For example, liabilities may arise out of claims of patients, employees or other third parties for personal injury or property damage occurring in the course of our operations.  The healthcare industry, in general, is subject to substantial risk of malpractice claims resulting from personal injuries of patients.  In our case, in particular, we face potential malpractice claims arising out of the treatment of patients who are treated in our acute care facilities.  We currently maintain malpractice insurance coverage in excess of $1 million, with various levels of per claim deductibles.  Currently, none of our policies require any collateral.  We evaluate, based on historical data and overall trends in the industry, the level of risk we have with regards to a potential malpractice claim.  We adjust our coverage based on these factors.  However, we cannot provide assurances that any claims against us will be completely covered by our insurance polices.  Such a claim could have an adverse impact on the healthcare line of business, financial condition, cash flows and results of operations.  Employees  On December 31, 2007, we employed over 500 full-time employees.  We also engaged various doctors as independent contractors to perform the healthcare services at all of our facilities.  None of our employees are represented by unions.  We consider our employee relations to be good.  The majority of our physicians are currently employed under exclusive contracts with the Company.  Furthermore, certain key members of management are also employed under exclusive contracts which include non-compete covenants.  Regulation  All participants in the healthcare industry are required to comply with extensive government regulations at the Federal, state and local levels. Under these laws and regulations, hospitals must meet requirements for licensure and qualify to participate in government programs, including the Medicare and Medicaid programs. These requirements relate to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, rate-setting, compliance with building codes and environmental protection laws. If we fail to comply with applicable laws and regulations, we may be subject to criminal penalties and civil sanctions, and our hospitals may lose their licenses and ability to participate in government programs. In addition, government regulations frequently change. When regulations change, we may be required to make changes in our facilities, equipment, personnel and services so that our hospitals remain licensed and qualified to participate in these programs. We believe that our hospitals are in substantial compliance with current Federal, state and local regulations and standards.  Hospitals are subject to periodic inspection by Federal, state and local authorities to determine their compliance with applicable regulations and requirements necessary for licensing and certification. All of our hospitals are currently licensed under appropriate state laws and are qualified to participate in Medicare and Medicaid programs.  Utilization Review.  Federal law contains numerous provisions designed to ensure that services rendered by hospitals to Medicare and Medicaid patients meet professionally recognized standards, are medically necessary and that claims for reimbursement are properly filed. These provisions include a requirement that a sampling of admissions of Medicare and Medicaid patients must be  5  reviewed by peer review organizations, which review the appropriateness of Medicare and Medicaid patient admissions and discharges, the quality of care provided, the validity of DRG classifications and the appropriateness of cases of extraordinary length of stay or cost. Peer review organizations may deny payment for services provided, or assess fines and also have the authority to recommend to the Department of Health and Human Services (DHHS) that a provider which is in substantial noncompliance with the standards of the peer review organization be excluded from participation in the Medicare program. Utilization review is also a requirement of most non-governmental managed care organizations.  Fraud and Abuse Laws.  Participation in the Medicare and/or Medicaid programs is heavily regulated by Federal statutes and regulations. If a hospital fails to comply substantially with the numerous Federal laws governing a facilitys activities, the hospitals participation in the Medicare and/or Medicaid programs may be terminated and/or civil or criminal penalties may be imposed. For example, a hospital may lose its ability to participate in the Medicare and/or Medicaid programs if it performs any of the following acts:  Making claims to Medicare and/or Medicaid for services not provided or misrepresenting actual services provided in order to obtain higher payments;Paying money to induce the referral of patients or purchase of items or services where such items or services are reimbursable under a Federal or state health program; orFailing to provide appropriate emergency medical screening services to any individual who comes to a hospitals campus or otherwise failing to properly treat and transfer emergency patients.  The Health Insurance Portability and Accountability Act of 1996 (HIPAA) broadened the scope of the fraud and abuse laws by adding several criminal statutes that are not related to receipt of payments from a Federal healthcare program. HIPAA created civil penalties for proscribed conduct, including upcoding and billing for medically unnecessary goods or services. HIPAA established new enforcement mechanisms to combat fraud and abuse. These new mechanisms include a bounty system, where a portion of the payments recovered is returned to the government agencies, as well as a whistleblower program. HIPAA also expanded the categories of persons that may be excluded from participation in Federal and state healthcare programs.  The anti-kickback provision of the Social Security Act prohibits the payment, receipt, offer or solicitation of anything of value, whether in cash or in kind, with the intent of generating referrals or orders for services or items covered by a Federal or state healthcare program. Violations of the anti-kickback statute may be punished by criminal and civil fines, exclusion from Federal and state healthcare programs, imprisonment and damages up to three times the total dollar amount involved.  The Office of Inspector General (OIG) of DHHS is responsible for identifying fraud and abuse activities in government programs. In order to fulfill its duties, the OIG performs audits, investigations and inspections. In addition, it provides guidance to healthcare providers by identifying types of activities that could violate the anti-kickback statute. The OIG has identified the following hospital/physician incentive arrangements as potential violations:  Payment of any incentive by a hospital each time a physician refers a patient to the hospital;Use of free or significantly discounted office space or equipment;Provision of free or significantly discounted billing, nursing or other staff services;Free training (other than compliance training) for a physicians office staff, including management and laboratory technique training;Guarantees which provide that if a physicians income fails to reach a predetermined level, the hospital will pay any portion of the remainder;Low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital;Payment of the costs for a physicians travel and expenses for conferences;Payment of services which require few, if any, substantive duties by the physician or which are in excess of the fair market value of the services rendered; orPurchasing goods or services from physicians at prices in excess of their fair market value.  We have a variety of financial relationships with physicians who refer patients to our hospitals, including employment contracts,  independent contractor agreements and professional service agreements.  The OIG is authorized to publish regulations outlining activities and business relationships that would be deemed not to violate the anti-kickback statute. These regulations are known as safe harbor regulations. Failure to comply with the safe harbor regulations does not make conduct illegal, but instead the safe harbors delineate standards that, if complied with, protect conduct that might otherwise be deemed in violation of the anti-kickback statute. We seek to structure each of our arrangements with physicians to fit as closely as possible within an applicable safe harbor. However, not all of our business arrangements fit wholly within safe harbors, so we cannot guarantee that these arrangements will not be scrutinized by government authorities or, if scrutinized, that they will be determined to be in compliance with the anti-kickback statute or other applicable laws. The failure of a particular activity to comply with the safe harbor regulations does not mean that the  6  activity violates the anti-kickback statute. We believe that our business arrangements are in compliance with the anti-kickback statute. If we violate the anti-kickback statute, we would be subject to criminal and civil penalties and/or possible exclusion from participating in Medicare, Medicaid or other governmental healthcare programs.  The Social Security Act also includes a provision commonly known as the Stark law. This law prohibits physicians from referring Medicare and Medicaid patients to selected types of healthcare entities in which they or any of their immediate family members have ownership or a compensation relationship. These types of referrals are commonly known as self referrals. Sanctions for violating the Stark law include civil monetary penalties, assessments equal to twice the dollar value of each service rendered for an impermissible referral and exclusion from Medicare and Medicaid programs. There are ownership and compensation arrangement exceptions to the self-referral prohibition. One exception allows a physician to make a referral to a hospital that is not a specialty hospital if the physician owns an interest in the entire hospital, as opposed to an ownership interest in a department of the hospital. Another exception allows a physician to refer patients to a healthcare entity in which the physician has an ownership interest if the entity is located in a rural area, as defined in the statute. There are also exceptions for many of the customary financial arrangements between physicians and facilities, including employment contracts, leases and recruitment agreements. We have structured our financial arrangements with physicians to comply with the statutory exceptions included in the Stark law and regulations.  Many states in which we operate also have adopted, or are considering adopting, laws similar to the Federal anti-kickback and Stark laws. Some of these state laws apply even if the government is not the payor. These statutes typically provide criminal and civil penalties as remedies. While there is little precedent for the interpretation or enforcement of these state laws, we have attempted to structure our financial relationships with physicians and others in light of these laws. However, if a state determines that we have violated such a law, we would be subject to criminal and civil penalties.  Corporate Practice of Medicine and Fee-Splitting.  Some states have laws that prohibit unlicensed persons or business entities, including corporations or business organizations that own hospitals, from employing physicians. Some states also have adopted laws that prohibit direct or indirect payments or fee-splitting arrangements between physicians and unlicensed persons or business entities. Possible sanctions for violations of these restrictions include loss of a physicians license, civil and criminal penalties and rescission of business arrangements. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. We attempt to structure our arrangements with healthcare providers to comply with the relevant state laws and the few available regulatory interpretations.  Emergency Medical Treatment and Active Labor Act.  All of our general acute care facilities are subject to the Emergency Medical Treatment and Active Labor Act (EMTALA). This Federal law requires any hospital that participates in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospitals emergency department for treatment and, if the patient is suffering from an emergency medical condition, to either stabilize that condition or make an appropriate transfer of the patient to a facility that can handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of a patients ability to pay for treatment. There are severe penalties under EMTALA if a hospital fails to screen or appropriately stabilize or transfer a patient or if the hospital delays appropriate treatment in order to first inquire about the patients ability to pay. Penalties for violations of EMTALA include civil monetary penalties and exclusion from participation in the Medicare program. In addition, an injured patient, the patients family or a medical facility that suffers a financial loss as a direct result of another hospitals violation of the law can bring a civil suit against that other hospital.  During 2003, Centers for Medicare and Medicaid Service (CMS) published a final rule clarifying a hospitals duties under EMTALA. In the final rule, CMS clarified when a patient is considered to be on a hospitals property for purposes of treating the person pursuant to EMTALA. CMS stated that off-campus facilities such as specialty clinics, surgery centers and other facilities that lack emergency departments should not be subject to EMTALA, but that these locations must have a plan explaining how the location should proceed in an emergency situation such as transferring the patient to the closest hospital with an emergency department. CMS further clarified that hospital-owned ambulances could transport a patient to the closest emergency department instead of to the hospital that owns the ambulance.  CMSs rules did not specify on-call physician requirements for an emergency department, but provided a subjective standard stating that on-call hospital schedules should meet the hospitals and communitys needs. Although we believe that our hospitals comply with EMTALA, we cannot predict whether CMS will implement new requirements in the future and whether our hospitals will comply with any new requirements.  Federal False Claims Act.  The Federal False Claims Act prohibits providers from knowingly submitting false claims for payment to the Federal government. This law has been used not only by the Federal government, but also by individuals who bring an action on behalf of the government under the laws qui tam or whistleblower provisions. When a private party brings a qui tam action under the Federal False Claims Act, the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will intervene and take a lead in the litigation.   7  Civil liability under the Federal False Claims Act can be up to three times the actual damages sustained by the government plus civil penalties for each separate false claim. There are many potential bases for liability under the Federal False Claims Act, including claims submitted pursuant to a referral found to violate the anti-kickback statute. Although liability under the Federal False Claims Act arises when an entity knowingly submits a false claim for reimbursement to the Federal government, the Federal False Claims Act defines the term knowingly broadly. Although simple negligence generally will not give rise to liability under the Federal False Claims Act, submitting a claim with reckless disregard to its truth or falsity can constitute knowingly submitting a false claim.  Healthcare Reform.  The healthcare industry continues to attract much legislative interest and public attention. The Medicare Modernization Act (MMA) introduced changes to the Medicare program. Many of MMAs changes went into effect January 1, 2006. MMA establishes a voluntary prescription drug benefit, provides Federal subsidies to plan sponsors that provide prescription drug benefits to Medicare-eligible retirees, substantially adjusts Medicare+Choice and provides favorable payment adjustments for rural hospitals. MMA also provides favorable tax treatment for individual health savings accounts. In addition, MMA authorizes MedPAC to study the effects of rural hospital reimbursement in current and anticipated reimbursement methodologies.  In recent years, Medicaid enrollment has grown as more people became eligible for the program. At the same time, healthcare costs have been rising, forcing states to address Medicaid cost-containment. Healthcare costs, demographics, erosion of employer-sponsored health coverage and potential changes in Federal Medicaid policies continue to put pressure on state Medicaid programs. Policymakers in many states are evaluating the Medicaid programs in their states and considering reforms. Also, the number of persons without health insurance has risen. We anticipate that the Federal and state governments will continue to introduce legislative proposals to modify the cost and efficiency of the healthcare delivery system to provide coverage for more or all persons.  Conversion Legislation.  Many states have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In states that do not have such legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets. These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller. These reviews and, in some instances, approval processes can add additional time to the closing of a not-for-profit hospital acquisition. Future actions by state legislators or attorneys general may seriously delay or even prevent our ability to acquire certain hospitals.  Certificates of Need.  The construction of new facilities, the acquisition or expansion of existing facilities and the addition of new services and expensive equipment at our facilities may be subject to state laws that require prior approval by state regulatory agencies. These certificate of need laws generally require that a state agency determine the public need and give approval prior to the construction or acquisition of facilities or the addition of new services. We operate a hospital in the State of Kentucky which has adopted certificate of need laws. If we fail to obtain necessary state approval, we will not be able to expand our facilities, complete acquisitions or add new services at our facilities in these states. Violation of these state laws may result in the imposition of civil sanctions or the revocation of hospital licenses. All other states in which we operate do not require a certificate of need prior to the initiation of new healthcare services. In these other states, our facilities are subject to competition from other providers who may choose to enter the market by developing new facilities or services.  HIPAA Transaction, Privacy and Security Requirements.  Federal regulations issued pursuant to HIPAA contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The Federal regulations are intended to protect the privacy of healthcare information and encourage electronic commerce in the healthcare industry.  Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by DHHS when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, healthcare payment and remittance advice and health claim status. We have implemented or upgraded, or are in the process of upgrading, computer systems utilizing a third party vendor, as appropriate, at our facilities and at our corporate headquarters to comply with the new transaction and code set regulations and have tested these systems with several of our payors.  HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and healthcare providers to be used in connection with the standard electronic transactions. DHHS published on January 23, 2004 the final rule establishing the standard for the unique health identifier for healthcare providers. All healthcare providers, including our facilities, were required to obtain a new National Provider Identifier to be used in standard transactions instead of other numerical identifiers beginning no later than May 23, 2007.  HIPAA regulations also require our facilities to comply with standards to protect the confidentiality, availability and integrity of patient health information, by establishing and maintaining reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. The security standards were designed to protect electronic information against reasonably anticipated threats or hazards to the security or integrity of the information and to protect the information against unauthorized use or disclosure. We expect that the security  8  standards will require our facilities to implement business procedures and training programs, though the regulations do not mandate use of a specific technology.  DHHS has also established standards for the privacy of individually identifiable health information. These privacy standards apply to all health plans, all healthcare clearinghouses and healthcare providers, such as our facilities, that transmit health information in an electronic form in connection with standard transactions, and apply to individually identifiable information held or disclosed by a covered entity in any form. These standards impose extensive administrative requirements on our facilities and require compliance with rules governing the use and disclosure of this health information, and they require our facilities to impose these rules, by contract, on any business associate to whom we disclose such information in order for them to perform functions on our facilities behalf. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary by state and could impose additional penalties. Compliance with these standards requires significant commitment and action by us.  Patient Safety and Quality Improvement Act of 2005.  On July 29, 2005, the President signed the Patient Safety and Quality Improvement Act of 2005, which has the goal of reducing medical errors and increasing patient safety. This legislation establishes a confidential reporting structure in which providers can voluntarily report Patient Safety Work Product (PSWP) to Patient Safety Organizations (PSOs). Under the system, PSWP is made privileged, confidential and legally protected from disclosure. PSWP does not include medical, discharge or billing records or any other original patient or provider records but does include information gathered specifically in connection with the reporting of medical errors and improving patient safety. This legislation does not preempt state or Federal mandatory disclosure laws concerning information that does not constitute PSWP. PSOs will be certified by the Secretary of the DHHS for three-year periods after the Secretary develops applicable certification criteria. PSOs will analyze PSWP, provide feedback to providers and may report non-identifiable PSWP to a database. In addition, PSOs are expected to generate patient safety improvement strategies. We will monitor the progress of these voluntary reporting programs and we anticipate that we will participate in some form when the details are available.  Medical Malpractice Tort Law Reform.  Medical malpractice tort law has historically been maintained at the state level. All states have laws governing medical liability lawsuits. Over half of the states have limits on damages awards. Almost all states have eliminated joint and several liability in malpractice lawsuits, and many states have established limits on attorney fees. In 2006, most states had bills introduced in their legislative sessions to address medical malpractice tort reform. Proposed solutions include enacting limits on non-economic damages, malpractice insurance reform, and gathering lawsuit claims data from malpractice insurance companies and the courts for the purpose of assessing the connection between malpractice settlements and premium rates. Reform legislation has also been proposed, but not adopted, at the Federal level that could preempt additional state legislation in this area.  Environmental Regulation.  Our healthcare operations generate medical waste that must be disposed of in compliance with Federal, state and local environmental laws, rules and regulations. Our operations, as well as our purchases and sales of healthcare facilities, are also subject to compliance with various other environmental laws, rules and regulations. Such compliance costs are not significant and we do not anticipate that such compliance costs will be significant in the future.  Sources of Revenue  Healthcare Services  Hospital revenues depend upon inpatient occupancy levels, the medical and ancillary services ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or payment rates for such services. Charges and reimbursement rates for inpatient services vary significantly depending on the type of service (e.g., medical/surgical, or psychiatric) and the geographic location of the hospital. Inpatient occupancy levels fluctuate for various reasons, many of which are beyond our control.  We receive payment for patient services from the Federal government primarily under the Medicare program, state governments under their respective Medicaid or similar programs, managed care plans, private insurers and directly from patients.  Medicare is a Federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. Medicaid is a Federal-state program, administered by the states, which provides hospital and medical benefits to qualifying individuals who are unable to afford health care. All of our general acute care hospitals located in the United States are certified as health care services providers for persons covered under Medicare and Medicaid programs. Amounts received under Medicare and Medicaid programs are generally significantly less than established hospital gross charges for the services provided.  Our hospitals generally offer discounts from established charges to certain group purchasers of health care services, including private insurance companies, employers, HMOs, PPOs and other managed care plans. These discount programs limit our ability to increase revenues in response to increasing costs.  Patients are generally not responsible for the total difference between established hospital  9  gross charges and amounts reimbursed for such services under Medicare, Medicaid, HMOs or PPOs and other managed care plans, but are responsible to the extent of any exclusions, deductibles or coinsurance features of their coverage.  Medicare   Medicare provides hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. All of our hospitals are currently certified as providers of Medicare services. Amounts received under the Medicare program generally are often significantly less than the hospitals customary charges for the services provided.  With the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), which was signed into law on December 8, 2003, Congress passed sweeping changes to the Medicare program. This legislation offers a prescription drug benefit for Medicare beneficiaries and also provides a number of benefits to hospitals, particularly rural hospitals. The Deficit Reduction Act of 2005 (the DRA), which was signed into law on February 6, 2006, includes measures related to specialty hospitals, quality reporting and pay-for-performance, the inpatient rehabilitation 75% Rule and Medicaid cuts. The Medicare, Medicaid and SCHIP Extension Act of 2007 (the Extension Act) was signed into law on December 29, 2007, and affects physician payments and rehabilitation services. Additionally, CMS has continued to implement changes to various Medicare payment methodologies. The major hospital provisions of MMA, DRA and the Extension Act are discussed in the subsections below.  Payments from Medicare for inpatient hospital services are generally made under the prospective payment system, commonly known as PPS. Under PPS, our hospitals are paid a prospectively determined amount for each hospital discharge based on the patients diagnosis. Specifically, each diagnosis is assigned a diagnosis related group, commonly known as a DRG. Each DRG is assigned a payment rate that is prospectively set using national average resources used per case for treating a patient with a particular diagnosis. DRG payments do not consider the actual resources incurred by an individual hospital in providing a particular inpatient service. This DRG assignment also affects the prospectively determined capital rate paid with each DRG.  The DRG rates are adjusted by an update factor each federal fiscal year (FFY), which begins on October 1. The index used to adjust the DRG rates, known as the hospital market basket index, gives consideration to the inflation experienced by hospitals in purchasing goods and services. The DRG rates that became effective on October 1, 2005, October 1, 2006 and October 1, 2007 were increased by 3.7%, 3.4% and 3.3%, respectively. Generally, however, the percentage increases in the DRG payments have been lower than the projected increase in the cost of goods and services purchased by hospitals.  On August 1, 2007, CMS issued its hospital inpatient prospective payment system final rule for FFY 2008. Among other things, the final rule creates 745 new severity-adjusted diagnosis-related groups (Medicare Severity DRGs or MS-DRGs) to replace Medicares current 538 DRGs. Under the final rule, the new MS-DRGs will be phased in over a two year period. In addition, the final rule also provides for a market basket increase of 3.3% in fiscal year 2008 for hospitals that report certain patient care quality measures and an increase of 1.3% for hospitals that do not submit this information. However, to offset the effect of the coding and discharge classification changes that CMS believes will occur as hospitals implement the MS-DRG system, the final rule also reduces Medicare payments to hospitals by 1.2% in FFY 2008 and 1.8% in both FFY 2009 and 2010. Subsequently, on September 29, 2007, President Bush signed Public Law No: 110-90, effectively decreasing these reductions for FFY 2008 and 2009 to 0.6% and 0.9%. CMS plans to conduct a look-back beginning in FFY 2010 and make appropriate changes to the reduction percentages based on actual claims data. CMS anticipates that the final rule will result in an increase in payments to hospitals that serve more severely ill patients and a decrease to hospitals that serve patients who are less severely ill.  Beginning in FFY 2007, DRA expanded quality reporting requirements to include additional measures and increased the reduction to the market basket to 2.0% from 0.4% for hospitals that do not report all the required data or withdraw from the program. Reductions to a non-participating hospitals rate will apply only to the fiscal year involved. If the hospital subsequently joins the program, the prior reduction will not be taken into account in computing the update for that fiscal year. MMA and DRA restrict the application of these provisions to hospitals paid under the Inpatient PPS. The provisions do not apply to hospitals and hospital units excluded from the inpatient PPS.  MMA also made a permanent 1.6% increase in the base DRG payment rate for rural hospitals and urban hospitals in smaller metropolitan areas. In addition, MMA provided for payment relief to the wage index component of the base DRG rate. Effective October 1, 2004, MMA lowered the percentage of the DRG subject to a wage adjustment from 71% to 62% for hospitals in areas with a wage index below the national average. Several provisions will continue to affect the FFY 2008 standardized amounts including a full market basket adjusted rate for hospitals reporting of quality data as part of the CMS Hospital Quality Initiative and the reduction of the labor share to 62% for hospitals with a wage index below the national average. In addition, effective October 1, 2005, CMS reduced the labor-related share of the wage index from 71.1% to 69.7% for hospitals in areas with a wage index greater than the national average.  In addition, hospitals may qualify for Medicare disproportionate share payments when their percentage of low income patients exceeds specified regulatory thresholds. All of our hospitals qualify to receive Medicare disproportionate share payments. With  10  regards to the Medicare disproportionate share payments, these payments were increased by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, effective April 1, 2004.  We receive Medicare reimbursement for outpatient services through a PPS. Under the Balanced Budget Refinement Act of 1999, non-urban hospitals with 100 beds or less were held harmless through December 31, 2004 under this Medicare outpatient PPS. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 extended the hold harmless provision for non-urban hospitals with 100 beds or less and for non-urban sole community hospitals with more than 100 beds through December 31, 2005. The DRA extended the hold harmless provision for non-urban hospitals with 100 beds or less that are not sole community hospitals through December 31, 2008; however, it reduces the amount these hospitals would receive in hold harmless payment by 10% in 2007 and 15% in 2008.  Medicaid  Medicaid programs are funded jointly by the Federal government and the states and are administered by states under approved plans. Most state Medicaid program payments are made under a PPS or are based on negotiated payment levels with individual hospitals. Medicaid reimbursement is often less than a hospitals cost of services. The Federal government and many states are currently considering altering the level of Medicaid funding (including upper payment limits) or program eligibility that could adversely affect future levels of Medicaid reimbursement received by our hospitals. We can provide no assurance that reductions to Medicaid fundings will not have a material adverse effect on our results of operations.   Annual Cost Reports  All hospitals participating in the Medicare, Medicaid programs, whether paid on a reasonable cost basis or under a PPS, are required to meet certain financial reporting requirements. Federal and, where applicable, state regulations require the submission of annual cost reports covering the revenue, costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.  Annual cost reports required under the Medicare and Medicaid programs are subject to routine audits, which may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. These audits often require several years to reach the final determination of amounts due to or from us under these programs. Providers also have rights of appeal, and it is common to contest issues raised in audits of prior years reports.  Commercial Insurance  Our hospitals provide services to individuals covered by private healthcare insurance. Private insurance carriers pay our hospitals or in some cases reimburse their policyholders based upon the hospitals established charges and the coverage provided in the insurance policy. Commercial insurers are trying to limit the costs of hospital services by negotiating discounts, including PPS, which would reduce payments by commercial insurers to our hospitals. Reductions in payments for services provided by our hospitals to individuals covered by commercial insurers could adversely affect us.  Risk Factors  Our business, financial condition, results of operations and prospects, and the prevailing market prices and performance of our common stock may be adversely affected by a number of factors, including, but not limited to, the matters discussed below.  Our Potential Inability to Implement Our Growth Strategy May Negatively Affect Our Operations  Our business strategy focuses on growing revenue and operations primarily through acquisitions of various businesses.  The success of our growth strategy will depend on a number of factors including our ability to:   · assess the value, strengths and weaknesses of acquisition candidates;  · evaluate the costs and projected returns of integrating our operations;  · promptly and successfully integrate acquired businesses with existing operations; and  · obtain financing to support this growth.   11  If we fail to successfully implement our growth strategy, our operations may negatively be impacted due to a higher cost structure resulting from our inability to leverage economies of scale and our inability to raise financing to sustain fluctuations in working capital.  We May Not Be Able To Identify Suitable Acquisition Candidates For Our Business  If we are not able to identify suitable acquisition candidates or if acquisitions of suitable candidates are prohibitively expensive, we may be forced to alter our growth strategy.  Our growth strategy may affect short-term cash flow and net income as we increase our indebtedness and incur additional expenses.  As a result, our operating results may fluctuate and our growth strategy may not result in improving our profitability.  If we fail to implement our growth strategy successfully, the market price of our common stock may decline.  Continued Net Losses and Working Capital Deficits Could Hinder Our Growth Strategy  We have experienced losses during our two most recent fiscal years. Our net loss for year ended December 31, 2007 was $6.554 million and we had a working capital deficit of $1.660 million.  If we continue to incur net losses in future periods and we continue to maintain a working capital deficit, we may not be able to implement our growth strategy in accordance with our present plans and our stock price may decline.  The Demands on Our Resources Due to Potential Growth May Negatively Impact our Operations  Our anticipated growth could place significant demands on our managerial, operational and financial resources.  These demands are due to our plans to:  · acquire and integrate new businesses;  · increase the number of our employees;  · expand the scope of our operating and financial systems;  · broaden the geographic area of our operations;  · increase the complexity of our operations;  · increase the level of responsibility of management personnel; and  · continue to train and manage our employee base.  Our managerial, operational and financial resources, now and in the future, may not be adequate to meet the demands resulting from our expected growth.  As a result of these demands, our operations may suffer.  We Need to Improve Our Information Systems or Our Operations Would Suffer  We will need to make improvements to our information system and integrate information systems as a result of our current acquisitions and from potential future acquisitions.  We need to acquire an enterprise-wide information system that will provide for uniform accounting. We also need to hire more accounting and information systems personnel.  We may experience delays, disruptions and unanticipated expenses in implementing, integrating and operating our information systems.  Failure to fully integrate and enhance our current and future information system or hire additional personnel could have a material adverse effect on our business, financial condition, results of operation and growth prospects by increasing our time to gather financial information and make business strategy and managerial decisions based upon the information.  We May Have Difficulties Integrating Acquired Businesses with Our Company which Could Harm Our Operations  Until we complete and install our information system, we will use and depend upon the information and operating systems of our acquired entities.  We have not been able to efficiently combine our operations with those we currently have without encountering difficulties.  These difficulties result from having different and potentially incompatible operating practices, computers or other information systems.  By consolidating personnel with different business backgrounds and corporate cultures into one company, we experience additional difficulties in gathering financial information.  As a result, we may not be able to make business strategy and managerial decisions based upon the information.  We May Incur Unexpected Liabilities When We Acquire Businesses  12     During the acquisition process, we may not discover some of the liabilities of the businesses we acquire.  These liabilities may result from a prior owners non-compliance with applicable Federal, state or local laws.  For example, we may be liable for the prior owners failure to pay taxes or comply with environmental regulations.  Environmental liabilities could arise regardless of whether we own or lease our properties.  While we will try to minimize our potential exposure by conducting investigations during the acquisition process, we will not be able to identify all existing or potential liabilities.  Without Additional Capital We Will Not Be Able to Grow  Our ability to remain competitive, sustain our expected growth and expand our operations largely depends on our access to capital.  We anticipate making numerous acquisitions of various businesses, which will require capital for the acquisition and ongoing expenditures.  We also expect to make expenditures to continue integrating the acquired businesses with our existing businesses.  In addition, to execute our growth strategy and meet our capital needs, we may issue additional equity securities as part of the purchase price of future acquisitions, which may have a dilutive effect on the interests of our shareholders.  Additional capital may not be available on terms acceptable to us.  Our failure to obtain sufficient additional capital could curtail or alter our growth strategy or delay capital expenditures.  Our Failure To Repay Convertible Debentures May Result In A Change Of Control   Our ability to repay the convertible debentures is dependent upon our successful execution of our business strategy.  If we do not successfully execute our business strategy, we may be unable to generate sufficient funds to repay certain convertible debentures upon maturity.  If we are unable to repay certain convertible debentures, YA Global Investments, L.P. (YA Global) will be able to convert the outstanding principal balance into a significant amount of shares of our common stock.  This amount will be enough for YA Global to assume control of the Company.  If YA Global assumes control of the Company, they may choose to liquidate the operations and divest the Company of all of its operating assets in order to satisfy the outstanding principal balance and related interest.  Our Healthcare Revenues May Decline if Federal or State Medicare or Medicaid Programs or Commercial Insurance Providers Reduce Our Reimbursements  In recent years, Federal and state governments made significant changes in the Medicare and Medicaid programs.  Congress and some state legislators have introduced an increasing number of proposals to make major changes in the healthcare system.  Medicare reform is again expected to be considered by Congress in the near future.  Accordingly, future Federal and state legislation may further reduce the payments we receive for our services.  Further, a number of states have incurred budget deficits and adopted legislation designed to reduce their Medicaid expenditures and to provide universal coverage and additional coverage to their residents.  Some states propose to impose additional taxes on healthcare facilities to help finance or expand the various state Medicaid systems.  Furthermore, insurance companies and other third parties from whom we receive payment for our services have increasingly attempted to control healthcare costs by requiring healthcare facilities to discount their fees in exchange for preferred participation in their benefit plans.  We believe this trend may continue and may reduce the payments we receive for our services.  As a result, our healthcare revenue could decrease.  We May Be Subject to Allegations That We Failed to Comply With Governmental Regulation  With Respect to Our Healthcare Facilities, which Could Result in Significant Expenses or Penalties  We are subject to many laws and regulations at the Federal, state and local government levels in our medical services division.  These laws and regulations require us to meet various requirements for our healthcare facilities, including those relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, billing and cost reports, payment for services and supplies, maintenance of adequate records, privacy, compliance with building codes and environmental protection.  Our healthcare facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. We believe that our healthcare facilities are properly licensed under applicable state laws and are in compliance with current applicable Federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services.  If we fail to comply with applicable laws and regulations regarding, certification and accreditation, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in the Medicare, Medicaid and other Federal and state healthcare programs.   We May Be Subject To Allegations That Our Healthcare Facilities Failed To Comply With Anti-Kickback Statute Provisions, Which Could Result In Significant Expenses Or Penalties   13  A section of the Social Security Act known as the Anti-kickback Statute prohibits healthcare providers and others from directly or indirectly soliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders for services or items covered by a Federal health care program. Courts have interpreted this statute broadly. Violations of the Anti-kickback Statute may be punished by a criminal fine of up to $25,000 for each violation or imprisonment, civil money penalties of up to $50,000 per violation and damages of up to three (3) times the total amount of the remuneration and/or exclusion from participation in Federal health care programs, including Medicare and Medicaid.   The Office of Inspector General at HHS (OIG), among other regulatory agencies, is responsible for identifying and eliminating fraud, abuse and waste. The OIG carries out this mission through a nationwide program of audits, investigations and inspections. As one means of providing guidance to health care providers, the OIG issues Special Fraud Alerts. These alerts do not have the force of law, but identify features of arrangements or transactions that may indicate that the arrangements or transactions violate the Anti-kickback Statute or other Federal health care laws. The OIG has identified several incentive arrangements, which, if accompanied by inappropriate intent, constitute suspect practices, including: (a) payment of any incentive by the hospital each time a physician refers a patient to the hospital, (b) the use of free or significantly discounted office space or equipment in facilities usually located close to the hospital, (c) provision of free or significantly discounted billing, nursing or other staff services, (d) free training for a physicians office staff in areas such as management techniques and laboratory techniques, (e) guarantees which provide that, if the physicians income fails to reach a predetermined level, the hospital will pay any portion of the remainder, (f) low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital, (g) payment of the costs of a physicians travel and expenses for conferences, (h) coverage on the hospitals group health insurance plans at an inappropriately low cost to the physician, (i) payment for services (which may include consultations at the hospital) which require few, if any, substantive duties by the physician, (j) purchasing goods or services from physicians at prices in excess of their fair market value, (k) rental of space in physician offices, at other than fair market value terms, by persons or entities to which physicians refer, and (l) certain gainsharing arrangements, i.e., the practice of giving physicians a share of any reduction in a hospitals costs for patient care attributable in part to the physicians efforts. The OIG has encouraged persons having information about hospitals who offer the above types of incentives to physicians to report such information to the OIG.   The OIG also issues Special Advisory Bulletins as a means of providing guidance to health care providers. These bulletins, along with the Special Fraud Alerts have focused on certain arrangements that could be subject to heightened scrutiny by government enforcement authorities, including contractual joint venture arrangements and other joint venture arrangements between those in a position to refer business, such as physicians, and those providing items or services for which Medicare or Medicaid pays.   In addition to issuing fraud alerts and special advisory bulletins, the OIG from time to time issues compliance program guidance for certain types of health care providers. In January 2005, the OIG published Supplemental Compliance Guidance for Hospitals, supplementing its 1998 guidance for the hospital industry. In the supplemental guidance, the OIG identifies a number of risk areas under Federal fraud and abuse statutes and regulations. These areas of risk include compensation arrangements with physicians, recruitment arrangements with physicians and joint venture relationships with physicians.   As authorized by Congress, the OIG has published safe harbor regulations that outline categories of activities that are deemed protected from prosecution under the Anti-kickback Statute. Currently, there are statutory exceptions and safe harbors for various activities, including the following: investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, group purchasing organizations, waiver of beneficiary coinsurance and deductible amounts, managed care arrangements, obstetrical malpractice insurance subsidies, investments in group practices, freestanding surgery centers, ambulance replenishing, and referral agreements for specialty services. The fact that conduct or a business arrangement does not fall within a safe harbor, or that it is identified in a fraud alert or as a risk area in the Supplemental Compliance Guidelines for Hospitals, does not automatically render the conduct or business arrangement illegal under the Anti-kickback Statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities. Although the Company believes that its arrangements with physicians have been structured to comply with current law and available interpretations, there can be no assurance that regulatory authorities enforcing these laws will determine these financial arrangements do not violate the Anti-kickback Statute or other applicable laws. An adverse determination could subject the Company to liabilities under the Social Security Act, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other Federal health care programs.   We May Be Subject to Actions Brought by Individuals on the Governments Behalf Under the False Claims Acts Qui Tam Provisions  The Qui Tam or whistleblower provisions allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the Federal government.  Claims against our healthcare facilities that may be alleged under the False Claims Act include, but are not limited to, inflated charges, submitting claims not eligible for reimbursement and submitting claims for unnecessary medical procedures.  Defendants determined to be liable under the False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false  14  claim.  There are many potential bases for liability under the False Claims Act.  Liability often arises when an entity knowingly submits a false claim for reimbursement to the Federal government.  The False Claims Act defines the term knowingly broadly.  Although simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard to its truth or falsity constitutes a knowing submission under the False Claims Act and, therefore, will qualify for liability.  In some cases, whistleblowers or the Federal government have taken the position that providers who allegedly have violated other statutes, such as the anti-kickback statute and the Stark Law, have thereby submitted false claims under the False Claims Act.  These laws may also contain safe harbor provisions that describe some of the conduct and business relationships that are immune from prosecution. Some of our business arrangements may not fall within the safe harbors. This does not automatically render our arrangements illegal.  However, we may be subject to scrutiny by enforcement authorities who may determine that our business arrangements are not in compliance.  In addition, a number of states have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit in state court.  Currently, we are not subject to these provisions.  However, in the future, if these types of claims were brought forth, it could adversely affect our operations, even if ultimately proven to be without merit, as time and expense would be incurred to defend such actions.  If We Become Subject to Medical Malpractice and Related Legal Claims, We Could Be Required to Pay Significant Damages, Which May Not Be Covered By Insurance  We may be subject to medical malpractice lawsuits and other claims related to our medical division.  We currently maintain coverage in excess of $1 million.  However, it is possible that there may be successful claims against us in the future for amounts which exceed those set forth in the coverage amounts.  This could have an adverse effect on our financial condition.  Furthermore, we may not be able to obtain adequate insurance coverage with acceptable deductible amounts at a reasonable cost.  If We Fail to Effectively Recruit and Retain Physicians, Nurses and Medical Technicians, Our Ability to Deliver Healthcare Services Efficiently Will Suffer  Our success in the medical division, in part, depends on the number and quality of physicians on our staff as well as the maintenance of good relations with these physicians.  We generally do not employ physicians.  Furthermore, there is a shortage of specialty care physicians, nurses and certain medical technicians.  As a result, our healthcare facilities may be forced to hire expensive contract personnel if they are unable to recruit and retain full-time employees. This shortage of specialty care physicians, nurses and medical technicians will continue to affect our ability to deliver healthcare services efficiently.  Our Revenue is Concentrated Geographically which Subjects the Company to Regional Risks  Our revenue is heavily concentrated in Kentucky, Louisiana and Georgia, which makes us particularly sensitive to regulatory and economic changes in those states.  Our revenue primarily consists of reimbursements from private insurance companies, Medicare and the state Medicaid programs.  Our percentage of revenue in Kentucky for year ended December 31, 2007 was 48.64%.  Our percentage of revenue in Georgia for year ended December 31, 2007 was 28.28%.  Our percentage of revenue in Louisiana for year ended December 31, 2007 was 23.08%.  We plan to acquire additional facilities in various states.  Additionally, legislation and financial difficulties faced by various states can reduce our reimbursement.  We cannot predict with accuracy which legislation will pass.  Additionally, various state Medicaid programs are in various stages of financial difficulties and can result in lower reimbursement and correspondingly lower revenues.  Accordingly, if such legislation passed, and financial difficulties of the various state Medicaid programs remain unresolved, this could have a material adverse effect on our business, financial condition, results of operation and growth prospects.  We May Have Difficulty Acquiring Healthcare Facilities on Favorable Terms  The main element of our business strategy in our medical division is expansion through the acquisition of healthcare facilities.  We may face significant competition to acquire strategic healthcare facilities at terms favorable to us.  We may also incur or assume indebtedness as a result of the consummation of any acquisition.  Our failure to acquire strategic healthcare facilities consistent with our growth plan could have a material adverse effect on our business, financial condition, results of operation and growth prospects.  We May Have Difficulty Acquiring Healthcare Facilities Due to Governmental Regulations  Many states, including Kentucky, have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities.  In other states that do not have such legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets.  These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller.  These reviews and, in some instances, approval processes can add additional time to the closing of a not-for-profit hospital acquisition.  Future actions by state legislators or attorneys general may seriously delay or even prevent our ability to acquire certain hospitals.  Certificate of Need Laws and Licensing Regulations May Prohibit or Limit Any Future Expansion By Us In Some States  15     Some states, including Kentucky, where we currently operate an acute care facility, require prior approval for the purchase, construction and expansion of healthcare facilities, based on a states determination of need for additional or expanded healthcare facilities or services.  We may not be able to obtain certificates of need required for expansion activities in the future.  If we fail to obtain any required certificate of need or licenses, our ability to operate or expand our medical services division could be impaired.  We May Experience Significant Compliance Issues Under HIPAAs Transaction, Privacy and Security Requirements  Federal regulations issued pursuant to HIPAA contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The Federal regulations are intended to encourage electronic commerce in the healthcare industry.  Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by the Department of Health and Human Services (DHHS) when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, health care payment and remittance advice and health claim status.  HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and health care providers to be used in connection with the standard electronic transactions.  All healthcare providers will be required to obtain a new National Provider Identifier (NPI) to be used in standard transactions instead of other numerical identifiers.  On January 23, 2004, the DHHS published the final Standard Unique Health Identifier Rule for Health Care Providers. The Final Rule establishes a standard for assigning a unique health care provider identifier, or an NPI, and promulgates implementation specifications to guide health care providers in obtaining and using the NPI.  We are currently in compliance with these regulations.  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 and/or maintain specific financial ratios.  Accordingly, our ability to respond to changing business and economic conditions may be significantly restricted by these covenants should we obtain such credit facilities.  Furthermore, the restrictive covenants on these credit facilities may prevent us from engaging in transactions including acquisitions that are important to our growth strategy.  These restrictions and requirements could have important consequences to our shareholders, including the following:    16  · make us more vulnerable to economic downturns and to adverse changes in business conditions;  · limit our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;  · require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, reducing the funds available for our operations;  · make us vulnerable to increases in interest rates should our bank credit agreement be at a variable rate of interest; and  · require us to repay the indebtedness immediately if we default on any of the numerous financial and other restrictive covenants, including restrictions on our payments of dividends, limitation on our ability to incur of indebtedness and sale of assets.  Any substantial increase in our debt levels could also affect our ability to borrow funds at favorable interest rates and our future operating cash flow.  Other Healthcare Facilities May Provide Similar Healthcare Services, Which May Raise The Level of Competition Faced by Our Healthcare Facilities  Competition among healthcare facilities has intensified in recent years.  The healthcare industry with respect to hospitals is limited to few competitors due to the high barriers of entry resulting from governmental regulations and its capital intensive nature.  Our hospitals generally have no competing hospital in the surrounding vicinity.  However, more recently, hospitals have been facing increasing competition from smaller providers who are not hospitals.  Specifically, we face competition from urgent care centers and other specialized care providers, including but not limited to physical therapy and diagnostic centers.  We may not be able to successfully compete with all of our competitors, especially with those competitors that are larger and have greater resources.   Furthermore, the presence of smaller providers may result in lower revenues which may have a material adverse effect on our business, financial condition, results of operation and growth prospects.  Our Executive Officers Have Limited Industry Experience, But Our Success Depends on Such Persons  Some of our directors and executive officers have limited or no significant experience in the healthcare and transportation/logistics industries. Specifically, our Chief Executive Officer (Rainier Gonzalez) and Chief Financial Officer (John Chi) have limited healthcare and transportation/logistics industry experience while our Chief Operating Officer has limited transportation/logistics experience.  Since our officers set forth the business strategy of the Company and make significant managerial decisions, our success will depend on their ability to set forth a viable and successful strategy and execute successful managerial decisions.  However, our executive officers may not ultimately be successful in the healthcare and transportation/logistics industry since certain officers have limited or no healthcare and transportation/logistics industry experience.  In addition, we believe that our success will depend to a significant extent upon the efforts and abilities of the management of companies that we acquire.  We Depend Heavily on Senior Management and Therefore the Loss of Such Persons Could Adversely Affect Our Business  We believe that our success will depend to a significant extent upon the efforts and abilities of our Chairman and Chief Executive Officer, Rainier Gonzalez, and other members of current senior management, specifically John Chi and John Vincent, and the senior management of the companies we acquire.  Our current employment agreement with Mr. Gonzalez will terminate on August 31, 2008.  Our current employment agreement with Mr. Chi will terminate on July 4, 2008 and with Mr. Vincent on December 31, 2008.  We do not have key person life insurance policies covering any of our employees.  We will likely also depend on the senior management of any significant business that we acquire in the future.  If we lose the services of one or more of these key employees before we are able to attract qualified replacement personnel, our business could be adversely affected.  Our Significant Stockholder Is Also Our Chief Executive Officer, and He Alone Is Able to Influence Corporate Action  As a result of his stock ownership and board representation, Rainier Gonzalez, who is also our Chief Executive Officer and Chairman of the Board of Directors, is in a position to influence our corporate actions in a manner that could conflict with the interests of our other stockholders, including but not limited to mergers/takeovers with other companies, dividend policies, stock splits and repurchases of stock.  Mr. Gonzalez owns 430,422,903 shares of our common stock, which is 72.6% of the 592,799,337 outstanding shares of our common stock on April 15, 2008.  Our Stock Price May Be Volatile  17     The market price for our common stock has been volatile and may be affected by a number of factors, including the announcement of acquisitions or other developments by us or our competitors, quarterly variations in our or other healthcare industry participants results of operations, changes in earnings estimates or recommendations by securities analysts, developments in the healthcare industry, sales of a substantial number of shares of our common stock in the public market, general market conditions, general economic conditions and other factors.  Some of these factors may be beyond our control or may be unrelated to our results of operations or financial condition.  Such factors may lead to further volatility in the market price of our common stock.  Shares Eligible For Future Sale May Have a Depressing Affect on Our Stock Price  We have a substantial number of authorized but unissued shares (337,200,663 shares) of our common stock.  We expect to issue additional shares of our common stock as part of the purchase price for future acquisitions.  We have issued to our employees, officers and directors restricted shares of our common stock.  These shares may be resold under Rule 144.  Currently, we have 454,607,449 shares of restricted stock issued to employees, officers and directors of which 10,612,350 will become unrestricted on December 31, 2008 and 7,470,528 will become unrestricted on December 31, 2009.   Our Common Stock Qualifies As A Penny Stock Under SEC Rules Which May Make It More Difficult For Our Stockholders To Resell Their Shares Of Our Common Stock  The holders of our common stock may find it more difficult to obtain accurate quotations concerning the market value of the stock. Stockholders also may experience greater difficulties in attempting to sell the stock than if it were listed on a stock exchange or quoted on the NASDAQ National Market or the NASDAQ Small-Cap Market. Because our common stock does not trade on a stock exchange or on the NASDAQ National Market or the NASDAQ Small-Cap Market, and the market price of our common stock is less than $5.00 per share, our common stock qualifies as a penny stock.  SEC Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the Exchange Act), imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an established customer or an accredited investor.  This includes the requirement that a broker-dealer must make a determination on the appropriateness of investments in penny stocks for the customer and must make special disclosures to the customer concerning the risks of penny stocks. Application of the penny stock rules to our common stock affects the market liquidity of the shares, which in turn may affect the ability of holders of our common stock to resell the stock.  Only A Small Portion Of The Investment Community Will Purchase Penny Stocks Such As Our Common Stock  Our common stock is defined by the SEC as a penny stock because it trades at a price less than $5.00 per share. Our common stock also meets most common definitions of a penny stock since it trades for less than $1.00 per share. Many brokerage firms will discourage their customers from purchasing penny stocks, and even more brokerage firms will not recommend a penny stock to their customers. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not consider a purchase of a penny stock due, among other things, to the negative reputation that attends the penny stock market. As a result of this widespread disdain for penny stocks, there will be a limited market for our common stock as long as it remains a penny stock. This situation may limit the liquidity of your shares.    ITEM 2.DESCRIPTION OF PROPERTY  Our corporate headquarters are located in leased premises at 7759 NW 146th Street, Miami Lakes, Florida 33016.  As of December 31, 2007, we leased the real estate for a psychiatric hospital in Lake Charles, Louisiana; acute care hospital in Cameron, Louisiana; and the hospital in Barbourville, Kentucky.  We consider these facilities to be in good operating condition and suitable for their current use.  We do not expect that we will need to make significant capital expenditures on these facilities in the near future.   ITEM 3.LEGAL PROCEEDINGS  Sharon K. Postell v. Greene County Hospital Authority d/b/a Minnie G. Boswell Memorial Hospital, Pacer Health Management Corporation of Georgia, Inc., and Anita Brown, in Her Individual Capacity  The Company has been named as a co-defendant in a lawsuit initiated by Plaintiff Sharon K. Postell on August 19, 2005.  Plaintiff alleges that the Company discriminated against her based on her religion in violation of 42 U.S.C. § 1983 and Title VII.  Plaintiff also claims that she was retaliated against when she complained about the religious discrimination.  The last settlement demand by Plaintiff was for approximately $70,000, which the Company rejected.  The case went to trial and the Company prevailed at trial and in the subsequent appeal.  Currently, the Company is awaiting the determination by the Court of the awarding of reasonable attorneys fees.   18  From time to time we become subject to other proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to medical services provided and other matters.  Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.  The Company is subject to various lawsuits and unasserted claims from patients and service providers.  The Company believes that the outcome of these matters, if unfavorable, may be covered by its medical malpractice insurance coverage.  Amounts due to vendors have been accrued as of December 31, 2007.  Other than as stated above, there is no current outstanding litigation in which we are involved in other than routine litigation incidental to our ongoing business.   ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  No matters were submitted to a vote of the Companys shareholders during the fourth quarter ended December 31, 2007.  19  PART II   ITEM 5.MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES  Market Information  Our common stock began trading on the NASDAQ Over-the-Counter Bulletin Board (the OTC) under the symbol PHLH on February 20, 2004.  Prior to that date, our common stock traded under the symbol INFE.  The following table sets forth the average high and low bid prices for the common stock for each calendar quarter and subsequent interim period since January 1, 2006, as reported by the National Quotation Bureau, and represent interdealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions.  HIGHLOW2008:First Quarter$0.02$0.002007:First Quarter$0.03$0.01Second Quarter$0.02$0.00Third Quarter$0.02$0.00Fourth Quarter$0.01$0.002006:First Quarter$0.03$0.01Second Quarter$0.03$0.02Third Quarter$0.03$0.02Fourth Quarter$0.02$0.01  Pacer presently is authorized to issue 930,000,000 shares of common stock, par value $0.0001 per share.  As of April 15, 2008, there were 592,799,337 shares of common stock issued and outstanding.  Pacer is authorized to issue 20,000,000 shares of preferred stock, par value $0.0001 per share, none of which is outstanding.  One (1) share of preferred stock was previously designated as Series A Convertible Preferred, which was previously issued to Rainier Gonzalez in 2004 and since converted into 318,822,903 shares of our common stock.  All of the other preferred stock is undesignated and may not be designated or issued by our Board of Directors without prior stockholder approval.  Dividends We have never paid dividends on our common stock and we do not anticipate paying cash dividends in the foreseeable future.  We intend to retain future earnings to fund the development and growth of our business.  Any payment of dividend in the future will be at the discretions of our Board of Directors and will be dependent upon our earnings, financial condition, capital requirements and other factors deemed relevant by our Board of Directors.  Future credit facilities may also restrict our ability to pay dividends in the future.  Stockholders  The number of registered stockholders on December 31, 2007 was 167 based on information furnished to us by our Transfer Agent.  20  Penny Stock  Our common stock is deemed to be penny stock as that term is defined in Rule 3a51-1 promulgated under the Exchange Act.  These requirements may reduce the potential market for our common stock by reducing the number of potential investors.  This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them.  This could cause our stock price to decline.  Penny stocks are stock:  · With a price of less than $5.00 per share; · That are not traded on a recognized national exchange; · Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or · In issuers with net tangible assets less than $2 million (if the issuer has been in continuous operation for at least three (3) years) or $10 million (if in continuous operation for less than three (3) years), or with average revenues of less than $6 million for the last three (3) years.  Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks.  Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.  Transfer Agent  The Companys Transfer Agent is Computershare Trust Co., Inc., located in Denver, Colorado.  21  Recent Sales Of Unregistered Securities  During the last three (3) years, Pacer issued the following unregistered securities:  Amount of Shares IssuedDate IssuedIssued ToPrice/Purpose8,000,0003/8/05D. ByrnsPrice- $0.021 per share
(pursuant to an employment agreement)112,3505/23/05GEI Enterprises LLCPrice- $0.02 (per rental agreement)100,0006/8/05M. LlanoPrice- $0.03 per share
(in accordance with consulting agreement for serving as Interim Vice-President of Finance)3,000,0007/5/05J. ChiPrice- $0.015 per share
(pursuant to an employment agreement)100,0007/6/05M. LlanoPrice- $0.024 per share
(in accordance with consulting agreement for serving as Interim Vice-President of Finance)50,0008/11/05M. LlorentePrice- $0.02 per share
(Directors fees)50,0008/11/05E. MariniPrice- $0.02 per share
(Directors fees)50,0008/11/05A. JuradoPrice- $0.02 per share
(Directors fees)50,0008/11/05E. PantaleonPrice- $0.02 per share
(Directors fees)100,0008/22/05M. LlanoPrice- $0.021 per share
(in accordance with consulting agreement for serving as Interim Vice-President of Finance)66,66711/10/05M. LlorentePrice- $0.015 per share
(Directors fees)66,66711/10/05E. MariniPrice- $0.015 per share
(Directors fees)66,66711/10/05A. JuradoPrice- $0.015 per share
(Directors fees)66,66711/10/05E. PantaleonPrice- $0.015 per share
(Directors fees)300,00011/14/05M. LlanoPrice- $0.015 per share
(in accordance with consulting agreement for serving as Interim Vice-President of Finance)3,000,00011/15/05T. VidalPrice- $0.015 per share
(pursuant to an employment agreement)  22   100,00012/14/05M. LlanoPrice- $0.015 per share
(in accordance with consulting agreement for serving as Interim Vice-President of Finance)100,0001/9/06M. LlanoPrice- $0.02 per share
(in accordance with consulting agreement for serving as Interim Vice-President of Finance)5,000,0007/21/06J. ChiPrice- $0.015 per share
(pursuant to an employment agreement)40,0008/9/06M. LlorentePrice- $0.025 per share
(Directors fees)40,0008/9/06E. MariniPrice- $0.025 per share
(Directors fees)40,0008/9/06A. JuradoPrice- $0.025 per share
(Directors fees)40,0008/9/06E. PantaleonPrice- $0.025 per share
(Directors fees)2,000,0009/30/06T. VidalPrice- $0.015 per share
(pursuant to an employment agreement)52,63211/13/06M. LlorentePrice- $0.019 per share
(Directors fees)52,63211/13/06E. MariniPrice- $0.019 per share
(Directors fees)52,63211/13/06A. JuradoPrice- $0.019 per share
(Directors fees)52,63211/13/06E. PantaleonPrice- $0.019 per share
(Directors fees)2,000,0003/19/07J. VincentPrice- $0.02 per share
(pursuant to an employment agreement)50,0003/19/07M. LlorentePrice- $0.02 per share
(Directors fees)50,0003/19/07E. MariniPrice- $0.02 per share
(Directors fees)50,0003/19/07A. JuradoPrice- $0.02 per share
(Directors fees)50,0003/19/07E. PantaleonPrice- $0.02 per share
(Directors fees)5,769,2317/9/07YA Global InvestmentsPrice- $0.013 per share (pursuant to debenture agreement)200,0007/25/07M. LlorentePrice- $0.01 per share
(Directors fees)200,0007/25/07E. MariniPrice- $0.01 per share
(Directors fees)200,0007/25/07A. JuradoPrice- $0.01 per share
(Directors fees)200,0007/25/07E. PantaleonPrice- $0.01 per share
(Directors fees)2,000,0009/7/07T. VidalPrice- $0.015 per share
(pursuant to an employment agreement)  23   133,33311/8/07M. LlorentePrice- $0.0075 per share
(Directors fees)133,33311/8/07E. MariniPrice- $0.0075 per share
(Directors fees)133,33311/8/07A. JuradoPrice- $0.0075 per share
(Directors fees)133,33311/8/07E. PantaleonPrice- $0.0075 per share
(Directors fees)2,000,0001/9/08J. VincentPrice- $0.02 per share
(pursuant to an employment agreement)   24  Equity Compensation Plan Information  As of December 31, 2007, the Company has not adopted a formal equity compensation plan.  The Company has issued restricted stock to key individuals in accordance with various consulting and employment agreements.  25      ITEM 6.MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION   Forward-Looking Statements and Associated Risks.This Report contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience and (g) the benefits related to ownership of our common stock.  Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe, intend, or project or the negative of these words or other variations on these words or comparable terminology.  This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under Managements Discussion and Analysis or Plan of Operation and Description of Business as well as in this Report generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under Risk Factors and matters described in this Report generally.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.  You should read the following discussion in conjunction with Part I, including matters set forth in the Risk Factors section of this Form 10-KSB, and our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-KSB.  Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated Financial Statements in order to maintain consistency and comparability between periods presented.  Overview  Pacer Health Corporation is a diversified holding company with subsidiaries operating in the healthcare services and transportation/logistics services.  The Company is aggressively building its existing lines of business through internal growth and acquisitions.  During 2008, the Company announced its intention to expand its operations into the transportation/logistics services.  The Company is actively seeking to acquire additional companies in its existing and complementary lines of business.  The Companys healthcare services business provides healthcare services with a primary focus on acquiring and restructuring hospitals.  At December 31, 2007, we operated three (3) acute care hospitals, one (1) geriatric psychiatric hospital and one (1) rural health clinic. In all of the communities in which our acute care hospitals are located, we are the only provider of acute care hospital services. Our hospitals are geographically diversified across three (3) states: Georgia, Kentucky and Louisiana. We generated $30.269 million and $4.100 million in revenues from continuing operations during 2007 and 2006, respectively.  The Companys transportation/logistics services provides logistics solutions for customers including transportation, warehousing and freight brokerage services.  The Company currently intends to expand its operations in this business through acquisitions of transportation/logistics businesses.  As of December 31, 2007, we owned and/or operated the following healthcare facilities:  · South Cameron Memorial Hospital, Cameron, LA; · Calcasieu-Oaks Behavioral Center, Lake Charles, LA; · South Cameron Rural Health Clinic, Grand Lakes, LA; · Minnie G. Boswell Memorial Hospital, Greensboro, GA; · Lakeside Medical Center, Greensboro, GA; · Womens OB/GYN Center, Greensboro, GA; and · Knox County Hospital, Barbourville, KY.  We focus on acquiring financially distressed hospitals, restructuring the operations to attempt to achieve financial viability and consolidate them under the Pacer brand name.  We attempt to ensure the financial viability of these healthcare facilities by applying our management experience to restructuring the daily operations.  We also design and implement best practices across these facilities to ensure quality medical services are provided to our patients.   26  As a result of the communities we operate in, we continue to provide services to a high volume of indigent and underinsured patients that has increased over prior years.  We believe that many factors affect the volume of indigent and underinsured patients, including the economy, inflation, recession or economic slowdown, consumer confidence, unemployment rates, changes in consumers health plans, and legislation affecting healthcare.  Accordingly, we expect to continue to experience a high level of uncollectible accounts. Our collection efforts have improved, and we continue to focus, where applicable, on placement of patients in various government programs such as Medicaid.  However, unless our business mix shifts toward a greater number of insured patients, we anticipate this high level of uncollectible accounts to continue.  Furthermore, labor, agency and supply costs remain a significant cost pressure facing us as well as the industry in general.  We have made and continue to make strides in containing labor, agency and supply costs by implementing various cost control programs.  However, we expect that maintaining this level of cost control in an environment of increasing volumes of indigent and underinsured patients will continue to be a challenge.   27  Acquisitions, Sale-Leaseback, Operating Lease and Divestiture  On December 31, 2006, our wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, consummated an agreement with the County of Knox, Kentucky to lease all of the assets and real property used in connection with Knox County Hospital as well as delegating full and complete management responsibility and operational control for the Hospital to the Company.  The Company may retain all profits from the operations of the Hospital after satisfying its lease obligations to the County of Knox and maintenance and operations expenses of the Hospital facility.  The annual lease payment is equal to the amount of annual payment due by Knox County on its County of Knox, Kentucky Taxable General Obligation Refunding Bonds, Series 2006, after applying the capitalized interest which is to be paid from the proceeds of the Bonds.  We estimate the annual payment for 2008 to be approximately $692,265.  Additionally, at any time during the term of the Agreement, we have the option to purchase all of the Hospital assets from the County of Knox County and assume all of the liabilities (excluding certain liabilities as defined in the Agreement) for a purchase price equal to the sum of (a) the lesser of: (i) the outstanding principal amount of the Bonds on the closing of such purchase or (ii) what the principal balance of the Bonds would have been if all lease payments and other payments to be made by the Company were used to satisfy the principal and interest due under the Bonds at the date of each such payment plus (b) any prepayment penalties on the Bonds and (c) less any funds then held in any debt service reserve fund, bond fund or any other fund or account in any way pertaining to the Bonds.  The term of the Agreement ends on the earlier of (a) the date the refunding bonds are paid in full; or (b) the date the Company exercises its purchase option.  The refunding bonds have a term of thirty (30) years.   The County of Knox may only terminate the Agreement if (a) the Company does not make the required monthly lease payments or (b) if the Company fails to complete substantial repairs caused by a casualty.  On April 1, 2007, the Company entered into an agreement to sell, in substance, a minority interest of forty percent (40%) of its wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, to an unrelated third party.  Pacer Health Management Corporation of Kentucky currently leases certain assets from the County of Knox, Kentucky.  The sales price was $1.2 million, which consisted solely of cash, of which $500,000 was received on March 30, 2007 and $700,000 was received on April 20, 2007.  A gain of $980,458 was included in Other Income for the six months ended June 30, 2007 and an initial minority interest of $219,542 was recorded based on forty percent (40%) of the net equity of the subsidiary on the sale date.  On December 6, 2005, our wholly-owned subsidiary, Pacer Health Holdings of Lafayette, Inc. acquired a majority interest in Southpark Community Hospital, L.L.C. Pacer Sub received a sixty percent (60%) equity position in Southpark and the remaining investors of Southpark reduced their equity position to forty percent (40%) in consideration for an infusion amount up to $2,500,000 over the period of ownership, the exact amount to be reasonably determined by Pacer Sub as necessary to sustain the operations of Southpark.  Pacer Sub also assumed a prorated share of the outstanding liabilities and also assumed the position of guarantor, equal to its percentage of ownership, on all notes.  Pacer Sub had also agreed to reimburse certain investors who made principal and interest payments on certain third party loans on behalf of Southpark. On September 29, 2006, the Company divested its majority interest for a $3,000,000 note receivable to a third party, which consisted primarily of shareholders of the minority interest.  Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured.  Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense which is included in discontinued operations for the year ended December 31, 2006.  On September 1, 2005, our wholly-owned subsidiary, Pacer Health Management Corporation of Georgia, completed its asset purchase agreement with the Greene County Hospital Authority to acquire certain assets and assume certain liabilities used in the operation of Minnie G. Boswell Memorial Hospital.  The total purchase amount was $1,108,676.  On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc.  On March 7, 2008 the Company sold to St Josephs Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital for the aggregate purchase price of $3,547,559.71, subject to certain adjustments set forth in the agreement.  St. Josephs Healthcare System, Inc. also assumed certain liabilities with respect to the operation.   Additionally, within thirty (30) calendar days following July 1, 2008, St. Josephs Healthcare System, Inc. shall submit to the Company a report identifying the amount of annual subsidy for Minnie G. Boswell Memorial Hospital approved by the Greene County Commission prior to July 1, 2008.  Within 10 calendar days following the date that the Annual Subsidy Amount has been determined in accordance with the agreement, St. Josephs Healthcare System, Inc. shall pay to the Company an amount equal to 50% of the Annual Subsidy Amount up to $1,500,000.  In March 2007, the Company amended its lease agreement with the Lower Cameron Hospital Service District to provide for the funding of operational losses by the LCHSD through certain grants.  These grants will be paid quarterly in 2007 and provide for a payment of $3.5 million in 2007 and $1.2 million, or such lesser amount as may be generated by tax revenues collected by the LCHSD during the then current year, beginning in 2008 through 2017.   As of December 31, 2007, the Company has received all of the expected $3.5 million of grants for 2007 and such amount is included in patient revenue for the year ended December 31, 2007.  As of April 15, 2008, the Company has received $300,000 of such grants for year ended December 31, 2008.   28  We intend to expand our regional network through the acquisition of additional financially distressed hospitals.  In most cases, we believe that our initial market entry will be through the acquisition of key existing healthcare facilities in a market.  We intend to retain the management of well-run facilities to benefit from their knowledge and experience.  Smaller facilities may also be acquired in non-strategic locations.  We believe that by acquiring existing facilities, we will build our network in a cost-efficient manner.  The net book value of goodwill at December 31, 2007 totaled $1,216,318, which represents 8.74% of the total consolidated assets at that date.  We follow the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which require us to complete impairment tests on goodwill as of December 31, 2007.  Accordingly, an impairment analysis was performed that resulted in no additional impairment.  Goodwill will be tested for impairment annually at December 31 or more frequently when events or circumstances indicate that an impairment may have occurred.  However, earnings in future years could be materially adversely affected if management later determines the goodwill balance is impaired.   29  Critical Accounting Policies And Estimates  General  Managements Discussion and Analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  At each balance sheet date, management evaluates its estimates, including but not limited to, those related to contractual allowances on revenues and related patients receivable, bad debt allowance on patients receivable, bad debt allowance on other receivables, valuation of assets acquired and liabilities assumed in acquisitions, valuation of derivatives, valuation and related impairments of goodwill, and other long-lived assets and an estimate of the deferred tax asset valuation allowance.  The Company also reviews its goodwill for possible impairment.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Estimates are also based on historical experience within our business and the healthcare and transportation/logistics industry as a whole.  Actual results may differ from these estimates under different assumptions or conditions.  The estimates and critical accounting policies that are most important in fully understanding and evaluating our financial condition and results of operations include those listed below, as well as our valuation of equity securities used in transactions and for compensation, and our revenue recognition methods for healthcare and transportation/logistics operations.  Healthcare Patient Service Revenue Recognition  In general, the Company follows the guidance of the United States Securities and Exchange Commissions Staff Accounting Bulletin No. 104 for revenue recognition.  The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered, or product delivery has occurred, the sales price to the patient is fixed or determinable, and collectability is reasonably assured.  The Company also follows the industry specific revenue recognition criteria as delineated in the AICPA Audit and Accounting Guide Health Care Organizations.  (i) Hospital Operations  The Company recognizes revenues in the period in which services are performed and billed to the patient or third party payor. Accounts receivable primarily consist of amounts due from third party payors and patients. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Companys established billing rates. Accordingly, the revenues and accounts receivable reported in the Companys consolidated financial statements are recorded at the amount expected to be received. The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from our standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Companys estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Companys consolidated statements of operations in the period of the change. Management has recorded estimates for bad debt losses, which may be sustained in the collection of these receivables. Although estimates with respect to realization of the receivables are based on Managements knowledge of current events, the Companys collection history, and actions it may undertake in the future, actual collections may ultimately differ substantially from these estimates. Receivables are written off when all legal actions have been exhausted. The Company participates in the Louisiana disproportionate share hospital (DSH) fund related to uncompensated care provided to a disproportionate percentage of low-income and Medicaid patients.  Upon meeting certain qualifications, our facility in Louisiana become eligible to receive additional reimbursement from the fund.  The reimbursement amount is determined upon submission of uncompensated care data by all eligible hospitals.  Once the reimbursement amount is determined and collectability is reasonably assured, the additional reimbursement is included as revenue under SEC Staff Accounting Bulleting 104.  30  (ii) Management Services  The Company recognizes management service fees as services are provided.  Patient Accounts Receivable, Allowance for Contractuals, and Allowance for Doubtful Accounts Patient Accounts Receivable at December 31, 2007 is as follows: Patient accounts receivable$27,411,196Less:  Allowance for doubtful accounts(13,871,469)Less:  Allowance for contractual discounts(8,471,693)Patient Accounts Receivable, net$5,068,034  The Company derives a significant portion of its revenues from Medicare, Medicaid and other payers that receive discounts from our standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Companys estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the period in which the change in estimate occurred. During the year ended December 31, 2007 and 2006, the Company recorded bad debt expense from patient receivables relating to continuing operations of $8,371,491 and $661,068, respectively.  In addition, the Company included in discontinued operations bad debt expense of $4,937,150 and $4,904,443 for the year ended December 31, 2007 and 2006, respectively.  The Company establishes an allowance for doubtful accounts to reduce the carrying value of patient receivables to their estimated net realizable value. The primary uncertainty of such allowances lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients. Property And Equipment  Property and equipment are stated at cost.  Equipment, major renewals and improvements greater than $5,000 are capitalized; maintenance and repairs are charged to expense as incurred.  Gain or loss on disposition of property is recorded at the time of disposition.  Depreciation and amortization of fixed assets is provided for by using the straight-line method over the estimated useful lives of the assets, generally 40 years for buildings, 3-to-10 years for furniture, fixtures, and equipment and 3-to-5 years for vehicles, computer hardware, software, and communication systems.  Leasehold improvements are depreciated over the lesser of useful lives or lease terms including available option periods.  Intangible Assets Intangible assets at December 31, 2007 consisted of goodwill of $1,216,318 which is the result of the acquisitions of SCMH. Goodwill consists of the excess of purchase price over the fair value of assets and liabilities acquired in acquisitions accounted for under the purchase method of accounting.  The Company follows the provisions of SFAS No. 141, Business Combinations (SFAS 141), which requires all business combinations initiated after September 30, 2001 to be accounted for using the purchase method.  Additionally, acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirers intent to do so.  The Company also follows the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). As required by SFAS 142, the Company has completed certain impairment tests for its recorded goodwill.  These tests include determining the fair value of the Companys single reporting unit, as defined by SFAS 142, and comparing it to the carrying value of the net assets allocated to the reporting unit.  Goodwill will be tested for impairment annually at December 31 or more frequently when events or circumstances indicate that an impairment may have occurred.    31  Stock Based Compensation  On January 1, 2006, the Company implemented Statement of Financial Accounting Standard 123 (revised 2004) (SFAS 123(R)), Share-Based Payment which replaced SFAS 123 Accounting for Stock-Based Compensation and superseded APB Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS 123(R) requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period.  The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption.  During 2006, all employee stock compensation is recorded at fair value using the Black-Scholes Pricing Model.  In adopting SFAS 123(R), the Company used the modified prospective application (MPA).  MPA requires the Company to account for all new stock compensation to employees using fair value, and for any portion of awards prior to January 1, 2006 for which the requisite service has not been rendered and the options remain outstanding as of January 1, 2006, the Company should recognize the compensation cost for that portion of the award the that requisite service was rendered on or after January 1, 2006.  The fair value for these awards is determined based on the grant-date. For stock directly issued to employees for services, a compensation charge is recorded against earnings over the service period measured at the date of grant based on the fair value of the stock award. During the year ended December 31, 2007 and 2006, the Company issued 5,533,332 and 7,470,528 shares of common stock, respectively, to key employees pursuant to the terms of employment agreements and other contract agreements.  At December 31, 2007, 4,000,000 of these shares were unvested.  32   Critical Accounting Estimates  The table that follows presents information about our critical accounting estimates, as well as the effects of hypothetical changes in the material assumptions used to develop each estimate:    BALANCE SHEET 
OR INCOME STATEMENT CAPTION/
NATURE OF CRITICAL ESTIMATE ITEMASSUMPTIONS/
APPROACH USEDSENSITIVITY ANALYSISAllowance for doubtful accounts and provision for doubtful accountsAccounts receivable primarily consist of amounts due from third-party payors and patients. Our ability to collect outstanding receivables is critical to our results of operations and cash flows. To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients. Our allowance for doubtful accounts, included in our balance sheets as of December 31, 2007 and December 31, 2006 was as follows:
   December 31, 2007  $13,871,469; and
   December 31, 2006 $13,079,845.The largest component of bad debts in our patient accounts receivable relates to accounts for which patients are responsible, which we refer to as patient responsibility accounts. These accounts include both amounts payable by uninsured patients and co-payments and deductibles payable by insured patients. In general, we attempt to collect deductibles, co-payments and self-pay accounts prior to the time of service for non-emergency care. If we do not collect these patient responsibility accounts prior to the delivery of care, the accounts are handled through our billing and collections processes.
We verify each patients insurance coverage at the time of the scheduled admission or procedure, including eligibility, benefits and authorization / pre-certification requirements, in order to notify patients of the amounts for which they will be responsible. We attempt to verify insurance coverage within a reasonable amount of time for all emergency room visits and urgent admissions in compliance with the Emergency Medical Treatment and Active Labor Act.
In general, we follow the following steps in collecting accounts receivable:
   if possible, cash collection of deductibles, co-payments and self-pay accounts at the time service is provided;
   billing and follow-up with third party payors;
   utilization of collection agencies; and
   if collection efforts are unsuccessful, write off of the patient accounts.

Our policy is to write off accounts after all legal actions have been exhausted. Patient responsibility accounts represent the majority of our write-offs. Generally, we do write off accounts at the time we utilize the services of a collection agency.

We determine the adequacy of the allowance for doubtful accounts reviewing our remittances against related charges.  We continually adjust our reserve based on our collection history.If self-pay revenues during 2007 were changed by one percent (1%), our 2007 after-tax income from continuing operations would change by approximately $0.001 or diluted earnings per share of $0.001.
This is only one example of reasonably possible sensitivity scenarios. The process of determining the allowance requires us to estimate uncollectible patient accounts that are highly uncertain and requires a high degree of judgment. It is impacted by changes in regional economic conditions, business office operations, payor mix and trends in Federal or state governmental healthcare coverage.
A significant increase in our provision for doubtful accounts (as a percentage of revenues) would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital.  33   Revenue recognition / Allowance for  contractual discountsWe recognize revenues in the period in which services are provided. Accounts receivable primarily consist of amounts due from third-party payors and patients. Amounts we receive for treatment of patients covered by governmental programs, such as Medicare and Medicaid, and other third-party payors such as HMOs, PPOs and other private insurers, are generally less than our established billing rates. Accordingly, our gross revenues and accounts receivable are reduced to net realizable value through an allowance for contractual discounts.
Our allowance for contractual discounts, included in our balance sheets as of December 31, 2007 and December 31, 2006 was as follows:
   December 31, 2007  $8,471,693; and
   December 31, 2006  $10,816,132.
We recorded contractual allowance discounts, included in our results of continuing operations, was as follows:
   December 31, 2007  $31,224,825; and
   December 31, 2006 $13,633,127.Revenues are recorded at estimated net amounts due from patients, third-party payors and others for healthcare services provided. Estimates for contractual allowances are calculated based solely on historical collections from payors based on the type of service provided. All contractual adjustments regardless of type of payor or method of calculation are reviewed continually and compared to actual experience.Governmental payorsGovernmental payorsThe majority of services performed on Medicare and Medicaid patients are reimbursed at predetermined reimbursement rates except for our critical access acute care facility in Barbourville, Kentucky, which is reimbursed on a reasonable cost method. The differences between the established billing rates (i.e., gross charges) and the actual reimbursement rates are recorded as contractual discounts and deducted from gross charges.
For our critical access acute care facility in Barbourville, Kentucky , there is an adjustment or settlement of the difference between the actual cost to provide the service and the actual reimbursement rates.  Settlements are adjusted in future periods when settlements of filed cost reports are received. Final settlements under these programs are subject to adjustment based on administrative review and audit by third party intermediaries, which can take several years to resolve completely.Because the laws and regulations governing the Medicare and Medicaid programs are complex and subject to change, the estimates of contractual discounts we record could change by material amounts. Adjustments related to settlements increased/(decreased) our continuing and discontinued revenues by the following amounts:
   2007  $194,268.
   2006  ($1,744,541).
A change in the settlement of five percent (5%) would result in a charge to our results of operations of $9,713.
This is only one example of reasonably possible sensitivity scenarios. The process of determining the allowance requires us to estimate reasonable costs and predetermined reimbursement rates that are highly uncertain and requires a high degree of judgment. It is impacted by changes in regional economic conditions, business office operations, payor mix and trends in Federal or state governmental healthcare coverage.
A significant increase in our allowance for contractual discounts (as a percentage of revenues) would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital.Non-Governmental payorsNon-Governmental payors  34   For most managed care plans, estimated contractual allowances are adjusted to actual contractual allowances as cash is received and claims are reconciled.
Accounts receivable primarily consist of amounts due from third party payors and patients. Amounts we receive for the treatment of patients covered by HMOs, PPOs and other private insurers are generally less than our established billing rates. We include contractual allowances as a reduction to revenues in our financial statements based on payor specific identification and payor specific factors for rate increases and denials.If our overall estimated contractual discount percentage on all of our non-governmental revenues during 2007 were changed by one percent (1%), our 2006 after-tax income from continuing operations would change by approximately $0.001 million.
This is only one example of reasonably possible sensitivity scenarios. The process of determining the allowance requires us to estimate the amount expected to be received and requires a high degree of judgment. It is impacted by changes in managed care contracts and other related factors.
A significant increase in our estimate of contractual discounts would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital.Goodwill and accounting for business combinationsGoodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies. Our goodwill included in our consolidated balance sheets as of December 31, 2007 and December 31, 2006 was as follows:
   December 31, 2007  $1,216,318; and
   December 31, 2006  $1,216,318.We follow the guidance in Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, and test goodwill for impairment using a fair value approach. We are required to test for impairment at least annually, absent some triggering event that would accelerate an impairment assessment. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of December 31 of each year. We also test for impairments when events or circumstances indicate that an impairment may have occurred.  We determine fair value using a discounted cash flow analysis. These types of analyses require us to make assumptions and estimates regarding future cash flows, industry economic factors and the profitability of future business strategies.

The purchase price of acquisitions are allocated to the assets acquired and liabilities assumed based upon their respective fair values and subject to change during the twelve month period subsequent to the acquisition date. Such valuations require us to make significant estimates and assumptions, including projections of future events and operating performance.

Fair value estimates are derived internal calculations of estimated future net cash flows. Our estimate of future cash flows is based on assumptions and projections we believe to be currently reasonable and supportable. Our assumptions take into account revenue and expense growth rates, patient volumes, changes in payor mix, and changes in legislation and other payor payment patterns.We performed our annual testing for goodwill impairment as of December 31, 2006 and 2007 using the methodology described here, and determined that no goodwill impairment existed. If actual future results are not consistent with our assumptions and estimates, we may be required to record goodwill impairment charges in the future.

Our estimate of fair value of acquired assets and assumed liabilities are based upon assumptions believed to be reasonable based upon current facts and circumstances. If ten percent (10%) of the non-depreciable assets acquired during 2006 were allocated to a depreciable asset with an average life of twenty (20) years, depreciation expense would have increased by approximately $12,770 in 2007.Accounting for income taxes  35   Deferred tax assets generally represent items that will result in a tax deduction in future years for which we have already recorded the tax benefit in our income statement. We assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not probable, a valuation allowance is established. To the extent we establish a valuation allowance or increase this allowance, we must include an expense as part of the income tax provision in our results of operations. Our deferred tax asset balances in our consolidated balance sheets as of December 31 for the following years were as follows:
   2007  $5,622,059; and
   2006  $3,065,302.
Our valuation allowances for deferred tax assets in our consolidated balance sheets as of December 31 for the following years were as follows:
   2007  $5,622,059; and
   2006  $3,065,302.The first step in determining the deferred tax asset valuation allowance is identifying reporting jurisdictions where we have a history of tax and operating losses or are projected to have losses in future periods as a result of changes in operational performance. We then determine if a valuation allowance should be established against the deferred tax assets for that reporting jurisdiction.

The second step is to determine the amount of the valuation allowance. We will generally establish a valuation allowance equal to the net deferred tax asset (deferred tax assets less deferred tax liabilities) related to the jurisdiction identified in step one of the analysis. In certain cases, we may not reduce the valuation allowance by the amount of the deferred tax liabilities depending on the nature and timing of future taxable income attributable to deferred tax liabilities.We have subsidiaries with a history of tax losses and, based upon those historical tax losses, we assumed that the subsidiaries would not be profitable in the future for income tax purposes. If our assertion regarding the future profitability of those subsidiaries were incorrect, then our deferred tax assets would be understated by the amount of the valuation allowance of $5,622,059 on December 31, 2007 and  $3,173,323 on December 31, 2006.

The IRS may propose adjustments for items we have failed to identify as tax contingencies. If the IRS were to propose and sustain assessments equal to ten percent (10%) of our taxable loss for 2007, we would incur $535,296 of additional tax payments plus applicable penalties and interest.In addition, significant judgment is required in determining and assessing the impact of certain tax-related contingencies. We establish accruals when, despite our belief that our tax return positions are fully supportable, it is probable that we have incurred a loss related to tax contingencies and the loss or range of loss can be reasonably estimated.
We adjust the accruals related to tax contingencies as part of our provision for income taxes in our results of operations based upon changing facts and circumstances, such as progress of a tax audit, development of industry related examination issues, as well as legislative, regulatory or judicial developments. A number of years may elapse before a particular matter, for which we have established an accrual, is audited and resolved.In assessing tax contingencies, we identify tax issues that we believe may be challenged upon examination by the taxing authorities. We also assess the likelihood of sustaining tax benefits associated with tax planning strategies and reduce tax benefits based on managements judgment regarding such likelihood. We compute the tax and related interest on each contingency. We then determine the amount of loss, or reduction in tax benefits based upon the foregoing and reflect such amount as a component of the provision for income taxes in the reporting period.
During each reporting period, we assess the facts and circumstances related to recorded tax contingencies. If tax contingencies are no longer deemed probable based upon new facts and circumstances, the contingency is reflected as a reduction of the provision for income taxes in the current period.    36      Reported Operating Data  Years Ended December 31,2007 vs. 2006VarianceFavorable /($ in millions)20072006(Unfavorable)% VarianceRevenue$29.969$3.624$26.345727.0Selling, general & administrative expenses(32.470)(6.400)(26.070)(407.3)Depreciation and amortization(.239)(.002)(.237)Management fees income.300.475(175)Other income.929(.001).930Other interest expense(2.080)(1.024)(1.056)(103.1)Loss from continuing operations(3.591)(3.328)(.263)Minority interest.198.000.198Discontinued operations, net of gain on disposal(3.161)(4.309)(1.148)Net loss before income taxes$(6.554)$(7.637)$1.08314.2Patient Days12,89910,008     37     Results Of Operations For The Fiscal Year Ended December 31, 2006, Compared To Fiscal Year Ended December 31, 2005. The Company had revenues from continuing operations of $30,269,517 and $4,099,602 in the years ended December 31, 2007 and 2006, respectively, an increase of $26,169,915 or 638.3%.  Our revenues increased for the year ended December 31, 2007 from the year ended December 31, 2006 primarily as a result of our acquisition of our Barbourville, Kentucky.  The increase was also partially a result of an increased revenue stream for our Cameron, Louisiana facility which reopened in November 2007.  Revenue includes reimbursement amounts billed to Medicare, Medicaid and private insurance companies.  These amounts are shown at the gross amount billed less contractual allowances.  Revenue also includes management fees and other operational income.  In addition, for the year ended December 31, 2007, the Company received $3,828,266 in grant money and in-kind donations related to the reopening of our Cameron, Louisiana facility.  The Company had total operating expenses from continuing operations of $32,710,171 and $6,402,026 in the years ended December 31, 2007 and 2006, respectively, an increase of $26,308,145 or 410.9%.    Our expenses increased significantly for the year ended December 31, 2007 from the year ended December 31, 2006 primarily as a result of our acquisition of our Barbourville, Kentucky facility.  Our bad debts expense increased due to our transition of outsourcing our patient accounting functions.  Furthermore, our operating costs include increased operating expenses which we have incurred in connection with our attempts to reopen our Cameron facility as well as legal fees incurred to counsel our acquisition of our Barbourville facility.  Our operating costs also remained disproportionately high during the first six months of the year ended December 31, 2007 as a result of our retention of key personnel from our Cameron facility.  However, we expect our consolidated operating expenses to be proportional to our consolidated net revenues as a result of the reopening of the Cameron facility.  The Company had net losses of $6,554,083 and $7,636,744 in the years ended December 31, 2007 and 2006, respectively.  The net loss per share was approximately $(0.01) and $(0.01) in the years ended December 31, 2007 and 2006, respectively.  The net loss is the result of the disproportionately high cost structure we have maintained during the rebuilding process in our Cameron facility.  We anticipate that we will mitigate such losses in 2008 as a result of the reopening of our Cameron facility, our sale of the Greensboro facility and the increased efficiency of our Barbourville facility.  The Company plans to expand its business over the next several years, largely through the acquisition of complementary lines of businesses.  The corporate general and administrative expenses are expected to increase over this time period, due principally to expansion of corporate personnel and integration costs planned to be incurred in connection with the development and implementation of centralized operational and financial systems.  The Company incurred interest expense of $2,079,630 and $1,024,251 for the years ended December 31, 2007 and 2006, respectively, an increase of $1,055,385 or 103%.  The increase is primarily due to the issuance of outstanding convertible debentures we had issued to YA Global, LP (f/k/a Cornell Capital Partners) in July 2007 and September 2007.  The amortization of debt discount related to these convertible debentures is included in interest expense.  For the year ended December 2007, the amortization of debt discount included in interest expense was $1,315,684.  We may also incur additional debt in future years in order to facilitate acquisitions or expand corporate operations.   Interest paid on this future debt could have a material adverse effect on our business, financial condition, results of operations, cash flows, and prospects.  The provision for income taxes for the years ended December 31, 2007 and 2006 was $0 and $0, respectively.  Any tax benefit generated by our loss was offset by a deferred tax asset allowance.  Our future effective tax rate will depend on various factors including the mix between state taxable income or losses, amounts of tax deductible goodwill and the timing of adjustments to the valuation allowance on our net deferred tax assets.  38  Liquidity And Capital Resources  We had cash of $46,384 and $396,033 and as of December 31, 2007 and 2006, respectively.   Cash used in operations was $3,237,963 and $4,482,845 for the year ended December 31, 2007 and 2006, respectively.  Additionally, we had a working capital deficit of $1,660,612.  The decrease in cash and working capital was due primarily to our restructuring of our operations in our facilities, specifically Minnie G. Boswell Memorial Hospital, which was sold in March 2008.  During the year, our accounts payable increased $1,014,680, our prepaid insurance increased $573,273 and our accrued wages increased $704,578, which was offset by a gain on the sale of our minority interest in Knox County Hospital of $980,458, a decrease in our Medicare payable of $477,004 and depreciation expense of $372,430.  Our patient accounts receivable increased $12,181,357 and was offset by an increase in bad debts expense of $13,308,641.  Net Cash used in investing activities was $316,309 for the year ended December 31, 2007 compared to $1,032,243 provided by investing activities for the year ended December 31, 2006.  Net cash provided by investing activities included proceeds of $100,000 held for the sale of Minnie G. Boswell Memorial Hospital.  Net cash was also used in investing activities during the year ended December 31, 2007 was attributable to the fact that the Company purchased medical equipment and computers in the amount of $491,309.  Net Cash provided in financing activities was $3,204,623 for the year ended December 31, 2007, compared to $2,627,410 in the same period for 2006.  Net cash provided in financing activities during the year ended December 31, 2007 was primarily attributable to the issuance of convertible debentures (net of related expenses) to YA Global Investors, L.P. for $3,630,502 offset by a $1,221,252 redemption of convertible debenture, an increase in cash overdraft of $439,588, proceeds of $64,000 from related party loans offset primarily by repayments of $1,000 for related party loans, repayments of $211,100 for loans payable, repayments of $2,013 for capitalized lease obligations and repayments of $633,102 for notes payable.  On July 6, 2007, the Company entered into a Securities Purchase Agreement with YA Global pursuant to which the Company sold to YA Global, and YA Global purchased from the Company, up to $5,500,000 of Secured Convertible Debentures, which shall be convertible, at a fixed convertible price of $0.02 until maturity, into shares of the Companys common stock and warrants to acquire up to 220,000,000 additional shares of the Companys common stock, of which $3,500,000 was funded on July 9, 2007, $1,500,000 was to be funded on the date a registration statement is filed with the U.S. Securities and Exchange Commission and $500,000 was to be funded within five (5) business days after the registration statement is declared effective.  The $3,500,000 debentures accrue interest at a rate equal to thirteen percent (13%) per annum and shall mature, unless extended by YA Global, on March 31, 2009.  On the maturity date, the Company may, at its option, redeem the outstanding principal and any accrued interest in either cash or common stock.  If the Company chooses to repay in common stock, the debentures are convertible at the lower of $0.02 and that price which shall be computed as 80% of the lowest daily volume weighted average price of the common stock during the fifteen (15) consecutive trading days immediately preceding the applicable payment date.  The Company shall pay a redemption premium of seven and one half percent (7.5%).  The Company at its option also has the right to redeem a portion or all amounts outstanding prior to the Maturity Date provided that as of the date of the holders receipt of a Redemption Notice (as defined therein): (i) the closing bid price is less than $.02; (ii) the Registration Statement is effective; and (iii) no event of default has occurred and be continuing.  The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to fifteen percent (15%) of the principal amount being redeemed and accrued interest.  In connection with the July 6, 2007 issuance of the $3,500,000 convertible debenture, the Company recorded a contra liability of $305,000 by debiting debt discount.  These $305,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The Company also incurred additional expenses of $12,201 related to accountant and attorneys fees in connection with the financing that will be capitalized and amortized as debt issue costs.  As of December 31, 2007, the Company has amortized $85,631 of debt discount.   Debt discount is directly offset against the gross convertible debentures balance outstanding.  The total debt discount will be amortized to interest expense over the life of the debt.  Additionally, as of December 31, 2007, the Company has amortized $3,425 of debt issue costs.  The convertible debentures and warrants contain registration rights with filing and effectiveness deadlines and a liquidated damages provision.  The registration statement was required to be filed within 30 days of the funding date of July 6, 2007 and was required to become effective within 180 of the funding date.  The agreement contains provisions for liquidated damages, payable in cash or shares at the lender's option, 2% of the value of the convertible debentures for each 30-day period after the scheduled deadline that the Company has not met, to be capped at 24 months.  Once effective, the Company must also maintain the registration statement effective until all the registrable securities have been sold by the lender.  In connection with the Securities Purchase Agreement, the Company also was obligated to issue to the Investor the Warrants to purchase, in Investors sole discretion, Two Hundred Twenty Million (220,000,000) shares of Common Stock at a price of $0.02 per share which expire on various dates beginning July 2012.  As of December 31, 2007, all warrants have been issued to the Investor.   39  These warrants were valued on the loan date at their relative fair value of $1,733,186 based on a Black-Scholes option pricing model using the following assumptions: volatility 243% (based on historical volatility); expected term of five (5) years (based on contractual term for non-employees); expected dividends of $0; and risk free rate of 5.02%.  The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term.  Amortization for 2007 was $483,554.  On September 18, 2007, the Company amended and restated its Securities Purchase Agreement with YA Global in order to reduce the aggregate purchase price to Four Million Dollars ($4,000,000), whereby instead of YA Global funding (i) $1,500,000 on the date a registration statement is filed with the U.S. Securities and Exchange Commission and (ii) $500,000 within five (5) business days after the registration statement is declared effective, the Investor funded $500,000 on September 11, 2007.  The $500,000 convertible debentures accrue interest at a rate equal to thirteen percent (13%) per annum and shall mature, unless extended by YA Global, on March 31, 2009.  On the maturity date, the Company may, at its option, redeem the outstanding principal and any accrued interest in either cash or common stock.  If the Company chooses to repay in common stock, the  debentures are convertible at the lower of $.02 and that price which shall be computed as 80% of the lowest daily volume weighted average price of the common stock during the fifteen (15) consecutive trading days immediately preceding the applicable payment date.  The Company shall pay a redemption premium of seven and one half percent (7.5%).  The Company at its option also has the right to redeem a portion or all amounts outstanding prior to the Maturity Date provided that as of the date of the holders receipt of a Redemption Notice (as defined therein): (i) the closing bid price is less than $0.02; (ii) the Registration Statement is effective; and (iii) no event of default has occurred and be continuing.  The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to fifteen percent (15%) of the principal amount being redeemed and accrued interest.  In connection with the September 11, 2007 issuance of the $500,000 convertible debenture, the Company recorded a contra liability of $40,000 by debiting debt discount.  These $40,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The Company also incurred additional expenses of $12,297 related to accountant and attorneys fees in connection with the financing that will be capitalized and amortized as debt issue costs.  As of December 31, 2007, the Company has amortized $6,562 of debt discount.   Debt discount is directly offset against the gross convertible debentures balance outstanding.  The total debt discount will be amortized to interest expense over the life of the debt.  Additionally, as of December 31, 2007, the Company has amortized $2,017 of debt issue costs.  The Company determined that the embedded conversion options in the convertible debentures and warrants were not derivatives and qualify for equity treatment since the convertible debt is considered conventional convertible debt due to the fixed conversion price..  In addition, there was $533,186 of beneficial conversion value of the convertible debentures which was recorded as debt discount and is being amortized over the debt term.  Amortization of this beneficial conversion value was $148,757 in 2007.  On April 1, 2008 the Company entered into a Securities Purchase Agreement with YA Global Investments, L.P. to which the Company sold to the YA Global Investments LP $5,786,017 of secured convertible debentures and a 5 year warrant to acquire up to 5,500,000 additional shares at an exercise price of $0.0001 per share.  The Debenture shall accrue interest at 13% per annum and shall mature on April 1, 2012.  The conversion price is the lesser of $0.02 and 80% of the lowest daily volume weighted average price of the Common Stock during the 20 trading days immediately preceding each conversion date.  The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 15% of the principal amount being redeemed, and accrued interest.  The Company intends to implement its business strategy largely by the acquisition of complementary businesses.  The Company intends to finance the costs of its business acquisitions and capital expenditures with a combination of debt and equity capital, as well as cash generated from internal operations.  Specifically, we expect to finance the cost of future business acquisitions by paying cash and issuing shares of our common stock to the sellers of these businesses in approximately equal values; however, this combination may change for any given transaction.  The Company believes that cash flows from operating activities will provide adequate funds to meet the ongoing cash requirements of its existing business over the next 12 months.  However, failure to successfully raise additional capital or incur debt could limit the planned expansion of our existing business in the short-term.  We cannot provide assurance that the occurrence of unplanned events, including temporary or long-term adverse changes in global capital markets, will not interrupt or curtail our short-term or long-term growth plans.  Inflation  Our business will be affected by general economic trends.  During the past year, we have not experienced noticeable effects of inflation.  Seasonality   40  The healthcare industry has historically been unaffected by seasonal changes.  We do not expect seasonal changes to have a material effect on our business, financial condition, results of operation and growth prospects.  Impact Of Recently Issued Accounting Standards  As of January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No.48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No.109, Accounting for Income Taxes (FIN 48).  In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No.157 defines fair value and applies to other accounting pronouncements that require or permit fair value measurements and expands disclosures about fair value measurements. SFAS No.157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS No.157 on its Consolidated Financial Statements.  In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and Liabilities  Including an Amendment of FASB Statement No.115. SFAS No.159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No.159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No.159, if elected, on its Consolidated Financial Statements.  In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). SFAS No. 141R is a revision to SFAS No. 141 and includes substantial changes to the acquisition method used to account for business combinations (formerly the purchase accounting method), including broadening the definition of a business, as well as revisions to accounting methods for contingent consideration and other contingencies related to the acquired business, accounting for transaction costs, and accounting for adjustments to provisional amounts recorded in connection with acquisitions. SFAS No. 141R retains the fundamental requirement of SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating the requirements of SFAS No. 141R.   41  CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS. As of December 31, 2007, the following contractual obligations were outstanding:  The following table summarizes our payment obligations under certain contracts at December 31, 2007:  Payments Due by PeriodTotalLess Than    one Year1-3 Years3-5 YearsMore Than  5 YearsTotal Medicare payable (Note 9)*3,167,8731,820,0261,347,847----Notes Payable (Note 7)*2,844,781741,501380,7571,722,523--Operating lease commitments (Note 10)*10,072,3881,638,6906.326,0122,107,686--Total16,085,0424,200,2178,054,6163,830,209--  *  See Notes to Consolidated Financial Statements.   Off-Balance Sheet Arrangements.   None.   42    ITEM 7.FINANCIAL STATEMENTS  The Consolidated Financial Statements of Pacer and of its subsidiaries are attached to this Report.   ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  None.    ITEM 8A.  (T)CONTROLS AND PROCEDURES  a. Evaluation Of Disclosure Controls And Procedures Pacers Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of Pacers disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report, have concluded that as of such date, Pacers disclosure controls and procedures were adequate and effective to ensure that material information relating to Pacer that is required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and accumulated and communicated to Pacers management, including its Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.  b. Changes In Internal Controls Over Financial Reporting In connection with the evaluation of Pacers internal controls during our last fiscal quarter, Pacers Principal Executive Officer and Principal Financial Officer have determined that there are no changes to Pacers internal controls over financial reporting that have materially affected, or are reasonably likely to materially effect, the Companys internal controls over financial reporting.    c. Managements Annual Report on Internal Control Over Financial Reporting  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.  This annual report does not include an attestation report of the companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report   43  PART III    ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT  As of April 15, 2008, the Directors and executive officers of Pacer, their age, positions in Pacer, the dates of their initial election or appointment as directors or executive officers, and the expiration of the terms are as follows:  Name of Director/
Executive OfficerAgePosition(s)Period ServedRainier Gonzalez35Chairman, CEO and PresidentJune 2003 to dateEric Pantaleon, M.D.46DirectorJuly 2003 to dateAlfredo Jurado33DirectorJuly 2003 to dateMarcelo Llorente31DirectorMarch 2005 to dateEugene Marini46DirectorMarch 2005  to dateJohn Vincent41Chief Operating OfficerJanuary 2007 to dateJ. Antony Chi34Chief Financial OfficerJuly 2004 to date  There are no family relationships between or among the directors, executive officers or any other person.  None of Pacers directors or executive officers is a director of any company that files reports with the SEC.  None of Pacers directors have been involved in legal proceedings.  Pacers directors are elected at the annual meeting of stockholders and hold office until their successors are appointed.  Pacers officers are appointed by the Board of Directors (the Board) and serve at the pleasure of the Board and are subject to employment agreements, if any, approved and ratified by the Board.    Rainier Gonzalez, President, Chief Executive Officer and Chairman.  Mr. Gonzalez has been President, Chief Executive Officer, Secretary and Chairman of the Company since June 26, 2003.  Prior to founding Pacer Health Corporation, Mr. Gonzalez served as a principal in two (2) South Florida financial services firms, both of which he also helped found in 2002.  From 2000 to 2002, Mr. Gonzalez served as vice president of business development, and principal, for Brick Mountain LLC, an Internet company that was sold to Jupiter Media (Nasdaq: JUPM).  From 1999 to 2000, he was an associate in the Washington D.C. law firm of Sidley Austin Brown & Wood, where he worked in the securitization and structured finance department.  Mr. Gonzalez earned his bachelors degree in political science from Florida International University in 1995, and his law degree, magna cum laude, from the Indiana University School of Law in 1998.  Prior to joining Sidley Austin Brown & Wood, he worked as a law clerk for Federal Judge Denny Chin of the Southern District of New York.   Eric Pantaleon, M.D., Director.  Dr. Pantaleon has been a Director of the Company since July 2003.  Dr. Pantaleon has been a pediatrician in private practice since 1994, and is an active member of the American Academy of Pediatrics.  He is also a pediatric clinical instructor at the University of Miami - Jackson Memorial Medical Center, and serves as an assistant pediatric clinical instructor at Nova Southeastern University.  From 1990 to 1993, he was a resident in training at the Jersey Shore Medical Center, where he served on the hospitals Medical Education Committee and was president of the Residents House Staff.  Dr. Pantaleon completed both his pre-medical and doctoral education at the Universidad Nacional Pedro Henriquez Urena in Santo Domingo, Dominican Republic.   Alfredo Jurado, Esq., Director.  Mr. Jurado has been a Director of the Company since July 2003.  Mr. Jurado is currently an attorney in private practice and an active member of the Florida Bar.  Prior to that, he was a co-owner and general counsel for a Miami-based financial services firm, which he joined in 2002.  From 1998 to 2002, Mr. Jurado worked for the Florida State Attorneys Office, where he served as a county court prosecutor, a county court supervisor and, most recently, a felony trial unit prosecutor in Floridas 17th Judicial Circuit.  In 1997, he served as a certified legal intern in the 11th Judicial Circuit of the Florida State Attorneys Office, and in 1996, he served as a law clerk for the Honorable Judge Scott Silverman, also of the 11th Judicial Circuit.  Mr. Jurado earned his bachelors degree in criminal science from Florida International University in 1995, and his law degree, cum laude, from Nova Southeastern University, Shepard Broad Law Center, in 1998.    44  Eugene Marini, Director.  Mr. Marini has been a Director of the Company since March 2005.  Mr. Marini was the former Chief Executive Officer of Oakridge Outpatient and Surgical Center, which he joined in 2004.  Prior to joining Oakridge, Mr. Marini was Director of Operations at Catholic Health Services, Inc. from 2001 through 2004 where he oversaw the operations of three nursing homes, two (2) acute care rehabilitation hospitals, two (2) home health agencies and two (2) adult living facilities.  In 1999, Mr. Marini was recruited by Ruben King-Shaw, then Secretary of the Agency for Healthcare Administration of the State of Florida, to restructure the Agencys Managed Care and Health Quality Division.  From 1994 to 1997, Mr. Marini was Chief Executive Officer of West Gables Rehabilitation Hospital, a 60 bed acute rehabilitation facility and 120 bed sub-acute facility, which he brought into JCAHO compliance.  Mr. Marini also served as Vice-President of Operations and Business Development at the Miami Heart Institute and Chief Executive Officer at Doctors Hospital of Hollywood.  Mr. Marini holds a masters degree in public health and a bachelors degree in health administration from Florida International University.  He is a licensed nursing home administrator and member of the American College of Healthcare Executives.   Rep. Marcelo Llorente, Esq., Director.  Rep. Llorente has been a Director of the Company since March 2005.  Rep. Llorente currently represents District 116 in the Florida House of Representatives, to which he was elected to in 2002 and is currently the Chairman of the Judicial Committee.  Rep. Llorente is also an attorney with the law firm of Bryant, Miller & Olive, P.A., where he specializes in the areas of public finance and affordable housing.  Rep. Llorente is a member of the Florida Bar, American Bar Association, and Cuban-American Bar Association.  Rep. Llorente has been active in the Amor en Acion: (Love in Action) Latin American Missionary Group.  He also served as a Volunteer Law Student in the Leon County Teen Court program and as a certified legal intern providing legal representation to domestic violence victims through Florida State Universitys Children Advocacy Center.  Rep. Llorente graduated cum laude from Tulane University with a bachelors degree and holds a law degree from Florida State University College of Law.   John Vincent, Chief Operating Officer.  Mr. Vincent has been with the Company since August 2004.  Prior to becoming Chief Operating Officer, Mr. Vincent served as Pacer Healths chief nursing officer and director of hospital operations.  Mr. Vincent started with the Company as the director of nursing for South Cameron Memorial Hospital.  Prior to that, he served as the manager of the emergency department, operating room, medical surgical, and intensive care unit at Women and Childrens Hospital in Lake Charles, Louisiana from 1994 to 2004.  Prior to his work at Women and Childrens, he served as the emergency department technician and then the emergency department charge nurse at Lake Charles Memorial Hospital from 1989 to 1994.  Mr. Vincent holds a degree in nursing from Louisiana State University, as well as a masters in nursing administration from Regents College, New York.  Mr. Vincent is currently a member of the Emergency Nurses Association and American Heart Association and is a certified ACLS and PALS instructor and an instructor for basic life support and trauma nursing.  J. Antony Chi, Chief Financial Officer.  Mr. Chi has been with the Company since July 2004.  His prior experience includes working at PriceWaterhouseCoopers LLP from 1997 to 1998 and Ernst & Young LLP from 1998 to 1999.  He has also worked at LNR Property Corporation from 1999 to 2000, Gerald Stevens Inc. from 2000 to 2001, and most recently, AutoNation, Inc., which he joined in 2001, prior to joining the Company.  Mr. Chi holds a bachelors degree from New York University.  Mr. Chi is currently a Certified Public Accountant in the State of Maryland.   Board Meetings And Committees During the fiscal year ended December 31, 2007, the Board met four (4) times.  All the members of the Board attended the meetings.  Audit Committee  We have a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The members of our Committee are Messrs. Marini, Jurado and Llorente.  All three (3) members of the committee are independent.  Mr. Marini is our audit committee financial expert and is independent as defined under the applicable SEC Rules.  Compensation Committee  We have a separately-designated standing compensation committee. The members of our Committee are Messrs. Marini and Jurado. Both members of the committee are independent.           Compensation Of Directors For his or her service on the Board, each director receives $1,000 per quarter as reimbursement of expenses, payable in cash or restricted stock, at the option of the Company.   45  Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act and the rules promulgated thereunder require Pacers officers and Directors, and persons who beneficially own more than ten percent (10%) of a registered class of Pacers equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish Pacer with copies thereof.  Based on its reviews of the copies of the Section 16(a) forms received by it, or written representations from certain reporting persons, Pacer believes that, during the last fiscal year, the officers, directors and greater than ten percent (10%) beneficial owners of Pacer timely complied with the Section 16(a) filing requirements.  Code Of Ethics  On April 14, 2004, the Board adopted a written Code of Ethics designed to deter wrongdoing and promote honest and ethical conduct, full, fair and accurate disclosure, compliance with laws, prompt internal reporting and accountability to adherence to the Code of Ethics.  This Code of Ethics was filed with the SEC as an exhibit to the Companys Form 10-KSB for the year ended December 31, 2003.     46   ITEM 10.EXECUTIVE COMPENSATION          Summary Compensation Table  The following table sets forth information with respect to the total compensation earned by, or paid to, Rainier Gonzalez, the Companys President and Chief Executive Officer, J. Antony Chi, Chief Financial Officer and John Vincent, Chief Operating Officer (collectively, the Named Executive Officers), for the fiscal years ended December 31, 2007, 2006 and 2005.  No other executive officer of the Company earned total salary and bonus in excess of $100,000 during any such fiscal years.  Name and Principal PositionYearSalaryBonusStock AwardOption AwardNon-Equity Incentive Plan CompensationChange in Pension Value and Nonqualified Deferred Compensation EarningsAll Other CompensationTotalR. Gonzalez, CEO2007$306,044--$150,000 (2)------$16,607 (1)$322,6512006$250,000----------$20,342 (1)$270,3422005$191,200----------$20,192 (1)$211,392J. Chi, CFO2007$150,000------------$150,0002006$150,000------------$150,0002005$150,000------------$150,000J. Vincent, COO2007$120,000--$40,000--------$120,0002006$108,000------------$108,0002005$106,000------------$106,000 ____________  (1) This represents an automobile allowance issued to Mr. Gonzalez per the employment agreement dated January 1, 2004 and renewed through August 31, 2008. (2) This represents a grant of 30,000,000 fully vested common shares upon renewal of Mr. Gonzalezs employment agreement for the year ended December 31, 2007.   Narrative Disclosures Pacer currently has an employment agreement with its Chief Executive Officer, Rainier Gonzalez.  The agreement commenced on January 1, 2004 and was subsequently revised in December 27, 2007 to provide for a base salary of $350,000 per annum, retroactive to June 1, 2007.  The agreement expires on August 31, 2008.  Pacer currently has an employment agreement with its Chief Financial Officer, J. Antony Chi.  The agreement commenced on July 5, 2004 and provides for a base salary of $150,000 per annum and ten million (10,000,000) shares to be issued ratably over a three (3) year period.  The agreement expires on July 4, 2008.  Pacer currently has an employment agreement with its Chief Operating Officer, John Vincent.  The agreement commenced on January 1, 2007 and provides for a base salary of $120,000 per annum and ten million (10,000,000) shares to be issued ratably over a three (3) year period.  The agreement expires on December 31, 2008.   47  Grants of Plan Based Awards  The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the grants of plan based awards of the Company as of December 31, 2007.  Estimated Future Payouts Under Non-Equity Incentive Plan AwardsEstimated Future Payouts Under Equity Incentive Plan AwardsName and Principal PositionGrant DateThresholdTargetMaximumThresholdTargetMaximumAll Other Stock Awards; Number of Shares of Stock or UnitsAll Other Option Awards; Number of Securities Underlying OptionsExercise or Base Price of Option AwardsR. Gonzalez, CEO12/27/07------------$150,000;
30,000,000----J. Chi, CFO7/4/04------------$150,000;
10,000,000----J. Vincent, COO1/1/07------------$200,000
10,000,000----  Narrative Disclosures Pacer currently has an employment agreement with its Chief Executive Officer, Rainier Gonzalez.  The agreement commenced in December 27, 2007 and provides for the issuance of  thirty million (30,000,000) shares.  Pacer currently has an employment agreement with its Chief Financial Officer, J. Antony Chi.  The agreement commenced on July 5, 2004 (the effective date) and provides for ten million (10,000,000) shares to be issued over a three (3) year period, with two million (2,000,000) on the effective date, three million (3,000,000) one year from the effective date and five million (5,000,000) 2 years from the effective date.  All shares cliff vest one year from the issuance date.  Pacer currently has an employment agreement with its Chief Operating Officer, John Vincent.  The agreement commenced on January 1, 2007 (the effective date) and provides for ten million (10,000,000) shares to be issued ratably over a three (3) year period, with two million (2,000,000) on the effective date, three million (3,000,000) one year from the effective date and five million (5,000,000) 2 years from the effective date.  All shares cliff vest one year from the issuance date.   Outstanding Equity Awards at Fiscal Year-End  The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the outstanding equity awards of the Company as of December 31, 2007.  Option AwardsStock AwardsName and Principal PositionNumber of Securities Underlying Unexercised Options

ExercisableNumber of Securities Underlying Unexercised Options

UnexercisableEquity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned OptionsOption Exercise PriceOption Expiration DateNumber of Shares or Units of Stock That Have Not VestedMarket Value of Shares or Units of Stock That Have Not VestedEquity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not VestedEquity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units of Other Rights That Have Not VestedR. Gonzalez, CEO------------------J. Chi, CFO------------------J. Vincent, COO----------10,000,000$200,000----    48  Option Exercises and Stock Vested  The following table sets forth information for the Named Executive Officers named in the Summary Compensation Table with respect to the option exercises and stock vested of the Company as of December 31, 2007.  Option AwardsStock AwardsName and Principal PositionNumber of Shares Acquired on ExerciseValue Realized on ExerciseNumber of Shares Acquired on VestingValue RealizedR. Gonzalez, CEO----30,000,000$150,000J. Chi, CFO----5,000,000$50,000J. Vincent, COO--------  Director Compensation Table  The following table sets forth information with respect to the total compensation paid to the Companys Directors for the fiscal years ended December 31, 2007.  NameFees Earned or Paid in CashStock AwardOption AwardNon-Equity Incentive Plan CompensationChange in Pension Value and Nonqualified Deferred Compensation EarningsAll Other CompensationTotalEric Pantaleon, M.D.--$4,000--------$4,000Alfredo Jurado, Esq.--$4,000--------$4,000Rep. Marcelo Llorente--$4,000--------$4,000Eugene Marini--$4,000--------$4,000Rainier Gonzalez, Chairman--------------  49    ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  Security Ownership of Certain Beneficial Owners and Management  The following table sets forth information with respect of the beneficial ownership as of April 14, 2008 for each officer and director of Pacer and for each person who is known to Pacer to be the beneficial owner of more than 5% of Pacers common stock.  Name and 
Address of Beneficial Owner (2)Title of ClassAmount and Nature of Beneficial OwnershipPercentage of Class(1)Rainier GonzalezCommon430,422,90372.61%7759 N.W. 146th StreetMiami Lakes, FL 33016Dr. Eric PantaleonCommon1,538,316*7759 N.W. 146th StreetMiami Lakes, FL 33016Alfredo JuradoCommon1,425,966*7759 N.W. 146th StreetMiami Lakes, FL 33016Eugene M. Marini
7759 N.W. 146 Street
Miami Lakes, FL 33016Common627,632*Rep. Marcelo Llorente
7759 NW 146th Street
Miami Lakes, FL 33016Common592,632*J. Antony Chi
7759 N.W. 146 Street
Miami Lakes, FL  33016Common10,000,000*John Vincent
7759 N.W. 146 Street
Miami Lakes, FL  33016Common10,000,000*All Officers And Directors 
As A Group (7 Persons)454,607,44976.69%  _______________  * Less than one percent (1%). (1) Applicable percentage of ownership is based on 592,799,337 shares of our common stock outstanding as of April 14, 2008 for each stockholder.  Beneficial ownership is determined in accordance within the rules of the SEC and generally includes voting of investment power with respect to securities.  Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of April 15, 2008 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.  (2) Unless otherwise indicated, the persons named in the table have sole voting and investment  power  with  respect  to all  shares of common  stock  shown as beneficially owned by them.   50  SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN The following table sets forth the securities that have been authorized under equity compensation plans as of December 31, 2007.  EQUITY COMPENSATION PLAN INFORMATIONNumber 
Of Securities 
To Be Issued 
Upon Exercise 
Of Outstanding Options, Warrants And RightsWeighted-Average 
Exercise Price 
Of Outstanding Options, 
Warrants And RightsNumber 
Of Securities 
Remaining Available 
For Future Issuance Under Equity Compensation Plans 
(Excluding Securities Reflected 
In Column (a))(a)(b)(c)Equity compensation plans approved by security holders------Equity compensation plans not approved by security holders------TOTAL------     ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE  During the past two (2) years, Pacer has not entered into a transaction with a value in excess of $60,000 with a director, officer or beneficial owner of five percent (5%) or more of Pacers common stock, except as disclosed in the following paragraphs.  During the year ended December 31, 2007 and 2006, the Company received funds of $64,000 and $849,000 from its Chairman of the Board and Chief Executive Officer.  These advances received bear a flat interest rate of three percent (3%) and have no due date.  During the year ended December 31, 2007 and 2006, the Company repaid $1,000 and $865,529 of the outstanding amount. At December 31, 2007, the Company had outstanding loans payable of $63,000 to this individual. The Company currently outsources its patient accounting function, which includes the issuance of patient bills to third party payors and the accounting of receipts, to a company owned by certain officers of the Company, including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer.  The Company pays to the professional billing firm four percent (4%) of its net collected revenue.  For the year ended December 31, 2007, the Company has been billed $865,855 by the billing company.  The following directors are independent: Mr. Eugene Marini, Mr. Marcelo Llorente, Mr. Alfredo Jurado, Esq. and Dr. Eric Pantaleon, M.D.  Mr. Rainier Gonzalez is not an independent director as he serves as the Companys Chief Executive Officer.   51    ITEM 13.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a) See Index to the Companys Financial Statements attached which are filed as a part of this Report following the signature pages hereto.  (b) Exhibits  Exhibit No.DescriptionLocation2.1Merger Agreement, dated July 26, 2003, between among others, Infe, Inc. and Pacer Health CorporationIncorporated by reference to Exhibit 99.1 to Form 8-K filed on July 3, 20032.2Asset 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, 20032.3Promissory 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, 20033.1Articles of Incorporation of Infocall Communications Corp.Incorporated by reference to Exhibit 3(i) to Form 10-SB/12G filed on December 30, 1999.3.2Articles 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, 1999.3.3Amended and Restated Articles of Incorporation of Infocall Communications Corp.Incorporated by reference to Exhibit 3.4 to Form SB-2 filed on September 15, 20003.4Certificate of Amendment to Certificate of Incorporation of Infe, Inc.Incorporated by reference to Exhibit 1.1 to Form 10-QSB filed on October 15, 20013.5Articles of Amendment to Articles of Incorporation of Infe, Inc.Incorporated by reference to Exhibit 3.5 to Form 10-QSB filed on October 20, 20033.6Articles 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, 2004.3.7Bylaws of Infe, Inc.Incorporated by reference to Exhibit 3.7 to Form SB-2 filed on January 16, 2004.4.1Specimen Stock CertificateIncorporated by reference to Exhibit 4.1 to Form SB-2 filed on September 15, 2000.10.1Securities Purchase Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LPIncorporated by Reference to Form 8-K filed on April 7, 200610.2Investor Registration Rights Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LPIncorporated by Reference to Form 8-K filed on April 7, 200610.3Secured Convertible Debenture, dated effective April 1, 2006, issued to Cornell Capital Partners, LPIncorporated by Reference to Form 8-K filed on April 7, 200610.4Amended and Restated Security Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LPIncorporated by Reference to Form 8-K filed on April 7, 200610.5Form of Subsidiary Security Agreement, dated effective April 1, 2006, by and between the Company and Cornell Capital Partners, LPIncorporated by Reference to Form 8-K filed on April 7, 2006  52   10.6Insider Pledge and Escrow Agreement, dated effective April 1, 2006, by and among Rainier Gonzalez, the Company, Cornell Capital Partners, LP and David Gonzalez, Esq.Incorporated by Reference to Form 8-K filed on April 7, 200610.7Warrant, dated effective April 1, 2006, issued to Cornell Capital Partners, LPIncorporated by Reference to Form 8-K filed on April 7, 200610.8Irrevocable Transfer Agent Instructions, dated effective April 1, 2006, between and among the Company, Cornell Capital Partners, LP and Transfer AgentIncorporated by Reference to Form 8-K filed on April 7, 200610.9Purchase Agreement, dated September 29, 2006, by and between Pacer Holdings of Lafayette, Inc. and Southpark Holdings II, LLCIncorporated by Reference to Exhibit 10.21 to Form 10-QSB/A filed on March 23, 200710.10Promissory Note dated September 29, 2006 by and between Pacer Holdings of Lafayette, Inc. and Southpark Holdings II, LLCIncorporated by Reference to Exhibit 10.22 to Form 10-QSB/A filed on March 23, 200710.11Asset Purchase Agreement, dated September 29, 2006, by and among Health Systems real Estate, Inc., Greene County Nursing Center, LLC and Pacer Health Management Corporation of GeorgiaIncorporated by Reference to Exhibit 10.23 to Form 10-QSB/A filed on March 23, 200710.12Lease, dated September 29, 2006, by and between Health Systems Real Estate, Inc. and Pacer Health Management Corporation of GeorgiaIncorporated by Reference to Exhibit 10.24 to Form 10-QSB/A filed on March 23, 200710.13Bill of Sale, dated September 29, 2006, by and between Health Systems Real Estate, Inc. and Pacer Health Management Corporation of GeorgiaIncorporated by Reference to Exhibit 10.25 to Form 10-QSB/A filed on March 23, 200710.14Assignment and Assumption Agreement For Resident Trust Funds, dated September 29, 2006, by and between Pacer Health Management Corporation of Georgia and Greene County Nursing Center, LLCIncorporated by Reference to Exhibit 10.26 to Form 10-QSB/A filed on March 23, 200710.15Assignment and Assumption Agreement, dated September 29, 2006, by and among Pacer Health Management Corporation of Georgia, Health Systems Real Estate, Inc. and Greene County Nursing Center, LLCIncorporated by Reference to Exhibit 10.27 to Form 10-QSB/A filed on March 23, 200710.16Interim Reimbursement Letter, dated September 29, 2006, from Greene County Nursing Center, LLC to Pacer Health Management Corporation of GeorgiaIncorporated by Reference to Exhibit 10.28 to Form 10-QSB/A filed on March 23, 200710.17Letter 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, 2004.10.18Management 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, 2004.10.19Asset 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, 200410.20Hospital Operating Lease Agreement, dated December 31, 2006 and effective as of December 31, 2006, by and among Pacer Health Management Corporation of Kentucky, Knox Hospital Corporation and The County of Knox, KentuckyIncorporated by Reference to Exhibit 10.1 in the Companys Current Report on Form 8-K as filed with the SEC on January 12, 2007  53   10.21Securities Purchase Agreement dated as of July 6, 20067, by and between the Company and Cornell Capital Partners, L.P.Incorporated by Reference to Form 8-K filed on July 6, 2007.10.22Convertible Debenture, dated as of July 6, 2007, issued by the Company to Cornell Capital Partners, L.P.Incorporated by Reference to Form 8-K filed on July 6, 2007.10.23Warrant, dated as of July 6, 2007, issued by the Company to Cornell Capital Partners, L.P.Incorporated by Reference to Form 8-K filed on July 6, 2007.10.24Security Agreement, dated as of July 6, 2007, by and between the Company, the Companys subsidiaries made a party thereto and Cornell Capital Partners, L.P.Incorporated by Reference to Form 8-K filed on July 6, 2007.10.25Pledge & Escrow Agreement, dated as of July 6, 2007, by and between the Pledgors named therein, David Gonzalez, Esq. as escrow agent and Cornell Capital Partners, L.P.Incorporated by Reference to Form 8-K filed on July 6, 2007.10.26Registration Rights Agreement, dated as of July 6, 2007, by and between the Company and Cornell Capital Partners, L.P.Incorporated by Reference to Form 8-K filed on July 6, 2007.10.27Irrevocable Transfer Agent Instructions, dated as of July 6, 2007, by and among the Company, Cornell Capital Partners, L.P., David Gonzalez ,Esq. as escrow agent and Computershare Transfer Company, Inc., as transfer agentIncorporated by Reference to Form 8-K filed on July 6, 2007.10.28Amended and Restated Securities Purchase Agreement, dated September 18, 2007, by and between the Company and YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.)Incorporated by Reference to Exhibit 10.28 to Form 10-QSB filed on November 19, 200710.29Convertible Debenture, dated as of September 18, 2007, issued by the Company to YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.)Incorporated by Reference to Exhibit 10.29 to Form 10-QSB filed on November 19, 200710.30Asset Purchase Agreement, dated March 7, 2008, by and among Pacer Health Management Corporation of Georgia and Saint Josephs at East Georgia, Inc.Incorporated by Reference to Form 8-K filed on April 3, 2008.10.31General Assignment, Bill of Sale and Assumption of Liabilities, dated March 7, 2008, by and between Pacer Health Corporation and Saint Josephs at East Georgia, Inc.Incorporated by Reference to Form 8-K filed on April 3, 2008.10.32Limited Warrant Deed and Quit Claim Deed for the Owned Real Property, dated March 7, 2008, by and between Pacer Health Management Corporation of Georgia and Saint Josephs at East Georgia, Inc.Incorporated by Reference to Form 8-K filed on April 3, 2008.10.33Sublease as to the Leased Real Property, dated March 7, 2008, by and between Saint Josephs at East Georgia, Inc. and Pacer Health Management Corporation of GeorgiaIncorporated by Reference to Form 8-K filed on April 3, 2008.10.34First Amendment to Lease and Lessor Consent to Sublease Agreement, dated March 7, 2008, by and among Health Systems Real Estate, Inc., Pacer Health Management Corporation of Georgia and Pacer Health CorporationIncorporated by Reference to Form 8-K filed on April 3, 2008.  54   10.35Restrictive Covenant Agreement, dated March 7, 2008, by and between Pacer Health Corporation and Saint Josephs at East Georgia, Inc.Incorporated by Reference to Form 8-K filed on April 3, 2008.10.36Guaranty, dated March 7, 2008, by and between Pacer Health Corporation and Saint Josephs at East Georgia, Inc.Incorporated by Reference to Form 8-K filed on April 3, 2008.10.37Securities Purchase Agreement, dated April 1, 2008, by and between the Company and YA Global Investments, L.P.Incorporated by Reference to Form 8-K filed on April 8, 2008.10.38Debenture, dated April 1, 2008, issued by the Company to YA Global Investments, L.P.Incorporated by Reference to Form 8-K filed on April 8, 2008.10.39Warrant, dated April 1, 2008, issued by the Company to YA Global Investments, L.P.Incorporated by Reference to Form 8-K filed on April 8, 2008.10.40Amended and Restated Security Agreement, dated April 1, 2008, by and among the Company, the Companys subsidiaries made a party thereto and YA Global Investments, L.P.Incorporated by Reference to Form 8-K filed on April 8, 2008.10.41Registration Rights Agreement, dated April 1, 2008, by and between the Company and YA Global Investments, L.P.Incorporated by Reference to Form 8-K filed on April 8, 2008.10.42Irrevocable Transfer Agent Instructions, dated April 1, 2008, by and among the Company, YA Global Investments, L.P., David Gonzalez, Esq. and Computershare Trust Company, N.A.,  as transfer agentIncorporated by Reference to Form 8-K filed on April 8, 2008.10.43Escrow Agreement, dated April 1, 2008, by and among the Company, Yorkville Advisors LLC, YA Global Investments, L.P. and David Gonzalez, Esq., as escrow agentIncorporated by Reference to Form 8-K filed on April 8, 2008.14.1Code of EthicsIncorporated by Reference to Form 10-KSB filed on April 14, 2004.21.1Subsidiaries of the RegistrantProvided herewith31.1Section 302 Certification of Principal Executive OfficerProvided herewith31.2Section 302 Certification of Principal Financial OfficerProvided herewith32.1Section 906 Certification of Principal Executive OfficerProvided herewith32.2Section 906 Certification of Principal Financial OfficerProvided herewith   ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES  Audit Fees  For the fiscal years ended December 31, 2007 and 2006, Pacer incurred fees to Salberg & Company, P.A. of $159,000 and $149,000, respectively, for auditing and review work.  Audit Related Fees   55  For the fiscal years ended December 31, 2007 and 2006, Pacer incurred fees to Salberg & Company, P.A. for audit related work including registration related reviews and acquisition audits of $10,000 and $13,000, respectively.  Salberg & Company, P.A. has provided no other services to Pacer other than those described above.  The Board pre-approved all work to be done by Salberg & Company, P.A., which included audit work and review of various filings with the SEC.        56  SIGNATURES In accordance with the requirements of the Exchange Act, as amended, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.  PACER HEALTH CORPORATIONApril 15, 2008By:
/s/ Rainier GonzalezRainier Gonzalez, Chief Executive Officer and PresidentApril 15, 2008By:
/s/ J. Antony ChiJ. Antony Chi, Chief Financial Officer  In accordance with the Exchange Act, this Report has been signed below by the following persons or on behalf of the Registrant and in the capacities on the dates indicated.  April 15, 2008By:
/s/ Rainier GonzalezRainier Gonzalez, DirectorApril 15, 2008By:
/s/ Eric Pantaleon, M.D.Eric Pantaleon, M.D., DirectorApril 15, 2008By:
/s/ Alfredo JuradoAlfredo Jurado, DirectorApril 15, 2008By:
/s/ Marcelo LlorenteMarcelo Llorente, DirectorApril 15, 2008By:
/s/ Eugene MariniEugene Marini, Director  57    Pacer Health Corporation And Subsidiaries Consolidated Financial Statements December 31, 2007  TABLE OF CONTENTS  Report Of Independent Registered Public Accounting FirmF-1Financial StatementsConsolidated Balance SheetF-2Consolidated Statements Of OperationsF-3Consolidated Statements of Changes in Stockholders Equity
(Deficiency)F-4Consolidated Statements Of Cash FlowsF-5Notes To Consolidated Financial Statements           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.   To the Board of Directors and Shareholders of: Pacer Health Corporation  We have audited the accompanying consolidated balance sheet of Pacer Health Corporation as of December 31, 2007, and the related consolidated statements of operations, changes in stockholders equity (deficiency), and cash flows for the years ended December 31, 2007 and 2006.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pacer Health Corporation at December 31, 2007, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.    /s/ SALBERG & COMPANY, P.A. Boca Raton, Florida April 14, 2008  F-1        Pacer Health Corporation and SubsidiariesConsolidated Balance SheetDecember 31, 2007ASSETSCurrent AssetsCash$46,384Patient accounts receivable, net5,068,034Other accounts receivable448,953Supplies668,556Prepaid expenses334,530Assets held for sale from discontinued operations1,369,697Total Current Assets7,936,154Property and equipment, net4,778,044Other AssetsDeposits275Debt costs, net19,055Goodwill1,216,318Total Other Assets1,235,648Total Assets$13,949,846LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)Current LiabilitiesBank overdraft liability$757,246Accounts payable3,565,034Accounts payable, related party65,648Accrued wages and related payroll taxes1,970,185Accrued interest payable240,411Deposit held for sale of asset100,000Accrued rent2,675Accrued expenses151,001Capital leases, current portion16,888Notes payables, current portion250,764Settlements payable, current portion136,333Loans payable, current portion325,000Medicare payable, current portion1,820,026Finance obligation on sale-leaseback of real property, current portion15,516Liabilities of discontinued operations117,039Shareholder loan payable63,000     Total Current Liabilities9,596,766Long Term LiabilitiesCapital leases80,898Note payable, net of current portion86,063Settlements payable, net of current portion155,556Convertible debenture, net of debt discount of $1,886,8692,113,131Medicare payable, net of current portion1,347,847Finance obligation on sale-leaseback of real property1,780,764Total Long Term Liabilities5,564,259Total Liabilities15,161,025Commitments and Contingencies (Note 10)Minority Interest in Consolidated Subsidiary Company8,612,814Stockholders' Equity (Deficiency)Preferred stock, Series A, $0.0001 par value, 20,000,000shares authorized, none issued and outstanding-Common stock, $0.0001 par value, 930,000,000 shares authorized585,799,337 issued and outstanding58,580Common stock issuable (30,000,000 shares)3,000Additional paid in capital6,589,325Accumulated deficit(16,474,898)Total Stockholders' Equity (Deficiency)(9,823,993)Total Liabilities and Stockholders' Equity (Deficiency)$13,949,846See accompanying notes to consolidated financial statementsF-2     Pacer Health Corporation and SubsidiariesConsolidated Statements of OperationsFor Year Ended December 31,20072006RevenuesPatient services revenues, net$29,969,517$3,624,602Management services fees300,000475,000Total Revenues30,269,5174,099,602Operating ExpensesAdvertising46,74019,410Amortization of debt costs10,20219,688Bad debt expense8,371,491661,068Contract labor1,871,908496,118Depreciation238,5522,691Insurance797,560328,233Liquidated damages235,000185,000Loan  fee541,15465,569Medical supplies3,090,934341,429Patient expenses393,60718,564Professional fees729,659616,613Rent1,653,731355,383Repairs and maintenance455,50517,589Salaries and wages12,409,2882,578,133Travel348,326411,837Utilities452,42159,340General and administrative1,064,093225,361Total Operating Expenses32,710,1716,402,026Loss from Operations(2,440,654)(2,302,424)Other Income (Expense)Loss on settlement of debt(298,748)-Gain on disposal of assets980,45865,100Change in fair value of derivatives87,086(70,593)Writeoff of preacquisition liabilities99,583-Other income60,7464,101Interest expense(2,079,630)(1,024,251)Total Other Expense, net(1,150,512)(1,025,643)Minority Interest in Net Income/(Loss) of  Consolidated Subsidiaries198,542-Loss from Continuing Operations$(3,392,624)$(3,328,067)     Discontinued OperationsLoss from operations of discontinued component(including gain on disposal of $4,433,895 in 2006)(3,161,459)(4,308,677)Loss from Discontinued Operations(3,161,459)(4,308,677)Net Loss$(6,554,083)$(7,636,744)Net Loss Per Share - Basic and DilutedLoss from continuing operations$(0.01)$(0.01)Loss from discontinued operations$(0.01)$(0.01)Net Loss Per Share - Basic and Diluted$(0.01)$(0.01)Weighted average number of shares outstandingduring the period - basic and diluted583,248,780575,951,576See accompanying notes to consolidated financial statementsF-3


Pacer Health Corporation and SubsidiariesConsolidated Statement of Changes in Stockholders' Equity (Deficiency)Years Ended December 31, 2007 and 2006Preferred Stock Series ACommon StockCommon Stock IssuablePaid-inAccumulatedDeferredSharesAmountSharesAmountSharesAmountCapitalDeficitCompensationTotalBalance December 31, 2005-$           -573,026,246$57,302-$                 -$2,148,422$ (2,284,071)$    (60,000)$(138,347)Reclassification of warrants to warrant liability(5,415)(5,415)Reclassification of embedded conversion option liability to equity197,547197,547Stock issued to employees in connection with employment agreements7,000,000700104,300(105,000)-Stock issued for consulting services--100,000101,4901,500Stock issued for directors fees370,528377,9638,000Amortization of deferred compensation----102,500102,500Reclass upon implementation of  SFAS 123(R)----(62,500)62,500-Membership Interest Contribution received----110,289110,289     Net Loss(7,636,744)(7,636,744)Balance December 31, 2006-$           -580,496,774$58,049-$                 -$  2,502,096$ (9,920,815)$                       -$(7,360,670)Cancellation of stock previously issued(2,000,000)(200)200-Stock issued to employees in connection with employment agreements--30,000,0003,000217,000(70,000)150,000Stock issued for directors fees1,533,33215315,84716,000Amortization of deferred compensation----107,500107,500Reclass upon implementation of  SFAS 123(R)----37,500(37,500)-Redeemed portion of embedded conversion option liability due to debenture conversion135,657135,657Reclass of warrant liability due to extinguishment of debt121,757121,757Reclass of embedded conversion option liability due to extinguishment of debt1,303,4731,303,473     Issuance of convertible debentures and warrants (debt discount)2,266,3722,266,372Conversion of secured debenture5,769,23157729,42330,000Minority interest dividends(40,000)(40-,000)Net Loss(6,554,083)(6,554,083)Balance December 31, 2007-$           -585,799,337$ 58,58030,000,000$    3,000$  6,589,325$ (16,474,898)$                       -$(9,823,993)See accompanying notes to consolidated financial statementsF-4








Pacer Health Corporation and SubsidiariesConsolidated Statements of Cash FlowsYear Ended December 31,20072006Cash Flows from Operating Activities:Net Income/(Loss)$(6,554,083)$(7,636,744)Adjustments to reconcile net income/(loss) to net cash used inoperating activities:Amortization of debt discount to interest expense1,165,294650,392Amortization of debt issue costs12,58119,688Bad debt expense13,308,6413,956,709Depreciation372,4301,215,380Minority interest(198,542)-Gain on writeoff of pre-recapitalization liabilties(99,583)-Gain on sale of nursing home assets-(637,196)Gain on partial sale of subsidiary(980,458)(1,433,895)Amortization of stock based expenses107,500102,500Stock issued to employees for services150,000-Stock issued for services16,0009,500Change in fair market value of derivatives(87,086)70,593Changes in operating assets and liabilities:(Increase) decrease in:Patient receivables(12,181,357)(5,499,028)Other receivables(268,236)(186,686)Supplies72,856(49,286)Prepaids and other current assets573,273439,430Increase (decrease) in:Accounts payable1,014,6802,014,364Settlements payable32,889(6,500)Accrued interest payable156,09675,946Accrued wages payable704,5481,108,861Accrued expenses(89,997)(95,485)Accrued rent(179,000)428Accrued liquidated damages235,000185,000Accrued professional fees(40,550)40,550Escrow-(575,000)Medicare payable(477,004)1,744,873Other current liabilities(3,855)2,761Net Cash Used in Operating Activities(3,237,963)(4,482,845)Cash Flows from Investing Activities:Acquisition of property, plant and equipment(491,309)(239,479)Deposit paid for future acquisitions(75,000)Receipt of refund of deposit75,000Deposit held for future sale of assets100,000-Cash acquired in acquisition of subsidiaries-340,389Cash overdraft on disposed subsidiary-226,333Proceeds from sale of nursing home asset-780,000Net Cash Provided by/(Used in) Investing Activities(316,309)1,032,243Cash Flows from Financing Activities:Proceeds from loan payable - related party64,000849,000Repayments of loan payable - related party(1,000)(865,529)Cash overdraft439,588317,658Proceeds from issuance of convertible debenture and related capitalized expenses3,630,5021,732,758





Repayment of convertible debenture(1,221,252)(250,000)Proceeds from property sale treated as financing-1,810,000Repayments of loans payable(211,100)(832,599)Repayments of capitalized lease obligations(2,013)(287,285)Minority interest capital contribution1,200,000639,739Repayments of note payable(633,102)(566,610)Proceeds from note payable-80,278Distributions to minority interest(61,000)-Net Cash Provided by Financing Activities3,204,6232,627,410Net Increase/(Decrease) in Cash(349,649)(823,192)Cash, Beginning of Year$396,033$1,219,225Cash, End of Year$46,384$396,033Supplemental Disclosure of Cash Flow Information:Cash Paid for:Interest$1,148,633$1,028,847Taxes$-$-Supplemental Disclosure of Non Cash Investing and Financing Activities:Insurance policies financed and recorded as prepaid insurance$382,869$487,178Financed equipment purchases$12,947$75,653Financed land additions$-$505,822Warrant liability recorded as debt discount$2,266,372$627,200Embedded conversion option liability recorded as debt discount$-$1,142,313Reclassification of warrant value to liabilities from equity$-$5,414Reclassification of embedded conversion option liability to equity$-$197,547Reclassification of deferred compensation to additional paid-in capital$107,500$62,500See accompanying notes to consolidated financial statementsF-5





Pacer Health Corporation and Subsidiaries  Notes to Consolidated Financial Statements  December 31, 2007 and 2006   Note 1   Nature of Operations and Summary of Significant Accounting Policies   Nature of Operations  On December 31, 2007, Pacer Health Corporation (Pacer), a Florida corporation, has sixteen (16) subsidiaries:  · Pacer Health Services, Inc. (a Florida corporation formed on May 5, 2003), · Pacer Health Management Corporation (a Louisiana corporation formed on February 1, 2004), · Pacer Holdings of Louisiana, Inc. (a Florida corporation formed on March 3, 2004), · Pacer Holdings of Georgia, Inc. (a Florida corporation formed on June 26, 2004), · Pacer Health Management Corporation of Georgia (a Georgia corporation formed on June 28, 2004), · Pacer Holdings of Arkansas, Inc. (a Florida corporation formed on October 26, 2004), · Pacer Health Psychiatric, Inc. (a Louisiana Corporation formed on September 16, 2005), · Pacer Health Management of Florida LLC (a Florida limited liability company formed on December 19, 2005), · Pacer Holdings of Lafayette, Inc. d/b/a Pacer Health Holdings of Lafayette, Inc. (a Louisiana corporation formed on November 28, 2005), · Pacer Holdings of Kentucky, Inc. (a Florida corporation formed on March 9, 2006), · Pacer Health Management Corporation of Kentucky (a Kentucky corporation formed on March 20, 2006), · Woman's OB-GYN Center, Inc. (a Georgia corporation formed on October 30, 2006), · Lake Medical Center, Inc. (a Georgia corporation formed on October 30, 2006), · Lakeside Regional Hospital, Inc. (a Georgia corporation formed on April 16, 2007), · Pacer Management of Kentucky, LLC (a Kentucky limited liability company formed on April 18, 2007), and · Pacer Psychiatry of Calcasieu, Inc. (a Louisiana Corporation formed on May 7, 2007).  On December 31, 2006, our wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, consummated an agreement with the County of Knox, Kentucky (the Agreement) to lease all of the assets and real property used in connection with Knox County Hospital as well as delegating full and complete management responsibility and operational control for the Hospital to the Company.  The Company may retain all profits from the operations of the Hospital after satisfying its lease obligations to the County of Knox and maintenance and operations expenses of the Hospital facility.  The annual lease payment is equal to the amount of annual payment due by Knox County on its County of Knox, Kentucky Taxable General Obligation Refunding Bonds, Series 2006 (Bonds), after applying the capitalized interest which is to be paid from the proceeds of the Bonds.  We estimate the annual payment for 2008 to be approximately $692,265.  Additionally, at any time during the term of the Agreement, we have the option to purchase all of the Hospital assets from the County of Knox County and assume all of the liabilities (excluding certain liabilities as defined in the Agreement) for a purchase price equal to the sum of (a) the lesser of: (i) the outstanding principal amount of the Bonds on the closing of such purchase or (ii) what the principal balance of the Bonds would have been if all lease payments and other payments to be made by the Company were used to satisfy the principal and interest due under the Bonds at the date of each such payment plus (b) any prepayment penalties on the Bonds and (c) less any funds then held in any debt service reserve fund, bond fund or any other fund or account in any way pertaining to the Bonds.  The term of the Agreement ends on the earlier of (a) the date the refunding bonds are paid in full; or (b) the date the Company exercises its purchase option.  The refunding bonds have a term of thirty (30) years.   The County of Knox may only terminate the Agreement if (a) the Company does not make the required monthly lease payments or (b) if the Company fails to complete substantial repairs caused by a casualty.  On April 1, 2007, the Company entered into an agreement to sell, in substance, a minority interest of forty percent (40%) of its wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, to an unrelated third party.  Pacer Health Management Corporation of Kentucky currently leases certain assets from the County of Knox, Kentucky.  The sales price was $1.2 million, which consisted solely of cash, of which $500,000 was received on





March 30, 2007 and $700,000 was received on April 20, 2007.  A gain of $980,458 was included in Other Income for the six months ended June 30, 2007 and an initial minority interest of $219,542 was recorded based on forty percent (40%) of the net equity of the subsidiary on the sale date.  On December 6, 2005, our wholly-owned subsidiary, Pacer Health Holdings of Lafayette, Inc. (Pacer Sub) acquired a majority interest in Southpark Community Hospital, L.L.C. (Southpark)  Pacer Sub received a sixty percent (60%) equity position in Southpark and the remaining investors of Southpark reduced their equity position to forty percent (40%) in consideration for an infusion amount up to $2,500,000 over the period of ownership, the exact amount to be reasonably determined by Pacer Sub as necessary to sustain the operations of Southpark.  Pacer Sub also assumed a prorated share of the outstanding liabilities and also assumed the position of guarantor, equal to its percentage of ownership, on all notes.  Pacer Sub had also agreed to reimburse certain investors who made principal and interest payments on certain third party loans on behalf of Southpark. On September 29, 2006, the Company divested its majority interest for a $3,000,000 note receivable to a third party, which consisted primarily of shareholders of the minority interest.  Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured.  Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debt expense which is included in discontinued operations for the year ended December 31, 2006.  On September 1, 2005, our wholly-owned subsidiary, Pacer Health Management Corporation of Georgia, completed its asset purchase agreement with the Greene County Hospital Authority to acquire certain assets and assume certain liabilities used in the operation of Minnie G. Boswell Memorial Hospital (MGBMH).  The total purchase amount was $1,108,676.  (See Note 3) On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc.  On March 7, 2008 the Company sold to St Josephs Healthcare System, Inc. substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital for the aggregate purchase price of $3,547,559.71, subject to certain adjustments set forth in the Agreement.  St. Josephs Healthcare System, Inc. also assumed certain liabilities with respect to the operation.   Additionally, within thirty (30) calendar days following July 1, 2008, St. Josephs Healthcare System, Inc. shall submit to the Company a report identifying the amount of annual subsidy for Minnie G. Boswell Memorial Hospital approved by the Greene County Commission prior to July 1, 2008 (the Annual Subsidy Amount).  Within 10 calendar days following the date that the Annual Subsidy Amount has been determined in accordance with the Agreement, St. Josephs Healthcare System, Inc. shall pay to the Company an amount equal to 50% of the Annual Subsidy Amount up to $1,500,000.  In March 2007, the Company amended its lease agreement with the Lower Cameron Hospital Service District (LCHSD) to provide for the funding of operational losses by the LCHSD through certain grants.  These grants will be paid quarterly in 2007 and provide for a payment of $3.5 million in 2007 and $1.2 million, or such lesser amount as may be generated by tax revenues collected by the LCHSD during the then current year, beginning in 2008 through 2017.   As of December 31, 2007, the Company has received all of the expected $3.5 million of grants for 2007 and such amount is included in patient revenue for the year ended December 31, 2007.  As of April 15, 2008, the Company has received $300,000 of such grants for year ended December 31, 2008.  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 in Cameron, Louisiana; a non-urban health clinic in Grand Lakes, Louisiana; a geriatric psychiatric center in Lake Charles, Louisiana; and operates a non-urban hospital in Barbourville, Kentucky.  The Company is attempting to build a regional network of hospitals designed to provide healthcare services to various individuals.              Basis of Presentation  The accompanying Consolidated Financial Statements include the accounts of Pacer Health Corporation and its wholly-owned subsidiaries and a leased operation that qualifies for consolidation under authoritative accounting standards (see Note 3).  The Company operates primarily in the healthcare industry segment. The Company owns and operates urbanand non-urban hospitals, rural health clinics and skilled nursing facilities. All intercompany accounts and transactions have been eliminated in consolidation.  At December 31, 2007, the Company had a working capital deficit of $1,660,612. Additionally, for the year ended December 31, 2007, the Company had a net loss of $6,554,083 and a negative cash flow from operations of $3,237,963.  The net loss from continuing operations includes a non-recurring loss on settlement of litigation of





$400,000; a one time loss of $298,748 resulting from the redemption of the 2006 financing from YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.); and a $220,500 redemption fee paid to YA Global in connection with the redemption.  The cash flow from operations include the non-recurring settlement payments of $361,111.  (See Note 8)  Management also anticipates the addition of the Barbourville, Kentucky facility to contribute to an increase in net income and positive cash flows in 2008.  Management also anticipates positive cash flows from the additional grants in 2008 of $1,200,000 from the revised lease agreement with the Lower Cameron Hospital Service District.  (See Note 2) In addition, the Company executed a financing transaction in April 2008 with YA Global, L.P. which provided the Company with net cash proceeds of $2,450,000 to satisfy its working capital needs.  (See Note 16)  The Company also sold its Greensboro, Georgia facility to an unrelated third party.  (See Note 16). The net sale proceeds received by the Company from this sale was $2,911,651. Accordingly, management has mitigated future losses and anticipates additional positive cash flows in 2008 and does not believe that substantial doubt exists about the Companys ability to continue as a going concern.   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 2007 and 2006 include contractual allowances on revenues and related patients receivable, bad debt allowance on patient receivables, bad debt allowance on other receivables, valuation of assets acquired and liabilities assumed in acquisitions, valuation of net assets held from discontinued operations, valuation and related impairments of goodwill, and other long-lived assets, valuation of stock-based compensation and an estimate of the deferred tax asset valuation allowance.  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.  Investments  The Company accounts for marketable securities according to the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Investments in securities are to be classified as either held-to-maturity, available-for-sale or trading. Held-to-Maturity - Investments in debt securities classified as held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts using the effective interest method. The Company has the ability and the intention to hold these investments to maturity and, accordingly, they are not adjusted for temporary declines in their fair value. Available-for-Sale - Investments in debt and equity securities classified as available-for-sale are stated at fair value. Unrealized gains and losses are recognized (net of tax effect) as a separate component of stockholders' equity. Trading - Investments in debt and equity securities classified as trading are stated at fair value. Realized and unrealized gains and losses for trading securities are included in income. Realized gains and losses on the sale of securities are determined using the specific identification method.  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 40 years for buildings, 3 to 10 years for furniture, fixtures, and equipment and 3 to 5 years for





vehicles, computer hardware, software, and communication systems.  Leasehold improvements are depreciated over the lesser of useful lives or lease terms including available option periods.   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.   Goodwill, 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 years ended December 31, 2007 and 2006, the Company did not recognize an impairment charge to goodwill.  Accounting for Derivatives  The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under Statement of Financial Accounting Standards 133 Accounting for Derivative Instruments and Hedging Activities and related interpretations including EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.  The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as another income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under SFAS 133 are reclassified to liability at the fair value of the instrument on the reclassification date.   Revenue Recognition and Patients Receivable   (i) Hospital Operations  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 recognizes revenues in the period in which services are performed and billed to the patient or third party payor. Accounts receivable primarily consist of amounts due from third party payors and patients. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Companys established billing rates. Accordingly, the revenues and accounts receivable reported in the Companys consolidated financial statements are recorded at the amount expected to be received.





The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from our standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Companys estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Companys consolidated statements of operations in the period of the change. Management has recorded estimates for bad debt losses, which may be sustained in the collection of these receivables. Although estimates with respect to realization of the receivables are based on Managements knowledge of current events, the Companys collection history, and actions it may undertake in the future, actual collections may ultimately differ substantially from these estimates. Receivables are written off when all legal actions have been exhausted. The Company participates in the Louisiana disproportionate share hospital (DSH) fund and the Georgia disproportionate share hospital fund (ICTF) related to uncompensated care provided to a disproportionate percentage of low-income and Medicaid patients.  Upon meeting certain qualifications, our facilities in Louisiana and Georgia become eligible to receive additional reimbursement from the fund.  The reimbursement amount is determined upon submission of uncompensated care data by all eligible hospitals.  Once the reimbursement amount is determined, collectability is reasonably assured and the additional reimbursement is included as revenue under SEC Staff Accounting Bulleting 104.  (ii) Management Services  The Company recognizes management service fees as services are provided.  Stock Based Compensation  On January 1, 2006, the Company implemented Statement of Financial Accounting Standard 123 (revised 2004) (SFAS 123(R)), Share-Based Payment which replaced SFAS 123 Accounting for Stock-Based Compensation and superseded APB Opinion No. 25, Accounting for Stock Issued to Employees.  In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding its interpretation of SFAS 123R.  SFAS 123(R) and related interpretations requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption.  The Company values any employee or non-employee stock based compensation at fair value using the Black Scholes Pricing Model.  In adopting SFAS 123(R), the Company used the modified prospective application (MPA). MPA requires the Company to account for all new stock based compensation to employees using fair value, and for any portion of awards prior to January 1, 2006 for which the requisite service has not been rendered and the options remain outstanding as of January 1, 2006, the Company should recognize the compensation cost for that portion of the award that the requisite service was rendered on or after January 1, 2006. The fair value for these awards is determined based on the grant-date.  The only effect of applying the MPA method was a reclassification of deferred compensation, a contra equity account, into additional paid-in capital.   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(loss) 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. There is no calculation of fully diluted earnings per share for the years ended December 31, 2007 or 2006 as discussed below. At December 31, 2007 and 2006, there were outstanding warrants for 255,000,000 shares of common stock and convertible debt convertible into 200,000,000 common shares based on the fixed conversion rate of $0.02, which were excluded from the computation of basic and diluted earning per share in 2007 and which may dilute future





earnings per share.  At December 31, 2006, there were warrants for 35,950,000 and convertible debt convertible into 103,550,296 shares which were excluded from the computation of basic and diluted earning per share in 2006.  There is no incremental effect of these warrants on diluted net loss per share in 2007 and 2006 due to the Companys net loss in those years. 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, these unvested shares totaling 4,000,000 at December 31, 2007 are not included in basic earnings per share until they become fully vested.  The Company follows financial accounting as set forth in SFAS No. 123R for cliff vesting when recording the charges for services provided. 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, 2007 and 2006 were $46,740 and $19,410, respectively.  In addition, the Company included in discontinued operations advertising expense of $6,932 and $131,247 for the years ended December 31, 2007 and 2006, respectively.  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.  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 and current liabilities approximate fair value due to the relatively short period to maturity for these instruments.





Concentrations  Bank Deposit Accounts:  The Company maintains its cash in bank deposit accounts, which, at times exceed Federally insured limits.  The Company has not experienced any losses in such accounts through December 31, 2007.  There were no funds at risk at December 31, 2007.  Geographic Concentrations:  The Companys operations are concentrated in specific medical facilities in Kentucky, Louisiana and Georgia. Geographic concentration risks may include natural disasters.  The Company incurred disaster loss and interruption of operations, as a result of Hurricane Rita and Wilma in late 2005. (See Note 15).  Recent Accounting Standards  As of January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No.48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No.109, Accounting for Income Taxes (FIN 48). In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No.157 defines fair value and applies to other accounting pronouncements that require or permit fair value measurements and expands disclosures about fair value measurements. SFAS No.157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS No.157 on its Consolidated Financial Statements. In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and Liabilities  Including an Amendment of FASB Statement No.115. SFAS No.159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No.159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No.159, if elected, on its Consolidated Financial Statements. In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). SFAS No. 141R is a revision to SFAS No. 141 and includes substantial changes to the acquisition method used to account for business combinations (formerly the purchase accounting method), including broadening the definition of a business, as well as revisions to accounting methods for contingent consideration and other contingencies related to the acquired business, accounting for transaction costs, and accounting for adjustments to provisional amounts recorded in connection with acquisitions. SFAS No. 141R retains the fundamental requirement of SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating the requirements of SFAS No. 141R.  Reclassifications  Certain amounts for the year ended December 31, 2006 have been reclassified to conform to the presentation of the December 31, 2007 consolidated financial Statements.  Such reclassifications include those 2006 amounts related to operations discontinued in 2007.  Note 2  Principles of Consolidation  The accompanying Consolidated Financial Statements include the accounts of Pacer Health Corporation and its wholly-owned subsidiaries and a leased operation that qualifies for consolidation under authoritative accounting standards (see Note 3).   All significant intercompany accounts and transactions have been eliminated in consolidation.





Note 3  Acquisitions, Sale-Leaseback, Operating Lease with Minority Interest and Divestiture On September 1, 2005 (Acquisition Date), the Company completed its acquisition of MGBMH.  Under the terms of the acquisition agreement, the Company acquired the business and certain identifiable assets and assumed certain liabilities.  At the Acquisition Date, MGBMH was a provider of healthcare services with a primary focus on hospitals and nursing homes.  MGBMH owns and operates a non-urban hospital and nursing home.  The Company operates this hospital doing business as Minnie G. Boswell Memorial Hospital. The Company accounted for this acquisition using the purchase method of accounting in accordance with SFAS No. 141.  The purchase price of the facility was $1,108,676, including $108,676 in direct costs of the acquisition.  In connection with the acquisition, the Company applied a receivable due to it from MGBMH of $1,086,807 and waived receipt of the additional $86,807 from the seller as a charge to management income. The results of operations of MGBMH are included in the consolidated results of operations of the Company from the Acquisition Date. The initial allocation of fair value of the assets acquired and liabilities assumed was done on September 1, 2005 and revised as of September 30, 2006 as follows:   (see Note 5) Cash$460,188Accounts receivable, net1,197,343Supplies262,685Prepaid insurance102,372Fixed assets731,107Liabilities(1,645,019)Purchase Price$1,108,676  On September 29, 2006, the Company executed a sale-leaseback of certain of its assets in Georgia, which included a sale of its skilled nursing operations to Health Systems Real Estate, Inc. (HSRE)  The assets sold include all real property for MGBMH as well as licenses, permits and personal property, including vehicles, related to the skilled nursing operations.  HSRE also agreed to assume certain liabilities, including accrued vacation for employees it subsequently hired in conjunction with the sale.  The sale price was $2,600,000, resulting in a gain of $637,196, which is included in Other Income for year ended December 31, 2006, and a deferred gain of $1,534,524 which is included in the $1,810,000, which is treated as a financing obligation for accounting purposes (see below).  The Company received $2,590,000 as a result of a $10,000 credit withheld by HSRE for assumed accrued vacation.  In connection with the transaction, HSRE entered into a operating lease with the Company whereby HSRE leases the real property comprising of the real property related to the acute care facility back to the Company pursuant to a five (5) year triple net lease which would call for annual lease payments equal to $480,000, provided that the Company shall have the right to terminate the lease at the end of thirty-six (36) months if the Company provides HSRE with ninety (90) days written notice prior to such 36th month (see renewal provisions below).  As lessor, HSRE takes a perfected security interest in all of the tangible personal property and general intangibles used in connection with the operation of the acute care hospital to secure the Companys obligations under the lease.  If HSRE effectuates a sale of the tangible real and personal property located at the current Hospital/Nursing Home site in the future, then HSRE agrees to pay to the Company an amount equal to fifty percent (50%) of the cash net proceeds (gross cash proceeds less all expenses of the sale) from such sale. The sale-leaseback of the real property has been accounted for as a financing lease, wherein the property remains on the books and continues to be depreciated. The deferred gain of $1,534,524 and future gain of $275,475, totaling the $1,810,000 on this transaction are recorded as liabilities on the books and interest expense and a reduction in principal are recognized for each lease payment made. The balance was $1,796,280 at December 31, 2007.  The Company has the option to renew the lease at the end of the lease term subject to certain conditions.  The lease may be renewed for two (2) separate five-year terms with a written notice not earlier than nine (9) months and not later than ninety days prior to the expiration of the original lease term.  The rent for the renewal periods will be reset in accordance to a rental amount formula based upon the fair market value as of the date of the renewal. On December 6, 2005 (Southpark Acquisition Date), the Company completed its acquisition of Southpark.  Under the terms of the acquisition agreement, the Company received a sixty percent equity position in Southpark and the remaining





investors of Southpark reduced their equity position to forty percent in consideration for an infusion amount up to $2,500,000, the exact amount was to be reasonably determined by the Company as necessary to sustain the operations of Southpark.  The Company also assumed a prorated share of the outstanding liabilities and also assumed the position of guarantor, equal to its percentage of ownership, on all notes.  The Company had also agreed to reimburse certain investors who made principal and interest payments on certain third party loans on behalf of Southpark.  The Company accounted for this acquisition using the purchase method of accounting in accordance with SFAS No. 141.  The purchase price of the facility was $2,450,000 as of December 31, 2006, which includes additional consideration of $1,950,000 in the year ended December 31, 2006.  The purchase price as of September 30, 2006 of $2,450,000 was increased by $500,000 from the purchase price as of December 31, 2005 as a result of the additional amounts paid pursuant to the acquisition agreement.  The results of operations of Southpark are included in the consolidated results of operations of the Company from the Southpark Acquisition Date. The initial allocation of fair value of the assets acquired and liabilities assumed was as follows: Cash$126,726Accounts receivable, net1,390,059Inventory120,000Prepaid insurance and other current assets142,356Fixed assets16,032,505Goodwill4,250,224Liabilities(19,611,870)Purchase Price$2,450,000Goodwill (see adjustment below to acquired Goodwill relating to minority interest)4,250,224Minority interest portion of Goodwill charged to Additional Paid-In Capital(720,090)Goodwill recorded$3,530,134  The above purchase price allocation constitutes one hundred percent (100%) of the fair value of the total assets and liabilities of Southpark with the exception of goodwill where the minority interest forty percent (40%) portion was allocated to consolidated equity as a charge to additional paid in capital.  Since the purchase price of $2,450,000 exceeded the fair value of the net assets identified, goodwill of $3,530,134 was recognized net of the minority interest portion of $720,090.  There is no minority interest since the Company acquired net liabilities. On September 29, 2006, the Company divested its majority interest in Southpark for a $3,000,000 note receivable to a third party, which consisted primarily of shareholders of the minority interest.  Upon the execution of a binding letter of intent, the Company formally relinquished control of Southpark to the third party.  The terms of the agreement included assumption of all prorated liabilities and guarantees of Southpark from the Company.  The sale resulted in a gain of $4,433,895 which is included in Discontinued Operations for the year ended December 31, 2006.  Subsequent to the issuance of the note receivable, the Company determined that its collectability was not assured.  Accordingly, the Company reduced the value of the note receivable to a fair market value of $0 and recorded a $3,000,000 bad debts expense which is included in discontinued operations for the year ended December 31, 2006. On December 31, 2006, our wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, consummated an agreement with the County of Knox, Kentucky (the Agreement) to lease all of the assets and real property used in connection with Knox County Hospital as well as delegating full and complete management responsibility and operational control for the Hospital to the Company.  The Company may retain all profits from the operations of the Hospital after satisfying its lease obligations to the County of Knox and maintenance and operations expenses of the Hospital facility.  The annual lease payment is equal to the amount of annual payment due by Knox County on its County of Knox, Kentucky Taxable General Obligation Refunding Bonds, Series 2006 (Bonds), after applying the capitalized interest which is to be paid from the proceeds of the Bonds.  We estimate the annual payment for 2008 to be approximately $692,265.  Additionally, at any time during the term of the Agreement, we have the option to purchase all of the Hospital assets from the County of Knox County and assume all of the liabilities (excluding certain liabilities as defined in the Agreement) for a purchase price equal to the sum of (a) the lesser of: (i) the outstanding principal amount of the Bonds on the closing of such purchase or (ii) what the principal balance of the Bonds would have been if all lease payments and other payments to be made by the Company were used to satisfy the principal and interest due under the Bonds at the date of each such payment plus (b) any prepayment penalties on the Bonds and (c) less any funds then held in any debt service reserve fund, bond fund or any other





fund or account in any way pertaining to the Bonds.  The term of the Agreement ends on the earlier of (a) the date the refunding bonds are paid in full; or (b) the date the Company exercises its purchase option.  The refunding bonds have a term of thirty (30) years.   The County of Knox may only terminate the Agreement if (a) the Company does not make the required monthly lease payments or (b) if the Company fails to complete substantial repairs caused by a casualty.  On April 1, 2007, the Company entered into an agreement to sell, in substance, a minority interest of forty percent (40%) of its wholly-owned subsidiary, Pacer Health Management Corporation of Kentucky, to an unrelated third party.  Pacer Health Management Corporation of Kentucky currently leases certain assets from the County of Knox, Kentucky.  The sales price was $1.2 million, which consisted solely of cash, of which $500,000 was received on March 30, 2007 and $700,000 was received on April 20, 2007.  A gain of $980,458 was included in Other Income for the year ended December 31, 2007 and an initial minority interest of $219,542 was recorded based on forty percent (40%) of the net equity of the subsidiary on the sale date.  Note 4 Patient Accounts Receivable, Allowance for Contractuals, and Allowance for Doubtful Accounts Patient Accounts Receivable at December 31, 2007 is as follows: Patient accounts receivable$27,411,196Less:  Allowance for doubtful accounts(13,871,469)Less:  Allowance for contractual discounts(8,471,693)Patient Accounts Receivable, net$5,068,034  The Company derives a significant portion of its revenues from Medicare, Medicaid and other payers that receive discounts from our standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Companys estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the period in which the change in estimate occurred. During the year ended December 31, 2007 and 2006, the Company recorded bad debt expense from patient receivables relating to continuing operations of $8,371,491 and $661,068, respectively.  In addition, the Company included in discontinued operations bad debt expense of $4,937,150 and $4,904,443 for the year ended December 31, 2007 and 2006, respectively.  The Company establishes an allowance for doubtful accounts to reduce the carrying value of patient receivables to their estimated net realizable value. The primary uncertainty of such allowances lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients. Note 5 Property, Plant and Equipment, net Property, plant and equipment at December 31, 2007 is as follows: Land$127,699Building and improvements3,773,443Equipment1,299,772Furniture & Fixtures5,000Less: accumulated depreciation(427,870)Property and Equipment, net$4,778,044  For the year ended December, 2007 and 2006, the Company recorded a gain of $0 and $65,100 on the disposal of assets related to a natural disaster (See Note 15).  The Company maintained insurance on the assets.  The assets were deemed a total loss by the insurer.  Accordingly, the Company received insurance recoveries for the assets. Depreciation expense for the year ended December 31, 2007 and 2006 was $238,552 and $2,691, respectively, net of $133,877 and $1,212,689, respectively, which was included in discontinued operations.





As a result of the decrease in the initial estimate of the assumed Medicare payable liability from the acquisition of MGBMH, the Company was required to reduce the purchase price allocation of value to certain property, plant and equipment of MGBMH during 2006 in accordance with SFAS No. 141.  The amount of the reduction in the value of property, plant and equipment was $217,388.  This revised allocation is reflected in Note 3. Note 6 Loan Payable-Related Party During the year ended December 31, 2007 and 2006, the Company received funds of $64,000 and $849,000 from its Chairman of the Board and Chief Executive Officer.  These advances received bear a flat interest rate of three percent (3%) and have no due date.  During the year ended December 31, 2007 and 2006, the Company repaid $1,000 and $865,529 of the outstanding amount. At December 31, 2007, the Company had outstanding loans payable of $63,000 to this individual. Note 7 Notes, Loans and Capital Lease Obligations Payable On December 31, 2007, the Company had the following outstanding notes and loans payable: Insurance Note Payable dated July 2007, original principal of $70,088, annual interest rate of 6.750%, maturity date April 2008.$26,839Insurance Note Payable dated December 2007, original principal of $90,545, annual interest rate of 6.600%, maturity date October 2008.75,165Note payable dated July 31, 1994, original principal of $37,150, annual interest rate of 6.941%, originally due July 15, 2011.11,763Construction loan (land)  dated June 2006, original principal of $536,100, original term 24 months, annual interest rate 12%, quarterly interest only payments, principal due at maturity.325,000Insurance Note Payable dated April 2007, original principal of $104,706, annual interest rate of 6.750%, maturity date January 2008.10,677Insurance Note Payable dated September 2007, original principal of $34,532, interest rate of 11.242%, maturity date May 2008.15,706Note Payable dated August 2006, original principal of $131,577, annual interest rate of 9.00%, maturity date August 2011.101,954Capital lease (medical equipment)  original principal of $99,799, original term 60 months, annual interest rate 8.0609%.97,786Insurance Note Payable dated June 2007, original principal of $212,458, annual interest rate of 8.640%, maturity date February 2008.48,406Insurance Note Payable dated December 2007, original principal of $46,317, maturity date August 2008.46,317Total$759, 613Current Portion$592,652Long Term Portion$166,961  At December 31, 2007, the Company had the following financing obligation: Finance obligation on sale leaseback of real property on September 29, 2006 for $1,810,000$1,796,280  The sale-leaseback of the real property has been accounted for as a financing lease, wherein the property remains on the books and continues to be depreciated. The gain on this transaction will be recognized at the end of the lease term including renewal periods. The Company has the option to renew the lease at the end of the lease term subject to certain conditions.  The Company will pay $480,000 annually to the lessor which is treated as an interest expense and principal reduction for each payment using the effective interest method of amortization.  (See Note 3)  Maturities of the Companys debt at December 31, 2007 were as follows: 2008$608,168200968,543201078,708





201177,952201264,615Thereafter1,657,907$2,555,893  Note 8 Settlements Payable and Writeoff of Accounts Payable In connection with its acquisition of MGBMH, the Company is defending a lawsuit filed on September 30, 2004 against Greene County Hospital Authority and MGBMH by Alliance Emergency Group (Alliance) and Greene Emergency Physicians (GEP) in the Superior Court of Dekalb County, Georgia.  Alliance and GEP allege that in June 2004 Defendants breached its ER physician staffing contract.  As of December 31, 2006, the Company had reserved $250,000 for the lawsuit.  On February 15, 2007, the Company reached a settlement agreement with Alliance and GEP for $650,000, of which $250,000 was paid on March 1, 2007 and the remaining $400,000 is payable over thirty-six (36) months and accrued as settlement payable.  A payment of $250,000 was applied against the reserve and the balance of the reserve is $0 as of December 31, 2007.  The balance due at December 31, 2007 was $288,889. As a result of its recapitalization that resulted from its reverse merger in 2003, the Company assumed certain outstanding liabilities.  Since the assumption of the debt, the various creditors have not sought any collection actions against the Company.  Accordingly, as a result of the expiration of the statute of limitation, the Company was written off these accounts payable and recognized a gain of $99,583 in year ended December 31, 2007. Note 9 Medicare and Medicaid Payable Medicare liabilities resulted primarily from our submission of a cost report for our Cameron / Lake Charles, Louisiana facility for the standalone period March 22, 2004 to December 31, 2004 (in the amount of $641,099) and the year ended December 31, 2005 (in the amount of $1,311,837); the submission of a cost report for our Greensboro, Georgia facility for the standalone period September 1, 2005 to December 31, 2005 (in the amount of $351,382); and from our assumption of Medicare liabilities as a result of business acquisitions (see Note 3).  As of December 31, 2007, the Company had a Medicare receivable of $188,472 for our Cameron / Lake Charles, Louisiana facility for the year ended December 31, 2006.  The receivable is currently used to offset the current Medicare liability and is therefore netted against the Medicare liability in the accompanying consolidated financial statements.  Medicare liabilities result from Medicare audits or our submission of cost reports to Medicare.  Medicare liabilities represent amounts due to Medicare as a result of excess cost reimbursements by Medicare.  The Company determines the liability based upon the completion of the cost report or the audit settlement report we receive from Medicare and records the liability in that year.  We have reviewed and continue to review Medicare reimbursements to ensure that we have been properly reimbursed and have reflected any adjustment through the contractual allowances.  The Company has current Medicare liabilities of $1,820,026 and long term Medicare liabilities of $1,347,847.  The long term portion relates to negotiated payment plans from our Cameron / Lake Charles, Louisiana facility and our Greensboro, Georgia facility.





The majority of services performed on Medicare and Medicaid patients are reimbursed at predetermined reimbursement rates except for our critical access acute care facility in Greensboro, Georgia and our acute care hospital in Barbourville, Kentucky, which is reimbursed on a reasonable cost method. The differences between the established billing rates (i.e., gross charges) and the actual reimbursement rates are recorded as contractual discounts and deducted from gross charges. For our critical access acute care facility in Greensboro, Georgia and our acute care hospital in Barbourville, Kentucky, there is an adjustment or settlement of the difference between the actual cost to provide the service and the actual reimbursement rates.  Settlements are adjusted in future periods when settlements of filed cost reports are received. Final settlements under these programs are subject to adjustment based on administrative review and audit by third party intermediaries, which can take several years to resolve completely.  Generally, we are audited approximately every two (2) years.  However, the time between audits differs based upon facility and the cost report filed and can change from year to year without prior notice. Our Lake Charles, Louisiana facility has negotiated four (4) payment plans with respect to its Medicare payable for the cost report periods ended December 31, 2001, 2003, 2004 and 2005.  The facility established the payment plan for the cost report period ended December 31, 2006 in April 2007.  A summary of the significant terms of the plans are as follows: For the Period Ended December 31, 2001For the Period Ended December 31, 2003For the Period Ended December 31, 2004For the Period Ended December 31, 2005For the Period Ended December 31, 2006Principal Outstanding at December 31, 2007$491,598$523,481$625,143$1,018,462$162,850Long Term Principal----$393,614$762,270--Monthly Payment Amount$11,247$16,596$17,873$29,582$4,075Maturity DateSeptember 2009January 2008January 2011June 2011March 2012  Our Greensboro, Georgia facility has negotiated two (2) payment plans with respect to its Medicare payable for the cost report periods ended December 31, 2005 and for its Medicaid payable for various periods.  A summary of the significant terms of the plans are as follows: Medicaid PayableFor the Period Ended December 31, 2005Principal Outstanding at
December 31, 2007$145,249$6,875Long Term Principal----Monthly Payment Amount$4,152$12,500Maturity DateVariousJanuary 2008  Our Barbourville, Kentucky facility has negotiated three (3) payment plans with respect to its Medicare and Medicaid payable for the cost report periods ended December 31, 2005 and for its Medicaid payable for various periods.  A summary of the significant terms of the plans are as follows: For the Period Ended
June 30, 2000For the Period Ended
June 30, 2005  (Medicaid)For the Period Ended
November 30, 2005Principal Outstanding at
December 31, 2007$151,833$132,152$75,060Long Term Principal--$90,619$32,169Monthly Payment Amount$8,096$3,776$3,574Maturity DateSeptember 2009December 2010September 2009





Note 10 Commitments and Contingencies Legal Proceedings Sharon K. Postell v. Greene County Hospital Authority d/b/a Minnie G. Boswell Memorial Hospital, Pacer Health Management Corporation of Georgia, Inc., and Anita Brown, in Her Individual Capacity  The Company has been named as a co-defendant in a lawsuit initiated by Plaintiff Sharon K. Postell on August 19, 2005.  Plaintiff alleges that the Company discriminated against her based on her religion in violation of 42 U.S.C. § 1983 and Title VII.  Plaintiff also claims that she was retaliated against when she complained about the religious discrimination.  The last settlement demand by Plaintiff was for approximately $70,000, which the Company rejected.  The case went to trial and the Company prevailed at trial and in the subsequent appeal.  Currently, the Company is awaiting the determination by the Court of the awarding of reasonable attorneys fees.  From time to time we become subject to other proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to medical services provided and other matters.  Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.  Lease Commitments The Company leases real property under various leases most of which have terms from one (1) to five (5) years. The Company accounts for leases under SFAS No. 13, Accounting for Leases, and other related authoritative literature.  Expenses under real property leases were $1,544,886 and $379,325 for the year ended December 31, 2007 and 2006, respectively.  The leases require payment of real estate taxes and insurance in addition to rent. Most of the leases contain renewal options and escalation clauses. Lease expense is recognized on a straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements and the estimation of future lease commitments.  Future minimum lease obligations under non-cancelable real property leases with initial terms in excess of one (1) year at December 31, 2007 are as follows:  Period Ending December 31:2007$1,638,69020082,110,77420092,107,65920102,107,57920112,107,686Thereafter--$10,072,388  Note 11 Stockholders Deficiency (A) Common Stock On January 9, 2006, the Company issued 100,000 shares of its common stock to its Vice-President of Operations for services rendered during the period December 2005.  These shares were valued based on the quoted closing trading price of the Companys common stock on the grant date which was $0.015 per share and had a fair value of $1,500 which was expensed. On July 21, 2006, the Company issued 5,000,000 shares of its common stock to its Chief Financial Officer in accordance with an employment agreement.  The shares were valued at $0.015 per share based on the quoted trading price of the Companys common stock on the grant date in 2004 and recorded as part of deferred compensation.  The expense has been and continues to be charged to operations over the service period. On August 9, 2006, the Company issued to its four independent Directors 40,000 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.025 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $4,000 which was expensed.





On September 30, 2006, the Company issued 2,000,000 shares of its common stock to its Director of Corporate operations in accordance with an employment agreement.  The shares were valued at $0.015 per share based on the quoted trading price of the Companys common stock on the grant date in 2005 and recorded as part of deferred compensation.  The expense has been and continues to be charged to operations over the service period. On November 13, 2006, the Company issued to its four independent Directors 52,632 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.019 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $4,000 which was expensed. On March 19, 2007, the Company issued 2,000,000 shares of its common stock to its Chief Operating Officer in accordance with an employment agreement.  The shares were valued at $0.02 per share, or $40,000, based on the quoted trading price of the Companys common stock on the grant date in 2007.  The shares cliff vest in one year from the grant date and therefore are not considered issued and outstanding until they vest.  The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital. On March 19, 2007, the Company issued to its four (4) independent Directors 50,000 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.02 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $4,000 which was expensed. In July 2007, the Company issued to YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) 5,769,231 shares of its common stock in conversion of $30,000 of its outstanding convertible debenture.  The shares were valued at $0.0052 per share based on ninety-five (95%) of the lowest volume weighted average price of the Companys common stock for the thirty (30) trading days immediately preceding the conversion date in accordance with the convertible debenture.  The conversion was recorded as a redemption of the outstanding convertible debenture. On July 25, 2007, the Company issued to its four (4) independent Directors 200,000 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.01 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $8,000 which was expensed. On September 7, 2007, the Company issued 2,000,000 shares of its common stock to its Director of Corporate Operations in accordance with an employment agreement.  The shares were valued at $0.015 per share based on the quoted trading price of the Companys common stock on the grant date in 2005.  The shares cliff vest in one (1) year from the issuance date and therefore are not considered issued and outstanding until they vest.  The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital. On November 8, 2007, the Company issued to its four (4) independent Directors 133,333 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.0075 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $4,000 which was expensed. In the first quarter of 2007, pursuant to a settlement agreement, the Company received back and cancelled 2,000,000 of its shares of common stock originally issued in a prior year to a former employee. (B) Common Stock Warrants On June 20, 2002, the predecessor to the Company had issued 950,000 stock warrants to various consultants in exchange for their services.  These warrants have a strike price of $.50 per share.  All of the warrants expire over a five-year period.  These warrants were not cancelled as a result of the recapitalization transaction with Pacer and thus are considered deemed issuance of options as part of the recapitalization with no net accounting effect.  On June 20, 2007, these warrants expired.  No warrants were granted during the years ended December 31, 2007 and 2006.  On April 1, 2006 the Company issued 35,000,000 warrants in connection with the issuance of convertible debentures. The warrants have an exercise price of $0.02 and expire in five (5) years from the issuance date.  The warrants may be exercised on a cashless basis.  In July 2007, the warrants fair value of $121,757 was reclassified from a warrant liability to additional paid in capital as a result of the debt extinguishment (See Note 13).  On July 6, 2007, the Company issued 220,000,000 warrants in connection with convertible debentures. The warrants have various exercise prices of $0.02 to $0.03 and expire in five (5) years from the issuance date.  The warrants may be exercised on a cashless basis.  These warrants were valued at $1,733,186 using a relative fair value method based on a Black-Scholes option pricing method using the following assumptions: volatility 243% (based on historical volatility); expected term of five





(5) years (based on contractual term for non-employees); expected dividends of $0; and risk free rate of 5.02%.  The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term.     Note 12 Related Party Transactions During the year ended December 31, 2007 and 2006, the Company received funds of $64,000 and $849,000 from its Chairman of the Board and Chief Executive Officer.  These advances received bear a flat interest rate of three percent (3%) and have no due date.  During the year ended December 31, 2007 and 2006, the Company repaid $1,000 and $865,529 of the outstanding amount. At December 31, 2007, the Company had outstanding loans payable of $63,000 to this individual. On January 9, 2006, the Company issued 100,000 shares of its common stock to our Vice-President of Operations for services rendered during the period December 2005.  These shares were valued based on the quoted closing trading price of the Companys common stock on the grant date which was $0.015 per share and had a fair value of $1,500 which was expensed. On July 21, 2006, the Company issued 5,000,000 shares of its common stock to its Chief Financial Officer in accordance with an employment agreement.  The shares were valued at $0.015 per share based on the quoted trading price of the Companys common stock on the grant date in 2004 and recorded as part of deferred compensation.  The expense has been and continues to be charged to operations over the service period. On September 30, 2006, the Company issued 2,000,000 shares of its common stock to its Director of Corporate operations in accordance with an employment agreement.  The shares were valued at $0.015 per share based on the quoted trading price of the Companys common stock on the grant date in 2005 and recorded as part of deferred compensation.  The expense has been and continues to be charged to operations over the service period. On March 19, 2007, the Company issued 2,000,000 shares of common stock to its Chief Operating Officer in accordance with an employment agreement.  The shares were valued at $0.02 per share, or $40,000, based on the quoted trading price of the Companys common stock on the grant date in 2007.  The shares cliff vest in one year from the grant date and therefore are not considered issued and outstanding until they vest.  The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital. On March 19, 2007, the Company issued to its four independent Directors 50,000 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.02 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $4,000 which was expensed. On July 25, 2007, the Company issued to its four independent Directors 200,000 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.01 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $8,000 which was expensed. On September 7, 2007, the Company issued 2,000,000 shares of its common stock to its Director of Corporate Operations in accordance with an employment agreement.  The shares were valued at $0.015 per share based on the quoted trading price of the Companys common stock on the grant date in 2005.  The shares cliff vest in one year from the issuance date and therefore are not considered issued and outstanding until they vest.  The expense has been and continues to be charged to operations over the service period with a credit to additional paid in capital. On November 8, 2007, the Company issued to its four (4) independent Directors 133,333 shares each of its common stock in payment of the Directors fees.  The shares were valued at $0.0075 per share based on the quoted closing trading price of the Companys common stock on the grant date and had a total fair value of $4,000 which was expensed. MGBMH incurs a rent expense for temporary dwelling for employees and contractors in the amount of $3,300 monthly payable to the landlord who is a related party of an officer the Company.  The terms of this lease are month to month. The Company currently outsources its patient accounting function, which includes the issuance of patient bills to third party payors and the accounting of receipts, to a company owned by certain officers of the Company, including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer.  The Company pays to the professional billing firm four percent (4%) of its net collected revenue.  For the year ended December 31, 2007, the Company has been billed $865,855 by the billing company.   Note 13 Convertible Debentures





2006 Securities Purchase Agreement  On April 1, 2006, the Company executed a Securities Purchase Agreement with YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) whereby it would issue $2,000,000 of secured convertible debentures.  On April 1, 2006, pursuant to the Securities Purchase Agreement, the Company issued a three (3) year convertible debenture totaling $1,000,000 to Cornell secured by all of the assets and property of the Company.  The debenture accrues interest at a rate of ten percent (10%) per year.  The debentures are convertible at the holders option until the maturity date.  The conversion price is equal to the lower of (a) $0.05 or (b) 95% of the lowest volume weighted average price of the Companys common stock for the thirty (30) trading days immediately preceding the conversion date.  In connection with the April 1, 2006 issuance of the $1,000,000 convertible debenture, the Company recorded a contra liability of $115,000 by debiting debt discount.  These $115,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The Company also incurred additional expenses of $37,923 related to accountant and attorneys fees in connection with the financing that was paid directly from the debt funding which will be capitalized and amortized as debt issue costs. On September 29, 2006 the Company repaid $250,000 of this debenture.  As a result $197,547 of the embedded conversion option liability was reclassified to additional paid-in capital, $7,111 of debt issue costs were expensed and $187,500 of debt discount was expensed.   Debt discount is directly offset against the gross convertible debentures balance outstanding.    On May 15, 2007 the Company repaid an additional $250,000 of this debenture.  On May 5, 2006, pursuant to the Securities Purchase Agreement, the Company issued a three (3)  year convertible debenture totaling $1,000,000 to YA Global secured by all of the assets and property of the Company.  The debenture accrues interest at a rate of 10% per year.  The debentures are convertible at the holders option until the maturity date.  The conversion price is equal to the lower of (i) $0.05 or (ii) 95% of the lowest volume weighted average price of the common stock for the 30 trading days immediately preceding the conversion date.  In connection with the May 5, 2006 issuance of the $1,000,000 convertible debenture, the Company recorded a contra liability of $100,000 by debiting debt discount.  These $100,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  Debt discount is directly offset against the gross convertible debentures balance outstanding.  The total debt discount will be amortized to interest expense over the life of the debt.  The Company also incurred additional expenses of $14,319 related to accountant and attorneys fees in connection with the financing that was paid directly from the debt funding which will be capitalized and amortized as debt issue costs.  In conjunction with the Securities Purchase Agreement, the Company issued a five year warrant to YA Global to purchase 35,000,000 shares of its common stock at an exercise price of $0.02.  The warrants may be exercised on a cashless basis.  The convertible debentures and warrants contain registration rights with filing and effectiveness deadlines and a liquidated damages provision.  The registration statement was required to be filed within sixty (60) days of the initial funding date of April 1, 2006 and was required to become effective within one-hundred twenty (120) of the initial funding date.  The deadline was not met. Accordingly, the Company was required to accrue as liquidated damages, payable in cash or shares at the lender's option, two percent (2%) of the value of the convertible debentures for each 30-day period after the scheduled deadline as applicable.  Once effective, the Company must also maintain the registration statement effective until all the registrable securities have been sold by the lender (the "Registration Period").  The Company evaluated whether or not the secured convertible debentures contain embedded conversion options which meet the definition of derivatives under SFAS 133 Accounting for Derivative Instruments and Hedging Activities and related interpretations.  The Company concluded that since the secured convertible debentures had a variable conversion rate, the Company could not guarantee it would have enough authorized shares pursuant to the criteria of EITF 00-19 and therefore the embedded conversion option must be accounted for as a derivative.  In addition the liquidated damage penalty in the Registration Rights Agreement would cause derivative classification as the Company considers the Registration Rights Agreement to be part of the convertible debentures contract both to be accounted for as a single unit considering the criteria EITF 05-4 The Effects of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF 00-19.  In addition, all prior existing non-employee options or warrants (950,000) must be classified as liabilities for the same reason.   The Company recorded an





embedded conversion options liability and warrant liability relating to 35,000,000 warrants at the April 1, 2006 funding date with a debt discount.  In addition, $5,415 of the fair value of 950,000 existing warrants was reclassified to warrant liabilities from stockholders equity at the funding date. Those warrants expired effective June 20, 2007.  In December 2006, the FASB issued FSP EITF 00-19-2, "Accounting for Registration Payments" which was effective immediately. This FSP amends EITF 00-19 to require potential registration payment arrangements be treated as a contingency pursuant to FASB Statement 5 rather than at fair value. We considered the effect of this standard on the above embedded conversion option and warrant classification as a liability and determined that the accounting would not have changed as a result of this standard; since the variable rate on the convertible debentures still cause derivative treatment and the liquidated damages liability had been recorded. Therefore, there was no effect of implementing this standard.   The following table summarizes the assets and liabilities recorded in conjunction with the issuance of the convertible debentures at the respective issuance dates: Convertible Debenture Issued April 1, 2006Convertible Debenture Issued May 5, 2006Principal liability1,000,0001,000,000Debt issue costs37,92314,319Debt discount from lender fees115,000100,000Debt discount from embedded conversion option257,800884,513Debt discount from warrants issued with convertible debenture627,200-Initial embedded convertible option liability257,800884,513Initial warrant liability627,200-Initial warrant liability reclassed from equity5,415-  The change in fair value recognized as other income/(expense) of the embedded conversion option and warrant liabilities for year ended December 31, 2007 and 2006 was $87,086 and $(70,593), respectively.  In July 2007, pursuant to the 2006 Securities Purchase Agreement, the Company issued 5,769,231 shares to YA Global upon conversion of $30,000 of principal of a convertible debenture issued on April 1, 2006.  (See Note 11)  In July 2007, the 2006 convertible debentures totaling $1,470,000 (excluding related debt discount of $893,333) and related liabilities were extinguished and new convertible debentures were issued (see below).  On July 6, 2007, the fair value of embedded conversion options and warrants totaling $1,425,230 was reclassified to additional paid in capital as a result of the debt extinguishment of these convertible debentures (see below).  In addition, remaining debt discount and remaining debt issue costs of $893,333 and $25,415, respectively, were expensed.  2007 Securities Purchase Agreement  On July 6, 2007, the Company entered into a Securities Purchase Agreement with YA Global pursuant to which the Company sold to YA Global, and YA Global purchased from the Company, up to $5,500,000 of Secured Convertible Debentures, which shall be convertible, at a fixed convertible price of $0.02 until maturity, into shares of the Companys common stock and warrants to acquire up to 220,000,000 additional shares of the Companys common stock, of which $3,500,000 was funded on July 9, 2007, $1,500,000 was to be funded on the date a registration statement is filed with the U.S. Securities and Exchange Commission and $500,000 was to be funded within five (5) business days after the registration statement is declared effective.  The $3,500,000 debentures accrue interest at a rate equal to thirteen percent (13%) per annum and shall mature, unless extended by YA Global, on March 31, 2009.  On the maturity date, the Company may, at its option, redeem the outstanding principal and any accrued interest in either cash or common stock.  If the Company chooses to repay in common stock, the  debentures shall be convertible at the lower of $0.02 and that price which shall be computed as 80% of the lowest daily volume weighted average price of the common stock during the fifteen (15) consecutive trading days immediately preceding the applicable payment date.  The Company shall pay a redemption premium of seven and one half percent (7.5%).  The Company, at its option, has the right to redeem a portion or all amounts





outstanding prior to the Maturity Date provided that as of the date of the holders receipt of a Redemption Notice (as defined therein): (i) the closing bid price is less than $.02; (ii) the Registration Statement is effective; and (iii) no event of default has occurred and be continuing.  The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to fifteen percent (15%) of the principal amount being redeemed and accrued interest.  In connection with the July 6, 2007 issuance of the $3,500,000 convertible debenture, the Company recorded a contra liability of $305,000 by debiting debt discount.  These $305,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The Company also incurred additional expenses of $12,201 related to accountant and attorneys fees in connection with the financing that will be capitalized and amortized as debt issue costs.  As of December 31, 2007, the Company has amortized $85,631 of debt discount.   Debt discount is directly offset against the gross convertible debentures balance outstanding.  The total debt discount will be amortized to interest expense over the life of the debt.  Additionally, as of December 31, 2007, the Company has amortized $3,425 of debt issue costs.  The convertible debentures and warrants contain registration rights with filing and effectiveness deadlines and a liquidated damages provision.  The registration statement was required to be filed within 30 days of the funding date of July 6, 2007 and was required to become effective within 180 of the funding date.  The agreement contains provisions for liquidated damages, payable in cash or shares at the lender's option, 2% of the value of the convertible debentures for each 30-day period after the scheduled deadline that the Company has not met, to be capped at 24 months.  Once effective, the Company must also maintain the registration statement effective until all the registrable securities have been sold by the lender.  In connection with the Securities Purchase Agreement, the Company also is obligated to issue to the Investor the Warrants to purchase, in Investors sole discretion, Two Hundred Twenty Million (220,000,000) shares of Common Stock at various prices from $0.02 to $0.03 per share which expire on various dates beginning July 2012.  As of December 31, 2007, all warrants have been issued to the Investor.  These warrants were valued on the loan date at their relative fair value of $1,733,186 based on a Black-Scholes option pricing model using the following assumptions: volatility 243% (based on historical volatility); expected term of five (5) years (based on contractual term for non-employees); expected dividends of $0; and risk free rate of 5.02%.  The value was recorded as additional paid in capital and a debt discount to be amortized over the debt term.  Amortization for 2007 was $483,554.  On September 18, 2007, the Company amended and restated its Securities Purchase Agreement with YA Global in order to reduce the aggregate purchase price to Four Million Dollars ($4,000,000), whereby instead of YA Global funding (i) $1,500,000 on the date a registration statement is filed with the U.S. Securities and Exchange Commission and (ii) $500,000 within five (5) business days after the registration statement is declared effective, the Investor funded $500,000 on September 11, 2007.  The $500,000 convertible debentures shall accrue interest at a rate equal to thirteen percent (13%) per annum and shall mature, unless extended by YA Global, on March 31, 2009.  On the maturity date, the Company may, at its option, redeem the outstanding principal and any accrued interest in either cash or common stock.  If the Company chooses to repay in common stock, the  debentures shall be convertible at the lower of $.02 and that price which shall be computed as 80% of the lowest daily volume weighted average price of the common stock during the fifteen (15) consecutive trading days immediately preceding the applicable payment date.  The Company shall pay a redemption premium of seven and one half percent (7.5%).  The Company at its option shall also have the right to redeem a portion or all amounts outstanding prior to the Maturity Date provided that as of the date of the holders receipt of a Redemption Notice (as defined therein): (i) the closing bid price is less than $0.02; (ii) the Registration Statement is effective; and (iii) no event of default has occurred and be continuing.  The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to fifteen percent (15%) of the principal amount being redeemed and accrued interest.  In connection with the September 11, 2007 issuance of the $500,000 convertible debenture, the Company recorded a contra liability of $40,000 by debiting debt discount.  These $40,000 in costs were fees and expenses paid directly to the lender in connection with obtaining the debt funding.  The Company also incurred additional expenses of $12,297 related to accountant and attorneys fees in connection with the financing that will be capitalized and amortized as debt issue costs.  As of December 31, 2007, the Company has amortized $6,562 of debt discount.   Debt discount is directly offset against the gross convertible debentures balance outstanding.  The total debt discount





will be amortized to interest expense over the life of the debt.  Additionally, as of December 31, 2007, the Company has amortized $2,017 of debt issue costs.  The Company determined that the embedded conversion options in the convertible debentures and warrants were not derivatives and qualify for equity treatment since the convertible debt is considered conventional convertible debt due to the fixed conversion price..  In addition, there was $533,186 of beneficial conversion value of the convertible debentures which was recorded as debt discount and is being amortized over the debt term.  Amortization of this beneficial conversion value was $148,757 in 2007.          Note 14 Income Taxes There was no income tax expense for the years ended December 31, 2007 and 2006 due to the Companys net losses.  The Companys tax expense differs from the expected tax expense for the years ended December 31, 2007 and 2006, (computed by applying the Federal Corporate tax rate of 34% to loss before taxes), as follows:  20072006Computed expected tax expense (benefit)$(2,228,388)$(2,596,493)State taxes net of Federal benefits(236,219)(276,815)Other non-deductible items15,8703,733Change in valuation allowance2,448,7372,869,676Other-(102)$-$-  The effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2007 are as follows:  Deferred tax (assets)/liabilities:Accrued vacation$(21,632)Depreciation(98,341)Reserve for bad debts(530,092)Net operating loss carryforward(4,971,994)Total gross deferred tax assets(5,622,059)Less valuation allowance5,622,059Net deferred tax assets$-  During the year ended December 31, 2007, the Company reported a net loss which will increase the net operating loss carryforward.  As a result, the Company did not record a current tax expense and adjusted its deferred tax expense accordingly.  The Company has a net operating loss carryforward of approximately $13,212,846 available to offset future taxable income expiring 2027.  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, 2007 was $5,622,059.  The net change in valuation allowance during the year ended December 31, 2007 was an increase of $2,448,737.  The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN 48) on January 1, 2007. The Company has identified its federal income tax return and state income tax returns in Kentucky, Georgia and Louisiana as major tax jurisdictions, as defined. The periods subject to examination for our federal, Kentucky. Georgia and Louisiana state income tax returns are the tax years ended in 2001 and thereafter, since the Company has net operating loss carryforwards for tax years starting in 2001. The Company believes its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been





recorded pursuant to FIN 48, and no cumulative effect adjustment was recorded related to the adoption of FIN 48. The Companys policy for recording interest and penalties associated with audits, if any,  is to record such items as a component of income (loss) before taxes. If applicable, penalties and interest paid are recorded in interest and other expense and interest received is recorded in interest income in the statement of operations.  Note 15 Natural Disaster On September 24, 2005, the Company suffered severe damage to our acute care hospital and health clinic in Cameron, Louisiana as a result of Hurricane Rita.  The facilities and corresponding equipment have been deemed unsuitable for use in administering health care services.  The property and equipment were insured and the Company received the proceeds of the policies from the insurance companies.  The Company recognized a gain, net of impairment, of $0 and $65,100 for the year ended December 31, 2007 and 2006, respectively, from the insurance proceeds.   Note 16 Subsequent Events  Sale of Subsidiary Business  and Discontinued Operations  On March 7, 2008 the Company sold to St. Josephs at East Georgia, Inc., a subsidiary of St Josephs Healthcare System, Inc., substantially all of the assets, excluding cash and outstanding accounts receivable, of Minnie G. Boswell Memorial Hospital for the aggregate purchase price of $3,547,559.71, subject to certain adjustments set forth in the Agreement.  St. Josephs at East Georgia, Inc. also assumed certain liabilities with respect to the operation.   Additionally, within thirty (30) calendar days following July 1, 2008, St. Josephs at East Georgia, Inc. shall submit to the Company a report identifying the amount of annual subsidy for Minnie G. Boswell Memorial Hospital approved by the Greene County Commission prior to July 1, 2008 (the Annual Subsidy Amount).  Within 10 calendar days following the date that the Annual Subsidy Amount has been determined in accordance with the Agreement, St. Josephs at East Georgia, Inc. shall pay to the Company an amount equal to 50% of the Annual Subsidy Amount up to $1,500,000.   Under no circumstances shall St. Josephs at East Georgia, Inc. pay the Company an amount greater than $750,000.  After the transaction closes, St. Josephs at East Georgia, Inc. will collect and hold in a fiduciary capacity up to $250,000 of any Medicare and Medicaid reimbursements paid to St. Josephs at East Georgia, Inc. related to patient services rendered by the Company. Upon acceptance by CMS of the Pacer cost reports, St. Josephs at East Georgia, Inc. will remit all funds held in its fiduciary capacity to the Company.  The net sale proceeds received by the Company from this sale was $2,911,651.  The assets sold and liabilities assumed are presented as Assets Held for Sale from Discontinued Operations and Liabilities of Discontinued Operations, respectively.  The incomes and expenses have been classified and presented as discontinued operations for the years ended December 31, 2007 and 2006.  Debenture Funding  On April 1, 2008 the Company entered into a Securities Purchase Agreement with YA Global Investments, L.P. to which the Company sold to the YA Global Investments LP $5,786,017 of secured convertible debentures and a 5 year warrant to acquire up to 5,500,000 additional shares at an exercise price of $0.0001 per share.  The debentures are secured by substantially all of the assets of the Company and its subsidiaries (Grantors) in which the Grantors have interests or power to transfer rights subject to existing liens.  The Debenture shall accrue interest at 13% per annum and shall mature on April 1, 2012.  The conversion price is the lesser of $0.02 and 80% of the lowest daily volume weighted average price of the Common Stock during the 20 trading days immediately preceding each conversion date.  Upon conversion, the Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 15% of the principal amount being redeemed, and accrued interest.  The warrants are exercisable immediately for the cash exercise price or may be cashless exercised if at the time of exercise the warrants are not subject to an effective registration statement or an event of default has occurred.  The conversion price of the debentures and exercise price of the warrants is subject to anti-dilution provisions as defined in the agreement.  If the Company sells or is deemed to have sold any shares of common stock for consideration per share less than a price equal to the conversion or warrant exercise price then such conversion or exercise price shall be reduced to the sale price.  At closing, $300,000 of the proceeds was placed into escrow to periodically fund the investment manager, an affiliate of the lender, until the funds are full disbursed or until the securities are fully disposed of by the lender, in which case, any remaining escrow funds will be returned to the Company.  The Company also paid $25,000 in a structuring fee to the affiliate of the lender .





The debentures and warrants contain registration rights for 280,000,000 shares with a filing deadline of thirty (30) days from the funding date and effectiveness deadline of 120 days from the funding date.  There are also effectiveness maintenance requirements, as defined.  If the above deadlines or maintenance requirements are not met, the Company will pay liquidated damages equal to 2% of the outstanding principal balance for each month of default up to a maximum of 24%.   The Company evaluated whether or not the secured convertible debentures contain embedded conversion options which meet the definition of derivatives under SFAS 133 Accounting for Derivative Instruments and Hedging Activities and related interpretations.  The Company concluded that since the secured convertible debentures had a variable conversion rate, the Company could not guarantee it would have enough authorized shares pursuant to the criteria of EITF 00-19 and therefore the embedded conversion option must be accounted for as a derivative.    In addition, all prior existing non-employee options or warrants must be classified as liabilities for the same reason.  Purchase of Third Party Debt  On April 1, 2008 the Company entered into a Non-Recourse Assignment with YA Global Investments, L.P. whereby YA Global Investments, L.P. sold to the Company certain secured convertible debentures.  The Company paid to YA Global $3,011,017 for the assignment.





EXHIBIT 21.1SUBSIDIARIES OF PACER HEALTH CORPORATION  · Pacer Health Services, Inc. (a Florida corporation formed on May 5, 2003), · Pacer Health Management Corporation (a Louisiana corporation formed on February 1, 2004), · Pacer Holdings of Louisiana, Inc. (a Florida corporation formed on March 3, 2004), · Pacer Holdings of Georgia, Inc. (a Florida corporation formed on June 26, 2004), · Pacer Health Management Corporation of Georgia (a Georgia corporation formed on June 28, 2004), · Pacer Holdings of Arkansas, Inc. (a Florida corporation formed on October 26, 2004), · Pacer Health Psychiatric, Inc. (a Louisiana Corporation formed on September 16, 2005), · Pacer Health Management of Florida LLC (a Florida limited liability company formed on December 19, 2005), · Pacer Holdings of Lafayette, Inc. d/b/a Pacer Health Holdings of Lafayette, Inc. (a Louisiana corporation formed on November 28, 2005), · Pacer Holdings of Kentucky, Inc. (a Florida corporation formed on March 9, 2006), · Pacer Health Management Corporation of Kentucky (a Kentucky corporation formed on March 20, 2006), · Woman's OB-GYN Center, Inc. (a Georgia corporation formed on October 30, 2006), · Lake Medical Center, Inc. (a Georgia corporation formed on October 30, 2006), · Lakeside Regional Hospital, Inc. (a Georgia corporation formed on April 16, 2007), · Pacer Management of Kentucky, LLC (a Kentucky limited liability company formed on April 18, 2007), · Pacer Psychiatry of Calcasieu, Inc. (a Louisiana Corporation formed on May 7, 2007) and · Pacer Logistics LLC (a Florida limited liability company formed on March 25, 2008).





EXHIBIT 31.1 OFFICERS CERTIFICATE
PURSUANT TO SECTION 302* I, Rainier Gonzalez, certify that:  1. I have reviewed this form 10-KSB for the fiscal year ended December 31, 2007, 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 registrant as of, and for, the periods presented in this report;   4. The registrant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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;   c) Evaluated the effectiveness of the registrant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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and   5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):   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 registrant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 registrants internal control over financial reporting.   Date: April 15, 2008By:
/s/ Rainier GonzalezName:
Rainier GonzalezTitle:
Chief Executive Officer





EXHIBIT 31.2 OFFICERS CERTIFICATE
PURSUANT TO SECTION 302* I, J. Antony Chi, certify that:  1. I have reviewed this form 10-KSB for the fiscal year ended December 31, 2007, of Pacer Health Corporation;  6. 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;   7. 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 registrant as of, and for, the periods presented in this report;   8. The registrant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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;   c) Evaluated the effectiveness of the registrant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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and   9. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):   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 registrant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 registrants internal control over financial reporting.  Date: April 15, 2008By:
/s/ J. Antony ChiName:
J. Antony ChiTitle:
Chief Financial Officer


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, 2007 as filed with the U.S. Securities and Exchange Commission on the date hereof (the Report), the undersigned 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, as amended; and  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. 3. Date: April 15, 2008By:
/s/ Rainier GonzalezName:
Rainier GonzalezTitle:
Chief Executive Officer      EXHIBIT 32.2 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, 2007 as filed with the U.S. Securities and Exchange Commission on the date hereof (the Report), the undersigned 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, as amended; 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: April 15, 2008By:
/s/ J. Antony ChiName:
J. Antony ChiTitle:
Chief Financial Officer