Exhibit 99.2

Consolidated Financial Statements

Bravo Health, Inc. and Subsidiaries
Years Ended December 31, 2009 and 2008
With Report of Independent Auditors

Bravo Health, Inc. and Subsidiaries

Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

Contents

Report of Independent Auditors			1
Audited Consolidated Financial Statements
Consolidated Balance Sheets			2
Consolidated Statements of Operations			4
Consolidated Statements of Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7

		Ernst & Young LLP 621 East Pratt Street Baltimore, Maryland 21202 Tel: + 1 410 539 7940 Fax: + 1 410 783 3832 www.ey.com

Report of Independent Auditors

Board of Directors
Bravo Health, Inc.

We have audited the accompanying consolidated balance sheets of Bravo Health, Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bravo Health, Inc. and subsidiaries at December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

April 30, 2010

A member firm of Ernst & Young Global Limited

Bravo Health, Inc. and Subsidiaries

Consolidated Balance Sheet

		December 31
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	101,637,414			$	112,366,645
Short-term investments			—				668,865
Accounts receivable, net of allowances of $1,978,018 in 2009 and $2,659,900 in 2008			114,690,755				63,804,972
Other receivables, net			3,653,807				4,854,279
Deferred tax assets, net			2,951,405				3,261,390
Other current assets			4,931,986				3,823,851
Total current assets			227,865,367				188,780,002
Restricted cash			3,602,041				2,970,843
Long-term investments			91,095,129				92,187,601
Property and equipment, net			25,714,966				19,431,526
Deferred tax assets, net			31,838,954				25,830,355
Intangible assets, net			47,786,288				80,313,941
Other assets			1,344,948				1,922,276
Total assets		$	429,247,693			$	411,436,544

		December 31
		2009				2008
Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings		$	—			$	15,257,855
Medical claims payable			128,654,630				124,730,950
Other medical liabilities			4,453,850				3,524,981
Part D funds held for the benefit of others			11,893,047				9,213,146
Accounts payable and accrued expenses			28,214,942				23,202,529
Accrued salaries and benefits			11,777,785				7,904,127
Current portion of debt and capital leases			1,687,674				6,864,605
Total current liabilities			186,681,928				190,698,193
Debt and capital leases, net of current portion			87,874,313				89,003,398
Interest rate swap liability			1,126,715				2,467,714
Total liabilities			275,682,956				282,169,305
Commitments and contingencies (Note 18)
Stockholders’ equity:
Common stock, $.01 par value; 186,500,000 shares authorized; 13,875,552 and 13,641,982 shares issued and outstanding for 2009 and 2008, respectively			138,756				136,420
Convertible preferred stock:
Series A convertible preferred stock; $.01 par value; 503,750 shares authorized, issued and outstanding ($183,206 aggregate liquidation value)			5,038				5,038
Series B convertible preferred stock; $.01 par value; 6,898,104 shares authorized, issued and outstanding ($7,197,006 aggregate liquidation value)			68,981				68,981
Series C redeemable preferred stock; $.01 par value; 1,185,295 shares authorized, issued and outstanding ($3,022,500 aggregate liquidation value)			11,853				11,853
Series D convertible preferred stock; $.01 par value; 247,525 shares authorized, issued and outstanding ($1,500,002 aggregate liquidation value)			2,475				2,475
Series E convertible preferred stock; $.01 par value; 4,919,183 shares authorized, issued and outstanding ($8,581,057 aggregate liquidation value)			49,192				49,192
Series F convertible preferred stock; $.01 par value; 32,904,409 shares authorized, issued and outstanding ($29,516,209 aggregate liquidation value)			329,044				329,044
Series G convertible preferred stock; $.01 par value; 47,422,306 shares authorized, issued and outstanding ($52,500,000 aggregate liquidation value)			474,224				474,224
Series H convertible preferred stock; $.01 par value; 55,500,000 shares authorized; 29,973,992 shares issued and outstanding ($49,457,087 aggregate liquidation value)			299,740				299,740
Additional paid-in capital			155,669,284				153,949,185
Accumulated other comprehensive income (loss), net			714,988				(1,692,014	)
Accumulated deficit			(4,198,838	)			(24,366,899	)
Total stockholders’ equity			153,564,737				129,267,239
Total liabilities and stockholders’ equity		$	429,247,693			$	411,436,544

See accompanying notes.

Bravo Health, Inc. and Subsidiaries

Consolidated Statements of Operations

		Year Ended December 31
		2009				2008
Revenues:
Managed care capitation and premium revenue		$	1,220,218,991			$	953,977,011
Investment income, net of investment expenses			3,915,041				8,461,146
Total revenues			1,224,134,032				962,438,157
Expenses:
Medical			979,263,665				768,908,253
General and administrative			160,462,720				131,687,788
Depreciation and amortization			38,461,435				47,748,464
Interest expense			8,716,295				9,711,901
Total expenses			1,186,904,115				958,056,406
Income from operations			37,229,917				4,381,751
Other income (expense):
(Loss) gain on disposal of fixed assets			(309,972	)			6,088
Income before provision for income taxes			36,919,945				4,387,839
Provision for income taxes			16,751,884				2,337,981
Net income		$	20,168,061			$	2,049,858

See accompanying notes.

Bravo Health, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

																																																						Accumulated
		Number of Shares																																																				Other
						Convertible																																								Additional								Comprehensive								Total
		Common				Preferred				Common				Preferred Stock																																Paid-In				Note				(Loss)				Accumulated				Stockholders’
		Stock				Stock				Stock				Series A				Series B				Series C				Series D				Series E				Series F				Series G				Series H				Capital				Receivable				Income				Deficit				Equity
Balance at December 31, 2007		$	12,949,564			$	124,054,564			$	129,496			$	5,038			$	68,981			$	11,853			$	2,475			$	49,192			$	329,044			$	474,224			$	299,740			$	153,786,105			$	(649,526	)		$	(283,042	)		$	(26,392,317	)		$	127,831,263
Exercise of stock incentives			692,418				—				6,924				—				—				—				—				—				—				—				—				188,606				—				—				—				195,530
Share-based compensation			—				—				—				—				—				—				—				—				—				—				—				624,000				—				—				—				624,000
Cumulative adjustment upon adoption of FASB guidance regarding uncertainty in income taxes			—				—				—				—				—				—				—				—				—				—				—				—				—				—				(24,440	)			(24,440	)
Other comprehensive income:
Unrealized loss on securities, net			—				—				—				—				—				—				—				—				—				—				—				—				—				(759,876	)			—				(759,876	)
Change in fair value of interest rate swap, net			—				—				—				—				—				—				—				—				—				—				—				—				—				(649,096	)			—				(649,096	)
Net income			—				—				—				—				—				—				—				—				—				—				—				—				—				—				2,049,858				2,049,858
Balance at December 31, 2008			13,641,982				124,054,564				136,420				5,038				68,981				11,853				2,475				49,192				329,044				474,224				299,740				154,598,711				(649,526	)			(1,692,014	)			(24,366,899	)			129,267,239
Exercise of stock incentives			233,570				—				2,336				—				—				—				—				—				—				—				—				145,573				—				—				—				147,909
Share-based compensation			—				—				—				—				—				—				—				—				—				—				—				925,000				—				—				—				925,000
Repayment of note receivable			—				—				—				—				—				—				—				—				—				—				—				—				649,526				—				—				649,526
Other comprehensive income:
Unrealized gain on securities, net			—				—				—				—				—				—				—				—				—				—				—				—				—				1,535,353				—				1,535,353
Change in fair value of interest rate swap, net			—				—				—				—				—				—				—				—				—				—				—				—				—				871,649				—				871,649
Net income			—				—				—				—				—				—				—				—				—				—				—				—				—				—				20,168,061				20,168,061
Balance at December 31, 2009		$	13,875,552			$	124,054,564			$	138,756			$	5,038			$	68,981			$	11,853			$	2,475			$	49,192			$	329,044			$	474,224			$	299,740			$	155,669,284			$	—			$	714,988			$	(4,198,838	)		$	153,564,737

See accompanying notes.

Bravo Health, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

		Year Ended December 31
		2009				2008
Operating activities
Net income		$	20,168,061			$	2,049,858
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on disposal of fixed assets			309,972				(6,088	)
Depreciation			5,933,782				3,946,816
Amortization			32,527,653				43,801,648
Non-cash income tax benefit			(7,079,783	)			(11,011,176	)
Non-cash interest expense			1,416,328				2,233,421
Share-based compensation			925,000				624,000
Changes in assets and liabilities:
Increase in accounts receivable, net			(69,201,263	)			(33,715,341	)
Decrease in other receivables, net			1,200,472				792,973
Increase in other current assets			(1,442,310	)			(115,593	)
Increase in restricted cash			(631,198	)			(1,146,487	)
Increase in medical claims payable			3,923,680				45,570,700
Increase in other medical liabilities			928,869				2,989,698
Increase (decrease) in Part D funds held for the benefit of others — risk corridor payable and other insured amounts			6,281,020				(6,301,600	)
Increase in accounts payable and accrued expenses, including salaries and benefits			9,422,863				11,476,637
Net cash provided by operating activities			4,683,146				61,189,466
Investing activities
Net purchases of fixed assets			(11,623,644	)			(7,891,521	)
Proceeds from sales and maturities of investments			31,111,742				48,884,092
Purchases of investments			(28,284,402	)			(52,936,122	)
Net cash used in investing activities			(8,796,304	)			(11,943,551	)
Financing activities
(Decrease) increase in short-term borrowings			(15,257,855	)			15,257,855
Increase (decrease) in Part D funds held for the benefit of others — amounts advanced from CMS			14,714,361				(73,616,244	)
Net proceeds from issuance of stock			147,909				195,530
Borrowings under line of credit			8,000,000				5,000,000
Proceeds from note receivable			649,526				—
Debt issuance costs			—				(2,033,887	)
Principal payments on debt and capital leases			(14,870,014	)			(1,904,074	)
Net cash used in financing activities			(6,616,073	)			(57,100,820	)
Net decrease in cash and cash equivalents			(10,729,231	)			(7,854,905	)
Cash and cash equivalents, beginning of year			112,366,645				120,221,550
Cash and cash equivalents, end of year		$	101,637,414			$	112,366,645
Supplemental cash flow information
Cash paid for interest		$	7,523,038			$	7,151,450
Cash paid for income taxes		$	24,858,024			$	6,167,000
Non-cash financing activity
Increase in capital lease obligations		$	59,173			$	394,068

See accompanying notes.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2009

1. Organization

Bravo Health, Inc. (the Company) was incorporated in the State of Delaware in June 1995. The Company’s primary focus is the operation of Medicare Advantage health plans and stand-alone Medicare prescription drug plans through its wholly owned subsidiaries.

During 2000, the Company established a wholly owned subsidiary, Bravo Health Mid-Atlantic, Inc. (BHMA). BHMA was granted a license by the Maryland Insurance Administration (MIA) to operate as a health maintenance organization in the State of Maryland on December 1, 2000, and began contracting directly with the Centers for Medicare and Medicaid Services (CMS) as a Medicare+ Choice (now Medicare Advantage) health plan effective as of January 1, 2001.

Effective January 1, 2002, the Company entered into a global at-risk capitation agreement in the Philadelphia, Pennsylvania market with QualMed Plans for Health, Inc., subsequently known as Health Net of Pennsylvania, Inc. (HNPA), a wholly owned subsidiary of Health Net, Inc. As part of this agreement, the Company assumed most managed care functions for HNPA’s Medicare member population. This agreement terminated effective December 1, 2002 when Bravo Health Pennsylvania, Inc. (BHPA) was granted a license on November 25, 2002 by the Pennsylvania Department of Insurance (PA DOI) to operate as a health maintenance organization in the Commonwealth of Pennsylvania. Effective December 18, 2002, BHPA began to contract directly with CMS as a Medicare+ Choice (now Medicare Advantage) health plan.

During 2005, the Company established a wholly owned subsidiary, Bravo Health Texas, Inc. (BHTX). BHTX was granted a license on April 4, 2005 by the Texas Department of Insurance (TDI) to operate as a health maintenance organization in the State of Texas. BHTX entered into a contract with CMS as a Medicare Advantage health plan and in the third quarter of 2005 enrolled its first members.

During 2006, the Company established a wholly owned subsidiary, Bravo Health Insurance Company, Inc. (BHIC). BHIC was granted a license to transact the business of life, including health and annuities, insurance by the Delaware Department of Insurance (DDI) on September 22, 2006, and enrolled its first members in January 2007. BHIC is presently qualified to do business as a foreign insurer in several other states.

During 2008, the Company established a wholly owned subsidiary, Bravo Health California, Inc. (BHCA). BHCA had no operations in 2009 or 2008. During 2009, the Company established a wholly owned subsidiary, Managed Care Services, LLC (MCS) to provide administrative services for certain physician practices that provide or will provide services exclusively for Bravo Health members.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. The estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, BHMA, BHPA, BHTX, BHIC, BHCA, and MCS.

The accompanying consolidated financial statements also include the accounts of variable interest entities (VIEs) of which the Company is the primary beneficiary. The Company holds interests in certain physician practices that are considered VIEs due to the fact that all of the physician practices’ revenue is derived from the Company’s subsidiaries. In accordance with accounting principles generally accepted in the United States as of December 31, 2009, the entity that holds a majority of the variable interests in a VIE is deemed to be the primary beneficiary and therefore to control the entity. The net loss of all VIEs was $(1,063,036) for the year ended December 31, 2009.

All intercompany transactions, including the intercompany transactions with consolidated VIEs, have been eliminated.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, other receivables, other current assets, medical claims payable, Part D funds held for the benefit of others, accounts payable and accrued expenses, accrued salaries and benefits and capital leases approximate fair value, given the short-term nature of these financial instruments.

Although the Company’s long-term debt and revolving credit facility have variable interest rates, the Company is not able to determine the fair value of these obligations since there are no quoted market prices for these instruments and the potential impact associated with current market conditions cannot be quantified at this time.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents and Short-Term Borrowings

Cash and cash equivalents include amounts invested in accounts with depository institutions that are readily convertible to cash, with original maturities of three months or less. Cash balances are principally uninsured and are subject to normal credit risk. In accordance with the Company’s cash management policy of maximizing the amount of funds invested in income-earning assets, the Company routinely anticipates the timing and amount of future cash flows. This policy frequently results in the existence of negative book cash balances, which are reflected as short-term borrowings in the accompanying consolidated financial statements.

As of December 31, 2009 and 2008, the Company had cash equivalents of $81,682,018 and $112,363,472, respectively, of which $39,818,963 and $45,371,183, respectively, was in a money market fund held by one financial institution.

Restricted Cash

Restricted cash as of December 31, 2009 and 2008 on the accompanying consolidated balance sheets is $3,602,041 and $2,970,843, respectively, which the Company is required to hold on deposit with several state insurance departments.

Accounts Receivable

Accounts receivable consist of the following:

		December 31
		2009				2008
Medicare premium receivables (primarily risk score settlements)		$	58,537,943			$	24,280,321
Pharmacy rebates			34,647,315				23,110,723
Part D program (subsidies, risk sharing and premiums)			22,776,179				18,024,896
Other			707,336				1,048,932
			116,668,773				66,464,872
Allowance for doubtful accounts			(1,978,018	)			(2,659,900	)
Total		$	114,690,755			$	63,804,972

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Accounts receivable are comprised of unpaid amounts earned from managed care capitation contracts with CMS, drug cost rebates due from the Company’s pharmacy benefit manager, net amounts due from other health plans for drug claims paid by the Company on their behalf, and amounts due related to the Part D program. All of these accounts receivable are recorded during the period the Company is obligated to provide services.

Provision is made for amounts considered uncollectible and/or potential adjustments, which arise as a result of review by management or a third party.

Property and Equipment

Property and equipment, consisting of land, a building, furniture and equipment, hardware, software, leasehold improvements and voice and data networks, are recorded at cost and are depreciated using the straight-line method over their estimated useful lives, which range from one to thirty-nine years. The Company periodically assesses the carrying value of these fixed assets for purposes of determining any asset impairment.

Deferred Financing Costs

Costs related to the issuance of long-term debt are deferred and are amortized over the life of the related debt using the effective interest method.

Investments

The Company invests primarily in U.S. Treasury and agency securities, corporate bonds, and mortgage-backed securities, and classifies all of its investments as available-for-sale. Debt securities are carried at estimated fair value. See Note 8 for additional fair value disclosure. Investments with original maturities in excess of three months and less than one year are classified as short-term investments. Long-term investments have original maturities in excess of one year.

Investment income is recognized when earned and reported net of investment expenses. Temporary declines in investment values are included in unrealized gains and losses and are reported as a separate component of accumulated other comprehensive income (loss) until realized. Realized gains or losses on the sale of investments and for other-than-temporary declines in value are determined on a specific-identification basis and are included in the consolidated statements of operations.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

The Company periodically evaluates whether any declines in the fair value of investments are other than temporary. This evaluation consists of a review of several factors, including but not limited to: the length of time and the extent to which the fair value has been less than cost; the intent and ability of the Company to hold the security until the market value recovers; adverse financial conditions of a specific issuer, segment, or industry; a rating agency downgrade of a debt security; and the financial condition of the issuer. Prior to April 1, 2009, any decline in fair value below amortized cost that was judged to be other than temporary was accounted for as a realized loss. As of April 1, 2009, the FASB issued, and the Company adopted, guidance for recognition and presentation of other-than-temporary impairment (OTTI). Under the OTTI guidance, any credit-related impairment of fixed maturity securities that the Company does not intend to sell, and is not likely to be required to sell, is recognized in the consolidated statements of operations, with the noncredit-related impairment recognized in other comprehensive income.

For fixed maturity securities, a critical component of the evaluation for OTTI is the identification of credit-impaired securities, where the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. The difference between the present value of projected future cash flows expected to be collected and the amortized cost basis is recognized as credit-related OTTI in the consolidated statements of operations. If fair value is less than the present value of projected future cash flows expected to be collected, the portion of OTTI related to other than credit factors is recorded in other comprehensive income.

Derivative Financial Instruments

All investments in derivatives are recorded as assets or liabilities at fair value. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. The Company utilizes derivative financial instruments to manage its interest rate risks associated with variable rate debt. The Company does not hold or issue derivative financial instruments for trading purposes.

All derivative instruments are recognized as assets or liabilities in the consolidated balance sheets and measured at fair value. On the date the derivative contract is entered into, the Company may designate the derivative as either a hedge of the fair value of a recognized or forecasted liability (fair or forecasted value hedge) or a hedge of the variability of cash flows to be received or paid related to a recognized liability (cash flow hedge), provided the derivative instrument meets certain criteria related to its effectiveness. Derivatives not designated as hedges or not meeting effectiveness criteria are carried at fair value with changes in the fair value recognized in results of operations. The Company classifies cash flows from derivatives as cash flows from operating activities in the consolidated statements of cash flows.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

The Company formally documents all hedge relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific liabilities on the balance sheet. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Changes in the fair value of derivative instruments are included in or excluded from results of operations depending on the use of the derivative and whether it qualifies for hedge accounting. Changes in the fair value of a derivative that is designated as a cash flow hedge are excluded from the results of operations to the extent that the hedge is effective until the results of operations are affected by the variability of cash flows in the hedged transaction. Changes in the fair value that relate to ineffectiveness are included in the results of operations as interest expense.

Credit exposure associated with nonperformance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to instruments recognized in the consolidated balance sheets. The Company attempts to mitigate the risk of nonperformance by selecting counterparties with high credit ratings and monitoring their creditworthiness.

Revenue Recognition

Managed care capitation payments are received monthly from CMS and are recognized as revenue during the period in which the Company is obligated to provide services to members. Premium revenue is recognized and earned on a monthly basis for the period the health care coverage is in effect.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

The Company experiences adjustments to its managed care capitation and premium revenue based on member retroactivity, which reflect changes in the number and eligibility status of enrollees subsequent to when revenue is billed. The Company estimates the amount of outstanding retroactivity each period and adjusts premium revenue accordingly. The estimates of retroactivity adjustments are based on premiums billed, the volume of member and contract renewal activity, and other information. The Company refines its estimates and methodologies based upon actual retroactivity experienced.

The Medicare Part D program (Part D), which provides beneficiaries access to prescription drug coverage, took effect January 1, 2006. The Company has been awarded contracts by CMS to offer Part D plans in various states, in accordance with guidelines established by CMS. Payments from CMS under these contracts include amounts for premiums, amounts for risk corridor adjustments and amounts for reinsurance and low-income cost subsidies.

The Company recognizes Part D premium revenue ratably over the contract period for providing insurance coverage. Regarding the CMS risk corridor provision, an estimated risk sharing receivable or payable is recognized based on activity-to-date. Activity for CMS risk sharing is accumulated at the contract level and recorded within the consolidated balance sheets in accounts receivable or Part D funds held for the benefit of others depending on the net contract balance at the end of the reporting period with corresponding adjustments to premium revenue. Costs for covered prescription drugs are expensed as incurred.

Subsidy amounts received for reinsurance and for cost sharing related to low-income individuals that differ from paid claims result in accounts receivable or Part D funds held for the benefit of others. The Company does not recognize premium revenue or medical claims expense for these subsidies because the Company does not incur any risk related to this part of Part D.

A reconciliation of the final risk sharing, low-income subsidy, and reinsurance subsidy amounts is performed following the end of the Part D contract year. As of December 31, 2009, the Company’s net CMS risk corridor receivable was $631,280 and the net subsidy amounts receivable totaled $9,298,552. The Company expects these amounts to be settled with CMS during 2010. As of December 31, 2008, the Company’s net CMS risk corridor receivable was $3,746,155 and the net subsidy amounts receivable totaled $3,763,171. The 2008 amounts were settled in 2009 for amounts that approximated management’s estimates.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Additionally, the Company’s Medicare premium revenue is adjusted periodically to give effect to a risk component. In the Balanced Budget Act of 1997, Congress created a rate-setting methodology that included a provision requiring CMS to implement a risk adjustment payment system for Medicare health plans. The risk adjustment methodology uses health status indicators to improve the accuracy of payments and establish incentives for plans to enroll and treat less healthy Medicare beneficiaries. Under the risk adjustment methodology, managed care plans must capture, collect, and submit diagnosis code information to CMS. After reviewing submissions, CMS adjusts the payments to Medicare Advantage health plans generally at the beginning of the calendar year and during the third quarter and then issues a final payment in a subsequent year. As of December 31, 2009 and 2008, the Company has recorded net receivables from CMS of $59,368,181 and $21,286,485, respectively, related to this risk adjustment within accounts receivable on the accompanying consolidated balance sheets. The 2008 amount was settled in 2009 for an amount that approximated management’s estimates, and the Company expects settlement of the 2009 amount in 2010.

Medical Expense and Medical Claims Payable

The Company contracts with various health care providers for the provision of certain medical care services to its members. Medical expense includes claims paid by the Company to providers for member services rendered. The Company also compensates certain providers on a capitated basis, and includes an incentive program in some contracts in an effort to appropriately manage inpatient hospital utilization and promote quality care.

The Company records a liability for claims that are expected to be paid after the end of the period for services provided to members during that period. The liability for unpaid claims represents management’s best estimate and is computed in accordance with generally accepted actuarial practices and is based upon authorized health care services and past claims payment experience, together with current factors which, in management’s judgment, require recognition in the calculations. Changes in assumptions for medical and hospital costs, as well as changes in actual experience, will cause these estimates to change in the near term. These estimates are periodically reviewed, and any adjustments are reflected in current operations.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

The following table shows the components of the change in medical claims payable and other medical liabilities:

		Year Ended December 31
		2009				2008
Balance at January 1		$	128,255,931			$	99,945,275
Reported medical costs related to:
Current year			985,221,021				773,593,663
Prior years			(5,957,356	)			(4,685,410	)
Total reported medical costs			979,263,665				768,908,253
Claims paid related to:
Current year			(865,101,838	)			(652,871,062	)
Prior years			(109,309,278	)			(87,726,535	)
Total claims paid			(974,411,116	)			(740,597,597	)
Balance at December 31		$	133,108,480			$	128,255,931

The liability for incurred claims and claim adjustment expenses attributable to insured events of prior years for the years ended December 31, 2009 and 2008 has been adjusted by $(5,957,356) and $(4,685,810), respectively, as a result of actual claims payment, re-estimation of unpaid claims and claim adjustment expenses. The re-estimation of unpaid claims is recorded prospectively as changes in claims payment patterns, membership and utilization trends are identified.

The methodology used in calculating the liability has been consistently applied between years. As of December 31, 2009 and 2008, accrued claim adjustment expenses included above were $4,227,000 and $4,000,000, respectively.

Income Taxes

The Company uses the asset- and liability-based approach of accounting for income taxes. Deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences of revenue and expense items for financial statement and income tax purposes.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Valuation allowances are provided against deferred tax assets when it is determined that it is more likely than not that the assets will not be realized.

Advertising Costs

The Company uses print and other advertising to promote its products. The cost of advertising is expensed as incurred and totaled $11,890,506 and $6,439,388 for the years ended December 31, 2009 and 2008, respectively.

New Accounting Standards

In June 2009, the FASB established the FASB Accounting Standards Codification (ASC), which on July 1, 2009 became the single official source of authoritative, nongovernmental GAAP, superseding existing FASB, AICPA, EITF, and related literature. Prospectively, only one level of authoritative GAAP will exist, excluding the guidance issued by the SEC. All other literature will be non-authoritative. The ASC does not change GAAP but instead reorganizes the U.S. GAAP pronouncements into accounting topics, and displays all topics using a consistent structure. As the ASC does not change GAAP, it did not have a material effect on the Company’s consolidated financial statements.

In May 2009, the FASB issued ASC Topic 855, Subsequent Events, which required the Company to evaluate subsequent events through the date the financial statements are issued. This standard requires an entity to recognize in its financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the balance sheet date (recognized subsequent events) and prohibits an entity from recognizing the effects of subsequent events that provide evidence about conditions that did not exist at the balance sheet date (non-recognized subsequent events). The Company adopted the provisions of this standard as of December 31, 2009. The adoption of this standard did not impact the Company’s consolidated financial position or results of operations.

In April 2009, the FASB issued ASC 320-10-65-1, Transition Related to FASB Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This guidance relates to fixed maturity securities and requires that other-than-temporary impairment losses related to credit deterioration be included in the statements of operations and that losses related to other market factors be included as a component of other comprehensive income. The adoption of this pronouncement did not impact the Company’s consolidated financial position or results of operations. The disclosures required by this update are presented in Note 6, to the consolidated financial statements.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

In April 2009, the FASB issued ASC 820-10-65-4, Transition Related to FASB Staff Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This guidance reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. This update also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. The adoption of this update did not impact the Company’s consolidated financial position or results of operations.

In December 2007, the FASB issued ASC 805-10, Business Combinations, which requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. ASC 805-10 was effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption was prohibited. The Company implemented ASC 805-10 effective January 1, 2009. The potential impact of adopting ASC 805-10 on the Company’s future consolidated financial statements will depend on the magnitude and frequency of the Company’s future acquisitions.

Reclassification

Certain prior-year amounts have been reclassified to conform to current-year presentation. The reclassifications were related to Part D liabilities and receivables that will be settled with CMS. The reclassification reduced accounts receivable and medical claims payable by $20,249,742 as of December 31, 2008. The reclassifications had no impact on 2008 net income or stockholders’ equity at December 31, 2008.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Membership Acquisition

In December 2006, the Company signed an Asset Purchase Agreement to acquire the Medicare line of business of Health Partners of Philadelphia, Inc. (Health Partners) in Philadelphia, Pennsylvania and the surrounding counties. The transaction closed on August 1, 2007. Under the agreement, the Company acquired approximately 22,500 Health Partners Medicare Advantage members for a total purchase price, including transaction costs, of $145,161,330. Additionally, as part of the transaction, the Company entered into multiyear hospital and physician contracts with Temple University Health System, Tenet Health System, University of Pennsylvania Health System, and Jefferson Health System’s Albert Einstein Medical Center and Frankford Hospitals.

The asset purchase agreement between the Company and Health Partners included a final settlement for the calendar year 2007 results. The Company received the settlement of $1,569,635 due from the seller in 2009, which was included in other receivables, net in the accompanying consolidated balance sheets as of December 31, 2008.

As the Company did not acquire a separate and distinct set of business processes and activities from Health Partners, nor did they acquire any of their systems or employees, this acquisition constituted an asset acquisition and not a business combination. As a result of this asset purchase, the Company recorded intangible assets of $145,161,330. The following table lists the assigned value of the intangible assets as of the acquisition date and the associated amortization period:

		Estimated				Amortization
		Fair Value				Period (Years)
Trade name		$	3,443,413				1.4
Provider contracts			49,994,214				4.0
Membership list			91,723,703				7.0
Total intangible assets		$	145,161,330

The membership list will be amortized over seven years utilizing an accelerated method based on the estimated disenrollment rate of the acquired members. The trade name and provider contracts will be amortized on a straight-line basis.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Intangible Assets

The intangible asset values are as follows:

		Gross								Net
		Carrying				Accumulated				Carrying				Amortization
		Amount				Amortization				Amount				Period (Years)
December 31, 2009
Trade name		$	3,443,413			$	(3,443,413	)		$	—				1.4
Provider contracts			49,994,214				(30,204,837	)			19,789,377				4.0
Membership lists			91,723,703				(63,726,792	)			27,996,911				7.0
Total intangible assets		$	145,161,330			$	(97,375,042	)		$	47,786,288
December 31, 2008
Trade name		$	3,443,413			$	(3,443,413	)		$	—				1.4
Provider contracts			49,994,214				(17,706,283	)			32,287,931				4.0
Membership lists			91,723,703				(43,697,693	)			48,026,010				7.0
Total intangible assets		$	145,161,330			$	(64,847,389	)		$	80,313,941

Intangible amortization expense for the year ended December 31, 2009 was $32,527,653 and 2008 was $43,801,648. Estimated intangible amortization expense is $25.8 million for the year ending December 31, 2010, $15.4 million for the year ending December 31, 2011, $4.2 million for the year ending December 31, 2012, $1.9 million for the year ending December 31, 2013 and $0.5 million for the year ending December 31, 2014. The weighted-average amortization period remaining at December 31, 2009 is approximately 1.1 years for the intangible assets.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for recoverability is made using an estimate of the undiscounted expected future cash flows compared to the asset’s carrying value. An impairment loss would be recognized when the estimated undiscounted cash flows is less than the carrying amount of the asset. An impairment loss would be measured as the amount that the carrying value exceeds the asset’s fair value.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Property and Equipment

Property and equipment consists of the following:

		December 31
		2009				2008				Useful Life
Land		$	268,734			$	—				N/A
Building and improvements			3,082,702				—			39 years
Furniture and equipment			3,905,392				2,380,606			10 years
Hardware, software, and voice and data networks			26,772,938				26,057,125			5—10 years
Leasehold improvements			1,524,077				1,065,371			15 years
Construction in progress			1,213,938				—				N/A
			36,767,781				29,503,102
Less accumulated depreciation and amortization			(11,052,815	)			(10,071,576	)
		$	25,714,966			$	19,431,526

Depreciation expense was $1,189,310 in 2009 and $984,720 in 2008. Amortization expense on leased assets and leasehold improvements was $1,234,545 in 2009 and $681,538 in 2008, and amortization expense on computer software was $3,509,927 in 2009 and $2,280,558 in 2008. Capitalized costs related to the internal development of software of $12,143,888 and $10,275,372 are reported in hardware, software and voice and data networks and construction in progress as of December 31, 2009 and 2008, respectively. The unamortized balance of capitalized costs related to the internal development of software is $9,240,611 and $9,463,391 as of December 31, 2009 and 2008, respectively.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. Investments

The Company’s short-term and long-term investments consist of the following:

		Amortized				Unrealized				Unrealized
		Cost				Gain				Loss				Fair Value
December 31, 2009
Debt securities issued by the U.S. Treasury and other U.S. government agencies		$	27,477,919			$	611,604			$	—			$	28,089,523
Corporate debt securities			44,306,003				1,555,047				(21,547	)			45,839,503
Residential mortgage-backed securities			13,282,190				394,808				(197,971	)			13,479,027
Commercial mortgage-backed securities			3,643,677				43,861				(462	)			3,687,076
Total investments		$	88,709,789			$	2,605,320			$	(219,980	)		$	91,095,129
December 31, 2008
Debt securities issued by the U.S. Treasury and other U.S. government agencies		$	36,093,373			$	1,376,604			$	(8,483	)		$	37,461,494
Corporate debt securities			31,727,377				289,753				(348,064	)			31,669,066
Residential mortgage-backed securities			17,674,365				209,512				(1,097,958	)			16,785,919
Commercial mortgage-backed securities			7,463,375				470				(523,858	)			6,939,987
Total investments		$	92,958,490			$	1,876,339			$	(1,978,363	)		$	92,856,466

The amortized cost and fair value of fixed maturity securities, by contractual maturity, are shown below. Expected maturities may be less than contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

		Amortized
		Cost				Fair Value
December 31, 2009
Due in one year or less		$	15,433,927			$	15,674,459
Due after one year through five years			54,602,869				56,520,947
Due after five years through ten years			1,747,126				1,733,620
Due after ten years			—				—
Mortgage-backed securities			16,925,867				17,166,103
Total available-for-sale fixed maturity securities		$	88,709,789			$	91,095,129

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. Investments (continued)

Proceeds from the sale of investments in bonds were $25,285,125 and $25,199,077 for the years ended December 31, 2009 and 2008, respectively.

Gross investment gains of $104,988 and gross investment losses of $636,173 were realized on sales of investments for the year ended December 31, 2009, and are recorded within investment income on the accompanying consolidated statements of operations. Gross investment gains of $465,371 and gross investment losses of $495,573 were realized on sales of investments for the year ended December 31, 2008.

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2009 and 2008:

		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2009
Corporate debt securities		$	2,919,546			$	(21,547	)		$	—			$	—			$	2,919,546			$	(21,547	)
Residential mortgage- backed securities			415,703				(10,831	)			1,287,953				(187,140	)			1,703,656				(197,971	)
Commercial mortgage- backed securities			772,470				(462	)			—				—				772,470				(462	)
Total investments		$	4,107,719			$	(32,840	)		$	1,287,953			$	(187,140	)		$	5,395,672			$	(219,980	)
December 31, 2008
Debt securities issued by the U.S. Treasury and other U.S. government agencies		$	1,800,222			$	(8,483	)		$	—			$	—			$	1,800,222			$	(8,483	)
Corporate debt securities			15,268,786				(330,715	)			357,308				(17,349	)			15,626,094				(348,064	)
Residential mortgage- backed securities			3,659,659				(1,092,777	)			423,018				(5,181	)			4,082,677				(1,097,958	)
Commercial mortgage- backed securities			6,905,189				(523,858	)			—				—				6,905,189				(523,858	)
Total investments		$	27,633,856			$	(1,955,833	)		$	780,326			$	(22,530	)		$	28,414,182			$	(1,978,363	)

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. Investments (continued)

Our fixed maturity investment portfolio is sensitive to interest rate fluctuations, which impact the fair value of individual securities. Accordingly, unrealized losses on the Company’s fixed maturity securities reported above were generally caused by the effect of the interest rate environment and widening of credit spreads on certain securities. Based on our review of various factors, we do not believe the unrealized losses represent an other-than-temporary impairment for the years ended December 31, 2009 and 2008.

During the years ended December 31, 2009 and 2008, the Company recognized a charge of $491,588 and $494,084, respectively, related to three and four securities, respectively, within investment income on the consolidated statements of operations, for other-than-temporary impairment of investment securities. The Company evaluates its investment securities for otherthan-temporary declines in value based on quantitative and qualitative factors. The OTTI was determined based upon expected cash flows from the underlying individual securities. The difference was solely related to credit loss; therefore, there was no other noncredit component recognized within accumulated other comprehensive income. In analyzing individual securities for other-than-temporary impairments, the Company considers factors affecting the issuer, factors affecting the industry the issuer operates within, and the general debt and equity market trends. The Company also considers the length of time an investment’s fair market value has been below its carrying value, the severity of the decline, the prospects for recovery of amortized cost, and the Company’s decision to sell or whether the Company would be required to sell the security.

Upon the adoption of the OTTI guidance discussed in Note 2, the Company evaluated securities held at April 1, 2009 for which a previous OTTI was recognized, and reviewed whether the OTTI previously recognized included a noncredit component. The Company concluded that all of the OTTI recorded was related to credit loss and therefore there was no cumulative impact of the adoption of the OTTI guidance.

The Company continues to review its investment portfolios under its impairment review policy. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional other-than-temporary impairments may be recorded in future periods.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Debt

Long-term debt consists of the following:

		December 31
		2009				2008
Term loan		$	87,975,000			$	88,875,000
Borrowings under line of credit			—				5,000,000
Promissory note			—				217,825
Total long-term debt			87,975,000				94,092,825
Less current portion of long-term debt			(900,000	)			(6,117,825	)
Less unamortized discount			(632,283	)			(1,137,108	)
Long-term debt, less current portion		$	86,442,717			$	86,837,892

On August 1, 2007, the Company entered into a senior credit facility, or the facility, with certain lenders. The facility includes a Term Loan of $90.0 million and a Revolving Credit Facility of $8.5 million. The Term Loan matures on August 1, 2013 and the Revolving Credit Facility matures on August 1, 2012. The proceeds from the Term Loan were used to fund the Health Partners acquisition. The Term Loan was issued at a discount of $2,700,000, and the Company incurred debt issuance costs of $2,519,771 in connection with the facility.

On November 13, 2008, the facility was amended to increase the Revolving Credit Facility from $8.5 million to $28.5 million, of which $25 million has been pledged to date. The Company incurred costs of $2,033,887 in connection with the amendment.

The facility requires compliance with leverage and interest coverage ratios, and contains certain covenants and restrictions regarding additional debt, dividends or other restricted payments, and mergers and consolidations. In addition, the facility calls for mandatory prepayments of the commitment, beginning with the year ended December 31, 2008, based on cash flow in excess of a defined threshold. There were no mandatory prepayments made during 2009 and 2008 as the Company did not exceed the defined cash flow threshold. As of December 31, 2009 and 2008, the Company was in compliance with the applicable covenants under the facility.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Debt (continued)

Borrowings under the Term Loan and Revolving Credit Facility (the Credit Agreement) are both guaranteed and collateralized by substantially all of the assets of Bravo Health, Inc. None of the Restricted Subsidiaries (as defined in the Credit Agreement), namely, as of the date of these financial statements, BHPA, BHMA, BHTX, and BHIC, guarantee repayment of the indebtedness owing under the Credit Agreement and none of the assets of the Restricted Subsidiaries have been pledged as collateral to secure repayment of indebtedness owing under the Credit Agreement.

The Term Loan and the Revolving Credit Facility bear interest at a spread in excess of either (1) the one-, two-, three-, six-, or twelve-month rate for Eurodollar deposits (Eurodollar Rate) or (2) the greater of the Prime Rate or the federal funds rate plus 0.5% (Base Rate), as selected by the Company. The spread is equal to 4.00% for Eurodollar Rate advances and 3.00% for Base Rate advances. There were no amounts outstanding under the Revolving Credit Facility as of December 31, 2009. The amount outstanding under the Revolving Credit Facility was $5,000,000 as of December 31, 2008. The Revolving Credit Facility has a commitment fee of 0.625% of the outstanding balance.

During 2006, the Company entered into a Promissory Note Agreement (the Note) with a financial institution to fund certain capital equipment purchases. The Note was repaid during 2009, and had a balance of $217,825 as of December 31, 2008.

Interest expense incurred under the Term Loan and the Note was $4,382,872 and $6,237,710 for the years ended December 31, 2009 and 2008, respectively.

As of December 31, 2009, the aggregate maturities of debt based on their contractual terms, excluding mandatory prepayments and the borrowing under the line of credit, are as follows:

2010		$	900,000
2011			900,000
2012			900,000
2013			85,275,000
		$	87,975,000

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Debt (continued)

In September 2007, the Company entered into a forward-starting swap transaction to hedge the total changes in interest cash outflows on the Term Loan. A notional amount of $89,775,000 has been swapped to a counter party in exchange for a fixed interest rate commitment of 4.74% per annum. This agreement became effective on September 28, 2007 and will terminate on September 30, 2011. The notional amount declines throughout the term of the agreement and was $36,042,108 and $64,178,159 as of December 31, 2009 and 2008, respectively.

The interest rate swap qualifies as, and is designated as, a cash flow hedge. Changes in the fair value of the swap that effectively offset the variability of cash flows associated with the variable rate debt obligation are excluded from the results of operations and are reported as a component of other comprehensive income (loss) in the consolidated statements of stockholders’ equity. As the swap was fully effective for the year ended December 31, 2009, the Company did not recognize any interest expense related to ineffectiveness.

The fair market value of the interest rate swap is shown as an interest rate swap liability on the accompanying consolidated balance sheets in the amount of $1,126,715 and $2,467,714 as of December 31, 2009 and 2008, respectively. The fair market value calculation at December 31, 2009 includes a credit value adjustment (CVA) as required by ASC 820, which reflects the credit risk associated with an exit value. At December 31, 2009 and 2008, the valuation of the interest rate swap agreements was reduced by $35,537 and $279,654, respectively, when applying the CVA. The change in the fair market value of the swap is recorded in accumulated other comprehensive income (loss) as the swap is designated as an effective hedge.

In September 2009, the Company entered into an interest rate cap transaction to hedge the total changes in interest cash outflows on the Term Loan. The Company paid a fixed premium amount of $49,800 and will receive payments of the notional amount multiplied by the excess, if any, of LIBOR over 4.50% (the Capped Rate) for a defined period. This agreement became effective on September 30, 2009 and will terminate on September 30, 2011. The notional amount, which was $1,051,000 at inception and increases to a maximum of $17,495,000 throughout the term of the agreement, was $7,946,000 as of December 31, 2009.

The interest rate cap qualifies as, and is designated as, a cash flow hedge. Changes in the fair value of the cap that effectively offset the variability of cash flows associated with the variable rate debt obligation are excluded from the results of operations and are reported as a component of other comprehensive income (loss) in the consolidated statements of stockholders’ equity.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy as defined by FASB guidance, which prioritizes the inputs used in measuring fair value, is as follows:

•

Level 1 — Quoted (unadjusted) prices for identical assets or liabilities in active markets

•

Level 2 — Other observable inputs, either directly or indirectly, including:

	•		Quoted prices for similar assets/liabilities in active markets;
	•		Quoted prices for identical or similar assets in non-active markets (few transactions, limited information, non-current prices, high variability over time);
	•		Inputs other than quoted prices that are observable for the asset/liability (e.g. interest rates, yield curves, volatilities, or default prices); and
	•		Inputs that are derived principally from or corroborated by other observable market data

•

Level 3 — Unobservable inputs that cannot be corroborated by observable market data

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset. Management is responsible for the determination of fair value, and performs monthly analysis on the prices received from third parties to determine whether the prices appear to be reasonable estimates of fair value.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Fair Value Measurements (continued)

The following table presents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis:

						Quoted Prices				Significant
						in Active				Other				Significant
						Markets for				Observable				Unobservable
		Total Fair				Identical Assets				Inputs				Inputs
		Value				(Level 1)				(Level 2)				(Level 3)
December 31, 2009
Available-for-sale securities:
Debt securities issued by the U.S. Treasury and other U.S. government agencies		$	31,691,564			$	31,691,564			$	—			$	—
Corporate debt securities			45,839,503				—				45,839,503				—
Residential mortgage-backed securities			13,479,027				—				13,479,027				—
Commercial mortgage-backed securities			3,687,076				—				3,687,076				—
Total available-for-sale securities			94,697,170				31,691,564				63,005,606				—
Cash and cash equivalents			101,637,414				101,637,414				—				—
Derivative instruments			(1,109,671	)			—				(1,109,671	)			—
Total		$	195,224,913			$	133,328,978			$	61,895,935			$	—

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Fair Value Measurements (continued)

						Quoted Prices				Significant
						in Active				Other				Significant
						Markets for				Observable				Unobservable
		Total Fair				Identical Assets				Inputs				Inputs
		Value				(Level 1)				(Level 2)				(Level 3)
December 31, 2008
Available-for-sale securities:
Debt securities issued by the U.S. Treasury and other U.S. government agencies		$	40,432,337			$	40,432,337			$	—			$	—
Corporate debt securities			31,669,066				—				31,669,066				—
Residential mortgage-backed securities			16,785,919				—				16,785,919				—
Commercial mortgage-backed securities			6,939,987				—				6,939,987				—
Total available-for-sale securities			95,827,309				40,432,337				55,394,972				—
Cash and cash equivalents			112,366,645				112,366,645				—				—
Derivative instruments			(2,467,714	)			—				(2,467,714	)			—
Total		$	205,726,240			$	152,798,982			$	52,927,258			$	—

The Company’s Level 1 securities primarily consist of U.S. Treasury securities and cash and cash equivalents. The Company determines the estimated fair value of its Level 1 securities using quoted (unadjusted) prices for identical assets or liabilities in active markets.

The Company’s Level 2 securities primarily consist of corporate debt securities, residential mortgage-backed securities, commercial mortgage-backed securities and derivative instruments. The Company determines the estimated fair value for its Level 2 securities using the following methods: quoted prices for similar assets/liabilities in active markets, quoted prices for identical or similar assets in non-active markets (few transactions, limited information, non-current prices, high variability over time), inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves volatilities, default rates, etc.), and inputs that are derived principally from or corroborated by other observable market data.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Fair Value Measurements (continued)

The Company’s derivative instruments are reported at fair value, which are derived using valuation models commonly used for derivatives. Valuation models require a variety of inputs including contractual terms, market fixed prices, inputs from forward price yield curves, notional quantities, measures of volatility and correlations of such inputs. Such instruments are typically classified within Level 2 of the fair value hierarchy.

9. Capital Leases

The Company has hardware and software assets under capital leases of $5,364,113 and $5,614,913 as of December 31, 2009 and 2008, respectively, and accumulated amortization of $2,839,659 and $1,695,466 as of December 31, 2009 and 2008, respectively. The following is a schedule, by year and in the aggregate, of the future minimum lease payments under capital leases together with the present value of the net minimum lease payments at December 31, 2009:

2010		$	985,886
2011			905,575
2012			659,988
Total minimum lease payments			2,551,449
Less amount representing interest			(332,179	)
Present value of future minimum lease payments			2,219,270
Less: Current portion			(787,674	)
Present value of future minimum lease payments, less current portion		$	1,431,596

10. Convertible Preferred Stock

Series H Issuance

In July 2007, the Company authorized 55,500,000 and issued 29,973,992 shares of Series H Convertible Preferred Stock (Series H) with a par value of $.01 for approximately $1.65 per share, resulting in proceeds to the Company of $49,178,534, which is net of closing costs of $278,539 incurred in conjunction with the offering. The Series H preferred stock is convertible into one share of common stock at the option of the holder and has liquidation preferences payable pro rata with the Series G and over the Series A through F preferred stock as well as the common stock. However, in order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Convertible Preferred Stock (continued)

Series G Issuances

In October 2004, the Company authorized 47,422,306 and issued 27,098,460 shares of Series G Convertible Preferred Stock (Series G) with a par value of $.01 for approximately $1.10 per share, resulting in proceeds to the Company of $29,823,371, which is net of closing costs of $176,629 incurred in conjunction with the offering. The Series G preferred stock is convertible into one share of common stock at the option of the holder and has liquidation preferences payable pro rata with the Series H and over the Series A through F preferred stock as well as the common stock. However, in order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation.

In August 2007, the Company issued 20,323,846 shares of Series G with a par value of $.01 for approximately $1.11 per share, resulting in proceeds to the Company of $22,500,000. The terms of the additional Series G are identical to those described in the October 2004 transaction above.

In conjunction with the Series G offering, the Company amended its Certificate of Incorporation to provide that the Series C Preferred Stock shall no longer be convertible into shares of common stock but shall instead be redeemable at the request of the Company after October 2007, or upon the closing of an initial public offering of securities by the Company.

Series F Issuances

In December 2001, the Company authorized 10,212,418 and issued 4,493,463 shares of Series F Convertible Preferred Stock with a par value of $.01 for approximately $.49 per share resulting in proceeds to the Company of $2,199,386. The Series F Preferred Stock is convertible to common stock at the option of the holder, with a conversion price of approximately $0.47 per share as of December 31, 2009 and 2008. In order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation.

In April 2002, the Company authorized an additional 12,377,452 and issued 16,053,921 shares of Series F Convertible Preferred Stock (Series F) with a par value of $.01 for approximately $.49 per share resulting in net proceeds to the Company of $7,770,464. The terms of the additional Series F Preferred Stock are identical to those described in the December 2001 transaction above.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Convertible Preferred Stock (continued)

In February 2003, the Company authorized and issued 12,357,025 additional Series F shares at the price of $.49 per share, resulting in net proceeds to the Company of $6,015,870. The rights and preferences of the Series F stockholders remain the same as those rights and preferences of the holders of the Series F shares that were issued in April 2002 and December 2001.

In conjunction with the Series G issuance in October 2004, the number of Series F authorized shares was reduced to the number of issued shares as of the Series G issuance date.

Series A — E Issuances

In April 1999, the Company authorized 6,711,711 and issued 6,669,699 shares of Series E Convertible Preferred Stock (Series E) with a par value of $.01 for approximately $2.86 per share resulting in net proceeds to the Company of $18,707,102, which is net of closing costs of $343,559 incurred in conjunction with the offering. The Series E preferred stock is convertible into one share of common stock at the option of the holder and has liquidation preferences over common stock. However, in order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation. In February 2003, the Company purchased 1,750,516 Series E shares from the Series E investor for $500,000.

In February 1998, the Company authorized 577,558 and issued 247,525 shares of Series D Convertible Preferred Stock (Series D) with a par value of $.01 for approximately $6.06 per share. The Series D preferred stock is convertible into one share of common stock at the option of the holder and has liquidation preferences over common stock. However, in order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation.

In July 1996, the Company authorized 1,800,000 and issued 790,194 shares of Series C Convertible Preferred Stock (Series C) with a par value of $.01 for approximately $2.55 per share resulting in net proceeds to the Company of $2,015,000. In July 1997, the Company issued an additional 395,101 shares of Series C preferred stock for approximately $2.55 resulting in net proceeds to the Company of $1,007,500. The Series C Preferred Stock is no longer convertible to common stock but is redeemable at the request of the Company after October 2007, or upon the closing of an initial public offering of securities by the Company.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Convertible Preferred Stock (continued)

In July 1995, the Company authorized 7,600,000 and issued 4,598,735 shares of Series B Convertible Preferred Stock (Series B) with a par value of $.01 for approximately $1.71 per share resulting in net proceeds to the Company of $7,856,272. In July 1997, the Company issued an additional 2,299,369 shares of Series B preferred stock for approximately $1.71 resulting in net proceeds to the Company of $3,928,139. The Series B preferred stock is convertible into one share of common stock at the option of the holder and has liquidation preferences over common stock. However, in order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation.

In July 1995, the Company authorized 560,000 and issued 503,750 shares of Series A Convertible Preferred Stock (Series A) with a par value of $.01 for approximately $.59 per share resulting in net proceeds to the Company of $299,983. The Series A preferred stock is convertible into one share of common stock at the option of the holder and has liquidation preferences over common stock. However, in order to prevent dilution of the conversion rights, the conversion price may be adjusted subject to the provisions provided by the Company’s Articles of Incorporation.

Holders of common stock are entitled to one vote per share. Holders of convertible preferred stock are entitled to one vote per share of common stock into which their preferred stock is convertible. Holders of convertible preferred stock are entitled to receive cash dividends at the same rate as dividends are paid with respect to the common stock. Dividends are noncumulative, and, since inception, no dividends have been declared.

In conjunction with the Series G issuance, the number of authorized shares for Series A-E was reduced to the number of issued shares as of the Series G issuance date.

11. Share-Based Compensation

Stock Options

In 1995, the Company adopted a stock option plan (the 1995 Plan), which permitted the issuance of up to 1,486,750 shares of common stock to employees, officers, directors, and consultants. The Company’s Board of Directors approved increases to the stock option pool of 500,000 shares in 2001, 2,000,000 shares in 2002 and 958,336 shares in 2003.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Share-Based Compensation (continued)

During 2004, the Company adopted the Bravo Health, Inc. 2004 Stock Incentive Plan (the 2004 Plan). The 2004 Plan is a continuation, amendment and restatement of the 1995 Plan, the provisions of which shall continue with respect to any options or stock awards thereunder.

The 2004 Plan permits the granting of stock options to key individuals (including incentive stock options qualifying under Internal Revenue Code Section 422 and nonstatutory stock options), stock appreciation rights, restricted or unrestricted stock awards, performance awards, or any combination of the foregoing. The purchase price per share of stock deliverable upon the exercise of an option shall be based on fair value as determined by the Board of Directors, provided, however, that in the case of incentive stock options, the strike price of the options must have an exercise price at least equal to the fair market value at the date of the grant. At the time of adoption, the awards granted under the 2004 Plan, including all existing awards under the 1995 Plan, could not exceed an aggregate of 14,059,875 shares. Between January 1, 2006 and December 31, 2009, the Company’s Board of Directors increased the incentive pool to 32,978,600 shares.

Options granted under the 1995 Plan and the 2004 Plan vest over various periods not to exceed five years and expire on dates determined by the Board of Directors. In the case of incentive stock options, rights expire ten years from the day on which the option is granted or five years in the case of the owner holding more than 10% of the combined voting power of all classes of stock. In the case of nonqualified stock options, rights expire in no event after the expiration of ten years plus 30 days from the day on which the option is granted. In either case, rights shall be subject to earlier termination as provided in the Plans.

The Company has elected to use the Black-Scholes-Merton option pricing model and straight-line amortization of compensation expense over the requisite service period of the grant. The Company will reconsider use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Share-Based Compensation (continued)

The following weighted-average assumptions were used for option grants:

		2009		2008
Dividend yield		0.0%		0.0%
Expected volatility		50.0% – 55.0%		45.0% – 55.0%
Expected term		6 – 6.5 years		5 – 6.5 years
Risk-free interest rates		2.67% – 3.59%		2.28% – 3.89%

The Company has not paid dividends on its common shares in the past nor does it expect to pay dividends in the future. As such, the Company used a dividend yield percentage of zero. Additionally, because the Company does not have publicly traded common stock, the expected volatility over the term of the respective grants was based on industry peer information. The expected term assumptions were based on guidance in SEC Staff Accounting Bulletin No. 107, Share-Based Payment, combined with industry peer information. The risk-free rates were based on the rate of treasury securities with the same term as the options on the date of the respective grants.

Given the lack of an active public market for the Company’s common stock, the Company’s determination of the fair value of its common stock requires making complex and subjective judgments. The Company relies upon a contemporaneous valuation completed by an independent third-party valuation specialist. The valuation specialist determines the fair value of the Company’s common stock on a quarterly basis. The valuation is based upon the income approach using a discounted future cash flow approach that uses the Company’s estimates of revenue, driven by market growth rates and estimated costs as well as appropriate discount rates. There is inherent uncertainty in making these estimates. The specialist also considers several factors in the analysis, including (1) its understanding of the history and business operations of the Company; (2) the Company’s overall financial condition and results of operations and (3) economic and capital market trends within the Company’s industry.

In accordance with FASB guidance, the Company recorded $925,000 and $624,000 of stock-based compensation expense included in general and administrative expense in its consolidated statements of operations for the years ended December 31, 2009 and 2008, respectively. The Black-Scholes-Merton weighted-average value of options granted during 2009 and 2008 was $0.47 and $0.45, respectively. As of December 31, 2009 and 2008, there was $3,616,297 and $2,125,928, respectively, of total unrecognized compensation cost (net of expected forfeitures) related to nonvested stock option grants which is expected to be recognized over a weighted-average period of 2.3 years and 2.2 years, respectively.

Bravo Health, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Share-Based Compensation (continued)

Activity in the Company’s stock option plan is as follows:

						Weighted-								Weighted-
						Average								Average
		Options				Exercise				Options				Exercise
		Outstanding				Price				Exercisable				Price
Balance at December 31, 2007			11,600,384			$	0.48				2,992,767			$	0.21
Options granted			3,086,200				0.89				—				—
Options exercised			(692,378	)			0.28				(692,378	)			0.28
Options vested			—				—				2,178,266				0.56
Options forfeited or cancelled			(1,219,215	)			0.42				(91,695	)			0.42
Balance at December 31, 2008			12,774,991				0.59				4,386,960				0.37
Options granted			6,813,734				1.09				—				—
Options exercised			(233,570	)			0.63				(233,570	)			0.63
Options vested			—				—				2,302,629				0.66
Options forfeited or cancelled			(2,347,428	)			0.73				(803,428	)			0.69
Balance at December 31, 2009			17,007,727				0.77				5,652,591				0.43