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EX-23.2 - EXHIBIT 23.2 - Hygea Holdings Corp.ex232.htm
As filed with the Securities and Exchange Commission on January 6, 2012
 Registration No. 333-174252
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO.  3 TO THE
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
HYGEA HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
 
Piper Acquisition II, Inc.
(Former Name of Registrant)

Nevada
      8011         
       30-0532605
   (State or Other Jurisdiction of   
   (Primary Standard Industrial
  (IRS Employer
 Incorporation or Organization)
   Classification Code Number) 
   Identification No.)

Manuel E. Iglesias, Chief Executive Officer and President
Hygea Holdings Corp.
9100 South Dadeland Blvd., Suite 1500
Miami, Florida 33156
786-497-7718
 (Address, including zip code, and telephone number, including area code, of registrant’s Principal Executive Offices)

Manuel E. Iglesias, Chief Executive Officer and President
Hygea Holdings Corp.
9100 South Dadeland Blvd., Suite 1500
Miami, Florida 33156
786-497-7718
 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Please send a copy of all communications to:
Stephen M. Fleming, Esq.
Fleming PLLC
49 Front Street, Suite 206
Rockville Centre, New York 11570
Phone: (516) 833-5034
Fax: (516) 977-1209

Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x

 
 
 
1

 
 

 
 
CALCULATION OF REGISTRATION FEE
 
Title of each class of
securities to be registered
 
Amount to be registered(3)
 
Proposed maximum offering price per unit (1)
 
Proposed maximum aggregate offering price (1)
 
Amount of registration fee
Common Stock, par value $.0001 per share (2)
   
38,594,726
 
$0.11
 
$
4,392,185.07
 
$503.34
 
* $ 503.34 was previously paid.
 
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as amended. 
 
(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act. The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(o). Our common stock is not traded on any national exchange and in accordance with Rule 457 the offering price was determined by the conversion price of our convertible promissory notes sold in a private offering under Rule 506 under Regulation D as promulgated under the Securities Act of 1933, as amended.  The selling security holders may sell their shares at the fixed price of $0.11 until our common stock is quoted on the OTC Bulletin Board at which time the shares may be sold at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with the FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved. There is no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.  In the absence of a trading market or an active trading market, investors may be unable to liquidate their investment or make any profit from the investment.
 
(3) Includes 23,901,222 shares of common stock presently outstanding, 5,137,279 share of common stock  issuable upon conversion of 5% convertible promissory notes and 10,890,454 shares of common stock issuable upon conversion of 10% Convertible Promissory Notes.
 
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine.

 
 
 
 
2

 


 
 
 
The information in this prospectus is not complete and may be changed.  The selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 6, 2012
 
39,928,955 Shares
HYGEA HOLDINGS CORP.
Common Stock
 
This prospectus relates to the public offering of an aggregate of 39,928,955 shares of common stock which may be sold from time to time by the selling shareholders named in this prospectus.  We will not receive any proceeds from the sale by the selling shareholders of their shares of common stock.  We will pay the cost of the preparation of this prospectus, which is estimated at $115,000.
 
Our common stock is presently not traded on any market or securities exchange. The 39,928,955 shares of our common stock may be sold by selling shareholders at a fixed price of $0.11 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices.  There can be no assurance that a market maker will agree to file the necessary documents with The Financial Industry Regulatory Authority (“FINRA”), which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.  We have agreed to bear the expenses relating to the registration of the shares for the selling shareholders.  There is no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.  In the absence of a trading market or an active trading market, investors may be unable to liquidate their investment or make any profit from the investment.
  
Investing in shares of our common stock involves a high degree of risk. You should purchase our common stock only if you can afford to lose your entire investment. See “Risk Factors,” which begins on page 6.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

The selling shareholders have not engaged any underwriter in connection with the sale of their shares of common stock. The selling shareholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices. The selling shareholders may also sell their shares in transaction that are not in the public market in the manner set forth under “Plan of Distribution.”
 
The date of this Prospectus is  __,  2012
 
You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless when the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, our common stock in any jurisdiction in which the offer or sale is not permitted.

 


 
3

 
 

 


 

 TABLE OF CONTENTS

 
Page
Prospectus Summary  
5
Risk Factors
8
Forward-Looking Statements
15
Use of Proceeds
15
Selling Shareholders
16
Plan of Distribution
21
Market for Common Stock and Shareholder Matters
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  24
Business
32
Management
35
Executive Compensation
38
Certain Relationships and Related Transactions
38
Security Ownership of Certain Beneficial Owners and Management
38
Description of Securities
39
Experts
39
Legal Matters
39
How to Get More Information
39
Financial Statements
F-1
Information Not Required in Prospectus
II-1
Exhibit Index
II-3



 
4

 
 


 
PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this Prospectus and may not contain all of the information you should consider before investing in the shares.  You are urged to read this Prospectus in its entirety, including the information under “Risk Factors“, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision.
    
Summary
 
We are a Nevada corporation formed on August 26, 2008 as Piper Acquisition II, Inc.  We changed our name to “Hygea Holdings Corp.” on May 16, 2011.   

Acquisition of Hygea Health Holdings Inc.
 
On May 16, 2011, we entered into a Share Exchange Agreement with the shareholders of Hygea Health Holdings, Inc., a Florida corporation (“Hygea Health”), each of which are accredited investors (“Hygea Health Shareholders”), pursuant to which we acquired 99.9% of the outstanding securities of Hygea Health in exchange for 135,519,336 shares of our common stock (the “Hygea Exchange”).  The Hygea Exchange closed on May 16, 2011, which closing was deemed effective as of December 31, 2010.  Considering that, following the Hygea Exchange, the Hygea Health Shareholders control the majority of our outstanding common stock and we effectively succeeded our otherwise minimal operations to those that are theirs, Hygea Health is considered the accounting acquirer in this reverse-merger transaction.  A reverse-merger transaction is considered, and accounted for as, a capital transaction in substance; it is equivalent to the issuance of Hygea Health securities for our net monetary assets, accompanied by a recapitalization.  We are the surviving and continuing entity and the historical financials following the reverse merger transaction will be those of Hygea Health.  We were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of Hygea Health pursuant to the terms of the Hygea Exchange.  As a result of such acquisition, our operations are now focused on the Integrated Group and Palm Medical.
Business

We are the principal shareholder of Hygea Health owning 99.9% of Hygea Health.  Hygea Health has two principal areas of operations. The first is a network of multidisciplinary integrated medical group practices (“Integrated Group”) with a primary care physician ("PCP") focus. The Integrated Group owns a series of subsidiaries that provide industry related services and which support the integrated group practice business model.  The second focus is Palm Medical Network LLC (“Palm Medical Network”), an independent physician network.   Under Palm Medical Network, we have a series of medical service organizations (“MSOs”) that have entered “at risk” contracts with Medicare Advantage Health Maintenance Organizations (“HMOs”) throughout Florida.
 
Under the Integrated Group, we manage, own and are acquiring physician practices that we incorporate into integrated multidisciplinary group practices. The principal focus is the acquisition of primary care physicians, which includes family practice, internal medicine, clinical cardiology and other primary care concentrated disciplines. We began implementation of our provider rollout strategy with an initial focus on the South and Central Florida markets. The business plans provide for expansion into surrounding states in the Southeast in 2012 and then throughout the U.S. in subsequent years. In addition, we intend to acquire specialty medical and ancillary healthcare service providers (including diagnostic facilities, pharmacies, rehabilitation therapy practices, among others) that will create community-based “medical malls” for more efficient, more comprehensive and better patient care. The management services provided include HMO contracting, physician recruiting, credentialing and contracting, human resources services, claims administration, financial reporting services, provider relations, patient eligibility and related services, pooled back office and front office administration, practice management systems, electronic medical record system, centralized billing, shared facilities, medical management including utilization management and quality assurance, data collection, management information systems and other services that provide scale efficiencies.
 
Through the Palm Medical Network IPA (Independent Physician Association) our Company has focused on building (i) multidisciplinary integrated medical group practices with a primary care physician focus; (ii) healthcare management service organizations that manage and coordinate the medical care of patients enrolled in multiple managed care health plans (i.e., HMOs) and (iii) integrating all aspects of this network with the requisite technology platform that incorporates physician friendly electronic medical records and practice management system services, including scheduling and billing capabilities. Starting in 2009, we have commenced the acquisition process and management contracting with a number of group physician practices including those within the IPA’s approximately 1,600 credentialed physicians. This continues to be our organization-wide focus as we implement our business plan moving forward.
 
We also hold an interest in a medical software company that has deployed an electronic medical records and practice management system (“EMR/PMS”) across multiple physician practices in Florida and the US. This system provides integrated patient record management that is fully automated end-to-end. We have allocated and deployed financial and technical resources to speed the continued implementation and integration of EMR/PMS into additional Company-owned and other physician practice groups throughout the U.S.

The development of our Integrated Group and our Palm Medical Network is subject to a number of risks, uncertainties and obstacles.   These risks include our inability to raise needed financing to maintain or grow our operations, the erosion of our revenue stream as a result of competition, increased expenses resulting from an increased regulatory atmosphere, the failure or delay of third party payors to provide reimbursement for our services, healthcare claims exceeding our reserves and our inability to locate or close acquisitions.  If these events are to occur, our operations may be negatively impacted including our inability to generate additional revenue or maintain our current level of revenue or increased expenses which may result in a decrease in our net income or result in a net loss.
 
Other Pertinent Information

References to “we,” “us,” “our” and similar words refer to the Hygea Holdings Corp. and its subsidiaries unless the context indicates otherwise.  Our corporate headquarters are located at 9100 South Dadeland Blvd., Suite 1500, Miami, Florida 33156. Our telephone number is 786-497-7718.  We presently do not have a website.

 

 
5

 
 


 
The Offering

Common Stock Offered:
 
 
The selling shareholders are offering a total of 39,928,955 shares of common stock, which included 23,901,222 shares of common stock  presently outstanding, 5,137,279 shares of common stock that issuable upon conversion of the 5% convertible promissory notes (the “5% Notes”) and 10,890,454 shares of common stock issuable upon conversion of the 10% convertible promissory notes (the “10% Notes”).  The 5% Notes and the 10% Notes automatically convert on the effective date of this prospectus.   
   
Initial Offering Price:
The selling shareholders will sell our shares at $0.11 per share until our shares are quoted on the OTC Bulletin Board, and thereafter at prevailing market prices or privately negotiated prices. This price was determined arbitrarily by us.
   
Terms of Offering:
The selling shareholders will determine when and how they will sell the common stock offered in this prospectus.
   
Termination of the Offering:
The offering will conclude when all of the 39,928,955 shares of common stock have been sold or we, in our sole discretion, decide to terminate the registration of the shares. We may decide to terminate the registration if it is no longer necessary due to the operation of the resale provisions of Rule 144 promulgated under the Securities Act of 1933. We also may terminate the offering for no reason whatsoever at the discretion of our management team.
   
Outstanding Shares of Common Stock:
164,322,976 shares which includes 148,295,243shares of common stock presently outstanding as well as 16,027,733 shares of common stock issuable upon conversion of Convertible Notes which will automatically convert upon the effective date of this prospectus.
   
Use of Proceeds:
We will receive no proceeds from the sale of any shares by the selling shareholders.
   
Risk Factors:
The purchase of our common stock involves a high degree of risk. You should carefully review and consider "Risk Factors" beginning on page 6.
 

 
 
6

 

 

Summary Financial Information
 
The information at December 31, 2010 and 2009 and for the years then ended has been derived from our audited consolidated financial.  The information at September 30, 2011 and for the quarter then ended has been derived from our unaudited consolidated financial statements.  Our consolidated financial statements appear elsewhere in this prospectus. 

Statement of Operations Information:
 
   
Nine Months Ended September 30, 2011
(unaudited)
   
Year Ended December 31, 2010
(as restated)
   
Year Ended December 31, 2009
(as restated)
 
                   
Revenues
 
$
 
6,594,507
   
$
 
9,795,797
   
$
8,441,652
 
Healthcare expenses
   
 
(4,508,586
)
   
 
(6,855,434
)
   
(5,618,683
)
Gross margin
   
 
2,085,921
     
2,940,363
     
2,822,969
 
Administrative and other operating expenses
   
 
(1,738,063
 )
   
(1,696,949
)
   
(2,799,169
)
Net operating income
   
 
347,858
     
1,243,414
     
23,800
 
Other (expense) income
   
 
(107,724
)
   
33,970
     
(86,190
)
Net income (loss) before income taxes and non-controlling interest
   
 
240,134
     
1,277,384
     
(62,390
)
Income tax (expense) benefit
   
 
(42,919
   
17,961
 
     
-
 
Income attributable to non-controlling interest
   
 
(68,189
)
   
(129,360
)
   
(5,160
)
Net income (loss)
 
$
 
129,026
   
$
1,165,985
   
$
(67,550
)
 
Balance Sheet Information:
 
   
As of
September 30, 2011
(unaudited)
   
As of December 31, 2010
(as restated)
   
As of December 31, 2009
(as restated)
 
                   
Assets
                 
Current assets
 
$
3,711,569
   
$
2,551,089
   
$
292,334
 
Property and equipment, net
   
207,159
     
240,227
     
209,159
 
Other long term assets
   
2,998,620
     
2,944,938
     
2,234,219
 
Total assets
 
$
 
6,917,348
   
$
5,736,254
   
$
2,735,712
 
                         
Liabilities
                       
Current liabilities
 
$
2,612,988
   
$
1,569,259
   
$
963,921
 
Loans payable, non-current
   
501,100
     
765,950
     
-
 
Deferred revenue, non-current
   
-
     
100,000
     
200,000
 
Total liabilities
   
3,114,088
     
2,435,209
     
1,163,921
 
                         
Equity
                       
Preferred Stock
   
 -
     
 -
     
 -
 
Common stock
   
14,830
     
14,830
     
10,195
 
Additional paid-in-capital
   
1,711,579
     
1,711,579
     
977,305
 
Subscription receivable
   
-
     
(305,000
)
   
-
 
Non-controlling interest
   
2,150,849
     
2,082,660
     
1,953,300
 
Accumulated deficit
   
(73,998
)
   
(203,024
)
   
(1,369,009
)
Total equity
   
3,803,260
     
3,301,045
     
1,571,791
 
                         
Total liabilities and equity
 
$
 
6,917,348
   
$
 
5,736,254
   
$
 
2,735,712
 

 
7

 
 
 
RISK FACTORS
 
An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision, and you should only consider an investment in our common stock if you can afford to sustain the loss of your entire investment.  If any of the following risks actually occurs, our business, financial condition or results of operations could suffer.  In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

General Risks
 
We have had minimal revenues from operations and, if we are not able to obtain further financing, we may be forced to scale back or cease operations or our business operations may fail.
 
To date, we have not generated significant income from our operations and we have been dependent on sales of our equity securities to meet the majority of our cash requirements. During our year ended December 31, 2010, we generated $9,795,797 in revenue and had cash on hand of $226,931and a working capital surplus of $981,830 at the end of the calendar year.  During the year ended December 31, 2010, we used $785,758 of cash in operating activities. During our nine months ended September 30, 2011, we generated $6,594,507 in revenue and had cash on hand of $74,458 and a working capital surplus of $1,098,581 at September 30, 2011.  During the nine months ended September 30, 2011, we used $1,223,468 of cash in operating activities. We may never generate positive cash flow from operations, including during the year ending December 31, 2011.  We estimate that we will require approximately $250,000 to $375,000 to carry out our business plan through the end of 2011, which will be dependent upon the number of primary care physician practices acquired during the year, if any. Because we cannot anticipate when we will be able to generate significant revenues from sales, we will need to raise additional funds to continue to develop our business, respond to competitive pressures and to respond to unanticipated requirements or expenses. If we are not able to generate significant revenues, we will not be able to maintain our operations or achieve a profitable level of operations.
 
We derive a substantial portion of our revenue from  CarePlus Health Plans, Inc. and if we are unable to collect our outstanding account receivables, our operations will be negatively impacted.

We derive a substantial portion of our revenue and accounts receivable from CarePlus Health Plans, Inc.  Revenues earned from CarePlus Health Plans, Inc. amounted to $ 8,570,744 and $ 5,832,890 for the years ended December 31, 2010 and 2009, respectively, and $1,838,201 and $5,422,479 for the three and nine months ended September 30, 2011, respectively.  CarePlus Health Plans, Inc. accounts receivables amounted to $1,617,936 and $ 66,717 as of December 31, 2010 and 2009, respectively, and $2,464,100 as of September 30, 2011.  If we are unable to collect our outstanding account receivables with CarePlus Health Plans, Inc., our operations will be negatively impacted.
 
We commenced our business operations in August 2008 and we have a limited operating history. If we cannot successfully manage the risks normally faced by start-up companies, we may not achieve profitable operations and ultimately our business may fail.
 
We have a limited operating history. Our operating activities since our incorporation have consisted primarily of raising operating capital, closing various acquisitions and marketing our services to prospective customers. Our prospects are subject to the risks and expenses encountered by start-up companies, such as uncertainties regarding our level of future revenues and our inability to budget expenses and manage growth and our inability to access sources of financing when required and at rates favorable to us.
 
Our limited operating history and the highly competitive nature of our business make it difficult or impossible to predict future results of our operations. We may not succeed in developing our business to a level where we can achieve profitable operations, which may result in the loss of some or all of your investment in our common stock.
 
We have generated limited revenues since our inception on. Since we are still in the early stages of operating our Company and because of our lack of significant operating history and our limited net income in all likelihood, we will continue to incur operating expenses without significant revenues until our services gain significant exposure in the market. Based upon current estimates, we estimate our average monthly operating expenses in the near future to be approximately $150,000 to $300,000 per month, which will be dependent upon the number of primary care physician practices acquired during the year, if any. We will not be able to expand our operations beyond current levels without generating significant revenues from our current operations or obtaining further financing. Our primary source of funds has been the sale of our common stock. We can offer no assurance that we will be able to generate enough interest in our services. If we cannot attract a significant customer base, we will not be able to generate any significant revenues or income. In addition, if we are unable to establish and generate material significant revenues, or obtain adequate future financing, our business will fail and you may lose some or all of your investment in our common stock.
 
We may need additional capital to expand or maintain our operations, which will result in dilution to existing stockholders.
 
At minimum, we expect that we will need additional capital in early 2012 if we want to pursue various growth initiatives. Further, we may be required to make increased capital expenditures to fund any growth of operations, infrastructure, and personnel. We may seek additional capital through the issuance of debt or equity depending upon our results of operations, market conditions or unforeseen needs or opportunities. Our future liquidity and capital requirements will depend on numerous factors, including the following:
 
 
 
the pace of expansion of our operations;
 
 
 
our need to respond to competitive pressures; and
 
 
 
future acquisitions of complementary products, technologies or businesses.
 
We expect that we will be required to sell additional equity or debt securities. Debt financing must be repaid at maturity, regardless of whether or not we have sufficient cash resources available at that time to repay the debt and may contain covenants restricting the operations of our business. The sale of additional equity or convertible debt securities could result in additional dilution to existing stockholders. Any financing arrangements may not be available on terms acceptable to us, if at all.

We will need to raise additional funds in the near future. If we are not able to obtain future financing when required, we might be forced to scale back or cease operations or discontinue our business.
 
We can provide no assurance to investors that we will be able to find such financing when such funding is required. Obtaining additional financing will be subject to a number of factors, including investor acceptance of our business model. Furthermore, there is no assurance that we will not incur further debt in the future, that we will have sufficient funds to repay our future indebtedness or that we will not default on our future debts, thereby jeopardizing our business viability. Finally, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to maintain our operations, which may result in the loss of some or all of your investment in our common stock. There is no assurance that actual cash requirements will not exceed our estimates.  If additional funds are not obtained, we would modify (reduce) our primary care physician practice acquisition targets which, in our estimation, would allow our current cash funds to continue our operations through March 2012.
 

 
8

 
 

 
 
We have a limited operating history and if we are not successful in growing the business, of which there is no guarantee, then we may have to scale back or even cease our ongoing business operations.
 
Our success is significantly dependent on our ability to continue to grow our business. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a limited operating history. We may be unable to locate additional customers or continue to operate on a profitable basis.  If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment.
 
We depend upon reimbursement by third-party payors.
 
Substantially all of our revenues are derived from private and governmental third-party payors. Initiatives undertaken by industry and government to contain healthcare costs affect the profitability of our clinics. These payors attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. Management believes that this trend will continue and may limit reimbursements for healthcare services. If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if they choose not to renew the contracts with these insurers at lower rates. In addition, in certain geographical areas, the physician offices must be approved as providers by key health maintenance organizations and preferred provider plans. Failure to obtain or maintain these approvals would adversely affect our financial results.
 
In addition, there are increasing pressures from many third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services. our relationships with managed care and non-governmental third-party payors, such as health maintenance organizations and preferred provider organizations, are generally governed by negotiated agreements. These agreements set forth the amounts Hygea is entitled to receive for its services. Management could be adversely affected in some of the markets where it operates if they are unable to negotiate and maintain favorable agreements with third-party payors.
 
Additionally, third-party payors may, from time to time, request audits of the amounts paid, or to be paid, to us under its agreements with them. Hygea could be adversely affected in some of the markets where it operates if the auditing payor alleges that substantial overpayments were made to Hygea due to coding errors or lack of documentation to support medical necessity determinations.

Our historical revenue has been concentrated with CarePlus Health Plans, Inc. representing approximately 91.5% and 71.1% of our 2010 and 2009 medical revenues, respectively, and 81.3% and 83.5% of our medical revenue for the three and nine months ended September 30, 2011, respectively.  This increase during 2010 as compared to 2009 was due to the sale (and thus elimination) of non-CarePlus Health Plans, Inc.’s revenue associated with a Hygea Health Network practice that was sold.  The increase in accounts receivable affects our liquidity.   If we are unable to collect the amounts due from CarePlus Health Plans, Inc., our liquidity would be affected resulting in retraction of business operations or seeking additional public or private funding to offset such impact.
 
Our operating results could be adversely affected if our actual healthcare claims exceed our reserves.
 
Historically, we have been able to satisfy our claims payment obligations each month out of cash flows from operations and existing cash reserves. However, in the event that our revenues are substantially reduced due to a loss of a significant HMO contract or other factors, our cash flow may not be sufficient to pay off claims on a timely basis, or at all. If we are unable to pay claims timely we may be subject to HMO de-delegation wherein the HMO would take away our claims processing functions and perform the functions on our behalf, charging us a fee per enrollee, a requirement by the HMO to comply with a corrective action plan, and/or termination of the HMO contract, which could have a material adverse effect on our operations and results of operations.
  
Our operations are presently focused in one geographic location - South and Central Florida.  If this region of Florida was to experience an economic downturn or continues to experience the negative effects from the recession, our operations may be negatively impacted.

Our business, financial condition and results of operations may be adversely affected by unfavorable economic and market conditions in our sole geographical segment.

Our operations are presently focused in one geographic location - South and Central Florida.  Changes in this region could adversely affect the profitability of our business. Economic conditions have from time to time contributed to slowdowns in the healthcare industry, resulting in reduced demand and increased price competition for our services. If economic and market conditions in South and Central Florida, remain unfavorable or persist, spread or deteriorate further, we may experience an adverse impact on our business, financial condition and results of operations.  Accordingly, the economic downturn in South and Central Florida may hurt our financial performance. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions and the effects they may have on our business and financial condition and results of operations.
 
We may be exposed to liability if we cannot process any increased volume of claims accurately and timely.
 
We have regulatory risk for the timely processing and payment of claims. If we are unable to handle increased claims volume or if we are unable to pay claims timely we may become subject to an HMO corrective action plan or de-delegation until the problem is corrected, and/or termination of the HMO agreement, which could have a material adverse effect on our operations and profitability
 
 
 
9

 
 
 
Our profitability may be reduced or eliminated if we are not able to manage our healthcare costs effectively.
 
Our success depends in large part on our effective management of healthcare costs incurred by our affiliated physician organizations and controlling utilization of specialty and ancillary care, and by contracting with our independent physicians at competitive prices.
 
We attempt to control the healthcare costs of our HMO enrollees through capitated and discounted fee-for-service contracts, by emphasizing preventive care, entering into risk-sharing agreements with HMOs that have favorable rate and utilization structures, and requiring prior authorization for specialist physician referrals. If we cannot maintain or improve its management of healthcare costs, our business, results of operations, financial condition, and ability to satisfy our obligations could be adversely affected.
 
Under all current HMO contracts, our affiliated physician organizations accept the financial risk for the provision of primary care and specialty physician services, and some ancillary healthcare services. If we are unable to negotiate favorable contract rates with providers of these services, or if our affiliated physician organizations are unable to effectively control the utilization of these services, its profitability would be negatively impacted.  Our ability to manage healthcare costs is also diminished to the extent that we are unable to sub-capitate the specialists in its service areas at competitive rates. To the extent that our HMO enrollees require more frequent or extensive care, our operating margins may be reduced and the revenues derived from its capitation contracts may be insufficient to cover the costs of the services provided.
 
The revenue and profitability could be significantly reduced and could also fluctuate significantly from period to period under Medicare's Risk Adjusted payment methodology.
 
In  2004, Centers for Medicare & Medicaid Services (“CMS”) began a four-year phase-in of a revised compensation model for Medicare beneficiaries enrolled in Medicare Advantage plans. Previously, monthly capitation revenue was based primarily on age, sex and location.
 
The CMS revised payment model seeks to compensate Medicare managed care organizations based on the health status of each individual enrollee. Health plans/Medical Groups with enrollees that can be proven to require more care will receive higher compensation, and those with enrollees requiring less care will receive less. This is referred to by CMS as "Risk Adjustment."
 
 Increased numbers of office visits by members, and submission of encounter data is required in order to receive incremental revenue, or not for any given member. This requires a great deal of continuous effort on our part, and cooperation on the part of our contracted physicians and HMO enrollees. We have not always been able to gain this cooperation from the contracted physicians and enrollees, or devote the resources necessary to obtain incremental Risk Adjustment revenue, or avoid having previously received revenue taken back from us.
 
Additionally, because of the time required by CMS to process all of the submitted encounter data from all participating entities, we typically do not find out until the latter part of the calendar year what adjustments will be made to our Medicare revenue for the prior year, at which time those adjustments to revenue, which have historically been significant, are recorded.
 
The adoption of more restrictive Medicare coverage policies at the national or local levels could have an adverse impact on our ability to obtain Medicare reimbursement for inpatient services.
 
Medicare providers also can be negatively affected by the adoption of coverage policies, at the national and or local levels, describing whether an item or service is covered and under what clinical circumstances it is considered to be reasonable, necessary, and appropriate. In the absence of a national coverage determination, Medicare contractors may specify more restrictive criteria than otherwise would apply nationally. CMS began implementing new inpatient rehabilitation hospital coverage criteria effective January 1, 2010 that will require existing local coverage policies to be updated for each Medicare contractor. We cannot predict how the adoption of modified local coverage determinations or other policies will affect our operations.
 
If we are unable to identify suitable acquisition candidates or to negotiate or complete acquisitions on favorable terms, our prospects for growth could be limited. In addition, we may not realize the anticipated benefits of any acquisitions that we are able to complete.
 
Part of our business strategy is to grow through acquisitions in order to achieve economies of scale. Although we are regularly in discussions with potential acquisition candidates, it may be difficult to identify suitable acquisition candidates and to negotiate satisfactory terms with them. If we are unable to identify suitable acquisition candidates at favorable prices, our ability to grow by acquisition could be limited.
 
 
 
10

 
 
 
 
In addition, to the extent we are successful in identifying suitable acquisition candidates and making acquisitions, these acquisitions involve a number of risks, including:
 
 
·  
it may occur that the acquired company or assets do not further our business strategy, or that we overpaid for the company or assets, or that industry or economic conditions change, all of which may require a future impairment charge;
 
·  
we may have difficulty integrating the operations and personnel of the acquired business and may have difficulty retaining the key personnel of the acquired business;
 
·  
we may have difficulty incorporating the acquired services with our existing services;
 
·  
there may be customer confusion where our services overlap with those of entities that are acquired;
 
·  
our ongoing business and our attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically and culturally diverse locations;
 
·  
there may be difficulty maintaining uniform standards, controls, procedures and policies across locations;
 
·  
we may acquire companies that have material liabilities, including, among other things, for the failure to comply with healthcare laws and regulations;
 
·  
the acquisition may result in litigation from terminated employees or third parties;
 
·  
we may experience significant problems or liabilities associated with service quality, technology and legal contingencies;
 
·  
we may spend considerable amounts of money (legal, accounting, diligence, etc.) in seeking an acquisition candidate and never complete the acquisition; and
 
·  
acquisition candidate letters of intent may have large break-up fees if the acquisition is not completed.
 
In particular, the strategy for growth includes strategic acquisitions of primary care physician (PCP) practices. However, even if we are successful in completing further acquisitions, we may not be possible to integrate their operations into our operations or it may be difficult and time consuming to integrate the acquired practices' management services, information systems, billing and collection systems, finance department, medical records, and other key administrative functions, while at the same time managing a larger entity with a differing history, business model and culture. We may be required to develop working relationships with providers and vendors with whom they have had no previous business experience. We also may not be able to obtain the necessary economies of scale. Integration of acquired entities is vital to be able to operate effectively and to control variable (staffing) and fixed costs. If we are not successful in integrating acquired operations on a timely basis, or at all, our business could be disrupted and we may not be able to realize the anticipated benefits of its acquisitions, including cost savings. There may be substantial unanticipated costs associated with acquisition and integration activities, any of which could result in significant one-time or on-going charges to earnings or otherwise adversely affect our operating results.
 
We may not be able to make future acquisitions without obtaining additional financing.
 
To finance any acquisitions, we may, from time to time, issue additional equity securities or incur additional debt. A greater amount of debt or additional equity financing could be required to the extent that our common stock fails to achieve or to maintain a market value sufficient to warrant its use in future acquisitions, or to the extent that acquisition targets are unwilling to accept common stock in exchange for their businesses. Even if we were permitted to incur additional debt or determine to sell equity, we may not be able to obtain additional required capital on acceptable terms, if at all, which would limit our plans for growth. In addition, any capital we may be able to raise could result in increased leverage on our balance sheet, additional interest and financing expense, and decreased operating income.
 
Whenever we seek to make an acquisition of an entity that has an HMO contract, the HMO could potentially refuse to consent to the transfer of its contract, and this could effectively stop the acquisition or potentially deprive Hygea of the revenues associated with that HMO contract.
 
Contracts with HMOs typically include provisions requiring the HMO to consent to the transfer of their contract before effecting any change in control of the healthcare provider party thereto. As a result, whenever we seek to make an acquisition, such acquisition may be conditioned upon the acquisition candidate's ability to obtain such consent from the HMOs with which it has contracted. Therefore, an acquisition could be delayed while an HMO seeks to determine whether it will consent to the transfer. While management’s experience the HMOs limit their review to satisfying their regulatory responsibility to ensure that, following the acquisition, the post-acquisition entity will meet certain financial and operational thresholds, the language in many of the HMO agreements give the HMO the ability to decline to give their consent if they simply do not want to do business with the acquiring entity. If an HMO is unwilling for any reason to give its consent, this could deter management from completing the acquisition, or, if they complete an acquisition without obtaining an HMO's consent, they could lose the benefits associated with that HMO's contract.
 
 
 
 
11

 
 
Revenues and profits could be diminished if we lose the services of key primary care physicians.
 
Substantially all of our revenues are derived from its affiliated physician organizations. Key primary care physicians with large patient enrollment could retire, become disabled, terminate their provider contracts, get lured away by a competing IPA, or otherwise become unable or unwilling to continue practicing medicine or contracting with its affiliated physician organizations. Enrollees who have been served by such physicians could choose to enroll with competitors' physician organizations, reducing its revenues and profits. Moreover, we may not be able to attract new physicians into our affiliated physician organizations to replace the services of terminating physicians.
 
We will also depend upon its ability to recruit and retain experienced physicians.
 
Our revenue generation is dependent upon referrals from physicians in the communities its medical offices serve, and its ability to maintain good relations with these physicians. The primary care physicians are the front line for generating these referrals and management is dependent on their talents and skills to successfully cultivate and maintain strong relationships with these physicians. If we cannot recruit and retain our base of experienced physicians, our business may decrease and our net operating revenues may decline.
 
We continue to face intense competition.
 
The industry in which Hygea operates has no institutional provider organizations.  The Hygea integrated practice model combines three distinct business verticals.  The first business vertical is the Medicare Advantage designated clinic system that only accepts Medicare Advantage patients with significant presence maintained by Leon Medical Centers (Miami Dade County), MCCI (Florida statewide), Pasteur Medical Centers (Miami Date County) and Southeastern Integrated Medical (SiMed) Centers (Tampa St Petersberg)  The second business vertical is the commercial market and fee-for-service Medicare which is best represented in Florida by Cleveland Clinic (Florida statewide), Mayo Clinic (Florida statewide) and Southeastern Integrated Medical (north Florida).  The third business vertical is comprised of small group practices that will take a combination of both fee-for-service and Medicare Advantage patients; these practices are usually not large enough to sustain all the components of the Hygea integrated model.   Hygea combines all of the business verticals and sees itself as payor neutral accepting clients irrespective of whether they are commercial, cash or Medicare Advantage/Medicare fee-for-service.  We do not believe ancillary service firms are in competition with Hygea as they do not drive or attract patients but are more of recipient of referrals from these three business verticals.  In the State of Florida, the northern part of the state is driven by a fee-for-service practice model while the southern part of the state, has a much higher incident of managed care delivery model.  We compete against many other companies in the specialized health services industry, most of which have considerably greater resources and abilities than we do. These competitors may have greater marketing and sales capacity, significant goodwill, and global name recognition.

We will depend upon the cultivation and maintenance of relationships with the physicians in its markets.
 
 Our success is dependent upon referrals from physicians in the communities our clinics serve and its ability to maintain good relations with these physicians and other referral sources. Physicians referring patients to the clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice. If we are unable to successfully cultivate and maintain strong relationships with physicians and other referral sources, our business may decrease and its net operating revenues may decline.
 
  Our operations are subject to extensive regulation.
 
  The healthcare industry is subject to extensive federal, state and local laws and regulations relating to:
 
·  
facility and professional licensure/permits, including certificates of need;
 
·  
conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse, and physician self-referral;
 
·  
addition of facilities and services; and
 
·  
payment for services.
 
  In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry. We believe that we are in substantial compliance with all laws, but differing interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our methods of operations, facilities, equipment, personnel, services and capital expenditure programs and increase our operating expenses. If we fail to comply with these extensive laws and government regulations, we could become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resources responding to an investigation or other enforcement action under these laws or regulations.
 
Healthcare reform legislation may affect our business.
 
In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system, either nationally or at the state level. At the federal level, Congress has continued to propose or consider healthcare budgets that substantially reduce payments under the Medicare programs. The ultimate content, timing or effect of any healthcare reform legislation and the impact of potential legislation on our business is uncertain and difficult, if not impossible to predict. That impact may be material to our business, financial condition or results of operations.

 
12

 

 
We may incur closure costs and losses.
 
The competitive and/or economic conditions in the local markets in which we operate may require us to close certain physician offices. In the event a physician office is closed, we may incur closure costs and losses. The closure costs and losses include, but are not limited to, lease obligations, severance, and write-off of goodwill.
 
Our officers and directors have limited liability, and we are required in certain instances to indemnify our officers and directors for breaches of their fiduciary duties.
 
We have adopted provisions in our Articles of Incorporation and Bylaws which limit the liability of our officers and directors and provide for indemnification by us of our officers and directors to the full extent permitted by Nevada corporate law. Our articles generally provide that our officers and directors shall have no personal liability to us or our shareholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit our shareholders' ability to hold officers and directors liable for breaches of fiduciary duty, and may require us to indemnify our officers and directors.
 
We are dependent on certain key personnel.
 
Our business is dependent on the services of Daniel T. McGowan, Chairman, Board of Directors, Manuel E. Iglesias, our Chief Executive Officer, and other key management and directors. We do not have key man insurance for either of these individuals. The loss of their services or our ability to expand to maintain our business will depend in part upon our ability to attract and retain qualified personnel in operations management, technology, marketing and other areas. We depend upon employees and consultants in a competitive market. If we are unable to attract and retain personnel that have the technical expertise we require, it could adversely affect our ability to develop our network and market our services.
 
A small number of existing shareholders own a significant amount of our common stock, which could limit your ability to influence the outcome of any shareholder vote.
 
Our executive officers, directors and shareholders holding in excess of 5% of our issued and outstanding shares, beneficially own over 15% of our common stock. Under our Articles of Incorporation and Nevada law, the vote of a majority of the shares outstanding is generally required to approve most shareholder action.  As a result, these individuals will be able to significantly influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers or other significant corporate transactions.
 
The Offering Price of the shares is arbitrary.
 
The Offering Price of the shares has been determined arbitrarily by the Company and bears no relationship to the Company’s assets, book value, potential earnings or any other recognized criteria of value.
 
The offering price of the shares was determined based upon the price sold in our offering and should not be used as an indicator of the future market price of the securities. Therefore, the offering price bears no relationship to the actual value of the Company and may make our shares difficult to sell.
 
Since our shares are not listed or quoted on any exchange or quotation system, the offering price of $0.11 for the shares of common stock was determined by the price shares were sold to our shareholders in a private placement memorandum and is a fixed price at which the selling security holders may sell their shares until our common stock is quoted on the OTC Bulletin Board at which time the shares may be sold at prevailing market prices or privately negotiated prices. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. The offering price bears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.
 
 
 
13

 
 
 
 
We may, in the future, issue additional common shares, which would reduce investors' percent of ownership and may dilute our share value.
 
Our Certificate of Incorporation authorizes the issuance of 250,000,000 shares of common stock, $0.0001 par value, of which 148,295,243 shares are issued and outstanding and 10,000,000 shares of preferred stock, $0.0001 par value, of which no shares are issued and outstanding. Further, upon the effective date of this prospectus, the 5% and the 10% Notes will automatically convert into 16,027,733 shares of common stock.  The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
 
The Board of Directors, in its sole discretion, may issue preferred shares which could carry superior rights and preferences and, in turn, limiting the influence common shareholders may have on the direction of our company.
 
We have authorized 10,000,000 shares of blank check preferred stock none of which is currently outstanding.  Upon issuance of any preferred stock in the future, the rights attached to the preferred shares could affect our ability to operate, which could force us to seek other financing.  The Board of Directors may issue preferred stock without obtaining shareholder approval.  Such financing may not be available on commercially reasonable terms or at all and could cause substantial dilution to existing stockholders.
 
Currently, there is no public market for our securities, and we cannot assure you that any public market will ever develop and it is likely to be subject to significant price fluctuations.
 
Currently, there is no public market for our stock and our stock may never be traded on any exchange, or, if traded, a public market may not materialize.  Even if we are successful in developing a public market, there may not be enough liquidity in such market to enable shareholders to sell their stock.
 
Our common stock is unlikely to be followed by any market analysts, and there may be few or no institutions acting as market makers for the common stock.  Either of these factors could adversely affect the liquidity and trading price of our common stock.  Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly.  Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of the Company, and general economic and market conditions.  No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
 
As our current estimated stock price is $0.11, our Common Stock will be subject to “penny stock” rules which may be detrimental to investors.
 
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share.  Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them as our current estimated stock price is $0.11.  For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase.  Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market.  The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.  Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  As the Shares immediately following this Offering will likely be subject to such penny stock rules, purchasers in this Offering will in all likelihood find it more difficult to sell their Shares in the secondary market.
 
We have never paid a dividend on our common stock and we do not anticipate paying any in the foreseeable future.
 
We have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Notwithstanding, we will likely elect to retain earnings, if any, to finance our growth. Future dividends may also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors.
 
 
 
14

 

 
 
 
We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters .
 
Recent U. S. legislation, including the Sarbanes-Oxley Act of 2002 and the Dodd Frank Wall Street Reform and Protection Act, have resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. We have not yet adopted any of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we are not required to do so. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that may increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources.

It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.  If we do adopt various corporate governance measures, our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives.
 
The potential sale of 39,928,955 shares pursuant to this prospectus may have a depressive effect on the price and market for our common stock.
 
The potential sale of 39,928,955 shares of common stock pursuant to this prospectus may have a depressive effect on our stock price and make it more difficult for us to raise any significant funds in the equity market if our business requires additional funding.
 
FORWARD-LOOKING STATEMENTS
 
Statements in this prospectus may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. In addition, such statements could be affected by risks and uncertainties related to the healthcare industry as a whole, changes in regulation on the state or federal level, delays in payments from third party payors, our ability to raise any financing which we may require for our operations, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus.
 
USE OF PROCEEDS
 
We will not receive any proceeds from the sale by the selling shareholders of their common stock.
 
Determination of Offering Price
 
The selling shareholders will sell the shares at $0.11 per share until our shares are quoted on the OTC Bulletin Board, and thereafter at prevailing market prices or privately negotiated prices. The offering price was determined by the conversion price of our convertible promissory notes sold in a private offering under Rule 506 under Regulation D as promulgated under the Securities Act of 1933, as amended. There is no assurance of when, if ever, our stock will be approved for trading on the OTC Bulletin Board.
 
The offering price of the shares of our common stock has been determined arbitrarily by us and does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. Although our common stock is not listed on a public exchange, we will be filing to obtain a listing on the OTC Bulletin Board concurrently with the filing of this prospectus. In order to be quoted on the OTC Bulletin Board, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
 
 
 
 
15

 

 
 
In addition, there is no assurance that our common stock will trade at market prices in excess of the initial public offering price as prices for the common stock in any public market which may develop will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.
 
 Dilution
 
The common stock to be sold by the selling shareholders in this Offering is common stock that is currently issued. Accordingly, there will be no dilution to our existing shareholders.

 
SELLING STOCKHOLDERS
 
The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders.
 
The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered.
 
Name of Selling   Stockholder
 
Common Shares owned by the selling Stockholder (1)
   
Total Shares Registered Pursuant to this Offering
   
% of Total Issued and Outstanding Shares before Offering
   
Number of Shares Owned by Selling Stockholder After Offering and Percent of Total Issued and Outstanding (2)
 
                     
# of Shares
   
% of Class
 
Paul Hill
    30,000       30,000       *       --       --  
James Anderson
    20,000       20,000       *       --       --  
Col. Bertram Witham
    10,000       10,000       *       --       --  
Charles L. Horn
    10,000       10,000       *       --       --  
Ephraim H. Dockstader
    30,000       30,000       *       --       --  
John A. Rowell
    30,000       30,000       *       --       --  
JM Assets LP (4)
    30,000       30,000       *       --       --  
Barbara J. Stubblefield
    60,000       60,000       *       --       --  
Joel Shapiro
    50,000       50,000       *       --       --  
Lawrence M. Kellner
    33,333       33,333       *       --       --  
Ronald Bratek
    40,000       40,000       *       --       --  
Susan and Nick Fredrick
    40,000       40,000       *       --       --  
Jerry I. Maine
    20,000       20,000       *       --       --  
Paul W. Heisey Trust (5)
    20,000       20,000       *       --       --  
Bob Krauss
    40,000       40,000       *       --       --  
Robert E. & Roselie T. Dettle Living Trust Dated 2/29/1980 (6)
    25,000       25,000       *       --       --  
Robert . Benz
    25,000       25,000       *       --       --  
Robert T. Firebaugh
    40,000       40,000       *       --       --  
Thomas W. Davis Jr.
    10,000       10,000       *       --       --  
Joel Kaplan
    20,000       20,000       *       --       --  
The Klar Family Trust (7)
    10,000       10,000       *       --       --  
Tannie G. Dees
    10,000       10,000       *       --       --  
ELG Family Trust (8)
    20,000       20,000       *       --       --  
Mark Elg
    20,000       20,000       *       --       --  
John R. Russell
    10,000       10,000       *       --       --  
Gerald Yanowitz
    15,000       15,000       *       --       --  
Paul Kaye
    10,000       10,000       *       --       --  
James Dees
    10,000       10,000       *       --       --  
William E. Morgan
    25,000       25,000       *       --       --  
 
 

 
16

 
 

 
                               
Joel Kaplan
    7,000       7,000       *       --       --  
Geoffrey Cragg
    20,000       20,000       *       --       --  
Meador Trust (9)
    20,000       20,000       *       --       --  
Stephen Fleming
    760,000       760,000       *       --       --  
Eric Horton
    250,000       250,000       *       --       --  
Timothy Betts
    2,049,000       2,049,000       1.24 %     --       --  
Sean Harrison
    966,667       966,667       *       --       --  
Michael Arnold
    300,000       300,000       *       --       --  
Kevin Mohan
    500,000       500,000       *       --       --  
Chanwest Resources Inc. (10)
    50,000       50,000       *       --       --  
Richard Solomon
    200,000       200,000       *       --       --  
Robert T. Firebaugh
    100,000       100,000       *       --       --  
Dennis F. Trainor
    25,000       25,000       *       --       --  
Rosemary Fleming
    760,000       760,000       *       --       --  
Stephen Cohen
    40,000       40,000       *       --       --  
Evan Costaldo
    40,000       40,000       *       --       --  
Lauren Eschmann
    100,000       100,000       *       --       --  
Christine Bailey
    100,000       100,000       *       --       --  
Nobis Capital Advisors Inc. (11)
    3,725,904       3,725,904       2.26 %     --       --  
Bobby Khan, MD
    215,391       215,391       *        --       --  
Rockfort Investments LLC as Trustee of  CAI Hygea Trust (12)
   
2,153,912
     
2,153,912
     
*
     
--
     
--
 
Rockfort Investments LLC as Trustee of  D’Arraigan Investment Trust (13)
   
2,680,425
     
2,680,425
     
*
     
--
     
--
 
Jose David Saurez MD
   
430,782
     
215,000
     
*
     
215,782
     
*
 
Kathy Lubbers
   
95,728
     
95,728
     
*
     
--
     
--
 
Louis Biasi
   
95,278
     
95,278
     
*
     
--
     
--
 
Millsborough Investments  LLC EDC Investment Trust (14)
   
2,153,912
     
2,153,912
     
*
     
--
     
--
 
Pedro Pedrianes
   
1,292,347
     
215,000
     
*
     
1,077,347
     
*
 
Rockfort Investments LLC as Trustee of San Felipe Investment Trust (15)
   
2,961,629
     
2,961,629
     
*
     
--
     
--
 
Gregory J. Daniels
    47,864       47,864       *       --       --  
David Shuey
    47,864       47,864       *       --       --  
Ivan Hadfeg
    23,932       11,111       *       12,821       *  
Kirkpatrick Family Foundation Inc. (16)
    957,293       957,293       *       --       --  
Steele Ventures LLC (17)
    90,942       47,864       *       43,078       *  
Michael Sension MD
    47,864       47,864       *       --       --  
Alicia Harvey
    47,864       47,864       *       --       --  
Charles Stigger
    71,796       71,796       *       --       --  
RT & C Holdings, Inc. (18)
    150,774       150,774       *       --       --  
Palm Medical Network LLC (19)
    909,435       909,435       *       --       --  
John Hartmann (3)
    63,026       63,026       *       --       --  
Lawrence M. Kellner (3)
    69,329       69,329       *       --       --  
Jerry Maine (3)
    63,026       63,026       *       --       --  
Lawrence Klar (3)
    69,329       69,329       *       --       --  
James Anderson (3)
    69,329       69,329       *       --       --  
Meador Trust (3) (20)
    252,105       252,105       *       --       --  
Clifton Peterson (3)
    126,053       126,053       *       --       --  
McKellips Family Trust (3) (21)
    157,566       157,566       *       --       --  
William Morgan (3)
    63,026       63,026       *       --       --  
Denise Brathwaite (3)
    138,658       138,658       *       --       --  
Robert T. Firebaugh (3)
    138,658       138,658       *       --       --  
John and Kay Kabage Family Trust  (3) (22)
    69,329       69,329       *       --       --  
Hillock Revocable Trust  (3) (23)
    63,026       63,026       *       --       --  
Francis Rosenberger (3)
    346,645       346,645       *       --       --  
James Anderson (3)
    138,658       138,658       *       --       --  
Jerry Neugebauer (3)
    157,566       157,566       *       --       --  
John Spoltman (3)
    63,026       63,026       *       --       --  
Paul Hill (3)
    157,566       157,566       *       --       --  
Paul Heisey (3)
    346,645       346,645       *       --       --  
Theodore E. Roeth Trust (3) (24)
    138,658       138,658       *       --       --  
Francis Rosenberger (3)
    346,645       346,645       *       --       --  
Denise Brathwaite (3)
    34,665       34,665       *       --       --  
AB Southwall (3)
    157,566       157,566       *       --       --  
Phil and Colette Mitchell Trust  (3) (25)
    69,329       69,329       *       --       --  
David Shea (3)
    138,658       138,658       *       --       --  
Elg Family Trust (3) (26)
    159,457       159,457       *       --       --  
David Applestein (3)
    69,329       69,329       *       --       --  
Norman Roder (3)
    69,329       69,329       *       --       --  
Robert Benz (3)
    346,645       346,645       *       --       --  
Dorthea Hardin (3)
    138,658       138,658       *       --       --  
Ephraim Dockstader (3)
    69,329       69,329       *       --       --  
Douglas Bunkers (3)
    69,329       69,329       *       --       --  
Stanley Decker (3)
    69,329       69,329       *       --       --  
Barbara Subblefield (3)
    69,329       69,329       *       --       --  
Sidney Gold (3)
    69,329       69,329       *       --       --  
John Mulrooney (3)
    63,026       63,026       *       --       --  
Joel Mylnarski (3)
    69,329       69,329       *       --       --  
Lamers Forests Ltd. (3) (27)
    138,658       138,658       *       --       --  
 

 
17

 
 
 
                   
Robert E. & Roselie T. Dettle Living Trust Dated 2/29/1980  (3) (28)
69,329 69,329 *     --   --  
Wellbrook Family Trust (3) (29)
69,329 69,329 *     --   --  
Charles Simpson  (3)
159,457 159,457 *     --   --  
Lawrence M. Kellner  (3)
90,909 90,909 *     --   --  
Elg Family Trust  (3) (30)
225,000 225,000 *     --   --  
AB Southall (3)
910,000 910,000 *     --   --  
Robert Benz (3)
1,000,000 1,000,000 *     --   --  
Bertram Witham (3)
500,000 500,000 *     --   --  
John Muhich for JM Assets (3) (31)
1,000,000 1,000,000 *     --   --  
Jerry Neugebauer (3)
318,182 318,182 *     --   --  
Roy Bethel (3)
90,909 90,909 *     --   --  
John Rowell (3)
200,000 200,000 *     --   --  
John Lindsay (3)
181,818 181,818 *     --   --  
Robert Parker (3)
227,273 227,273 *     --   --  
Jerry Maine (3)
90,909 90,909 *     --   --  
Robert E. & Roselie T. Dettle Living Trust Dated 2/29/1980  (3) (32)
90,909 90,909 *     --   --  
Sharon Krause (3)
181,818 181,818 *     --   --  
Ronald Bratek (3)
90,909 90,909 *     --   --  
Robert Benz (3)
1,136,364 1,136,364 *     --   --  
Jerry Neugebauer (3)
418,182 418,182 *     --   --  
Jeff McKellips (3)
227,273 227,273 *     --   --  
Shawn Holmes (3)
227,273 227,273 *     --   --  
Barbara Stubblefield (3)
90,909 90,909 *     --   --  
Stahl Family Revocable Living Trust (3) (33)
90,909 90,909 *     --   --  
Jeffrey Eiseman (3)
181,818 181,818 *     --   --  
William Morgan (3)
90,909 90,909 *     --   --  
Elg Family Trust (3) (34)
210,000 210,000 *     --   --  
Jerry Neugebauer (3)
381,818 381,818 *     --   --  
Robert Mehl (3)
454,545 454,545 *     --   --  
Richard Solomon (3)
909,091 909,091 *     --   --  
Thomas Hewson (3)
90,909 90,909 *     --   --  
Susan and Nick Fredrick (3)
90,909 90,909 *     --   --  
David Shea (3)
181,818 181,818 *     --   --  
Barbara Stubblefield (3)
90,909 90,909 *     --   --  
Lawrence M. Kellner (3)
90,909 90,909 *     --   --  
Jerry Maine (3)
90,909 90,909 *     --   --  
John Hartmann    
90,909 90,909 *     --   --  
Jerry Neugebauer (3)
381,818
381,818
*     --   --  
Stephen Gill (3)
90,909 90,909 *     --   --  
Joel Kaplan (3)
90,909 90,909 *     --   --  
Ed Salazar 
47,864 47,864 *     --   --  
* Less than one percent.
 
** Officer and/or director.
 
 
 
 
18

 
 
(1) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days. The Total Shares Registered Pursuant to this Offering reflects shares outstanding.  Based on 164,332,976 shares of common stock outstanding and assumes the full conversion of all outstanding Convertible Notes, which are automatically convertible on the effective date of this prospectus.
 
(2) Assumes that all securities registered will be sold.
 
(3) Shares of common stock are issuable upon conversion of Convertible Promissory Notes.
 
(4)  John Muhich has voting and dispositive power over the shares.

(5)  Paul W. Heisey has voting and dispositive power over the shares.

(6) Robert E. Dettle has voting and dispositive power over the shares.

(7) Lawrence R. Klar, Jr has voting and dispositive power over the shares.
 
(8) Fred Elg has voting and dispositive power over the shares.
 
(9) J. Douglas Meador has voting and dispositive power over the shares.
 
(10) David Taylor has voting and dispositive power over the shares.
 
(11) Tim M. Betts  has voting and dispositive power over the shares.
 
(12) Denis Kleinfeld has voting and dispositive power over the shares.
 
(13) Denis Kleinfeld has voting and dispositive power over the shares.
 
(14) Denis Kleinfeld has voting and dispositive power over the shares.
 
(15) Denis Kleinfeld has voting and dispositive power over the shares.
 
(16)  A Board Committee has voting and dispositive power over the shares.
 
(17) Keith G. Minella has voting and dispositive power over the shares.
 
(18) Carlos Trueba has voting and dispositive power over the shares.
 
(19) Martha Castillo has voting and dispositive power over the shares.
 
(20) J. Douglas Meador has voting and dispositive power over the shares.
 
(21) Jeff McKellips has voting and dispositive power over the shares.
 
(22) John Kabage has voting and dispositive power over the shares.
 
(23) Robert Hillock has voting and dispositive power over the shares.
 
(24) Theodore E. Roeth has voting and dispositive power over the shares.
 
(25) Phil Mitchell has voting and dispositive power over the shares.
 
(26)26 Fred Elg has voting and dispositive power over the shares.
 
(27) Terrance J. Lamers has voting and dispositive power over the shares.
 
(28) Robert E. Dettle has voting and dispositive power over the shares.
 
(29) Dayle Wellbrook has voting and dispositive power over the shares.
 
(30) Fred Elg has voting and dispositive power over the shares.
 
(31) John Muhich has voting and dispositive power over the shares.
 
(32) Robert E. Dettle has voting and dispositive power over the shares.
 
(33) Frederick R. Stahl has voting and dispositive power over the shares.
 
(34) Fred Elg has voting and dispositive power over the shares.
 
Issuance of Shares of Common Stock to Selling Stockholders
 
The following issuances were made by Hygea Holdings Corp. (f/k/a Piper Acquisition II, Inc.), a Nevada corporation, the legal entity to which this prospectus relates, and does not reflect the issuances found in the Consolidated Statements of Stockholders’ Equity on page F-5 which relates to Hygea Health Holdings Inc., a Florida corporation, the accounting successor.

On January 16, 2009, we sold an aggregate of 10,000,000 shares of common stock to Stephen Fleming, Eric Horton and Nobis Capital Advisors, Inc. (“Nobis”) for total consideration of $1,000 or $0.0001 per share.  On November 15, 2009, Nobis assigned 2,849,000 shares of common stock to three parties and returned 483,333 shares of common stock to us for cancellation.  Further, Mr. Horton, on November 15, 2009, assigned 1,807,333 shares of common stock to two parties and returned 1,276,000 shares of common stock to us for cancellation.  On November 15, 2009, Mr. Fleming assigned 1,533,334 shares of common stock to one party.
 
On June 24, 2009, we sold 553,333 shares of common stock to 18 accredited investors for aggregate consideration of $55,333 or $0.10 per share.
 
On September 3, 2009, we sold 207,000 shares of common stock to 14 accredited investors for aggregate consideration of $20,700 or $0.10 per share.
 
In November 2009, the Company sold $815,000 in convertible notes (the “November 2009 Notes”) and warrants to 35 accredited investors.  The November 2009 Notes are convertible, at any time at the option of the holder, into shares of common stock of the Company at a conversion price of $0.11 per share; provided, however, upon this prospectus being declared effective, the November 2009 Notes will be converted automatically into shares of common stock at $0.11 per share.  The November 2009 Notes bear interest at 10% per annum.  Interest is payable in full on the maturity date.  Interest shall be payable at the election of the Company, in cash or shares of common stock on the maturity date unless converted earlier.  If the Company pays in shares of common stock, the number of shares to be issued shall be equal to the amount owed divided by $0.11.  If the November 2009 Notes are converted pursuant to the automatic conversion provision, then no interest shall be payable.  In 2010, we entered into letter agreements with each of the investors pursuant to which we returned approximately $250,000 of the proceeds invested and the investors agreed to cancel the warrants leaving a remaining principal balance of $565,000 outstanding.  Further, in May 2011, we entered letter agreements whereby we agreed to extend the term of the November 2009 Notes through October 2011 and also granted a security interest in all of our assets to the note holders. The maturity dates of the notes were again extended through March 31, 2012.
 
On April 9, 2010, we entered into a Termination Agreement with Chanwest Resources Inc. pursuant to which we issued 50,000 shares of common stock to Chanwest Resources, Inc. in consideration of the termination of a Share Exchange Agreement that did not close.
 
 
19

 
 
 
In June 2010, the Company sold $696,850 in convertible notes (the “June 2010 Notes”) to 15 accredited investors.  The June 2010 Notes are convertible, at any time at the option of the holder, into shares of common stock of the Company at a conversion price of $0.11 per share; provided, however, upon this prospectus being declared effective, the June 2010 Notes will be converted automatically into shares of common stock at $0.11 per share.  The June 2010 Notes bear interest at 5% per annum and mature in June 2012.  Interest shall be payable at the election of the Company, in cash or shares of common stock on the maturity date unless converted earlier.  If the Company pays in shares of common stock, the number of shares to be issued shall be equal to the amount owed divided by $0.11.  If the June 2010 Notes are converted pursuant to the automatic conversion provision, then no interest shall be payable.  Further, in May 2011 we entered letter agreements to grant a security interest in all of our assets to the note holders. The maturity dates of the notes was again extended through March 31, 2012.
 
From September 2010 through April 2011, the Company sold $501,100 in convertible notes (the “September 2010 Notes”) to 21 accredited investors.  The September 2010 Notes are convertible, at any time at the option of the holder, into shares of common stock of the Company at a conversion price of $0.11 per share; provided, however, upon this prospectus being declared effective, the September 2010 Notes will be converted automatically into shares of common stock at $0.11 per share.  The September 2010 Notes bear interest at 5% per annum and mature in September 2012.  Interest shall be payable at the election of the Company, in cash or shares of common stock on the maturity date unless converted earlier.  If the Company pays in shares of common stock, the number of shares to be issued shall be equal to the amount owed divided by $0.11.  If the September 2010 Notes are converted pursuant to the automatic conversion provision, then no interest shall be payable.  Further, in May 2011 we entered letter agreements to grant a security interest in all of our assets to the note holders. The maturity dates of the notes was again extended through March 31, 2012.
 
On May 2, 2011, we issued 3,725,904 shares of common stock to Nobis Capital Advisors Inc. (“Nobis”) in consideration for Nobis assigning its interest in its Letter of Intent entered with Hygea Health Holdings Inc.
 
On May 16, 2011, we entered into a Share Exchange Agreement with the shareholders of Hygea Health, each of which are accredited investors (“Hygea Health Shareholders”), pursuant to which we acquired 99.9% of the outstanding securities of Hygea Health in exchange for 135,519,336 shares of our common stock (the “Hygea Exchange”).  The Hygea Exchange closed on May 16, 2011, which closing was effective on December 31, 2010.

 
20

 
 
 
PLAN OF DISTRIBUTION
 
The selling shareholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions or by gift. These sales may be made at fixed or negotiated prices. The selling shareholders cannot predict the extent to which a market will develop or, if a market develops, what the price of our common stock will be. If a public market develops for the common stock, the selling shareholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices. Subject to the foregoing, the selling shareholders may use any one or more of the following methods when selling or otherwise transferring shares:

  
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
  
block trades in which a broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
  
sales to a broker-dealer as principal and the resale by the broker-dealer of the shares for its account;
 
  
an exchange distribution in accordance with the rules of the applicable exchange;
 
  
privately negotiated transactions, including gifts;
 
  
covering short sales made after the date of this prospectus;
 
  
pursuant to an arrangement or agreement with a broker-dealer to sell a specified number of such shares at a stipulated price per share;
 
  
a combination of any such methods of sale; and
 
  
any other method of sale permitted pursuant to applicable law.
 
The selling shareholders may also sell shares pursuant to Rule 144 or Rule 144A under the Securities Act, if available, rather than pursuant to this prospectus.
 
Broker-dealers engaged by the selling shareholders may arrange for other brokers dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. None of the other selling shareholders are affiliates of broker-dealers.

A selling shareholder may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if the selling shareholder defaults in the performance of the secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.
 
In connection with the sale of our common stock or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions which may in turn engage in short sales of our common stock in the course of hedging the positions they assume. The selling shareholders may, after the date of this prospectus, also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge their common stock to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
The selling shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. In the event of a transfer by a selling shareholder other than a transfer pursuant to this prospectus or Rule 144 of the SEC, we may be required to amend or supplement this prospectus in order to name the transferee as a selling shareholder.
 
 
 
 
21

 
 
The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling shareholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

Because the selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. Federal securities laws, including Regulation M, may restrict the timing of purchases and sales of our common stock by the selling shareholders and any other persons who are involved in the distribution of the shares of common stock pursuant to this prospectus.

We may be required to amend or supplement this prospectus in the event that (a) a selling shareholder transfers securities under conditions which require the purchaser or transferee to be named in the prospectus as a selling shareholder, in which case we will be required to amend or supplement this prospectus to name the selling shareholder, or (b) any one or more selling shareholders sells stock to an underwriter, in which case we will be required to amend or supplement this prospectus to name the underwriter and the method of sale.

We are required to pay all fees and expenses incident to the registration of the shares.
 
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Market for Securities

There is presently no public market for our common stock and there has never been a market for our common stock. We anticipate applying for quotation of our common stock on the OTC Bulletin Board upon the effectiveness of the registration statement of which this prospectus forms a part. However, we cannot assure you that our shares will be quoted on the OTC Bulletin Board or, if quoted, that a public market will materialize.

A market maker sponsoring a company's securities is required to obtain a quotation of the securities on any of the public trading markets, including the OTC Bulletin Board. If we are unable to obtain a market maker for our securities, we will be unable to develop a trading market for our common stock. We may be unable to locate a market maker that will agree to sponsor our securities. Even if we do locate a market maker, there is no assurance that our securities will be able to meet the requirements for a quotation or that the securities will be accepted for quotation on the OTC Bulletin Board.
 
We intend to apply for quotation of the securities on the OTC Bulletin Board, but there can be no assurance that we will be able to obtain this listing. The OTC Bulletin Board securities are not quoted and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

As of January 5, 2012, we had 148,295,243 shares of common stock issued and outstanding and approximately 115 stockholders of record of our common stock as well as 16,027,733 shares of common stock issuable upon conversion of Convertible Notes which will automatically convert upon the effective date of this prospectus.
 
Dividend Policy

The payment by us of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors.  We have not paid any dividends since our inception and we do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.

Equity Compensation Plan Information

As of January 5, 2012, we have not adopted an equity compensation plan under which our common stock is authorized for issuance.

 
22

 
 
 
 
SHARES AVAILABLE FOR FUTURE SALE
 
As of January 5, 2012, we had 148,295,243 shares of common stock outstanding.  The 39,928,955 shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act.
 
The outstanding shares of our common stock not included in this prospectus will be available for sale in the public market as follows:
 
Public Float
 
Of our outstanding shares, 22,490,428 shares are beneficially owned by executive officers, directors and affiliates.  The 39,928,955 shares, upon registration, will constitute our public float.
 
Rule 144
 
In general, under Rule 144, as currently in effect, a person, other than an affiliate, who has beneficially owned securities for at least six months, including the holding period of prior owners is entitled to sell his or her shares without any volume limitations; an affiliate, however, can sell such number of shares within any three-month period as does not exceed the greater of:
 
     1% of the number of shares of common stock then outstanding, or
     the average weekly trading volume of common stock on the OTC Bulletin Board during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
 
Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about an issuer.  In order to effect a Rule 144 sale of common stock, the transfer agent requires an opinion from legal counsel.  Further, the six month holding period is applicable only to issuers who have been subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 for at least 90 days.  As of January 5, 2012, no shares of our common stock are available for sale under Rule 144.
 
Restrictions on the Use of Rule 144 by Former Shell Companies
 
Rule 144 is not available for the resale of securities issued by any issuer that is or has been at any time previously a shell company unless the following conditions have been met:
 
     the issuer of the securities that was formerly a shell company has ceased to be a shell company;
     the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
 the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
 at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
 
As we are a former shell company, all shareholders will not be able to resell their securities utilizing Rule 144 until one year after the filing of the Form 10 information.

 
 
 
23

 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described.  This discussion should be read in conjunction with our audited Consolidated Financial Statements as of and for the two years ended December 31, 2010 and 2009, and our unaudited Consolidated Financial Statements for the period ended September 30, 2011.  This discussion contains forward-looking statements.

The operating results for the periods presented were not significantly affected by inflation.
 
OVERVIEW
 
With the acquisition of the Palm Medical Network IPA (Independent Physician Association) our Company has focused entirely on (i) building a multidisciplinary integrated medical group practices with a primary care physician focus; (ii) building a healthcare management service organizations that manage and coordinate the medical care of patients enrolled in multiple managed care health plans (i.e., HMOs) and (iii) integrating all aspects of this network with the requisite technology platform that incorporates physician friendly electronic medical records and practice management system services, including scheduling and billing capabilities. Starting in 2009, we commenced the acquisition process and management contracting with a number of group physician practices including those within the IPA’s approximately 1,600 credentialed physicians. This continues to be our organization-wide focus as we implement our business plan moving forward.
 
IPA Operations
 
Using an MSO structure the Palm IPA enters into agreements with HMOs to provide HMO enrollees with a full range of medical services in exchange for fixed, prepaid monthly fees known as "capitation" payments. The IPA’s MSO entities contract with primary care and specialist physicians and other healthcare providers to provide enrollees with all necessary medical services.  Palm Medical Group, Inc. which was originally founded by the Tenet Hospital chain in 1989 is now operated as Palm Medical Network, LLC (“Palm”) a wholly owned subsidiary of the Company. Together we provide each other with significant resources and the opportunities to grow their respective business models, but which are interdependent for management and infrastructure resources. Specifically Hygea provides core technologies and an alternative practice model. While Palm provides a network of primary care physicians along with their Management Services Organization (MSO), which contracts Medicare HMO membership with HMOs (e.g., Care Plus - Humana’s Medicare HMO, Physicians United, and Amerigroup among others). Palm’s IPA network of approximately 1,600 physicians is the largest such network in the state of Florida, practicing in 76 medical specialties and delivering over 4.5 million hours of patient care annually. The Company’s operating plan includes resources for programs and opportunities to dramatically increase the number of patients served through enrollments planned for 2011 and beyond.
 
We are focused on improving the quality of care for patients and achieving accurate and timely payment from its managed care plan partners for services rendered. This is achieved through the utilization of specialized third party healthcare consultants to identify and correct coding errors, conduct health risk assessments directly with patients to correctly identify all the issues and conditions affecting each patient, and conducting intensive medical record audits. Accurate tabulations of each patient’s medical risk assessment score within each practice and within our MSO we believe may result in higher top line revenue and profit margins for the Company.
 
Practice Operations
 
We manage, own and are acquiring physician practices that we incorporate into integrated multidisciplinary group practices. The principal focus is the acquisition of primary care physicians, which includes family practice, internal medicine, clinical cardiology and other primary care concentrated disciplines. We began implementation of our provider rollout strategy with an initial focus on the South and Central Florida markets. The business plans provide for expansion into surrounding states in the Southeast in 2012 and then throughout the U.S. in subsequent years. We are in active negotiation with specialty medical and ancillary healthcare service providers (including diagnostic facilities, pharmacies, rehabilitation therapy practices, among others) that will create community-based “medical malls” for more efficient, more comprehensive and better patient care. This model leverages the physicians “prescription pad” to generate ancillary revenue streams which are a multiple of the practices collective clinical revenue.
 
The practices are held in wholly-owned subsidiaries, where we provide management services to each of the practice subsidiaries. The management services provided include HMO contracting, physician recruiting, credentialing and contracting, human resources services, claims administration, financial reporting services, provider relations, patient eligibility and related services, pooled back office and front office administration, practice management systems, electronic medical record system, centralized billing, shared facilities, medical management including utilization management and quality assurance, data collection, management information systems and other services that provide scale efficiencies.
  
EMR/PMS Operations
 
We hold an interest in a medical software company that has deployed an electronic medical records and practice management system (“EMR/PMS”) across multiple physician practices in Florida and the US. This system provides integrated patient record management that is fully automated end-to-end. We have allocated and deployed financial and technical resources to speed the continued implementation and integration of EMR/PMS into additional Company-owned and other physician practice groups throughout the U.S.
 
Operating Results

As of December 31, 2010, we have contracts with four HMOs, from which most of our revenue was primarily derived. HMOs offer a comprehensive healthcare benefits package in exchange for a capitation amount per enrollee that does not vary through the contract period regardless of the quantity or cost of medical services required or used. HMOs enroll members by entering into contracts with employer groups or directly with individuals to provide a broad range of healthcare services for a prepaid charge, with minimal deductibles or co-payments required of the members. The contracts between our physician members and the HMOs through the Palm IPA and the HMO provide for the provision of medical services to the HMO enrollees in consideration for the prepayment of the fixed monthly capitation amount per enrollee.  The four HMO contracts and revenues ($ and % of consolidated medical revenue) realized for the years ended December 31, 2010 and 2009 is summarized as follows:
 
   
2010 Revenue (as restated)
   
2009 Revenue (as restated)
 
HMO
 
$
     
% (a)
   
$
     
% (a)
 
                             
CarePlus
  $
8,570,744
     
91.6
%
 
5,832,890
     
70.6
%
Preferred Care Partners
   
2,540
     
-
%
   
750
     
-
 
Citrus
   
-
     
-
     
195,900
     
2.4
%
Humana
   
-
     
-
     
12,875
     
0.2
%
Total
  $
 
8,573,284
     
91.6
%
  $
6,042,415
     
73.2
%

(a) Percentage noted represents percentage of consolidated medical revenue for period noted.
 
 
24

 
 
 
Capitation revenue under HMO contracts are prepaid monthly to the physician provides based on the number of covered HMO enrollees. Capitation revenue may be subsequently adjusted to reflect changes in enrollment as a result of retroactive terminations or additions. Variability in capitation revenue exists under Medicare's capitation model referred to as "Risk Adjustment." Under the model, capitation with respect to Medicare enrollees is subject to subsequent adjustment by CMS based on the acuity of the enrollees to whom services were provided and is memorialized in the Medical Risk Assessments (MRAs) given to member populations. Capitation for the current year is paid based on data submitted for each Medicare enrollee for preceding periods. Capitation is paid at interim rates during the year and is adjusted in subsequent periods after the final data is compiled. Positive or negative capitation adjustments are made for Medicare enrollees with conditions requiring more or less healthcare services than assumed in the interim payments. Since we do not have the information necessary to reliably predict these adjustments, periodic changes in capitation amounts earned as a result of risk adjustment are recognized once those changes are communicated to us by the health plans. The absolute capitation amount for a contract period is specifically driven by the MRAs performed by company in previous contract periods.
 
Risk pools are settled in the following year from earning the capitated amount through the settlement of the medical services claims against these amounts. Management estimates risk pool incentives based on information received from the HMOs or hospitals with whom the risk-sharing arrangements were in place, and who typically maintain the information and record keeping related to the risk pool arrangements. Differences between actual and estimated settlements are recorded when the final accounting is posted. Risk pool performance is affected by many factors, some of which are beyond our control, and may vary significantly from year to year.
 
The Practice Operation revenues consist primarily of amounts received for clinical medical services provided by our licensed medical practitioners. Ancillary revenues are currently a small percentage of total billed clinical revenues but are, under the Company’s business plan, to increase in 2011 and be a significant percentage of total Practice revenues in 2012 and beyond. We have determined in analyzing actuarial data in general healthcare, that for every dollar of clinical revenue produced by a primary care physician (PCP), that PCP will generate four to six dollars in ancillary revenue.  We define ancillary revenue as revenue delivered primary from laboratory, pharmacy, diagnostic (i.e. x-ray, CAT scan, and stress test) and physical or occupational therapy.  In an integrated group practice where Hygea owns the lab, pharmacy, diagnostic centers and therapy, revenue generated by those series are pooled as part of our total revenue.  Dependent upon the amount of capital raised, we anticipate acquiring several ancillary revenue producing entities during 2011 with the acquisition of one lab, one pharmacy and one diagnostic center or physical/occupational therapy centers.  This actuarial data of ancillary revenue has been obtained from the Florida Medical Group Management Association (FLMGMA) (http://www.flmgma.com/)

 Results of Operations
 
Comparison of the Years Ended December 31, 2010 and 2009

   
2010
   
2009
 
             
Medical revenues
           
Fixed fee arrangements
 
$
8,573,284
   
$
6,042,415
 
Fee for service arrangements
   
784,930
     
2,215,399
 
Total medical revenues
   
 
9,358,214
     
 
8,257,814
 
                 
License Fees and non-medical revenues
   
437,583
     
183,838
 
Total revenues
   
 
9,795,797
     
8,441,652
 
                 
Healthcare expenses
               
Physician and other provider expenses
   
6,855,434
     
5,618,683
 
                 
Gross margin
   
2,940,363
     
2,822,969
 
                 
Administrative and other operating expenses
               
Salaries and benefits
   
192,466
     
1,534,077
 
General and administrative
   
680,191
     
924,778
 
Professional fees
   
824,292
     
340,314
 
Total administrative and other operating expenses
   
1,696,949
     
2,799,169
 
                 
Net operating income
   
1,243,414
     
23,800
 
                 
Other income (expenses)
               
Other income
   
-
     
100,824
 
Other expenses
   
(5,400
)
   
-
 
Gain on acquisition
   
76,219
     
-
 
Interest expense
   
(36,849
)
   
(187,014
)
Total other income (expenses)
   
33,970
     
(86,190
)
                 
Net income (loss) before income taxes and non-controlling interest
   
1,277,384
     
(62,390
)
                 
Income tax benefit
   
17,961
     
-
 
                 
Income attributable to non-controlling interest
   
(129,360
)
   
(5,160
)
                 
Net income (loss)
 
$
1,165,985
   
$
(67,550
)
                 
 
 
25

 
 
Medical revenues amounted to $9,358,214 for the year ended December 31, 2010, which was an $1,100,400, or 13.3%, increase over medical revenues earned for the year ended December 31, 2009.  This net revenue increase was due to the Palm Medical Network LLC membership growing throughout the year (approximately $1,045,600 of the increase) and the Company implementing a prospective risk assessment through physical review of patients in addition to its already established retrospective chart review (approximately $600,000 of the increase).  These increases were partially offset by the reduction of clinical patient fees due to the 2009 sale of the Hygea Health Network practice (approximately $900,000 decrease).
 
License fees and non-medical revenues amounted to $437,583 for the year ended December 31, 2010, which represents a $253,745, or 138.0% increase from the year ended December 31, 2009.  During the year ended December 31, 2010, we realized $250,000 from licensing fees, $100,000 of deferred revenue earned under the CarePlus network agreement and $80,000 in marketing fees. During the year ended December 31, 2009, the balance was primarily attributable to $180,000 of licensing fees. The licensing fees involve transactions whereby doctor organizations in geographical areas we don’t serve pay a fee to license the Hygea name.
 
Physician and other provider expenses amounted to $6,855,434 for the year ended December 31, 2010, which was approximately 73.3% of medical revenues.  These expenses include capitation fee payments and CarePlus administrative fees.  Physician and other provider expenses amounted to $5,618,683 for the year ended December 31, 2009, which was approximately 68.0% of medical revenues. The increase in expenses, as a percentage of medical revenue, is due to the changing mix of our fixed fee and fee for service operations.  Our fixed fee operations carry a higher operating cost than do our fee for service activities and therefore when fixed fee revenues increase disproportionately to fee for service revenues, our costs as a percentage of such will increase.
 
Salaries and benefits amounted to $192,466 for the year ended December 31, 2010, representing a $1,341,611 reduction from the $1,534,077 incurred for the year ended December 31, 2009, due to the reduction of employee staff with the sale of the Hygea Health Network practice.
 
General and administrative expenses amounted to $680,191 for the year ended December 31, 2010, which represents a $244,587 reduction from the $924,778 incurred for the year ended December 31, 2009.  This reduction was due to elimination of the administrative expenses associated with the Hygea Health Network practice that was sold.
 
Professional fees amounted to $824,292 for the year ended December 31, 2010, and is comprised of legal, accounting and health care consulting expenses.  The increase of $483,978 from the $340,314 incurred in the year ended December 31, 2009, was due to the Company utilizing outside consultants to advance its expansion and preparation for its public financing.
 
Other income of $100,824 in the year ended December 31, 2009, represented forgiveness of debt related to professional fees.
 
Gain on acquisition during the year ended December 31, 2010, related to the excess of the fair value of the net assets acquired by the Company in the Opa-Locka Pain Management acquisition over the consideration given in exchange.

Interest expense amounted to $36,849 for the year ended December 31, 2010, as compared to $187,014 for the year ended December 31, 2009.  The reduction of $150,165 is due to the extinguishment of debt related to the Hygea Health Network practice.
 
Income attributable to non-controlling interest represents the minority interest share of Palm Medical Network, LLC net income.
 
Comparison of the Three and Nine Months Ended September 30, 2011 and 2010
 
 
26

 
 
   
For the Three Months Ended September 30,
   
For the Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Medical revenues
                       
Fixed fee arrangements
 
$
1,838,201
   
$
1,516,448
   
$
5,422,479
   
$
5,763,270
 
Fee for service arrangements
   
422,643
     
293,925
     
1,072,028
     
403,282
 
Total medical revenues
   
2,260,844
     
1,810,373
     
6,494,507
     
6,166,552
 
                                 
License fees and non-medical revenues
   
-
     
-
     
100,000
     
180,000
 
Total revenues
   
2,260,844
     
1,810,373
     
6,594,507
     
6,346,552
 
                                 
Healthcare expenses
                               
Physician and other provider expenses
   
1,622,543
     
1,175,313
     
4,508,586
     
4,743,564
 
                                 
Gross profit
   
638,301
     
635,060
     
2,085,921
     
1,602,988
 
                                 
Administrative and other operating expenses
                               
Salaries and benefits
   
82,679
     
101,222
     
421,089
     
139,219
 
General and administrative
   
231,664
     
200,401
     
751,572
     
501,396
 
Professional fees
   
190,815
     
258,746
     
565,402
     
473,820
 
Total administrative and other operating expenses
   
505,158
     
560,369
     
1,738,063
     
1,114,435
 
                                 
Net operating income
   
133,143
     
74,691
     
347,858
     
488,553
 
                                 
Other income (expenses)
                               
Gain on acquisition
   
-
     
-
     
-
     
76,219
 
Interest expense
   
(44,655
)
   
(1,690
)
   
(107,724
)
   
(7,379
)
Total other income (expenses)
   
(44,655
)
   
(1,690
)
   
(107,724
)
   
68,840
 
                                 
Net income before income taxes and non-controlling interest
   
88,488
     
73,001
     
240,134
     
557,393
 
                                 
Income tax (expense) benefit
   
(30,971
)
   
10,138
     
(42,919
)
   
33,615
 
                                 
Income attributable to non-controlling interest
   
(17,297
)
   
(38,514
)
   
(68,189
)
   
(111,467
)
Net income
 
$
40,220
   
$
44,625
   
$
129,026
   
$
479,541
 
 
 
27

 
 
Comparison of the Three Months Ended September 30, 2011 and 2010
 
Medical revenues amounted to $2,260,844 for the three months ended September 30, 2011, which was a $450,471, or 24.9%, increase over medical revenues earned for the three month period ended September 30, 2010.  This net revenue increase was due to an increase in average patients served under our fixed fee arrangements from 413 patients during the three months ended September 30, 2010 to 470 patients during the three months ended September 30, 2011.
 
Physician and other provider expenses amounted to $1,622,543 and $1,175,313 for the three months ended September 30, 2011 and 2010, respectively, which represented an increase to 71.8% from 64.9% of medical revenues for each period, respectively.  These expenses include capitation fee payments and CarePlus administrative fees.  As noted above, our fixed fee operations carry a higher operating cost than do our fee for service activities and therefore when fixed fee revenues increase disproportionately to fee for service revenues, our costs as a percentage of such will increase.
 
Salaries and benefits were comparable between the two periods and totaled $82,679 and $101,222 for the three month periods ended September 30, 2011 and 2010, respectively.   The decrease of $18,543 was primarily attributable to the timing of staff replacement for turnover experienced.
 
General and administrative expenses were also comparable between the periods and totaled $231,664 and $200,401 for the three month periods ended September 30, 2011 and 2010, respectively.   The increase of $31,263 was primarily attributable to increased rent expense ($10,055) and miscellaneous other immaterial increases.
 
Professional fees decreased $67,931 between the two periods, from $258,746 for the three months ended September 30, 2010, to $190,815 for the three months ended September 30, 2011.  This decrease was primarily attributable to lower legal expenses ($16,506), lower audit and accounting fees ($19,275) and lower outside consulting fees ($14,988).
 
Interest expense totaled $44,655 for the three month period ended September 30, 2011, which correlates with outstanding debt during period.   There was minimal debt outstanding during the three month period ended September 30, 2010.
 
Income attributable to non-controlling interest represents the minority interest share of Palm Medical Network, LLC net income.
 
Comparison of the Nine Months Ended September 30, 2011 and 2010

Medical revenues totaled $6,494,507 for the nine months ended September 30, 2011, which was a $327,955, or 5.3%, increase over medical revenues earned for the nine month period ended September 30, 2010. This increase was primarily related to the contribution from the OPA and Royal practices acquired in the second quarter of 2010, partially offset by the impact of an average loss of 150 patients served by under our fixed fee service arrangements between the two periods.
 
License fees and non-medical revenues amounted to $100,000 for the nine months ended September 30, 2011, representing an $80,000, or 44.4%, decrease compared to the $180,000 realized during the nine months ended September 30, 2010.   Both periods include $100,000 of deferred revenue earned under the CarePlus network agreement.  In addition, during the nine months ended September 30, 2010, we recognized $80,000 in marketing fees.
 
 
28

 
 
Physician and other provider expenses amounted to $4,508,586 and $4,743,564 for the nine months ended September 30, 2011 and 2010, respectively, which were approximately 69.4% and 76.9% of medical revenues, respectively.  As noted above, our fixed fee operations carry a higher operating cost than do our fee for service activities and therefore when fixed fee revenues decrease, as occurred when comparing the first nine months of 2011 to 2010, disproportionately to fee for service revenues, our costs as a percentage of such will decrease.
 
Salaries and benefits totaled to $421,089 and $139,219 for the nine month period ended September 30, 2011 and 2010, respectively.   The increase, amounting to $281,870, is primarily comprised of salaries related to Opa and Royal (two acquisitions made in second quarter 2010) for the entire 2011 period (as compared to partial in 2010), a new 2011 practice management contract and internal staff hiring for expansion and public offering.
 
General and administrative expenses amounted to $751,572 and $501,396 for the nine month period ended September 30, 2011 and 2010, respectively.   The increase, amounting to $250,176, primarily represents general and administrative expenses for Opa and Royal operations, for the entire period (as compared to only partially incurring such costs in the first nine months of 2010) and a new 2011 practice management contract.  
 
Professional fees amounted to $565,402 and $473,820 for the nine month period ended September 30, 2011 and 2010, respectively.   The increase, amounting to $91,582, primarily represents costs associated with the Company’s efforts to publicly list its common stock.
 
Interest expense amounted to $107,724 for the nine month period ended September 30, 2011, which correlates with outstanding debt during period.   There was minimal debt outstanding during the nine month period ended September 30, 2010.
 
Income attributable to non-controlling interest represents the minority interest share of Palm Medical Network, LLC net income.

Application of Critical Accounting Policies and Estimates
 
Use of Estimates
 
These consolidated financial statements include certain amounts based on the Company’s best estimates and judgments. The Company’s most significant estimates relate to revenue and accounts receivable goodwill and other intangible assets, income taxes, and contingent liabilities. These estimates require the application of complex assumptions and judgments, often because they involve matters that are inherently uncertain and will likely change in subsequent periods. The impact of any changes in estimates is included in earnings in the period in which the estimate is adjusted.
 
Revenues
 
The Company provides coordination and facilitation of medical services; transaction processing; customer, consumer and care professional services; and access to contracted networks of physicians, hospitals and other health care professionals under both risk-based and fee-based (non-risk) customer arrangements. Revenues derived from risk-based health insurance arrangements in which the premium is typically at a fixed rate per individual served for a one-year period, and where the Company assumes the economic risk of funding its customers’ health care and related administrative costs   are presented as fixed fee arrangements in the consolidated statements of operations. Revenues derived from fee-based customer arrangements are presented as fee for service arrangements in the consolidated statements of operations. The Company recognizes medical revenues on the accrual basis in the period in which eligible individuals are entitled to receive health care benefits.
 
Centers for Medicare and Medicaid Services (CMS) deploy a risk adjustment model that apportions premiums paid to all health plans according to health severity and certain demographic factors. The CMS risk adjustment model pays more for members whose medical history indicates they have certain medical conditions. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from hospital inpatient, hospital outpatient and physician treatment settings. The Company and health care providers collect, capture, and submit the necessary and available diagnosis data to CMS within prescribed deadlines. The Company estimates risk adjustment revenues based upon the diagnosis data submitted and expected to be submitted to CMS. Risk adjustment data for certain of the Company’s plans is subject to audit by regulators.
 
Payments under both the Company’s risk contracts and non-risk contracts (for both Medicare Advantage program as well as Medicaid) are subject to revision based upon premium adjustments, historical patient enrollment data and final settlements.  Such revision and final payments are settled over a period ranging from 18 to 24 months after the contractual period.  During 2010, the Company realized a shortfall of $118,402 in its estimated premiums accrued as a result of a billing error to CMS that was not identified prior to the deadline for correction.  The Company has restated its 2009 and 2010 results to account for this change in estimate.  Preliminary data provided in fiscal year 2011, with respect to the Company’s 2010 activity does not indicate a material variance to expected, and accrued, results.  However, these amounts will not be fully resolved until fiscal year 2012.  Should there be variances to amounts reported, each 1% adjustment to our estimated recoverable amounts will increase or decrease our revenue by approximately $25,000.
 
Non-medical revenues consist primarily of license fees and consulting fees, which are presented on the accrual basis in the period in which the amounts are earned.
 
Health Maintenance Organization Contracts
 
The Company’s Health Maintenance Organization (“HMO”) contracts have various expiration dates ranging from one to three years with automatic renewal terms. Upon negotiation of any of the HMO contracts, the expiration dates may be extended beyond the automatic renewal terms.
 
When it is probable that expected future health care costs and maintenance costs under a contract or group of existing contracts will exceed anticipated captivated revenue on those contracts, the Company recognizes losses on its prepaid health care services with HMOs.
 
The Company has acquired reinsurance on catastrophic costs to limit the exposure on patient losses. The Company has the right to terminate unprofitable physicians and close unprofitable centers under its managed care contracts.
 
Medical Service Expense
 
The Company contracts with or employs various health care providers to provide medical services to its patients. Primary care physicians are compensated on either a salary or capitation basis. For patients enrolled under full risk managed care contracts, the cost of specialty services are paid on either a fee for service, per diem, or capitation basis.
 
The cost of health care services provided or contracted for under full risk managed care contracts are accrued in the period in which services are provided.
 
 
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Reinsurance (Stop-Loss Insurance)
 
Reinsurance coverage is purchased from CarePlus under our administrative service contract with this provider to cover catastrophic claims or to limit aggregate annual costs. Accordingly, reinsurance premiums are reported as a health care cost and are included in physician and other provider expenses in the consolidated statements of operations. Reinsurance recoveries are reported as a reduction of physician and other provide expenses in the consolidated statement of operations.
 
The nature of our reinsurance or stop loss is to limit the benefits paid under one patient to $30,000 per year. Physicians under capitation arrangements typically have stop loss coverage so that a physician’s financial risk for any single member is limited to a maximum amount on an annual basis. We monitor the financial performance and solvency of our capitated providers. However, we remain financially responsible for health care services to our members in the event our providers fail to provide such services.
 
Recoveries that are recognized in the statements of operations approximate $404,254 for the year ended December 31, 2010.  There was no such recovery recognized in the year ended December 31, 2009.  There is no recoverable amount recognized in the Company’s balance sheets from an accrual of recoveries under stop loss policies at either December 31, 2010 or December 31, 2009.
 
Cash and Cash Equivalents
 
For purposes of the statement of cash flows, the Company considers as cash equivalents all time deposits and highly liquid investments with a maturity of three months or less, when purchased.
 
Accounts Receivable
 
The Company’s accounts receivable are derived primarily from its risk-based health insurance arrangements (fixed fee arrangements) in which the premium is typically at a fixed rate per individual served for a one-year period.  The Company estimates risk adjustment revenues based upon the diagnosis data submitted and expected to be submitted to CMS. The reimbursement timing can span from 18 to 24 months which is attributable to the customary (and industry standard) timetable in Medicare reimbursement for pass through from HMO risk contractors.  However, given the Company’s historical reimbursement activity, the Company does not believe it to have a material risk of collection of any of these amounts and therefore has not recorded a reserve for such risk.  The Company’s accounts receivable also include reimbursements amount due from health insurance companies for services performed for insured patients under our fee for service program.  These amounts are set by contract and the Company does not believe there to be a material risk of uncollectibility of these amounts due to its historical collection experience and financial strength of its counterparties.
 
At September 30, 2011, the Company had a net receivable from CarePlus Health Plans, Inc. (“CarePlus”) of $2,464,098.  This net receivable is comprised of estimated risk adjustments due the Company of $3,372,458 reduced by advance payments made by CarePlus to providers of $908,360.  As noted previously, the risk adjustments are settled 18 to 24 months after the date of service.  The Company expects to receive gross reimbursements of $1,617,936 in August 2012 and $1,754,522 in August 2013 respectively, net of any amounts advanced by CarePlus.  Therefore, based on amounts advanced through September 30, 2011, $908,360 would be deducted from the payment from CarePlus in 2012, resulting in a net payment of $709,576.

The Company evaluates the creditworthiness of CarePlus through periodic review of the financial statements of its parent, Humana, Inc. Humana is one of the nation’s largest publicly traded health and supplemental benefits companies, based on its 2010 revenues of approximately $33.9 billion.
 
Property and Equipment
 
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the underlying assets’ useful lives or the term of the lease, whichever is shorter. Repairs and maintenance costs are expensed as incurred. Improvements and replacements are capitalized.
 
Fair Value of Financial Instruments
 
The Company’s financial instruments consist mainly of cash and cash equivalents, certificates of deposit, amount due from HMOs and accounts payable. The carrying amount of cash and cash equivalents, certificates of deposit, amounts due from HMOs, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments.
 
Goodwill
 
Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. To determine whether goodwill is impaired, the Company performs a two-step impairment test. In the first step of the test, the fair values of the reporting units are compared to their aggregate carrying values, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than its carrying amount, the Company would proceed to step two of the test. In step two of the test, the implied fair value of the goodwill of the reporting unit is determined by a hypothetical allocation of the fair value calculated in step one to all of the assets and liabilities of that reporting unit (including any recognized and unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was reflective of the price paid to acquire the reporting unit. The implied fair value of goodwill is the excess, if any, of the calculated fair value after hypothetical allocation to the reporting unit’s assets and liabilities. If the implied fair value of the goodwill is greater than the carrying amount of the goodwill at the analysis date, goodwill is not impaired and the analysis is complete. If the implied fair value of the goodwill is less than the carrying value of goodwill at the analysis date, goodwill is deemed impaired by the amount of that variance.
 
 
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The Company calculates the estimated fair value of our reporting units using discounted cash flows. To determine fair values the Company must make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (includes significant assumptions about operations, capital requirements and income taxes), long-term growth rates for determining terminal value, and discount rates. Where available and appropriate, comparative market multiples are used to corroborate the results of our discounted cash flow test.
 
The Company completed its annual assessment of goodwill as of January 2011 and determined that no impairment existed as of December 31, 2010 or 2009. Although the Company believes that the financial projections used are reasonable and appropriate for all of its reporting units, there is uncertainty inherent in those projections. That uncertainty is increased by potential health care reforms, as any passed legislation may significantly change the forecasts and long-term growth rate assumptions for some or all of its reporting units.
 
Intangible Assets
 
Finite lived intangible assets are acquired in a business combination and are assets that represent future expected benefits but lack physical substance. Intangible assets are amortized over their expected useful lives and are subject to impairment tests when events or circumstances indicate that a finite lived intangible assets (or asset group’s) carrying value may exceed its estimated fair value. If the carrying value exceeds its estimated fair value, impairment would be recorded.
 
The Company calculates the estimated fair value of finite lived intangible assets using undiscounted cash flows that are expected to result from the use of the intangible asset or group of assets. The Company considers many factors, including estimated future utility to estimate cash flows.
 
Non-Controlling Interest
 
Non-controlling interests relate to the third party ownership in a consolidated entity in which the Company has a controlling interest. For financial reporting purposes, the entity’s assets, liabilities, and operations are consolidated with those of the Company, and the non-controlling interest in the entity is included in the Company’s consolidated financial statements within the equity section of the balance sheet.
 
 Income Taxes
 
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
 
Earnings per Common Share