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As filed with the Securities and Exchange Commission on February 10, 2015

Registration No. 333-197219

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 7 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FOUNDATION HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

14000 N. Portland Avenue, Ste. 200

Oklahoma City, Oklahoma 73134

(405) 608-1700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Stanton Nelson

Chief Executive Officer

Foundation Healthcare, Inc.

14000 N. Portland Avenue, Ste. 200

Oklahoma City, Oklahoma 73134

(405) 608-1700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

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.  ¨

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.  ¨

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.  ¨

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

CALCULATION OF REGISTRATION FEE

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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary 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.

SUBJECT TO COMPLETION, DATED FEBRUARY 10, 2015

Preliminary Prospectus

Foundation Healthcare, Inc.

3,000,000 Units

We are offering to sell 3,000,000 units in this offering (each, a “Unit”) at a price per Unit of $                , with each Unit consisting of one share of our common stock (each, a “Share”) and one warrant (each, a “Warrant”) to purchase 0.5 of one share of our common stock (each whole share, a “Warrant Share”) at an exercise price of $         per Warrant Share. 85% of the Shares included in the Units and of the Warrant Shares acquirable upon exercise of the Warrants will be newly issued shares of our common stock offered by us and 15% will be existing shares of our common stock offered by the selling stockholders named herein. We will not receive any of the proceeds from the sale of the Shares or Warrant Shares acquirable upon exercise of the Warrants being sold by the selling stockholders. The Warrants will expire on                     , 2018, three years from the date of the issuance. The Shares and the Warrants are immediately separable and will be issued separately. No fractional Warrants will be issued.

Our common stock is quoted on the OTCQB marketplace under the symbol “FDNHD” until approximately February 6, 2015 as the result of our Reverse Split described below. Beginning on or around February 9, 2015, our common stock will resume trading on the OTCQB marketplace under the symbol “FDNH.” On January 8, 2015, we effected a 1-for-10 reverse stock split of our outstanding common stock (the “Reverse Split”). The last reported sale price of our common stock on the OTCQB on February 5, 2015 was $4.00 per share. There is no established public trading market for the Warrants, and we do not expect a market to develop. In addition, we do not intend to apply for listing of the Warrants on any national securities exchange or other nationally recognized trading system.

Investing in our securities involves a high degree of risk.

You should carefully consider the information in the section entitled “Risk Factors” beginning on page 13 of this prospectus before making a decision to purchase our securities.

We and one of the selling stockholders have granted the underwriters a 30-day option, which may be exercised in whole or in part from time to time during such period, to purchase up to (i) 450,000 additional Units from us, (ii) 450,000 additional Shares from us and the selling stockholder and/or (iii) additional Warrants from us to purchase up to 225,000 Warrant Shares, with 85% of any such Shares and/or Warrant Shares to be sold by us and 15% of any such Shares and/or Warrant Shares to be sold by the selling stockholder.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the Units will be made on or about                     , 2015.

Sole Book-Running Manager

Roth Capital Partners

Co-Managers

The date of this prospectus is                     , 2015.

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You should rely only on the information contained in this prospectus, any amendment or supplement hereto or any free writing prospectus prepared by us or on our behalf. We have not, the selling stockholders have not, and the underwriters have not authorized anyone to provide you with information that is different. We and the selling stockholders are offering to sell, and seeking offers to buy, securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of the Units.

This prospectus contains estimates and other statistical data made by independent parties relating to market size, expenditures, growth and other data about our industry.

This prospectus includes registered and unregistered trademarks of Foundation Healthcare, Inc. and its subsidiaries as well as the registered and unregistered trademarks of others. All other trademarks, tradenames and servicemarks appearing in this prospectus are the property of their respective owners.

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PRESENTATION OF CERTAIN FINANCIAL MEASURES

Certain financial measures presented in this prospectus, such as Adjusted EBITDA, are not recognized under accounting principles generally accepted in the United States, which we refer to as “GAAP.” Adjusted EBITDA has been presented in this prospectus as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, further adjusted to eliminate the impact of certain additional items, including certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance from period to period as discussed further below. Adjusted EBITDA is included in this prospectus because it is a key metric used by management to assess our financial performance. We use Adjusted EBITDA to supplement GAAP measures of performance in order to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income (loss) as a measure of financial performance, or any other performance measure derived in accordance with GAAP, nor should it be construed as an inference that our future results will be unaffected by unusual or other items. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as preopening expenses, stock compensation expense, and other adjustments. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures, facility openings and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. Management compensates for these limitations by supplementally relying on our GAAP results in addition to using Adjusted EBITDA. Our presentation of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

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RISK FACTORS

An investment in our Units involves a high degree of risk. Before deciding to invest in our Units, you should carefully consider the following risk factors, as well as other information contained in this prospectus. The occurrence of any of these risks could materially and adversely affect our business, prospects, financial condition or results of operations, which could cause you to lose all or part of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties that are not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, results of operations and cash flows, in which case you may lose all or part of your investment in our Units. In addition, statements in the following risk factors may constitute forward-looking statements. Please see “Cautionary Statement Concerning Forward-Looking Statements.”

Risks Related to Our Business

We will require significant amounts of additional financing to execute our business plan and fund our other liquidity needs. If our operating results do not meet or exceed our projections, we may be unable to continue operations and could be forced to substantially curtail operations or cease operations all together.

On June 30, 2014, we completed a refinancing of substantially all of the outstanding indebtedness of Foundation Healthcare, Inc. and its wholly-owned subsidiaries through the execution of a Loan Agreement, or the SNB Credit Facility, with Bank SNB, National Association, and Texas Capital Bank, together referred to as Lenders. The SNB Credit Facility provides for a term loan in the principal amount of $27.5 million, referred to as the Term Loan, and a revolving line of credit of $2.5 million, referred to as the Revolving Loan, for total principal of $30 million. We believe our cash on hand, the $2.5 million Revolving Loan and projected cash flow from operations will provide us enough liquidity to meet our cash requirements over the next 12 months. However, if our cash flows from operations do not meet or exceed our projections, we may need to raise additional funds through debt or equity financings. These uncertainties raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have a bank credit facility of approximately $30 million and we may not maintain compliance with certain financial covenants. These covenants and other provisions of the credit facility could also have a negative impact on our liquidity or restrict our activities.

Under the Loan Agreement covering the SNB Credit Facility and commencing with the calendar quarter ending September 30, 2014 and thereafter during the term of the SNB Credit Facility, based on the latest four rolling quarters, we agreed to continuously maintain compliance with the following financial covenants (collectively referred to as “Debt Ratios”):

Senior Debt Ratio. We must maintain a Senior Debt Ratio not in excess of 3.00 to 1.00 as of the end of each fiscal quarter.

Senior Debt Service Coverage Ratio. We must maintain a Senior Debt Service Coverage Ratio of not less than 1.30 to 1.00 as of the end of each fiscal quarter.

Adjusted Senior Debt Service Coverage Ratio. We must maintain an Adjusted Senior Debt Service Coverage Ratio of not less than 1.05 to 1.00.

As of September 30, 2014, we were in compliance with the Debt Ratios. The Debt Ratios are calculated using the latest four rolling quarters. Until June 30, 2015 and for purposes of calculating compliance with the financial covenants in SNB Credit Facility, EBITDA shall be determined by annualizing EBITDA for the fiscal quarter ending on September 30, 2014 and each quarter that has elapsed thereafter. If we are unsuccessful in complying with the Debt Ratios, there is no assurance that our Lenders will waive or delay the requirement.

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In addition to these financial covenants, the SNB Credit Facility also contains various other provisions that limit our ability to engage in specified types of transactions. Our overall leverage and the terms of the SNB Credit Facility could:

A breach of any of these covenants could result in a default under the SNB Credit Facility.

Moreover, in addition to the general defaults of failure to perform our obligations under the SNB Credit Facility, events of default under the SNB Credit Facility also include the occurrence of a change in control, as defined in the SNB Credit Facility, the loss of our Medicare or Medicaid certification, collateral casualties, entry of a judgment of $150,000 or more, failure of first liens on collateral, the termination of any of our management agreements that represent more than 10% of our management fees for the preceding 18-month period, a material default under intercompany notes or material contracts, a default under any debt instruments or agreements resulting in the acceleration of more than $100,000 of such debt, and certain governmental actions that might result in a material adverse effect, as defined in the SNB Credit Facility. In this regard, certain of our subsidiaries have guaranteed an initial aggregate principal amount of approximately $23.9 million of indebtedness of certain of our Affiliates, which, if not timely paid by such Affiliates, could result in a cross-default under the SNB Credit Facility.

In the event of a default, SNB Bank may declare all of our obligations under the SNB Credit Facility immediately due and payable and such obligations would bear an additional 10% interest. If the Lenders accelerate the payment of outstanding principal and interest, we will need to file a current report on Form 8-K with the SEC disclosing the event of default and the acceleration of payment of all principal and interest. In addition, we do not expect to be able to pay all outstanding principal and interest if the Lenders accelerate the due dates for such amounts. Since we have granted the Lenders a security interest in all of our assets, the Lenders could elect to foreclose on such assets. If the Lenders declare an event of default and/or accelerate the payment of our obligations under the SNB Credit Facility, then the disclosure of such fact may cause a material decrease in the price of our stock. The declaration of an event of default and the move to foreclose on our assets may cause a material adverse effect on our ability to operate our business in the ordinary course of business as well as a material adverse effect on our liquidity, results of operations and financial position.

We have incurred significant operating losses since the Foundation Acquisition and although we anticipate generating operating income in the near future, our operating losses could continue. In addition, our auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.

We have financed our operations through revenues from operations, as well as the issuance of debt and equity securities and have incurred significant losses since the Foundation Acquisition. Net loss attributable to

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Foundation Healthcare common stock was $20.4 million for the year ended December 31, 2013 and $3.2 million for the nine months ended September 30, 2014. We are unable to predict the extent of any future losses or when and if we will become profitable.

Furthermore, our audited financial statements for the year ended December 31, 2013, were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements indicating that we have insufficient working capital as of December 31, 2013 to fund anticipated working capital needs over the next twelve months, and that these factors raise substantial doubt about our ability to continue as a going concern. Disclosures questioning a company’s ability to continue as a going concern are generally viewed unfavorably by analysts and investors. If we become unable to continue as a going concern, we will likely have to liquidate our assets. The covenants under our SNB Credit Facility may limit our ability to dispose of material assets or operations, and even if permitted, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, such measures may not be available or successful. As a result, you may lose your investment. The reaction of investors to the inclusion of a going concern uncertainty explanatory paragraph by our auditors and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital, enter into strategic alliances, and/or maintain compliance with the financial or other covenants under our SNB Credit Facility.

If we continue to incur losses, we may be unable to continue to operate our business and may need to cease operations entirely. Continued operations and our ability to continue as a going concern may also be dependent on our ability to obtain additional funding in the near future and thereafter, and there are no assurances that such funding will be available at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.

We have identified a material weakness in the internal controls over financial reporting at FSA and FSHA and we may identify additional significant deficiencies or material weaknesses when we complete our 2014 assessment internal controls over financial reporting.

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

We intend to continue to grow our business through the acquisition of existing facilities or interests in such facilities. When we acquire such businesses or interests, our due diligence may fail to discover defects or deficiencies in the design and operations of the internal controls over financial reporting of such businesses, or defects or deficiencies in the internal controls over financial reporting may arise when we try to integrate the operations of these newly acquired businesses with our own. We can provide no assurances that we will not experience such issues in future acquisitions, the result of which could have a material adverse effect on our financial statements.

In this regard, although we have not performed an assessment of the effectiveness of the design and operation of the internal controls over financial reporting at FSA and FSHA, we have identified certain material weaknesses at FSA and FSHA related to the lack of sufficient internal review and approval of critical accounting schedules used

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in the preparation of financial statements and the lack of sufficient review and approval of the accounting impact and treatment of material contracts and agreements. FSA and FSHA were not required to be included in our assessment of internal controls for 2013 but will be included in our assessment for 2014, which may increase our risk for additional significant deficiencies or material weaknesses in our internal control over financial reporting.

We have experienced and may continue to see the growth of uninsured and “patient due” accounts, and deterioration in the collectability of these accounts which would adversely affect our collections of accounts receivable, revenues, results of operations and cash flows.

The primary collection risks associated with our accounts receivable relate to the uninsured patient accounts and patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and co-payments) remain outstanding. The provision for doubtful accounts relates primarily to amounts due directly from patients. This risk has increased, and will likely continue to increase, as more individuals enroll in high deductible insurance plans or those with high co-payments or who have no insurance coverage. These trends will likely be exacerbated if general economic conditions remain challenging or if unemployment levels in the communities in which we operate rise. As a result of such conditions, our business strategies to generate organic growth and to improve admissions and adjusted admissions at our facilities could become more difficult to accomplish.

The amount of our provision for doubtful accounts is based on our assessments of historical collection trends, business and economic conditions, trends in federal and state governmental and private employer health coverage and other collection indicators. A continuation in trends that results in increasing the proportion of accounts receivable being comprised of uninsured accounts and deterioration in the collectability of these accounts could adversely affect our collections of accounts receivable, results of operations and cash flows. As enacted, the ACA seeks to decrease, over time, the number of uninsured individuals. Among other things, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, collectively referred to as the ACA, incentivizes states to expand their Medicaid eligibility requirements and incentivizes employers to offer, and requires individuals to carry, health insurance or be subject to penalties. However, it is difficult to predict the full impact of the ACA due to its complexity, lack of implementing regulations and interpretive guidance, gradual and potentially delayed implementation, and possible amendment, as well as our inability to foresee how individuals, businesses and states will respond to the choices afforded them by the ACA. In addition, even after implementation of the ACA, we may continue to experience uncollectible accounts and be required to provide uninsured discounts and charity care for undocumented aliens who are not permitted to enroll in a health insurance exchange or government healthcare programs.

Controls designed to reduce inpatient services may reduce our revenues.

Controls imposed by Medicare, Medicaid, and commercial third-party payors designed to reduce admissions and lengths of stay, commonly referred to as “utilization review,” have affected and are expected to continue to affect our facilities. Federal law contains numerous provisions designed to ensure that services rendered by healthcare facilities to Medicare and Medicaid patients meet professionally recognized standards and are medically necessary and that claims for reimbursement are properly filed. These provisions include a requirement that a sampling of admissions of Medicare and Medicaid patients must be reviewed by quality improvement organizations, which review the appropriateness of Medicare and Medicaid patient admissions and discharges, the quality of care provided, the validity of diagnosis related group, or MS-DRG, classifications and the appropriateness of cases of extraordinary length of stay or cost on a post-discharge basis. Quality improvement organizations may deny payment for services or assess fines and also have the authority to recommend to the U.S. Department of Health and Human Services, or HHS, that a provider which is in substantial noncompliance with the standards of the quality improvement organization be excluded from participation in the Medicare program. The ACA potentially expands the use of prepayment review by Medicare contractors by eliminating statutory restrictions on their use. As a result, efforts to impose more stringent cost controls are expected to continue. Utilization review is also a requirement of most non-governmental managed care organizations and

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other third-party payors. Inpatient utilization, average lengths of stay and occupancy rates continue to be negatively affected by payor-required preadmission authorization and utilization review and by third party payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients. Although we are unable to predict the effects of these controls and changes, they could have a material, adverse effect on our business, financial position and results of operations.

The healthcare industry trend towards value-based purchasing may negatively impact our revenues.

There is a trend in the healthcare industry toward value-based purchasing of healthcare services. These value-based purchasing programs include both public reporting of quality data and preventable adverse events tied to the quality and efficiency of care provided by facilities. Governmental programs including Medicare and Medicaid currently require healthcare facilities to report certain quality data to receive full reimbursement updates. In addition, Medicare does not reimburse for care related to certain preventable adverse events. Many large commercial payors currently require healthcare facilities to report quality data, and several commercial payors do not reimburse healthcare facilities for certain preventable adverse events.

The ACA contains a number of provisions intended to promote value-based purchasing. Effective July 1, 2011, the ACA prohibits the use of federal funds under the Medicaid program to reimburse providers for medical assistance provided to treat hospital acquired conditions (“HAC”s). Beginning in federal fiscal year (“FFY”) 2015, hospitals that fall into the top 25% of national risk-adjusted HAC rates for all hospitals in the previous year will receive a 1% reduction in their total Medicare payments. Another provision reduces payments for all inpatient discharges for hospitals that experience excessive readmissions for certain conditions designated by HHS.

The ACA also requires HHS to implement a value-based purchasing program for inpatient hospital services. The ACA requires HHS to reduce inpatient hospital payments for all discharges by a percentage beginning at 1% in FFY 2013 and increasing by 0.25% each fiscal year up to 2% in FFY 2017 and subsequent years. HHS will pool the amount collected from these reductions to fund payments to reward hospitals that meet or exceed certain quality performance standards established by HHS. HHS will determine the amount each hospital that meets or exceeds the quality performance standards will receive from the pool of dollars created by these payment reductions.

We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common and to involve a higher percentage of reimbursement amounts. We are unable at this time to predict how this trend will affect our results of operations, but it could negatively impact our revenues.

The lingering effects of the economic recession could materially adversely affect our financial position, results of operations or cash flows.

The U.S. economy continues to experience the negative effects from an economic recession, and unemployment levels remain relatively high. While certain healthcare spending is considered non-discretionary and may not be significantly impacted by economic downturns, other types of healthcare spending may be adversely impacted by such conditions. When patients are experiencing personal financial difficulties or have concerns about general economic conditions, they may choose:

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We are unable to determine the specific impact of these economic conditions on our business at this time, but we believe that the lingering effects of the economic recession could have an adverse impact on our operations and could impact not only the healthcare decisions of our patients, but also the solvency of managed care providers and other counterparties to transactions with us.

The failure of certain employers, or the closure of certain manufacturing and other facilities in our markets, can have a disproportionate impact on our facilities.

The economies in the non-urban communities in which our facilities primarily operate are often dependent on a small number of large employers, especially manufacturing or other facilities. These employers often provide income and health insurance for a disproportionately large number of community residents who may depend on our facilities for care. The failure of one or more large employers, or the closure or substantial reduction in the number of individuals employed at manufacturing or other facilities located in or near many of the non-urban communities in which our facilities primarily operate, could cause affected employees to move elsewhere for employment or lose insurance coverage that was otherwise available to them. The occurrence of these events may cause a material reduction in our revenues and results of operations or impede our business strategies intended to generate organic growth and improve operating results at our facilities.

We may have difficulty acquiring healthcare facilities or interest in them on favorable terms.

One element of our business strategy is expansion through the acquisition of healthcare facilities, such as surgical hospitals or ASCs, or interests in such facilities, primarily in non-urban markets. We face significant competition to acquire attractive facilities, and we may not find suitable acquisitions on favorable terms. Our primary competitors for acquisitions have included for-profit and tax-exempt hospitals and hospital systems and privately capitalized start-up companies. Buyers with a strategic desire for any particular healthcare facility, for example, a hospital located near existing hospitals or those who will realize economic synergies, have demonstrated an ability and willingness to pay premium prices for such facilities. Strategic buyers, as a result, can present a competitive barrier to our acquisition efforts.

Given the increasingly challenging regulatory and enforcement environment, our ability to acquire healthcare facilities or interests in them could be negatively impacted if targets are found to have material unresolved compliance issues. We may condition our purchase on the resolution of such issues. We could experience delays in closing or fail to close transactions with targets that initially were attractive but became unattractive as a result of a poor compliance program, material non-compliance with laws or failure to timely address compliance risks.

The cost of an acquisition could have a negative effect on our results of operations, depending on various factors, including the amount paid for the acquisition, the acquired facility’s results of operations, allocation of purchase price, effects of subsequent legislation and limitations on rate increases. In the past, we have occasionally experienced temporary delays in improving the operating margins or effectively integrating the operations of our acquired facilities. In the future, if we are unable to improve the operating margins of acquired facilities, operate them profitably or effectively integrate their operations, we may be unable to achieve our growth strategy.

Even if we are able to identify an attractive target, we may not be able to obtain financing, if necessary, for any acquisitions or joint ventures that we might undertake. We will need capital to execute our growth strategy and may finance future acquisitions and development projects through debt or equity financings. Disruptions to financial markets or other adverse economic conditions may adversely impact our ability to complete any such financing or the terms of any such financing. To the extent that we undertake these financings, our stockholders may experience ownership dilution. To the extent we incur debt, we may have significant interest expense and may be subject to covenants in the related debt agreements that affect the conduct of our business. If we do not have sufficient capital resources, our growth could be limited and our results of operations could be adversely impacted. Our SNB Credit Facility requires that we comply with financial covenants and may not permit additional borrowing or other sources of debt financing, especially if we are not in compliance with those

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covenants. We can give you no assurances that we will be able to obtain financing necessary for our acquisition and development strategy or that, if available, the financing will be available on terms acceptable to us. Our failure to acquire facilities or interests in them consistent with our growth plans could prevent us from increasing our revenues.

In recent years, the legislatures and attorneys general of several states have become more interested in sales of hospitals by tax-exempt entities. This heightened scrutiny may increase the cost and difficulty, or prevent the completion, of transactions with tax-exempt organizations in the future.

We can give you no assurances that we will be successful in acquiring or developing suitable facilities, that the businesses we acquire and develop will achieve satisfactory operating results or that newly developed facilities will not incur greater than expected operating losses.

We may encounter difficulty operating, integrating and improving financial performance at acquired facilities.

We may be unable to timely and effectively integrate any facilities that we acquire with our ongoing operations. We may experience delays in implementing operating procedures and systems in newly acquired facilities. Integrating an acquired facility could be expensive and time consuming and could disrupt our ongoing business, negatively affect cash flow and distract management and other key personnel. In addition, acquisition activity requires transitions from, and the integration of, operations and, usually, information systems that are used by acquired businesses. In addition, we may not be able to achieve improved financial performance at acquired facilities within our targeted time frames, or continue to improve financial performance for sustained periods following the acquisition.

Loss of members of our senior management or failure to attract other highly qualified personnel could adversely affect the combined company’s operations.

We depend on the continued service of members of our senior management and other qualified personnel for the success of our business. For example, we rely on our Chairman, Thomas A. Michaud, for identification, completion and integration of new acquisitions and development opportunities given his connections in the market for surgical hospitals, ASCs and ancillary service facilities. We also rely on our Chief Executive Officer, Stanton Nelson, for his leadership of our company and its operation as a public company as well as his experience identifying and completing acquisitions and in raising both equity and debt financing. The loss of services of any of the members of our senior management or such qualified personnel could adversely affect our business until a suitable replacement can be found. There can be no assurance that we will be able to identify or employ such qualified personnel on acceptable terms or on a timely basis, which could cause a disruption to our business.

If we do not effectively attract, recruit and retain qualified physicians, our ability to deliver healthcare services efficiently will be adversely affected.

As a general matter, only physicians on our medical staffs may direct admissions and the services ordered once a patient is admitted to one of our facilities. As a result, the success of our facilities depends in part on the number and quality of the physicians on the medical staffs of our facilities, the admitting practices of those physicians and maintaining good relations with those physicians.

The success of our efforts to recruit and retain quality physicians depends on several factors, including the actual and perceived quality of services provided by our facilities, our ability to meet demands for new technology and our ability to identify and communicate with physicians who want to practice in non-urban communities. In particular, we face intense competition in the recruitment and retention of specialists because of the difficulty in convincing these individuals of the benefits of practicing or remaining in practice in non-urban communities. If

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the non-urban communities in which our facilities primarily operate are not seen as attractive, then we could experience difficulty attracting and retaining physicians to practice in our communities. In this regard, in some of the markets in which we operate, there are shortages of physicians in our targeted specialties. In addition, in some of these markets, hospitals are recruiting physicians or groups of physicians to become employed by the hospitals, including primary care physicians and physicians in our targeted specialties, and restricting those physicians’ ability to refer patients to physicians and facilities not affiliated with the hospital. In addition, physicians, hospitals, payors and other providers may form integrated delivery systems or utilize plan structures that restrict the physicians who may treat certain patients or the facilities at which patients may be treated. These restrictions may impact our facilities and the medical practices of our physician partners. We may not be able to recruit all of the physicians we target. In addition, we may incur increased costs, expenses or other liabilities, such as those relating to malpractice if the quality of physicians we recruit does not meet our expectations.

From time to time, we have had and may have future disputes with physicians who use or own interests in our facilities. Our revenues and profitability may be adversely affected if a key physician or group of physicians stop using or reduce their use of our facilities as a result of changes in their physician practice, changes in payment rates or systems, or a disagreement with us. In addition, if the physicians who use our facilities do not provide quality medical care or follow required professional guidelines at our facilities or there is damage to the reputation of a physician or group of physicians who use our facilities, our business and reputation could be damaged.

Additionally, our ability to recruit physicians is closely regulated. For example, the types, amount and duration of assistance we can provide to recruited physicians are limited by the federal physician self-referral law, referred to as the Stark law, a federal criminal law which prohibits knowingly and willfully offering, paying, soliciting or receiving any form of remuneration in return for referring patients for services or items payable under a federal healthcare program or purchasing, leasing, ordering or arranging for any good, facility, service or item for which payment may be made in whole or in part by a federal healthcare program, referred to as the federal Anti-Kickback Statute, state anti-kickback statutes, and related regulations. The Stark law requires, among other things, that recruitment assistance can only be provided to physicians who meet certain geographic and practice requirements, that the amount of assistance cannot be changed during the term of the recruitment agreement, and that the recruitment payments cannot generally benefit physicians currently in practice in the community beyond recruitment costs actually incurred by them. In addition to these legal requirements, there is competition from other communities and facilities for these physicians, and this competition continues after the physician is practicing in one of our communities.

Our facilities face competition for staffing, which may increase labor costs and reduce profitability.

In addition to our physicians, the operations of our facilities are dependent on the efforts, abilities and experience of our facilities management and medical support personnel, such as nurses, pharmacists and lab technicians. We compete with other healthcare providers in recruiting and retaining qualified management and staff personnel responsible for the day-to-day operations of each of our facilities, including nurses and other non-physician healthcare professionals. In some markets, the scarce availability of nurses and other medical support personnel presents a significant operating issue. This shortage may require us to enhance wages and benefits to recruit and retain nurses and other medical support personnel, recruit personnel from foreign countries, and hire more expensive temporary or contract personnel. In addition, the states in which we operate could adopt mandatory nurse-staffing ratios or could reduce mandatory nurse staffing ratios already in place. State-mandated nurse-staffing ratios could significantly affect labor costs and have an adverse impact on revenues if we are required to limit admissions in order to meet the required ratios. If our labor costs increase, we may not be able to raise rates to offset these increased costs. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. Because a significant percentage of our revenue consists of fixed, prospective payments, our ability to pass along increased labor costs is constrained. Our failure to recruit and retain qualified management, nurses and other medical support personnel or to control our labor costs could have a material adverse effect on our financial condition or results of operations.

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The loss of certain physicians can have a disproportionate impact on certain of our facilities.

Certain physicians generate a relatively large amount of revenue at our facilities compared to other physicians. For example, the top ten attending physicians within each of our hospitals generally represent a large share of our inpatient revenues and admissions. The loss of any such physicians, even if temporary, could cause a material reduction in our revenues and operating profits at any of our facilities, which could take significant time to replace given the difficulty and costs associated with recruiting and retaining physicians.

We are subject to risks associated with outsourcing functions to third parties.

To improve operating margins, productivity and efficiency, we outsource selected nonclinical business functions to third parties. We take steps to monitor and regulate the performance of independent third parties to whom we delegate selected functions, including revenue cycle management, patient access, billing, cash collections, payment compliance and support services, project implementation, supply chain management and payroll services.

Arrangements with third party service providers may make our operations vulnerable if vendors fail to satisfy their obligations to us as a result of their performance, changes in their own operations, financial condition, or other matters outside of our control. The expanding role of third party providers may also require changes to our existing operations and the adoption of new procedures and processes for retaining and managing these providers, as well as redistributing responsibilities as needed, in order to realize the potential productivity and operational efficiencies. Effective management, development and implementation of our outsourcing strategies are important to our business. If there are delays or difficulties in enhancing business processes or our third party providers do not perform as anticipated, we may not fully realize on a timely basis the anticipated economic and other benefits of the outsourcing projects or other relationships we enter into with key vendors, which could result in substantial costs, divert management’s attention from other strategic activities, negatively affect employee morale or create other operational or financial problems for us.

Terminating or transitioning arrangements with key vendors could result in additional costs and a risk of operational delays, potential errors and possible control issues as a result of the termination or during the transition phase.

Other healthcare facilities provide services similar to those which we offer. In addition, physicians provide services in their offices that could be provided in our facilities. These factors increase the level of competition we face and may therefore adversely affect our revenues, profitability and market share.

Competition among healthcare service providers has intensified in recent years. We compete with other healthcare service providers, including larger tertiary care centers located in larger metropolitan areas, and with physicians who provide services in their offices which could otherwise be provided in our facilities. Although the healthcare service providers with which we compete may be a significant distance away from our facilities, patients in our markets may migrate on their own to, may be referred by local physicians to, or may be encouraged by their health plan to travel to these third party facilities. Furthermore, some of the healthcare service providers with which we compete may offer more or different services than those available at our facilities, may have more advanced equipment or may have a medical staff that is thought to be better qualified. Also, some of the healthcare service providers that compete with our facilities are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These healthcare service providers, in many instances, are also exempt from paying sales, property and income taxes.

Quality of care and value-based purchasing have also become significant trends and competitive factors in the healthcare industry. In 2005, the Centers for Medicare and Medicaid Services, or CMS, began making public performance data relating to ten quality measures that healthcare facilities submit in connection with their Medicare reimbursement. Since that time, CMS has on several occasions increased the number of quality measures these facilities are required to report in order to receive the full Inpatient Prospective Payment System and Outpatient

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Prospective Payment System market basket updates. In addition, the Medicare program no longer reimburses healthcare facilities for care relating to certain preventable adverse events, and many private healthcare payors have adopted similar policies. If the public performance data become a primary factor upon which patients choose to receive care, and if competing healthcare facilities have better results than our facilities on those measures, we would expect that our patient volumes could decline.

We also face very significant and increasing competition from services offered by physicians (including physicians on our medical staffs) in their offices and from other specialized care providers, including outpatient surgery, oncology, physical therapy and diagnostic centers (including many in which physicians may have an ownership interest). Some of our hospitals have and will seek to develop outpatient facilities where necessary to compete effectively. However, to the extent that other providers are successful in developing outpatient facilities or physicians are able to offer additional, advanced services in their offices, our market share for these services will likely decrease in the future.

If we do not continually enhance our facilities with the most recent technological advances in diagnostic and surgical equipment, our ability to maintain and expand our markets may be adversely affected.

Technological advances, including with respect to computer-assisted tomography scanner (CTs), magnetic resonance imaging (MRIs) and robotic surgery devices, continue to evolve. In addition, the manufacturers of such equipment often provide incentives to try to increase their sales, including providing favorable financing to higher credit risk organizations. In an effort to compete, we must continually assess our equipment needs and upgrade our equipment as a result of technological improvements. We believe that the level of patient traffic correlates directly to the quality and level of sophistication of such diagnostic and surgical equipment. If we don’t maintain our facilities with diagnostic and surgical equipment that is in-line with current technological advances, we may lose patient traffic and our revenues may be materially reduced.

We may be subject to liabilities because of malpractice and other legal claims, which may not be covered by insurance.

We have been and may continue to be subject to medical malpractice lawsuits and other legal actions arising out of the operations of our owned and leased facilities and the activities of our employed physicians. These actions may involve large claims and significant defense costs. In an effort to resolve one or more of these matters, we may choose to negotiate a settlement. Amounts we pay to settle any of these matters may be material. Although we maintain professional and general liability insurance with unrelated commercial insurance carriers to provide for losses in excess of our deductible amount, claims could exceed the scope of the coverage in effect, or coverage of particular claims could be denied. In this regard, as of September 10, 2014, most of our ASC’s limits on professional insurance and general insurance policies are each $2,000,000 per occurrence and $4,000,000 aggregate per year. The rest of the ASC’s and the Hospitals each have $1,000,000 per occurrence/$3,000,000 aggregate per year. If we are required to pay material amounts which are not covered by insurance, it could have a material adverse effect on our cash position, cash flows from operations and net income.

Our failure to successfully implement our growth plan may adversely affect our financial performance.

We intend to grow incrementally through acquisitions of healthcare facilities or interests in them. As this growth plan is pursued, we may encounter difficulties expanding and improving our operating and financial systems to maintain pace with the increased complexity of the expanded operations and management responsibilities.

The success of our growth strategy will also depend on a number of other factors, including:

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The failure of our growth strategy may have a material adverse effect on our operating results and financial condition.

If we acquire businesses with unknown or contingent liabilities, we could become liable for material obligations.

We have directly or indirectly assumed liabilities of businesses that we have acquired or obtained an interest in, and may continue to do so in the future. There may be liabilities or risks that we fail, or are unable, to discover, or that we underestimate, in the course of performing our due diligence investigations of such businesses. Additionally, businesses that we have acquired, invested in, or may acquire or invest in at some point in the future may have made previous acquisitions, and we will be subject to certain liabilities and risks relating to these prior acquisitions as well. Examples of such liabilities and risks include failure to comply with healthcare laws and regulations, medical and general professional liabilities, worker’s compensation liabilities, tax liabilities and unacceptable business practices. We cannot assure you that our rights to indemnification contained in agreements that we have entered or may enter into will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition or results of operations. As we begin to operate acquired businesses, we may learn additional information about them that adversely affects us, such as unknown or contingent liabilities, issues relating to compliance with applicable laws or issues related to ongoing operations. Unexpected liabilities could have a material adverse impact on our business.

The goodwill and other intangible assets acquired pursuant to our acquisitions of healthcare facilities may become impaired and require write-downs and the recognition of substantial impairment expense. Goodwill and other intangible assets related to future acquisitions may require additional write-downs and the recognition of additional substantial impairment expense.

At September 30, 2014, we had $1.0 million and $9.6 million in goodwill and other intangible assets, respectively, that were recorded in connection with the acquisitions of our facilities. We periodically evaluate whether or not to take an impairment charge on our goodwill, as required by the applicable accounting literature. Our evaluation is based on our (i) assessment of current and expected future economic conditions, (ii) trends, strategies and forecasted cash flows at each business unit and (iii) assumptions similar to those that market participants would make in valuing our business units. Our evaluation of goodwill and intangible assets completed during 2013 identified an impairment in goodwill of $21.9 million related to the goodwill attributable to the reverse acquisition treatment of the Foundation Acquisition.

In the event that this goodwill or other intangible assets are determined to be further impaired for any reason, we will be required to write-down or reduce the value of the goodwill and recognize an impairment expense. The impairment expense may be substantial in amount and adversely affect the results of our operations for the applicable period and may negatively affect the market value of our common stock.

Also, in the event that we record additional goodwill or other intangibles on future acquisitions and we subsequently determine the goodwill or other intangibles to be impaired for any reason, we will be required to write-down or reduce the value of the goodwill and recognize an impairment expense. The impairment expense may be substantial in amount and adversely affect the results of our operations for the applicable period and may negatively affect the market value of our common stock.

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We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled debt payments or to refinance our existing debt obligations depends on our financial condition and operating performance, both of which are subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our existing indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay planned investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations, which could have a material adverse impact on our business.

Our business may be negatively impacted by weather and other factors beyond our control.

The financial condition and results of operations of our facilities may be adversely impacted by adverse weather conditions, including tornados or earthquakes, or other factors beyond our control that cause disruption of patient scheduling, displacement of our patients, employees and physician partners, and force certain of our facilities to close temporarily. In certain geographic areas, we have a relatively large concentration of facilities that may be simultaneously affected by adverse weather conditions or events. Our future financial and operating results may be adversely affected by weather and other factors that disrupt the operation of our facilities.

Risks Related to Healthcare Regulation

We cannot predict the effect that the ACA and its implementation may have on our business, financial condition or results of operations.

The ACA was signed into law, in two parts, on March 23, 2010 and March 30, 2010. The ACA dramatically alters the U.S. healthcare system. It will change how healthcare services are covered, delivered and reimbursed including its intended decrease of the number of uninsured Americans and reduction of the overall cost of healthcare. The ACA attempts to achieve these goals by, among other things, requiring most Americans to obtain health insurance, expanding Medicare and Medicaid eligibility, reducing Medicare and Medicaid disproportionate share hospital (“DSH”) payments to providers, expanding the Medicare program’s use of value-based purchasing programs, tying Medicare and Medicaid reimbursement to the satisfaction of certain quality criteria, bundling payments to hospitals and other providers, and instituting certain private health insurance reforms as well as stating an intent to increase enforcement of fraud and abuse laws and increase cooperation between various federal agencies. This increased enforcement and cooperation is intended to be achieved by establishing mechanisms for the sharing of information between federal agencies and enhancement of criminal and administrative penalties for non-compliance. Although a majority of the measures contained in the ACA just recently became effective, certain of the reductions in Medicare spending, such as negative adjustments to the Medicare hospital inpatient and outpatient prospective payment system market basket updates and the incorporation of productivity adjustments to the Medicare program’s annual inflation updates, became effective in 2010, 2011 and 2012. Although the expansion of health insurance coverage should increase revenues from providing care to certain previously uninsured individuals, several of these provisions of the ACA have been delayed. For example, the ACA’s employer mandate, will require certain larger employers that do not offer health insurance benefits to their employees to make “shared responsibility payments” if even a single employee

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obtains government-subsidized coverage through the Health Insurance Marketplace, has been delayed until January 1, 2015 for employers with 100 or more employees and January 1, 2016 for employers with 50 to 99 employees. The impact of such expansion may be gradual and may not offset scheduled decreases in reimbursement.

On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the ACA, including the “individual mandate” provisions of the ACA that generally require all individuals to obtain healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the ACA that authorized the Secretary of HHS to penalize states that choose not to participate in the expansion of the Medicaid program by removing all of their existing Medicaid funding was unconstitutional. In response to the ruling, a number of U.S. governors, including those of some states in which we operate, have stated that they oppose their state’s participation in the expanded Medicaid program, which could result in the ACA not providing coverage to some low-income persons in those states. In addition, several bills have been and may continue to be introduced in Congress to repeal or amend all or significant provisions of the ACA. Furthermore there is also pending litigation which has been appealed to the U.S. Supreme Court challenging the federal government granting subsidies to individuals who purchase coverage on the healthcare insurance marketplace.

Currently, it is difficult to predict or assess the full impact of the ACA on the healthcare industry. The net effect of the ACA on our business is subject to numerous variables, including the law’s complexity, lack of complete implementing regulations and interpretive guidance, gradual and potentially delayed implementation or possible amendment, as well as the uncertainty as to the extent to which states will choose to participate in the expanded Medicaid program. As a result, we are unable to predict the net effect on our business, financial condition or results of operations of the expected increases in insured individuals using our facilities, the reductions in government healthcare reimbursement spending, and numerous other provisions of the ACA that may affect us. We are also unable to predict how providers, payors, employers and other market participants will respond to the various reform provisions because many provisions will not be implemented for several years under the ACA’s implementation schedule. Further, we are unable to predict the outcome of new or remaining court challenges and the impact of continued legislative efforts to delay implementation of or amend the ACA. As a result, one or more of these variables could have a material adverse effect on our business, financial condition, results of operation or cash flows.

Our revenues will decline if federal or state programs reduce our Medicare or Medicaid payments or if managed care companies reduce reimbursement amounts. In addition, the financial condition of payors and healthcare cost containment initiatives may limit our revenues and profitability.

In 2013, we derived 27% of our revenues from the Medicare and Medicaid programs, collectively. The Medicare and Medicaid programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or reimbursements and requirements for utilization review, among other things, and federal and state funding restrictions, which could materially increase or decrease payments from these government programs in the future, as well as affect the timing of payments to our facilities.

We are unable to predict the effect of future government healthcare funding policy changes on our operations. If the rates paid by governmental payors are reduced, if the scope of services covered by governmental payors is limited or if we or one or more of our facilities are excluded from participation in the Medicare or Medicaid program or any other government healthcare program, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, revenues from HMOs, PPOs and other private payors are subject to contracts and other arrangements that require us to discount the amounts we customarily charge for healthcare services.

During the past several years, healthcare payors, such as federal and state governments, insurance companies and employers, have undertaken initiatives to revise payment methodologies and monitor healthcare costs. As part of their efforts to contain healthcare costs, payors increasingly are demanding discounted fee structures or the

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assumption by healthcare providers of all or a portion of the financial risk related to paying for care provided, often in exchange for exclusive or preferred participation in their benefit plans. Similarly, many individuals and employers have attempted to reduce their healthcare costs by moving to private payor plans that reimburse our facilities at significantly lower rates than other competing private payors. We expect efforts to impose greater discounts and more stringent cost controls by government and private payors to continue, thereby reducing the payments we receive for our services. In addition, payors have instituted policies and procedures to substantially reduce or limit the use of inpatient services. For example, CMS has transitioned to full implementation of the MS-DRG system, which represents a refinement to the existing diagnosis-related group system. Future realignments in the MS-DRG system could impact the margins we receive for certain services. Furthermore, the ACA and taxpayer relief laws such as the American Taxpayer Relief Act, provide for material reductions in the growth of Medicare program spending, including reductions in Medicare market basket updates, and Medicare DSH funding.

In addition, the Budget Control Act of 2011 (the “BCA”) requires automatic spending reductions of $1.2 trillion for FFY 2013 through 2021, minus any deficit reductions enacted by Congress and debt service costs. These reductions have been extended through FFY 2024. The percentage reduction for Medicare may not be more than 2% for a FFY, with a uniform percentage reduction across all Medicare programs. These BCA-mandated spending cuts are commonly referred to as “sequestration.” Sequestration began on March 1, 2013, and CMS imposed a 2% reduction on Medicare claims as of April 1, 2013. We cannot predict with certainty what other deficit reduction initiatives may be proposed by Congress or whether Congress will attempt to restructure or suspend sequestration.

Two of our hospitals are certified as providers of Medicaid services. Medicaid programs are jointly funded by federal and state governments and are administered by states under an approved plan that provides healthcare benefits to qualifying individuals who are unable to afford care. A number of states, however, are experiencing budget problems and have adopted or are considering legislation designed to reduce their Medicaid expenditures, including enrolling Medicaid recipients in managed care programs and imposing additional taxes on hospitals to help finance or expand such states’ Medicaid systems. It is possible that budgetary pressures will force states to resort to some of the cost saving measures mentioned above. These efforts could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Managed care plans have increased their market share in some areas in which we operate, which has resulted in substantial competition among healthcare providers for inclusion in managed care contracting and may limit the ability of healthcare providers to negotiate favorable payment rates. In addition, managed care payors may lower reimbursement rates in response to increased obligations on payors imposed by healthcare laws, such as the ACA, or future reductions in Medicare reimbursement rates. Further, payors may utilize plan structures, such as narrow networks or tiered networks, that limit patient provider choices or impose significantly higher cost sharing obligations when care is obtained from providers in a disfavored tier. We can give you no assurances that future changes to reimbursement rates by government healthcare programs, cost containment measures by private third-party payors, including fixed fee schedules and capitated payment arrangements, or other factors affecting payments for healthcare services will not adversely affect our future revenues, operating margins or profitability.

We are subject to increasingly stringent governmental regulation, and may be subjected to allegations that we have failed to comply with governmental regulations which could result in sanctions and even greater scrutiny that reduce our revenues and profitability.

All participants in the healthcare industry are required to comply with many laws and regulations at the federal, state and local government levels. These laws and regulations require that our facilities meet various requirements, including those relating to ownership and control, hospitals’ and ASCs’ relationships with physicians and other referral sources, the adequacy and quality of medical care, providing emergency care, credentialing and qualifications of medical and other ancillary support persons, inpatient admission criteria, privacy and security of health information, standards for equipment, personnel, operating policies and

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procedures, billing and cost reports, payment for services and supplies, handling of overpayments, maintenance of adequate records, compliance with building codes and environmental protection, relationships between referral sources and our facilities, antitrust, and various state licensing standards and requirements among other matters. Many of the laws and regulations applicable to the healthcare industry are complex, and there are numerous enforcement authorities, including CMS, the Office of the Inspector General, or OIG, State Attorneys General, and contracted auditors, as well as whistleblowers. Some positions taken in connection with enforcement appear to be inconsistent with historical common practices within the industry but have not previously been challenged. Moreover, as a result of the provisions of the ACA that created potential False Claims Act, or FCA, liabilities for failing to report and repay known overpayments and return an overpayment within sixty (60) days of the identification of the overpayment or the date by which a corresponding cost report is due, whichever is later, hospitals and other healthcare providers are encouraged to disclose potential violations of law.

Hospitals continue to be one of the primary focal areas of the OIG and other governmental fraud and abuse programs. In January 2005, the OIG issued Supplemental Compliance Program Guidance for Hospitals that focuses on hospital compliance risk areas. Some of the risk areas highlighted by the OIG include correct outpatient procedure coding, revising admission and discharge policies to reflect current CMS rules, submitting appropriate claims for supplemental payments such as pass-through costs and outlier payments and a general discussion of the fraud and abuse risks related to financial relationships with referral sources. Each FFY, the OIG also publishes a General Work Plan that provides a brief description of the activities that the OIG plans to initiate or continue with respect to the programs and operations of HHS and details the areas that the OIG believes are prone to fraud and abuse.

The laws and regulations with which we must comply are complex and subject to change. In the future, different interpretations or enforcement of these laws and regulations could subject our practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. If we fail to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate our facilities and our ability to participate in the Medicare, Medicaid and other federal and state healthcare programs.

We are also subject to various federal, state and local statutes and ordinances regulating the discharge of materials into the environment. Our healthcare operations generate medical waste, such as pharmaceuticals, biological materials and disposable medical instruments that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Our operations are also subject to various other environmental laws, rules and regulations. Environmental regulations also may apply when we renovate or refurbish hospitals or other facilities, particularly ones that are older. Any of the governmental authorities that regulate us in the statues where we currently operate may consider enhancing, enforcing or establishing new requirements. Our failure to comply with any of these requirements could have a material adverse effect on our business, financial condition, results of operation or cash flows.

As a result of increased reviews of claims to Medicare and Medicaid for our services, we may incur additional costs and may be required to repay amounts already paid to us.

We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare for payment for our services. These post-payment reviews are increasing as a result of government cost containment initiatives, including enhanced medical necessity reviews for Medicare patients admitted as inpatients to general acute care hospitals for certain procedures (e.g., cardiovascular procedures) and audits of Medicare claims under the Recovery Audit, or RAC, programs. RACs utilize a post-payment targeted review process employing data analysis techniques in order to identify those Medicare claims most likely to contain overpayments, such as incorrectly coded services, short stays, incorrect payment amounts, non-covered services and duplicate payments. The claims review strategies used by the RACs generally include a review of high dollar claims, including inpatient hospital claims. As a result, a large majority of the total amounts recovered by RACs has come from hospitals. In addition, CMS has announced a pre-payment demonstration project that will allow RACs to review claims before they are paid to ensure that the provider complied with all Medicare payment

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rules. Under the demonstration project, RACs conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments, beginning with those involving short stay inpatient hospital services. These reviews will focus on certain states with high populations of fraud and error-prone providers (including the state of Texas in which we operate) and other states that have high claims volumes involving short inpatient hospital stays. The demonstration project began on August 27, 2012 and will run for a three year period.

The ACA expanded the RAC program’s scope to include managed Medicare and to include Medicaid claims, and all states are now required to establish programs to contract with RACs. In addition, CMS employs Medicaid Integrity Contractors (“MICs”) to perform post-payment audits of Medicaid claims and identify overpayments. The ACA increases federal funding for the MIC program for FFY 2011 and later years. In addition to RACs and MICs, the state Medicaid agencies and other contractors have also increased their review activities. Any such audit or investigation could have a material adverse effect on the results of our operations.

As a result of increased reviews from third party payors of claims for our services, we may incur additional costs and may be required to repay amounts already paid to us.

We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to third party payors for payment for our services. These post-payment reviews are increasing as a result of cost containment initiatives, including enhanced medical necessity reviews, managed care arrangements and audits of claims. Third party payors have also targeted out of network providers with allegations of over billing and sought to obtain claw backs of payments made. The claims review strategies used by the third party payors generally include a review of high dollar claims, including inpatient hospital claims, facility fees and surgical fees. As a result, a large majority of the total amounts recovered by third party payors has come from large providers and hospitals. Any such audit or investigation could have a material adverse effect on the results of our operations.

In this regard, two of our subsidiaries, Foundation Surgery Affiliates, LLC and Foundation Surgery Management, LLC, and our Huntingdon Valley, Pennsylvania ASC, Huntingdon Valley Surgery Center, are currently defendants in a lawsuit in the United States District Court for the Eastern District of Pennsylvania initially filed by Aetna Life Insurance Company, or Aetna, on June 5, 2013 and amended on December 2, 2013. Aetna seeks an accounting, money damages, in amounts that would be material, and injunctive relief related to, among other things, allegedly improper referral inducements to physicians, waivers of deductibles and other payments, and non-disclosures by physician of their ownership interests in the Huntingdon Valley ASC with respect to Aetna patients such that patients would utilize out-of network providers at excessive cost to Aetna.

If federal or state laws or regulations prohibit physician ownership of our facilities, it may become necessary for us to purchase some or all of the ownership interests then owned by the physician owners. Alternatively, we may be asked to renegotiate some of our arrangements with our physician partners and management agreements with our facilities.

In general, physicians have an ownership interest in our facilities. For example, all of our surgical hospitals and ASCs currently have physician owners. Due to statutory and regulatory changes or changes in the interpretation of existing laws or regulations, we may be required to purchase the ownership interests in our facilities currently held by our physician partners. In such an event, we would have to reevaluate the relationship the facility has with such physician partners including referrals in order to ensure we are in compliance with federal and state fraud and abuse laws. In the event we are required to purchase any of our physician partners’ equity interests, it may negatively impact our existing cash resources or have a material adverse effect on our business. In addition, if we purchase physician partners’ equity interests in physician-owned hospitals then we may not later be able to sell that interest to another potential physician partner as a result of the ACA.

If we fail to comply with the Anti-Kickback Statute, we could be subject to criminal and civil penalties, loss of licenses and exclusion from governmental programs, which may result in a substantial loss of revenues.

The Anti-Kickback Statute prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or

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leasing of items or services payable by Medicare, Medicaid or any other federally funded healthcare program. The Anti-Kickback Statute is broad in scope, and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. Courts have found a violation of the Anti-Kickback Statute if just one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. Violations of the Anti-Kickback Statute may result in substantial civil or criminal penalties, plus three times the remuneration involved or the amount claimed and exclusion from participation in the Medicare and Medicaid programs. Our exclusion from participation in such programs would have a material adverse effect on our business, prospects, results of operations and financial condition. In addition, many of the states in which we operate have also adopted laws, similar to the Anti-Kickback Statute, that prohibit payments to physicians in exchange for referrals, some of which apply regardless of the source of payment for care. These statutes typically impose criminal and civil penalties, including the loss of a license to do business in the state.

In July 1991, HHS issued final regulations defining various “safe harbors” under the Anti-Kickback Statute. Two of the original safe harbors issued in 1991 apply to business arrangements similar to those used in connection with our surgical facilities. Business arrangements that meet the requirements of the safe harbors are deemed to be in compliance with the Anti-Kickback Statute. Business arrangements that do not meet the safe harbor requirements do not necessarily violate the Anti-Kickback Statute, but may be subject to scrutiny by the Federal government to determine compliance.

In November 1999, HHS issued final regulations creating additional safe harbor provisions, including a safe harbor that applies to physician ownership of, or investment interests in, ASCs. However, our ASC arrangements do not comply with all of the requirements of the ASC safe harbor and, therefore, are not immune from government review or prosecution.

Although we believe that our business arrangements do not violate the Anti-Kickback Statute or similar state laws, a government agency or a private party may assert a contrary position. Additionally, new federal or state laws may be enacted that would cause our relationships with our physician partners to become illegal or result in the imposition of penalties against us or our facilities. If any of our business arrangements with physician partners were alleged or deemed to violate the Anti-Kickback Statute or similar laws, or if new federal or state laws were enacted rendering these arrangements illegal, it could have a material adverse effect on our business, prospects, results of operations and financial condition.

We and our healthcare facilities are involved from time to time in lawsuits, claims and investigations, and we may be subjected to actions brought by the government under anti-fraud and abuse provisions under the False Claims Act, any of which could result in substantial costs, divert management’s attention, adversely affect our business condition, or harm our reputation, regardless of their merit or outcome.

Because of the nature of our business, we and our healthcare facilities are involved from time-to-time in lawsuits, claims, audits and investigations, including “qui tam” cases under the False Claims Act and subpoenas and investigations by the DOJ and the OIG, such as those arising out of services provided, arrangements with physicians, personal injury claims, professional liability claims, billing and marketing practices, employment disputes and contractual claims. Any of these lawsuits, claims, audits or investigations could result in substantial costs, divert management’s attention, adversely affect our business condition, or harm our reputation, regardless of their merit or outcome.

In addition, over the past several years, the federal government has accused an increasing number of healthcare providers of violating the federal False Claims Act which prohibits providers from, among other things, knowingly submitting false claims for payment to the federal government. The statute defines “knowingly” to include not only actual knowledge of a claim’s falsity, but also reckless disregard for or intentional ignorance of the truth or falsity of a claim. The “qui tam” or “whistleblower” provisions of the False Claims Act allow private individuals to bring actions under the False Claims Act on behalf of the government. These private parties are entitled to share in any amounts recovered by the government, and, as a result, the number of “whistleblower” lawsuits that have been filed

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against providers has increased significantly in recent years. Defendants found to be liable under the federal False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties ranging between $5,500 and $11,000 for each separate false claim. The statute of limitations for billing errors can extend to up to ten years. Since our facilities jointly perform thousands of similar procedures, should any allegations of billing error with payment from Medicare or Medicare occur, it could have a material adverse effect on our business and result in civil or criminal penalties. Qui tam cases are initially sealed by the court when they are filed. The only parties that are initially aware a qui tam action has been filed are the whistleblower, the federal government and the court in which the matter was filed. Therefore, it is possible for qui tam lawsuits to be filed against us or our facilities, and possibly without our knowledge.

There are many potential bases for liability under the False Claims Act. The government has used the False Claims Act to prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, submitting false cost reports, and providing care that is not medically necessary or that is substandard in quality. Under the ACA, any overpayment by Medicare or Medicaid received by our facilities must be reported and repaid within sixty days of when it was identified as an overpayment. Failure to report and submit repayment within this time period may subject the facility or facilities not in compliance to FCA action. The ACA also provides that claims submitted in connection with patient referrals that result from violations of the Anti-kickback Statute constitute false claims for the purposes of the federal False Claims Act, and some courts have held that a violation of the Stark law can result in False Claims Act liability, as well. In addition, a number of states have adopted their own false claims and whistleblower provisions whereby a private party may file a civil lawsuit in state court. We are required to provide information to our employees and certain contractors about state and federal false claims laws and whistleblower provisions and protections.

Although we intend and will endeavor to conduct our business in compliance with all applicable federal and state fraud and abuse laws, many of these laws are broadly worded and may be interpreted or applied in ways that cannot be predicted. Therefore, we cannot assure you that our arrangements or business practices will not be subject to government scrutiny or be found to be in compliance with applicable fraud and abuse laws. Should any of our facilities be found liable of violating the FCA, it could have a material adverse effect on our business.

If we fail to effectively and timely implement electronic health record systems, our operations could be adversely affected.

As required by The American Recovery and Reinvestment Act of 2009, as amended, or ARRA, the Secretary of HHS has developed and implemented an incentive payment program for eligible hospitals and healthcare professionals that adopt and use electronic health record (“EHR”) technology. Currently, the ARRA incentive payment program does not apply to ASCs. HHS uses the Provider Enrollment, Chain and Ownership System (“PECOS”) to verify Medicare enrollment prior to making EHR incentive program payments. If our hospitals and employed professionals are unable to meet the requirements for participation in the incentive payment program, including having an enrollment record in PECOS, we will not be eligible to receive incentive payments that could offset some of the costs of implementing EHR systems. Further, beginning in FFY 2015, eligible hospitals and professionals that fail to demonstrate meaningful use of certified EHR technology may be subject to reduced payments from Medicare. System conversions to comply with EHR could be time consuming and disruptive for physicians and employees. Failure to implement EHR systems effectively and in a timely manner could have a material adverse effect on our financial position and results of operations.

We are in process of converting certain of our clinical and patient accounting information system applications to newer versions of existing applications or all together new applications at several of our facilities. In connection with our implementations and conversions, we have incurred significant capitalized costs and additional training and implementation expenses. In addition, EHR incentive payments previously recognized are subject to audit and potential recoupment if it is determined that we did not meet the applicable meaningful use standards required in connection with such incentive payments.

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All healthcare providers, including our facilities, are currently required to begin using the new 10th revision of the International Statistical Classification of Diseases and Related Health Problems, a medical classification list by the World Health Organization, or ICD-10 coding system, as of October 1, 2015. The new ICD-10 will vastly increase the number of billing codes and provide for more detailed billing codes. The transition to ICD requires the training of staff and changes to software. The additional ICD-10 codes also may result in decreased reimbursement. Upon the implementation of the new ICD-10, it is anticipated that there may be significant delays in payment due to technical or coding errors or other implementation issues involving either our systems or health plans and third party payors.

If we fail to comply with physician self-referral laws as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur substantial monetary penalties and a significant loss of revenues.

The federal physician self-referral law, commonly referred to as the Stark Law, prohibits a physician from making a referral to an entity for the furnishing of certain “designated health services” otherwise payable under Medicare or Medicaid if the physician or a member of the physician’s immediate family has a financial relationship with the entity, such as an ownership interest or compensation arrangement, unless an exception applies. The Stark Law also prohibits entities that provide designated health services otherwise payable by Medicare or Medicaid from billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to the prohibited referral. HHS, acting through CMS, has promulgated regulations implementing the Stark Law. These regulations exclude health services provided by an ASC from the definition of “designated health services” if the services are included in the facility’s composite Medicare payment rate. Therefore, the Stark Law’s self-referral prohibition generally does not apply to health services provided by an ASC. However, if the ASC is separately billing Medicare for designated health services that are not covered under the ASC’s composite Medicare payment rate, or if either the ASC or an affiliated physician is performing (and billing Medicare) for procedures that involve designated health services that Medicare has not designated as an ASC service, the Stark Law’s self-referral prohibition would apply and such services could implicate the Stark Law. We believe that our operations do not violate the Stark Law, as currently interpreted. All services provided by our ASCs that would otherwise constitute designated health services are reimbursed by Medicare as part of the composite payment rate and are thus subject to an exception from the Stark Law, with the exception of implants. The Stark Law provides for a special exception for implants, such as intraocular lenses and artificial joints, furnished in ASCs as long as certain regulatory requirements are met. These requirements provide that the implant must be implanted by the referring physician or a member of his or her group practice, that the implant be implanted during a surgical procedure reimbursed as an ASC procedure by Medicare, that the arrangement for the furnishing of the implant not violate the Anti-Kickback Statute and that the billing for the implant be conducted legally. In addition, we believe that physician ownership of ASCs is not prohibited by similar self-referral statutes enacted at the state level. However, the Stark Law and similar state statutes are subject to different interpretations with respect to many important provisions. Moreover, the Stark Law applies to other of our facilities, including surgical hospitals. Violations of these self-referral laws may result in substantial civil or criminal penalties, including large civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. If physician self-referral laws are interpreted differently or if other legislative restrictions are issued, we could incur significant sanctions and loss of revenues, or we could have to change our arrangements and operations in a way that could have a material adverse effect on our business, prospects, results of operations and financial condition.

The federal Stark law restricts the ability of our surgical hospitals to expand surgical capacity.

The Stark Law provides an exception which permits physicians to refer Medicare and Medicaid patients to hospitals in which they have an ownership interest, if certain requirements are met. However, the ACA vastly limited this exception by prohibiting physician ownership in hospitals which did not have a Medicare provider agreement in place as of December 31, 2010. This prohibition does not impact our hospitals as they all had a Medicare provider agreement in place prior to December 31, 2010. Therefore, our “grandfathered” facilities are

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permitted to continue to operate under the same ownership structure in place prior to the ACA. However, the ACA prohibits our “grandfathered” hospitals from increasing their percentage of physician ownership, and prohibits “grandfathered” hospitals from increasing the number of inpatient beds, operating rooms and procedure rooms, thereby limiting the ability of the “grandfathered” hospitals to grow.

Companies within the healthcare industry continue to be the subject of federal and state audits and investigations, and we may be subject to such audits and investigations, including actions for false and other improper claims.

Federal and state government agencies, as well as commercial payors, have increased their auditing and administrative, civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare organizations. These audits and investigations relate to a wide variety of topics, including the following: cost reporting and billing practices; quality of care; financial reporting; financial relationships with referral sources; and medical necessity of services provided. In addition, the OIG and the U.S. Department of Justice (“DOJ”) have, from time to time, undertaken national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse.

The Federal government is authorized to impose criminal, civil and administrative penalties on any person or entity that files a false claim for payment from the Medicare or Medicaid programs. Claims filed with private insurers can also lead to criminal and civil penalties. While the criminal statutes are generally reserved for instances of fraudulent intent, the Federal government is applying its criminal, civil and administrative penalty statutes in an ever-expanding range of circumstances, including claiming payment for unnecessary services if the claimant merely should have known the services were unnecessary and claiming payment for low-quality services if the claimant should have known that the care was substandard. In addition, a violation of the Stark Law or the Anti-Kickback Statute can result in liability under the FCA.

Over the past several years, the Federal government has accused an increasing number of healthcare providers of violating the FCA, which prohibits a person from knowingly presenting, or causing to be presented, a false or fraudulent claim to the Federal government. The statute defines “knowingly” to include not only actual knowledge of a claim’s falsity, but also reckless disregard for or intentional ignorance of the truth or falsity of a claim. Violators of the FCA are subject to severe financial penalties, including treble damages and per claim penalties in excess of $10,000. Because our facilities perform hundreds or thousands of similar procedures each year for which they are paid by Medicare, and since the statute of limitations for such claims extends for six years under normal circumstances (and possibly as long as ten years in the event of failure to discover material facts), a repetitive billing error or cost reporting error could result in significant, material repayments and civil or criminal penalties.

We are also subject to various state laws and regulations, as well as contractual provisions with commercial payors that prohibit us from submitting inaccurate, incorrect or misleading claims. We believe that our facilities are in material compliance with all such laws, regulations and contractual provisions regarding the submission of claims. We cannot be sure, however, that none of our facilities’ claims will ever be challenged. If we were found to be in violation of a state’s laws or regulations, or of a commercial payor contract, we could be forced to discontinue the violative practice and be subject to recoupment actions, fines and criminal penalties, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

Payors are increasingly conducting post-payment audits. For example, CMS has implemented the RAC program, involving Medicare claims audits nationwide. Under the program, CMS contracts with RACs on a contingency fee basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program. The ACA expanded the RAC program’s scope to include managed Medicare plans and Medicaid claims. In addition, CMS employs Medicaid Integrity Contractors (“MICs”) to perform post-payment audits of Medicaid claims and identify overpayments. The ACA increases federal funding for the MIC program. In addition to RACs and MICs, the state Medicaid agencies and other contractors have increased their review

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activities. We are regularly subject to these external audits and we also perform internal audits and monitoring. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material adverse effect on our business, prospects, results of operations and financial condition.

In order to regulate the healthcare services provided in a particular region, certain states require a Certificate of Need (CON) to be filed prior to the construction, relocation, acquisition, change of ownership, change of control or expansion of healthcare facilities. This requirement could negatively impact our ability to increase or amend the services offered at our facilities as well as impact our ability to acquire additional facilities.

Certain states in which our facilities currently operate require that the facility apply for and receive approval for a Certificate of Need (CON) prior to the construction, expansion in the number of operating rooms or services, relocation, acquisition, change of ownership or change of control of the facility. In states that require CON approval, authorities first assess the need for the additional or expanded services. In response to a CON application, other similar facilities in that geographic may object and challenge the CON as it may adversely impact their business. In addition, the CON application process can be expensive and there is no guarantee the requested change will be approved.

We are subject to potential legal and reputational risk as a result of our access to personal information of our patients.

There are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access to or theft of personal information. In the ordinary course of our business, we, and vendors on our behalf, collect and store sensitive data, including personal health data and other personally identifiable information of our patients. The secure processing, maintenance and transmission of this information are critical to our operations and business strategy. We have developed a comprehensive set of policies and procedures in our efforts to comply with the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and other privacy laws. The HHS Office for Civil Rights has imposed civil monetary penalties and corrective action plans on covered entities for violating HIPAA’s privacy rule. If, in spite of our compliance efforts we were to experience a breach, loss, or other compromise of such personal health information, such event could disrupt our operations, damage our reputation, result in regulatory penalties, legal claims and liability under HIPAA and other state and federal laws, which could have a material adverse effect on our business, financial condition and results of operations.

HIPAA mandates the adoption of privacy, security and integrity standards related to patient information and standardizes the method for identifying providers, employers, health plans and patients. Numerous federal regulations have been adopted under HIPAA. We have taken actions to comply with the HIPAA privacy regulations and believe that we are in substantial compliance with those regulations. These actions include the establishment of policies and procedures, teammate training, identifying “business associates” with whom we need to enter into HIPAA-compliant contractual arrangements and various other measures. Ongoing implementation and oversight of these measures involves significant time, effort and expense.

Other federal regulations adopted under HIPAA require our facilities to conduct certain standardized healthcare transactions, including billing and other claim transactions. We have undertaken significant efforts involving substantial time and expense to ensure that our facilities submit HIPAA-compliant transactions. We anticipate that continual time and expense will be required to submit HIPAA-compliant transactions and to ensure that any newly acquired facilities can submit HIPAA-compliant transactions.

In addition, compliance with the HIPAA security regulations requires healthcare facilities and other covered entities to implement reasonable technical, physical and administrative security measures to safeguard protected healthcare information maintained, used and disclosed in electronic form. We have taken actions in an effort to be in compliance with these regulations and believe that we are in substantial compliance with the HIPAA

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security regulations. A cyber-attack that bypasses our information security systems causing an information security breach, loss of protected health information or other data subject to privacy laws or a material disruption of our operational systems could result in a material adverse impact on our business, along with fines. Ongoing implementation and oversight of these security measures involves significant time, effort and expense.

ARRA broadened the scope of the HIPAA privacy and security regulations. Among other things, ARRA extends the application of certain provisions of the security and privacy regulations to business associates (entities that handle identifiable health information on behalf of covered entities) and subjects business associates to civil and criminal penalties for violation of the regulations. ARRA and its implementing regulations also require covered entities to report breaches of unsecured protected health information to affected individuals without unreasonable delay and in no case later than 60 days after the discovery of the breach by the covered entity or its agents. Notification must also be made to HHS and, in certain situations involving large breaches, to the media. Pursuant to a rule issued to implement ARRA, HHS has created a presumption that all non-permitted uses or disclosures of unsecured protected health information are breaches unless the covered entity or business associate establishes that there is a low probability the information has been compromised. Violations of the HIPAA privacy and security regulations may result in civil and criminal penalties, and ARRA strengthened HIPAA’s enforcement provisions. ARRA increased the amount of civil penalties, with penalties now ranging up to $50,000 per violation and a maximum civil penalty of $1.5 million in a calendar year for violations of the same requirement. In addition, ARRA authorized state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents.

In addition, states may impose more protective privacy laws, and both state and federal laws are subject to modification or enhancement of privacy protection at any time. Our facilities will continue to remain subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These statutes vary and could impose additional requirements on us and more severe penalties for disclosures of confidential health information. If we fail to comply with HIPAA or similar state laws, we could incur substantial monetary penalties.

If we fail to comply with laws and regulations related to the protection of the environment and human health and safety, we could incur substantial penalties and fines.

We are subject to various federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including those governing the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe workplace. Our operations include the use, generation and disposal of hazardous materials. We also plan to acquire ownership or operational interests in new facilities and properties, some of which may have had a history of commercial or other operations. We may, in the future, incur liability under environmental statutes and regulations with respect to contamination of sites we own or operate (including contamination caused by prior owners or operators of such sites, abutters or other persons) and the off-site disposal of hazardous substances. Violations of these laws and regulations may result in substantial civil penalties or fines.

Healthcare is a very regulated industry and the laws and regulations we must comply with are constantly changing.

Healthcare is among the most heavily regulated industries on both the federal and state level, and healthcare laws and regulations are constantly changing. Currently, we believe that our facilities, operations and agreements are in material compliance with all applicable laws and regulations. Notwithstanding, these laws and regulations are also subject to ever-evolving interpretation, and therefore, we cannot assure you that we will be able to successfully address changes in the current regulatory environment. As a result, the law and regulations applicable to our facilities may be interpreted or amended in a manner that could have a material adverse effect on our business.

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Risks Related to Ownership of Our Common Stock and This Offering

The market price of our common stock has been, and we expect it to continue to be volatile, which may adversely affect our stockholders.

The market price of our common stock has been, and we expect it to continue to be volatile. Our common stock is also thinly traded. There can be no assurance that the market price of our common stock will remain at its current level, and a decline could lead to significant investor losses. The stock market has recently experienced significant price and volume fluctuations that have affected the market prices of securities, including securities of healthcare companies. The market price of our common stock may be influenced by many factors, including:

In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of healthcare companies. These broad market and industry factors may materially reduce the market price of, and trading volume in, our common stock, regardless of our operating performance. Some of these factors are beyond our control. There is no assurance that the market price of our shares of common stock will not fall in the future.

There currently is a limited liquid trading market for our common stock and we cannot assure investors that a robust trading market will ever develop or be sustained.

Our public offering price may vary from the market price of our common stock after the offering. To date, there has been a limited trading market for our common stock on the OTC Markets OTCQB. Our stock is thinly traded due to the limited number of shares available for trading on the OTCQB market thus causing large swings in price. In this regard, the OTCQB is an inter-dealer, over-the-counter market that provides significantly less liquidity than a national securities exchange. As such, investors and potential investors may find it difficult to obtain accurate stock price quotations, and holders of our common stock may be unable to resell their securities at or near their original offering price or at any price. A lack of an active market may impair investors’ ability to sell their shares at the time they wish to sell them or at a price they consider reasonable. The lack of an active trading market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using our common stock as consideration.

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Even if an active market for our stock develops and continues, our stock price may nevertheless be volatile. If our stock experiences volatility, investors may not be able to sell their common stock at or above the price they paid for such stock. Sales of substantial amounts of our common stock, or the perception that such sales might occur, could also adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short period of time. As a result, our stockholders could suffer losses or be unable to liquidate their holdings.

Reports published by securities or industry analysts, including projections in those reports that exceed our actual results, could adversely affect our common stock price and trading volume.

Securities research analysts, including those affiliated with one of our underwriters, establish and publish their own periodic projections for our business. These projections may vary widely from one another and may not accurately predict the results we eventually achieve. Our stock price may decline if our actual results do not match securities research analysts’ projections. Similarly, if an analyst publishes a report which downgrades our stock, publishes inaccurate or unfavorable research about our business, ceases coverage of our company or fails to publish reports on us regularly, our stock price or trading volume could decline. Any of these events could negatively impact the price and our trading volume.

Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our management’s attention and resources.

It is not uncommon for securities class action litigation to be brought against a company following periods of volatility in the market price of such company’s securities. Companies in certain industries are particularly vulnerable to this kind of litigation due to the high volatility of their stock prices. Our common stock has experienced substantial price volatility in the past. Accordingly, we may in the future be the target of securities litigation. Any securities litigation could result in substantial costs and could divert the attention and resources of our management.

Our common stock has been considered to be “penny stock” under applicable SEC rules.

Our common stock has been considered to be “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we successfully list our common stock on a national securities exchange, or maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

Legal remedies available to an investor in “penny stocks” may include the following:

However, investors who have signed arbitration agreements may have to pursue their claims through arbitration.

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These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future.

Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities, warrants or options.

In addition to the Warrants included as part of the Units in this offering, we have in the past issued common stock and derivative securities (such as warrants) in order to raise money. We have also issued options as compensation for services and incentive compensation for our employees and directors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of additional common stock, options, warrants or other derivative securities, or the issuance of shares of common stock upon the exercise or conversion of such derivative securities, could affect the rights of our stockholders, could reduce the market price of our common stock or could result in adjustments to exercise prices of outstanding warrants (resulting in these securities becoming exercisable for, as the case may be, a greater number of shares of our common stock). There can be no assurance that we will not issue additional shares, options, warrants or other derivative securities in the future, including at a price (or exercise price) below the price at which shares of our common stock are currently traded at such time or below or above the price per share in this offering.

As a result of this offering, we may be in breach of registration rights granted to third parties.

We have issued warrants to purchase our common stock to Tyche Health Enterprises, LLC (“Tyche”), and entered into a registration rights agreement with Tyche. For additional information on the Tyche warrants, see Note 11 to our consolidated financial statements for the years ended December 31, 2013 and 2012 included elsewhere in this prospectus. Pursuant to the registration rights agreement with Tyche, we are obligated to include all of these warrants and shares underlying such warrants in registration statements that we file on certain forms, such as Form S-1, and, upon the request of a warrant holder, include these securities in an underwritten public offering of capital stock or warrant rights. Subsequently, we have been informed by Tyche that it distributed these warrants to a number of its investors. In this regard, we have not registered or included in this offering the warrants or shares acquirable upon exercise of the warrants held by Tyche or its investors, nor have we obtained a waiver of these rights. As a result, we may be considered to be in technical default under the terms of the registration rights agreement. In addition, we have issued securities to other third parties granting them similar rights to register securities on registration statements that we file and there can be no assurance that we have complied with the instruments or agreements granting such rights to these parties. Moreover, Tyche, its investors, or other third parties could bring legal action against us or seek other recourse for a breach by us of our agreements or securities issued to them which could have a significant adverse effect on our business, operations or this offering.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders

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may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. In addition, we have agreed to register the resale of additional shares of our common stock pursuant to registration obligations. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement may adversely affect the market price of our common stock.

Our current principal stockholders have significant influence over us and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which you might not agree.

Our executive officers, directors and holders of greater than 5% of our outstanding common stock together beneficially own approximately 90% of our outstanding common stock. As a result, these stockholders will have the ability to significantly influence all matters submitted to our stockholders for approval, including:

This concentration of ownership of shares of our common stock could delay or prevent proxy contests, mergers, tender offers, open market purchase programs or other transactions that might otherwise give you the opportunity to realize a premium over the then prevailing market price of our common stock. The interests of our executive officers, directors and holders of greater than 5% of our outstanding common stock may not always coincide with the interests of the other holders of our common stock. This concentration of ownership may also adversely affect our stock price.

Provisions of our charter and bylaws may make an acquisition of us or a change in our management more difficult.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which an investor might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock or warrants, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so.

Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions:

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We do not anticipate paying dividends on our common stock in the foreseeable future and, consequently, your ability to achieve a return on your investment will depend solely on appreciation in the price of our common stock.

We have not paid, and do not intend to pay dividends on our shares of common stock. Instead, we intend to retain all future earnings to finance the continued growth and development of our business and for general corporate purposes. In addition, we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our Board of Directors.

We have broad discretion in how we use the net proceeds of this offering, and we may not use these proceeds effectively or in ways with which you agree.

We intend to use the net proceeds of this offering to acquire controlling ownership interest in ASCs in our primary hospital markets, to acquire ancillary services to complement our surgical offerings, though no such acquisitions have been identified, and for working capital related to these acquisitions. Pending the consummation of an acquisition, we may use a portion of the net proceeds for working capital and general corporate purposes. Under our SNB Credit Facility, we must obtain SNB’s approval for certain acquisitions, mergers or consolidations in which the consideration is in excess of $1 million or the target entity’s operating income for the preceding 12-month period is less than zero. If approved, we intend for any acquisition we make with all or a part of the net proceeds from this offering to become a permitted acquisition under the SNB Credit Facility. If the proceeds from this offering are not used to make a permitted acquisition over the 12-month period following the offering or for the repayment of our preferred noncontrolling interests, the SNB Credit Facility requires us to make a prepayment equal to the net proceeds of the offering. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. See “Use of Proceeds.”

In addition, our management will have broad discretion as to the application of the net proceeds of this offering and could use them for purposes other than those contemplated at the time of this offering. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Moreover, our management may use the net proceeds for corporate purposes that may not yield profitable results or increase the market price of our common stock.

You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.

Since the price per Unit of the Units being offered is higher than the net tangible book value per share of our common stock, you will suffer substantial dilution in the net tangible book value of the Shares you purchase in this offering. Based on an assumed public offering price of $4.00 (the last reported sales price of our common stock on February 5, 2015) per Unit, and after deducting the underwriting discount and estimated offering expenses payable by us, if you purchase Units in this offering, you will suffer immediate and substantial dilution of $5.03 per share in the net tangible book value of your Shares. If the underwriters exercise their over-allotment option, or if the Warrants, Underwriter Warrants or outstanding options and warrants to purchase our common stock are exercised, you will experience additional dilution. In the event that you exercise your Warrants, you will experience additional dilution to the extent that the exercise price of those warrants is higher than the book value per share of our common stock. In addition, the underwriters have informed us that they intend to exercise the underwriters’ overallotment option as to the Warrants with respect to all Units which were overalloted at the time of the initial offering. Since our Warrants are not listed on a national securities exchange or other nationally recognized trading system, the underwriters are unable to satisfy such overallotments without exercising the underwriters’ overallotment option. Therefore, if the underwriters exercise the overallotment option as to the Warrants in full, but not with respect to the Units or Shares, then the warrant coverage will be as high as 57.5% instead of the 50% stated and you will be subject to further dilution. See the section entitled “Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering.

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An investor will only be able to exercise a Warrant if the issuance of common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Warrants.

No Warrants will be exercisable and we will not be obligated to issue shares of common stock unless the common stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. At the time that the Warrants become exercisable, we may not be listed on a national securities exchange, which would provide an exemption from registration in every state. In addition, our common stock is currently quoted on the OTCQB, which is not a national securities exchange. Accordingly, holders may not be able to exercise their Warrants. Holders may also not be able to exercise their Warrants unless our prospectus relating to the common stock issuable upon exercise of the Warrants is current. We cannot assure you that our prospectus relating to the common stock issuable upon exercise of the Warrants will be current at the time you wish to exercise your Warrant. As a result, the Warrants may be deprived of any value, the market for the Warrants may be limited, and the holders of Warrants may not be able to exercise their Warrants if the common stock issuable upon such exercise is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants reside.

There is no public market for the Warrants to purchase common stock in this offering.

There is no established public trading market for the Warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the Warrants on any securities exchange. Without an active market, the liquidity of the Warrants will be limited.

Holders of our Warrants will have no rights as a common stockholder until such holders exercise their Warrants and acquire our common stock.

Until holders of the Warrants acquire shares of our common stock upon exercise of the Warrants, holders of the Warrants will have no rights with respect to the shares of our common stock underlying such Warrants. Upon exercise of the Warrants, the holders thereof will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

Risks Related to the Reverse Split

We effected a 1-for-10 reverse stock split of our outstanding common stock on January 8, 2015. However, the reverse stock split may not increase our stock price sufficiently and, even following the Reverse Split, we are currently unable to list our common stock on the NYSE MKT.

The effect of a reverse stock split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies in similar circumstances have been varied. There can be no assurance that the market price of our common stock following the reverse stock split will allow us to successfully apply to list our common stock on the NYSE MKT or other national securities exchange, or, if successful, allow us to maintain such a listing. Currently, we do not meet the minimum listing requirements for the NYSE MKT. Moreover, it is not uncommon for the market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could also adversely affect the market price of our common stock and jeopardize our ability to meet or maintain the NYSE MKT’s minimum market price and other requirements. In addition to specific listing and maintenance standards, national securities exchanges like the NYSE MKT have broad discretionary authority over the initial and continued listing of securities, which could be exercised with respect to the listing of our common stock. There can be no assurance our common stock will ever be listed on NYSE MKT or other national securities exchange.

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The reverse stock split may decrease the liquidity of the shares of our common stock.

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that are outstanding following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this prospectus may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements about:

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Risk Factors” section. Although the forward-looking statements in this prospectus reflect our good faith judgment, based on currently available information, they involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industries’ actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” contained in this prospectus. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus, to conform these statements to actual results, or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus.

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 3,000,000 Units in this offering will be approximately $8.5 million, (or approximately $10.0 million if the underwriters exercise their over-allotment option in full), based on an assumed public offering price per Unit of $4.00 (the last reported sales price of our common stock on February 5, 2015) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the Shares and Warrant Shares acquirable upon exercise of the Warrants offered by the selling stockholders, which is 15% of the total number of Shares and Warrant Shares included in this offering.

A $1.00 increase (decrease) in the assumed public offering price of $4.00 per Unit would increase (decrease) the expected net cash proceeds to us from this offering by approximately $2.4 million, assuming that the number of securities offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 20% increase (decrease) in the assumed number of securities offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the expected net proceeds to us from this offering by approximately $1.9 million, assuming a public offering price of $4.00 per Unit remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. See the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We intend to use the net proceeds to acquire controlling ownership interests in surgical hospitals and/or ASCs in our targeted regions, to acquire ancillary services to complement our surgical offerings, though no such acquisitions have been identified, and for working capital related to these acquisitions. Pending the consummation of an acquisition, we may use a portion of the net proceeds for working capital and general corporate purposes. Under our SNB Credit Facility, we must obtain SNB’s approval for certain acquisitions, mergers or consolidations in which:

We intend that any acquisition we make with all or a part of the net proceeds from this offering will be a permitted acquisition under the SNB Credit Facility. If the proceeds from this offering are not used to make a permitted acquisition over the 12-month period following the offering or for the repayment of our preferred noncontrolling interests, the SNB Credit Facility requires us to make a prepayment equal to the net proceeds of the offering. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. For more information on the terms of our credit facility, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – SNB Credit Facility” elsewhere in the prospectus.

This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our acquisition efforts and any unforeseen cash needs. In addition, our planned use of proceeds does not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and our management will have broad discretion in the application of the net proceeds from this offering.

We intend to invest the net proceeds of this offering in short and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government and bank demand deposits, pending their use as described above.

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DIVIDEND POLICY

Historically, we have not paid dividends on our common stock, and we currently do not intend to pay any dividends on our common stock after the completion of this offering. We currently plan to retain any earnings to support our operations and to finance the growth, of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our Board of Directors. Our existing credit facility restricts our ability to pay dividends without the approval of our lenders. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources.”

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CAPITALIZATION

The following table sets forth, as of September 30, 2014, our short-term debt, long-term debt and our unaudited capitalization:

You should read this table in conjunction with our September 30, 2014 unaudited financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this prospectus.

STATE SUITABILITY STANDARDS

California

No securities shall be sold pursuant to this prospectus to residents of the State of California unless such residents have either (i) (a) a minimum net worth of up to $250,000 and (b) gross income of $65,000 in the last tax year or estimated during the current tax year, or (ii) a minimum net worth of $500,000. Net worth shall be determined exclusive of home, home furnishings and automobiles. Assets included in the competition of net worth may be valued at fair market value.

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DILUTION

If you invest in our Units, your interest will be immediately diluted to the extent of the difference between the public offering price per Unit and the net tangible book value per share of our common stock immediately after the completion of this offering. Dilution results from the fact that the per Unit offering price is substantially in excess of the book value per share attributable to the existing stockholders for the presently outstanding stock.

Our net tangible book value as of September 30, 2014 was $(29,044,851), or $(1.68) per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the sum of the total number of shares of common stock outstanding and as adjusted for the Reverse Split.

After giving effect to the Reverse Split, this offering and the receipt of $8,544,271 of estimated net proceeds from this offering, assuming an offering of 3,000,000 Units at $4.00 per Unit, the as adjusted net tangible book value of our common stock as of September 30, 2014 would have been $(20,500,580), or $(1.03) per share. This amount represents an immediate increase in net tangible book value of $0.65 per share to the existing stockholders and an immediate dilution in net tangible book value of $5.03 per share to purchasers of our Units in this offering. Dilution is determined by subtracting as adjusted net tangible book value per share after this offering from the amount of cash paid by a new investor for a Unit. The new investors will have paid $4.00 per Share, assuming a public offering price of $4.00 per Unit, even though the per share value of our tangible assets after subtracting our liabilities is only $(1.68) per share. The following table illustrates such dilution on a per share basis:

To the extent any outstanding securities exercisable or convertible into our common stock are exercised, including the Warrants in this offering, investors will experience further dilution.

If the underwriters exercise their overallotment option in full, the as adjusted net tangible book value per share after the offering would be $(19,077,680), or $(0.94) per share. This amount represents an immediate increase in net tangible book value of $0.74 per share to the existing stockholders and an immediate dilution in net tangible book value of $4.94 per Share to purchasers of our Units in this offering.

The underwriters have informed us that they intend to exercise the underwriters’ overallotment option as to the Warrants with respect to all Units which were overalloted at the time of the initial offering. Since our Warrants are not listed on a national securities exchange or other nationally recognized trading system, the underwriters are unable to satisfy such overallotments without exercising the underwriters’ overallotment option. Therefore, if the underwriters exercise the overallotment option as to the Warrants in full, but not with respect to the Units or Shares, then the warrant coverage will be as high as 57.5% instead of the 50% stated and you will be subject to further dilution.

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MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER

MATTERS

Market Information

Our common stock is quoted on the OTCQB under the symbol, “FDNHD” until approximately February 6, 2015 as the result of our 1-for-10 reverse stock split. Beginning on or around February 9, 2015, our common stock will resume trading on the OTCQB marketplace under the symbol “FDNH.” On December 12, 2013 and in conjunction with our name change, we changed our symbol from “GRMH” to “FDNH.” Prior to November 2, 2012, our common stock was listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol, “GRMH.” On January 8, 2015, we effected the Reverse Split.

The following table sets forth, during the periods indicated, the high and low bid and sale prices of our common stock as reported by the OTCQB and Nasdaq, respectively. The share prices have been adjusted to give effect to the Reverse Split. Such OTC market quotations reflect inter-dealer prices, without retail markup, markdown or commissions and may not necessarily represent actual transactions. On February 5, 2015, the closing price of our common stock as quoted on OTCQB was $4.00.

The market price of our common stock is subject to significant fluctuations in response to, and may be adversely affected by various risks and uncertainties, including those discussed in the section entitled “Risk Factors,” and:

Holders

As of January 16, 2015, we have 99 owners of record of our common stock. This number does not include stockholders for whom shares were held in a “nominee” or “street” name.

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On July 22, 2013, we acquired 100% of the interests in Foundation Surgery Affiliates, LLC, or FSA, and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC, or FSHA, (collectively, “Foundation”) from Foundation Healthcare Affiliates, LLC, or FHA, in exchange for 11,450,000 shares of our common stock (retroactively adjusted for the Reverse Split) and a promissory note in the amount of $2,000,000, which we refer to as the Foundation Acquisition. We also assumed certain debt and other obligations of FHA in the amount of $1,991,733. The promissory note bore interest at a fixed rate of 7% and was paid in full on October 15, 2013. As of September 30, 2014, FHA beneficially owned 11,450,000 shares, or 66% of our issued and outstanding common stock.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the historical operating results included in our consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 was prepared as if the acquisition had occurred on the first day of the period presented and combines the historical consolidated statement of operations of the Company with the unaudited historical consolidated statement of operations of the Company’s legacy business, which is referred to as Graymark, for the period from January 1, 2013 to July 21, 2013.

The unaudited pro forma condensed combined financial statements have been prepared for informational purposes only, to show the effect of the combination of the Company and Graymark on a historical basis. These financial statements do not purport to be indicative of the financial position or results of operations that would have actually occurred had the business combination been in effect at those dates, nor do they project the expected results of operations or financial position for any future period or date.

The unaudited pro forma condensed combined financial statements do not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition.

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2013