UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
                    FOR THE FISCAL YEAR ENDED - DECEMBER 31, 2006

                                       OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

               For the transition period from: ___/___ to ___/___

                         Commission file number: 0-52197
                              HC Innovations, Inc.
                 (Name of Small Business Issuer in its charter)


               Delaware                                   04-3570877
    (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                Identification Number)

                Six Corporate Drive, Suite 420 Shelton, CT 06484 (Address of
                    principal executive offices)

                    Issuer's telephone number: (203) 925-9600

           Securities registered under Section 12(b) of the Exchange Act: NONE

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

                    COMMON STOCK, $0.001 PAR VALUE PER SHARE
                    ----------------------------------------


         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES [] NO [X]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]


         Indicate by check mark whether registrant is a shell company (as
defined by Rule12b-2 of the Exchange Act) YES [ ] NO [X]

         State issuer's revenues for its most recent fiscal year. $6,166,092


<PAGE>

         State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common
equity, as of March 28, 2007: $76,504,692.



         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 36,245,740 as of March 28,
2007.


         If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424 (b) or (c) of the Securities Act of 1933 ("Securities
Act"). The listed documents should be clearly described for identification
purposes.

   Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

PART I

Item 1.  Description of Business                                              1

Item 2.  Description of Property                                             24

Item 3.  Legal Proceedings                                                   24

Item 4.  Submission of Matters to a Vote of Security Holders                 24


PART II

Item 5.  Market for Common Equity and Related Stockholder Matters            25

Item 6.  Management Discussion and Analysis or Plan of Operations            27

Item 7.  Financial Statements                                                43

Item 8.  Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure                                                         43

Item 8A. Controls and Procedures                                             43

Item 8B. Other Information                                                   43


PART III

Item 9. Directors, Executive Officers, Promoters, Control Persons and
Corporate Governances; Compliance with Section 16(A) of the Exchange Act     44

Item 10. Executive Compensation                                              45

Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters                                              46

Item 12. Certain Relationships and Related Transaction, and Director
Independence                                                                 47

Item 13. Exhibits                                                            48

Item 14. Principal Accountant Fees and Services                              50


PART F/S
Financial Statements


PART III

Item 1.  Index to Exhibits


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         HC Innovations, Inc. (the terms "Company", "us", and/or "we" and other
similar terms as used herein refer collectively to the Company together with its
principal operating subsidiaries) is a holding company incorporated in Delaware
in December 2004 that, through its subsidiaries, provides specialty care
management products and services. Our specialty care management approach is
predicated on caring for small populations of medically unstable and frail
people.

         Our wholly-owned subsidiary, Enhanced Care Initiatives, Inc.,("ECI"),
was founded in 2002 by David Chess MD, our President and Chief Executive
Officer. ECI is the management company for all of our operating entities and
provides specialty disease and care management services for small, costly
subpopulations. ECI markets its proprietary specialty care management programs
for the medically frail and other costly sub-populations to Health Maintenance
Organizations ("HMOs") and other Managed Care Organizations ("MCOs") as well as
state Medicaid departments.

REVERSE MERGER TRANSACTION

         Pursuant to a Stock Acquisition Agreement dated May 11, 2006, Ayre
Holdings, Inc., a Delaware corporation ("Ayre"), acquired 100% of the issued and
outstanding shares of HCI, in exchange for 24,368,323 shares of common stock of
Ayre, representing approximately 99% of the total issued and outstanding shares
of Ayre at the time. Prior to the consummation of the acquisition, Ayre, a
non-reporting pink sheet company and public shell, effectuated a reverse stock
split whereby the then current 793,000 issued and outstanding shares of common
stock were reverse split into 328,637 shares of common stock at the rate of
..41442:1.

         The post-acquisition entity is accounted for as a recapitalization of
HCI using accounting principles applicable to reverse acquisitions with HCI,
being treated as the accounting parent (acquirer) and Ayre, the legal parent,
being treated as the accounting subsidiary (acquiree). HCI is regarded as the
predecessor entity.

         In accordance with the provisions governing the accounting for reverse
acquisitions, the historical figures presented are those of HCI. Upon
consummation of the acquisition on June 9, 2006, Ayre changed its name to HC
Innovations, Inc. The Company's common stock is quoted on the pink sheets under
the symbol "HCNV.PK".

         On February 13, 2007, the Company's Form 10-SB was declared effective
by the United States Securities and Exchange Commission. As a result, the
Company became a fully reporting company pursuant to the Securities Exchange Act
of 1933, as amended.

OUR BUSINESS

         We are a specialty disease and care Management Company focused on
caring for small populations of medically unstable and frail individuals. As a



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specialty disease and care Management Company, we attempt to utilize
preventative health care to save money by attempting to keep patients with
chronic conditions out of the hospital, helping patients and states save on
health care costs. Our Company is comprised of separate divisions each with a
specific focus and intervention to service this segment of our population. As a
specialty disease and care Management Company we seek to bring to HMOs, MCOs and
state Medicaid departments the ability to positively impact the health and cost
of their sickest, costliest subsets of patients. To do this, we combine our
proprietary information systems with specially trained nurses and nurse
practitioners. Specifically, we integrate the following services:

        (a) Hands-on involvement by seeing patients in their homes and in
        nursing homes;

        (b) Call center backup consisting of nurses, social workers and case
        managers who work specifically with one or two nurses and their patients
        via the telephone to assist with coordination of services and monitoring
        of health status; and

        (c) Biometric monitoring through the use of devices that allow us to
        monitor patients in the home such as scales, medication reminder systems
        blood pressure machines to name a few.

         Our services extend to accompanying the patient to the doctor and
providing them with our availability on a twenty-four hour a day, seven days a
week basis. In the event that the patient requires admission to a hospital or
nursing home, we also provide case management.

         Our principal office is located at Six Corporate Drive, Suite 420,
Shelton, CT 06484. Our telephone number is (203) 925-9600. Our website address
is www.hcinnovationsinc.com.

CORPORATE STRATEGY

         We are a specialty disease and care Management Company. As such, our
corporate strategy is to care for the most costly and needy patients in an
effort to try to have them avoid hospitalizations and, at the same time, create
cost savings. We also seek to be able to facilitate care delivery support
services in the community, in nursing homes, and throughout the United States
and its territories. We seek to sell our products and services directly to HMOs,
MCOs and State Medicaid departments, as well as to subcontract with other
disease management companies.

         To implement our corporate strategy, we have created software
algorithms that help us define the most needy and costly populations. We have
connected this to a nurse-patient centric electronic health record (ehr), all to
assist our staff in the management of our enrollees.

         Our clinical strategy is to identify subgroups of people with common
needs and create programs to fill the gaps in care, stabilizing the health of
the individual. These are highly complex populations consisting of patients with
over seven (7) active diagnosis, average of three (3) hospitalizations per year
that require complex solutions.

PRODUCTS AND SERVICES


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         We offer our products and services through three channels: Easy Care,
NP Care and Stratification, Analysis and Management electronic health record
(SAM ehr).

Easy Care: THE SOLUTION FOR THE COMMUNITY DWELLING MEDICALLY COMPLEX AND FRAIL

         The Easy Care program focuses on the medically complex and fragile
costly community-based patients. Easy Care is a program built to support the
medically complex frail patient, creating a safety net that is woven from a
combination of services which together seeks to support the patient and improve
their health, while lowering their cost of care by preventing avoidable
hospitalizations.

         Under the Easy Care Program each patient is individually evaluated to
determine which approaches should be implemented for that specific patient. A
feature of the Easy Care Program is that we work closely with the patient, their
family and their physician. The Easy Care tools and approach include:

     o Hands-on nurse and nurse practitioner care in the home. The nurse does a
comprehensive evaluation which includes physical, cognitive and social situation
evaluation. We review medications, diet and exercise. We put in place disease
specific exercises, review advance directives and connect patient to community
resources to assure that the patient is getting what they need to stay well.

     o Physician integration. Our nurses accompany the patient on physician
visits.

     o Call center support. Each patient has a support person in the call center
who works with their nurse to help coordinate the patient's care. This support
person calls the patient periodically and at the direction of their nurse
partner assists in the follow up of medical issues. The support person also
assists in setting up appointments and transportation.

     o Community-based weekly meetings to monitor, exercise and address
depression and isolation in our patients. These weekly meetings are attended by
our nurses, recreation aide, athletic trainers, dietician and pharmacist (on a
rotating basis).

     o 24/7 Caregiver Support Program; this consists of a survey at the
initiation of the program to assess caregiver needs and stress and then to help
the caregiver create a sustainable support solution for the patient. This
includes a 24/7 emotional support hotline, referral services, and legal hotline,
to name a few.

     o Pharmacist, medical director, nutritionist and athletic trainer
monitoring,

     o Biometrics, such as scales, medication monitoring devices, blood pressure
machines wirelessly connected to phone lines are channeled directly to our
computer system, oxymeters, glucosometers, cell phones and video phones.

     o Pharmaceutical management. Web-based medication monitoring by our
pharmacist with direct feedback to our nurses' tablet PCs.

     o Case management. Our nurses continue to monitor the patient if
hospitalized or in a nursing home.


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     o IT infrastructure. All of our nurses are equipped with tablet PC, point,
click and handwriting recognition. This allows us to efficiently gather and
maintain large amounts of actionable data; it also prompts the nurse to consider
specific interventions driving best practices.

     o The computer as the communication channel. Our Web-based IT system allows
for faxing, e-mailing and integrated report generation.

     Easy Care Pricing

     Easy Care pricing is based on a per enrolled member, per month (PMPM)
basis. We can enroll up to 1,000 patients per four months per market. We are
currently able to implement two markets per 120 days. Our program works best in
population centers of 50,000 or more. However, with use of our biometric
monitoring system and two-way video conferencing we can extend our reach to more
rural patients.

         The Company and its founders have successfully completed pilot programs
with two major Connecticut hospitals, Bridgeport Hospital and Hartford Hospital,
followed by a successful contract with a national HMO, HealthNet NE.
Quantifiable cost savings in the range of 25%-50% have been demonstrated.

HEALTHCARE SAVINGS-ILLUSTRATIVE EXAMPLE OF HOW OUR PROGRAM CAN WORK FOR 1,000
MEDICARE ENROLLEES BASED ON THE RESULTS OF OUR PILOT PROGRAM WITH HEALTHNET NE:

     o    ECI delivers 16% net cost savings on patients with average costs of
          $40,000/year

     o    For 1,000 enrollees a $40,000 cost per year, or $40,000,000:

     o    TOTAL SAVINGS at 25%    $ 10,000,000
     o    COST OF PROGRAM:        $  3,600,000
                                  ------------
     o    NET YEARLY SAVINGS:     $  6,400,000

                      ROI = 180%

     ECI has secured contracts with:

        1. Health Spring: a regional Medicare HMO in Tennessee. This contract
        began in October 2005 with 300 enrollees with a current census of
        approximately 500 enrollees. The term of the contract is 5 years
        although there are provisions for cancellation prior to the end of the
        term.

        2. AmeriGroup: a national Managed Care Organization (MCO), to care for a
        minimum of 300 of its Medicare/Medicaid enrollees in Houston, Texas. The
        initial term of this contract runs from June 1, 2006 through November
        30, 2007.

        3. Alere Medical, Inc.: in October 2006, we entered into a Disease
        Management Services Agreement with Alere Medical, Inc. ("Alere"). Alere
        provides disease management tools, services and systems to payers which
        are designed to assist with and improve management of health care
        outcomes for patients. Alere has contracted with Tufts Health Plan
        ("Tufts") to provide disease management services in Massachusetts. Tufts
        provides various commercial and Medicare Health Plans to members. We are
        providing care


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<PAGE>

         management services to Tufts program participants in Massachusetts and
         Alere is paying us $295 per enrolled member per month commencing
         February 1, 2007.


THE MARKET FOR EASY CARE

According to the U.S. Department of Health & Human Services, three percent (3%)
of the Medicare population and one percent (1%) of the Medicaid population will
meet the EASY CARE profile of the medically complex and fragile costly
community-based patients. With over 40 million Medicare recipients
(3%=1,200,000) and over 40 million on Medicaid (1%=400,000), the market is large
and growing. Currently, over five million seniors are enrolled in Managed
Medicare and with the recently enacted Medicare Modernization Act; this number
is expected to triple over the next two years. We have primarily focused on the
Medicare and Medicaid populations because of the increased density of patients
who need our services. As managed care organizations assume increasing risk in
the Medicare and Medicaid market, EASY CARE(SM) is positioned to be an important
tool to control the cost of this more labile population. Our primary strategy is
to sell directly to these organizations, as well as to subcontract with other
disease management companies allowing them to expand their offerings and fill
this gap in care. (SOURCE OF ABOVE DATA: HTTP://WWW.CMS.HHS.GOV/ CENTERS FOR
MEDICARE & MEDICAID SERVICES (CMS), U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES)

SALES AND MARKETING FOR EASY CARE

         As indicated, we will market Easy Care to MCOs, HMOs, state medical
departments, and disease management companies. Our sales strategy establishes a
process and generally reaches a "yes" or "no" response within 3 to 4 months.

     The process:

          o    Initial presentations to key leadership;

          o If there is a high level of interest we enter into a Non-Binding
Discovery Process which takes 4 to 6 weeks. During this time period, we do an in
depth analysis of the Strategic Goals of the organization, the barriers to
delivery and the processes in place to manage the outcome. We meet with, and
interview people at all levels of the organization, developing a deep
understanding of their needs, internal politics while we develop relationships;

          o Presentation of findings and delivery of proposal specific to the
company's needs and their particular gaps;

          o    Negotiation and discussion period (3 weeks); and

          o    "Yes" or "No" decision.


NP CARE PROGRAM - NURSING HOME MEDICAL MANAGEMENT SYSTEMS

         NP Care's core business is a physician directed nursing home medical
management service that integrates the patient care team. Although our NP Care
program is a fee for service program, there is no charge to the nursing home for
our services and approximately 61% of our reimbursement is from
Medicare/Medicaid with the balance from insurance companies.


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NP Care's fundamental tools and processes include:

     o Problem-oriented nurse documentation tools that guide the nurse through
appropriate, efficient patient evaluation and interventions.

     o On-site nurse practitioner providing support and care.

     o Integration with the physician, staff and family.

     o Electronic health record (ehr) system serving as the company's backbone
as it allows nurse practitioners to be thorough, efficient and checks to ensure
that documentation matches with charges.

         Technology driven patient risk assessments of adverse events, such as
falls, fractures, dehydration, etc. Our Risk Avoidance Program allows the
nursing home to put in place safeguards to reduce these events, while allowing
us to notify the family of the risks involved, thereby mitigating potential
lawsuits.

MEDICARE ADVANTAGE SPECIAL NEEDS PLANS (SNPs) MODEL is an important new
innovation in the healthcare marketplace. CMS (Centers for Medicare and Medicaid
Services) in an attempt to make sicker patients more attractive to managed care
companies have created this designation. With it comes enhanced patient
complexity based reimbursement (paying more for patients who are sicker and use
more resources). There are 3 types of SNPs. NP Care specializes in the
Institutional SNP (#1)

          1. The Institutionalized (~3.5 million): Medicare beneficiaries who
reside or are expected to reside for 90 days or longer in a long-term care
facility.

          2. Dually Eligible (~7.5 million): Medicare beneficiaries who are also
in Medicaid for full Medicaid benefits (~6.2 million) and low-income Medicare
beneficiaries who receive subsidies from their state Medicaid program for their
Medicare cost sharing (~1.3 million).

          3. Medicare Beneficiaries with Chronic, Severe Conditions: Medicare
beneficiaries with cardiovascular disease, diabetes, heart failure,
osteoarthritis, mental disorders, end-stage renal disease and/or HIV/AIDS.

(SOURCE OF ABOVE DATA: HTTP://WWW.CMS.HHS.GOV/ CENTERS FOR MEDICARE & MEDICAID
SERVICES (CMS), U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES)

         According to the US Department of Health & Human Services, these
populations have a disproportionate share of severe chronic health conditions
and disabilities. About one third of the dually eligible population lives in
long-term care facilities. They commonly have multiple morbidities (5-8) and
some 45% have severe mental illness.

         The Medicare Advantage Institutional SNP model has very significant
financial implications. CMS is reimbursing the insurance companies almost
$20,000 annually per patient for their healthcare costs. This is in contrast to
reimbursement of $8,000 per year for community dwelling seniors. NP Care charges
approximately 10% of the reimbursement plus is able to share in the profit
margin of the service. Working in close collaboration with the health



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plan and the nursing home the program has the potential to create a 20% profit
margin (about $4,000 per patient per year). Each nursing home has on average 50
enrollees and our plan is to contract with 30 nursing homes per year in each
location or market. This equates to approximately 1,500 enrollees per year.

         NP Care offers a medical infrastructure to nursing homes that is
important to controlling costs and care. With this in mind, we have begun the
process of partnering with long-term care organizations and Medicare Advantage
Specialty Needs Plans (SNP). Our first such partnership is with HealthSpring of
Tennessee.

     According to the Pearson Report (2005), there are over 16,000 nursing homes
in the United States. The table below indicates the number of facilities per
region and the relative percentage of those facilities by region:

           Region                          Number of      Percentage
                                          Facilities       of Total

       New England                           1,096           6.6%

       Mid Atlantic                          1,791           10.9%

       East North Central                    3,225           19.6%

       West North Central                    2,228           13.5%

       South Atlantic                        2,379           14.5%

       East South Central                    1,076           6.5%

       West South Central                    2,080           12.6%

       Mountain                                797            4.8%

       Pacific                               1,819           11.0%

       Total                                16,491          100.0%


     We believe our planned growth will track with population patterns, as
defined by beds by county, occupancy rates, nurse practitioner scope of
practice, physician collaboration, recruitment of NPs, our competitive
advantage, payer mix, major nursing home chain presence, and Medicare Advantage
programs.

SALES AND MARKETING FOR NP CARE


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     Our strategy with NP Care is to be positioned to become a national
healthcare company delivering primary care and improving the quality of life for
the elderly living in nursing homes.

     We will accomplish this strategy by:

     o Establishing a partnership with long-term care organizations and Medicare
Advantage SNPs that support and see the value in utilizing Nurse Practitioners
for primary care.

     o Working closely with both long-term care organizations and health plans
to develop and implement systems of care that meet the needs of this special
population. This includes computer driven risk assessments on patients to allow
for a shift to proactive care, implementing programs that assist nursing home
nurses in providing consistent patient care evaluations, implementing programs
which address frequent falls, urinary incontinence, wound care to name a few.

     o Design an infrastructure that aligns incentives while accomplishing
financial and health outcomes. Paying nursing homes for improved medical
infrastructure and allowing them to also benefit from health care savings.

     OHIO NURSE PRACTITIONERS, INC.
     ------------------------------

         Effective November 6, 2006, NP Care of Ohio, LLC ("NP Ohio") entered
into an agreement with Ohio Nurse Practitioners, Inc. ("ONP"). ONP is in the
business of providing advance practice registered nursing services to residents
of nursing homes. ONP has agreed to terminate its existing service agreements
with its customers and NP Ohio has agreed to hire the shareholders of ONP as
employees. In addition, ONP has agreed to provide consulting services commencing
on the effective date and ending on September 30, 2009. In consideration of
ONP's consulting services NP Ohio has agreed to pay ONP a maximum consulting fee
of $225,000 with payments due as earned in accordance with the terms of the
agreement. The Company has recognized consulting expenses in the amount of
$125,000 for the year ended December 31, 2006 in connection with the services
provided under the agreement.

SAM ehr - SAM ehr SOFTWARE

     SAM ehr-SAM ehr (Stratification, Analysis and Management electronic health
record) is our proprietary software which allows us to stratify patients' health
risk, analyzes their data and patterns of care, and drive the data out to our
nurses, pharmacists and doctors to best manage the patient. SAM ehr was designed
for internal use not as a marketable product. Currently we will be licensing the
software to companies with whom we are doing business as a value added feature
of the relationship. We anticipate doing a formal analysis of opportunities
relating to SAM ehr.

FUTURE MARKETS AND OPPORTUNITIES

         We believe that SAM ehr represents an important growth opportunity. As
we develop these software opportunities, our main focus will remain on our core
businesses, NP Care and Easy Care(SM). However, we intend to do a formal
analysis of this opportunity. If in fact there is a strong business case for


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further deployment we will create a separate division and seek unique dollars to
support this division.





COMPETITION

     There are few hands on, community based programs in the disease management,
care management space. After a detailed search, we have found no other company
that provides the similar depth of community based hands on care and care
coordination for this subset of medically complex and frail patients. Our
proprietary programs and systems, the increasing recognition that small
populations are the cost drivers that care for people with multiple conditions
is critical, the maturity and experience of our senior staff, and our
demonstrated outcomes are all instrumental in our gaining traction in the
markets where we compete. Nevertheless, the healthcare industry and the market
for healthcare information products are highly competitive and subject to
continual change in the manner in which services are provided. Other entities,
whose financial, research, staff, and marketing resources may exceed our
resources, are marketing care management and disease management services or have
announced an intention to offer such services. These entities include disease
management companies, special healthcare companies, major pharmaceutical
companies, healthcare organizations, independent care management organizations,
provider groups, pharmacy benefit management companies, healthcare information
system and software vendors, and other entities that provide services to health
plans and self-insured employers. Many of these competitors have substantial
installed customer bases in the health care industry and the ability to fund
significant product development and acquisition efforts. We also compete against
other companies that provide statistical and data management services, including
clinical trial services to pharmaceutical companies. In addition, many payer
organizations, including health plans, have internal network development and
medical case management staff that provide services similar to those provided by
us. Many of our competitors have significantly greater financial resources, and
these companies also compete with us in recruiting and retaining qualified
personnel. Our failure to compete effectively could have a material adverse
affect on our business.

     Our competition for the NP Care division may include, but is not limited
to, the following: Evercare, a Medicare Advantage program (a division of United
Health Group), Alpha Physician Services (physician groups specializing in
nursing home care), primary care physicians who employ nurse practitioners for
their nursing home practice, and managed care programs Evercare, Fidelis, and
CareOne provide direct financial incentives to these nursing homes. Our
challenge is to articulate clearly our superior financial and clinical model.

     Because some of their programs overlap and move into the complex care
space, there are three companies that are our major competitors in the Easy Care
division:

     PARADIGM HEALTH [www.paradigmhealth.com] has for a number of years provided
catastrophic care which is usually focused on hospitalized patients. They use a
panel of expert physicians and nurses who provide hands on care, primarily in
the hospital. More recently they have developed a complex care program which
helps health plans identify the most costly and sickest patients. They focus on
the sickest 1% who utilize up to 30% of the resources, usually within the


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commercial population. Their program addresses late-stage cancer, end-stage
chronic conditions, and patients with multiple co-morbidities. They deal with
the lack of coordination of care, the isolation and fear the patients'
experience, and the inadequacy of social, financial, and emotional support. Most
of their care coordination is telephonic although they also do hands on care
using community resources such as visiting nurse (outsourced).

     CAREGUIDE@HOME [www.careguideathome.com] a service of CareGuide
[www.careguide.com] which is the successor organization of Coordinated Care
Solutions [CCS] and now has merged with Patient InfoSystems [www.ptisys.com].
They claim to provide interactive, personalized services to members with complex
health care needs who require post-acute and continuous care and work with
families and caregivers. Most of this is telephonic but the CareGuide@Home
services encompass a national network of field care managers who provide
home-based assessments and other onsite services for the elderly and their
families.

     SPECIALTY DISEASE MANAGEMENT - SDM [www.specialitydisease.com] this is a
company that provides care for a broad scope of chronic diseases and emphasizes
coordination and working with the practitioner. They use a primary care nursing
model and also do in home assessments and coordination of care in the community.
They emphasize as their core service highly trained community based nurse care
managers'.

COMPETITIVE STRATEGY AND METHODS OF COMPETITION

     o ECI TARGETS SPECIFIC SUBPOPULATIONS. Unlike other disease management
companies, we are not DISEASE focused. Our services are designed for people who
experience the health care system in a predictable fashion with predictable
outcomes. We define subgroups of people who experience the health care system
similarly, study the gaps in care and create programs to keep them well. This is
a paradigm shift which requires an entirely unique culture and tool set to
achieve success.

     o THE ECI PROGRAMS ARE COMPLICATED INTERVENTIONS combining intense
hands-on, community-based programs involving many layers of care and
intervention including RNs, nurse practitioners, athletic trainers, physical
therapists, dieticians, social workers, informatics specialists, pharmacists,
and physicians in a variety of roles.

         Caring for the medically complex, frail patient requires a complex
infrastructure. Our infrastructure seamlessly connects and drives:

o        Patient stratification
o        Assessment tools - physical exams, standardized testing, ADLs, IADLs,
         cognitive testing, depression, SF 12, etc.
o        True integration with the Physician
o        Interventions in the home and via call center
o        Biometrics
o        Community based nursing staff
o        Pharmacists
o        Athletic trainers
o        Nutritionist
o        Report writing
o        Community centers

THE EASY CARE PROGRAM, A SCALABLE COMPLEX INTERVENTION WILL BE DIFFICULT TO
REPRODUCE.


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o THE CLINICAL EXPERTISE to both understand the populations cared for and create
cost-effective, rapidly integrateable, scalable models requires a team with
diverse expertise

o SCALING - We believe are now able to operationalize our community based
program, enrolling 1,000 complex members per market in multiple markets over a
period of four to six months. This requires systems which can coordinate
multiple complex interventions

o IT INFRASTRUCTURE - THIS DIVERSE PLATFORM IS MANAGED AND INTEGRATED WITHIN OUR
PROPRIETARY SOFTWARE. Our web-based information system is proprietary and
operates as both patient chart and communication port, effectively connecting
all parts of our patient's health care team. Additionally, patient care
algorithms are embedded in our software and drive standards of care resulting in
a reminder system that drives best practices of care from the level of the
patient and family to the physician. Our patient chart also is an activity
tracker, logging all patient care activity as well as nurse interactions.

DEPENDENCE ON A LIMITED CUSTOMER BASE

         For the calendar years ending December 31, 2005 and 2006 our revenue
was concentrated in a small number of customers, the loss of any or all of these
customers will have a severe and negative impact on our future results of
operations.

Provider                              Percentage of Service Revenue

                                      12/31/2005         12/31/2006

Medicare / Medicaid                     68.7%               60.9%
Healthspring                              -                 19.8%

                                        68.7%               80.7%




PATENTS PENDING - ECI has four Applications for Letters Patents pending:

1) Application for Letters Patent No. 10/745,786 entitled - Method And Criterion
For Selecting Patients For Participation In A Care Management Program - filed
December 27, 2003; Docket No. 2003KP343PA

The '786 Application's Abstract reads:

         The method and criterion of the present invention are used to select
high risk or co-morbid patients for participation in a care management program.
An acuity score is determined which stratifies patients by cost, diagnosis and
disability. This allows us to identify those patients which will benefit most
from our Easy Care program. Finding the right patient for the right program is
critical to our success.


                                       11
<PAGE>

2) Application for Letters Patent No. 10/745,787 entitled - Care Management
Method For Managing The Treatments Of High Risk Medically Unstable Patients -
filed December 27, 2003; Docket No. 2003KP351PA.





The '787 Application's Abstract reads:

         The present invention is related to methods of managing the care of
high risk or co-morbid patients who have been pre-selected for care management
using the patent identified above. In accordance with the care management
entity's system, care managers and other specialists coordinate and supplement
treatment plans for the high risk patients. After acceptance into the care
management programs, the co-morbid patients are gathered together for group
sessions at a community center. This patent describes our road map for caring
for the medically complex, unstable patient. The complex interplay of services
and how they are applied is original and allows us to further differentiate
ourselves in the managed care market.

3) Application for Letters Patent No. 11/016,058 entitled - Care Management
method For Managing Treatments Of High Risk Mentally Unstable Patients - filed
December 18, 2004; Docket no. 2004KP392PA

The '058 Application's Abstract reads:

         The present invention is related to methods of managing the care of
high risk mentally unstable patients who have been pre-selected for care
management. In accordance with the care management entity's system, care
managers and other specialists coordinate and supplement treatment plans for the
high risk patients. After acceptance into the care management programs, the high
risk mentally unstable patients are gathered together for group sessions at a
community center. Patients are equipped with cellular telephones and electronic
monitoring devices for monitoring the mental and physical capacities of the high
risk mentally unstable patients. This patent codifies our processes for managing
this very mobile, unstable population. It describes the combinations of
interventions we apply and how we apply them to manage the mentally unstable,
costly patient. The value of this patent is to guide our interventions and
clearly define our tools and processes, differentiating us in the marketplace.

4) Application For Letters Patent Entitled - METHOD OF GENERATING A HEALTHCARE
PLAN OR WELLNESS PLAN FOR A MEMBER OF A GROUP -; Serial No. 11/504211; Filing
Date August 15, 2006; Chess, D.; Docket No. 2006KP472PA

         A group representative utilizes an administrative entity to generate
plans of care or wellness plans for group beneficiaries or members. The
administrative entity's computer system propounds virtual questionnaires to
group beneficiaries and calculates acuity scores for each group member's
response. Combinations of cumulative acuity scores and standards established by
the group representative are used to stratify group members according to
diagnosis burden, projected cost of care burden and disability burden. Plans of
care are customized and automatically generated for group members. This tool is
important to us when health plans enroll new patients and have limited clinical
information on patients. This allows us to identify patients who need our
program. This also allows health plans to easily segregate their members into
different levels of intervention.


                                       12
<PAGE>

EMPLOYEES

As of December 31, 2006, we had 48 full time employees, of which two (2) are
executive officers. Further, NP care employs 47 full time employees.

EMPLOYMENT AGREEMENTS

We currently do not have employment agreements with our executive officers, but
anticipate entering into such agreements in the near future.

                                  RISK FACTORS

         The discussion in this annual report regarding our business and
operations includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1996. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"intend," "estimate" or "continue" or the negative thereof or other variations
thereof or comparable terminology. The reader is cautioned that all
forward-looking statements are speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ from those
referred to in such forward-looking statements. This disclosure highlights some
of the important risks regarding our business. The number one risk of the
Company is its ability to attract fresh and continued capital to execute its
comprehensive business plan. In addition, the risks included should not be
assumed to be the only things that could affect future performance. Additional
risks and uncertainties include the potential loss of contractual relationships,
changes in the reimbursement rates for those services as well as uncertainty
about the ability to collect the appropriate fees for services provided by us.
Also, the Company faces challenges in technology development, deployment and
use, medical malpractice exposure and the fluctuation of medical costs vs.
medical payments.

WE HAVE A HISTORY OF OPERATING LOSSES, AND SUCH LOSSES MAY CONTINUE IN THE
FUTURE IF THE COMPANY IS UNABLE TO SECURE SUFFICIENT ENOUGH CONTRACTS TO COVER
ITS OVERHEAD AND OPERATING EXPENSES.

     The Company had net losses of $3,250,665, and $1,378,789 for the fiscal
years ended December 31, 2006, and 2005, respectively. The Company had an
accumulated deficit of $5,246,964 and $1,996,299 and a net stockholders' deficit
of $2,135,617 and $1,357,519 as of December 31, 2006 and 2005, respectively, and
we may never be profitable.

IF WE CANNOT ACHIEVE PROFITABILITY FROM OPERATING ACTIVITIES, WE MAY NOT BE ABLE
TO MEET OUR WORKING CAPITAL NEEDS.

     Our 10-KSB must be considered in light of the numerous risks, expenses,
delays and difficulties frequently encountered in the healthcare industry, as
well as the risks inherent in the development of new programs and the
commercialization of new services particularly given our failure to date to
operate profitably.

OUR AUDITORS HAVE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.


                                       13
<PAGE>

     In their report prepared in conjunction with our 2006 and 2005 financial
statements, our auditors included an explanatory paragraph stating that, because
we have incurred net losses and have a working capital deficiency as of December
31, 2006 and 2005, there is substantial doubt about our ability to continue as a
going concern.

     Management believes that the Company will be successful in its efforts to
adequately meet its capital needs and continue to grow its businesses. In 2006
and 2005, the Company raised $1.758 million dollars through the issuance of
convertible debenture notes to accredited investors. During the first quarter of
2007 $1.708 million worth of these convertible debentures were converted into
common stock at a ratio of 1:1 resulting in the issuance of 1.708 million common
shares.

WE WILL NEED TO RAISE SIGNIFICANT ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS
OPERATIONS.

     Our cash position on a consolidated basis at December 31, 2006 was $151,534
as compared to $435,375 at December 31, 2005. At December 31, 2006, our current
total monthly operating expenses are approximately $350,000. In order to
continue our activities, we will be required to raise significant capital. We
presently estimate that we will require an additional $3 million to $5 million
to support operations and growth plans through calendar 2007.

     Even if such financing is obtained, it may not be on commercially
acceptable terms or may otherwise substantially dilute the equity interests of
current stockholders in our company.

WE COULD ISSUE A SIGNIFICANT AMOUNT OF COMMON STOCK OR A SERIES OF PREFERRED
STOCK THAT MIGHT ADVERSELY AFFECT OUR EXISTING COMMON STOCKHOLDERS.

     Our articles of incorporation, as amended, authorize the issuance of
100,000,000 shares of common stock and 5,000,000 shares of preferred stock, with
designations, rights and preferences that may be determined from time to time by
our board of directors which may be superior to those attached to the common
stock. Accordingly, the board of directors is empowered, without further
stockholder approval, to issue additional shares of common stock up to the
authorized amount or to establish a series of preferred stock with dividend,
liquidation, conversion, voting or other rights either of which could adversely
affect the voting power or other rights of the holders of the existing common
stock. Issuance of additional common stock at prices below the fair market value
per share would result in dilution to our existing common stockholders.
Moreover, shares of preferred stock could be convertible into shares of common
stock in amounts that would result in similar dilution. In the event of a
preferred stock issuance, the preferred stock could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of our company.

INVESTING IN OUR STOCK IS HIGHLY SPECULATIVE AND YOU COULD LOSE SOME OR ALL OF
YOUR INVESTMENT.

     The value of our common stock may decline and may be affected by numerous
market and internal conditions such as future sales by current shareholders


                                       14
<PAGE>

which could result in the loss of some or the entire amount invested in our
stock. We could also issue shares of preferred stock that have rights senior to
the common stock.

OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR
OUTSTANDING COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER
OUR OPERATIONS.

     Our executive officers, directors and holders of more than 5% of our
outstanding common stock, together with their respective affiliates, currently
own approximately 67% of our voting stock, including shares subject to
outstanding options and warrants. These stockholders are able to determine the
composition of our board of directors, retain the voting power to approve all
matters requiring stockholder approval and will continue to have significant
influence over our operations. This concentration of ownership could have the
effect of delaying or preventing a change in control of the Company, preventing
or frustrating any attempt by our stockholders to replace or remove the current
management, or otherwise discouraging a potential acquirer from attempting to
obtain control of the company, which in turn could limit the market value of our
common stock.

WE ARE HIGHLY DEPENDENT ON OUR MANAGEMENT AND OUR BUSINESS WOULD BE MATERIALLY
ADVERSELY AFFECTED IF ANY OF OUR EXECUTIVES LEAVE.

     The operations and financial success of the Company are significantly
dependent on the Chief Executive Officer who is the sole member of the board of
directors. Our Vice President Clinical Operations and Chief Financial &
Operating Officer are also critical members of our management team. We currently
do not have employment agreements with these individuals however we hope to
enter into such agreements with them in the near future. Although we maintain
key man life insurance on Dr. Chess, our President and Chief Executive Officer,
in the event that he or our other key executives, including our Vice President
Clinical Operations or CFO, become unable or unwilling to continue to direct
operations, the Company lacks the funds and financial resources to replace
departing management and we would be materially adversely affected. Operations
could be materially affected and under certain circumstances, shareholders would
lose their entire investment. Further, Dr. Chess is the sole member of several
limited liability companies that perform non-medical administrative and support
services in certain states where we are prohibited from directly owning a
medical operation due to corporate practice of medicine laws in those states.
Accordingly, in the event that Dr. Chess were to leave our Company, it may
impact our day to day operations until a replacement can be recruited.

WE ARE A HOLDING COMPANY AND OUR ASSETS CONSIST PRIMARILY OF INVESTMENTS IN OUR
SUBSIDIARIES AND CONSEQUENTLY OUR SHAREHOLDERS MAY NOT RECEIVE ANY DIRECT
BENEFIT WHICH MAY BE DERIVED FROM OUR SUBSDIARIES.

     We are a holding company and our assets consist primarily of investments in
our subsidiaries. Other than providing administrative support, the Company
engages in no business directly. The subsidiaries are distinct legal entities
and have no obligation to pay any dividends or make advances or loans to us.

WE FACE SIGNIFICANT COMPETITIVE RISKS.

     The healthcare industry is highly competitive. We face competition from
many large and small companies. Many of these companies have financial resources


                                       15
<PAGE>

far greater than ours and have greater leverage in business and personnel. A
high degree of competition is expected to continue and there are no significant
barriers to entry into this business. Our business may be adversely affected by
these factors in a manner that causes our shareholders to lose their entire
investment.

IF WE DO NOT MANAGE OUR GROWTH SUCCESSFULLY, OUR GROWTH MAY SLOW, DECLINE OR
STOP, AND WE MAY NEVER BECOME PROFITABLE.

     If we do not manage our growth successfully, our growth may slow, decline
or stop, and we may never become profitable. We have expanded our operations
rapidly and plan to continue to expand. This expansion has created significant
demands on our administrative, operational and financial personnel and other
resources. Additional expansion in existing or new markets could strain
resources and increase the need for capital. Our personnel, systems, procedures,
controls and existing space may not be adequate to support further expansion. In
addition, because our business strategy emphasizes growth, the failure to
achieve our stated growth objectives or the growth expectations of investors
could cause our stock price to decline.

OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED IN THE MARKETPLACE.

     In connection with the commercialization of our health information system,
we are marketing services designed to link patients, health care providers and
payers in order to provide specialized management services for targeted chronic
diseases. However, at this time, services of this type have not gained general
acceptance from our customers. This is still perceived to be a new business
concept in an industry characterized by an increasing number of market entrants
who have introduced or are developing an array of new services. As is typical in
the case of a new business concept, demand and market acceptance for newly
introduced services are subject to a high level of uncertainty, and there can be
no assurance as to the ultimate level of market acceptance for our system,
especially in the health care industry, in which the containment of costs is
emphasized. Because of the subjective nature of patient compliance, we may be
unable, for an extensive period of time, to develop a significant amount of data
to demonstrate to potential customers the effectiveness of our services. Even
after such time, no assurance can be given that our data and results will be
convincing or determinative as to the success of our system. There can be no
assurance that increased marketing efforts and the implementation of our
strategies will result in market acceptance for our services or that a market
for our services will develop or not be limited.

OUR AGREEMENTS WITH OUR CUSTOMERS MAY BE TERMINATED BY OUR CUSTOMERS ON
RELATIVELY SHORT NOTICE.

     Our current services agreements with our customers generally automatically
renew but may be terminated by those customers without cause upon short notice.
In general, customer contracts may include significant performance criteria and
implementation schedules for us. Failure to satisfy such criteria or meet such
schedules could also result in termination of the agreements.

THE SUCCESS OF OUR PROGRAMS IS HIGHLY DEPENDENT ON THE ACCURACY OF INFORMATION
PROVIDED BY PATIENTS.

     Our ability to monitor and modify patient behavior and to provide
information to health care providers and payers, and consequently the success of
our disease management system, is dependent upon the accuracy of information


                                       16
<PAGE>

received from patients. We have not taken and do not expect to take, specific
measures to determine the accuracy of information provided to us by patients
regarding their medical histories. No assurance can be given that the
information our patients provide us will be accurate. To the extent that
patients have chosen not to comply with prescribed treatments, such patients
might provide inaccurate information to avoid detection. Because of the
subjective nature of medical treatment, it will be difficult for us to validate
or confirm any such information. In the event that patients enrolled in our
programs provide inaccurate information to a significant degree, we would be
materially and adversely affected. Furthermore, there can be no assurance that
our patient interventions will be successful in modifying patient behavior,
improving patient health or reducing costs in any given case. Many potential
customers may seek data from us with respect to the results of its programs
prior to retaining us to develop new disease management or other health
information programs. Our ability to market our system to new customers may be
limited if we are unable to demonstrate successful results for our programs.

OUR OPERATING RESULTS HAVE FLUCTUATED IN THE PAST AND COULD FLUCTUATE IN THE
FUTURE.

     Our operating results have varied in the past and may fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control.

OUR BUSINESS IS DEPENDENT ON DATA PROCESSING AND TRANSMISSION CAPABILITIES.

     Our business is dependent upon its ability to store, retrieve, process and
manage data and to maintain and upgrade our data processing capabilities.
Interruption of data processing capabilities for any extended length of time,
loss of stored data, programming errors, other computer problems or
interruptions of telephone service could have a material adverse effect on our
business.

ANY INABILITY TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR
COMPETITIVE POSITION.

     We consider our methodologies, processes and know how to be proprietary. We
seek to protect our proprietary information through confidentiality agreements
with our employees. Our policy is to have employees enter into confidentiality
agreements that contain provisions prohibiting the disclosure of confidential
information to anyone outside of the company. There can be no assurance that the
steps we take to protect our intellectual property will be successful. If we do
not adequately protect our intellectual property, competitors may be able to use
our technologies and erode or negate our competitive advantage.

IF OUR ACTUAL FINANCIAL RESULTS VARY FROM ANY PUBLICLY DISCLOSED FORECASTS, OUR
STOCK PRICE COULD DECLINE MATERIALLY.

     Our actual financial results might vary from those that we anticipate, and
these variations could be material. Publicly disclosed forecasts reflect
numerous assumptions concerning expected performance, as well as other factors,
which are beyond our control, and which might not turn out to have been correct.
Although we believe that the assumptions underlying the projections are
reasonable, actual results could be materially different, and to the extent
actual results are materially different, our stock price could be materially
adversely impacted.


                                       17
<PAGE>

CHANGES IN MARKET COULD ADVERSELY AFFECT OUR CONTRACTS WHICH COULD HAVE THE
EFFECT OF DECREASING OUR REVENUES

     The healthcare industry in which the Company operates currently faces
significant cost reduction pressures as a result of constrained revenues from
governmental and private revenue sources and increasing underlying medical care
costs. We believe that these pressures will continue and possibly intensify.

     The Company's services are geared specifically to assist its customers in
controlling the high costs associated with the treatment of chronic diseases;
however, the pressures to reduce costs in the short term may negatively affect
its ability to sign and/or retain contracts. In addition, this focus on cost
reduction may cause its customers to focus on contract restructurings that
reduce the fees for services rendered by the Company. These financial pressures
could have a negative impact on our operations.

THE COMPANY'S COMMON STOCK IS TRADED ON AN EXTREMELY ILLIQUID MARKET, MAKING IT
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES.

     There is an extremely limited and illiquid public market for the Company's
common stock. The common stock is currently quoted on the Pink Sheets (HCNV.PK),
but trading has historically been minimal. Therefore, the market for the common
stock is limited. The trading price of the Company's common stock could be
subject to wide fluctuations in response to variations in quarterly results of
operations, the gain or loss of significant customers, announcements of new
products by the Company or its competitors, general conditions in our industry,
and large shareholders selling or purchasing shares. There is no assurance that
investors will be able to purchase additional shares or sell their shares within
the time frame or at a price they desire.

OUR FAILURE TO MAINTAIN ADEQUATE PRICE LEVELS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.

     In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare reimbursements,
and horizontal and vertical consolidation within the healthcare industry. Our
inability to react effectively to these and other changes in the healthcare
industry could adversely affect our operating results. We cannot predict whether
any healthcare reform efforts will be enacted and what effect any such reforms
may have on us or our customers. Our inability to react effectively to changes
in the healthcare industry could result in a material adverse effect on our
business.

THE ESTABLISHED RELATIONS WITH THE KEY NURSING HOME CHAINS MAY BE TERMINATED BY
THEM, WHICH WILL RESULT IN A MATERIAL REDUCTION IN REVENUES.

     Our ability to generate revenue from our affiliate, NP Care, LLC is
dependent upon securing and maintaining contracts with both individual and
corporately owned nursing home chains. The nature of our contractual
relationships with these nursing homes or nursing home chains is such that they
may be terminated by either party without cause and with typically a thirty to
ninety day written notice of the intent to terminate.

RECONCILIATIONS UNDER THE COMPANY'S CONTRACT WITH HEALTH PLANS COULD RESULT IN
ADDITIONAL CASH TO BE PAID BY IT OR RESULT IN LESS CASH TO BE PAID TO THE
COMPANY BY HEALTH PLANS THAN ORIGINALLY ESTIMATED.


                                       18
<PAGE>

     Our contracts with health plans are based upon a set fee charged by us on a
per member per month (PMPM) basis. These contracts require a minimum enrollment
of the health plan's members who qualify for our programs. We are reimbursed
monthly based upon the actual census of enrolled members. Our estimated future
revenues are based upon achieving high levels of enrollment.

WE ARE SUBJECT TO EXTENSIVE CHANGES IN THE HEALTHCARE INDUSTRY.

     The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. Several lawmakers have announced that they
intend to propose programs to reform the U.S. health care system. These programs
may contain proposals to increase governmental involvement in health care, lower
reimbursement rates and otherwise change our operating environment and our
targeted customers. Healthcare industry participants may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring certain expenditures, including those for our programs. We cannot
predict what impact, if any, such changes in the healthcare industry might have
on our business, financial condition and results of operations. In addition,
many healthcare providers are consolidating to create larger healthcare delivery
enterprises with greater regional market power. As a result, the remaining
enterprises could have greater bargaining power, which may lead to price erosion
of our programs.

OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION.

     The healthcare industry, including our current business, is subject to
extensive regulation by both the Federal and State governments. A number of
states have extensive licensing and other regulatory requirements applicable to
companies that provide healthcare services. Additionally, services provided to
health benefit plans in certain cases are subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA), as amended, and may be
affected by other State and Federal statutes. Generally, State laws prohibit the
practice of medicine and nursing without a license. Many states interpret the
practice of nursing to include health teaching, health counseling, the provision
of care supportive to, or restorative of, life and well being and the execution
of medical regimens prescribed by a physician. Accordingly, to the extent that
we assist providers in improving patient compliance by publishing educational
materials or providing behavior modification training to patients, such
activities could be deemed by a state to be the practice of medicine or nursing.
Although we have not conducted a survey of the applicable law in all 50 states,
we believe that we are not engaged in the practice of medicine or nursing. There
can be no assurance, however, that our operations will not be challenged as
constituting the unlicensed practice of medicine or nursing. If such a challenge
were made successfully in any state, we could be subject to civil and criminal
penalties under such state's law and could be required to restructure its
contractual arrangements in that state. Such results, or the inability to
successfully restructure our contractual arrangements, could have a material
adverse effect on our operations.

     We and our customers may also be subject to Federal and state laws and
regulations that govern financial and other arrangements among healthcare
providers. These laws prohibit certain fee splitting arrangements among
healthcare providers, as well as direct and indirect payments, referrals or
other financial arrangements that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for


                                       19
<PAGE>

medical products and services. Possible sanctions for violation of these
restrictions include civil and criminal penalties. Criminal penalties range from
misdemeanors, which carry fines of not more than $10,000 or imprisonment for not
more than one year, or both, to felonies, which carry fines of not more than
$25,000 or imprisonment for not more than five years, or both. Further, criminal
violations may result in permanent mandatory exclusions and additional
permissive exclusions from participation in Medicare and Medicaid programs.

     Regulation in the health care field is constantly evolving. We are unable
to predict what government regulations, if any; affecting our business may be
promulgated in the future. Our business could be materially adversely affected
by the failure to obtain required licenses and governmental approvals, comply
with applicable regulations or comply with existing or future laws, rules or
regulations or their interpretations.

COMPLIANCE WITH NEW FEDERAL AND STATE LEGISLATIVE AND REGULATORY INITIATIVES
COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS OR MAY REQUIRE US TO SPEND
SUBSTANTIAL AMOUNTS ACQUIRING AND IMPLEMENTING NEW INFORMATION SYSTEMS OR
MODIFYING EXISTING SYSTEMS.

     We and our customers are subject to considerable state and Federal
government regulation. Many of these regulations are vaguely written and subject
to differing interpretations that may, in certain cases, result in unintended
consequences that could impact our ability to effectively deliver services. The
current focus on regulatory and legislative efforts to protect the
confidentiality and security of individually-identifiable health information, as
evidenced by the Health Insurance Portability and Accountability Act of 1996,
(HIPAA9, is one such example.

     We believe that federal regulations governing the confidentiality of
individually-identifiable health information permit us to obtain
individually-identifiable health information for health and care support
purposes from a health plan customer; however, state legislation or regulation
could preempt federal legislation if it is more restrictive. Federal regulations
governing the security of electronic individually-identifiable health
information became mandatory for customers in April 2005. We are contractually
required to comply with certain aspects of these confidentiality and security
regulations.

     Although we continually monitor the extent to which specific state
legislation or regulations may govern our operations, new federal or state
legislation or regulation in this area that restricts our ability to obtain
individually-identifiable health information would have a material negative
impact on our operations.

GOVERNMENT REGULATORS MAY INTERPRET CURRENT REGULATIONS GOVERNING OUR OPERATIONS
IN A MANNER THAT NEGATIVELY IMPACTS OUR ABILITY TO PROVIDE SERVICES.

     Broadly written Medicare fraud and abuse laws and regulations that are
subject to varying interpretations may expose us to potential civil and criminal
litigation regarding the structure of current and past contracts entered into
with our customers. We believe that our operations have not violated and do not
violate the provisions of the fraud and abuse statutes and regulations; however,
private individuals acting on behalf of the United States government, or
government enforcement agencies themselves, could pursue a claim against us
under a new or differing interpretation of these statutes and regulations.


                                       20
<PAGE>

     Our participation in federal programs may result in our being subject
directly to various federal laws and regulations, including provisions related
to fraud and abuse, false claims and billing and reimbursement for services, and
the False Claims Act. Violations of the False Claims Act are punishable by
treble damages and penalties of up to $11,000 per false claim. Actions may be
brought under the False Claims Act by the government as well as by private
individuals, known as "whistleblowers," who are permitted to share in any
settlement or judgment. Also, federal law contains various prohibitions related
to false statements and false claims, some of which apply to private payers as
well as federal programs.

WE FACE COMPETITION FOR STAFFING, WHICH MAY INCREASE OUR LABOR COSTS AND REDUCE
PROFITABILITY.

     We compete with other healthcare and services providers in recruiting
qualified management and staff personnel for the day-to-day operations of our
business, including nurses and other healthcare professionals. In some markets,
the scarcity of nurses and other medical support personnel has become a
significant operating issue to healthcare businesses. This shortage may require
us to enhance wages and benefits to recruit and retain qualified nurses and
other healthcare professionals. A failure to recruit and retain qualified
management, nurses and other healthcare professionals, or to control labor
costs, could have a material adverse effect on our profitability.

WE MAY FACE COSTLY LITIGATION THAT COULD FORCE US TO PAY DAMAGES AND HARM OUR
REPUTATION.

     Like other participants in the healthcare market, we are subject to
lawsuits alleging negligence, product liability or other similar legal theories,
many of which involve large claims and significant defense costs. Any of these
claims, whether with or without merit, could result in costly litigation, and
divert the time, attention, and resources of management. Although we currently
maintain liability insurance intended to cover such claims, there can be no
assurance that the coverage limits of such insurance policies will be adequate
or that all such claims will be covered by the insurance. In addition, these
insurance policies must be renewed annually. Although we have been able to
obtain liability insurance, such insurance may not be available in the future on
acceptable terms, or at all. A successful claim in excess of the insurance
coverage could have a material adverse effect on our results of operations or
financial condition.

WE COULD SHARE IN POTENTIAL LIABILITY RESULTING FROM ADVERSE MEDICAL
CONSEQUENCES OF PATIENTS.

     We provide information to healthcare providers and managed care
organizations upon which determinations affecting medical care are made. As a
result, we could share in potential liabilities for resulting adverse medical
consequences to patients. In addition, we could have potential legal liability
in the event we fail to correctly record or disseminate patient information.
Although we do not believe that we will directly engage in the practice of
medicine or direct delivery of medical services and have not been a party to any
such litigation, we maintain a professional liability policy with coverage of $3
million in the aggregate and $1 million per occurrence. There can be no
assurance that our procedures for limiting liability have been or will be
effective, that we will not be subject to litigation that may adversely affect
our results of operations, that appropriate insurance will be available to us in


                                       21
<PAGE>

the future at acceptable cost or at all, or that any insurance we maintain will
cover, as to scope or amount, any claims that may be made against us.

AN INABILITY TO ACCESS FINANCIAL MARKETS COULD ADVERSELY AFFECT THE EXECUTION OF
THE COMPANY'S BUSINESS PLAN.

     The Company cannot give assurance that additional capital will not be
needed, either through issuing more common stock, other equity securities or
debt. Any additional debt or preferred equity securities would be senior to
common equity holders in bankruptcy. Any additional common stock issued by the
Company would dilute existing shareholder interests. Further, no assurance can
be given as to how much additional working capital will be required or that
additional financing can be obtained on terms that will allow the Company to
execute its business plans or meet its financial obligations as they become due.

     The Company relies on access to both short-term money markets and
longer-term capital markets as a significant source of liquidity for capital
requirements not satisfied by cash flow from operations. Management cannot
assure that the Company and its subsidiaries will maintain sufficient access to
these financial markets based upon the Company's current financial position.
Moreover, certain developments outside of the Company's control may increase the
cost of borrowing or restrict its ability to access one or more financial
markets. Such developments could include, but are not limited to, an economic
downturn, an increase in interest rates or a weakening of the Company's
financial position.

THE COST TO THE COMPANY TO COMPLY WITH SEC RULES AND REGULATIONS MAY BE OVERLY
BURDENSOME.

     Subsequent to the filing of Form 10-SB, the Company has become subject to
the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Pursuant to the Exchange Act, the Company
will be required to file quarterly and annual reports and reports regarding
certain interim current activities. The inability to timely file the necessary
SEC reports could cause the public to lose confidence in the Company and
materially adversely affect the Company's stock price and ability to raise
capital.

IF WE ARE UNABLE TO CERTIFY THE EFFECTIVENESS OF OUR INTERNAL CONTROL OVER
FINANCIAL REPORTING, WE COULD SUFFER A LOSS OF PUBLIC CONFIDENCE IN OUR INTERNAL
CONTROLS, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR FINANCIAL PERFORMANCE AND
THE MARKET VALUE OF OUR COMMON STOCK.

     Item 308 of SEC Regulation S-K, which was promulgated pursuant to Section
404 of the Sarbanes-Oxley Act of 2002, will require us to provide an annual
report on our internal control over financial reporting, including an assessment
as to whether or not our internal control over financial reporting is effective
beginning with our Annual Report on Form 10-K or Form 10-KSB for the fiscal year
ended December 31, 2007. We will also be required to have our auditors attest to
our assessment and our CEO and CFO to individually opine on the effectiveness of
our internal controls over financial reporting for the fiscal year ended
December 31, 2008. We have not yet begun efforts to assess the effectiveness of
the design and operation of our internal controls and, when we do perform this
assessment, we may find deficiencies or material weaknesses in our internal
control. An auditor will then have to evaluate our assessment to determine
whether our internal control is effective. Furthermore, if we or our auditors
are unable to timely complete an assessment of our internal control over


                                       22
<PAGE>

financial reporting or review of our assessment efforts, we would be deficient
in our reporting obligations under the Exchange Act, which may restrict our
access to capital markets. Under any of these circumstances, we could be
subjected to additional regulatory scrutiny and suffer a loss of public
confidence in our internal control, which could have a negative impact on our
financial performance and the market value of our common stock.

OUR COMMON STOCK COULD BE CONSIDERED A "PENNY STOCK" WHICH COULD MAKE IT
DIFFICULT FOR INVESTORS TO PURCHASE AND DISPOSE OF OUR SHARES

     The Securities Enforcement and Penny Stock Reform Act of 1990 require
additional disclosure related to the market for penny stocks and for trades in
any stock defined as a penny stock. The SEC has adopted regulations under this
statute that defines a penny stock generally to be any non-NASDAQ equity
security that has a market price of less than $5.00 per share. The SEC's
definition of a penny stock is likely to apply to the Company's common stock. As
such, the common stock would be subject to certain risks associated with trading
in penny stocks. These risks include, but are not limited to, difficulty for
investors in purchasing or disposing of shares, obtaining accurate bid and ask
quotations, establishing the market value of the shares, and a lack of
securities analyst coverage.

     Unless exempt, for any transaction in a penny stock, the rules require the
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC explaining important concepts involving the penny stock
market, the nature of such market, terms used in such market, the
broker/dealer's duties to the customer, a toll-free telephone number for
inquiries about the broker/dealer's disciplinary history and the customer's
rights and remedies in case of fraud or abuse in the sale. Disclosure is also
required with respect to commissions payable to both the broker/dealer and the
registered representative and current quotations of securities. Also, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.

BECAUSE WE DO NOT INTEND TO PAY ANY DIVIDENDS, STOCKHOLDERS MUST RELY ON STOCK
APPRECIATION FOR ANY RETURN ON THEIR INVESTMENT IN OUR COMMON STOCK.

We have not paid any dividends on our common stock and we do not intend to
declare and pay any dividends on our common stock. Earnings, if any, are
expected to be retained by us to finance and expand our business.


                                       23
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY.

         We lease our corporate offices under a five year lease which expires on
October 31, 2009. Our corporate offices consist of 4,167 square feet with a
gross annual rental of approximately $93,600.

         We believe that the condition of our leased facilities is excellent and
that the provided space is sufficient for our use and operation at the present
time. In the opinion of management, these properties are adequately insured and
suitable for our anticipated future use.

         Our property is not leased from an affiliate.


ITEM 3. LEGAL PROCEEDINGS.

         We are not a party to any material legal proceedings, nor to our
knowledge, is there any proceeding threatened against it.


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

None.


                                       24
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(a) Market Information

Our common stock was initially traded on the Pink Sheets in March 2005 under the
symbol "AYHG.PK". In June 2005, as a result of our reverse merger transaction,
we changed our symbol to "HCNV.PK".

(b) Holders

As of March 28, 2007 36,245,740 shares of our common stock are issued and
outstanding and approximately 104 shareholders of record.

(c) Dividends

         The Company has not paid dividends during the years ended December 31,
2004, December 31, 2005, or December 31, 2006 and does not expect to pay
dividends for the foreseeable future.

         There is an extremely limited and illiquid public market for the
Company's common stock. The common stock is currently quoted on the Pink Sheets
(HCNV.PK), but trading has historically been minimal. As of December 31, 2006,
31,962,740 shares of our common stock are issued and outstanding and our common
stock is quoted on the pink sheets under the symbol "HCNV.PK".

     As of December 31, 2006, our common stock was held of record by 104
shareholders. This number does not include beneficial owners of common stock
whose shares are held in the names of various dealers, clearing agencies, banks
brokers and other fiduciaries.

     Other than approximately 328,637 shares of common stock, all of our issued
and outstanding shares of common stock are deemed to be restricted stock for
purposes of Rule 144 under the Securities Act and, accordingly, may not be sold
absent their registration under the Securities Act or pursuant to Rule 144
following their being held for the applicable holding periods set forth in Rule
144.

     We became a reporting company under the Securities Exchange Act of
1934, as amended, upon the effectiveness of Form 10-SB registration statement.
The effective date for Form 10-SB was February 13, 2007. Until such date as
shall be ninety (90) days from the date of the effectiveness, our stockholders
will not be able to avail themselves of Rule 144.

     In general, under Rule 144 as currently in effect, a person or group of
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate of ours, would be entitled to sell, within any three month
period, a number of shares that does not exceed 1% of the number of then
outstanding shares of our Common Stock; provided, that public information about
us as required by Rule 144 is available and the seller complies with manner of
sale provisions and notice requirements.

TRANSFER AGENT


                                       25
<PAGE>

     Our transfer agent is Atlas Stock Transfer. Their address is 4455 South 700
East, Suite 2000, Salt Lake City, UTAH 84107.

(d) Recent Sales of Unregistered Securities

           The following is a list of our securities that have been sold or
issued by us during the past three years. These securities were sold without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act. There were no underwriting discounts or commissions paid in
connection with the sale of these securities.

     In September 2006 through February 2007, we sold 3,256,400 shares of our
common stock for $3,256,400 to 15 investors ("September Offering"). In addition
to the shares of our common stock, we issued warrants to purchase 3,256,400
shares of our common stock at $1.25 per share to these investors. The investors
represented in writing that they were accredited investors and acquired the
securities for their own accounts. A legend was placed on the securities stating
that such securities have not been registered under the Securities Act and
cannot be sold or otherwise transferred without an effective registration
statement covering such shares or an the availability of an exemption from the
registration requirements of the Securities Act.

    In March 2007, in connection with the September Offering, we requested that
the investors exercise their respective 2006 warrants and in return receive an
additional 2007 warrant at an exercise price of $3.00 for every two warrants
exercised from the September 2006 PPM. As of March 2007, we received
approximately $1,187,500 from the exercise of the September Offering warrants
and have issued 2007 warrants for an additional 475,000 shares of our common
stock to five (5) September Offering investors. The investors represented in
writing that they were accredited investors and acquired the securities for
their own accounts. A legend was placed on the securities stating that such
securities have not been registered under the Securities Act and cannot be sold
or otherwise transferred without an effective registration statement covering
such shares or an the availability of an exemption from the registration
requirements of the Securities Act.

     On July 11, 2006, we issued a convertible promissory note to the Rubin
Family Irrevocable Stock Trust in the principal face amount of $200,000, to be
funded $100,000 upon issuance of the note and $100,000 on August 11, 2006. The
convertible debentures are convertible only if the amount owing thereunder are
not repaid. The holders of such note represented in writing that it was an
accredited investor and acquired the securities for its own account. On October
10, 2006, the Company paid the Rubin Family Irrevocable Stock Trust $203,812 in
full satisfaction of the principal and accrued interest on the note. A legend
was placed on the securities stating that such securities have not been
registered under the Securities Act and cannot be sold or otherwise transferred
without an effective registration statement covering such shares or an the
availability of an exemption from the registration requirements of the
Securities Act.

     In June, 2006 the Company sold a total of 142,669 shares of restricted
common stock to several of its key managers for aggregate net proceeds of
approximately $107,000 and warrants were exercised by a shareholder with the
Company realizing $500,000 in net proceeds. These proceeds were applied to an
outstanding note payable to the same shareholder in the amount of $500,000.


                                       26
<PAGE>

     In June 2005 through April, 2006, we sold approximately $1,257,985 in
principal amount of convertible debentures to 18 investors ("June Offering"). In
addition to the convertible debentures, we issued 1,257,985 shares of our common
stock to these investors. The holders of such notes and common stock represented
in writing that they were accredited investors and acquired the securities for
their own accounts. A legend was placed on the securities stating that such
securities have not been registered under the Securities Act and cannot be sold
or otherwise transferred without an effective registration statement covering
such shares or an the availability of an exemption from the registration
requirements of the Securities Act.

         In connection with the June Offering, we issued, in March 2007,
approximately 1,708,000 shares of our common stock as a result of the conversion
of the June Offering Convertible Debentures. As provided in those Debentures,
the holders were entitled to convert the principal amount of the Debenture in
the event that we became a fully reporting company. As indicated in this Form
10-KSB, we became a fully reporting company on February 13, 2007 and,
accordingly, the June Offering investors converted their Debentures. A legend
was placed on the securities stating that such securities have not been
registered under the Securities Act and cannot be sold or otherwise transferred
without an effective registration statement covering such shares or an the
availability of an exemption from the registration requirements of the
Securities Act.






ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.


         This management's discussion and analysis of results of operations and
financial condition contains forward-looking statements that involve risks and
uncertainties. In some cases, you can identify these statements by
forward-looking words such as "may," "might," "will," "should," "expect(s),"
"plan(s)," "anticipate(s)," "believe(s)," "estimate(s)," "predict(s),"
"intend(s)," "potential" and similar expressions. All of the forward-looking
statements contained in this registration statement are based on estimates and
assumptions made by our management. These estimates and assumptions reflect our
best judgment based on currently known market and other factors. Although we
believe such estimates and assumptions are reasonable, they are inherently
uncertain and involve risks and uncertainties. In addition, management's
assumptions about future events may prove to be inaccurate. We caution you that
the forward-looking statements contained in this registration statement are not
guarantees of future performance and we cannot assure you that such statements
will be realized. In all likelihood, actual results will differ from those
contemplated by such forward-looking statements as a result of a variety of
factors, including, but not limited to, those factors discussed in "Risk
Factors" and included in our registration Statement on Form 10-SB (File No.
0-52197), as such registration statement became effective on February 13th,
2007. Except as required by law, we undertake no obligation to update any of
these forward-looking statements.

         The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in


                                       27
<PAGE>

accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The following discussion of our financial condition and
results of operations should be read in conjunction with (1) our audited
financial statements for the years ended December 31, 2006 and 2005, together
with notes thereto included in this Form 10-KSB and (2) our registration
statement Form 10-SB (File No. 0-52197), as such registration statement became
effective on February 13th, 2007.

OVERVIEW

         HC Innovations, Inc. ("HCI") is a holding company incorporated in
Delaware that, through its subsidiaries, provides specialty care management
products and services.

         Our wholly owned subsidiary and operating company is Enhanced Care
Initiatives, Inc. (ECI). ECI is a specialty disease and care Management Company
comprised of several divisions each with a specific focus and intervention. Our
mission is to identify subgroups of people with high costs and disability and to
create and implement systems that improve their health, resulting in dramatic
reductions in the cost of their care. As a specialty disease and care Management
Company, we bring to our clients the ability to impact the health and cost of
their sickest, costliest subsets of patients. We combine our proprietary state
of the art information systems with highly trained nurses and nurse
practitioners. We provide intense, hands-on involvement with call center backup
and biometric monitoring. We connect care around the patient and around the
clock providing case management if the patient requires hospitalization or
rehabilitation in a nursing home -- always working to bring the patient safely
home. We connect directly with the patient's physician by going with the patient
to the doctor visit. The applications for our unique systems are numerous.

CLINICAL STRATEGY

         Identify subgroups of people with common needs and create programs to
fill the gaps in care, stabilizing the health of the individual. These are
highly complex populations that require complex solutions. We combine best
practices, state of the art electronic health record (EHR), communication tools,
calls center support and biometrics, with community-based, hands-on, high-touch
care.

CORPORATE STRATEGY

         Create scalable interventions which result in significant healthcare
cost savings which drive our growth visibility and profitability.

         Management has retained an investment advisory firm for the purpose of
developing a strategy to secure additional capital for working capital,
continued investment in information systems and the ongoing execution of its
growth plans. As is typical with early stage, growth companies, 2005 and 2006
losses are largely a result of business development expenses as well as
significant investment in building infrastructure for growing the Company's
divisions, business and clinical systems and programs. During the first nine
months of 2006, the Company was successful in securing new contracts with Aetna
Health, Inc. (to manage its members in New Jersey long-term care facilities);
Amerigroup Corporation (a contract for an initial 300 patients beginning in
June, 2006 in Houston, Texas with estimated first year revenue of approximately
$1 million); and the Company also entered into a Partnership Agreement with
MCKESSON (MCK) to jointly market and respond to requests for proposals


                                       28
<PAGE>

(particularly state Medicaid opportunities) and will be integrating the
Company's high intensity programs with their call center support services.

         In addition, the Company's contract with HealthSpring USA, LLC has been
expanded from the initial 300 members in Tennessee to approximately 500 members,
representing an increase in annualized contract revenue of approximately $.7
million.

RESULTS OF OPERATIONS

         The Company's focus for fiscal years 2003 through 2006 was to invest in
the areas of IT/Systems building, clinical protocol training and development,
human resource recruiting, training and development as well as marketing and
business development expense. The Company has invested heavily in the
development of its proprietary software systems for fully integrated electronic
health records for its principal divisions: Easy Care and NP Care. During the
second half of 2005, 2006 and 2007 to date, the Company has also invested in
additions to its management and systems infrastructure in anticipation of rapid
growth of its programs.

         Management believes that these investments in building the management
infrastructure and systems is critical, both to ensure effective execution of
its business model(s) In each market area, and to sustain high levels of revenue
growth and margin enhancement over time. Management believes its models are
highly scalable however there are significant start-up costs associated with
scaling to new markets and there can be no assurance that the Company will be
successful in securing new contracts and growing these new markets profitably.









TWELVE-MONTHS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

Revenues.

         For the twelve-months ended December 31, 2006, net revenue was
$6,166,092 representing an increase of $3,278,594 (114%) as compared to the net
revenue of $2,887,498 for the twelve months ended December 31, 2005. This
increase is a result of both internal growth of existing operations as well as
the first significant contract for our disease management division which
commenced in the 4th quarter of 2005. During this period we have also expanded
operations to New Jersey and Texas, both the result of new contracts for
services for our subsidiaries and affiliates. During the 3rd quarter of 2006,
the Texas operation began generating revenue from a contract for disease
management.

Cost of Net Revenue and Gross Profit.

         For the twelve-months ended December 31, 2006 cost of net services was
$5,033,136 which represents an increase of $2,449,480 (95%) as compared to the
cost of net services of $2,583,656 for the twelve months ended December 31,
2005. For the twelve months ended December 31, 2006 gross profit was $1,132,956,
18% of net revenues, which represents an increase of $829,114 (273%)


                                       29
<PAGE>

as compared to the gross profit of $303,842, 11% of net revenue, for the
twelve-months ended December 31, 2005.

<TABLE>
<CAPTION>
                                                    ----------------------------------------------------------------------------
                                                                        TWELVE MONTHS ENDED                           Y/O/Y %
                                                         DECEMBER 31, 2006                DECEMBER 31, 2005
<S>                                                 <C>                                   <C>                         <C>

Net revenues                                                 6,166,092                        2,887,498                 114%

Cost of net revenues                                         5,033,136                        2,583,656                 95%

Gross Profit                                                 1,132,956                         303,842                  273%

Gross Profit percentage                                         18%                              11%
</TABLE>


Selling, General and Administrative Expense ("SG&A Expenses").

         SG&A expenses include the wages and salaries of administrative and
business development personnel, as well as other general and corporate overhead
costs not directly related to generation of net revenue. For the twelve-months
ended December 31, 2006 total SG&A Expenses were $3,964,537 representing an
increase of $2,462,720 (164%) as compared to the total SG&A Expenses of
$1,501,817 for the twelve-months ended December 31, 2005. As a percentage of net
revenue total Operating expenses for the twelve-months ended December 31, 2006
were 69% as compared to 56% for the twelve-months ended December 31, 2005. This
increase was due largely to our investment in corporate infrastructure necessary
to achieve our growth objectives as well as increased legal, auditing and other
expansion related expenses including the previously mentioned start-up expenses
of new operations.

         Depreciation and amortization expense are calculated using the straight
line method over the estimated useful lives of the assets, or, in the case of
leasehold improvements over the remaining term of the related lease, whichever
is shorter. For the twelve-months ended December 31, 2006 depreciation and
amortization expense included in Operating expenses was $269,640 representing an
increase of $166,389 (161%) as compared to the total depreciation and
amortization expense of $103,251 included in SG&A for the twelve-months ended
December 31, 2005.

<TABLE>
<CAPTION>
                                                           ----------------------------------------------------------------------
                                                                            TWELVE MONTHS ENDED                         Y/O/Y %
                                                               DECEMBER 31, 2006            DECEMBER 31, 2005
<S>                                                        <C>                              <C>                         <C>

Selling, general and administrative expenses                      3,964,537                    1,501,817                164%

Depreciation and amortization                                      269,640                      103,251                 161%

Total Operating Expenses                                          4,234,177                    1,605,068                164%

Total Operating Expenses as a % of Revenue                           69%                          56%
</TABLE>


                                       30
<PAGE>

Income (Loss) from operations.

         For the twelve-months ended December 31, 2006 we incurred a loss from
operations of ($3,101,221) representing an increase of $1,799,995 (138%)
compared to ($1,301,226) for the twelve-months ended December 31, 2005. These
changes are a result of factors mentioned above as well as the costs associated
with the stock acquisition agreement. We expect ongoing improvement to our
results of operations as revenues increase and we begin to absorb the
incremental fixed costs associated with our expansion. Revenues and operating
results are expected to fluctuate from period to period as a result of the
timing of new contracts and additional start-up costs associated with additional
planned new markets.

INCOME TAX EXPENSE.

         The Company has incurred net operating losses (NOLs) since inception.
At December 31, 2006, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $4,000,000, which is available to
offset future federal taxable income, if any, ratably through 2026. These NOL's
are subject to review by federal and state tax authorities.

PLAN OF OPERATIONS - EASY CARE

Primary Strategy.

     Our primary strategy consists of the following:


     1. MANAGED MEDICARE MARKET - Currently over five million enrolled --
150,000 Easy Care(SM) eligible. We are focusing on small to medium sized
Medicare Advantage programs with Medicare enrollment between 10,000 and 60,000.
These plans are independent and not part of large networks; they are growing
their Medicare membership, and are less likely to have their own disease
management programs. Most of these plans are well established, though some are
relatively new to Medicare. We believe we are well positioned to grow with the
enrollment of these companies.

(SOURCE OF ABOVE DATA:  http://www.cms.hhs.gov/ CENTERS FOR MEDICARE & MEDICAID
SERVICES (CMS), U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES)

Managed Medicare Direct Contracts

MANAGED MEDICARE DIRECT CONTRACTS
CURRENT CONTRACT
-----------------------------------------------------------------------
HEALTH PLAN      LOCATION        TOTAL MEDICARE    ENROLLED EASY CARE
-----------------------------------------------------------------------
HealthSpring      Nashville, TN       40,000         500 may expand to
1,000 members in Tennessee
-----------------------------------------------------------------------
HealthSpring, TX  Houston, TX         29,000        Has committed to
                                                    enroll up to 300
                                                    patients
-----------------------------------------------------------------------


                                       31
<PAGE>

ACTIVE DISCUSSIONS
- ------------------------------------------------------------------------------
HEALTH PLAN         LOCATION           TOTAL MEDICARE    COMMENTS
- ------------------- ------------------ ----------------- ---------------------

HealthNet, NE [CT]  Shelton, CT        40,000            Currently in
                                                         discovery
                                                         process
-----------------------------------------------------------------------




     2. SUBCONTRACTING WITH POPULATION BASED-SINGLE DISEASE ORIENTED DISEASE
MANAGEMENT COMPANIES -- many of these companies either have large Medicare
populations, are partnering with an HMO in a CCI (Medicare demonstration
project), or seeking contracts with the states for Medicaid populations which
include the disabled. In these cases we subcontracting with the company and
enabling them to provide a complete spectrum of care which includes hands-on and
presence in the community for the medically complex and frail; a capability
which none of these companies has developed: Alere, Health Dialog, Health
Management Corp/Wellpoint and McKesson.


--------------------------------------------------------------------------------
POPULATION BASED DM OPPORTUNITIES
ACTIVE DISCUSSION
--------------------------------------------------------------------------------
DSM COMPANY        LOCATION        POTENTIAL            COMMENT
                                   PARTNER/MEDICARE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HealthDialog       Boston, MA      HighMark,            HD and HighMark have
                                   Pittsburgh, PA       CCI project and are
                               looking for support
                              with frail population
                                                        in the 20,000
                               population for whom
                              they are responsible
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
McKesson                           Partnership          Have been embedded in
                                   Agreement            RFP responses to
                                                        Georgia and New York
                                                        Contract has been signed
                                                        in March, 2007 for State
                                                        of Illinois Medicaid
                                                        patients in long term
                                                        care facilities
--------------------------------------------------------------------------------







     3. DUAL ELIGIBLE MEDICARE/MEDICAID PLANS - these are relatively new
entities but a number of companies who are already in the Medicaid market are
seeking to enroll Medicare members who have both insurances since the


                                       32
<PAGE>

reimbursement incentives are favorable. Most of these companies do not have
experience with the medically complex and frail patients and are seeking
partners to help them.





--------------------------------------------------------------------------------
ACTIVE DISCUSSION AND CONTRACTS
--------------------------------------------------------------------------------
HEALTHPLAN       LOCATION           MEDICARE/MEDICAID     COMMENTS
--------------------------------------------------------------------------------
AmeriGroup       Houston, TX        11,000                Start up 7/1/06: 300
                                    Contract signed       members
--------------------------------------------------------------------------------


     4. MEDICAID CONTRACTS --although this is a population which could benefit
from our programs, the sales cycle is very long (up to two years) and the RFP
(Request for Proposal) process too distracting for EASY CARE(SM) at this time.
Our approach in this context is to partner with other Disease Management and
Managed Care Organizations as part of their Request for Proposal responses.

    5. MCKESSON - we have a partnership agreement in place and are working with
their Disease Management Division on specific opportunities. A Contract has been
signed in March, 2007 for State of Illinois Medicaid patients in long term care
facilities

PLAN OF OPERATIONS - NP CARE

     We hope to achieve the growth at a rate of nine facilities per quarter over
a period of four years in targeted markets. We anticipate growth will then slow
down secondary to saturation of prime facilities, decreased availability of
nurse practitioners and potential competition.


                                       33
<PAGE>

     Based on our analysis, the target markets include:

<TABLE>
<CAPTION>
            TOTAL #                            POTENTIAL                  CURRENT                                      # OF
STATE    OF FACILITIES  # OF    COMPETITION     MEDICARE    CURRENT %       # OF      START    MATURE        %        FACILITIES
           IN MARKET     NPS                   ADVANTAGE   PENETRATION   FACILITIES   DATE      DATE    PENETRATION   AS MATURE
                                                PARTNERS                                                              MARKET
<S>      <C>            <C>     <C>            <C>         <C>           <C>          <C>     <C>       <C>           <C>

 CT           252       2,585     Evercare       Health        24%           60       Q1 03    Q2 08        30%              75
                                                 Spring
 IL           848       2,521        No          Health        0%            --       Q2 08    Q2 12        15%             120
                                                 Spring
 NJ           360       3,400     Evercare       Aetna        0.80%          3        Q2 06    Q4 10        20%              72
                                  Start Up
 OH           994       2,851     Evercare     Paramount       0%            --       Q3 06    Q3 10        15%             150
                                  Re-Entry
                                   Alpha
                                 Physicians
 PA           757       5,969     Evercare      Highmark       0%            --       Q1 08    Q1 12        10%              75
                                  Re-Entry
 TN           339       2,300        No          Health        0%            --       Q1 07    Q1 11        15%              50
                                                 Spring
                                  Evercare
 TX          1,139      5,532     Fidelis        Health        0%            --       Q2 07    Q2 11        10%             100
                                 Star Plus       Spring
</TABLE>

(THE PEARSON REPORT, 2005; PROVIDER, JUNE 2005, JUNE 2006; CDC (CENTER FOR
DISEASE CONTROL) HEALTH, UNITED STATES 2004 ANNUAL REPORT ON TRENDS IN HEALTH
STATISTICS. EVERCARE HEALTH PLANS (www.evercarehealthplans.com))

     We have established relationships with the key nursing home chains (for
example Harborside, Genoa, Sava, CareOne, THI, NHC); and have aggressively and
successfully competed with Evercare in the Connecticut and New Jersey markets.
We are confident that our continued focus on excellence in customer service and
delivering health outcomes will continue to position NP Care as the provider of
choice.


                                       34
<PAGE>

                   TARGETED MARKET SHARE % BY STATE BY (2010)

         [The table below represents a bar chart in the printed report.]

                                     CT: 35%
                                     TX: 10%
                                     TN: 15%
                                     PA: 10%
                                     OH: 15%
                                     NJ: 20%
                                     IL: 15%

Financial Engine
- ----------------

     NP Care's revenue streams include three channels:

o    Fee-for-Service -- our nurse practitioners are paid on an event basis in
all of our current nursing homes.

o Special Services -- Resident Risk Assessments, Employee Physicals, Nursing
Home-based Educational programs are available on a service-based fee schedule.

o Medicare Advantage SNPs -- we have entered into a relationship with Aetna to
be the nurse practitioner source of care for their managed care nursing home
patients in select homes in New Jersey. We are now entering into contractual
relations with HealthSpring in Nashville, Tennessee.

LIQUIDITY AND CAPITAL RESOURCES

         We have historically financed our liquidity needs through a variety of
sources including proceeds from the sale of common stock, borrowing from banks,
loans from our stockholders, issuance of convertible debentures and cash flows
from operations. At December 31, 2006 and 2005, we had $151,534 and $435,375,
respectively, in cash and cash equivalents. Operating activities for the
twelve-months ended December 31, 2006 used $2,125,695, representing an increase
of $1,683,169 (380%) when compared to the cash used in operating activities of
$442,526 for the twelve-months ended December 31, 2005. This change is primarily
due to the increased investment in building corporate infrastructure; start-up
costs associated new contracts and increased spending with respect to business
development.

         During 2005, the Company issued 18 month convertible debentures to
private accredited investors. The total principal amount of the debentures was
$1,258,000 convertible into 1,258,000 shares of the Company's common stock.
These funds were used for expansion of the Company's programs, legal and
accounting fees, software development costs and general working capital.

         On July 11, 2006, the Company issued a convertible promissory note to
the Rubin Family Irrevocable Stock Trust in the principal face amount of
$200,000, to be funded $100,000 upon issuance of the note and $100,000 on August
11, 2006. The convertible debentures are contingently convertible only if the
amounts owed there under are not repaid. The conversion price of the note is
equal to 50% of the market price of HCI's common stock on the day prior to
conversion. In no circumstances will the conversion price be less than $.40 per
share. Interest accrues on the note at 10% and the note is due on demand. On
October 10, 2006,


                                       35
<PAGE>

the Company paid the Rubin Family Irrevocable Stock Trust $203,812 in full
satisfaction of the principal and accrued interest on this note.

         During 2006 the Company issued an additional $500,000 in 18 month
convertible debentures to an existing shareholder under the same terms as the
2005 offering. In addition, the Company has borrowed from shareholders a total
of $560,000 in the form of short-term notes payable. In June, 2006 the Company
sold a total of 142,669 shares of restricted common stock to several of its key
managers for aggregate net proceeds of approximately $107,000 and warrants were
exercised by a shareholder with the Company realizing $500,000 in net proceeds.
These proceeds were applied to an outstanding note payable to the same
shareholder in the amount of $500,000.

         On September 25, 2006, HCI conducted a Private Placement Offering
Memorandum ("PPM") for the sale of up to 3,200,000 shares of common stock at
$1.00 per share and warrants to purchase 3,200,000 shares of common stock in the
future. The offer to purchase common stock was scheduled to expire on the
earlier of when the entire aggregate amount of common stock and the entire
amount of warrants are subscribed and accepted or November 30, 2006. The Company
extended the offering period to February 28, 2007. As of December 31, 2006, the
Company raised $1,956,400 under the PPM. During the first quarter of 2007 the
Company completed the PPM by raising an additional $1,350,000.

         The warrants have a term of two years. The exercise price is $1.25 per
share. The warrants shall be redeemable at $.05 per warrant share contingent
upon HCI's common stock trades at a closing price of at least $3.50 per share
over twenty consecutive days.

         During the first quarter of 2007 the Company offered holders of the
warrants issued in conjunction with the PPM of September 25, 2006 an incentive
to exercise the warrants early. This offer consisted of a grant of one
additional warrant at a price of $3.00 per share for every 2 warrants exercised
during the first quarter of 2007. These additional warrants have a term of two
years.

         In August, September and November 2006, Dr. Chess, our President and
Chief Executive Officer and his son, loaned NP Care, LLC an aggregate of
$345,000 as evidenced by five demand promissory notes. The interest rate for
each note is ten percent (10%) per annum and each matured at varying dates
between September and January 2007. On November 3, 2006, the Company paid Dr.
Chess $51,276 in satisfaction of principal and accrued interest on one of the
notes and has made payments of $10,000 towards another of the loans. The other
four notes continue to accrue interest until paid in full and have a principal
balance of $285,000 at December 31, 2006.

         During December 2005, the Company entered into a Memorandum of
Understanding ("MOU") with BioScrip, Inc. ("BioScrip"). BioScrip provided a
$250,000 refundable advance towards the purchase of $1,500,000 worth of HCI
common stock. BioScrip did not purchase the common stock and the MOU was
terminated due to disputes arising between the Company and BioScrip regarding
the return of the advance. Under the terms of a settlement agreement dated
October 11, 2006, BioScrip and HCI agreed to settle the amount owed to BioScrip
for a single payment of $125,000 in full and final settlement and the Company
made this payment on November 15, 2006.


                                       36
<PAGE>

During 2004, the Company entered into a subscription agreement with an investor
whereby the investor purchased 2,748,897 shares of common stock at an aggregate
purchase price of $500,000.

         During 2004, the Company (Borrower) entered into a loan agreement with
The Rubin Family Irrevocable Stock Trust (Lender), a shareholder of HCI, whereby
the Lender extended a line of credit facility in the original principal amount
not to exceed $500,000 to the Borrower for general company purposes. On December
31, 2006 and 2005, there was $-0- and $500,000 outstanding on the line of
credit, respectively.

         The Company incurred consulting, advisory and legal fees during 2006
and 2005 to secure financing, raising capital, secure a public shell and Chair
the Business Advisory Board. These consultants received stock in exchange for
these services rendered, in non-cash transactions. The total amount charged to
expense for the year ended December 31, 2006 and 2005, was $-0- and $44,892,
respectively.

         During 2004, the Company entered into agreements with banks to
establish line of credit facilities to finance the on-going operations of the
Company. As of December 2006 and 2005, the total amounts outstanding on the
lines of credit were $200,000 and $210,122 respectively.

         During 2005 and 2004, the Company financed the addition of computer
equipment related to the expansion of the programs through various capital lease
agreements. During 2006 and 2005, a total of $245,475 and $205,881 were
outstanding on these leases, respectively.

         The Company has incurred significant costs for the development of
software for internal use. As of December 31, 2006 and 2005, the Company
incurred $752,988 and $596,096, respectively in capitalized software costs. The
Company used one vendor to develop this software. On December 31, 2005, the
Company entered into a note payable agreement with the vendor for the
outstanding balance greater than 90 days on the account. At December 31, 2006
the amount outstanding to this vendor was $682,315.



Accounts Receivable

         As of December 31, 2006 and 2005, the Company's accounts receivable
aging by major payers was as follows:

December 31, 2006

                 0 - 30     31 - 60   61 - 90    > 90       Total
               ------------------------------------------------------

Medicare           181,598    12,376    11,007     7,693     212,674
Healthnet           10,300       540        78       181      11,099
Medicaid            12,752     1,933     1,092     6,531      22,308
Blue Cross           7,880     2,608       604     1,480      12,572
Other Private       45,407    11,553     5,419     9,790      72,169

               ------------------------------------------------------
                 $ 257,936  $ 29,010  $ 18,200  $ 25,676   $ 330,822
               ======================================================


                                       37
<PAGE>

December 31, 2005

                 0 - 30     31 - 60   61 - 90    > 90       Total
               ------------------------------------------------------

Medicare           114,738    21,664     7,013     1,926     145,341
Healthnet            5,967       258         -     5,246      11,471
Medicaid             6,175       430       126       164       6,895
Blue Cross           1,739     2,331       645    13,644      18,359
Other Private       26,526     5,192     1,281     5,246      38,245

               ------------------------------------------------------
                 $ 155,145  $ 29,875    $9,065  $ 26,226   $ 220,311
               ======================================================

         Receivables recorded at December 31, 2006 and 2005 consists primarily
of fees for services to be reimbursed by Medicare, Medicaid and other private
insurance payers. Self pay accounts are not material. These accounts are
actively monitored by a third party billing company responsible for collecting
amounts due. Day's sales outstanding (DSO's) decreased from 28 at December 31,
2005 to 19 at December 31, 2006 due to the increase in collection efforts by the
Company during 2006.

         A significant portion of the Company's fee for service revenues have
been reimbursed by federal Medicare and, to a lesser extent, state Medicaid
programs. Payments for services rendered to patients covered by these programs
are generally less than billed charges. The Company monitors its revenues and
receivables from these reimbursement sources, as well as other third-party
insurance payers, and records an estimated contractual allowance for certain
service revenues and receivable balances in the month of revenue recognition, to
properly account for anticipated differences between billed and reimbursed
amounts. Reimbursement is determined based on historical payment trends as well
as current contract terms. Accordingly, a substantial portion of the total net
revenues and receivables reported in the Company's consolidated financial
statements for years ended December 31, 2006 and 2005 are recorded at the amount
ultimately expected to be received from these payers. For the years ended
December 31, 2006 and 2005, there were $1,701,268 and $1,937,060, respectively,
recorded as contractual allowances.

         Management has provided for uncollectible accounts receivable through
direct write-offs and such write-offs have been within management's
expectations. Historical experience indicates that after such write-offs have
been made, potential collection losses are considered minimal and, therefore, no
allowance for doubtful accounts is considered necessary by management. On a
monthly basis, management reviews the accounts receivable aging by payer and
rejected claims to determine which receivables, if any are to be written off.
For the years ended December 31, 2006 and 2005, the bad debt direct write-offs
totaled approximately $48,000 and $54,000, respectively.


         Based on our current financial resources, we will require additional
working capital to fund our ongoing business, business strategy including
acquisitions and further development of our proprietary software systems. There
can be no assurance that additional financing will be available, or if
available, that such financing will be on favorable terms. Any such failure to


                                       38
<PAGE>

secure additional financing could impair our ability to achieve our business
strategy. There can be no assurance that we will have sufficient funds or
successfully achieve our plans to a level that will have a positive effect on
our results of operations or financial condition. Our ability to execute our
growth strategy is contingent upon sufficient capital as well as other factors,
including, but not limited to, our ability to further increase awareness of our
programs, our ability to consummate acquisitions of complimentary businesses,
general economic and industry conditions, our ability to recruit, train and
retain a qualified sales and nursing staff, and other factors, many of which are
beyond our control. Even if our revenues and earnings grow rapidly, such growth
may significantly strain our management and our operational and technical
resources. If we are successful in obtaining greater market penetration with our
programs, we will be required to deliver increasing outcomes to our customers on
a timely basis at a reasonable cost to us. No assurance can be given that we can
meet increased program demand or that we will be able to execute our programs on
a timely and cost-effective basis.

COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

         There are no guarantees, commitments, lease and debt agreements or
other agreements that would trigger adverse changes in our credit rating,
earnings, or cash flows, including requirements to perform under stand-by
agreements.

     The Company is obligated under various operating leases for the rental of
office space and office equipment. Future minimum rental commitments with a
remaining term in excess of one year as of December 31, 2006 are as follows:


                  YEARS ENDING DECEMBER 31,

                      2007                            $ 255,785
                      2008                              243,449
                      2009                              226,772
                      2010                               35,597
                      2011                               23,753
                                                    ------------
                  Total minimum lease payments         $785,356
                                                    ============



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

         We believe that the following critical policies affect our more
significant judgments and estimates used in preparation of our financial
statements.


                                       39
<PAGE>

REVENUE RECOGNITION

          A significant portion of the Company's fee for service revenues have
been reimbursed by federal Medicare and, to a lesser extent, state Medicaid
programs. Payments for services rendered to patients covered by these programs
are generally less than billed charges. The Company monitors its revenues and
receivables from these reimbursement sources, as well as other third-party
insurance payers, and records an estimated contractual allowance for certain
service revenues and receivable balances in the month of revenue recognition, to
properly account for anticipated differences between billed and reimbursed
amounts. Accordingly, a substantial portion of the total net revenues and
receivables reported in the Company's consolidated financial statements are
recorded at the amount ultimately expected to be received from these payers.

         The Company evaluates several criteria in developing the estimated
contractual allowances for unbilled and/or initially rejected claims on a
monthly basis, including historical trends based on actual claims paid, current
contract and reimbursement terms, and changes in patient base and payer/service
mix. Contractual allowance estimates are adjusted to actual amounts as cash is
received and claims are settled. Further, the Company does not expect the
reasonably possible effects of a change in estimate related to unsettled
contractual allowance amounts from Medicaid and third-party payers to be
significant to its future operating results and consolidated financial position.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

         The Company has capitalized costs related to the development of
software for internal use. Capitalized costs include external costs of materials
and services and consulting fees devoted to the specific software development.
These costs have been capitalized based upon Statement of Position (SOP) 98-1,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE." In accordance with SOP 98-1, internal-use software development
costs are capitalized once (i) the preliminary project stage is completed, (ii)
management authorizes and commits to funding a computer software project, and
(iii) it is probable that the project will be completed, and the software will
be used to perform the function intended. Costs incurred prior to meeting these
qualifications are expensed as incurred. Capitalization of costs ceases when the
project is substantially complete and ready for its intended use. Internal-use
software development costs are amortized using the straight-line method over
estimated useful lives approximating five years.

         The capitalization and ongoing assessment of recoverability of
development costs requires considerable judgment by the Company with respect to
certain external factors, including, but not limited to, technological and
economic feasibility, and estimated economic life.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments include cash, accounts payable and
notes payable. The carrying amounts of these financial instruments approximate
their fair value, due to the short-term nature of these items. The carrying
amount of the notes payable approximates their fair value due to the use of
market rates of interest.

FIXED ASSETS


                                       40
<PAGE>

         Fixed assets are stated at cost, less accumulated depreciation and
amortization. Major improvements and betterments to the fixed assets are
capitalized. Expenditures for maintenance and repairs which do not extend the
estimated useful lives of the applicable assets are charged to expense as
incurred. When fixed assets are retired or otherwise disposed of, the assets and
the related accumulated depreciation are removed from the accounts and any
resulting profit or loss is recognized in operations.

         The Company provides for depreciation and amortization using the
straight-line method over the estimated useful lives of the assets, or, in the
case of leasehold improvements, over the remaining term of the related lease,
whichever is shorter.

STOCK BASED TRANSACTIONS

         In connection with the valuation of equity transactions that occurred
from January 1, 2005 to December 31, 2006, the Company considered Statement of
Financial Accounting Standards No. 123 (revised 2004); Share Based Payments
(SFAS 123R), specifically paragraph 7, and also considered the American
Institute of Certified Public Accountants ("AICPA") Task Force's Audit and
Accounting Practice Aid-- Valuation of Privately-Held-Company Equity Securities
Issued as Compensation (the "AICPA Practice Aid"). As a company without
significant resources, management concluded that the expenditure of limited
available funds to engage an outside valuation specialist to perform
contemporaneous and comprehensive valuations in 2006 and 2005 was not an
appropriate use of financial resources. We instead derived relevant valuations
internally considering SFAS 123R and the AICPA Practice Aid and evaluated those
figures in light of Generally Accepted Accounting Principles to establish fair
values for accounting purposes.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2006, the FASB issued FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)" which
is effective for fiscal years beginning after December 15, 2006 with earlier
adoption encouraged. This interpretation was issued to clarify the accounting
for uncertainty in income taxes recognized in the financial statements by


                                       41
<PAGE>

prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. We are currently evaluating the potential impact of this
interpretation.

     In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" which is effective for fiscal years
beginning after November 15, 2007 and for interim periods within those years.
This statement defines fair value, established a framework for measuring fair
value and expands the related disclosure requirements. We are currently
evaluating the potential impact of this statement.

     In September 2006, the FASB issued FASB Staff Position AUG AIR-1,
"Accounting for Planned Major Maintenance Activities" which is effective for
fiscal years beginning after December 15, 2006. This position statement
eliminates the accrue-in-advance method of accounting for planned major
maintenance activities. We do not expect this pronouncement to have a material
impact on the determination of reporting of our financial results


                                       42
<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

See the F-Pages contained herein, which include our audited consolidated
financial statements. The information required by this item is contained in the
consolidated financial statements set forth in Item 15(a) under the caption
"Consolidated Financial Statements" as part of this Annual Report on Form
10-KSB.


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

Prior to the acquisition of Ayre Holdings, Inc. the financial statements of Ayre
Holdings were audited by Nicholas LaPIER CPA PC. Subsequent to the acquisition,
our consolidated financial statements will continue to be audited by Carlin,
Charron & Rosen, LLP and we will not use the services of Nicholas LaPIER CPA PC.

ITEM 8A. CONTROLS AND PROCEDURES.

Our President and Chief Financial Officer (the "Certifying Officers") are
responsible for establishing and maintaining disclosure controls and procedures
for the Company.

The Certifying Officers have designed such disclosure controls and procedures as
defined under Rule 13a-13(e) promulgated under the Securities and Exchange Act
of 1934 as amended, to ensure that material information is made known to them,
particularly during the period in which this report was prepared.

The Certifying Officers have evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the date of this report and
believe that the Company's disclosure controls and procedures are effective
based on the required evaluation as of the date of this Report. There have been
no significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

ITEM 8B. OTHER INFORMATION.

In March 2007, in connection with the September Offering, we requested that the
investors exercise their respective warrants and in return shall receive an
additional warrant at an exercise price of $3.00 per share for every 2 warrants
exercised during the first quarter of 2007. As of March 2007, we received
approximately $1,187,500 from the exercise of the September Offering warrants
and have issued warrants for an additional 475,000 shares of our common stock to
five (5) September Offering investors.

In connection with the June Offering, we issued approximately 1,708,000 shares
of our common stock as a result of the conversion of the June Offering
Convertible Debentures. As provided in those Debentures, the holders were
entitled to convert the principal amount of the Debenture in the event that we
became a fully reporting company. As indicated in this Form 10-KSB, we became a
fully reporting company on February 13, 2007 and, accordingly, the June Offering
investors converted their Debentures.


                                       43
<PAGE>

                                    PART III


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


The following table sets forth certain information concerning each of the
Company's directors and executive officers:

DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

--------------------------  -----  ---------------------------------------------
NAME                         AGE   POSITION
--------------------------  -----  ---------------------------------------------
David Chess, M.D.            54    President, Chief Executive Officer, Chief
                                   Medical Officer, Chairman of the Board and
                                   Director
--------------------------  -----  ---------------------------------------------
Jeffrey L. Zwicker           63    Chief Financial Officer and Chief Operating
                                   Officer
--------------------------  -----  ---------------------------------------------
Mary Krentzman, MS, RN       57    Vice President Clinical Operations
--------------------------  -----  ---------------------------------------------

     Listed below is certain information concerning our directors and executive
officers. Each of our executive officers is a full time employee of ours.

     DAVID CHESS, M.D. is our President, Chief Executive Officer, Chief Medical
Officer, Chairman of the Board and Director. Dr. Chess is a Geriatrician,
Internist and Entrepreneur with over 20 years' experience. Dr. Chess has been
practicing medicine as a Physician with PriMed - Internal Medicine and
Geriatrics since 1985 till present. He also served as Vice President Medical
Affaires in the Hewitt Organization from 1998 to 2002. David also serves as
President of Project Patient Care (PPC), a non-profit 501(c) 3 patient advocacy
organization he founded in January 2000. David has recently co-authored a paper
with David Nash and his team at Department of Health Policy, Jefferson Medical
College entitled, "Pharmacy Utilization and the Medicare Modernization Act "A
Review of the Literature," published in the MILBANK QUARTERLY in spring 2005.
During the period from 2001 to 2003, Dr. Chess also consulted for Kidd and
Company. He received his Medical Degree from Creighton University School of
Medicine, performed his Internal Medicine Internship and Residency at Albert
Einstein School of Medicine, and was Chief Resident in Internal Medicine at
Bridgeport Hospital. He is an Alpha Omega Alpha recipient. David is an Associate
Clinical Professor of Medicine at Yale University School of Medicine.

     JEFFREY L. ZWICKER is our Chief Financial and Operating Officer. Mr.
Zwicker joined the company in May, 2005. He has over 35 years of business
management experience. From September 2001 until joining the Company, Mr.
Zwicker was an independent consultant. Mr. Zwicker served as CFO/COO and
ultimately President & CEO and a Director of DeLuca, Inc. (Subsidiary of Perdue


                                       44
<PAGE>

Farms, Inc) from April, 1993 to August, 2001. Prior to his positions with
DeLuca, Inc. he served as President/COO and CFO of several early to middle
stage, micro and small cap health care, manufacturing, retailing and
distribution companies. He holds a Bachelor of Science in Accounting from
Quinnipiac University.

     MARY KRENTZMAN, MS, RN is our Vice President Clinical Operations for
Enhanced Care Initiatives, Inc. Ms. Krentzman has over 30 years of nursing
experience and is a pioneer in the development of community-based patient care
delivery systems. Before joining the Company in 2004, she was a Registered Nurse
Case Manager with the Community Case Management program of the Hartford
Physician Hospital Organization (HPHO) at Hartford Hospital where she
implemented and managed provider-based community case management programs in
Hartford, CT. From 2002 to 2003 Ms. Krentzman was Community Case Management
Services Manager with the Health Resources division of VNA HealthCare. From
March, 1999 until January, 2002 she was a Community Case Manager for the
Hartford Physician Hospital Organization (HPHO). Ms. Krentzman also has
additional experience as an inpatient nurse case manager, which followed her
practical experience in the intensive care, coronary care and emergency
departments at Bridgeport Hospital. Her educational background includes a
Bachelor of Science in Nursing from Sacred Heart University and a Masters of
Science in Nursing Case Management from Pace University. Mary is recently
published for her work entitled COMMUNITY-BASED HEALTH PROGRAMS IN A MANAGED
CARE ENVIRONMENT.

ITEM 10. EXECUTIVE COMPENSATION.

COMPENSATION OF EXECUTIVE OFFICERS

         Dr. Chess's current salary is $100,000 and he is presently drawing
compensation from NP Care, LLC at the annual rate of $100,000 in the form of
guaranteed payments.

Compensation of Directors

         Currently, Dr. Chess is our sole director. He did not receive any
compensation for serving on our Board.

Stock Option Plan

            We do not currently have a stock option plan.


                                       45
<PAGE>

                           SUMMARY COMPENSATION TABLE

The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last two (2) years to the Company by
its Chief Executive Officer and to each of the Company's other executive
officers whose annual salary, bonus and other compensation exceeded $100,000 in
2006.

<TABLE>
<CAPTION>
  NAME AND PRINCIPAL POSITION       FISCAL          SALARY           OTHER ANNUAL       RESTRICTED STOCK      SECURITIES
                                     YEAR                            COMPENSATION            AWARD            UNDERLYING
                                                                                                                OPTIONS
-----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>               <C>                <C>                   <C>
David Chess                          2006          $100,000                -                   -                   -
President, CEO, Chairman of the
Board of Directors                   2005          $30,769                 -                   -                   -

Jeffrey L. Zwicker                   2006          $163,230                -                   -                   -
Chief Financial Officer, Chief
Operating Officer                    2005          $81,446                 -                   -                   -

Mary Krentzman                       2006          $132,076                -                   -                   -
Vice President, Clinical
Operations                           2005          $86,153                 -                   -                   -
</TABLE>

CORPORATE GOVERNANCE - BOARD OF DIRECTORS

Election of Officers

         Each director is elected at the Company's annual meeting of
shareholders and holds office until the next annual meeting of stockholders or
until the successors are qualified and elected. [The Company's bylaws provide
for not less than one (1) director.] Currently there is one (1) director in the
Company; Dr. David Chess, our Chief Executive Officer. The bylaws permit the
Board of Directors to fill any vacancy and such director may serve until the
next annual meeting of shareholders or until his or her successor is elected and
qualified.

         The Company currently does not have any committees of the Board of
Directors although it plans to establish one or more committees in the near
future, including an audit committee.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth as of March 28, 2007, the name and number of
shares of the Company's common stock, par value $0.001 per share, held of record
by (i) each of the three highest paid persons who are officers and directors of
the Company, (ii) beneficial owners of 5% or more of our common stock; and (iii)
all the officers and directors as a group. Pursuant to the rules and regulations
of the Securities and Exchange Commission, shares of common stock that an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purposes of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purposes of computing the percentage ownership
of any other person shown in the table.


                                       46
<PAGE>

STOCKHOLDERS' NAME AND ADDRESS*                   SHARES             PERCENTAGE
                                           BENEFICIALLY OWNED (1)   OWNERSHIP(1)
David Chess, MD                                 10,245,822              28.3%
Jeffrey L. Zwicker                               1,000,130               2.8%
Mary Krentzman, MS, RN                             542,643               1.5%
Rubin Family Irrevocable Stock Trust             7,915,590              21.8%
D. Vincent Penry, APRN                           2,636,022               7.3%
Stephen Urciuoli, MD                             1,889,015               5.2%
Officers and directors as a group               11,788,595              32.5%
of (3 persons)

----------
*    Each shareholder's address is c/o HC Innovations, Inc., Six Corporate
     Drive, Suite 420, Shelton, Connecticut, 06484.

(1) Based on an aggregate of 36,245,740 shares (on a fully diluted basis)
outstanding as of March 28, 2007.



Options and Common Shares Granted in the Year Ended December 31, 2006

         No options or common shares were granted to executives during the year
ended October 31, 2006.

Compliance with Section 16(A) of the Exchange Act

         Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than ten (10%) percent of the
Company's outstanding common stock, to file with the SEC initial reports of
ownership on Form 3 and reports of changes in ownership of common stock on Forms
4 or 5. Such persons are required by SEC regulation to furnish the Company with
copies of all such reports they file.

         As of December 31, 2006, the Company's directors, executive officers,
and persons who own more than ten (10%) percent of the Company's common stock
were not required to make section 10(a) filings as the Company was not a
reporting company as of that date.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.

         The Company consolidates all controlled subsidiaries, which control is
effectuated through ownership of voting common stock or by other means. In
states where ECI is not permitted to directly own a medical operation due to
corporate practice of medicine laws in those states, it performs only
non-medical administrative and support services, does not represent to the
public or its clients that it offers medical services and does not exercise
influence or control over the practice of medicine. In those states, ECI
conducts business through LLCs that it controls through Dr. Chess, our Chief
Executive Officer, as the sole member, and it is these affiliated LLCs that
employ Advanced Practice Nurse Practitioners (APRNs) who practice medicine. In
such states, ECI generally enters into exclusive long-term management services
agreements with the LLCs that operate the medical operations that restricts the
member(s) of the affiliated LLCs from transferring their ownership interests in
the affiliated LLCs and otherwise provides ECI or its designee with a
controlling voting or


                                       47
<PAGE>

financial interest in the affiliated LLCs and their operations. The underlying
entities (LLCs), which are required to be consolidated under Financial
Accounting Standards Board ("FASB") Interpretation No. 46, as revised ("FIN
46R"), "Consolidation of Variable Interest Entities", would also be consolidated
under the provisions of Emerging Issues Task Force ("EITF") No. 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements". The LLCs have been determined to be variable interest
entities due to the existence of a call option under which ECI has the ability
to require the member(s) of all of the voting equity interests of the underlying
LLCs to transfer their equity interests at any time to any person specified by
ECI and vote the member(s) interests as ECI instructs. This call option
agreement represents rights provided through a variable interest other than the
equity interest itself that caps the returns that could be earned by the equity
holders. In addition, the Company has an exclusive long-term management services
agreement with each of the LLCs and the member(s) of the LLCs which allows the
Company to direct all of the non-clinical activities of the LLCs, retain all of
the economic benefits, and assume all of the risks associated with ownership of
the LLCs. In this manner, the Company has all of the economic benefits and risks
associated with the LLCs, but has disproportionately few voting rights.

         In August, September and November 2006, Dr. Chess, our President and
Chief Executive Officer and his son, loaned NP Care, LLC an aggregate of
$345,000 as evidenced by five demand promissory notes. The interest rate for
each note is ten percent (10%) per annum and each matured at varying dates
between September and January 2007. On November 3, 2006, the Company paid Dr.
Chess $51,276 in satisfaction of principal and accrued interest on one of the
notes and has made payments of $10,000 towards another of the loans. The other
notes continue to accrue interest until paid in full.

         Dr. Chess is presently drawing compensation from NP Care, LLC at the
annual rate of $100,000 in the form of guaranteed payments.




ITEM 13. EXHIBITS.

(a) Financial Statements - The following consolidated Financial Statements of HC
Innovations, Inc. and subsidiaries are filed as part of this report:

         Report of Independent Registered Public Accounting Firm.
         Consolidated Balance Sheets as of December 31, 2006 and
         December 31, 2005.
         Consolidated Statements of Operations for the years ended December 31,
         2006 and December 31, 2005.
         Consolidated Statements of Cash Flows for the years ended December 31,
         2006 and December 31, 2005.
         Consolidated Statements of Stockholders' Equity (Deficit) for the
         years ended December 31, 2006 and December 31, 2005.
         Notes to Consolidated Financial Statements.


(b) Reports on Form 8-K


                                       48
<PAGE>

No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.

(c) Exhibits.

 2.1       Stock Acquisition Agreement by and between Ayre Holdings, Inc., HC
          Innovations, Inc., and the shareholders stated therein, dated May 11,
          2006.*

3.1       Certificate of Incorporation, dated November 7, 2001.*

3.1.1     Certificate of Amendment to Certificate of Incorporation, dated May
          17, 2006.*

3.1.2     Certificate of Amendment to Certificate of Incorporation, dated June
          5, 2006.*

3.2       By-laws.*

4.1       Specimen of Common Stock certificate.*

10.1      Form of  Promissory  Note  issued to Rubin  Family  Irrevocable  Stock
          Trust.*

10.2      Form of Convertible Debenture issued to certain investors.*

10.3      Sublease Agreement between American Skandia Information and Technology
          Corporation and the Company, dates as of September 2004.*

10.4      Form of Registration Right Agreement signed with certain investors.*

10.5      Form of Subscription Agreement.*

10.6      Form of Warrants to Purchase Common Stock*

10.7      Disease Case Management Services Agreement and State of Work for Care
          Management Services between Alere Medical, Inc. and  Enhanced Care
          Initiatives, Inc. dated October 16, 2006.*

10.8      Amended and Restated Consulting Agreement between HC Innovations, Inc.
          and Strategic Growth International, Inc., dated September 22, 2006.*

10.9      Memorandum of Understanding by and between NP Care of Ohio,  LLC and
          Ohio Nurse  Practitioners,  Inc.,  Kayleen Berger and Kathryn Maxwell,
          dated October 20, 2006.*

21        List of Subsidiaries.*

31.1      Certification of Chief Executive Officer and Chief Financial Officer
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2      Certification of Vice President pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002


                                       49
<PAGE>

32.1      Certification of Chief Executive Officer and Chief Financial Officer
          pursuant to 18 U.S.C. Section 1350

32.2      Certification of Vice President pursuant to 18 U.S.C. Section 1350

* These documents are rendered as previously filed and incorporated by reference
to the Company's Form 10-KSB, as amended.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.


         The following is a summary of the fees billed to us by Carlin, Charron
& Rosen, LLP for professional services rendered for 2006:

         FEE CATEGORY                            2006 FEES
         Audit Fees                              $ 85,000
         Audit-Related Fees                      $ 83,346
         Tax Fees                                $     --
         All Other Fees                          $     --
                                                 --------
         Total Fees                              $168,346

         AUDIT FEES. Consists of fees and expenses incurred for professional
services rendered for the audit of our annual consolidated financial statements
and review of the interim consolidated financial statements included in our Form
10-KSB for December 31, 2006 and our Form 10-SB filing for interim reviews at
June 30, 2006 and September 30,2006, and services that are normally provided by
Carlin, Charron & Rosen, LLP in connection with statutory and regulatory filings
or engagements, regardless of when the fees and expenses were billed.

         AUDIT RELATED FEES. Consists of fees and expenses for assurance and
related services that are reasonably related to the performance of the audit or
review of our consolidated financial statements and are not reported under
"Audit Fees". These services include services related to accounting
consultations in connection with acquisitions and divestitures, attest services
that are not required by statute or regulation, and consultations concerning
financial accounting and reporting standards.

         TAX FEES. Consists of fees and expenses for professional services
related to tax compliance, tax advice and tax planning. These services include
assistance regarding federal and state tax compliance, tax audit defense,
acquisition and divestiture tax planning.

         ALL OTHER FEES. Consists of fees and expenses for products and services
other than the services reported above.



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


Date: April 2, 2007

By:


/s/ David Chess
------------------------------------------
David Chess
President and Chief Executive Officer



By:


/s/ Jeffrey L. Zwicker
------------------------------------------
Jeffrey L. Zwicker
Chief Financial Officer and Chief Operating Officer


                                       50
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                  TOGETHER WITH

                     REPORT OF INDEPENDENT REGISTERED PUBLIC

                                 ACCOUNTING FIRM



<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                                Table of Contents

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                     Number
<S>                                                                                       <C>
Report of Independent Registered Public Accounting Firm                                 F-1

Consolidated Financial Statements:

     Consolidated Balance Sheets                                                        F-2

     Consolidated Statements of Operations                                              F-3

     Consolidated Statements of Changes in Stockholders' Equity (Deficit)               F-4

     Consolidated Statements of Cash Flows                                              F-5

     Notes to Consolidated Financial Statements                                         F-7
</TABLE>

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of
HC Innovations, Inc. and Subsidiaries

     We  have  audited  the  accompanying  consolidated  balance  sheets  of  HC
Innovations,  Inc. and Subsidiaries  (the "Company") as of December 31, 2006 and
2005,  and  the  related  consolidated  statements  of  operations,  changes  in
stockholders'  equity  (deficit),  and cash  flows  for each of the years in the
two-year period ended December 31, 2006. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audits included consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the consolidated  financial statements,  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
HC  Innovations,  Inc. and  Subsidiaries  at December 31, 2006 and 2005, and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming  the  Company  will  continue  as a  going  concern.  As  shown  in the
accompanying  consolidated  financial  statements,  the  Company  has a  working
capital  deficiency  of  $3,276,083  as of December 31, 2006,  has sustained net
losses of $3,250,665  and  $1,378,789  for the years ended December 31, 2006 and
2005, respectively,  and has an accumulated deficit of $5,246,964 as of December
31, 2006. These factors raise  substantial  doubt about the Company's ability to
continue as a going  concern.  Management's  plans  regarding  these matters are
described  in Note 1.  The  consolidated  financial  statements  do not  include
adjustments that might result from the outcome of this uncertainty.


/s/ Carlin, Charron & Rosen, LLP
Glastonbury, Connecticut
April 2, 2007

                                      F-1
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES
             CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                Assets                                                               2006                  2005
<S>                                                                                               <C>                   <C>
Current assets

     Cash and cash equivalents                                                                    $   151,534           $   435,375

     Accounts receivable                                                                              330,822               220,311

     Prepaid expenses                                                                                 142,274               158,056
                                                                                                  -----------           -----------
          Total current assets
                                                                                                      624,630               813,742

Fixed assets, net                                                                                     292,435               234,729

Capitalized software development costs, net                                                         1,310,727               686,798

Deferred issuance costs, net                                                                           51,405                59,779

Security deposits and other, net                                                                       65,266                33,282
                                                                                                  -----------           -----------
                         Total assets                                                             $ 2,344,463           $ 1,828,330
                                                                                                  ===========           ===========
            Liabilities and Stockholders' Equity (Deficit)

Current liabilities

     Lines of credit                                                                              $   200,000           $   210,122

     Current portion of notes payable                                                                 441,139                30,224

     Current portion of capital lease obligations                                                      93,942                55,334

     Notes payable to vendors                                                                          44,841               274,615

     Current portion of convertible debentures, net of discount                                     1,222,556                    --

     Accounts payable                                                                               1,498,216               456,184

     Accrued liabilities                                                                              368,919               159,826

     Deferred revenue                                                                                  31,100                    --

     Deposit                                                                                               --               250,000
                                                                                                  -----------           -----------
          Total current liabilities                                                                 3,900,713             1,436,305

Notes payable, net of current portion                                                                  29,449                60,564

Capital lease obligations, net of current portion                                                     151,533               101,542

Convertible debentures, net of discount and current portion                                           398,385             1,087,438

Note payable - related party                                                                               --               500,000
                                                                                                  -----------           -----------

          Total liabilities                                                                         4,480,080             3,185,849
                                                                                                  -----------           -----------
Commitments and contingencies (Note 18)
                                                                                                           --                    --
Stockholders' equity (deficit)

     Preferred stock, $.001 par value, 5,000,000 shares authorized                                         --                    --
     Common stock, $.001 par value in 2006, $.01 par value in 2005,
        100,000,000 shares authorized                                                                  30,956               238,684

     Stock subscriptions receivable                                                                   (21,671)              (21,671)

     Additional paid in capital                                                                     3,102,062               421,767

     Deficit                                                                                       (5,246,964)           (1,996,299)
                                                                                                  -----------           -----------

          Total stockholders' deficit                                                              (2,135,617)           (1,357,519)
                                                                                                  -----------           -----------
                         Total liabilities and stockholders' deficit                              $ 2,344,463           $ 1,828,330
                                                                                                  ===========           ===========
</TABLE>



              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS

                                      F-2
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                                                                                         2006              2005
<S>                                                                                                  <C>               <C>
 Net revenues                                                                                        $  6,166,092      $  2,887,498
                                                                                                     ------------------------------

 Cost of services                                                                                       5,033,136         2,583,656

 Selling, general and administrative expenses                                                           3,964,537         1,501,817

 Depreciation and amortization                                                                            269,640           103,251
                                                                                                     ------------------------------

                                                                                                        9,267,313         4,188,724
                                                                                                     ------------------------------

      Loss from operations                                                                             (3,101,221)       (1,301,226)
                                                                                                     ------------------------------

 Other income/(expense)

      Other income                                                                                        130,493               673

      Interest income                                                                                       2,356             6,235

      Interest expense                                                                                   (282,293)          (84,471)
                                                                                                     ------------------------------

                                                                                                         (149,444)          (77,563)
                                                                                                     ------------------------------
      Loss before provision for income taxes
                                                                                                       (3,250,665)       (1,378,789)

 Provision for income taxes                                                                                    --                --
                                                                                                     ------------------------------

 Net loss                                                                                            $ (3,250,665)     $ (1,378,789)
                                                                                                     ==============================

Basic loss per share                                                                                 $       (.12)     $       (.06)
                                                                                                     ==============================
Diluted loss per share                                                                               $       (.12)     $       (.06)
                                                                                                     ==============================

Weighted average common shares outstanding                                                             27,305,114        21,429,516
                                                                                                     ==============================
</TABLE>



              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS

                                      F-3
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                                        Common Stock                                                      Total
                                                  -------------------------     Paid-In     Subscriptions              Stockholders'
                                                  Shares Issued    Amount       Capital      Receivable     Deficit       Deficit
                                                  ---------------------------------------------------------------------------------
<S>                                                <C>          <C>           <C>           <C>           <C>           <C>
Balance, January 1, 2005                           20,257,332   $   202,573   $   109,088   $   (22,115)  $  (617,510)  $  (327,964)



Issuance of common stock                              511,082         5,111        (4,160)         (951)           --            --


Purchase and retirement of common stock              (984,007)       (9,840)        8,009         1,395            --          (436)


Shares issued as compensation - consulting
     services                                       2,601,090        26,011        35,489            --            --        61,500

Shares issued as compensation - consulting
     services                                          49,441           495          (403)           --            --            92


Shares issued as compensation - advisory services     100,000         1,000        39,000            --            --        40,000


Shares issued as compensation - legal services         50,000           500        19,500            --            --        20,000


Common stock issued in connection
     with convertible debenture and
     issuance costs                                 1,283,385        12,834       215,244            --            --       228,078


Net loss                                                   --            --            --            --    (1,378,789)   (1,378,789)

                                                  ---------------------------------------------------------------------------------
Balance - December 31, 2005                        23,868,323   $   238,684   $   421,767   $   (21,671)  $(1,996,299)  $(1,357,519)



Common stock issued in connection with
     convertible debenture - April 17, 2006
     (Note 12)                                        500,000         5,000       136,348            --            --       141,348


Reverse acquisition recapitalization adjustment
     (Note 2)                                         328,637      (218,988)      218,988            --            --            --


Issuance of common stock - June 23, 2006
     (Note 15)                                        142,669           143       106,859            --            --       107,002


Common stock issued in connection with
     exercise of warrants - June 28, 2006
     (Note 12)                                      5,166,711         5,167       494,833            --            --       500,000


Common stock (106,400 shares) to be issued in              --            --       106,400            --            --       106,400
     satisfaction of note payable and accrued
     interest October 25, 2006  (Note 12)                  --            --            --            --            --


Common stock issued in connection with private        950,000           950       829,821            --            --       830,771
     placement, net of issuance costs (Note 15)


Common stock (900,000 shares)to be issued
     in connection with private placement, net
     of issuance costs  (Note 15)                          --            --       787,046            --            --       787,046


Net loss                                                   --            --            --            --    (3,250,665)   (3,250,665)

                                                  ---------------------------------------------------------------------------------
Balance, December 31, 2006                        $30,956,340   $    30,956   $ 3,102,062   $   (21,671)  $(5,246,964)  $(2,135,617)
                                                  =================================================================================
</TABLE>



              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS

                                      F-4
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
Cash flows from operating activities:                                                                2006                   2005
<S>                                                                                              <C>                    <C>
     Net loss                                                                                    $(3,250,665)           $(1,378,789)

     Adjustments to reconcile net loss to net cash used in
      operating activities:
          Depreciation and amortization                                                              269,640                103,251

          Shares issued as compensation - consulting services                                             --                 61,592

          Shares issued as compensation - advisory services                                               --                 40,000

          Shares issued as compensation - legal services                                                  --                 20,000

          Amortization of discount - convertible debentures                                          174,851                 32,131

     Changes in operating assets and liabilities:

         (Increase) Decrease in:

              Accounts receivable                                                                   (110,511)                80,708

              Prepaid expenses                                                                        15,782               (130,517)

              Security deposits and other                                                             33,643                 21,884

          Increase (Decrease) in:

              Accounts payable                                                                     1,042,032                139,959

              Accrued liabilities                                                                    215,493                 42,640

              Deferred revenue                                                                        31,100                     --

              Notes payable to vendors                                                              (229,774)               274,615

              Deposit                                                                               (250,000)               250,000
                                                                                                 ----------------------------------

Net cash used in operating activities                                                             (2,125,695)              (442,526)
                                                                                                 ----------------------------------

Cash flow from investing activities:

          Purchases of fixed assets, net                                                             (68,375)              (133,536)

          Expenditures for capitalized software development costs                                   (638,270)              (596,096)
                                                                                                 ----------------------------------

Net cash used in investing activities                                                               (706,645)              (729,632)
                                                                                                 ----------------------------------

Cash flows from financing activities:

          Proceeds from issuance of common stock                                                   1,724,819                     --

          Proceeds from notes payable                                                                560,000                     --

          Proceeds from issuance of convertible debentures                                           500,000              1,257,985

          Proceeds from notes payable - related party                                                     --                450,000

          Retirement of common stock                                                                      --                   (436)

          Payments on lines of credit, net                                                           (10,122)                    --

          Deferred issuance costs paid                                                               (60,045)               (47,749)

          Payments on notes payable                                                                  (80,200)               (28,351)

          Payments on capital lease obligations                                                      (85,953)               (69,005)
                                                                                                 ----------------------------------

Net cash provided by financing activities                                                          2,548,499              1,562,444
                                                                                                 ----------------------------------
Net (decrease) increase in cash and cash equivalents                                                (283,841)               390,286

Cash and cash equivalents - beginning of year                                                        435,375                 45,089
                                                                                                 ----------------------------------

Cash and cash equivalents - end of year                                                             $151,534               $435,375
                                                                                                 ==================================


</TABLE>



              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS

                                      F-5
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<S>                                                                                                 <C>                     <C>

Supplemental cash flow information:                                                                   2006                  2005

     Cash paid during the year for:

          Interest                                                                                  $263,261               $ 84,335
                                                                                                 ==================================

     Noncash investing and financing activities:

          Common stock issued in connection with exercise of

               warrants and satisfaction of note payable - related party                             $500,000              $     --
                                                                                                 ==================================

          Discount on convertible debentures                                                         $141,348              $202,678
                                                                                                 ==================================

          Deferred issuance costs paid with common stock                                             $     --              $ 25,400
                                                                                                 ==================================

          Computer equipment acquired through capital lease                                          $ 59,834              $ 20,000
                                                                                                 ==================================

          Capitalized software acquired through capital lease                                        $114,718              $     --
                                                                                                 ==================================

          Common stock issued through stock subscriptions
               receivable                                                                            $     --              $    951
                                                                                                 ==================================

          Common stock to be issued in satisfaction of note
               payable and accrued interest                                                          $106,400              $     --
                                                                                                 ==================================

</TABLE>



              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS

                                      F-6
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------
1.   NATURE OF OPERATIONS

     By Stock  Acquisition  Agreement  dated May 11, 2006,  Ayre Holdings,  Inc.
     ("Ayre" or "the  Company"),  a Delaware  corporation,  acquired 100% of the
     issued and  outstanding  shares of HC  Innovations,  Inc.,  in exchange for
     24,368,323 shares of common stock of the Company representing approximately
     99% of the total issued and outstanding  shares of the Company at the time.
     Prior to the  consummation of the acquisition,  Ayre, a non-reporting  pink
     sheet company and public  shell,  effectuated a reverse stock split whereby
     the then current 793,000 issued and outstanding shares of common stock were
     reverse split into 328,637 shares of common stock at the rate of .41442.

     The  post-acquisition  entity is accounted for as a recapitalization  of HC
     Innovations,   Inc.  using  accounting  principles  applicable  to  reverse
     acquisitions  with HC  Innovations,  Inc.  being treated as the  accounting
     parent (acquirer) and Ayre Holdings,  Inc., the legal parent, being treated
     as the accounting subsidiary (acquiree).  HC Innovations,  Inc. is regarded
     as the predecessor entity. In accordance with the provisions  governing the
     accounting  for  reverse  acquisitions  (Note 2),  the  historical  figures
     presented  are  those of HC  Innovations,  Inc.  Upon  consummation  of the
     acquisition on June 9, 2006, Ayre changed its name to HC Innovations,  Inc.
     ("HCI").  The Company,  through its subsidiaries,  provides  specialty care
     management products and services and is quoted on the pink sheets under the
     symbol "HCNV.PK".

     HCI and subsidiaries (the "Company") is a specialty care management company
     comprised   of  separate   divisions   each  with  a  specific   focus  and
     intervention. The Company's mission is to identify subgroups of people with
     high  costs  and   disability   and  create  and  implement   programs  and
     interventions that improve their health,  resulting in dramatic  reductions
     in the cost of their care. The Company also develops and implements medical
     management systems for the long term care industry.

     Enhanced Care Initiatives,  Inc. ("ECI"),  a wholly owned subsidiary of HCI
     was founded in 2002 and is the management company for all HCI entities. ECI
     has three  wholly owned  subsidiaries  operating  in  Tennessee,  Texas and
     Massachusetts.  ECI  markets  its  proprietary  specialty  care  management
     programs for the medically frail and other costly sub-populations to Health
     Maintenance  Organizations  ("HMOs") and other  managed care  organizations
     ("MCOs") as well as state Medicaid departments.

                                      F-7
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

1.   NATURE OF OPERATIONS (CONTINUED)

     NP Care,  LLCs ("LLCs") are nursing home medical  management  systems.  The
     LLCs nurse practitioner program provides onsite medical care by an Advanced
     Practice  Registered  Nurse  ("APRN")  under the oversight of the patient's
     individual  physician  to residents  in nursing  homes and assisted  living
     facilities.  The LLCs operate in the states of  Connecticut,  Florida,  New
     Jersey, Ohio and Tennessee and are managed exclusively by ECI.

     GOING CONCERN / MANAGEMENT'S PLAN

     As shown  in the  accompanying  consolidated  financial  statements,  as is
     typical of a company going through early-stage  development of its services
     and  strategic  initiatives,  the Company has  sustained  consolidated  net
     losses for the years ended  December  31, 2006 and 2005 of  $3,250,665  and
     $1,378,789,  respectively. At December 31, 2006 and 2005, the Company had a
     working  capital  deficiency of $3,276,083 and $622,563,  respectively  and
     accumulated  deficits of $5,246,964  and  $1,996,299,  respectively.  These
     factors raise  substantial doubt about the Company's ability to continue as
     a going  concern.  The  consolidated  financial  statements  do not include
     adjustments that might result from the outcome of this uncertainty.

     Management  believes  that the Company will be successful in its efforts to
     adequately meet its capital needs and continue to grow its  businesses.  In
     2005, the Company raised $1.258 million through the issuance of convertible
     debenture  notes to  accredited  investors.  In 2006,  the  Company  raised
     $500,000 through the issuance of convertible  debenture notes to accredited
     investors,  $560,000  through the  issuance of notes  payable and raised an
     additional  $1.725 million  through the issuance of common stock during the
     first quarter of 2007. $1.708 million of the debenture notes were converted
     into  common  stock  at a ratio  of 1:1  resulting  in the  issuance  of an
     additional 1.708 million shares of common stock.

     The 2006 and 2005  losses  are  largely  a result of  business  development
     expenses as well as significant  investment in building  infrastructure for
     growing  the  Company's  divisions,   business  and  clinical  systems  and
     programs. During 2006, the Company was successful in securing new contracts
     with  AETNA,   (to  manage  its  members  in  New  Jersey   long-term  care
     facilities);  AMERIGROUP,  (a contract  for an initial 300  patients  which
     began in

                                      F-8
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

1.   NATURE OF OPERATIONS (CONTINUED)

     GOING CONCERN / MANAGEMENT'S PLAN (CONTINUED)

     June, 2006 in Houston, Texas generating revenue of approximately $1 million
     in 2006);  and the Company also entered into a Partnership  Agreement  with
     MCKESSON  to  jointly   market  and  respond  to  requests  for   proposals
     (particularly  state Medicaid  opportunities)  and will be integrating  the
     Company's high intensity  programs with their call center support services.
     In addition,  the Company's  contract with  HealthSpring  USA, LLC has been
     expanded  from the initial 300 members in  Tennessee to  approximately  500
     members,  representing  an  increase  in  annualized  contract  revenue  of
     approximately  $.7  million.  In October  2006,  HCI entered into a Disease
     Management  Services Agreement with Alere Medical,  Inc.  ("Alere").  Alere
     provides disease management tools, services and systems to payers which are
     designed to assist with and improve  management of health care outcomes for
     patients.  Alere has contracted with Tufts Health Plan ("Tufts") to provide
     disease  management  services  in  Massachusetts.  Tufts  provides  various
     commercial  and  medicare  health  plans to members.  ECI will provide care
     management  services to Tufts program  participants  in  Massachusetts  and
     Alere  will  pay to ECI $295  per  enrolled  member  per  month  commencing
     February 1, 2007 with an annual contract revenue potential of approximately
     $2.8 million.

2.  RECAPITALIZATION

     By Stock  Acquisition  Agreement  dated May 11, 2006,  Ayre Holdings,  Inc.
     ("Ayre" or "the  Company"),  a Delaware  corporation,  acquired 100% of the
     issued and  outstanding  shares of HC  Innovations,  Inc.,  in exchange for
     24,368,323 shares of common stock of the Company representing approximately
     99% of the total issued and  outstanding  shares of the Company at the time
     which resulted in a change in control of the Company. Simultaneously,  with
     this exchange of shares, HC Innovations,  Inc. paid $175,000 in cash to the
     Ayre  shareholders,  which  has  been  included  in  selling,  general  and
     administrative  expenses in the  consolidated  statements of operations for
     the  year  ended  December  31,  2006.  Prior  to the  consummation  of the
     acquisition,  Ayre,  a  non-reporting  pink sheet  company,  effectuated  a
     reverse stock split whereby the then current 793,000 issued and outstanding
     shares of common  stock were reverse  split into  328,637  shares of common
     stock at the rate of .41442.

                                      F-9
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

      2. RECAPITALIZATION (CONTINUED)
     The  post-acquisition  entity is accounted for as a recapitalization  of HC
     Innovations,   Inc.  using  accounting  principles  applicable  to  reverse
     acquisitions  with HC  Innovations,  Inc.  being treated as the  accounting
     parent (acquirer) and Ayre Holdings,  Inc., the legal parent, being treated
     as  the  accounting  subsidiary  (acquiree).  Ayre  Holdings,  Inc.  was an
     inactive  public  shell  with  no net  assets  prior  to  the  transaction.
     Therefore,  the value assigned to the common shares based on the fair value
     of the net assets of Ayre Holdings,  Inc. at the recapitalization  date was
     $-0- and the revenue, net loss and loss per share, assuming the transaction
     had been completed on January 1, 2006, would be the same as reported.

     HC Innovations,  Inc. is regarded as the predecessor  entity. In accordance
     with the provisions governing the accounting for reverse acquisitions,  the
     historical figures presented are those of HC Innovations, Inc.

     Prior  to the  consummation  of the  acquisition  on  June  9,  2006,  Ayre
     Holdings, Inc. had 328,637 shares of common stock outstanding.  At the date
     of the reverse acquisition  merger, Ayre Holdings,  Inc. was a public shell
     and  had no  assets,  no  liabilities,  and no  net  stockholders'  equity.
     Therefore, this was the only recapitalization adjustment that was recorded.
     The key components of the reverse acquisition  recapitalization  adjustment
     were as follows:

                                            Common               Stock
                                    -------------------------------------------
                                    Shares issued and                 Paid -in
                                       Outstanding       Amount        Capital
                                    ----------------- -----------    ----------
Public company shares already
  outstanding on date of merger
  (June 9, 2006), par value $0.001         328,637    $       328    $     (328)

Public company shares issued in a
  1:1 exchange for private company
  Shares, par value $0.001              24,368,323         24,368       (24,368)

Private company shares exchanged,
  par value $0.01                      (24,368,323)      (243,684)      243,684
                                       -----------    -----------    ----------
Reverse acquisition recapitalization
  adjustment, net                          328,637    $  (218,988)   $  218,988
                                       ============   ===========    ==========

                                      F-10
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The consolidated financial statements have been prepared in accordance with
     accounting  principles  generally  accepted in the United States of America
     (GAAP)  and  include  the  accounts  of  HC   Innovations,   Inc.  and  its
     wholly-owned,   majority-owned  and  controlled   subsidiaries  (which  are
     referred to as the Company, unless the context otherwise requires), as well
     as certain  affiliated  limited  liability  companies,  which are  variable
     interest entities required to be consolidated. The company consolidates all
     controlled subsidiaries,  in which control is effectuated through ownership
     of voting  common stock or by other  means.  All  significant  intercompany
     transactions have been eliminated in consolidation.

     In states where ECI is not  permitted  to directly own a medical  operation
     due to corporate  practice of medicine  laws in those  states,  it performs
     only non-medical administrative and support services, does not represent to
     the public or its  clients  that it offers  medical  services  and does not
     exercise  influence  or control  over the  practice of  medicine.  In those
     states,  ECI conducts business through Limited  Liability  Companies (LLCs)
     that it  controls,  and it is these  affiliated  LLCs that employ  Advanced
     Practice  Nurse  Practitioners  ("APNPs")  who practice  medicine.  In such
     states, ECI generally enters into exclusive  long-term  management services
     agreements with the LLCs that operate the medical operations that restricts
     the member(s) of the  affiliated  LLCs from  transferring  their  ownership
     interests in the affiliated LLCs and otherwise provides ECI or its designee
     with a controlling  voting or financial interest in the affiliated LLCs and
     their operations.

     The LLCs, which are required to be consolidated under Financial  Accounting
     Standards Board ("FASB")  Interpretation  No. 46, as revised ("FIN 46(R)"),
     "CONSOLIDATION OF VARIABLE INTEREST  ENTITIES",  would also be consolidated
     under the  provisions  of Emerging  Issues Task Force  ("EITF")  No.  97-2,
     "APPLICATION  OF FASB  STATEMENT NO. 94 AND APB OPINION NO. 16 TO PHYSICIAN
     PRACTICE  MANAGEMENT  ENTITIES AND CERTAIN OTHER ENTITIES WITH  CONTRACTUAL
     MANAGEMENT  ARRANGEMENTS."  The LLCs have been  determined  to be  variable
     interest entities due to the existence of a call option under which ECI has
     the  ability to require  the  member(s)  holding  all of the voting  equity
     interests of the underlying LLCs to transfer their equity  interests at any
     time to any person specified by ECI and vote the member(s) interests as ECI
     instructs.  This call option agreement represents rights provided through a
     variable  interest  other than the  equity  interest  itself  that caps the
     returns that could be earned

                                      F-11
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     BASIS OF PRESENTATION (CONTINUED)

     by the equity holders.

     In addition  the Company has an  exclusive  long-term  management  services
     agreement with each of the LLC's and the member(s) of the LLCs which allows
     the  Company  to direct  all of the  non-clinical  activities  of the LLCs,
     retain all of the economic benefits, and assume all of the risks associated
     with ownership of the LLCs. Due to these agreements, the Company has all of
     the economic benefits and risks associated with the LLCs and the Company is
     considered to be the primary  beneficiary of the activities of the LLCs and
     is required to consolidate the LLCs under FIN 46(R).

     USE OF ESTIMATES


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

     CASH AND CASH EQUIVALENTS

     Cash and cash equivalents  consist of cash balances on hand and short-term,
     highly liquid investments with original maturities of three months or less.

     REVENUE RECOGNITION

     The Company's  revenue  includes fees for service  revenue and revenue from
     capitated contracts.

     Revenue from capitated contracts is recorded monthly based on the number of
     members covered under each capitated contract per month.  Capitated revenue
     totaled approximately  $1,738,355 and $270,000 for the years ended December
     31, 2006 and 2005, respectively.

     A significant  portion of the Company's fee for service  revenues have been
     reimbursed by federal  Medicare  and, to a lesser  extent,  state  Medicaid
     programs.

                                      F-12
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     REVENUE RECOGNITION (CONTINUED)

     Payments for services  rendered to patients  covered by these  programs are
     generally less than billed charges.  The Company  monitors its revenues and
     receivables from these reimbursement  sources, as well as other third-party
     insurance  payors,  and  records an  estimated  contractual  allowance  for
     certain  service  revenues and receivable  balances in the month of revenue
     recognition, to properly account for anticipated differences between billed
     and reimbursed amounts. Accordingly, a substantial portion of the Company's
     total  net  revenues   and   receivables   reported  in  the   accompanying
     consolidated  financial  statements  are recorded at the amount  ultimately
     expected  to be  received  from these  payors.  Net  revenues  from fee for
     service  patients  is  recorded  on the  day the  service  is  provided  to
     patients.

     The  Company   evaluates  several  criteria  in  developing  the  estimated
     contractual  allowances for unbilled and/or initially  rejected claims on a
     monthly  basis,  including  historical  trends based on actual claims paid,
     current contract and  reimbursement  terms, and changes in patient base and
     payor/service mix.  Contractual  allowance estimates are adjusted to actual
     amounts  as cash is  received  and claims are  settled,  and the  aggregate
     impact of these resulting adjustments were not significant to the Company's
     operations  for the years ended  December 31, 2006 and 2005.  Further,  the
     Company  does not expect  the  reasonably  possible  effects of a change in
     estimate  related to  unsettled  December  31, 2006  contractual  allowance
     amounts  from  Medicaid and  third-party  payors to be  significant  to its
     future operating results and consolidated financial position (Note 13).

     FIXED ASSETS

     Fixed  assets  are  stated  at  cost,  less  accumulated  depreciation  and
     amortization.  Major  improvements  and betterments to the fixed assets are
     capitalized.  Expenditures  for maintenance and repairs which do not extend
     the estimated useful lives of the applicable  assets are charged to expense
     as incurred.  When fixed  assets are retired or otherwise  disposed of, the
     assets  and the  related  accumulated  depreciation  are  removed  from the
     accounts and any resulting gain or loss is recognized in operations.

     The  Company  provides  for   depreciation   and  amortization   using  the
     straight-line  method over the estimated useful lives of the assets, or, in
     the case of leasehold improvements,  over the remaining term of the related
     lease, whichever is shorter.

                                      F-13
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


     CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     The Company has  capitalized  costs related to the  development of software
     for internal use. Capitalized costs include external costs of materials and
     services and consulting fees devoted to the specific software  development.
     These costs have been  capitalized  based upon  Statement of Position (SOP)
     98-1,  "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
     FOR  INTERNAL  USE." In  accordance  with SOP 98-1,  internal-use  software
     development costs are capitalized once (i) the preliminary project stage is
     completed,  (ii)  management  authorizes  and commits to funding a computer
     software  project,  and  (iii)  it is  probable  that the  project  will be
     completed,  and the software will be used to perform the function intended.
     Costs  incurred  prior to meeting  these  qualifications  are  expensed  as
     incurred.  Capitalization of costs ceases when the project is substantially
     complete and ready for its intended use.  Internal-use software development
     costs are amortized using the  straight-line  method over estimated  useful
     lives approximating five years.

     The  capitalization and ongoing assessment of recoverability of development
     costs requires considerable judgment by the Company with respect to certain
     external factors, including, but not limited to, technological and economic
     feasibility, and estimated economic life.

     ADVERTISING

     Advertising costs are expensed as incurred. Advertising expense was $85,500
     and $16,179 for 2006 and 2005, respectively.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's  financial  instruments  include cash,  accounts  payable and
     notes  payable.  The  carrying  amounts  of  these  financial   instruments
     approximate  their fair value, due to the short-term nature of these items.
     The carrying amount of the notes payable  approximates their fair value due
     to the use of market rates of interest.

                                      F-14
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     STOCK BASED TRANSACTIONS

     In connection with the valuation of equity  transactions that occurred from
     January 1, 2005 to December 31, 2006, the Company  considered  Statement of
     Financial Accounting Standards No. 123 (revised 2004); Share Based Payments
     (SFAS 123R),  specifically  paragraph 7, and also  considered  the American
     Institute of Certified Public Accountants  ("AICPA") Task Force's Audit and
     Accounting  Practice  Aid--  Valuation  of  Privately-Held-Company   Equity
     Securities  Issued as Compensation (the "AICPA Practice Aid"). As a company
     without significant resources, management concluded that the expenditure of
     limited  available  funds to  engage an  outside  valuation  specialist  to
     perform  contemporaneous and comprehensive  valuations in 2006 and 2005 was
     not an appropriate use of financial resources.  We instead derived relevant
     valuations internally  considering SFAS 123R and the AICPA Practice Aid and
     evaluated  those  figures  in  light  of  Generally   Accepted   Accounting
     Principles to establish fair values for accounting purposes.

     INCOME TAXES

     The Company  accounts for income taxes  following  the asset and  liability
     method in  accordance  with  Statement  of Financial  Accounting  Standards
     (SFAS) No. 109, "ACCOUNTING FOR INCOME TAXES." Under such method,  deferred
     tax assets and liabilities  are recognized for the future tax  consequences
     attributable to difference between the financial statement carrying amounts
     of existing  assets and  liabilities  and their  respective tax bases.  The
     Company's  income tax returns are prepared on the tax basis of  accounting.
     Deferred tax assets and  liabilities  are measured  using enacted tax rates
     expected to apply to taxable income in the years that the asset is expected
     to be recovered or the liability settled.

     EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share ("EPS") is computed dividing the net income
     (loss)  attributable  to the common  stockholders  (the  numerator)  by the
     weighted  average  number  of  shares  of  common  stock  outstanding  (the
     denominator) during the reporting periods.  Diluted income (loss) per share
     is computed by increasing the denominator by the weighted average number of
     additional   shares  that  could  have  been  outstanding  from  securities
     convertible into common stock, such as stock

                                      F-15
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     EARNINGS (LOSS) PER SHARE (CONTINUED)

     options and warrants (using the "treasury  stock" method),  and convertible
     preferred stock and debt (using the  "if-converted"  method),  unless their
     effect  on  net  income  (loss)  per  share  is  antidilutive.   Under  the
     "if-converted"  method,  convertible  instruments  are assumed to have been
     converted as of the beginning of the period or when issued,  if later.  The
     effect of computing  the diluted  income  (loss) per share is  antidilutive
     and, as such,  basic and diluted earnings (loss) per share are the same for
     the years ended December 31, 2006 and 2005.

     RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2006, the FASB issued FASB  Interpretation  No. 48 "Accounting  for
     Uncertainty in Income Taxes (an  interpretation of FASB Statement No. 109)"
     which is effective for fiscal years  beginning after December 15, 2006 with
     earlier adoption encouraged.  This interpretation was issued to clarify the
     accounting  for  uncertainty  in income taxes  recognized  in the financial
     statements by prescribing a recognition threshold and measurement attribute
     for the financial  statement  recognition and measurement of a tax position
     taken or expected to be taken in a tax return. We are currently  evaluating
     the potential impact of this interpretation.

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
     Standards No. 157, "Fair Value  Measurements" which is effective for fiscal
     years  beginning  after  November 15, 2007 and for interim  periods  within
     those years. This statement defines fair value, established a framework for
     measuring fair value and expands the related  disclosure  requirements.  We
     are currently evaluating the potential impact of this statement.

     In  September  2006,  the  FASB  issued  FASB  Staff  Position  AUG  AIR-1,
     "Accounting for Planned Major  Maintenance  Activities"  which is effective
     for fiscal years

                                      F-16
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

     beginning after December 15, 2006. This position  statement  eliminates the
     accrue-in-advance  method  of  accounting  for  planned  major  maintenance
     activities.  We do not expect this  pronouncement to have a material impact
     on the determination of reporting of our financial results.

4.   CONCENTRATIONS OF CREDIT RISK

     CASH

     The Company has cash balances in certain financial  institutions in amounts
     which  occasionally  exceed current federal deposit insurance  limits.  The
     financial stability of these institutions is continually reviewed by senior
     management.

     ACCOUNTS RECEIVABLE

     The  Company  grants  credits  without  collateral  to its fee for  service
     patients,  most of whom are insured under  third-party  payor agreements as
     well as its corporate  customers.  The mix of receivables from patients and
     third-party payors as of December 31, 2006 and 2005 is as follows:

                                                     2006              2005
                                                     ----              ----
             Medicare                            $     212,674     $     145,341
             Medicaid                                   22,308             6,895
             Private                                    95,840            68,075
                                                 -------------     -------------
                                                 $     330,822     $     220,311
                                                 =============     =============

     Management  has  provided for  uncollectible  accounts  receivable  through
     direct  write-  offs and such  write-offs  have  been  within  management's
     expectations.  Historical  experience  indicates that after such write-offs
     have been made,  potential  collection  losses are considered  minimal and,
     therefore,  no allowance for doubtful  accounts is considered  necessary by
     management.

                                      F-17
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     ACCOUNTS RECEIVABLE (CONTINUED)

     On a monthly basis,  management  reviews the accounts  receivable  aging by
     payer and rejected claims to determine which receivables,  if any are to be
     written  off.  For the years ended  December 31, 2006 and 2005 the bad debt
     direct write-off's totaled $47,818 and $54,000, respectively.

     Management  has  provided for  uncollectible  accounts  receivable  through
     direct  write-  offs and such  write-offs  have  been  within  management's
     expectations.  Historical  experience  indicates that after such write-offs
     have been made,  potential  collection  losses are considered  minimal and,
     therefore,  no allowance for doubtful  accounts is considered  necessary by
     management.

5.   FIXED ASSETS

     At December 31, 2006 and 2005, fixed assets consist of:


                                                           2006          2005
                                                           ----          ----
     Medical and office equipment                       $  71,866     $  29,011
     Furniture and fixtures                                46,296        19,110
     Computer equipment                                   313,890       259,848
     Leasehold improvements                                21,617        17,491
                                                        ---------     ---------
                                                          453,669       325,460

     Less: accumulated depreciation and
     amortization                                        (161,234)      (90,731)
                                                        ---------     ---------
                                                        $ 292,435     $ 234,729
                                                        =========     =========

     Depreciation  and  amortization  expense  related to fixed  assets  totaled
     $70,503  and  $49,467  for the  years  ended  December  31,  2006 and 2005,
     respectively.

                                      F-18
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

6.   CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     Capitalized software development costs as of December 31, 2006 and 2005 are
     summarized as follows:

                                                      2006              2005
                                                      ----              ----
         Capitalized software development costs    $ 1,486,584      $   733,596
         Less: accumulated amortization               (175,857)         (46,798)
                                                   -----------      -----------
                                                   $ 1,310,727      $   686,798
                                                   ===========      ===========

     Amortization  expense related to capitalized software development costs for
     the years ended  December 31, 2006 and 2005  totaled  $129,059 and $35,048,
     respectively.

7.  DEFERRED REVENUE

     In February 2006, the Company  entered into a provider group agreement with
     Aetna Health,  Inc. ("Aetna").  Aetna offers,  issues and administers plans
     that provide  access to health care services to members and contracts  with
     certain  health care  providers  and  facilities  to provide  access to the
     services.  NP Care of New  Jersey  provides  covered  services  to  members
     utilizing   APRN's.  NP  Care  of  New  Jersey  charges  $350  per  program
     participant  per month.  For the year ended  December 31, 2006,  $18,900 of
     revenues have been  recognized  from Aetna and $31,100  remains in deferred
     revenue, which is expected to be earned in 2007.

                                      F-19
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

8.   LINES OF CREDIT

     At December 31, 2006 and 2005, the Company had the following line-of-credit
     facilities outstanding:

          Revolving  line-of-credit  dated  January     2006            2005
            29, 2003  with  interest at the rate of     ----            ----
            prime  plus 1% (9.25% at  December  31,
            2006).  The amount  outstanding is due
            on demand and is collateralized by the
            assets of ECI.                            $  50,000       $  50,000
          Revolving  line-of-credit dated February
            23,  2004 with  interest at prime plus
            1.75% (10% at December 31, 2006).  The
            amount  outstanding  is due on  demand
            and expires on February 23, 2009.  The
            line-of-credit   is   secured  by  the
            personal assets of the managing member
            of NP Care, LLC.                          $ 150,000       $ 150,000
          Revolving line-of-credit-other                     --       $  10,122
                                                      -------------------------
                                                      $ 200,000       $ 210,122
                                                      =========================

                                      F-20
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

9.  NOTES PAYABLE TO VENDORS

    Notes Payable to vendors  Consists of the following at December 31, 2006 and
    2005

                                                        2006             2005
On December 31, 2005,  the Company  entered into a
note  payable  agreement  with a  vendor  for  the
outstanding balance greater than 90 days. Payments
commenced  on January  31, 2006 and were due in 12
monthly installments of $16,673 including interest
at a fixed rate of 11%.                               $     --        $ 200,077

Note  payable  to  finance  workers   compensation
insurance  effective  December 20, 2005.  The note
was  payable  in  monthly  installments  of $4,343
including  interest  at a  fixed  rate  of  7.75%,
through September 4, 2006.                                  --           34,745

Note   payable  to  finance   insurance   premiums
effective August 15, 2005. The note was payable in
monthly  installments of $4,453 including interest
at a fixed rate of 7.25%, through May 1, 2006.              --           22,265

Note  payable  to  finance  workers   compensation
insurance  effective  September 13, 2005. The note
was  payable  in  monthly  installments  of $1,789
including  interest  at  a  fixed  rate  of  7.5%,
through May 1, 2006.                                        --            8,946

Note  payable  to  finance   liability   insurance
premiums  effective  September 30, 2005.  The note
was  payable  in  monthly  installments  of $1,430
including  interest  at  a  fixed  rate  of  7.5%,
through June 12, 2006.                                      --            8,582

Note   payable  to  finance   insurance   premiums
effective  August 11, 2006. The note is payable in
monthly  installments of $4,857 including interest
at a fixed rate of 7.67%, through July 2007.            28,500               --

Note  payable  to  finance  workers   compensation
insurance  effective  September 13, 2006. The note
is  payable  in  monthly  installments  of  $1,670
including  interest  at a  fixed  rate  of  8.67%,
through October 2007.                                    8,185               --

Note  payable  to  finance   liability   insurance
premiums effective September 30, 2006. The note is
payable   in   monthly   installments   of  $1,299
including  interest  at a  fixed  rate  of  9.25%,
through September 2007.                                  8,156               --
                                                      --------        ---------
                                                      $ 44,841        $ 274,615
                                                      ========        =========

                                      F-21
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

10.  DEPOSIT - MEMORANDUM OF UNDERSTANDING

During  December  2005, the Company  entered into a Memorandum of  Understanding
("MOU")  with  BioScrip,   Inc.  ("BioScrip").   BioScrip  provided  a  $250,000
refundable advance towards the purchase of $1,500,000 worth of HCI common stock.
BioScrip did not purchase  the common  stock and the MOU was  terminated  due to
disputes  arising  between the Company and BioScrip  regarding the return of the
advance.  Under the terms of a  settlement  agreement  dated  October 11,  2006,
BioScrip  and HCI  agreed to settle  the amount  owed to  BioScrip  for a single
payment of  $125,000  in full and final  settlement  and the  Company  made this
payment on November 15, 2006.

11.  CAPITAL LEASE OBLIGATIONS

The  Company  leases  certain  fixed  assets  in  accordance  with the  terms of
capitalized lease obligations. The leases require monthly interest and principal
payments  ranging from $546 to $2,522,  expiring on various  dates  through June
2011. The net book value of the  capitalized  equipment at December 31, 2006 and
2005 was $288,056 and $203,798;  respectively. The future minimum lease payments
and the present value of the payments at December 31, 2006 are as follows:

             YEARS ENDING DECEMBER 31,

                 2007                                       $     123,178
                 2008                                             110,700
                 2009                                              53,189
                 2010                                               6,421
                 2011                                               1,023
                                                            -------------
             Total minimum lease payments                         294,511
             Less: amount representing interest                  (49,036)
                                                            -------------
             Present value of net minimum
               lease payments                                     245,475
             Less: current portion of principal                   (93,942)
                                                            -------------
                                                            $     151,533
                                                            =============


                                      F-22
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     12. DEBT

     NOTE PAYABLE

     The Company has a Small  Business  Administration  loan dated  September 4,
     2003.  The  original  principal  balance of the loan was $150,000 and it is
     intended to be used to fund general operations. The loan agreement provides
     for sixty monthly  principal and interest  installments of $2,924 and bears
     interest  at 6.25% per  annum.  The loan  matures on October 1, 2008 and is
     secured by the personal residence of the Company's  President.  At December
     31, 2006 and 2005,  the  principal  balance due on the loan was $60,588 and
     $90,788, respectively. The maturities of this note at December 31, 2006 are
     as follows:

                   YEARS ENDING DECEMBER 31,

                       2007                                $   31,139
                       2008                                    29,449
                                                           ----------
                                                               60,588
                   Less: current portion                      (31,139)
                                                           ----------
                                                           $   29,449
                                                           ==========

     NOTES PAYABLE - STOCKHOLDER

     The Company  entered into two promissory  notes payable with a stockholder.
     The  first  promissory  note,  dated  February  20,  2006  has an  original
     principal  balance  of  $125,000  and is  intended  as a bridge  loan until
     further  financing is secured by the Company.  Interest accrues on the note
     at 10% and was  originally  payable on demand or before May 20,  2006.  The
     term was extended  through  December 31, 2007.  The  remaining  balance and
     accrued  interest  on this note as of December  31,  2006 is  $125,000  and
     $11,182, respectively.

     The second  promissory note dated March 15, 2006 had an original  principal
     balance  of  $100,000  and was  intended  as a bridge  loan  until  further
     financing was secured by the Company.  Interest  accrued on the note at 10%
     and was  originally  payable on demand or before June 15, 2006.  On October
     25, 2006 this note and its related  accrued  interest  totaling $6,400 were
     satisfied  in full by issuing  106,400  shares of common stock and warrants
     under the terms of the Company's private placement offering (Note 15).

                                      F-23
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     12. DEBT (CONTINUED)

     NOTE PAYABLE - RELATED PARTY

     The Company entered into a loan agreement with The Rubin Family Irrevocable
     Stock  Trust  ("Lender"),  a  shareholder  of HCI, on  December  27,  2004,
     whereby,  among  other  provisions,  the  Lender  extended a line of credit
     facility  to the  Company for  general  company  purposes.  The Lender also
     received  warrants  to  purchase  5,166,711  shares of common  stock of the
     Company.  The line of credit was in the  original  principal  amount not to
     exceed  $500,000.  The line of credit  was to begin  accruing  interest  on
     December  25, 2007 at the then prime rate and  interest in arrears only was
     to be payable  monthly  effective  December 25, 2007. On December 31, 2005,
     there was $500,000  outstanding  on the line of credit.  In June 2006,  the
     warrants for 5,166,711  shares (Note 15) of the Company's common stock were
     exercised by the Lender  realizing  $500,000.  This $500,000 was applied to
     the outstanding note payable due to the Lender in the amount of $500,000 in
     a non-cash transaction.

                                      F-24
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     12. DEBT (CONTINUED)

     NOTES PAYABLE - CHAIRMAN

     During 2006, the Company  entered into four  promissory  notes payable with
     the Company's Chairman and his son which are intended as bridge loans until
     HCI financing is secured.

               On August 31, 2006, the Company  entered into
                 a promissory note with an original due date
                 of  September  30,  2006.  The original due
                 date  was  extended  through  December  31,
                 2007.  Interest  accrues at the rate of 10%
                 per annum.                                           $  90,000

               On  September  9, 2006,  the Company  entered
                 into a promissory note with an original due
                 date of October 7, 2006.  The  original due
                 date  was  extended  through  December  31,
                 2007.  Interest  accrues at the rate of 10%
                 per annum.                                              50,000

               On September  28, 2006,  the Company  entered
                 into a promissory note with an original due
                 date of October 27, 2006.  The original due
                 date  was  extended  through  December  31,
                 2007.  Interest  accrues at the rate of 10%
                 per annum.                                              95,000

               On November  27,  2006,  the Company  entered
                 into a promissory  note with the Chairman's
                 son with an  original  due date of  January
                 31,   2007.   The  original  due  date  was
                 extended  through April 30, 2007.  Interest
                 accrues at the rate of 10% per annum.                   50,000
                                                                      ---------
                                                                      $ 285,000
                                                                      =========

     Accrued  interest on the notes  payable to the  Chairman  and his son as of
     December 31, 2006 was $7,434.

                                      F-25
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     12. DEBT (CONTINUED)

     NOTES PAYABLE - CHAIRMAN (CONTINUED)

     The  maturities of the Company's  notes payable at December 31, 2006 are as
     follows:

     Calendar years ending December 31,
          2007                                                 $  441,139
          2008                                                     29,449
                                                               ----------
                                                                  470,588
          Less current portion                                   (441,139)
                                                               ----------

                                                               $   29,449
                                                               ==========
     CONVERTIBLE DEBENTURES

     During  2005,  the  Company  issued   convertible   debentures  to  private
     accredited  investors.  The total  principal  amount of the  debentures was
     $1,257,985 convertible into 1,257,985 shares of the Company's common stock.
     The conversion  price of the debentures is equal to 50% of the market price
     of  the  HCI's  common  stock  on  the  day  prior  to  conversion.  In  no
     circumstances will the conversion price be less than $.40 per share.

     The term of the debentures is 18 months from the date of issuance.  They do
     not bear interest. In lieu of interest, the Company issued 1,257,985 shares
     of its common stock to the holders of the convertible  debentures which was
     treated as a discount on the debentures to be amortized as interest expense
     over the life of the  debentures.  The discount was established as the fair
     value of the common  stock of  $202,678,  which was  determined  using fair
     value  interest  rates for similar  types of  underlying  instruments.  The
     unamortized  balance of the  discount  at  December  31,  2006 and 2005 was
     $35,429 and $170,547,  respectively.  Amortization  of the discount for the
     years  ended   December  31,  2006  and  2005  was  $135,118  and  $32,131,
     respectively  and is  included  in  interest  expense  in the  accompanying
     statements of operations.

     HCI incurred  $76,858 in legal,  financing and other costs in issuing these
     debentures.  The costs have been deferred and are being  amortized  over 18
     months. The unamortized  balance of deferred issuance costs at December 31,
     2006 and 2005 was $8,541 and $59,779,  respectively.  Amortization  expense
     relating to deferred  issuance  costs  totaled  $51,238 and $17,079 for the
     years ended December 31, 2006 and 2005, respectively.

                                      F-26
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

     12. DEBT (CONTINUED)

     CONVERTIBLE DEBENTURES (CONTINUED)

     On April 17, 2006, the Company closed on a new  convertible  debenture note
     in the  amount  of  $500,000.  The  terms of this  note,  with an  existing
     stockholder,  are identical to the 2005 convertible  debentures.  The total
     principal  amount of the debentures of $500,000 is convertible into 500,000
     shares  of  the  Company's  common  stock.  The  conversion  price  of  the
     debentures is equal to 50% of the market price of HCI's common stock on the
     day prior to conversion.  In no circumstances  will the conversion price be
     less than $.40 per share.  The term of the debentures is 18 months from the
     date of  issuance.  They do not bear  interest.  In lieu of  interest,  the
     Company  issued  500,000  shares of its common  stock to the holders of the
     convertible  debentures  which were treated as a discount on the debentures
     to be amortized as interest  expense over the life of the  debentures.  The
     discount was established as the fair value of the common stock of $141,348,
     which was  determined  using fair value interest rates for similar types of
     underlying instruments. The unamortized balance of the discount at December
     31, 2006 was  $101,615.  Amortization  of the  discount  for the year ended
     December  31, 2006 was  $39,733 and is included in interest  expense in the
     accompanying statements of operations.

     HCI incurred  $60,045 in legal,  financing  and other costs  issuing  these
     debentures.  The costs have been deferred and are being  amortized  over 18
     months. The unamortized  balance of deferred issuance costs at December 31,
     2006 was $42,864.  Amortization  expense relating to the deferred  issuance
     costs totaled $17,181 for the year ended December 31, 2006.

                                      F-27
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

13.  NET PATIENT SERVICE REVENUE AND BILLING FEES

     Revenue from nurse practitioner services is substantially collected through
     billings to a patient's  respective  insurance carrier,  health maintenance
     organization,  Medicare  and  Medicaid.  Payments  from these  sources  are
     generally based on prospectively  determined rates that vary according to a
     classification  system based on clinical,  diagnostic and other factors and
     are substantially below established rates.

     Net patient  service revenue  consists of the following  components for the
     years ended December 31, 2006 and 2005:

                                                      2006            2005
                                                      ----            ----
     Gross patient service revenue                $   7,867,360   $   4,824,558
     Less:    provision for contractual
              allowances                             (1,701,268)     (1,937,060)
                                                  -------------   -------------
        Net patient service revenue               $   6,166,092   $   2,887,498
                                                  =============   =============


14.  INCOME TAXES

     As of December  31,  2006 and 2005,  the  Company  had net  operating  loss
     carryforwards  for federal and state income tax  purposes of  approximately
     $4,000,000  and  $1,400,000,  respectively,  which is  available  to offset
     future taxable  income,  if any,  through 2026. The available net operating
     loss  carryforwards  resulted  in a  deferred  tax  asset of  approximately
     $1,600,000  and  $560,000  at  December  31,  2006 and 2005,  respectively.
     Management has established a 100% valuation  allowance against the deferred
     tax asset  created by the available net  operating  loss  carryforwards  at
     December  31,  2006  and  2005.  In  assessing  the  need  for a  valuation
     allowance,  the Company  estimates  future taxable income,  considering the
     feasibility of ongoing tax planning strategies and the realizability of tax
     loss carryforwards. Valuation allowances related to deferred tax assets can
     be  impacted  by changes to tax laws,  changes to  statutory  tax rates and
     future taxable  income  levels.  In the event the Company were to determine
     that it would be able to realize its  deferred  tax assets in the future it
     would  decrease the  recorded  valuation  allowance  through an increase to
     income in the period in which that  determination  is made.  The  valuation
     allowance increased approximately  $1,040,000 and $400,000 during the years
     ended December 31, 2006 and 2005, respectively.

                                      F-28
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

14.  INCOME TAXES (CONTINUED)

The  provision  for  (benefit  from) income taxes  reconciles  to the  statutory
     federal rate as follows:
                                                               December 31,
                                                        ------------------------
                                                            2006        2005
                                                        ------------------------
     Statutory federal tax rate                           (34.00)%    (34.00)%
     State income tax, net of federal benefit              (4.26)      (4.72)
     Permanent differences                                 18.78        0.15
     Deferred tax state rate change                        (4.98)       8.96
     Deferred tax asset valuation allowance                24.46       29.61
                                                        ------------------------
          Effective federal tax rate                          --%         --%
                                                        ========================


15.  STOCKHOLDERS' EQUITY (DEFICIT)

     STOCK SPLIT

     During  2005,  the  Company's  Board of  Directors  ("Board")  approved  an
     increase  in the  authorized  shares of voting  common  stock from  100,000
     shares to 70,000,000 shares and approved a 537.41528-to-1  stock split. The
     effect of the stock split has been recognized in the  stockholders'  equity
     (deficit)  section of the consolidated  balance sheet and in all share data
     in  the  accompanying   consolidated  financial  statements  and  notes  to
     consolidated financial statements.

     PRIVATE PLACEMENT OFFERING

     On September 25, 2006, HCI issued a Private Placement  Offering  Memorandum
     ("PPM")  for  2,000,000  shares  of  common  stock at $1.00  per  share and
     warrants to purchase  2,000,000  shares of common stock in the future.  The
     offer to purchase  common stock  expires on February 28, 2007 (Note 20). In
     December, 2006 the Company increased the total offering to 3,200,000 shares
     of  common  stock at $1.00 per share and  warrants  to  purchase  3,200,000
     shares of  common  stock in the  future.  The  warrants  have a term of two
     years.  The  exercise  price is $1.25  per  share.  The  warrants  shall be
     redeemable  at $.05 per warrant  share  contingent  upon HCI's common stock
     trading  at a  closing  price  of at  least  $3.50  per  share  for  twenty
     consecutive days.

     As of December 31,  2006,  1,956,400  shares of common stock and  1,956,400
     warrants of HCI common stock have been issued through this PPM.

                                      F-29
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

15.  STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

     RESTRICTED STOCK SALE TO COMPANY EMPLOYEES

     In June,  2006,  the Company sold a total of 142,669  shares of  restricted
     common stock to several of its key managers for  aggregate  net proceeds of
     $107,002.

     WARRANTS

     A summary of warrant activity,  with the effect of the 537.41528-to-1 stock
     split retroactively stated to January 1, 2005 is as follows:

<TABLE>
<CAPTION>
                                                     Exercise          Weighted       Weighted Average
                                                     Price per         Average         Remaining Life
                                     Warrants         Warrant       Exercise Price         (Years)
                                  --------------   --------------   ---------------   ----------------
<S>                                 <C>               <C>             <C>                    <C>
     Outstanding at
          January 1, 2005           5,166,711         $ .09677        $ .09677               8.0
          Issued                           --               --               --               --
          Exercised                        --               --               --               --
          Expired                          --               --               --               --
                                   ----------         --------        --------          --------
      Outstanding at
           December 31, 2005        5,166,711         $ .09677        $ .09677               7.0
           Issued                   1,956,400         $1.25000        $1.25000               2.0
           Exercised               (5,166,711)        $ .09677              --                --
           Expired                         --               --              --                --
                                   ----------         --------        --------          --------
      Outstanding at
           December 31, 2006        1,956,400         $1.25000        $1.25000               2.0
                                   ==========         ========        ========          ========
</TABLE>

     As disclosed in Note 12,  warrants for  5,166,711  shares of the  Company's
     common stock were exercised by a shareholder with the Company.

                                      F-30
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

16. BENEFIT PLANS

     The  Company  established  a 401(k)  retirement  plan on  February 1, 2005.
     Employees  21 years or older are eligible the first day of the quarter upon
     completing three months of employment.  The maximum deferral under the plan
     is 100% of total pay, not to exceed the elective  annual deferral limits of
     the Internal  Revenue Code. At the  Company's  discretion,  there may be an
     employer  matching  contribution  which  is not to  exceed  the  employee's
     deferral amount.  Employer  contributions are generally vested after 1 year
     of  service  with the  Company.  During  2006 and  2005,  2% of  employees'
     compensation was matched for a total employer  retirement plan contribution
     of $44,084 and $25,263, respectively.

17.  BUSINESS SEGMENTS

     The Company's  operations by business  segment for the years ended December
     31, 2006 and 2005 were as follows:

                                Professional         Disease
2006                              Services          Management        Total
-----------------------------  ----------------    -------------    ------------


Net Sales                           $4,386,357      $ 1,779,735     $ 6,166,092
Operating Profit/(Loss)                186,998       (3,288,219)     (3,101,221)
Identifiable Assets                    423,092        1,921,371       2,344,463

                                Professional         Disease
2005                              Services          Management         Total
-----------------------------  ----------------    -------------    ------------


Net Sales                           $2,617,498      $   270,000     $ 2,887,498
Operating Profit/(Loss)                 18,813       (1,320,039)     (1,301,226)
Identifiable Assets                    336,380        1,491,950       1,828,330

                                      F-31
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

18.  COMMITMENTS

     CONSULTING AGREEMENTS

     During July 2005,  the Company  entered  into a Consulting  Agreement  with
     Strategic  Growth  International,  Inc.  ("SGI"),  whereby  SGI advised and
     assisted  HCI in its efforts to raise  capital  and secure a public  shell.
     During  September  2006,  the Company  amended and restated the  Consulting
     Agreement with SGI. Under the new Consulting Agreement, SGI will assist HCI
     in  determining  a  strategy  to raise  funds in the  aggregate  amount  of
     $1,000,000  through  a private  placement  of debt,  equity or  convertible
     securities.  HCI has agreed to pay an initial retainer of $50,000 for these
     services from the future gross proceeds of any offering raised. The Company
     also agrees to pay SGI a total  consulting  fee of 10% of the future  gross
     proceeds raised for the offering  excluding the initial  $50,000  retainer.
     The term of this agreement is for six months and it expires March 25, 2007.
     Through  December  31, 2006,  the Company  raised  $1,850,000  through this
     arrangement.  A  consulting  fee of $185,000  was charged to equity for the
     year ended December 31, 2006 and $50,000 was charged to deferred  financing
     charges for the year ended  December 31, 2006.  Subsequent to year end, the
     Company raised an additional $1,300,000 and incurred fees payable to SGI in
     the amount of $130,000 in consulting fees.

                                      F-32
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

18.  COMMITMENTS (CONTINUED)

     BUSINESS ADVISOR AGREEMENT

     In  September  2005,  the  Company  entered  into  an  agreement  ("Advisor
     Agreement") with an outside advisor whereby the advisor has been engaged to
     provide advice to the Company as the  Chairperson of its Business  Advisory
     Board,  assist in the  development  of the  Business  Advisory  Board,  and
     provide other services on behalf of the Company.

     The Advisor was issued  100,000  shares of the  Company's  common  stock in
     connection with the Advisor Agreement.  The fair value of the shares on the
     date of issuance was $40,000 or $.40 per share.

     The  Advisor  can also be issued  contingent  warrants  to  purchase  up to
     360,000  common  shares of the  Company at an  exercise  price of $1.25 per
     share  upon the  attainment  of  specified  growth  goals  of the  Business
     Advisory Board.  Beginning in calendar year 2006 and through  calendar year
     2008, 120,000 contingent warrants may be earned each year commensurate with
     achieving  company  growth in gross  revenues  to  $18,000,000  in 2007 and
     $28,000,000 in 2008.

     OPERATING LEASES

     The Company is obligated under various  operating  leases for the rental of
     office space and office equipment. Future minimum rental commitments with a
     remaining  term in  excess  of one  year as of  December  31,  2006  are as
     follows:

                  YEARS ENDING DECEMBER 31,

                      2007                              $    255,785
                      2008                                   243,449
                      2009                                   226,772
                      2010                                    35,597
                      2011                                    23,753
                                                        ------------
                  Total minimum lease payments          $    785,356
                                                        ============

     Rent  expense for the years ended  December  31, 2006 and 2005 was $155,133
     and $85,027, respectively.

                                      F-33
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

18.  COMMITMENTS (CONTINUED)

     ALERE MEDICAL AGREEMENT

     In October 2006, HCI entered into a Disease  Management  Services Agreement
     with Alere  Medical,  Inc.  ("Alere").  Alere provides  disease  management
     tools, services and systems to Payers which are designed to assist with and
     improve  management  of  health  care  outcomes  for  patients.  Alere  has
     contracted with Tufts Health Plan ("Tufts") to provide  disease  management
     services in Massachusetts.  Tufts provides various  commercial and Medicare
     Health Plans to members. ECI will provide care management services to Tufts
     program  participants in  Massachusetts  and Alere will pay to ECI $295 per
     enrolled member per month commencing February 1, 2007.

     OHIO NURSE PRACTITIONERS, INC.

     Effective  November 6, 2006, NP Care of Ohio,  LLC ("NP Ohio") entered into
     an agreement with Ohio Nurse  Practitioners,  Inc.  ("ONP").  ONP is in the
     business of  providing  advance  practice  registered  nursing  services to
     residents  of nursing  homes.  ONP has  agreed to  terminate  its  existing
     service  agreements  with its  customers and NP Ohio has agreed to hire the
     shareholders  of ONP as employees.  In addition,  ONP has agreed to provide
     consulting  services  commencing  on  the  effective  date  and  ending  on
     September 30, 2009. In consideration  of ONP's consulting  services NP Ohio
     has agreed to pay ONP a maximum  consulting  fee of $225,000  with payments
     due as earned in accordance  with the terms of the  agreement.  The Company
     has recognized  consulting  expenses in the amount of $125,000 for the year
     ended December 31, 2006 in connection with the services  provided under the
     agreement.

                                      F-34
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

19.  RISKS AND UNCERTAINTIES

     PATIENT SERVICE REVENUE

     Approximately 61% and 80% of net patient services revenue in 2006 and 2005,
     respectively,  was derived under federal  (Medicare)  and state  (Medicaid)
     third-party  reimbursement programs.  These revenues are based, in part, on
     cost  reimbursement  principles  and are  subject to audit and  retroactive
     adjustment by the respective third-party fiscal intermediaries. The general
     trend in the healthcare  industry is lower private pay  utilization  due to
     liberal  asset  transfer  rules and the degree of financial  planning  that
     takes place by the general  public.  The Company's  ability to maintain the
     current level of private pay  utilization  and thereby  reduce  reliance on
     third-party  reimbursement  is uncertain due to the economic and regulatory
     environment in which the Company operates.

     MALPRACTICE INSURANCE

     The Company  maintains  malpractice  insurance  coverage  on an  occurrence
     basis.  It is the intention of the Company to maintain such coverage on the
     occurrence basis in ensuing years. During the years ended December 31, 2006
     and 2005,  no known  malpractice  claims  have been  asserted  against  the
     Company which,  either  individually or in the aggregate,  are in excess of
     insurance coverage.

                                      F-35
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

20.  SUBSEQUENT EVENTS

     DEBT CONVERSION DURING THE FIRST QUARTER OF 2007

     During the first quarter of 2007, $1,707,985 of the outstanding  $1,757,985
     convertible  debentures - (Note 12) were  converted  into common stock at a
     ratio of one share per $1 dollar of debt  resulting in a total  issuance of
     common stock of 1,707,985 shares during the quarter.  The remaining $50,000
     of convertible debt will mature on April 6, 2007.

     WARRANTS

     During the first quarter of 2007 and in connection  with the September 2006
     PPM (Note 15),  the Company  requested  that 29  investors  exercise  their
     respective  warrants and in return  shall  receive an  additional  two year
     warrant  ("2007  Warrants")  at an  exercise  price of $3.00  for every two
     warrants  exercised  from the September 2006 PPM. As of March 29, 2007, the
     Company  received  $1,187,500 upon the exercise of 950,000 of the September
     PPM warrants and have issued  warrants for an additional  475,000 shares of
     the Company's common stock to five (5) September  Offering  investors.  The
     investors  represented in writing that they were  accredited  investors and
     acquired the securities for their own accounts.  A legend was placed on the
     securities  stating that such securities have not been registered under the
     Securities  Act and  cannot be sold or  otherwise  transferred  without  an
     effective   registration   statement   covering   such  shares  or  an  the
     availability  of an exemption  from the  registration  requirements  of the
     Securities Act.

     CONTRACT FOR THE STATE OF ILLINOIS DEPT. OF HEALTHCARE AND FAMILY SERVICES

     On March 6, 2007,  the  Company  entered  into a three year  contract  with
     McKesson Corporation  ("McKesson") to provide care management to over 8,000
     Medicaid  recipients  living in  nursing  homes in  Illinois.  Care will be
     provided through the Company's subsidiary,  Enhanced Care Initiatives, Inc.
     (ECI) and its  affiliate,  NP Care of  Illinois,  LLC under a  Sub-Contract
     pursuant  to  the  requirements  of  McKesson's  agreement  for  a  disease
     management  program with the Illinois  Department of Healthcare  and Family
     Services.  Services  include  providing  programs and systems for assisting
     physicians  in the  management  of  patients  who  are  frail  or who  face
     medically complex conditions or mental impairment. Nurse practitioners will
     be on site to provide hands-on care management coordination and discharge

                                      F-36
<PAGE>

                      HC INNOVATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 2006 and 2005

--------------------------------------------------------------------------------

20.   SUBSEQUENT EVENTS (CONTINUED)

     CONTRACT FOR THE STATE OF ILLINOIS DEPT. OF HEALTHCARE  AND FAMILY SERVICES
     (CONTINUED)

     planning in  collaboration  with  patients'  physicians  and  nursing  home
     medical directors.

     COMPLETION OF THE SEPTEMBER PRIVATE PLACEMENT

     During the first quarter of 2007,  the Company  completed the PPM (Note 15)
     initiated in September of 2006 by raising an additional $1,300,000.

                                      F-37