**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549        ______________________                  FORM 10-K                  Annual Report Pursuant        to Section 13 or 15(d) of the        Securities Exchange Act of 1934**        For the fiscal year ended**December 31, 200****8**

Commission file number

**33-20582**

**VirtualHealth Technologies, Inc.**

(Name of registrant as specified in its charter)         

| **Delaware**                                                  | **75-2276137**                                             |
|---------------------------------------------------------------|------------------------------------------------------------|
| (State or other jurisdiction of incorporation)                | (IRS employer identification no.)                          |
|                                                          |                                                       |
| **PO Box 12012                    Lexington, Kentucky 40579** | **(859) 321-2466**                                         |
| (Address of principal executive offices)                      | (Registrant’s telephone number, including area code) |

Securities registered pursuant to Section 12(b) of the Act: None        Securities registered pursuant to Section 12(g) of the Act:         

| Title of each class                    | Name of each exchange on which registered |
|----------------------------------------|-------------------------------------------|
| Class A Common Stock, $.0001 Par Value | None                                      |

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes |_| No |X|

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 |X|        No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|

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

 

| Large accelerated filer |_| | Accelerated filer |_| | Non-accelerated filer |_|                    (Do not check if a smaller reporting company) | Smaller reporting company |X| |
|----------------------------------|----------------------------|-------------------------------------------------------------------------------------------------|------------------------------------|

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

The aggregate market value of the common stock held by non-affiliates of the issuer as of June 30, 2008 was approximately $7,592,582.

Shares outstanding of the registrant’s common stock as of March 30, 2009: 46,451,533 shares.

**DOCUMENTS INCORPORATED BY REFERENCE**

None.

 

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**TABLE OF CONTENTS TO ANNUAL REPORT        ON FORM 10-KSB        YEAR ENDED DECEMBER 31, 200****8**

 

| PART I      |   |   |                                                                                                                    |   |   |   | 4  |   |
|-------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|----|--------|
|        |        |        |                                                                                                                    |        |        |        |    |        |
| Item 1.     |   |   | Business.                                                                                                               |   |   |   | 4  |   |
| Item 2.     |   |   | Properties.                                                                                                             |   |   |   | 15 |   |
| Item 3.     |   |   | Legal Proceedings.                                                                                                      |   |   |   | 15 |   |
| Item 4.     |   |   | Submission of Matters to a Vote of Security Holders                                                                     |   |   |   | 15 |   |
|        |        |        |                                                                                                                         |        |        |        |    |        |
| PART II     |   |   |                                                                                                                    |   |   |   | 16 |   |
|        |        |        |                                                                                                                    |        |        |        |    |        |
| Item 5.     |   |   | Market for Registrant’s Common Equity, Related Stockholder Matters and Registrant Purchases of Equity Securities. |   |   |   | 16 |   |
| Item 6.     |   |   | Selected Financial Data                                                                                                 |   |   |   | 17 |   |
| Item 7.     |   |   | Management’s Discussion and Analysis or Plan of Operation                                                         |   |   |   | 17 |   |
| Item 8.     |   |   | Financial Statements and Supplementary Data                                                                             |   |   |   | 19 |   |
| Item 9.     |   |   | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                                    |   |   |   | 19 |   |
| Item 9A(T). |   |   | Controls and Procedures                                                                                                 |   |   |   | 19 |   |
| Item 9B.    |   |   | Other Information                                                                                                       |   |   |   | 20 |   |
|        |        |        |                                                                                                                    |        |        |        |    |        |
| PART III    |   |   |                                                                                                                    |   |   |   | 21 |   |
|        |        |        |                                                                                                                    |        |        |        |    |        |
| Item 10.    |   |   | Directors, Executive Officers and Corporate Governance                                                                  |   |   |   | 21 |   |
| Item 11.    |   |   | Executive Compensation                                                                                                  |   |   |   | 23 |   |
| Item 12.    |   |   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                          |   |   |   | 23 |   |
| Item 13.    |   |   | Certain Relationships and Related Transactions and Director Independence                                                |   |   |   | 24 |   |
| Item 14.    |   |   | Principal Accountant Fees and Services                                                                                  |   |   |   | 25 |   |
| Item 15.    |   |   | Exhibits, Financial Statement Schedules                                                                                 |   |   |   | 26 |   |

 

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**PART I**

**Item 1. Business.**

**Background**

The Company was organized on March 4, 1988, as a Delaware corporation under the name Sherry Lyn Corporation. The Company was organized as a public company for the purpose of finding a suitable combination partner. On December 6, 1988, the Company changed its name to Equity Gold, Inc.

On December 14, 1989, the Company merged with Gold Equity, Inc., a State of Delaware corporation. The surviving corporation was Equity Gold, Inc. On February 7, 1989, the Company changed its name to Equity AU, Inc.

From the original inception of the Company on March 4, 1988, through January 1, 1994, the Company was engaged in research and development of a process to extract gold and other precious metals on various real properties located in Arkansas. Partnerships were formed prior to 1994 by the Company or by affiliates of the Company to raise working capital, to acquire mineral        claims, rights, facilities and equipment, and to explore for precious metals. In 1994, general partners of the partnerships notified the Company that they were terminated and dissolved. The Company has had no significant operations since August 1993 and entered the development stage on January 1, 1994. During September 1996, the Company resumed operations and again suspended operations in December 1996. As result of the dissolution of the partnerships, the Company ceased its operations        and entered the development stage.        In January 2000, the Company elected to change its name from Equity AU, Inc., to Equity Technologies & Resources, Inc.

On December 15, 2000, the Company acquired all of the issued and outstanding common stock of Verified Prescription Safeguards, Inc. ("VPS") in exchange for shares of the Company's Class B voting preferred stock. At the time the purchase was consummated, VPS held no assets or liabilities. The consolidated entity elected to change its business plan toward the development and        marketing of internet prescription drug technology.

In May 2001, the Company acquired a newly formed wholly-owned subsidiary, ETCR M&A, Inc. ("ETCR M&A"), a Florida corporation, in exchange for shares of the Company's common stock. ETCR M&A held no assets or liabilities at the time of purchase. In November 2001, these shares were canceled and the Company does not currently hold any interest in ETCR M&A.

On August 2, 2002, the Company amended its Certificate of Incorporation to change the authorized capital stock of the Company. The aggregate number of Class A common shares authorized for issuance is 300,000,000 shares with a par value of $0.0001; the aggregate number of Class B common shares authorized for issuance is 100,000 with a par value of $0.01; the aggregate number        of Class A preferred shares authorized for issuance is 2,000,000 with a par value of $0.001; the aggregate number of Class B preferred shares authorized for issuance is 300,000 shares with a par value of $0.001; and the aggregate number of Class C preferred shares authorized for issuance is 100,000 shares with a par value of $0.001.

Effective August 25, 2006, in furtherance of its business plan, the Company acquired MB Holding Corporation, a Nevada corporation (“MB Holding”), from H.E.B., LLC, a Nevada limited liability company (“HEB”), in exchange for 34,000,000 (post reverse-split) shares of the Company's common stock. MB Holding, though its wholly-owned subsidiaries, VPS        Holding, LLC, a Kentucky limited liability company (“VPSH”), and Envoii Healthcare, LLC, a Nevada limited liability company (“Envoii”), developed and owned certain technologies related to real-time internet prescription drug monitoring. In connection with the acquisition of MB Holding, we (a) effected a 1 for 100 reverse split of our Class A Common Stock, (b) cancelled all of our outstanding Class B Common Stock, (c) amended our Certificate of Incorporation, and        (d) changed our name to “VirtualHealth Technologies, Inc.”

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On October 6, 2006, the Company consummated a Stock Exchange Agreement with NewMarket Technology, Inc., a Nevada corporation, pursuant to which the Company acquired the outstanding shares of Medical Office Software, Inc., a Florida corporation (“MOS”). Prior to the acquisition, the Company owned forty-nine percent (49%) of MOS’ outstanding shares. Under the        terms of the Stock Exchange Agreement, the Company acquired the remaining outstanding shares of MOS in exchange for (a) 1,400,000 shares of our common stock, and (b) a two year convertible promissory note in the principle amount of $900,000, which note has been extended until October 2009. The outstanding principal balance of the note may be converted, at the option of NewMarket, into shares of our common stock at the market price of the common stock at the time of conversion; provided,        however, that in no event will we be obligated to issue more than 675,000 shares of our common stock upon a conversion. The convertible note will automatically convert into shares of our common stock if the market price for our common stock reaches $2.00 per share.

**Business**

The Company’s primary business focus is healthcare technology. We are still in the early stage of our development and will have to raise additional capital, either through the sale of equity or through debt financing, to meet our contractual obligations, and continue operations. We have developed a proprietary software solution tailored toward object security and        primarily utilized this software in products and services we offered under the name VeriscripTM.        In addition to our Veriscrip products and services, MOS' client base of over 1,500 users is a tremendous asset to VirtualHealth Technologies, Inc. It establishes an existing platform of early technology adopters already familiar with Virtual Health  as a trusted source of  technology solutions for their practice. As Veriscrip is deployed in each state where MOS has a base of users, those users would serve as the initial sites for testing.  

Veriscrip Business Model and MarketStrategy

The business model for our Veriscrip products and services is primarily based upon the selling and operation of real-time controlled prescription drug monitoring for state agencies, which pay for the services. Our fees are comprised of license fees and transaction fees. We believe that these fee components are a standard practice for electronic solutions and will be accepted        in the market. In addition, a small amount of revenue may be derived from electronic networks with which we have established connectivity to reach pharmacies and Pharmacy Benefit Mangers (PBMs). We expect that our customers will typically be a state and/or federal agency and can be classified as follows:

*Primary Paying Customer*: State agencies who contract with us to provide controlled prescription management solutions within their jurisdiction, typically a state, and the regulators they employ to manage the administration of prescription drugs within their states.

*Parties Involved*: Prescribers, including physicians, nurse practitioners, psychiatrists, and dentists, as well as pharmacies are participants as they are directly involved in the authorization and dispensing of controlled prescription drugs. We service these parties per our agreements with state sponsors; however, we have not forecasted nor do we expect to derive        revenue for our core functionality from these parties for our core product offering. Future value-added transaction sets and functionality may garner additional revenue.        The following are our anticipated primary sources of revenue:

*Pilot Fees*: In advance of each contract with a state-wide agency, it is anticipated we will begin with a pilot program within a small region to test and verify with the state agency the effectiveness and operation of our solution. We anticipate that the state agency will pay a nominal amount, most likely as a flat fee, to support these pilot activities.

*License Fees*: We expect to be paid a one-time license fee from our state agency customers, based upon state population, and paid over a period of time. This fee is anticipated to cover all of our startup and implementation costs.

*State Transaction Fees*: We also anticipate receiving transaction revenue from our state agency customers for each transaction processed.

In 2008 he Company continued to present its program. We have made a vigorous business analysis of the market in which Veriscrip is designed for and have had to make some strategic adjustments to our overall business plan. We now realize that the states are moving much slower than anticipated. Realizing this, we have introduced new products which will allow us to go after        markets other than real time drug monitoring programs. Veriscrip is the only company in the market which now can offer a base model program for prescription drug monitoring programs, and then upgrade it to real time with very little investment required from the states as well as little or no interruption in their operations. We

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are also pursuing the opportunities on the national level with the federal agencies in putting together a pilot program which will test the ability of states to securely exchange prescription drug information, with a goal of doing this in real time. It is our business strategy to place Veriscrip into the forefront as a leader in this technology during these pilot        programs.

We believe that our Veriscrip System has several advantages in this emerging market:

*First to Operate a Real Time Solution*: We believe that the Veriscrip pilot project in Kentucky is the first state-backed real time electronic prescription drug-monitoring program (PDMP) in the United States. This experience provides us with an opportunity to work with regulators and state governments to fine tune an overall product offering, and provides a potential        advantage in marketing to other states.

*Single Focus*: Unlike many potential competitors, Veriscrip has one focus, the provision of controlled prescription compliance solutions to state agencies. By maintaining a simple focus, we can maximize our resources. Although our management personnel have a deep and varied base of experience in related healthcare solutions (i.e., records management, healthcare privacy        solutions) of our competitors, our simple focus helps to avoid management distractions that might otherwise be focused toward these related areas.        Our Veriscrip marketing strategy is to position Veriscrip such that user barriers to adoption are minimized, we leverage existing complementary vendors rather than compete with them, and combine a set of services that both uniquely meets the regulatory monitoring needs of state agencies and resolves current problems facing prescribers and pharmacies. Our current marketing strategy is to seek out the states which are in the process of putting together a PDMP, as well as marketing our        security processes to those states who have already implemented a monitoring program, enhancing their current program with better security in the transference of records and documents. We feel this will allow for our personnel to establish an important relationship with each of these customers, and help push the movement to real time monitoring. As a rule, the following challenges exist within every state:

*Lack of awareness*: Most state governments do not have a general awareness of the extent and cost of prescription drug abuse. In addition, most do not know that practical real time options exist for administration and monitoring of prescription drugs. Generating awareness through media stories and direct marketing to government officials and health related groups are        essential parts of our strategy.

*Confidentiality of Patient Information*: Patient confidentiality remains a key barrier in passing legislation in certain states and is a primary contributing factor in the slow adoption. HIPAA legislation passed by Congress in 1996 provides a strong framework for securing health information. We believe that our Veriscrip System not only is HIPAA compliant, but is        strong enough to raise the comfort level for state, local and federal agency personnel. This will allow the movement to a real time solution to gain more momentum and increase the overall market abilities of Veriscrip.

*Funding* Most of the current funding for PDMP’s is still coming from the Hal Rogers grants given out through the Department of Justice. The overall funding for the monitoring programs are handled differently in every state: for example Louisiana will be funding their program with a $25 fee on pharmacy licenses for a period of five years. We will be analyzing over        the next ten to twelve months to see if there is a certain pattern of funding legislation coming from the states. The tight budgets currently faced by the state legislatures are going to make it more difficult for the active agencies seeking new programs to get any state revenue help.         

MOS Business Model and Market Strategy

Since its inception, MOS has engaged in the physician practice management system (“PMS”) market. Having completed more than 1,500 installations, MOS has established a strong presence and brand throughout Southeastern Florida as what we believe is the premiere provider of physician practice solutions. MOS began as a developer and marketer of its own PMS solution.        At the present, however, MOS focuses almost exclusively on reselling and supporting products developed by other parties in an effort to provide the best of breed to its customers. The market segments and products for each of these markets are as follows:

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***Physician Practices:*** Practice Management Software, Electronic Medical Records Software, Electronic Claims Transactions via our Portal, E-prescribing Solutions and Pre-packaged Pharmaceuticals for the development of an in-house retail pharmacy.

***Orthotic and Prosthetic Facilities*****:** Practice Management Software and Electronic Claims Transactions via our electronic solution.        The following are our anticipated primary sources of revenue:

***License Fees*****:** For each of the software solutions whether Practice Management or Electronic Medical Records there is a license fee collected. The amount of each fee varies upon the scope of the installation and number of users. This one-time fee is independent of any on-going maintenance fees paid.

***Upgrade Fees*****:** As newer and improved versions of the software products are released an upgrade fee is collected from the customer. Since many of the transactions that emerge from the software are regulated standards these upgrades are issued annually and are quickly adopted by the user base.

***Training Fees*****:** Training fees are collected for both new installations and for existing installations that have a need to train new staff or for improved use of the existing product.

***Support Maintenance Fees*****:** We expect to be paid an annual maintenance fee for each installation. These fees are typically collected on the anniversary of the installation for each customer. They allow customers to receive critical updates and support for their products. Support is available via telephone, remotely via the Web-site or on-site as deemed        necessary.

***Transaction Fees*****:** There are multiple transactions that are generated by the Practice Management Software: Electronic Claims, Electronic Statements and Electronic Prescriptions. These transactions are all billed to the customer as a per transaction fee or a flat monthly rate option.

***Hardware Sales*****:** In addition to the software solutions, MOS also provides and installs hardware on which the MOS services operate (PC Workstations, Network HW and Servers).

***Hardware and Network Maintenance and Consulting Fees*****:** MOS has an in-house team of technicians that are capable of setting up, trouble shooting and streamlining network performance and efficiency. These fees vary with the scope of each request

***Custom Development Fees:*** We also provide custom development services for customers who desire forms or reports particular to their operations. These fees vary on the scope of each request.        The Company currently has no funds to execute its business plan and it has no agreements or understandings in place that would provide it with the required funding to execute its business plan.

**Competition**

Veriscrip

We believe that minimal direct competition for the type of solution offered by Veriscrip exists in the market today, and no other company that we are aware of has operated a state-funded pilot program for real time prescription drug compliance monitoring. There are several potential sources of competition, however, and it will likely come most heavily from e-prescribing or        pharmacy management firms and other healthcare IT/Government contracted firms that have existing business for database collection and reporting. Of these potential sources of competition, many have greater financial resources than we do and can provide a greater range of solutions for our targeted customers. These potential competitors are currently involved in state Prescription Drug Monitoring Programs by providing regulators access to retrospective prescription history (typically 2-4        weeks old), not real time access to current prescription activity as Veriscrip does. These include Nevoca (a company that originally bid against Veriscrip for the Kentucky pilot project), Optimum Technology (a technology firm that contracts with several state agencies for law enforcement and drug monitoring data collection) and Atlantic Associates (a company that performs prescription drug monitoring for several states including Wyoming, Kentucky and Ohio).

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        The Practice Management industry is fraught with competition dating as far back as the 1980's. Two very distinct characteristics necessary for a company to survive in this highly competitive market is flexibility and foresight. Since its establishment in 1984 MOS has outlived hundreds of its competitors in the field of practice management by leveraging both the foresight to see changes ahead and the flexibility to make those changes immediately. MOS' close ties with its        customers provide a unique relationship that allows its software to evolve with its users in a way that other companies cannot. MOS's commitment to bringing only the best of breed to its customers also insures that they deliver what their users need not what the industry feels is important.

**Employees**

We currently have 11 employees, of which 2 currently provide services for our Veriscrip operations and 9 provide services for our MOS operations. We expect to use consultants, attorneys, and accountants as necessary.

**Item 1A. Risk Factors**

The following risk factors should be considered with respect to making any investment in our securities as such an investment involves a high degree of risk. You should carefully consider the following risks and the other information set forth elsewhere in this report, including the financial statements and related notes, before you decide to purchase shares of our common        stock. If any of these risks occur, our business, financial condition and results of operations could be adversely affected. As a result, the trading price of our common stock could decline, perhaps significantly, and you could lose part or all of your investment.

*We expect to incur losses in the future and may not achieve or maintain profitability.*

We have incurred net losses since we began operations in 2003. Our net loss was approximately $811,824 for fiscal year 2008 and $805,729 for the fiscal year ended December 31, 2007. We expect to make significant investments in our sales and marketing programs and research and development, resulting in a substantial increase in our operating expenses. Consequently, we will        need to generate significant additional revenue to achieve and maintain profitability in the future. We may not be able to generate sufficient revenue from sales of our products and related professional services to become profitable. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis. In addition to funding operations through increased revenue, we anticipate that we will need to raise additional capital before reaching        profitability. We cannot predict when we will operate profitably, if at all. If we fail to achieve or maintain profitability, our stock price may decline.

*We have a limited operating history with which you can evaluate our current business model and prospects.*

The first pilot for our Veriscrip System was launched in the early part of 2004. To date, we have not obtained any commercial customers for the Veriscrip System.        Because the Veriscrip System is still at a relatively early stage of commercialization, it is difficult for us to forecast the full level of market acceptance that our solution will attain. Some of the risks we face include:

|  |   |   | * |   |   | competitors may develop products, technologies or capabilities that render our products obsolete or noncompetitive or that shorten the life cycle of the Veriscrip System; |   |   |
|--|--------|--------|---|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|  |        |        |   |        |        |                                                                                                                                                                       |        |        |
|  |   |   | * |   |   | we may not be able to attract and retain a broad customer base; and                                                                                                        |   |   |
|  |        |        |   |        |        |                                                                                                                                                                       |        |        |
|  |   |   | * |   |   | we may not be able to negotiate and maintain favorable strategic relationships.                                                                                            |   |   |

We expect the Medical Office Software to account for a significant portion of our total revenue for the foreseeable future. We intend to continue to enhance the Veriscrip System throughout the pilot project phase and after commercialization.

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        Failure to successfully manage these risks could harm our business and cause our stock price to fall. Furthermore, to remain competitive, products like ours typically require frequent updates that add new features. We may not succeed in creating and licensing updated or new versions of our products. A decline in demand for, or in the average price of, our products would have a direct negative effect on our business and could cause our stock price to fall.

*If we cannot meet our future capital requirements, our business will suffe**r**.*

We will need additional financing to continue operating our business. We need to raise additional funds in the future through public or private debt or equity financings in order to:

|  |   |   | * |   |   | fund operating losses;                                                                                            |   |   |
|--|--------|--------|---|--------|--------|-------------------------------------------------------------------------------------------------------------------|--------|--------|
|  |        |        |   |        |        |                                                                                                              |        |        |
|  |   |   | * |   |   | scale sales and marketing to address our targeted markets;                                                        |   |   |
|  |        |        |   |        |        |                                                                                                              |        |        |
|  |   |   | * |   |   | take advantage of opportunities, including expansion or acquisitions of complementary businesses or technologies; |   |   |
|  |        |        |   |        |        |                                                                                                              |        |        |
|  |   |   | * |   |   | hire, train and retain employees;                                                                                 |   |   |
|  |        |        |   |        |        |                                                                                                              |        |        |
|  |   |   | * |   |   | develop new products or professional services; or                                                                 |   |   |
|  |        |        |   |        |        |                                                                                                              |        |        |
|  |   |   | * |   |   | respond to economic and competitive pressures.                                                                    |   |   |

If our capital needs are met through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced. Our future success may be determined in large part by our ability to obtain additional financing, and we can give no assurance that we will be successful in obtaining adequate financing on favorable terms, if at all. If        adequate funds are not available or are not available on acceptable terms, our operating results and financial condition may suffer, and our stock price may decline.

*Our operating results may fluctuate, which may adversely affect our stock price.*

We are an emerging company. As such, our quarterly revenue and results of operations are difficult to predict. We have experienced fluctuations in revenue and operating results from quarter-to-quarter and anticipate that these fluctuations will continue until the company reaches critical mass and the market becomes more stable. These fluctuations are due to a variety of        factors, some of which are outside of our control, including:

|  |   |   | * |   |   | the fact that we are a relatively young company;                                                                               |   |   |
|--|--------|--------|---|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|  |        |        |   |        |        |                                                                                                                           |        |        |
|  |   |   | * |   |   | we expect to derive the bulk of our revenue from sales to government agencies;                                                 |   |   |
|  |        |        |   |        |        |                                                                                                                           |        |        |
|  |   |   | * |   |   | our ability to attract new customers and retain existing customers;                                                            |   |   |
|  |        |        |   |        |        |                                                                                                                           |        |        |
|  |   |   | * |   |   | the length and variability of our sales cycle, which makes it difficult to forecast the quarter in which our sales will occur; |   |   |
|  |        |        |   |        |        |                                                                                                                           |        |        |
|  |   |   | * |   |   | the amount and timing of operating expense relating to the expansion of our business and operations;                           |   |   |
|  |        |        |   |        |        |                                                                                                                           |        |        |
|  |   |   | * |   |   | the development of new products or product enhancements by us or our competitors, as well as the adoption of new standards;    |   |   |
|  |        |        |   |        |        |                                                                                                                           |        |        |
|  |   |   | * |   |   | the introduction and market acceptance of new technologies and products;                                                       |   |   |

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|  |   |   | * |   |   | actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used in determining the values of certain assets (including the amounts of related valuation allowances), liabilities, and other items reflected in our financial statements; and |   |   |
|--|--------|--------|---|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|  |        |        |   |        |        |                                                                                                                                                                                                                                                                                       |        |        |
|  |   |   | * |   |   | how well we execute on our strategy and operating plans.                                                                                                                                                                                                                                   |   |   |

As a consequence, operating results for a particular future period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse affect on our business, results of operations, and financial        condition that could adversely affect our stock price.

We also typically realize a significant portion of our revenue in the last few weeks of a quarter because of our customers' purchasing patterns. As a result, we are subject to significant variations in license revenue and results of operations if we incur a delay in a large customer's order. If we fail to close one or more significant license agreements that we have targeted        to close in a given quarter, this failure could seriously harm our operating results for that quarter. Failure to meet or exceed the expectation of securities analysts or investors due to any of these or other factors may cause our stock price to fall.

 

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*Our revenues for a particular period are difficult to predict, and a shortfall in revenues may harm our operating results.*

As a result of a variety of factors discussed in this Report, our revenues for a particular quarter are difficult to predict. Our net sales may grow at a slower rate than we anticipate, or may decline. We plan our operating expense levels based primarily on forecasted revenue levels. These expenses and the impact of long-term commitments are relatively fixed in the short        term. A shortfall in revenue could lead to operating results being below expectations as we may not be able to quickly reduce these fixed expenses in response to short-term business changes.

*Product quality problems could lead to reduced revenues, gross margins, and net income.*

Our Veriscrip System is a highly complex product that incorporates leading-edge technology, including both hardware and software. Software typically contains bugs that can unexpectedly interfere with expected operations. There can be no assurance that our testing programs will be adequate to detect all defects, either ones in individual products or ones that could affect        numerous shipments, which might interfere with customer satisfaction, reduce sales opportunities, or affect gross margins. We may have had to replace certain components and respond to the discovery of defects or bugs in products that we had shipped. There can be no assurance that such replacement and cure, would not have a material impact. In addition, an inability to cure a product defect could result in a temporary or permanent withdrawal of our product from the market which could        result in damage to our reputation, inventory costs, or product reengineering expenses, any of which could have a material impact on revenues, margins, and net income.

*Our proprietary rights may prove difficult to enforce.*

We generally rely on patents, copyrights, trademarks, and trade secret laws to establish and maintain proprietary rights in our technology and products. While we have process pending on some of our intellectual property, there can be no assurance that this process or other proprietary rights will not be challenged, invalidated, or circumvented or that our rights will in fact        provide competitive advantages to us. Furthermore, many key aspects of our Veriscrip System technology are governed by industry-wide standards, which are usable by all market entrants. In addition, there can be no assurance that patents will be issued from pending applications or that claims allowed on any patents will be sufficiently broad to protect our technology. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent, as do the laws        of the United States. The outcome of any actions taken in these foreign countries may be different than if such actions were determined under the laws of the United States. If we are unable to protect our proprietary rights (including aspects of products protected other than by patent rights) in a market, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to create the innovative products that have enabled        us to be successful.

*We may be found to infringe on intellectual property rights of others.*

Third parties, including customers, may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us. These assertions may emerge over time as a result of our growth and the general increase in the pace of patent claims assertions,        particularly in the United States. Because of the existence of a large number of patents in the IP field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe the patent rights of others. The asserted claims and/or initiated litigation can include claims against us or our manufacturers, suppliers, or customers,        alleging infringement of their proprietary rights with respect to our existing or future products or components of those products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships. There can        be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made        against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected.

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*We rely on the availability of third-party licenses.*

Although we attempt to limit any use of third-party products requiring licensing, our Veriscrip System is designed to include software or other intellectual property licensed from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of this or other products. There can be no assurance that the necessary licenses would be        available on acceptable terms, if at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse effect on our business, operating results, and financial condition. Moreover, the inclusion in our products of software or other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our        proprietary rights in our products.

*Our operating results and future prospects could be materially harmed by uncertainties of regulation of the Healthcare market.*

The healthcare market is highly regulated. Regulations that effect or could potentially effect us or our product include regulations regarding patients' privacy rights. Although we believe that the Veriscrip System complies with current state and federal requirements, we may find that such is not the case. Further, we could be materially adversely affected by any new        regulations applicable to our market space. If the Veriscrip System were found not in compliance with current regulations or if new regulations were adopted that apply to the Veriscrip System, we may incur unanticipated expenses to modify our product to meet such regulations and, at the same time, the demand for our products could decrease, which would have a material adverse effect on our business, operating results, and financial condition.

*Failure to retain and recruit key personnel would harm our ability to meet key objectives.*

Our success will depend, in large part, on our ability to attract and retain highly skilled technical, executive, managerial, sales, and marketing personnel. Competition for these personnel is intense in the market today. Volatility or lack of positive performance in our stock price may also adversely affect our ability to retain key employees, virtually all of whom have        been granted stock options. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, or delays in hiring required personnel, particularly executive management, engineering and sales personnel, could make it difficult to meet key objectives, such as timely and effective product introductions.

*Our stock price may continue to be volatile.*

Our common stock has experienced substantial price volatility, particularly as a result of speculation in the investment community about our strategic position, financial condition, results of operations, or business. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, in        particular, and that have often been unrelated to the operating performance of these companies. These factors, as well as general economic and political conditions, may materially adversely affect the market price of our common stock in the future. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom are compensated in part based on the performance of our stock price.

*Failure to manage our planned growth could harm our business.*

Our ability to successfully market and license the Veriscrip System requires an effective plan for managing our future growth. Future expansion efforts may be expensive and may strain our managerial and other resources. To manage future growth effectively, we must maintain and enhance our financial and accounting systems and controls, integrate new personnel and manage        expanded operations. If we do not manage growth properly, it could harm our operating results and financial condition and cause our stock price to fall.

 

 

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*A few of our existing shareholders own a large percentage of our voting stock and will have a significant influence over matters requiring stockholder approval and could delay or prevent a change in control.*

Our officers, directors and their affiliates beneficially own or control approximately 64 % of our outstanding common stock. As a result, our management could have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or        substantially all of our assets and other corporate transactions. This concentration of control could be disadvantageous to other stockholders with interests different from those of our officers, directors and principal stockholders. For example, our officers, directors and principal stockholders could delay or prevent an acquisition or merger even if the transaction would benefit other stockholders. In addition, this significant concentration of share ownership may adversely affect the        trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Please see "Security Ownership of Certain Beneficial Owners and Management" for a more detailed description of our share ownership.

*Liquidity of our common stock.*

Although there is a public market for our common stock, trading volume has been historically low which substantially increases your risk of loss. We can give no assurance that an active and liquid public market for the shares of the common stock will develop in the future. Low trading volume in our common stock could affect your ability to sell the shares of common stock.        The development of a public trading market depends upon not only the existence of willing buyers and sellers, but also on market makers. The market bid and asked prices for the shares may be significantly influenced by decisions of the market makers to buy or sell the shares for their own account, which may be critical for the establishment and maintenance of a liquid public market in the shares. Market makers are not required to maintain a continuous two-sided market and are free to        withdraw firm quotations at any time. Additionally, in order to maintain our eligibility for quotation on the OTC Bulletin Board, we need to have at least one registered and active market maker. No assurance can be given that any market making activities of any additional market makers will commence or that the activities of current market makers will be continued.

*Sales of our common stock in the public market may lower our stock price and impair our ability to raise funds in future offerings.*

If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could fall. The price of our common stock could also drop as a result of the exercise of options for common stock or the perception that such sales or exercise of options could occur. These factors also could make it more difficult for us to raise funds        through future offerings of our common stock.

*Our Articles and Bylaws may delay or prevent a potential takeover of**the Company**.*

Our Articles of Incorporation, as amended, and Bylaws, as amended, contain provisions that may have the effect of delaying, deterring or preventing a potential takeover of us, even if the takeover is in the best interest of our stockholders. The Bylaws limit when stockholders may call a special meeting of stockholders. The Articles also allow the Board of Directors to fill        vacancies, including newly created directorships.

*Dividends.*

We have not paid and do not currently intend to pay dividends, which may limit the current return you may receive on your investment in our common stock. Future dividends on our common stock, if any, will depend on our future earnings, capital requirements, financial condition and other factors. We currently intend to retain earnings, if any, to increase our net worth and        reserves. Therefore, we do not anticipate that any holder of common stock will receive any cash, stock or other dividends on our shares of common stock at any time in the near future. You should not expect or rely on the potential payment of dividends as a source of current income.

 

 

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*“Penny Stock” Limitations.*

Our common stock currently trades on the OTC Bulletin Board. Since our common stock continues to trade below $5.00 per share, our common stock is considered a "penny stock" and is subject to SEC rules and regulations, which impose limitations upon the manner in which our shares can be publicly traded.        These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser's written agreement to a transaction prior to sale. These        regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.        Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34- 29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include:

|  |   |   | * |   |   | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;                                                                                                 |   |   |
|--|--------|--------|---|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|  |        |        |   |        |        |                                                                                                                                                                                                                    |        |        |
|  |   |   | * |   |   | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;                                                                                                     |   |   |
|  |        |        |   |        |        |                                                                                                                                                                                                                    |        |        |
|  |   |   | * |   |   | "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;                                                                                         |   |   |
|  |        |        |   |        |        |                                                                                                                                                                                                                    |        |        |
|  |   |   | * |   |   | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and                                                                                                                              |   |   |
|  |        |        |   |        |        |                                                                                                                                                                                                                    |        |        |
|  |   |   | * |   |   | The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |   |   |

Furthermore, the "penny stock" designation may adversely affect the development of any public market for the Company's shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in "penny stock" is suitable for customers.

Penny stocks are securities (a) with a price of less than five dollars per share; (b) that are not traded on a "recognized" national exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (a) above); or (d) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in        continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years.

Section 15(g) of the Exchange Act and Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in the        Company's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock."

Rule 15g-9 of the Commission requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (a) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (b)        reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (c) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (b) above; and (d) receive a signed and dated copy of such statement from the investor, confirming that it        accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company's stockholders to resell their shares to third parties or to otherwise dispose of them.

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**Forward-Looking Statements**         

When used in this Form 10-K or other filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized officer of the Company’s executive officers, the words or phrases “would be”, “will allow”,        “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.        The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers that forward-looking statements involve various risks and uncertainties. Our management believes its assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that our actual results of operations or the results of our future activities will not differ materially from these        assumptions. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statement.

**Item 2. Properties.**

The Company’s executive offices are located at place 325 West Main Street, Suite 240, Lexington, Kentucky 40507. These offices occupy approximately 796 square feet and are held under a month to month lease with Regency Financial, LLC. The aggregate rental for these office leases is $948.56 per month. The Company does not own or invest in, nor does the Company intend in        the future, to own or invest in real estate or interests in real estate, real estate mortgages or securities of or interests in persons primarily engaged in real estate activities. MOS’s executive offices are located at 790 E. Broward, Suite 300, Fort Lauderdale, FL 33301. MOS occupies approximately 1,000 square feet which space is owned by an affiliate of a director, and in lieu of annual rent of $26,000, such amount is accounted for as a capital        contributionby such person.

**Item 3. Legal Proceedings.**

MOS is engaged in a lawsuit by a former employee for unpaid commissions on sales. A court date has not been set. Management considers the claim to be without merit and is therefore vigorously defending the same. A loss contingency has not been accrued for in the financial statements. The Company is also involved from time to time in other litigation through the normal course        of its business. Management believes there are no such undisclosed claims which would have a material effect on the financial position of the Company.

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

No matter was submitted to a vote of the security holders during the 4th quarter of the fiscal year covered by this report.

**[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]**

**** 

 

 

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**PART II**

**Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Registrant Purchases of Equity        Securities.**

**Share Price History**

     The Company’s common stock is traded in the Over-the-Counter Bulletin board under the trading symbol “VHGI.OB” The following table sets forth the high and low bid information of Company’s common stock for the periods indicated. Note that the over-the-counter market quotations reflect inter-dealer prices, without retail        mark-up, markdown or commission, and that the quotations may not necessarily represent actual transactions in the common stock.

| Quarter Ended                              | High (1) | Low (1) |
|--------------------------------------------|----------|---------|
|                                       |          |         |
| 2008                                       |          |         |
| March 31          | $0.73    | $0.05   |
| June 30           | $0.60    | $0.49   |
| September 30      | $0.51    | $0.35   |
| December 31       | $0.21    | $0.19   |
|                                       |          |         |
| 2007                                       |          |         |
| March 31          | $0.00    | $0.00   |
| June 30           | $0.41    | $0.41   |
| September 30      | $0.25    | $0.25   |
| December 31       | $0.21    | $0.21   |

**Holders of Record**

As of March 30, 2009 there were approximately 642 holders of record of the Company’s common stock. The number of holders of record was calculated by reference to the Company’s stock transfer agent’s books.

**Dividend Policy**

To date, the Company has not paid dividends on its common stock. The payment of dividends on the Company’s common stock, if any, is at the discretion of the board and will depend upon its earnings, if any, the Company’s capital requirements and financial condition, and other relevant factors. See Item 6. “Management’s Discussion and Analysis or Plan        of Operation.” The Company does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in its anticipated operations.        Stock Option Plans To date, the Company does not have any stock option plans in place.

**Securities Authorized for Issuance Under Equity Compensation Plans**

The Company does not have any equity compensation plans.

**Issuance of Securities**

During February 2007 the Company issued 70,000 shares on of common stock for consulting expenses valued at $52,500.

During May 2007 the Company issued 887,500 shares of common stock for $100,000 cash, common stock subscription of $89,904 and payment of related party note payable of $10,096.

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During 2007, a director, or an entity related to a director of the company, contributed rent valued at $26,000 that was accounted for as a capital contribution.

During 2007, $90,000 of imputed interest on a non-interest bearing related party note payable was accounted for as a capital contribution.

During 2008, the Company issued 1,500,000 and 1,300,000 shares of common stock in exchange for debt in the amount of $300,000 and $260,000 respectively. Stock was issued at $0.20 per share.        During 2008, the Company issued 250,000, 337,500, 112,500, 200,000, and 50,000 shares of common stock in exchange for consulting fees to five firms respectively. The stock was issued at $0.20 per share for the following expenses $50,000, $67,500, $22,500, $40,000 and $10,000 respectively.

**Item 6. Selected Financial Data**

This information has been omitted as the Company qualifies as a smaller reporting company.

**Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation**

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s plan of operation and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto.

**Financial Position**

The Company had $87,005 in cash as of December 31, 2008. The Company’s liabilities were $3,926,171 and it had a working capital deficit of $(3,479,284). The Company had $739,708 in revenues during 2008 and $1,396,812 in revenues during 2007, its general and administrative expenses including depreciation were $1,351,111 and $1,995,859, respectively, during these periods        and its net losses were $889,870 and $805,729, respectively, during these periods.        The Company does not have sufficient funds to pay its current liabilities. The Company will continue to follow its plan of operation.

**Plan of Operation**

In 2009, President Obama’s stimulus proposal which includes billions in funding for Healthcare Technology implementation has become the driving force behind a sharp increase in interest by physicians to adopt electronic prescription and electronic health record solutions. VirtualHealth unveiled its strategy for leveraging the billionsin federal funding that will beavailable throughthe proposed stimulus plan onceapproved. The plan includes partnerships with several leaders in the area of Community Based HIE (Health Information Exchange) and RHIO (Regional Health Information Organization) development to provide the similar platforms licensed to Private Access that will create the        secure environments required for successful adoption. Also included in VHGI’s 2009 strategy is an emphasis on the marketing of its newly designed Practice Management and EHR (Electronic Health Records) solution for its new and nearly 1500 existing customers.         The approval for funding of the National All Scheduled Prescription Electronic Reporting (NASPER) program by congress now paves the way for Veriscrip to create the opportunities to introduce the most comprehensive solution to aid in the growing problem of prescription drug diversion and fraud that is occurring across state lines. Although state managed models are effective in the control of the problem within their borders, little can be done by these        systems when a drug diversion suspect travels to neighboring states to fill the illegal prescriptions. Veriscrip’s centralized, real-time fully electronic solution is the key in capturing and reporting this activity to the appropriate authorities in minutes instead of weeks. Numerous presentations are being scheduled on the state and federal level to demonstrate the implementation of such a system. 

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                  Envoii Healthcare, LLC changed its name to Secure eHealth, LLC to better reflect it’s focus on eHealth Security products.In 2008 it entered into a licensing agreement with Private Access , Inc. to provide security tools to enhance their existing platform. Private Access, Inc., is a California-baseddeveloper of privacy management tools for individuals to determine who,when        and under what circumstances others can access and/or use theirpersonal medical information.The association with Private Access will provide a broad audience for Secure eHealth, LLC in introducing it’s secure platforms for exchanging digital health information.

**The Company's working capital requirements for the foreseeable future will vary based upon a number of factors and depending upon the entity owned by the company. VPSH, the owner of the Veriscrip System has capital demands to finish development and any customization of its primary system for the tracking of        controlled prescriptions, the costs associated with launching the system if successfully developed, the acceptance of the system by each state and market penetration along with other factors that may not be foreseeable at this time. Envoii, has capital requirements to finish development and any customization of its security platform and the launching and distribution of its systems. MOS, even though it has revenues sufficient to support its typical operations, has capital demands        from time to time that exceeds its ability to fund itself on its own. Management believes that the Companywill need additional fundingto grow, there can be noassurance that we will be able to obtain additional funding on satisfactory terms, or at all. If we do not receive the needed funding, we will not be able to execute our business plans.**

Third Party Claims and Contingencies

In addition to the foregoing, we are subject to a number of additional potential third party claims. These potential claims include the following:

MOS has received a claim from Bell South for an advertising fee that they claim is valid. Management believe that they are not liable for this claim. The original agreement was signed by previous management in 2002. The matter has been turned over to our attorney. Management believes the ultimate outcome of this matter will not have a material impact on the financial        condition of the Company.

Pursuant to an agreement with Growth Fund Partnership, Inc. (“Growth Fund”), the Company agreed to pay a dividend of Class B preferred stock on June 1, 2003, in cash equal to two percent of the value of the Class B Preferred Stock, or in restricted Class A common stock equal to three percent of the value of the Class B Preferred Stock. On August 15, 2003, a        demand was made by Growth Fund for the dividend payment, which the Company did not pay. On March 10, 2005, the circuit court dismissed without prejudice this action for lack of prosecution by Growth Fund.

During 2005, the Company, based on discussions with and tax notices from the Internal Revenue Service, became aware of certain potential unpaid payroll taxes and related penalties and interest from 1993 and 1995 totaling $10,500. These liabilities have been recorded as accounts payable and general and administrative expenses at December 31, 2005. The Company has negotiated        with IRS and made payments in full satisfaction of the past taxes during 2008.

The Company had a 3 year lease agreement for office space that converted to a month-to-month rental arrangement in March 2006. Monthly rental expense is currently $948.00 per month. Total rents paid for the years ended December 31, 2008 and 2007 was $10,765 and $9,396 respectively.

**Off-Balance Sheet Arrangements**

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The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

**Critical Accounting Policies**

The Company does not have any accounting policies that it believes are critical to facilitate an investor’s understanding of the Company’s financial and operating status.

**Recent Accounting Pronouncements**

The Company has not adopted any new accounting policies that would have a material impact on the Company’s financial condition, changes in financial conditions or results of operations. 

**Item 7(A). Quantitative and Qualitativ****e Disclosures About Market Risk**

This information has been omitted as the Company qualifies as a smaller reporting company.

**Item 8. Financial Statements and Supplementary Data**

     Our financial statements for the year ended December 31, 2008 have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-K as promulgated by the Securities and Exchange Commission and are included herein starting on Page F-1 of the Form 10-K.

**Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure**

None.

**Item 9A(T). Controls and Procedures**

**Evaluation of Disclosure Controls and Procedures**

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer, who is also the principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange        Act”)). Based on this evaluation, the principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

**Management’s Annual Report on Internal Control Over Financial Reporting; Changes in Internal****Controls****Over Financial Reporting.**

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting        principles generally accepted in the United States. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management has conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management has concluded that        our internal control over financial reporting was effective as of December 31, 2008.

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**This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm        pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.**

**Changes in Internal Control Over Financial Reporting**

During the fourth quarter of 2008, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

**Item 9B. Other Information**

Not Applicable.

 

 

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**PART III**

**Item 10. Directors, Executive Officers and Corporate Governance**

**Identify Directors and Executive Officers**                      Set forth below is certain information concerning each of the directors and executive officers of the Company as of December 31, 2008:         

The following table sets forth the name, age, and position of each executive officer and director of the Company:         

                

| Director's Name |        |        |        | Age |        | Position With Company                                         |        |        |
|-----------------|--------|--------|--------|-----|--------|---------------------------------------------------------------|--------|--------|
|            |        |        |        |     |        |                                                               |        |        |
| Scott A. Haire  |   |   |   | 44  |   | Chief Executive Officer, Chief Financial Officer and Director |   |   |
|            |        |        |        |     |        |                                                               |        |        |
| James M. Renfro |   |   |   | 62  |   | President                                                     |   |   |
|            |        |        |
| Deborah Jenkins |   |   |   | 50  |   | Director                                                      |   |   |

**James M. Renfro**— Mr. Renfro has served as President of the Company since August 28, 2006. Mr. Renfro began his management experience with a tour in the U.S. Marines in Vietnam where he received several decorations, which included three Purple Hearts for wounds in combat. Mr. Renfro earned his BS degree in Business and Governmental Accounting from Cumberland        College in Williamsburg, Kentucky with additional studies toward an MBA at both Morehead State and Eastern Kentucky Universities. Afterwards he worked for the Kentucky Democratic Party and the Jefferson County Government. He next secured a position with Rockwell International where he worked for over 20 years. During his tenure with Rockwell he served in key management roles in areas of production, accounting, quality control, as well as sales and service. In each of these functions Jim        was recognized as the best in the company operations. Jim's most cherished recognition came in his final year when he received the National Account Sales Award for personally producing over $80mm in sales. Jim then joined a new start up venture as Vice President of Field Operations for GraMag commercial seating. In this position Jim worked with heavy equipment manufacturers to get their products tested and approved for ordering by major trucking companies. He was also instrumental in        the development of products to be used by the commercial airlines industry. Jim has a proven track record as a leader and innovator and possesses extensive experience in developing an organization and fueling its momentum to achieve success.

**Deborah Jenkins**— Ms. Jenkins has served as a Director of the Company since August 28, 2006. Ms. Jenkins is the Managing Member of Cognitive Communications, LLC, a Business Consulting company. She has served as Special Consultant to Health Office India for strategy development and operations assistance for work with US clients in medical transcription and coding        services. Prior to serving in these capacities, she was President of pH Solutions, Ltd, the patent licensee of “safe acids” used in cosmetics, water purification, agriculture, pharmaceutical and many other industries. She has served on many national and international trade association’s boards including the Intel Internet Health Board of Advisors, the American National Standards Institute Health Informatics Standards        Board – representing HIBCC (ANSI HISB and the American Society for Automation in Pharmacy (ASAP) where she also served as President and Secretary of the Board. Ms. Jenkins earned a BA degree in English-Minor Journalism from Texas Christian University in 1980.

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**Board Composition and Committees**

Our Board of Directors currently consists of two members, Mr. Haire and Ms. Jenkins. We are planning to expand the number of members constituting our Board of Directors and will seek persons who are “independent” within the meaning of the rules and regulations of NASDAQ to fill vacancies created by any expansion. Because of our current stage of development, we do        not have any standing audit, nominating or compensation committees, or any committees performing similar functions. The Board meets periodically throughout the year as necessity dictates. No current director has any arrangement or understanding whereby they are or will be selected as a director or nominee. No current director has any arrangement or understanding whereby they are or will be selected as a director or nominee.

We do not believe that any member of our Board of Directors is an "audit committee financial expert," within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission. Like many small companies, it is difficult for us to attract and retain board members who qualify as "audit committee financial experts," and competition for these        individuals is significant. We believe, however, that our current board members are able to fulfill their roles under SEC regulations despite not having a designated "audit committee financial expert."

**Director Compensation**

We do not pay our directors a fee for attending scheduled and special meetings of our board of directors. We intend to reimburse each director for reasonable travel expenses related to such director’s attendance at board of directors and committee meetings. In the future we might have to offer some compensation to attract the caliber of independent board members the        Company is seeking.

**Indebtedness of Directors and Executive Officers**

None of our directors or officers or their respective associates or affiliates is indebted to us.

**Family Relationships**

There are no family relationships among our directors or executive officers.

**Section 16(a) Beneficial Ownership Reporting Compliance**

Section 16(a) of the Securities Exchange Act requires our executive officers, directors and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such persons.

Based solely on our review of forms furnished to us and representations from reporting persons, we believe that Mr. Haire was late in filing his initial report.

**Code of Ethics**

Due to the fact that the Company has only recently begun operations, the Company has not adopted a Code of Ethics, but it expects to adopt one in the future.

22

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**Item 11. Executive Compensation**

**Summa****ry Compensation Table.**

The following table sets forth certain information regarding compensation earned by all individuals serving as our Chief Executive Officer during fiscal year 2008 and our two most highly compensated executive officers (other than the Chief Executive Officer) who served as executive officers during fiscal year 2008 (the “***Named Executive Officers***”), for each of the        last two fiscal years.

| **Name and Principal Position**                                     | **Year** | **Salary ($)** | **Bonus ($) (*)** | **Stock Awards ($)** | **Option Awards ($)** | **Nonequity incentive plan compensation ($)** | **Nonqualified deferred compensation earnings ($)** | **All other compensation ($)** | **Total ($)** |
|---------------------------------------------------------------------|----------|----------------|-------------------|----------------------|-----------------------|-----------------------------------------------|-----------------------------------------------------|--------------------------------|---------------|
|                                                                |     |           |              |                 |                  |                                          |                                                |                           |          |
| Scott Haire, Chief Financial Officerand Chief Executive Officer (1) | 2008     | -0-            | -0-               | -0-                  | -0-                   | -0-                                           | -0-                                                 | -0-                            | -0-           |
|                                                                | 2007     | -0-            | -0-               | -0-                  | -0-                   | -0-                                           | -0-                                                 | -0-                            | -0-           |
| James Renfro, President (1)                                         | 2008     | -0-            | -0-               | -0-                  | -0-                   | -0-                                           | -0-                                                 | -0-                            | -0-           |
|                                                                | 2007     | -0-            | -0-               | -0-                  | -0-                   | -0-                                           | -0-                                                 | -0-                            | -0-           |
|                                                                |     |           |              |                 |                  |                                          |                                                |                           |          |

----

(1) Messrs. Scott Haire and James Renfro became executive officers of the Company upon consummation of the acquisition of MB Holding. None of these individuals received any compensation in excess of $100,000 (annualized) from the Company or any of its subsidiaries (collectively the “Entities”), nor do any of these individuals have any employment agreements, or        other compensatory plans or arrangements with any of the Entities, which result or will result from the resignation, retirement or any other termination of such individual’s employment with us or from a change in control of the Company or a change in the individual’s responsibilities following a change in control. We expect that the Company will adjust executive compensation during fiscal 2009.

During the prior year the Company did not compensate its non-executive director. There are presently no ongoing pension or other plans or arrangements pursuant to which remuneration is proposed to be paid in the non-executive director of the Company.

**Option Grants and Exercises in Last Fiscal Year**

No options to acquire shares of our common stock were granted to any of the above named individuals prior to the acquisition of MB Holding, nor do these individuals hold any such options. We expect, however, that the Company may grant options to our current officers during fiscal 2009.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**

The following table sets forth certain information with respect to the beneficial ownership of the common stock of the Company as of April 14, 2009, for: (i) each person who is known by the Company to beneficially own more than five percent of the Company’s common stock, (ii) each of the Company’s directors, (iii) each of the Company’s Named Executive        Officers, and (iv) all directors and executive officers as a group. As of December 31, 2008, the Company had 46,451,533 shares of common stock outstanding.

23

----

 

| Title of                                         | Name And Address               |   | Nature and Amount Directors |   | Nature and Amount of 5% | Percent |
|--------------------------------------------------|--------------------------------|--------|-----------------------------|--------|-------------------------|---------|
| Class                                            | of Beneficial Owners 1    |   | of Beneficial Ownership     |   | Beneficial Ownership    |    |
|                                             |                           |   |                        |   |                    |    |
| Common                                           | H.E.B., LLC                    |   | 24,119,730                  |   |                    | 51.92%  |
|                                             | 777 Main Street                |   |                        |   |                    |    |
|                                             | Suite 3100                     |   |                        |   |                    |    |
|                                             | Fort Worth, TX 76102           |   |                        |   |                    |    |
|                                             |                           |   |                        |   |                    |    |
| Common                                           | Scott Al Haire2           |   | 24,119,7302            |   |                    | 51.92%  |
|                                             |                           |   |                        |   |                    |    |
| Common                                           | James M. Renfro                |   | --                          |   |                    | --      |
|                                             |                           |   |                        |   |                    |    |
| Common                                           | Deborah Jenkins                |   | 500,000                     |   |                    | 1%      |
|                                             |                           |   |                        |   |                    |    |
| Common                                           | James W. Stuckert Trust        |   |                        |   |                    |    |
|                                             | James Stuckert UA, DTD 2-10-86 |   |                        |   | 4,497,000               | 9.68%   |
|                                             |                           |   | 24,619,730                  |   | 4,497,000               | 62.6%   |
| All Officers, Directors and 5% owners as a Group | 29,116,730                     |   |                        |   |

|   | (1) |   | Except where otherwise indicated, the address of the beneficial owner is deemed to be the same address as the Company.                                                                                                                    |   |   |
|--------|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|        |     |        |                                                                                                                                                                                                                                      |        |        |
|   | (2) |   | Represents shares held by H.E.B., LLC, 777 Main Street, Suite 3100, Fort Worth, Texas 76102. Mr. Haire is a one-percent member, but the managing member, of H.E.B., LLC and as such, is deemed to be the beneficial owner of such shares. |   |   |

**Item 1****3****. Certain Relationships and Related Transactions and Director Independence**

The Company  has a note receivable from a related party in the amount of $75,000. The note bears interest at 10% per annum and is due on demand. Accrued interest at December 31, 2008 was $2,875.

Rent of $26,000 was contributed to the Company by an officer or a related entity of the officer and accounted for as a capital contribution for 2008 and 2007.

| Scott Haire, Company Chairman, CEO, and CFO:        | 2008                                                                                                                                                                                                                                  |    | 2007   |
|-----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|
|                                                | unsecured, payable on December 31, 2008, including interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $9,723 and $7,451 respectively.                                                          | $22,400 |   | $22,400 |
|                                                |                                                                                                                                                                                                                                  |    |   |   |   |   |   |
| HEB LLC, Scott Haire owner, Chairman, CEO, and CFO: |                                                                                                                                                                                                                                  |    |   |
|                                                | Unsecured, two separate $1,000,000 open lines of credit, no maturity date, interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $280,240 and $182,570 respectively. Unsecured lines available at |    |   |   |
|                                                | December 31, 2008 is $1,345,600.                                                                                                                                                                                                      | 653,400 |   | 652,821 |
|                                                |                                                                                                                                                                                                                                  |    |   |   |   |   |   |
| Nevada Multicare, Scott Haire-Owner:                |                                                                                                                                                                                                                                  |    |   |
|                                                | This note is considered to be a related party note. Unsecured, payable on demand, including interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $29,296 and $21,813 respectively.               | 73,805  |   | 73,805 |

24

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| Commercial and Financial Holdings, LLC:            |                                                                                                                                                                                                                  |      |   |   |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------|--------|
|                                               | This note is considered to be a related party note. Unsecured, payable on demand, including interest at 10% per annum. Accrued interest at December 31, 2008 is $52,592.                                              | 1,185,000 |   | --     |
|                                               |                                                                                                                                                                                                                  |      |   |
| SWCC, dated 7/21/06, no stated interest rate       | 21,900                                                                                                                                                                                                                |      | 21,900 |
|                                               |                                                                                                                                                                                                                  |      |   |   |   |   |   |
| Anthony Chamblin, investor in Secure eHealth, LLC: |                                                                                                                                                                                                                  |      |   |
|                                               | This note is considered to be a related party note. Unsecured, payable on demand, including interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $5,622 and $4,608 respectively. | 10,000    |   | 10,000 |
|                                               |                                                                                                                                                                                                                  |      |   |   | $1,966,505 |   | $ 780,926 |

**Item 14. Principal Accountant Fees and Services**

**Audit Fees**

The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements, review of financial statements included in our quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2008        and 2007 were $ 33,363 and $70,995, respectively.

**Audit Related Fees**

The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2008 and 2007 were $0 and $0, respectively.

**Tax Fees**

The aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2008 and 2007 were $ 0 and $0, respectively.

**All Other Fees**

The aggregate fees billed for products and services provided by the principal accountant, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2008 and 2007 were $-0- and $-0- respectively.

**Audit Committee**

The Company’s Board of Directors functions as its audit committee. It is the policy of the Company for all work performed by our principal accountant to be approved in advance by the Board of Directors. All of the services described above in this Item 14 were approved in advance by our Board of Directors.

25

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**Item 15. Exhibits, Financial Statement Schedules**

**(a)** The following are filed as part of this Annual Report on Form 10-K:

(1)     Consolidated Financial Statements

See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.

(2)     Financial Statement Schedules

See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.

     (3)     Exhibits

An index identifying the exhibits to be filed with this Form 10-K is provided below.

**EXHIBIT INDEX**

| EXHIBIT NO. | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                                               |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                                                                                 |
| 3(i)        | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                                    |
| 3(ii)       | By-Laws (Incorporated by reference to Exhibit 3(ii).1 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                                                                   |
| 10.1        | Consulting Agreement by and between the Company and Rusbar Financial Services, Inc., dated April 2001 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                        |
| 10.2        | Consulting Agreement by and between the Company and Harry M. Zachem, dated May 14, 2001(Incorporated by reference to Exhibit 10.2 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                       |
| 10.3        | Consulting Agreement by and between the Company, Verified Prescription Safeguards, Inc. and Fairmund International Services, Ltd., dated April 21, 2003 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 10-KSB, dated December 31, 2003)                      |
| 10.4        | Consulting Agreement by and between the Company and Internet Capital.com, LLC, dated July 2003 (Incorporated by reference to Exhibit 10.4 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                               |
| 10.5        | Consulting Agreement by and between the Company and Innovative Technologies, dated October, 2003 (Incorporated by reference to Exhibit 10.5 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                             |
| 10.6        | Employment Agreement by and between the Company and James Kemper Millard, dated December 31, 2003 (Incorporated by reference to Exhibit 10.6 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                            |
| 10.7        | Patent License Agreement and Release by and between the Company, Verified Prescription Safegards, Inc., Envoii Healthcare, LLC, and VPS Holdings, LLC, dated January 5, 2004 (incorporated by reference to Exhibit 1037 of the Company’s Form 10-KSB, dated December 31, 2003) |
| 10.8        | Stock Loan Agreement, by and between the Company and the parties referenced therein, dated May 9, 2005 (Incorporated by reference to Exhibit 10.8 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                       |
| 10.9        | Promissory Note payable to Kentrust, Inc., dated November 14, 1998 (Incorporated by reference to Exhibit 10.9 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                           |
| 10.10       | Promissory Note payable to Kentrust, Inc., dated December 23, 1998 (Incorporated by reference to Exhibit 10.10 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                          |
| 10.11       | Promissory Note payable to Kentrust, Inc., dated January 27,1999 (Incorporated by reference to Exhibit 10.11 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                            |
| 10.12       | Promissory Note payable to James Arch, dated August 1, 2000 (Incorporated by reference to Exhibit 10.12 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                 |
| 10.13       | Promissory Note payable to Lee M. Tillman, dated September 7, 2005 (Incorporated by reference to Exhibit 10.13 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                          |

26

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| EXHIBIT NO. | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                                                                                  |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                         |
| 10.14       | Promissory Note payable to FV Investments, dated July 31, 2003 (Incorporated by reference to Exhibit 10.14 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                                                 |
| 10.15       | Promissory Note payable to James Arch, dated September 15, 2003 (Incorporated by reference to Exhibit 10.15 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                                                |
| 10.16       | Promissory Note payable to Cora Spence Carrick, dated April 27, 2005 (Incorporated by reference to Exhibit 10.16 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                                           |
| 10.17       | Promissory Note payable to James Kemper Millard, dated March 18, 2005 (Incorporated by reference to Exhibit 10.17 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                                          |
| 10.18       | Promissory Note payable to Lee M. Tillman, dated January 5, 2006 (Incorporated by reference to Exhibit 10.18 of the Company’s Form 10-QSB, dated March 31, 2005)                                                                                                                                                  |
| 10.19       | Stock Purchase Agreement by and between the Company and MLH Investments, LLC, dated April 14, 2006 (Incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-KSB dated December 31, 2005)                                                                                                   |
| 10.20       | Stock Exchange Agreement dated July 20, 2006 between Equity Technologies & Resources, Inc., MB Holding Corporation, and H.E.B., LLC. (Incorporated by reference to Exhibit 10.20 to the Company's Current Report on Form 8-K filed with the Commission on July 25, 2006).                                           |
| 10.21       | Stock Cancellation Agreement (Class B Common Stock) dated July 20, 2006 between Equity Technologies & Resources, Inc., and MLH investments, LLC (Incorporated by reference to Exhibit 10.21 to the Company's Current Report on Form 8-K filed with the Commission on July 25, 2006)                                 |
| 10.22       | Form of Debt Exchange Agreement between Equity Technologies & Resources, Inc., and Holder (Incorporated by reference to Exhibit 10.22 to the Company's Current Report on Form 8-K filed with the Commission on July 25, 2006)                                                                                       |
| 10.23       | Stock Exchange Agreement dated October 6, 2006, by and between VirtualHealth Technologies, Inc., NewMarket Technology, Inc., and Medical Office Software, Inc. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on                    October 12, 2006) |
| 10.24       | Convertible Promissory Note dated October 6, 2006, issued by VirtualHealth Technologies, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K file with the Commission on October 12, 2006)                                                                                      |
| 10.25       | Form of Loan, Investment and Security Agreement (Incorporated by reference to Exhibit 10.25 to the Company's Current Report on Form 8-K file with the Commission on May 22, 2008)                                                                                                                                       |
| 10.26       | Form of Note (Incorporated by reference to Exhibit 10.26 to the Company's Current Report on Form 8-K file with the Commission on May 22, 2008)                                                                                                                                                                          |
| 21.1        | Schedule of Subsidiaries (Incorporated by reference to Exhibit 21.1 of the Company’s Form 10-KSB, dated December 31, 2003)                                                                                                                                                                                        |
| 31.1*       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                 |
| 32.1*       | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                  |

 

*Filed herewith

27

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**SIGNATURES**

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized.   

 

|                      |   |   | **VirtualHealth Technologies, Inc.**                   |   |   |
|----------------------|--------|--------|--------------------------------------------------------|--------|--------|
|                      |   |   | (Registrant)                                           |   |   |
|                 |        |
|                 |        |
| Date: April 14, 2009 |   |   | By /s/ Scott A. Haire                                  |   |   |
|                      |   |   | Scott A. Haire                                         |   |   |
|                      |   |   | Chief Executive Officer and                            |   |   |
|                      |   |   | Chief Financial Officer (principal accounting officer) |   |   |

     In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

| Signature           |   |   | Title                                                         |   |   | Date           |   |   |
|---------------------|--------|--------|---------------------------------------------------------------|--------|--------|----------------|--------|--------|
|                |        |        |                                                               |        |        |                |        |        |
| /s/ Scott A. Haire  |   |   | Chief Executive Officer, Chief Financial Officer and Director |   |   | April 14, 2009 |   |   |
| Scott A. Haire      |   |   |                                                               |   |   |                |   |   |
|                |        |        |                                                               |        |        |                |        |        |
| /s/ James M. Renfro |   |   | Director                                                      |   |   | April 14, 2009 |   |   |
| James M. Renfro     |   |   |                                                               |   |   |                |   |   |
|                |        |        |
| /s/ Deborah Jenkins |   |   | Director                                                      |   |   | April 14, 2009 |   |   |
| Deboarah Jenkins    |   |   |                                                               |   |   |                |   |   |

 

28

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-                                        
-  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

****
Board of Directors**VirtualHealth Technologies, Inc. & Subsidiaries**Lexington, KY 
-  
We have audited the accompanying consolidated balance sheets of VirtualHealth Technologies, Inc. & Subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders' deficiency and cash flows for each of the years in the two-year period ended December 31, 2008. VirtualHealth Technologies, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. 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 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 audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant                    estimates made by management, 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 financial position of VirtualHealth Technologies, Inc. & Subsidiaries as of December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.                     The accompanying financial statements have been prepared assuming VirtualHealth Technologies, Inc. and Subsidiaries will continue as a going concern. As discussed in Note 3 to the financial statements, VirtualHealth Technologies, Inc. and Subsidiaries has incurred losses since its inception and has not yet established profitable operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in                    regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

**PRITCHETT, SILER & HARDY, P.C.**                    Salt Lake City, Utah                    March 14, 2009
 

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-  **VIRTUALHEALTH TECHNOLOGIES, INC. AND SUBSIDIARIES** 
-  **CONSOLIDATED BALANCE SHEETS AS OF** 
-  **DECEMBER 31, 2008 AND 2007** 

| **ASSETS**                                                         |   |   |   | December 31, 2008 |   |   | December 31, 2007 |   |
|--------------------------------------------------------------------|--------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                                                               |        |        |        |                   |        |        |                   |        |
| **CURRENT ASSETS:**                                                |   |   |        |                   |        |        |                   |        |
| Cash                                                               |   |   | $      | 87,005            |   | $      | 226,393           |   |
| Accounts Receivable                                                |   |   |   | 72,115            |   |   | 100,583           |   |
| Interest Receivable                                                |   |   |   | 62,767            |   |   | --                |   |
| Total current assets                                               |   |   |   | 221,887           |   |   | 326,976           |   |
|                                                               |        |        |
| **PROPERTY, PLANT, AND EQUPMENT (NET)**                            |   |   |   | 3,089             |   |   | 5,269             |   |
|                                                               |        |        |
| **OTHER ASSETS:**                                                  |   |   |        |                   |        |        |                   |        |
| Notes Receivable - Related Party                                   |   |   |   | 75,000            |   |   | --                |   |
| Note Receivable                                                    |   |   |   | 1,500,000         |   |   | --                |   |
| Goodwill                                                           |   |   |   | 1,228,856         |   |   | 1,228,856         |   |
| Deferred loan costs                                                |   |   |   | 41,750            |   |   | --                |   |
| **TOTAL ASSETS**                                                   |   |   | $      | 3,070,582         |   | $      | 1,561,101         |   |
|                                                               |        |        |        |                   |        |        |                   |        |
| **LIABILITIES AND STOCKHOLDERS' DEFICIENCY**                       |   |   |        |                   |        |        |                   |        |
|                                                               |        |        |
| **CURRENT LIABILITIES:**                                           |   |   |        |                   |        |        |                   |        |
| Accounts payable - Trade                                           |   |   | $      | 393,796           |   | $      | 421,756           |   |
| Accrued Payroll and Payroll Taxes                                  |   |   |   | 19,324            |   |   | 33,554            |   |
| Other accrued Liabilities                                          |   |   |   | 3,493             |   |   | 2,337             |   |
| Dividends payable                                                  |   |   |   | 33,750            |   |   | 33,750            |   |
| Notes Payable                                                      |   |   |   | 900,000           |   |   | 900,000           |   |
| Notes Payable - Related Parties                                    |   |   |   | 1,966,505         |   |   | 780,926           |   |
| Accrued Interest - Related Parties                                 |   |   |   | 384,303           |   |   | 220,496           |   |
|     Total current liabilities                  |   |   |   | 3,701,171         |   |   | 2,392,819         |   |
|                                                               |        |        |
| **LONG-TERM DEBT:**                                                |   |   |        |                   |        |        |                   |        |
| Debentures                                                         |   |   |   | 225,000           |   |   | --                |   |
|                                                               |        |        |        |              |        |        |              |        |
| **TOTAL LIABILITIES**                                              |   |   |   | 3,926,171         |   |   | 2,392,819         |   |
|                                                               |        |        |
| **Stockholders' Deficiency**                                       |   |   |        |                   |        |        |                   |        |
|   Preferred stock - $0.001 par value, 10,000,000 shares  |   |   |        |                   |        |        |                   |        |
|   authorized; 300,000 shares Designated as Class B       |   |   |   | --                |   |   | --                |   |
|   Preferred stock, Class B - $0.001 par value, 300,000   |   |   |        |                   |        |        |                   |        |
|   shares designated, 70,000 issued and outstanding as of |   |   |        |                   |        |        |                   |        |
|   December 31, 2008 and 2007                             |   |   |   | 70                |   |   | 70                |   |
|   Common stock - $0.001 par value, 100,000,000 shares    |   |   |        |                   |        |        |                   |        |
|   authorized, 46,451,533 and 42,701,533 issued and       |   |   |        |                   |        |        |                   |        |
|   outstanding as of December 31, 2008 and 2007           |   |   |   | 46,452            |   |   | 42,702            |   |
| Additional paid-in capital                                         |   |   |   | 2,267,381         |   |   | 1,405,132         |   |
| Stock Subscription Receivable                                      |   |   |   | (89,904           | )      |   | (89,904           | )      |
| Retained Deficit                                                   |   |   |   | (3,079,588        | )      |   | (2,189,718        | )      |
|                                                               |        |        |
| Total stockholders' deficiency                                     |   |   |   | (855,589          | )      |   | (831,718          | )      |
|                                                               |        |        |
| **TOTAL LIABILITIES AND STOCKHOLDERS'**                            |   |   | $      | 3,070,582         |   | $      | 1,561,101         |   |
| **DEFICIENCY**                                                     |   |   |        |                   |        |        |                   |        |

The accompanying notes are an integral part of these consolidated financial statements.

29

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-  **VIRTUALHEALTH TECHNOLOGIES, INC. AND SUBSIDIARIES** 
-  ****CONSOLIDATED STATEMENTS OF OPERATIONS**** 
-  **FOR THE YEARS ENDED DECEMBER , 2008 AND 2007** 

|                                                              |   |   |   | Twelve            |   |   | Twelve            |   |
|--------------------------------------------------------------|--------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                                                              |   |   |   | Months            |   |   | Months            |   |
|                                                              |   |   |   | Ended             |   |   | Ended             |   |
| **REVENUES:**                                                |   |   |   | December 31, 2008 |   |   | December 31, 2007 |   |
|                                                         |        |        |
| **Total Revenue**                                            |   |   | $      | 739,708           |   | $      | 1,396,812         |   |
|                                                         |        |        |
| **Cost of Sales**                                            |   |   |   | (88,281           | )      |   | --                |   |
|                                                         |        |        |
| **Gross Profit**                                             |   |   |   | 651,427           |   |   | 1,396,812         |   |
|                                                         |        |        |
| **OPERATING EXPENSES:**                                      |   |   |        |                   |        |        |                   |        |
|      Selling, General and administrative |   |   |   | (1,351,111        | )      |   | (1,995,859        | )      |
|                                                         |        |        |
| **LOSS FROM CONTINUING OPERATIONS**                          |   |   |   | (699,684          | )      |   | (599,047          | )      |
|                                                         |        |        |
| **OTHER INCOME (EXPENSES):**                                 |   |   |        |                   |        |        |                   |        |
|      Interest Income                     |   |   |   | 63,620            |   |   | 753               |   |
|      Interest Expense                    |   |   |   | (253,806          | )      |   | (207,435          | )      |
|                                                         |        |        |
| **NET LOSS BEFORE INCOME TAX**                               |   |   |   | (889,870          | )      |   | (805,729          | )      |
|      Current tax expense                 |   |   |   | --                |   |   | --                |   |
|      Deferred tax expense                |   |   |   | --                |   |   | --                |   |
| **NET LOSS**                                                 |   |   | $      | (889,870          | )      | $      | (805,729          | )      |
|                                                         |        |        |
| **Basic loss per common share**                              |   |   | $      | (0.02             | )      | $      | (0.02             | )      |
|                                                         |        |        |
| **Weighted average number of common shares**                 |   |   |   | 46,451,533        |   |   | 42,287,738        |   |

The accompanying notes are an integral part of these consolidated financial statements.

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-  **VIRTUALHEALTH TECHNOLOGIES, INC. AND SUBSIDIARIES** 
-  **CONSOLIDATED STATEMENTS OF CASH FLOWS** 
-  **FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007** 

|                                                                                       |   |   |   | 2008       |   |   | 2007     |   |
|---------------------------------------------------------------------------------------|--------|--------|--------|------------|--------|--------|----------|--------|
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                             |   |   |        |            |        |        |          |        |
| Net loss                                                                              |   |   | $      | (889,870   | )      | $      | (805,729 | )      |
| Adjustments to reconcile net loss to net cash used in operating activities:           |   |   |        |            |        |        |          |        |
|    Depreciation and amortization                                       |   |   |   | 2,180      |   |   | 2,180    |   |
|    Non-cash expenses                                                        |   |   |   | 305,999    |   |   | 52,500   |   |
| Changes in assets and liabilities:                                                    |   |   |        |            |        |        |          |        |
|    (Increase) decrease in accounts receivable-trade                         |   |   |   | 28,468     |   |   | 255,553  |   |
|    (Increase) decrease in interest receivable                               |   |   |   | (62,767    | )      |   | --       |   |
|    Increase (decrease) in accounts payable                                  |   |   |   | (27,960    | )      |   | 293,300  |   |
|    Increase (decrease) in accrued payroll                                   |   |   |   | (14,230    | )      |   | (62,827  | )      |
|    Increase (decrease) in accrued expenses                                  |   |   |   | 1,156      |   |   | (6,656   | )      |
|    Increase (decrease) in accrued interest                                  |   |   |   | 163,807    |   |   | 109,787  |   |
| Net cash flows used in operating activities                                           |   |   |   | (493,217   | )      |   | (101,001 | )      |
|                                                                                  |        |        |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                             |   |   |        |            |        |        |          |        |
|    Invested in note receivable                                              |   |   |   | (1,575,000 | )      |   | --       |   |
| Net cash provided by (used in) investing activities                                   |   |   |   | (1,575,000 | )      |   | --       |   |
|                                                                                  |        |        |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                             |   |   |        |            |        |        |          |        |
|     Deferred loan costs                                           |   |   |   | (41,750    | )      |   | --       |   |
|     Proceeds from notes payable                                        |   |   |   | --         |   |   | 384,053  |   |
|     Proceeds from notes payable - related party                        |   |   |   | 2,226,844  |   |   | --       |   |
|     Payment on note payable - related party                            |   |   |   | (481,265   | )      |   | (281,989 | )      |
|     Debentures                                                         |   |   |   | 225,000    |   |   | --       |   |
|     Proceeds from sale of common stock                                 |   |   |   | --         |   |   | 100,000  |   |
| Net cash provided by financing activities                                             |   |   |   | 1,928,829  |   |   | 202,064  |   |
|                                                                                  |        |        |
| **NET INCREASE (DECREASE) IN CASH**                                                   |   |   |   | (139,388   | )      |   | 101,063  |   |
|                                                                                  |        |        |
| **CASH**, beginning of period                                                         |   |   |   | 226,393    |   |   | 125,330  |   |
|                                                                                  |        |        |
| **CASH**, end of period                                                               |   |   | $      | 87,005     |   | $      | 226,393  |   |
|                                                                                  |        |        |
| **SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:**                                 |   |   |        |            |        |        |          |        |
| **Cash paid during period for interest**                                              |   |   | $      | -          |   | $      | -        |   |
| **Cash paid during period for income tax**                                            |   |   | $      | -          |   | $      | -        |   |
|                                                                                  |        |        |
| **Non-Cash Investing and Financing Activities:**                                      |   |   |        |            |        |        |          |        |
|      **Common Stock issued in payment of debt**              |   |   | $      | 560,000    |   | $      | 10,096   |   |
|      **Common Stock issued in consulting fees**              |   |   | $      | 190,000    |   | $      | 52,500   |   |
|      **Common Stock issued for subscription receivable**     |   |   | $      | -          |   | $      | 89,904   |   |
|      **Imputed interest expensed as a capital contribution** |   |   | $      | 90,000     |   | $      | 90,000   |   |
|    **Contributed rent as a capital contribution**                      |   |   | $      | 26,000     |   | $      | 26,000   |   |

The accompanying notes are an integral part of these consolidated financial statements.

31

----

 

 

|                                                                                       |   |   |   | Preferred |        |   | Preferred |        |   |            |   |   |        |   |         |   |   |   |            |   |   |            |   |
|---------------------------------------------------------------------------------------|--------|--------|--------|-----------|--------|--------|-----------|--------|--------|------------|--------|--------|--------|--------|--------------|--------|--------|--------|------------|--------|--------|------------|--------|
|                                                                                       |   |   |   | Stock     |        |   | Stock     |        |   | Common     |        |   | Common |        |  Common |   |   |   | Additional |   |   |            |   |
|                                                                                       |   |   |   | Class B   |   |   | Class B   |   |   | Stock      |   |   | Stock  |   | Stock        |   |   |   | Paid-in    |   |   | Retained   |   |
|                                                                                       |   |   |   | Shares    |   |   | Amount    |   |   | Shares     |   |   | Amount |   | Subscripton  |   |   |   | Capital    |   |   | Deficit    |   |
|                                                                                       |        |        |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |       |        |
| **BALANCES, DECEMBER 31, 2006**                                                       |   |   |   | 70,000    |   | $      | 70        |   |   | 41,744,033 |   | $      | 41,744 |   | --           |   |   |   | 1,037,589  |   | $      | (1,383,989 | )      |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued for services valued at              |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      approximately $.75 per share in February 2007           |   |   |   |           |   |   |           |   |   | 70,000     |   |        | 70     |        |              |        |        |        | 52,430     |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued for cash of $100,000; Common        |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      Stock Subscription receivable of $89,904 and            |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      reduction of related party note payable of $10,096      |   |   |   |           |   |   |           |   |   | 887,500    |        |   | 888    |   | (89,904      | )      |        |        | 199,113    |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Imputed interest contributed as additional paid in      |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      capital from a non-interest related party note          |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      payable valued at $90,000                               |   |   |   |           |   |        |           |        |        |            |        |        |        |        |              |        |        |        | 90,000     |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Rent contributed by an officer, or an entity related to |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      an officer of the Company valued at $26,000             |   |   |   |           |   |        |           |        |        |            |        |        |        |        |              |        |        |        | 26,000     |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Net loss for the year ended December 31, 2007           |   |   |   |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        | (805,729   | )      |
|                                                                                  |        |        |        |      |        |        |      |        |        |       |        |        |   |        |         |        |        |        |       |        |        |       |        |
| **BALANCES, DECEMBER 31, 2007**                                                       |   |   |   | 70,000    |   | $      | 70        |   |   | 42,701,533 |   | $      | 42,702 |   | (89,904      | )      |   | $      | 1,405,132  |   | $      | (2,189,718 | )      |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to Commerical Holding Inc.          |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|       for the cancellation of debt valued at $0.20      |   |   |   |           |   |   |           |   |   | 1,500,000  |   |        | 1,500  |        |              |        |        |        | 298,500    |        |        |            |        |
|      per share                                               |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to Openshaw Co. for the             |   |   |   |           |   |   |           |   |   | 250,000    |   |        | 250    |        |              |        |        |        | 49,750     |        |        |            |        |
|      payment of consulting fee at $0.20 per share            |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to Jason Goldstein for the          |   |   |   |           |   |   |           |   |   | 337,500    |   |        | 338    |        |              |        |        |        | 67,163     |        |        |            |        |
|      payment of consulting fee at $0.20 per share            |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to Danielle Hughes for the          |   |   |   |           |   |   |           |   |   | 112,500    |   |        | 112    |        |              |        |        |        | 22,386     |        |        |            |        |
|      payment of consulting fee at $0.20 per share            |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to Michael Tolson for the           |   |   |   |           |   |   |           |   |   | 200,000    |   |        | 200    |        |              |        |        |        | 39,800     |        |        |            |        |
|      payment of consulting fee at $0.20 per share            |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to T. Squared, LLC for the          |   |   |   |           |   |   |           |   |   | 1,300,000  |   |        | 1,300  |        |              |        |        |        | 258,700    |        |        |            |        |
|      cancellation of a note payable at $0.20 per share       |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Common stock issued to Maxim Group for the              |   |   |   |           |   |   |           |   |   | 50,000     |   |        | 50     |        |              |        |        |        | 9,950      |        |        |            |        |
|      payment of consulting fee at $0.20 per share            |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Imputed interest contributed as additional paid-in      |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      capital from a non-interest related party note          |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      payable valued at $90,000                               |   |   |   |           |   |        |           |        |        |            |        |        |        |        |              |        |        |        | 90,000     |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Rent contributed by an officer, or an entity related to |   |   |        |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        |            |        |
|      an officer of the Company valued at $26,000             |   |   |   |           |   |        |           |        |        |            |        |        |        |        |              |        |        |        | 26,000     |        |        |            |        |
|                                                                                  |        |        |        |           |        |        |           |
|      Net loss for the year ended December 31, 2008           |   |   |   |           |        |        |           |        |        |            |        |        |        |        |              |        |        |        |            |        |        | (889,870   | )      |
|                                                                                  |        |        |        |           |        |        |           |
| **BALANCES. DECEMBER 31, 2008**                                                       |   |   |   | 70,000    |   | $      | 70        |   |   | 46,451,533 |   | $      | 46,452 |   | (89,904      | )      |   | $      | 2,267,381  |   | $      | (3,079,588 | )      |

The accompanying notes are an integral part of these consolidated financial statements.

32

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**VIRTUALHEALTH TECHNOLOGIES, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        FOR THE YEARS ENDED****DECEMBER 31, 2008 AND 2007**

**NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES**

Accounting Method - The Companies' consolidated financial statements are prepared using the accrual method of accounting. The Companies have elected December 31 as its year end.          

Consolidation - The accompanying consolidated financial statements include the accounts of VirtualHealth Technologies, Inc., and its wholly-owned subsidiaries, Verified Prescription Safeguards, Inc. ("VPS"), MB Holding Corporation, VPS Holding, LLC dba Veriscrip, Secure eHealth LLC, (formerly Envoii Healthcare, LLC.)and        Medical Office Software, Inc. All intercompany accounts and transactions have been eliminated.

Use of 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. Management makes its bestestimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could        differ from those estimates.                  Cash and Cash Equivalents - The Companies consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. As of December 31, 2008 and 2007, the Companies had no cash equivalents.                  Concentration of Credit Risk - The Companies maintain cash balances at financial institutions that are insured by the FDIC. At December 31, 2008, and 2007 the Company had no deposit accounts that exceeded the FDIC limits.                  Revenue Recognition - The Companies’ revenues result primarily from sales of products to doctors and medical billing companies. Revenues are recognized upon delivery of the products or services.                  Income Taxes - The Companies account for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109 “Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the        differences are expected to affect taxable income. Valuation allowances are established when necessary; to reduce deferred income tax assets to the amount expected to be realized. No deferred tax asset has been recognized for the operating loss carry forward as it is more likely than not that all or a portion of the net operating loss will not be realized and any valuation allowance would reduce the benefit to zero.                  Functional Currency - The functional currency of the Companies is the U. S. dollar. When a transaction is executed in a foreign currency, it is premeasured into U. S. dollars based on appropriate rates of exchange in effect at the time of the transaction. At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the Companies are adjusted to reflect the current exchange rate. The resulting foreigncurrency transaction gains (losses) are included in general and administrative expenses in the accompanying consolidated statements of operations. At December 31, 2008, and 2007 there were no recorded balances denominated in foreign currency.

33

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                  Trade Accounts - Other Receivables and Allowance for Doubtful Accounts – Trade accounts receivables and other receivables are carried at original invoiced amounts less an allowance for doubtful accounts. Accounts receivable are determined to be delinquent when the account has become 30 days past due. The allowance for doubtful accounts is calculated based on the aggregate amount of accounts 60+ days old, or on a case by case basis. Management will occasionallyreview accounts receivable and determine if the account should be written off.

Property and Equipment - Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on a straight line basis over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred and major improvements are capitalized. Gains or losses on sales or retirements are recognized in income.        Interest is capitalized on significant construction projects.          

Goodwill - Goodwill represents the excess purchase price paid by the Company over the fair value of the tangible and intangible assets and liabilities of Medical Office Software, Inc. at October 6, 2006, the date of the Acquisition. In accordance with SFAS 142, the goodwill is not being amortized, but instead will be subject to an annual assessment of impairment        by applying a fair-value based test. No impairment was recorded during the year ended December 31, 2008.

Deferred loan cost – The costs of issuing debentures or other debt instruments have been deferred as other loan assets andare being amortized to expenseover the term of the        debt.

Long-lived Assets - The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through undiscounted future cash flows. If it is determined that an impairment loss has occurred based on expected cash flows, such loss is recognized in the consolidated        statement of operations.                  Earnings Per Share - Basic earnings or loss per share is based on the weighted average number of common shares outstanding. Diluted earnings or loss per share is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic earnings/loss per share is computed by dividing income/loss (numerator) applicable to common stockholders by the weighted average number of common shares outstanding (denominator) for the period. All earnings or loss        per share amounts in the consolidated financialStatements are basic earnings or loss per share, as defined by SFAS No. 128, "Earnings per Share." Diluted earnings or loss per share does not differ materially from basic earnings or loss per share for all periods presented. Convertible securities that could potentially dilute basic loss per share are not included in the computation of diluted loss per share because to do so would be antidilutive. All        per share and per share information are adjusted retroactively to reflect stock splits and changes in par value.

**NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARDS**

Statement of Financial Accounting Standards ("SFAS") No. 155, "Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140", SFAS No. 156, "Accounting for the Servicing of Financial Assets", SFAS No. 157, "Fair Value Measurements", SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other        Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)", SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115", and SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements an amendment of ARB 50" (SFAS 160), were recently issued. SFAS No. 155, 156, 157, 158, 159 and 160 have no current applicability to the Company or        their effect on the financial statements would not have been significant.                  In March 2008, the FASB issued FAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities, which is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The use and complexity of derivative instruments and hedging activities have increased significantly over the past several years. This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and the impact on        financial position, financial performance, and cash flows. The adoption of the Statement is expected to have no impact to the Company’s consolidated financial position, results of operations or cash flows.

34

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                  In May 2008 the FASB issued FAS No. 162 “The Hierarchy of Generally AcceptedAccounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement is        effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect that this Statement will result in a change in current practice and the provisions of the Statement are not expected to have any impact on the Company’s financial statements.                  In May 2008 the FASB issued FAS No. 163 “Accounting for Financial Guarantee Insurance Contracts”—an interpretation of FASB No. 60 by insurance enterprises. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008. The provisions of the Statement are not expected to have any impact on the Company’s financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”)), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial        statements. 

**NOTE 3 - GOING CONCERN**

The Companies have incurred losses in recent years and at December 31, 2008havecurrent liabilities in excess of current assets. The Company's day-to-day expenses have been covered by proceeds obtained and services paid by the issuance of stock and notes payable. The adverse effect on the        Companies’ results of operation due to its lack of capital resources can be expected to continue until such time as the Companies are able to generate additionalcapital from other sources. These conditions raise substantial doubt about the Companies' ability to continue as going concerns.                  Management has implemented, or developed plans to implement, a number of actions to address these conditions including the acquisition of VPS and development of VPS's projects, which management believes will provide opportunities for growth within the prescription drug and healthcare industry. With the additional acquisition of MOS with its growing medical customer base,management plans to obtain working capital funds by seeking additional funding        from shareholders,debt financing, and/or private placements of its common stock to meet such needs. Without realization of additional capital, it would be unlikely for the Companies to continue as a going concern. The Companies anticipate that their major shareholders will contribute sufficient funds to satisfy the cash needs of the Companies for the next twenty-four months. If the Companies cannot obtain needed funds, it may be forced to curtail or        cease its activities. There can be no assurance that additional funding will be available when needed or, if available, that the terms of such financing will not adversely affect the Companies' results from operations.                  The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The continuation of the Companies as going concerns is dependent upon the success of the Companies in obtaining additional funding and the success of their future operations. The Companies’ ability to achievethese objectives cannot be determined at this time.           

**NOTE 4 – NOTES RECEIVABLE**

The Company has advanced as a note receivable, $1,500,000 to an unrelated company which is providing certain computer programming for the Company. The loan bears interest at 9% per annum from day of advance, with $59,892 accrued as of December 31, 2008. The principal and all accrued interest is due on June 30, 2010. Until such time that the note is paid in full,        the Company has the first right of refusal to purchase any new securities issued by the debtor. The note receivable was subsequently restructured (See Note 12).                  The Company also has a note receivable from a related party in the amount of $75,000. The note bears interest at 10% per annum and is due on demand. Accrued interest at December 31, 2008 was $2,875.

 

**NOTE 5 - NOTES PAYABLE****AND LONG-TERM DEBT**  

**Notes Payable**

|                                                                               |   |   | December 31,   |   |   |
|-------------------------------------------------------------------------------|--------|--------|--------------------------|--------|--------|
|                                                                               |   |   | 2008                     |   |   | 2007 |   |   |
|                                                                          |        |        |
| New Market, Inc.: unsecured, no stated interest rate, note is to convert to   |   |   |                          |   |   |  |   |   |
| 450,000 shares of common stock, or the equivalent of $900,000, but limited to |   |   |                          |   |   |  |   |   |
| 675,000 shares maximum.                                                       |   |   | $ 900,000                |   |   | $900,000 |   |   |
|                                                                          |        |        |
|                                                                               |   |   | $ 900,000                |   |   | $900,000 |   |   |

The company has imputed interest of $90,000 which has been accounted for as a capital contribution.

**Notes Payable - Related Parties**

Funds are advance from various related parties including the Company's president and CEO/CFO and entities controlled by him. Other shareholders may fund the Company as necessary to meet working capital requirements and expenses. The advances are made pursuant to note agreements that bear interest at 10% per annum, with various maturity dates. All notes are current liabilities. Accrued interest to related parties totaled $384,303 and $220,496 at December 31, 2008 and        December 31, 2007, respectively.

| Scott Haire, Company Chairman, CEO, and CFO:        | 2008                                                                                                                                                                                                                                  |    | 2007   |
|-----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|
|                                                | unsecured, payable on December 31, 2008, including interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $9,723 and $7,451 respectively.                                                          | $22,400 |   | $22,400 |
|                                                |                                                                                                                                                                                                                                  |    |   |   |   |   |   |
| HEB LLC, Scott Haire owner, Chairman, CEO, and CFO: |                                                                                                                                                                                                                                  |    |   |
|                                                | Unsecured, two separate $1,000,000 open lines of credit, no maturity date, interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $280,240 and $182,570 respectively. Unsecured lines available at |    |   |   |
|                                                | December 31, 2008 is $1,345,600.                                                                                                                                                                                                      | 653,400 |   | 652,821 |
|                                                |                                                                                                                                                                                                                                  |    |   |   |   |   |   |
| Nevada Multicare, Scott Haire-Owner:                |                                                                                                                                                                                                                                  |    |   |
|                                                | This note is considered to be a related party note. Unsecured, payable on demand, including interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $29,296 and $21,813 respectively.               | 73,805  |   | 73,805 |

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| Commercial and Financial Holdings, LLC:            |                                                                                                                                                                                                                  |      |   |   |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------|--------|
|                                               | This note is considered to be a related party note. Unsecured, payable on demand, including interest at 10% per annum. Accrued interest at December 31, 2008 is $52,592.                                              | 1,185,000 |   | --     |
|                                               |                                                                                                                                                                                                                  |      |   |
| SWCC, dated 7/21/06, no stated interest rate       | 21,900                                                                                                                                                                                                                |      | 21,900 |
|                                               |                                                                                                                                                                                                                  |      |   |   |   |   |   |
| Anthony Chamblin, investor in Secure eHealth, LLC: |                                                                                                                                                                                                                  |      |   |
|                                               | This note is considered to be a related party note. Unsecured, payable on demand, including interest at 10% per annum. Accrued interest at December 31, 2008 and December 31, 2007 is $5,622 and $4,608 respectively. | 10,000    |   | 10,000 |
|                                               |                                                                                                                                                                                                                  |      |   |   | $1,966,505 |   | $ 780,926 |

**Debentures**

On December 17, 2008, the Company issued three year debentures. The debt of $225,000 is due on December 16, 2011 and will be paid on that date with three years accrued interest at 6% per annum. Accrued interest at December 31, 2008 is $764. Payment in full of principal and accrued interest will be made by conversion to the Company’s common stock at the market price on date of redemption. Debt issue costs of $41,750 have been deferred and will be amortized over the        term of the debt.                 Prior to maturity, the Holders of the debentures have the right to convert all or any part of principal and accrued interest to the Company’s common stock with such conversion being based on 70% of the then lowest closing bid price. The Company also has the right to call for early redemption with a cash payment of principal, interest, and a prepayment penalty.         

**Minimum Annual Maturities**

| The Company's aggregate annual maturities of notes payable and long-term debt are summarized as follows: |   |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                     |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   | December 31, 2009 | $2,866,505 |   |   |
|                                                                                                     |   |   |   | December 31, 2010 | - |   |   |
|                                                                                                     |   |   |   | December 31, 2011 | 225,000 |   |   |
|                                                                                                     |   |   |   | Total | $3,091,505 |   |   |

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**NOTE****6****– LEASE COMMITMENTS**

The Company had a 3 year lease agreement for office space that converted to a month-to-month rental arrangement in March 2006. Monthly rental expense is currently $783 per month. Total rents paid for the years ended December 31, 2008 and 2007 were $11,376and $9,396 respectively.                  The Company is renting a storage unit on a month to month basis. Monthly rent is $299a month. Total rents paid for the years ended December 31, 2008 and 2007 were $3,588and $3,480 respectively.

**NOTE****7****- INCOME TAXES**

There is no current or deferred income tax expense due to the Companies’ consolidated loss position and the net deferred tax benefits of timing differences having been reduced by an offsetting valuation allowance. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as        appropriate. Realization of the future tax benefits related to the net deferred tax assets isdependent on many factors, including the Companies' ability to generate taxable income within the net operating loss carry forward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes and has recorded a 100% valuation allowance against the net deferred tax asset. The change        in the valuation allowance is approximately $117,000 for the year ended December 31, 2008.                  Reconciliations of the expected federal income tax benefit based on the statutory income tax rate of 34% to actual benefit for the years ended December 31, 2008, and 2007 are as follows:

|                                     |   |   |   | 2008     |   |   | 2007     |   |
|-------------------------------------|--------|--------|--------|----------|--------|--------|----------|--------|
|                                |        |        |
| Expected federal income tax benefit |   |   | $      | 262,000  |   | $      | 145,000  |   |
| Valuation allowance                 |   |   |   | (262,000 | )      |   | (145,000 | )      |
|                                |        |        |
| Income tax expense (benefit)        |   |   | $      | 0        |   | $      | 0        |   |

At December 31, 2008, the potential non-current deferred tax asset of approximately $685,100results from the deferred tax benefit of applying the statutory income tax rate of 34% to the net operating loss carryforwards of approximately $2,015,000, which have a 100% valuation allowance, as the ability of the Companies to        generate sufficient taxable income in the future is uncertain. There are no other significant deferred tax assets or liabilities. 

The Company adopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*, on January 1, 2007.  As a result of the implementation of Interpretation 48, the Company recognized approximately no increase in the liability for unrecognized tax benefits.

The Company has no tax positions at December 31, 2008 and 2007 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  During the years ended December 31, 2008 and 2007, the Company recognized no interest and penalties.  The Company had no accruals for interest and penalties at December 31, 2008, and 2007.

**NOTE****8****- CAPITAL STOCK**

Preferred Stock

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The Company is authorized to issue 10,000,000 shares of Preferred Stock at a par value of $.001 per share. The Company has designated 300,000 shares of Class B voting Preferred stock and at December 31, 2008 and 2007 there were 70,000 shares outstanding. Accrued, but unpaid dividends totaled $33,750 at December 31, 2008 and December 31,        2007.         

Common Stock

The Company is authorized to issue 100,000,000 common shares, at a par value of $0.001 per share. These shares have full voting rights. At December 31, 2008 there are 46,451,533 shares issued and outstanding. At December 31, 2007, there were 42,701,533 shares issued and outstanding.         During 2008 the Company issued 2,800,000 shares in payment of Company notes payable and 950,000 shares for payment of consulting fees owed by the Company. During 2007 the Company issued 887,500 shares in payment of debt.   

**NOTE****9****- RELATED PARTY TRANSACTION****S**

The Company has various debts to related parties as fully described in Note 5.                  The Company has a note receivable from a related party as described in Note 4.

Rent of $26,000 was contributed to the Company by an officer or a related entity of the officer and accounted for as a capital contribution for 2008 and 2007.

**NOTE 1****0****- LOSS PER SHARE**

The following data show the amounts used in computing loss per share for the        periods presented:

|                                           |   |   | For the Year Ended   |   |   |
|-------------------------------------------|--------|--------|--------------------------------|--------|--------|
|                                           |   |   | December 31,         |   |   |
|                                      |   |   | 2008                           |   |   | 2007 |   |   |
|                                           |        |        |
| Income (loss) from continuing operations  |   |   |                                |   |   |  |   |   |
| (Numerator)                               |   |   | $ (889,870)                    |   |   | $ (805,729) |   |   |
|                                      |        |        |
| Income (loss) available to common         |   |   |                                |   |   |  |   |   |
| Shareholders (numerator)                  |   |   | $ (889,870)                    |   |   | $ (805,729) |   |   |
|                                      |        |        |                                |        |        |  |  |  |
| Weighted average number of common         |   |   |                                |   |   |  |   |   |
| shares outstanding used in loss per share |   |   |                                |   |   |  |   |   |
| For the period (denominator)              |   |   | 46,451,533                     |   |   | 42,287,738 |   |   |

        Dilutive loss per share was not presented, as the Company had no common equivalent shares for all periods presented that would affect the computation of diluted loss per share.

**NOTE 1****1****– CONTINGENCIES****AND COMMITMENTS**

(a) Claims from Creditors

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                  Medical Office Software Inc.has received a claim from Bell South for an advertising fee that they claim is valid. Management believes that they are not liable for this claim. The original agreement was signed by previous management in 2002. The matter has been turned over to our attorney. Management believes the ultimate outcome of this matter will not have a material impact on the financial condition of the Company.                  (b) Litigation                  Medical Office Software Inc.a subsidiary of the Company is engaged in a lawsuit by a former employee for unpaid commissions on sales. A court date has not been set. Management for MOS is defending the litigation and considers the claim to be without merit and is therefore vigorously defending the same. A loss contingency has not been accrued for in the financial statements. The Company is also involved from time to time in other litigation through        the normal course of its business. Management believes there are no such undisclosed claims which would have a material effect on the financial position of the Company.         

(c)     

On October 20, 2008 the Company entered into a Consulting agreement with First Level Capital Consulting for the term of 6 months and requires payment of $5,000 on the first of each month starting November 1, 2008. The agreement calls for the issuance of 50,000 shares for funding sources up to $500,000 and 100,000 shares for bridge financing of $650,000 and        above.

(d)     

On November 18, 2008 the Company entered into a consulting agreement with Divine Capital Markets, LLC for the purpose of raising funds for the Company. The agreement requires a minimum of $200,000 and not to exceed $500,000 in funds raised. The required payment is 10% of gross proceeds, 450,000 shares of restricted stock, 3% non-accountable allowance and legal        fees of $12,500. The restricted shares have a re-purchase agreement attached at the option of holder for $0.22 per share. A total of $375,ooo has currently been raised under this agreement. (See notes 5 and 12)

**NOTE 1****2****- SUBSEQUENT EVENTS**

Subsequent to December 31, 2008 the Company issued additional debentures (See Note 5) totaling $150,000.                  On January 15, 2009 the Company entered into a restructuring agreement related to its note receivable of $1,500,000 (See Note 4). The previous note receivable was canceled and a new senior secured convertible promissory note in the amount of $1,500,000 was issued. The note bears interest at 9% per annum . The principal and all accrued interest is due on January 15, 2011. Until such time as the new note is paid in full, the Company has the first right of refusal to purchase any        securities issued by the debtor.

 

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