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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Amendment No. 2

To

FORM 10-KSB/A







|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------

For the fiscal year ended December 31, 2007.



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

For the transition period from  to

Commission file number 0-23031





VERTICAL HEALTH SOLUTIONS, INC.

(Name of small business issuer in its
charter)







|                                                                  |  |                                     
|----------------------------------------------------------------- |  | ------------------------------------
|Florida                                                           |  | 59-3635262                          
|(State of or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                           |  |           
|------------------------------------------ |  | ----------
|630 Brooker Creek Blvd., Ste. 340, Florida |  | 34677     
|(Address of principal executive offices)   |  | (Zip Code)

Issuers telephone number (727) 548-8345





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

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock





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

Check whether the Registrant (1) 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   ̈

Check if there is no disclosure
of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.    Yes  x    No   ̈

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

Issuers revenues for its most recent fiscal year were $0.

The aggregate market value of the voting
common stock held by non-affiliates of the Registrant was $59,979 based upon the last reported trade of the stock, which was on April 14, 2008 at $.02 per share.

The number of shares outstanding of the Issuers common stock at $.001 par value as of December 31, 2007 was 16,722,347.

DOCUMENTS ARE INCORPORATED BY REFERENCE:

None.

Transitional Small Business Disclosure Format (check one):    Yes   ̈    No  x









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Index to Financial Statements

PART I



|Item 1. | DESCRIPTION OF BUSINESS.
|------- | ------------------------

General

In June 2007, Vertical Health Solutions, Inc. completed the sale of its only operating subsidiary, Drug Depot, Inc. The Company is not actively
engaged in any business at the present time and is seeking to develop a new business or secure future acquisitions. Prior to June 2007, the Company, through its wholly-owned subsidiary, operated a Florida retail and veterinary compounding pharmacy
providing specialized compounding pharmaceutical prescription services to veterinarians and their customers in the companion animal sector

Vertical Health Solutions, Inc. was incorporated on March 2000, as a Florida corporation under the name LabelClick.com, Inc. In January 2001, we changed our name to Vertical Health Solutions, Inc. The Companys executive offices are
located at 630 Brooker Creek Blvd., Ste. 340, Oldsmar, Florida 34677 and its telephone number is (727) 548-8345. References in this Annual Report on Form 10-KSB refer to Vertical Health Solutions, Inc. and, as applicable, its subsidiaries as
the Company or Vertical, unless the context otherwise requires.

Our Pharmacy Operations

Our pharmacy, Drug Depot, Inc., d/b/a APS Pharmacy, provided specialized compounding pharmaceutical prescription services to veterinarians and their
customers in the companion animal sector. APS Pharmacy customizes companion animal medications in a variety of strengths, sizes, dosage forms and flavors based on veterinary and patient requirements.

Drug Depot, Inc. began operations on November 1, 2004 through the acquisition of the operating assets and operations of T & L Pharmacies, Inc



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Marketing and Sales

During the fiscal year ended December 31, 2007, approximately all of our sales were to customers of the companion animal sector. Our geographical market is defined as the continental United States; however
initial concentration has been on customers in the southeast and southwest regions of the United States.

Drug Depot, Inc. utilized a
combination of inside sales and fax advertising for its sales and marketing efforts. All of Drug Depot, Inc.s sales efforts focused on retaining the current customer sales base and developing new customers.

Government Regulation

State and federal government
agencies regulated the distribution of many of our animal health products. Specifically, the U.S. Department of Agriculture, the Food and Drug Administration and the Drug Enforcement Administration are charged with regulating our industry and the
distribution of certain of our products. In particular, they regulate the formulation and purity of our products, which are subject to review during the manufacturing process. In addition, several State Boards of Pharmacy require us to obtain
appropriate licensing for the sale of animal health products in their jurisdiction, as well as requiring us to collect sales and use taxes on our product sales therein. However, since we do not manufacture the products we sell, we are not subject to
the stringent Federal and state laws, which regulate the manufacturing process, nor are we required to undergo regular inspections or certifications of our facilities or our activities. Finally, we were subject to federal and state labor regulations
governing our relationship with employees, including minimum wage requirements, overtime, working conditions and citizenship requirements.

We may be subject to additional laws or regulations by the Food and Drug Administration or other Federal, state or foreign regulatory authorities. The Company cannot predict the nature of any future laws, regulations, interpretations or
applications, nor can it determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on its business in the future. They could, however, require the reformulation of certain products to
meet new standards, the recall or discontinuance of certain products not capable of reformulation, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, and/or scientific
substantiation. Any or all of such requirements could have a material adverse effect on the Companys business, financial condition, results of operations and cash flows.

In house training was provided to all applicable employees to ensure compliance with regulations. Thus far, the Company has not incurred additional
expenses in order to comply with FDA requirements. The Company believes that it is substantially in compliance with all FDA record keeping and reporting requirements and all environmental regulations affecting the Company.

Dispensing prescription medications is governed at the state level by the board of pharmacy, or similar regulatory agencies, of each state where
prescription medications are dispensed. We are subject to regulation by the State of Florida and are licensed by the Florida Board of Pharmacy. Our license was valid until February 28, 2008. We are also licensed and/or regulated by other state
pharmacy boards and other regulatory authorities including, but not necessarily limited to, the United States Food and Drug Administration (FDA) and the United States Environmental Protection Agency (EPA). As a licensed
pharmacy in the State of Florida, we are subject to the Florida Pharmacy Act and regulations promulgated hereunder. To the extent that we are unable to maintain our license with the Florida Board of Pharmacy as a community pharmacy, or if we do not
maintain the licenses granted by other state pharmacy boards, or if we become subject to actions by the FDA, or other enforcement regulators, our distribution of prescription medications to veterinarians could cease, which could have a material
adverse effect on our operations.

Employees

As of December 31, 2007, the Company had no employees. Prior to August 2007, the Company had 5 full time employees. Of such employees, one was engaged in marketing and sales, three employees operated the pharmacy and one was
responsible for management and administration. None of the Companys employees were covered by a collective bargaining agreement. The Company considered its relations with its employees to be good.



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In each case, the employees were permitted to participate in employee benefit plans of the Company that
may be in effect from time to time, to the extent eligible, and each employee may be entitled to receive an annual bonus as determined at the sole discretion of the Companys Board of Directors based on the Boards evaluation of the
employees performance and the financial performance of the Company. Each of the employees was eligible for grant of stock options in accordance with the provisions of the Companys 1999 Stock Option Plan, as determined by the
Administrator of the Plan.

In March 1999, the Companys Board of Directors adopted the Companys 1999 Stock Option Plan, which
has been approved by the Companys shareholders. The purpose of the 1999 Plan is to enable the Company to attract and retain top-quality executive employees, officers, directors and consultants and to provide such executive employees, officers,
directors and consultants with an incentive to enhance stockholder return. The 1999 Plan provides for the grant to officers, directors, or other key employees and consultants of the Company, of options to purchase up to an aggregate of 1,500,000
shares of common stock.

Cautionary Statements for Purposes of The Safe Harbor Provisions of The Private Securities Litigation Reform Act of
1995

The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for
forward-looking statements to encourage companies to provide prospective information, so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those discussed in the forward-looking statement(s). The Company desires to take advantage of the safe harbor provisions of the Act.

Except for historical information, the Companys Annual Report on Form 10-KSB for the year ended December 31, 2007, the Companys
quarterly reports on Form 10-QSB, the Companys current reports on Form 8-K, periodic press releases, as well as other public documents and statements, may contain forward-looking statements within the meaning of the Act.

In addition, representatives of the Company may, from time to time, participate in speeches and calls with market analysts, conferences with investors
and potential investors in the Companys securities, and other meetings and conferences. Some of the information presented in such speeches, calls, meetings and conferences may be forward-looking within the meaning of the Act.

It is not reasonably possible to itemize all of the many factors and specific events that could affect the Company and/or the Companys industry as
a whole. In some cases, information regarding certain important factors that could cause actual results to differ materially from those projected, forecasted, estimated, budgeted or otherwise expressed in forward-looking statements made by or on
behalf of the Company may appear or be otherwise conveyed together with such statements. The following additional factors (in addition to other possible factors not listed) could affect the Companys actual results and cause such results to
differ materially from those projected, forecasted, estimated, budgeted or otherwise expressed in forward-looking statements made by or on behalf of the Company.

Government Regulation.The packaging, labeling, advertising, promotion, distribution and sale of the Companys products are all subject to extensive regulation by numerous federal, state and other
government agencies. Because of the broad language of the laws applicable to the Companys business, it is difficult for the Company to remain in strict compliance. If the Company fails to or is unable to comply with applicable laws and
governmental regulations, the Companys business could be adversely affected. See Business  Government Regulation.

Our pharmacy operations are subject to extensive regulations and failure to comply with those regulations could result in severe penalties and damage to our brand.

We are subject to extensive federal, state and local licensing and registration laws and regulations with respect to our business, including our pharmacy
and franchise operations and the pharmacists we employ. Regulations in these areas often involve subjective interpretation and we do not know if our attempts to comply with these regulations will be deemed sufficient by the appropriate regulatory
agencies. While we believe we have satisfied our licensing and registration requirements and continue to actively monitor our compliance with these requirements, we cannot ensure you that such monitoring will be



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adequate to achieve full compliance. Violations of any of these regulations could result in various penalties, including suspension or revocation of our
licenses or registrations, and seizure of our inventory or monetary fines, any of which could adversely affect our operations and damage our brand.

We also are subject to requirements under the Controlled Substances Act and Federal Drug Enforcement Agency regulations, as well as state and local laws and regulations related to our pharmacy operations such as registration, security,
record keeping and reporting requirements related to the purchase, storage and dispensing of controlled substances, prescription drugs and certain over-the-counter drugs.

Under the Food, Drug & Cosmetic Act of 1938, the distribution of adulterated or misbranded homeopathic remedies or other drugs is prohibited. Violations could result in substantial fines and other monetary
penalties, seizure of the misbranded or adulterated items, and/or criminal sanctions. We also are required to comply with the Dietary Supplement Health and Education Act when selling dietary supplements and vitamins.

In addition, our pharmacy compounding services are subject to Food and Drug Administration regulation. The Food and Drug Administration also regulates
drug advertising and promotion, including direct-to-patient advertising, done by or on behalf of manufacturers and marketers. If we expand our product and service offerings, more of our products and services will likely be subject to Food and Drug
Administration regulation. Failure to comply with these regulations could result in significant penalties which may be material. We also are subject to federal statutes and state legislation that prohibit the offer, payment, solicitation, or receipt
of any remuneration directly or indirectly in exchange for, or intended to induce, the referral of patients or the sale or purchase of services and supplies covered by certain governmental programs (Anti-Kickback Laws). We also are subject to the
Ethics in Patient Referrals Act of 1989, commonly referred to as Stark Law, which prohibits the billing of federally funded health care programs for certain health care services provided by entities with which the referring physician has
certain financial arrangements. Violations of these laws are punishable by civil sanctions, including significant monetary penalties and exclusion from participation in the Medicare and Medicaid programs, and criminal sanctions in the case of the
Anti-Kickback Law. Due to the breadth and complexity of these laws, there can be no assurance that we, any of our personnel, or any of our significant customers or business partners, will not become subject to sanctions that could have a material
adverse effect on our business, financial condition and results of operations. Additionally, the sanctioning or exclusion of a manufacturer or recipient of our products or services, even for activities unrelated to us, could also have a material
adverse effect on our business, financial condition and results of operations.

Pursuant to the Omnibus Budget and Reconciliation Act of
1990 and similar state and local laws and regulations, our pharmacists are required to offer counseling to our customers about medication, dosage, delivery systems, common side effects, adverse effects or interactions and therapeutic
contraindications, proper storage, prescription refill and other information deemed significant by our pharmacists. In the event that our pharmacists provide erroneous or misleading information to our customers, we may be subject to liability or
negative publicity that could have an adverse impact on our business. Although we carry general, professional and product liability insurance, our insurance may not cover potential claims of this type or may not be adequate to protect us from all
liability that may be imposed.

The Health Insurance Portability and Accountability Act of 1996, and regulations promulgated there under
(collectively HIPAA), require health care providers like us to comply with specified standards for electronic billing and other transactions and to adopt and comply with policies and procedures to protect the security and privacy of an
individuals protected health information consistent with HIPAA requirements, and prohibit the use or dissemination of an individuals protected health information without the individuals consent. There are significant civil monetary
and criminal penalties for failure to comply.

Possible Adverse Publicity. The Company is dependent on consumers perceptions
and may be adversely affected by publicity associated with illness or other adverse effects from the consumption of its products (or similar products distributed by other companies) and future reports of research that are perceived as less favorable
or that question earlier research. Future scientific research or publicity may not be favorable to the nutritional supplement or pharmaceutical industry or to any particular product, and may not be consistent with earlier favorable research or
publicity. The Company is highly dependent upon consumers perceptions of the safety and quality of its products as well as nutritional supplements



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distributed by other companies. Thus, the mere publication of reports asserting that those products may be harmful or questioning their efficacy could
adversely affect the Company regardless of whether such reports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.

Exposure to Product Liability. The Company faces an inherent risk of exposure to product liability claims in the event that the use of its
products results in injury. Management believes that the Company has adequate insurance, but if it does not, product liabilities relating to its products could adversely affect the Company. Although many of the ingredients in the Companys
products are vitamins, minerals, herbs and other substances for which there is a long history of animal consumption, some of its products contain ingredients for which no such history exists. In addition, although management believes all of the
Companys products are safe when taken as directed, there is little long-term experience with human consumption of certain of these product ingredients in concentrated form. Accordingly, the Company cannot assure that its products, even when
used as directed, will have the effects intended or will not have harmful side effects. Any such unintended effects may result in adverse publicity or product liability claims that could adversely affect the Company.

Importance of Development of New Products. Products currently experiencing strong popularity and rapid growth may not maintain their sales over
time. As a result, it will be important for the Company to be able to develop new products. The Company cannot assure that its efforts to develop new products will be successful.

Competition.The veterinary compounding industry is highly competitive. Numerous companies, many of which have greater size and greater financial,
personnel, distribution, marketing and other resources than the Company, compete with us in the development and marketing of various compounds. Competition from such companies could have a material adverse effect on the Company.

Principal Suppliers and Sources of Supply.The Company depends on third-party suppliers to provide its products. Many of the raw materials used in
its products are harvested internationally. The Company cannot assure that suppliers will provide the products needed in the quantities requested or at a price the Company is willing to pay. Because the Company does not control the actual production
of these products, delivery to the Company is also subject to delays caused by interruption in production of products based on conditions not within the control of the Company. The Companys inability to obtain adequate supplies of products at
favorable prices, or at all, could adversely affect the Companys business.

Infringement on Intellectual Property Rights of
Others.Although the Company seeks to ensure that it does not infringe on the intellectual property rights of others, the Company cannot assure that third parties will not assert intellectual property claims against the Company. Infringement
claims by third parties against the Company may have a material adverse affect on the Company.

General Risks

Key Personnel. As a small company with zero full-time employees, the Companys success depends on the services of its senior management team.
If the Company loses the service of their CEO and CFO, , the Company could be materially adversely affected.

Acquisitions involve numerous
risks, including the risk that the acquired business will not perform in accordance with expectations, difficulties in the integration of the operations and products of the acquired businesses with the Companys business, the diversion of
managements attention from other aspects of the Companys business, the risks associated with entering geographic and product markets in which the Company has limited or no direct prior experience, and the potential loss of key employees
of the acquired business arising out of such acquired business. Future acquisitions would likely require additional financing, which would likely result in an increase in the Companys indebtedness or the issuance of additional capital stock,
which may be dilutive to the Companys shareholders.

Provisions on the Payment of Dividends.The Company has not declared cash
dividends on its common stock and the Company does not anticipate paying cash dividends in the foreseeable future.



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Anti-Takeover Provisions. Certain provisions of the Companys Articles of Incorporation (the
Articles) and Bylaws (the Bylaws), certain sections of the Florida Business Corporation Act, and the ability of the Board of Directors to issue shares of preferred stock and to establish the voting rights, preferences and
other terms may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved the Companys Board of Directors, including takeovers which shareholders may deem to be in their best interests.

Control by Certain Stockholders. Directors, executive officers and related family members beneficially own approximately 82.07% of the outstanding shares
of the Companys common stock. Therefore, these stockholders will have significant control over the election of the Companys directors and most of the Companys corporate actions.

Lack of Active Business May Result in Delisting from the Over the Counter Bulletin Board. We do not currently have any business operations and we have no
source of revenue. Further, we have no current prospects for business opportunities. Our lack of business or prospects may result in our inability to maintain our filing obligations under the Securities Exchange Act of 1934. If we fail to maintain
our Securities Exchange Act filings, our stock may be removed from quotation on the Over The Counter Bulleting Board.

Index to Financial Statements



|Item 2. | DESCRIPTION OF PROPERTY.
|------- | ------------------------

Effective October 1,
2004, Drug Depot, Inc., the veterinary compounding pharmacy, entered into a two year lease of approximately 3,000 square feet of office and retail space for its operations in Palm Harbor, Florida. The lease contains three consecutive one-year
renewal options to continue the lease after the expiration of the original lease on October 31, 2006 unless terminated earlier. The rental under the lease is approximately $35,000 annually. As of December 31, 2007, the Company had no liability
related to this lease.

As of December 31, 2007, the Company had no real property, equipment, furniture, and leasehold improvements.



|Item 3. | LEGAL PROCEEDINGS.
|------- | ------------------

The Company is not currently a
party to any other legal proceeding, which it believes will have a material adverse affect on its results of operations.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2007.

PART II



|Item 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | ---------------------------------------------------------------------------------------------------------------

Market for Securities

In October 2003, the Company
filed Form 211, under the U.S. Securities and Exchange Commission Rule 15c2-11, to apply with NASD Regulation for listing of its common stock and warrants on the OTC Bulletin Board. In January 2004, the Companys common stock began trading on
the OTC Bulletin Board under the symbol VHSL. There is a limited trading market for the Companys stock; therefore historical price information is limited. High and low sales prices since that time, by quarter-ended date, are as
follows:



|                   |  |      |       |     |   |     
|------------------ |  | ---- | ----- | --- | - | ----
|                   |  | High |       | Low
|March 31, 2005     |  | $    | 0.70  |     | $ | 0.35
|June 30, 2005      |  | $    | 1.01  |     | $ | 0.26
|September 30, 2005 |  | $    | 0.80  |     | $ | 0.35
|December 31, 2005  |  | $    | 0.85  |     | $ | 0.42
|March 31, 2006     |  | $    | 0.55  |     | $ | 0.45
|June 30, 2006      |  | $    | 0.50  |     | $ | 0.30
|September 30, 2006 |  | $    | 0.30  |     | $ | 0.13
|December 31, 2006  |  | $    | 0.145 |     | $ | 0.12
|March 31, 2007     |  | $    | 0.21  |     | $ | 0.11
|June 30, 2007      |  | $    | .018  |     | $ | 0.15
|September 30, 2007 |  | $    | 0.15  |     | $ | 0.07
|December 31, 2007  |  | $    | 0.10  |     | $ | 0.07



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Index to Financial Statements

As of December 31, 2007, there were approximately 232 stockholders of record of the Companys common stock.

Dividend Policy

Historically, the Company has not declared or paid any cash dividends on its common stock. Any future
determination to pay dividends on its common stock will depend upon the Companys results of operations, financial condition and capital requirements, applicable restrictions under any contractual arrangements and such other factors deemed
relevant by the Companys Board of Directors.

Recent Sales of Unregistered Securities:

On February 10, 2006, Vertical Health Solutions, Inc. (the Company), issued an aggregate of 656,714 shares of common stock to eight
holders of options and warrants in exchange for the cancellation of such options and warrants. Those receiving shares of common stock included the following affiliates of the Company:



|                   |  |        
|------------------ |  | -------
|Name               |  | Shares 
|Jugal K. Taneja    |  | 234,857
|Stephen M. Watters |  | 234,857
|Patrick Sheppard   |  | 12,000 
|Alfred Lehmkuhl    |  | 52,000 
|Brian T. Nugent    |  | 32,000 
|Thaddeus Shalek    |  | 50,000 

The shares were issued in reliance on the exemption provided by section 4(2) under the Securities
Act of 1933.

On May 28, 2004, the Company entered into a Securities Purchase Agreement with Laurus Master Fund, Ltd.
(Laurus), under which the Company issued and sold to Laurus in a private placement (i) $4,000,000 of Series A Preferred Stock of its subsidiary that is convertible into shares of common stock of the Company (the Preferred
Stock), and (ii) warrants to purchase 820,000 shares of common stock at a price equal to $1.87 per share, exercisable until May 27, 2011 (the  Series A Warrants).

On May 26, 2006, the Company entered into a Warrant Cancellation Agreement with Laurus. Pursuant to the agreement, the Company canceled the 820,000
outstanding Series A Warrants and in exchange, agreed to issue 200,000 shares of the Companys common stock to Laurus. The common stock will not be registered under the Securities Act of 1933 at the time of initial issuance. The Company granted
piggy-back registration rights to Laurus and the common stock may be registered in the future if and when the Company files for registration of other securities.



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The issuance of the 200,000 shares of common stock were exempt from registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) of such Securities Act and Regulation D promulgated hereunder based upon the representations of Laurus that it was an accredited investor (as defined under Rule 501 of Regulation D)
and that it was purchasing such securities without a present view toward a distribution of the securities. In addition, there was no general advertisement conducted in connection with the sale of the securities.

Sale of Drug Depot, Inc. (Wholly Owned Subsidiary)

On June 30, 2007, the Company, entered into an agreement with T&L Pharmacy, Inc. (T&L), pursuant to which T&L purchased all of the outstanding stock of the Companys wholly-owned
subsidiary Drug Depot, Inc. (Depot). The purchase price consisted of the assumption of the purchasers of debt in the aggregate amount of $146,206 and payment of $67,000 cash. The Agreement is effective as of June 1, 2007. The sale
was approved by the Companys independent directors.



|Item 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
|------- | ----------------------------------------------------------

The statements contained in this Report that are not historical are forward-looking statements, including statements regarding the Companys expectations, intentions, beliefs or strategies regarding the future.
Forward-looking statements include the Companys statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included in this Report are based on information available
to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Companys actual results could differ materially from those in such forward-looking
statements. Additionally, the following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this Report. The discussion is based upon such consolidated financial
statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles.

Overview

The Company, primarily, derived its revenues from developing, packaging and wholesaling a wide variety of veterinary and certain pharmaceuticals. Revenues
were billed and recognized, as product is shipped, net of discounts, allowances, returns and credits.

Cost of goods sold was comprised of
material product costs, packaging and labeling costs, direct personnel compensation and other statutory benefits and indirect costs relating to the labor to support product purchase, receipt, packaging, and warehousing. Research and development
expenses are charged against cost of goods sold as incurred and are not material to the Companys operations.

Selling, general and
administrative costs include management and general office salaries, and professional fee expenses.

Interest and other income (expense)
consist primarily of interest expense associated with borrowings to finance working capital needs.

Results of Operations

Year Ended December 31, 2007 Compared To Year Ended December 31, 2006

Revenues. The Company generated revenues of $0 for the year ended December 31, 2007, compared to $0 for the year ended December 31,
2006. As revenues relate directly to the subsidiary, Drug Depot, Inc. which was sold during the year, these amounts were reclassified to discontinued operations.

Gross profit. The Company achieved a gross profit of $0 for the year ended December 31, 2007, compared to $0 for the year ended December 31, 2006. All of the gross profit was related to Drug Depot,
Inc. which was reclassified to discontinued operations for both years.



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Operating expenses. The Company incurred operating expenses of $213,702 for the year ended
December 31, 2007, an increase of $123,669 or 137%, compared to $90,033 for the year ended December 31, 2006. The increase was primarily attributable to the sale of the subsidiary Drug Depot, Inc. and additional merger and acquisition due
diligence.

Interest expense, net of interest income. Interest income, net of interest expense was $2,103 for the year ended
December 31, 2007, compared to $14,507 of net interest expense for the year ended December 31, 2006. The decrease in interest expense, net of interest income was primarily a result of the decreases in outstanding debt.

Income taxes. The Company had no income tax provision for the years ended December 31, 2007 and 2006. No tax benefit has been provided due to
the uncertainty in the utilization of the loss carry forwards. These net operating losses may be carried forward for up to 20 years.

Discontinued operations. The Company had income (loss) from the operation of discontinued operations of the animal health products division of $200,520 for the year ended December 31, 2007 as compared to ($206,028) for the year
ended December 31, 2006. The increase in the income from this segment was due to the increased sale higher profit margin products in 2007.

Preferred dividends. Preferred dividends on the Companys preferred stock were $0 for the years ended December 31, 2007 and December 31, 2006.

Net loss per share.Net loss per share was $0.00 for the year ended December 31, 2007, compared to net loss per share of $0.01 for the year
ended December 31, 2006.

Inflation; Seasonality.Management believes that there was no material effect on operations or the
financial condition of the Company as a result of inflation for the years ended December 31, 2007 and 2006. Management also believes that its business is not seasonal; however, significant promotional activities can have a direct impact on
sales volume in any given quarter.

Financial Condition, Liquidity and Capital Resources

The Company had cash of $0 and a working capital deficit of $91,893 at December 31, 2007, compared to cash of $87,645 and a working capital deficit
of $41,830 at December 31, 2006.

Net cash provided by operating activities was $108,397 for the year ended December 31, 2007, as
compared to net cash used in operating activities of $80,487 for the year ended December 31, 2006. The provision of cash was primarily attributable to the decrease in the net loss and the gain on extinguishment of debt.

Net cash used by investing activities was $382,844, representing the payments on a note receivable.

Net cash provided by financing activities was $186,802, represented by proceeds from related party debt.

During the year ended December 31, 2007, the Company entered into an agreement to sell Drug Depot, a wholly owned subsidiary. The agreement and sale
closed in August 2007. The Companys sole business activities now consist of finding a new business to operate.

The Companys
future liquidity and cash requirements will primarily depend on the Companys ability to develop a new business or secure future acquisitions. In particular, as the Company will not have any cash flows from operations, it will be necessary for
the Company to raise capital or seek additional financing. While there can be no assurance that such raising of capital or seeking of additional financing would be available in amounts and on terms acceptable to the Company, management believes that
such financing would likely be available on acceptable terms.

New Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS 159 permits the measurement of specified financial
instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. We do not anticipate that adoption of this statement will have a material impact
on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),
Business Combinations (SFAS 141R). SFAS 141R establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree; 2) in a business combination achieved in stages, sometimes referred to as a step acquisition, recognizes the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at
the full amounts of their fair values; 3) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS 141R establishes disclosure requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. This Statement is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or
after December 15, 2008. The adoption of SFAS 141R will have an impact on our accounting for future business combinations; however, the materiality of that impact cannot be determined.

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (SAB 110) which allows companies that do
not have sufficient historical experience for estimating the expected term of plain vanilla share option grants to provide a reasonable estimate and to continue use of the simplified method after December 31, 2007. SAB 110
extends the opportunity to use the simplified method beyond December 31, 2007, as was allowed by Staff Accounting Bulletin No. 107 (SAB 107). Adoption of SAB 110 will not impact our financial statements as we did not use the
simplified method to estimate lives of share-based awards.

Other recent accounting pronouncements issued by the FASB
(including its EITF), the 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.



|Item 7. | FINANCIAL STATEMENTS.
|------- | ---------------------

See consolidated financial
statements following Item of this Annual Report on Form 10-KSB.



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##### Table of Contents

|Item 8. | CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- | ------------------------------------------------------------------------------------

None.



|Item 8a. | CONTROLS AND PROCEDURES.
|-------- | ------------------------

Evaluation of disclosure
controls and procedures.

An evaluation was performed under the supervision and with the participation of our management, including the chief executive
officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure procedures. Based on managements evaluation as of the end of the period covered by this Annual Report, our principal executive officer
and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act) were sufficiently effective to
ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness.

Changes in internal controls.

There have been no
significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above, nor were there any significant deficiencies or material weaknesses in our
internal controls. Accordingly, no corrective actions were required or undertaken except as disclosed.

Managements Report of Internal Control
Over Financial Reporting.

The Companys management is responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of the Companys chief executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control
over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSCO) in Internal Control-Integrated Framework.

The Companys internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. Based on this evaluation, the Companys management
concluded that its internal control over financial reporting was not effective so as to timely identify, correct & disclose information required to be included in our Securities & Exchange Commission (SEC) reports due to the Companys
limited internal resources and lack of ability to have multiple levels of transaction review. Through the use of external consultants and the accounting processes, management believes that the financial statements and other information presented
herewith are materially correct.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected.

This annual report does not include an attestation report of the Companys registered 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.



---

##### Table of Contents

PART III



|Item 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
|------- | ----------------------------------------------------------------------------------------------------------------

The following are the names and certain information regarding the current Directors and Executive Officers of the Company:



|                   |  |     |  |                                                       |  |               
|------------------ |  | --- |  | ----------------------------------------------------- |  | --------------
|Name               |  | Age |  | Position                                              |  | Director Since
|Stephen M. Watters |  | 40  |  | Chief Executive and Chief Financial Officer, Director |  | 2000          
|                   |  |     | 
|Jugal K. Taneja    |  | 63  |  | Director                                              |  | 2000          
|                   |  |     | 
|Alfred Lehmkuhl    |  | 75  |  | Director                                              |  | 2002          
|                   |  |     | 
|Patrick Sheppard   |  | 59  |  | Director                                              |  | 2002          
|                   |  |     | 
|Brian T. Nugent    |  | 33  |  | Director                                              |  | 2001          

Pursuant to the Companys bylaws, each director serves for a term of one year and until his
successor is duly qualified. Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement), at the Companys annual meeting, to hold such office until an officers successor has been duly
appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. Some of the directors and executive officers of the Company also serve in various capacities with subsidiaries of the Company. There are no family
relationships among any of the Companys other directors and executive officers.

Background of Executive Officers and Directors

On January 4, 2006 Stephen Watters resigned as Chief Executive Officer of the Company and effective July 7, 2006, was reappointed Chief
Executive and Financial Officer of the Company. Prior to working with us, Mr. Watters was the Co-founder, Chief Executive Officer and President, of Drugmax, Inc., from September 1998 until August 2000. DrugMax was a wholesaler and retailer of
pharmaceuticals, over-the counter drugs, health and beauty care products and private label dietary supplements. From September through November 1998, Mr. Watters served as Vice President of Finance of Dynamic Health Products, Inc., a
publicly-held nutraceutical products company. Prior to that, he worked in the investment banking and brokerage businesses from April 1992 to September 1998. He received his Executive Masters of Business Administration degree from Case Western
Reserve University in 1997.

On January 4, 2006 Brian Nugent resigned as President and Chief Operating Officer of the Company. Brian
Nugent had served as our President and Chief Operating Officer since April 2001. Mr. Nugent had also served as President and Treasurer of Labelclick, Inc. since its inception and also served President of Drug Depot, Inc., our wholly owned
specialty pharmacy located in Palm Harbor, Florida since inception to June 2008. Prior to joining Vertical Health Solutions, Inc., Mr. Nugent spent three years working in management for the Tampa Bay Buccaneers of the National Football League
where he was responsible for establishing business relationships and managing daily operations. He received his Bachelors of Science in Multi-National Business Operations from the Florida State University in 1997.

On January 4, 2006, Jugal Taneja resigned as a consultant to the Company. Jugal K. Taneja had served as a director of the Company since its
inception and as a consultant to the Company since March 2000. In addition to his service to the Company, Mr. Taneja operates several other companies. He serves as Co-Chairman of the Board of DrugMax, Inc., and from October 2000 to November
2004 served as DrugMaxs Chief Executive Officer. He previously served as DrugMaxs Chief Executive Officer from its inception in October 1993 through April 1995, and again from January 1996 until August 1999. Further, he served at various
times over the years as DrugMaxs President and Secretary. DrugMax is a publicly-held company operating as a wholesaler and retailer of pharmaceuticals, over-the counter drugs, health and beauty care products and private label dietary
supplements. Mr. Taneja also serves as Chairman and a



---

##### Table of Contents

director of Geopharma, Inc., a publicly-held pharmaceutical and nutraceutical products company. Mr. Taneja holds degrees in Petroleum Engineering,
Mechanical Engineering, and a Masters in Business Administration from Rutgers University.

Patrick J. Sheppard has been a Director since
August 2002. Mr. Sheppard has been the President of S & H Associates, a construction company specializing in the commercial development of healthcare and retail facilities, since June 1996. Since June 1996, he has served as President of
Purtec Systems, Inc., a Florida corporation that provides consulting services to the water purification industry. Mr. Sheppard serves as a Director to Medcom Facilities, a real estate holding company, ICOT Center, Inc., a large commercial flex
space park in Clearwater, Florida, and for the Montessori Schools, a private elementary and middle school in Pinellas County, Florida. He has been a licensed Florida Real Estate Broker since July 1979 and owner of Terra Realty Management, Inc., a
Real Estate management and consulting company since October 2001.

Alfred F. Lehmkuhl has been a Director since May 2002. Since June 1988,
he has been Chief Executive Officer of Seven Limers, Inc., an agricultural equipment and supply company, and KAS Trucking, Inc., a regulated common carrier trucking company. He served as President and Chief Executive Officer of Horns Crop
Service, Inc., an agricultural supply company from September 1984 to December 1993. Mr. Lehmkuhl holds a Bachelor of Science degree in Animal Nutrition from The Ohio State University.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3, 4, 5, and amendments thereto, furnished to the Company during fiscal year 2007 and 2006, the Company is not aware of any director, officer or beneficial owner of more than ten percent of the
Companys Common Stock that failed to file reports required by Section 16(a) of the Securities Exchange Act of 1934 on a timely basis during fiscal year 2006.

Code of Ethics

The Company has adopted its Code of Ethics and Business Conduct for Officers,
Directors and Employees, which applies to all of the officers, directors and employees of the Company. The Code of Ethics is filed as an exhibit to this Report on Form 10-KSB.



|Item 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------

SUMMARY COMPENSATION
TABLE (1)



|                         |      |                            |         |           |   |          |   |                |   |                     |   |                          |         |         
|------------------------ | ---- | -------------------------- | ------- | --------- | - | -------- | - | -------------- | - | ------------------- | - | ------------------------ | ------- | --------
|                         |      | Summary Compensation Table |         |           |   |          |   |               
|Name Principal Positions |      | YearEnded                  |         | Salary($) |   | Bonus($) |   | StockAwards($) |   | OptionAwards($) (A) |   | All OtherCompensation($) |         | Total($)
|Stephen M. Watters,      |      |                            |         |           |   |          |   |                |   |                     |   |                          |         |         
|CEO, CFO                 |      | 2007                       |         | 0.00      |   | =        |   | =              |   | =                   |   | =                        |         | 0.00    
|                         | 2006 |                            | 0.00    |           | = |          | = |                | = |                     | = |                          | 0.00   
|                         | 2005 |                            | 165,000 |           | = |          | = |                | = |                     | = |                          | 165,000



|(1) | The compensation described in this table does not include medical and dental insurance benefits received by the named executive officers, if applicable, which are available
generally to all employees of the Company and certain perquisites and other personal benefits received by the named executive officers, the value of which does not exceed the lesser of $50,000 or 10% of any such officers total salary and bonus
disclosed in the table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Stephen M. Watters served as the Companys Chief Executive Officer since its inception and was reappointed as Chief Financial Officer on July 7, 2006
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



---

##### Table of Contents

During the year ended December 31, 2007, the Company did not pay any director fees for each meeting
attended by such director. Directors who are also employees receive no compensation for serving on the Board. The Companys non-employee directors receive options to purchase shares of common stock at the market price on the date they are
granted, reimbursement of expenses incurred consequential to their service and may receive additional options at the discretion of the Board. There was no compensation paid to our non-employee directors during the year ended December 31, 2007

Employment Agreements

The Company did not have any
outstanding employment contracts with any of its officers or directors for the year ended December 31, 2007.

The Company did not grant or issue any
stock options for the year ended December 31, 2007.



|                                          |  |           |  |                                                            |  |                                                                    |  |                                                 |  |                                              
|----------------------------------------- |  | --------- |  | ---------------------------------------------------------- |  | ------------------------------------------------------------------ |  | ----------------------------------------------- |  | ---------------------------------------------
|Name                                      |  | GrantDate |  | All OtherStock Awards:Number ofShares of StockOr Units (#) |  | All OtherOption Awards:Number ofSecurities Under-Lying Options (#) |  | Exercise orBase PriceOf OptionAwards($ /
Share) |  | Grant DateFair ValueOf Stock andOption Awards
|Stephen M. Watters, CEO, CFO and Director |  |           |  | =                                                          |  | =                                                                  |  | =                                               |  | =                                            



|Item 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------

The following table sets forth certain information, as of December 31, 2007 with respect to the beneficial ownership of the outstanding Common Stock
by (i) any holder of more than five (5%) percent; (ii) each of the Companys executive officers and directors; and (iii) the directors and executive officers of the Company as a group. An asterisk indicates beneficial
ownership of less than 1% of the outstanding Common Stock. Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares beneficially owned.



---

##### Table of Contents

Index to Financial Statements



|       |  |                                                   |  |                                           |  |                                    |  
|------ |  | ------------------------------------------------- |  | ----------------------------------------- |  | ---------------------------------- | -
|Class  |  | Name and Address of Beneficial Owner(1)           |  | Amount andNature ofBeneficialOwnership(2) |  | ApproximateTitle ofPercent OfClass |  
|Common |  | Stephen M. Watters(3)                             |  | 6,149,444                                 |  | 39.5                               | %
|Common |  | Brian T. Nugent (4)                               |  | 1,069,075                                 |  | 6.87                               | %
|Common |  | Jugal K. Taneja(5)                                |  | 4,615,787                                 |  | 29.67                              | %
|Common |  | Patrick Sheppard                                  |  | 326,675                                   |  | 2.1                                | %
|Common |  | Alfred Lehmkuhl(6)                                |  | 1,562,395                                 |  | 10.0                               | %
|Common |  | All officers and directors as a group (5 persons) |  | 13,723,376                                |  | 82.07                              | %



|(1) | Except as otherwise indicated, the address of each beneficial owner is c/o Vertical Health Solutions, Inc. at 630 Brooker Creek Blvd., Ste. 340 Oldsmar, FL , FL 34677.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to the shares shown. Except where
indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Of the shares beneficially owned by Mr. Watters, 1,913,868 shares are owned by SMW Capital Group Limited Partnership, a company owned and controlled by Mr. Watters. Also
includes 228,575 shares are owned by Kristen Watters, Mr. Watters wife. Mr. Watters disclaims beneficial ownership of the shares registered in the name of his wife.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Of the shares beneficially owned by Mr. Nugent, 95,240 shares are owned by Julie Nugent, Mr. Nugents wife. Mr. Nugent disclaims beneficial ownership of the
shares registered in the name of his wife.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Of the shares beneficially owned by Mr. Taneja, 450,994 shares are owned by Manju Taneja, Mr. Tanejas
wife. 285,720 shares are owned by Carnegie Capital LLC, a company owned and controlled by Mr. Taneja, 553,750 shares are owned by 21stCentury
Healthcare Fund L.P., a company controlled by Mr. Taneja, and 322,232 shares are owned by Bryan Capital Limited Partnership, a company wholly-owned by Dynamic Health Products, Inc., a public company which is controlled by Mr. Taneja.
Mr. Taneja disclaims beneficial ownership of the shares registered in the name of his wife.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Of the shares beneficially owned by Mr. Lehmkuhl, 38,100 shares are held by Mr. Lehmkuhl as custodian for each of Joseph J. Zam, Jr. and Katelyn C. Zam,
Mr. Lehmkuhls grandchildren.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
|-------- | -----------------------------------------------

On
January 4, 2006, Vertical Health Solutions, Inc. (the Company), entered into an agreement with Vitality Systems, Inc. (Vitality), pursuant to which Vitality purchased all of the outstanding stock of the Companys
wholly-owned subsidiary Labelclick, Inc. (Labelclick). The purchase price consisted of a 7% promissory note in the principal amount of $300,000, together with the assumption and personal guarantee of the purchasers of debt in the
aggregate amount of $1,800,000. The promissory note has a term of three years and is payable monthly in the principal amount of $9,263.13, together with accrued and unpaid interest. The Agreement is effective as of January 4, 2006. Vitality is
owned by Stephen Watters, our former Chief Executive Officer and a current director, Brian Nugent, our former President and a current director, and Jugal K. Taneja, a former consultant and a current director. In connection with the sale, the Company
received an independent valuation of Labelclick which supported the price paid by Vitality and the sale was approved by the Companys independent directors.

In connection with the agreement to sell Labelclick, Stephen Watters and Brian Nugent resigned as officers of the Company and Jugal K. Taneja agreed to the termination of his consulting agreement with the Company.
Each of the employment agreements and the consulting agreement were terminated effective as of January 18, 2006, without further payment or obligation beyond those which have accrued through and including January 18, 2005, but excluding
any termination payments otherwise payable pursuant to the agreements. Messrs. Watters, Nugent and Taneja remain members of the Companys Board of Directors

As of December 31, 2007 and 2006, the Company had an outstanding obligation to Thaddeus J. Shalek, Chief Financial Officer of the Company, in the amounts of approximately $ 0 and $15,000, respectively, for
working capital advances made to the Company. This obligation is included in the amounts due to related parties.



---

##### Table of Contents

Amounts due from and to affiliates represent balances owed to or from the Company for sales or purchases
occurring in the normal course of business. Amounts due from and to these affiliates are in the nature of trade payables or receivables and fluctuate based on sales and purchasing volume and payments received. The Company believes that material
affiliated transactions and loans, and business relationships entered into by the Company or its subsidiaries with certain of its officers, directors and principal shareholders or their affiliates were on terms no less favorable than the Company
could have obtained from independent third parties. Any future transactions between the Company and its officers, directors or affiliates will be subject to approval by a majority of disinterested directors or shareholders in accordance with Florida
law.

PART IV



|Item 13. | EXHIBITS.
|-------- | ---------

The following exhibits are filed with
this report:



3.1

Amended and Restated Articles of Incorporation*3.2

Amendment Creating Class of Preferred Stock*3.3

By-Laws*3.4

Certificate of Incorporation of Vertical Health Ventures, Inc., a wholly-owned subsidiary of the Company, filed as Exhibit 3.4 to Form SB-2, File No. 333-116682.3.5

Certificate of Designation of Vertical Health Ventures, Inc., designating the rights of Series A Cumulative Convertible Preferred Stock, as amended, filed as Exhibit 3.5 to Form SB-2, File
No. 333-116682.3.6

Bylaws of Vertical Health Ventures, Inc, filed as Exhibit 3.6 to Form SB-2, File No. 333-116682.4.1

Specimen Stock Certificate*4.2

Amendment No. 1 to Securities Purchase Agreement, dated as of September 20, 2004, filed as exhibit 4.9 to Companys Report on Form SB2/A dated as of October 20, 2004, and incorporated
herein by reference.4.3

Form of Redeemable Class A Warrant Agreement between Vertical Health Solutions, Inc. and Registrar and Transfer Company*10.1

Form of 2001 Stock Option Plan*10.2

Form of Employment Agreement with Stephen M. Watters*10.3

Form of Employment Agreement with Brian T. Nugent*10.4

Form of Employment Agreement with Thaddeus J. Shalek**10.5

Form of Consulting Agreement with Jugal K. Taneja**10.8

Stephen Watters warrant agreement*10.9

Jugal K. Taneja warrant agreement*14.1

Code of Ethics of Vertical Health Solutions, Inc.***21.1

Vertical Health Solutions, Inc.  List of Subsidiaries.***31.1

Certification Of Principal Executive Officer 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.




|* | Incorporated by reference to the Companys registration statement on Form SB-2, file no. 333-74766.
|- | ---------------------------------------------------------------------------------------------------

|** | Incorporated by reference to the Companys 10-KSB filed for the year ending December 31, 2004.
|-- | ----------------------------------------------------------------------------------------------

|*** | Incorporated by reference to the Companys 10-KSB filed for the year ending December 31, 2005.
|--- | ----------------------------------------------------------------------------------------------



|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|-------- | ---------------------------------------

Audit Fees. The aggregate
fees billed by our auditors to date, for professional services rendered for the audit of the Companys annual financial statements for the years ended December 31, 2007 and December 31, 2006, and for review of the financial statements
included in the Companys quarterly reports on Form 10-QSB during such fiscal years, were $62,787 and $34,095, respectively.

Tax Fees. The aggregate
fees billed for tax preparation and related services by our auditors were $5,000 and $2,500 for the years ended December 31, 2007 and 2006, respectively.

All Other Fees. For the fiscal year ended December 31, 2007, the Company incurred fees to auditors of $0 for services rendered to the Company, other than the services covered in Audit Fees, Audit-Related Fees or
Tax Fees.



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##### Table of Contents

Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the



|                     |  |  |  |                                 |  |                                                                        
|-------------------- |  |  |  | ------------------------------- |  | -----------------------------------------------------------------------
|                     |  |  |  | VERTICAL HEALTH SOLUTIONS, INC.
|                     |  |  | 
|Dated:April 17, 2008 |  |  |  | By:                             |  | /s/ Stephen M. Watters                                                 
|                     |  |  |  |                                 |  | Stephen M. Watters, Chief Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and on the dates indicated.



|          |  |                        |  |          |  |               
|--------- |  | ---------------------- |  | -------- |  | --------------
|Signature |  | Title                  |  | Date    
|          |  |                        | 
|By:       |  | /s/ Stephen M. Watters |  | Director |  | April 17, 2008
|          |  | Stephen M. Watters     |  |          |  |               
|          |  |                        | 
|By:       |  | /s/ Jugal K. Taneja    |  | Director |  | April 17, 2008
|          |  | Jugal K. Taneja        |  |          |  |               
|          |  |                        | 
|By:       |  | /s/ Alfred Lehmkuhl    |  | Director |  | April 17, 2008
|          |  | Alfred Lehmkuhl        |  |          |  |               
|          |  |                        | 
|By:       |  | /s/ Patrick Sheppard   |  | Director |  | April 17, 2008
|          |  | Patrick Sheppard       |  |          |  |               
|          |  |                        | 
|By:       |  | /s/ Brian T. Nugent    |  | Director |  | April 17, 2008
|          |  | Brian T. Nugent        |  |          |  |               



---

##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



|                                                                                                          |  |           
|--------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                          |  | PAGE      
|                                                                                                          | 
|Independent Auditors Report                                                                              |  | F-2       
|                                                                                                          | 
|Consolidated Balance Sheet as of December 31, 2007                                                        |  | F-3       
|                                                                                                          | 
|Consolidated Statements of Operations for the years ended December 31, 2007 and 2006                      |  | F-4       
|                                                                                                          | 
|Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2007 and 2006 |  | F-5       
|                                                                                                          | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006                      |  | F-6  F-7 
|                                                                                                          | 
|Notes to Consolidated Financial Statements                                                                |  | F-8  F-23



---

##### Table of Contents

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Vertical Health Solutions, Inc. and Subsidiaries

We have audited the
accompanying consolidated balance sheets of Vertical Health Solutions, Inc. and subsidiaries as of December 31, 2007 and 2006 and the related statement of operations, changes in stockholders equity, and cash flows for the years ended
December 31, 2007 and 2006. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 Vertical
Health Solutions, Inc. as of December 31, 2007 and 2006 and the results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company had a net loss of $40,111 for the year ended December 31, 2007 and had a working capital deficit of $91,893 as of December 31, 2007. The Company currently has no revenue producing activities
and there are no assurances that they will be able to obtain additional financing, if required. These conditions raise substantial doubt about the Companys ability to continue as a going concern. The accompanying financial statements have been
prepared on the basis that the Company will continue as a going concern, which assumes the satisfaction of liabilities in the normal course of business, and does not include any adjustments that may result from the outcome of this uncertainty.



|                               
|-------------------------------
|BRIMMER, BUREK & KEELAN LLP    
|                               
|/s/ Brimmer, Burek & Keelan LLP
|Tampa, Florida                 
|April 15, 2008                 



F-2



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2007



|                                                                                                                                                                                                                             |  |      |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | -
|                                                                                                                                                                                                                             |  | 2007 |           
|ASSETS                                                                                                                                                                                                                       |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             |  |      |            |  
|Total assets                                                                                                                                                                                                                 |  | $    |           |  
|                                                                                                                                                                                                                             |  |      |            |  
|                                                                                                                                                                                                                             | 
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                               |  |      |            |  
|Current liabilities:                                                                                                                                                                                                         |  |      |            |  
|Accounts payable                                                                                                                                                                                                             |  | $    | 56,649     |  
|Accrued expenses                                                                                                                                                                                                             |  |      | 26,320     |  
|Notes payable to related parties                                                                                                                                                                                             |  |      | 8,924      |  
|                                                                                                                                                                                                                             |  |      |            |  
|Total current liabilities                                                                                                                                                                                                    |  |      | 91,893     |  
|                                                                                                                                                                                                                             |  |      |            |  
|Total liabilities                                                                                                                                                                                                            |  |      | 91,893     |  
|                                                                                                                                                                                                                             |  |      |            |  
|Commitments and contingencies                                                                                                                                                                                                |  |      |           |  
|Stockholders equity (deficit):                                                                                                                                                                                              |  |      |            |  
|Preferred stock, $.001 par value, 5,000,000 shares authorized:                                                                                                                                                               |  |      |            |  
|Series A 10% cumulative, convertible, 1,000,000 shares authorized, no shares issued and outstanding                                                                                                                          |  |      |           |  
|Undesignated, 4,000,000 shares authorized, no shares or outstanding Series A 10% Cumulative, Convertible Preferred Stock, $.01 par value,
4,000,000 shares authorized; no shares and 3,900,000 shares issued and outstanding |  |      |           |  
|Common stock, $.001 par value, 100,000,000 shares authorized; 16,722,347 shares issued and outstanding                                                                                                                       |  |      | 16,723     |  
|Additional Paid-In Capital                                                                                                                                                                                                   |  |      | 2,660,821  |  
|Accumulated deficit                                                                                                                                                                                                          |  |      | (2,769,437 | )
|                                                                                                                                                                                                                             |  |      |            |  
|Total stockholders deficit                                                                                                                                                                                                  |  |      | (91,893    | )
|                                                                                                                                                                                                                             |  |      |            |  
|Total liabilities and stockholders deficit                                                                                                                                                                                  |  | $    |           |  
|                                                                                                                                                                                                                             |  |      |            |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2007 and 2006



|                                                                       |  |      |            |   |      |   |            |  
|---------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                       |  | 2007 |            |   | 2006 |  
|Sales                                                                  |  | $    |           |   |      | $ |           |  
|Cost of goods sold                                                     |  |      |           |   |      |   |           |  
|                                                                       |  |      |            |   |      |   |            |  
|Gross profit                                                           |  |      |           |   |      |   |           |  
|                                                                       |  |      |            |   |      |   |            |  
|Operating expenses:                                                    |  |      |            |   |      |   |            |  
|Selling, general and administrative expenses                           |  |      | 213,702    |   |      |   | 90,033     |  
|                                                                       |  |      |            |   |      |   |            |  
|Total operating expenses                                               |  |      | 213,702    |   |      |   | 90,033     |  
|                                                                       |  |      |            |   |      |   |            |  
|Operating loss before other income and expense                         |  |      | (213,702   | ) |      |   | (90,033    | )
|                                                                       |  |      |            |   |      |   |            |  
|Other income (expense):                                                |  |      |            |   |      |   |            |  
|Interest income                                                        |  |      | 3,479      |   |      |   | 18,050     |  
|Impairment of goodwill                                                 |  |      |           |   |      |   | (430,000   | )
|Derivative income (expense)                                            |  |      |           |   |      |   | 187,873    |  
|Gain on sale of subsidiary                                             |  |      | 13,145     |   |      |   | 192,541    |  
|Gain on extinguishment of debt                                         |  |      |           |   |      |   | 146,455    |  
|Interest expense                                                       |  |      | (1,376     | ) |      |   | (3,533     | )
|                                                                       |  |      |            |   |      |   |            |  
|Total other income (expense)                                           |  |      | 15,248     |   |      |   | 111,386    |  
|                                                                       |  |      |            |   |      |   |            |  
|Income (loss) from continuing operations before income taxes           |  |      | (198,454   | ) |      |   | 21,353     |  
|                                                                       |  |      |            |   |      |   |            |  
|Income taxes                                                           |  |      |           |   |      |   |           |  
|                                                                       |  |      |            |   |      |   |            |  
|Income (loss) from continuing operations                               |  |      | (198,454   | ) |      |   | 21,353     |  
|                                                                       |  |      |            |   |      |   |            |  
|Discontinued operations                                                |  |      |            |   |      |   |            |  
|Income (loss) from operation of discontinued (net of tax $0)           |  |      | 200,520    |   |      |   | (206,028   | )
|Loss from disposal of animal health products division (net of tax)     |  |      | (42,177    | ) |      |   |           |  
|                                                                       |  |      |            |   |      |   |            |  
|                                                                       |  |      | 158,343    |   |      |   | (206,028   | )
|                                                                       |  |      |            |   |      |   |            |  
|Net loss available to common stockholders                              |  | $    | (40,111    | ) |      | $ | (184,675   | )
|                                                                       |  |      |            |   |      |   |            |  
|Basic and diluted loss per share from continuing operations            |  | $    | (0.00      | ) |      | $ | (0.01      | )
|                                                                       |  |      |            |   |      |   |            |  
|Basic and diluted loss per share from discontinued operations          |  | $    | (0.00      | ) |      | $ | (0.00      | )
|                                                                       |  |      |            |   |      |   |            |  
|Basic and diluted weighted average number of common shares outstanding |  |      | 16,618,453 |   |      |   | 16,253,509 |  
|                                                                       |  |      |            |   |      |   |            |  

See accompanying notes to consolidated financial statements.



F-4



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY DEFICIT

Years Ended December 31, 2007 and 2006



|                                                      |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   |            |   |  |   |          |  
|----------------------------------------------------- | ------ | --------------- | ------- | ------------ | ------ | ------------------------ | ---------- | ------------------ | - | ------ | ------------------------- | - | --------- |  | - | ---------- | - |  | - | -------- | -
|                                                      |        | Preferred Stock |         | Common Stock |        | AdditionalPaid-inCapital |            | AccumulatedDeficit |   |        | TotalStockholdersDeficit |  
|                                                      | Shares |                 | Dollars |              | Shares |                          | Dollars    |                    |   |       
|Balance at December 31, 2005                          |        | 0               |         | $            | 0      |                          | 15,554,541 |                    | $ | 15,555 |                           | $ | 1,674,311 |  | $ | (2,544,651 | ) |  | $ | (854,785 | )
|Issuance of common stock for the exercise of warrants |        |                 |         |              |        |                          | 656,714    |                    |   | 656    |                           |   | 869,177   |  |   |            |   |  |   | 869,833  |  
|Issuance of common stock for consulting services      |        |                 |         |              |        |                          | 12,500     |                    |   | 13     |                           |   | 4,987     |  |   |            |   |  |   | 5,000    |  
|Issuance of common stock for the exercise of warrants |        |                 |         |              |        |                          | 200,000    |                    |   | 200    |                           |   | 79,800    |  |   |            |   |  |   | 80,000   |  
|                                                      |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   |            |   |  |   |          |  
|Net loss                                              |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   | (184,675   | ) |  |   | (184,675 | )
|                                                      |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   |            |   |  |   |          |  
|Balance at December 31, 2006                          |        | 0               |         | $            | 0      |                          | 16,423,755 |                    | $ | 16,424 |                           | $ | 2,628,275 |  | $ | (2,729,326 | ) |  | $ | (84,627  | )
|Issuance of common stock in settlement of a payable   |        |                 |         |              |        |                          | 298,592    |                    |   | 299    |                           |   | 32,546    |  |   |            |   |  |   | 32,845   |  
|Net loss                                              |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   | (40,111    | ) |  |   | (40,111  | )
|                                                      |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   |            |   |  |   |          |  
|Balance, December 31, 2007                            |        | 0               |         | $            | 0      |                          | 16,722,347 |                    | $ | 16,723 |                           | $ | 2,660,821 |  | $ | (2,769,437 | ) |  |   | (91,893  | )
|                                                      |        |                 |         |              |        |                          |            |                    |   |        |                           |   |           |  |   |            |   |  |   |          |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2007 and 2006



|                                                                                         |  |      |          |   |      |   |          |  
|---------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                         |  | 2007 |          |   | 2006 |  
|Cash flows from operating activities:                                                    |  |      |          |   |      |   |          |  
|Net loss                                                                                 |  |      |         |   |      |   |         |  
|Net loss from discontinued operations                                                    |  | $    | (40,111  | ) |      | $ | (184,675 | )
|Adjustments to reconcile net loss to net cash provided by operating activities:          |  |      |          |   |      |   |          |  
|Depreciation and amortization                                                            |  |      | 1,248    |   |      |   | 4,155    |  
|Gain on extinguishment of debt                                                           |  |      |         |   |      |   | (146,455 | )
|Gain on settlement of related party liabilities                                          |  |      | (13,145  | ) |      |   |         |  
|Impairment of goodwill                                                                   |  |      |         |   |      |   | 430,000  |  
|Derivative instrument (income) expense, net                                              |  |      |         |   |      |   | 187,873  |  
|Loss (gain) on sale of subsidiary                                                        |  |      | 42,177   |   |      |   | (192,541 | )
|Common stock issued for services                                                         |  |      | 32,845   |   |      |   | 5,000    |  
|Expenses paid by reduction of notes receivable                                           |  |      |         |   |      |   | 272,192  |  
|Changes in operating assets and liabilities:                                             |  |      |          |   |      |   |          |  
|Accounts payable                                                                         |  |      | 85,383   |   |      |   |         |  
|Accrued expenses                                                                         |  |      |         |   |      |   | 12,972   |  
|                                                                                         |  |      |          |   |      |   |          |  
|Net cash provided by operating activities from continuing operations                     |  |      | 108,397  |   |      |   | 12,775   |  
|Net cash (used) provided by operating activities attributable to discontinued operations |  |      | (375,194 | ) |      |   | 67,712   |  
|                                                                                         |  |      |          |   |      |   |          |  
|Net cash (used) provided by operating activities                                         |  |      | (266,797 | ) |      |   | 80,487   |  
|                                                                                         |  |     
|Cash flows from investing activities:                                                    |  |      |          |   |      |   |          |  
|Proceeds from the sale of subsidiary                                                     |  |      | 67,000   |   |      |   |         |  
|                                                                                         |  |      |          |   |      |   |          |  
|Purchase of intangible assets                                                            |  |      |         |   |      |   | (8,986   | )
|Proceeds from the sale of assets                                                         |  |      | 19,498   |   |      |   |         |  
|Net cash provided by investing activities from continuing operations                     |  |      | 67,000   |   |      |   |         |  
|Net cash (used) provided by investing activities attributable to discontinued operations |  |      | 19,498   |   |      |   | (8,986   | )
|                                                                                         |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                                    |  |      | 86,498   |   |      |   | (8,986   | )
|                                                                                         |  |      |          |   |      |   |          |  
|                                                                                         |  |     
|Cash flows from financing activities:                                                    |  |      |          |   |      |   |          |  
|Cash transferred in sale of subsidiary                                                   |  |      |         |   |      |   | (14,100  | )
|Payments of long-term obligations                                                        |  |      |         |   |      |   | (99,486  | )
|Proceeds from related party loans                                                        |  |      |         |   |      |   | 68,632   |  
|Proceeds from related party notes payable                                                |  |      | 92,654   |   |      |   | 46,316   |  
|                                                                                         |  |      |          |   |      |   |          |  
|Net cash provided by financing activities from continuing activities                     |  |      | 92,654   |   |      |   | 1,362    |  
|Net cash used from financing activities attributed to discontinued operations            |  |      |         |   |      |   |         |  
|                                                                                         |  |      |          |   |      |   |          |  
|Net cash provided by financing activities                                                |  | $    | 92,654   |   |      | $ | 1,362    |  
|                                                                                         |  |      |          |   |      |   |          |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWSContinued

Years Ended December 31, 2007 and 2006



|                                                  |  |      |       |      |   |      
|------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                  |  | 2007 |       | 2006
|Supplemental disclosure of cash flow information: |  |      |       |      |   |      
|Cash paid during the period for interest          |  | $    | 4,901 |      | $ | 3,533
|Cash paid during the period for income taxes      |  | $    |      |      | $ | 0    

On June 1, 2007, the Company sold a subsidiary which included $449,730 of assets, the assumption of
liabilities of $340,553 in exchange for $30,000 cash and a $37,000 receivable, which was paid in full as of the year ended December 31, 2007.

During the
year ended December 31, 2007, the Company settled $43,145 in related party payables for $30,000 in cash, which resulted in a $13,145 gain on settlement of liabilities.

On January 18, 2006, the Company sold a subsidiary which included $1,013,938 of assets and debt of $1,873,558 in exchange for a $300,000 note receivable.

During the year ended December 31, 2006, the Company issued 12,500 shares of common stock valued at $5,000 for services.

See accompanying notes to consolidated financial statements.



F-7



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE 1SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

Vertical Health Solutions, Inc., incorporated as Labelclick.com, Inc. on March 3, 2000 under
the laws of the State of Florida, is located in Oldsmar, Florida and develops, markets and distributes animal health products to veterinarians and distributors. The Company changed its name to Vertical Health Solutions, Inc. on January 11, 2001
and retained LabelClick as an operating subsidiary.

Principles of Consolidation

The consolidated financial statements as of and for the years ended December 31, 2007 and 2006 include the accounts of Vertical Health Solutions,
Inc. and its wholly owned subsidiary (collectively the Company), Drug Depot, Inc. through May 31, 2007 (date of sale). All intercompany accounts and balances have been eliminated in consolidation.

Cash and Cash Equivalents

For purposes of the
statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of
balances due from customers net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances.

Intangible Asset

The intangible asset consisted of
trademarks and is being amortized using the straight-line method over a period of 15 years. Amortization charged to operations was $0 and $367 for the years ending December 31, 2007 and 2006, respectively.

Inventories

Inventories, net are stated at the lower
of cost or market. Cost is determined using the first-in, first-out method.

Property and Equipment

Depreciation is provided for using the straight-line method, in amounts sufficient to relate the cost of depreciable assets to operations over their
estimated service lives ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Leased equipment
under capital leases is amortized using the straight-line method over the lives of the respective leases or over the service lives of the assets for those leases that substantially transfer ownership. Accelerated methods are used for tax
depreciation.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



Goodwill

The Goodwill was recorded on the books as a result of the acquisition of the pharmacy operations by the wholly owned subsidiary, Drug Depot, Inc, d/b/a APS Pharmacy on November 1, 2004. The Goodwill is not being amortized in accordance
with the provisions of SFAS 142; however, due to the disposition of LabelClick Inc. and the continued losses, management has recorded an impairment of the goodwill at $430,000 and included this amount in the accompanying statement of operation for
the year ended December 31, 2006.

Impairment of Assets

The Companys policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, certain identifiable intangibles and goodwill when certain events have taken place that
indicate that the remaining balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses an estimate of related undiscounted cash flows. A deficiency in these cash
flows relative to the carrying amounts is an indication of the need for a write-down due to impairment. The impairment write-down would be the difference between the carrying amounts and the fair value of these assets. Losses on impairment are
recognized by a charge to earnings. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. The Company recorded $430,000 as an impairment loss related to goodwill during the year
ended December 31, 2006. There were no impairment losses recorded during the year ended December 31, 2007 as all fixed assets were disposed of in the sale of the subsidiary, Drug Depot on May 31, 2007.

Loss on Sale of Subsidiary

On June 1, 2007,
Vertical Health Solutions, Inc. (the Company), its wholly-owned subsidiary Drug Depot, Inc. (Drug Depot) and T&L, Inc. (T&L), entered into a Stock Purchase Agreement pursuant to which the Company agreed to
sell all of the outstanding capital stock of Drug Depot to T&L. The purchase price consisted of $67,000 cash and the cancellation of $146,206 note payable due to T&L, Inc. Upon execution of the agreement, $30,000 was received by the Company.
The balance of $37,000 and the cancellation of the $146,206 note payable were completed upon the closing of the agreement.

Drug Depot
constitutes substantially all of the Companys assets and operations. The Statement of Operations for the year ended December 31, 2007, reflects only the portion of the income and expenses of Drug Depot through the date of the sale,
June 1, 2007, and $42,177 is recorded as a loss on the disposal.

Gain on Sale of Subsidiary

On January 18, 2006, the Company entered into an agreement with Vitality Systems, Inc. (Vitality), pursuant to which Vitality purchased
all of the outstanding stock of the Companys wholly-owned subsidiary LabelClick, Inc. The purchase price consisted of a 7% promissory note in the principal amount of $300,000, together with the assumption of all debt and personal guarantee of
the outstanding bank debt included in the estimated amount of $1,800,000. The promissory note has a term of three years and is payable monthly in the principal amount of $9,263, together with accrued and unpaid interest. The Agreement is effective
as of January 4, 2006. Vitality is owned by Stephen Watters, our Chief Executive Officer and a director, Brian Nugent, our former President and a director, and Jugal K. Taneja, a former consultant and a director. In connection with the sale,
the Company received an independent valuation of LabelClick which supported the price paid by Vitality and the sale was approved by the Companys independent directors.

The Statement of Operations reflects only the portion of the income attributable to shareholders other than Messrs. Watters, Taneja and Nugent because,
as buyers, they are related parties. The amount of gain recognized was approximately $192,541 which represented approximately 32% of outside ownership.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



Income Taxes

The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes (SFAS 109). Under the liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities. Valuation allowances are provided if necessary to reduce deferred tax assets to the amount expected to be realized.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007. FIN
48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular
jurisdiction. The adoption of FIN 48 did not have a material impact to the Companys financial statements.

Earnings (Loss) Per Common Share

The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128). Earnings (loss) per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per share are calculated by dividing net income by the weighted average number of shares of
common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method.

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 disclosures of contingent assets and liabilities at December 31, 2007 and 2006, as well as the reported amounts of revenues and expenses for the years then ended. The actual outcome of the estimates could
differ from the estimates made in the preparation of the consolidated financial statements.

Revenue Recognition

Revenues are recognized when the merchandise is shipped and title passes to the customer. Revenue is recorded net of any discounts, allowances, returns or
credits. Returns are allowed for certain products and are subject to a restocking fee. The Company has not experienced any significant discounts, allowances, returns or credits to date.

Segment Information

The Company utilizes the guidance provided by Statement of Financial Accounting
Standards No. 131, Disclosures About Segments Of An Enterprise And Related Information (SFAS 131). Certain information is disclosed in accordance with SFAS 131, based on the way management organizes financial information for making
operating decisions and assessing performance. For the year ended December 31, 2007, the Company operated only one segment.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



Stock Based Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued a revision to SFAS No. 123, SFAS 123R Share-Base Payment. SFAS No. 123R requires all companies to measure compensation costs for all
share based payment, including stock options, at fair value and expense such payments over the service period. SFAS No. 123R specifies that companies must use an option-pricing model to estimate fair value, although it does not specifically
require the use of a particular model. The new standard is effective for annual periods beginning after December 15, 2005 and, therefore, was effective for the Company beginning with the first quarter of 2006. Under the provisions of FAS 123R,
companies can select from three transition methods for the implementation of this standard. The modified prospective method would require all new awards that are granted after the effective date to use the provisions of FAS 123R. Under this method,
for vested awards that are outstanding on the effective date of FAS 123R , a company would not have to record any additional compensation expense. For unvested awards that are outstanding on the effective date, of FAS 123R and were previously
included as part of pro forma net income and earnings per share under the provisions of FAS 123 would be charged to expense over the remaining vesting period, without any changes in measurement. The second alternative is a variation of the modified
prospective method, which would allow companies to restate earlier interim periods in the year that FAS 123R is adopted using the applicable FAS 123 pro forma amounts. Under the third alternative, the modified retrospective method, companies would
apply the modified prospective method and also restate their prior financial statements to include the amounts that were previously recognized in their pro forma disclosures under the original provisions of FAS 123. The Company had no unvested
employee stock options as of January 1, 2006, therefore, there is no financial statement impact regarding the adoption of FAS 123R.

Additionally,
during the year ended December 31, 2006, the Company extinguished 820,000 warrants in exchange for 200,000 shares of common stock valued at $80,000. The fair value of the warrants was determined at the date of the exchange using the Black
Scholes Option Model using the following variables:



|                        |  |         |  
|----------------------- |  | ------- | -
|Volatility              |  | 121.70  | %
|Term                    |  | 5 years |  
|Risk free interest rate |  | 4.95    | %
|Dividend                |  | 0       |  

Advertising Costs

The Company charges advertising costs to expense as incurred. Advertising expense was $1,387 and $5,914 for the years ended December 31, 2007 and 2006, respectively.

Fair Value of Financial Instruments

The Company, in
estimating its fair value disclosures for financial instruments, uses the following methods and assumptions:

Cash, Accounts Receivable,
Accounts Payable and Accrued Expenses: The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their relatively short maturity.

Long-Term Obligations: The fair value of the Companys fixed-rate long-term obligations is estimated using discounted cash flow analyses,
based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At December 31, 2006, the fair value of the Companys long-term obligations approximated its carrying value.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



Earnings (Loss) Per Share

Earnings (loss) per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per share are calculated by dividing net income (loss) available to
common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock
outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method. Convertible debt and preferred stock warrants, officer, employee and non-employee stock options that are considered
potentially dilutive are included in the fully diluted share calculation at December 31, 2007 and 2006.

The following sets forth the
computation of basic and diluted net earnings (loss) per common share for years ended December 31, 2007 and 2006:



|                                                     |  |                   |            |   |                   |   |            |  
|---------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                     |  | December 31, 2007 |            |   | December 31, 2006 |  
|Numerator:                                           |  |                   |            |   |                   |   |            |  
|Net loss                                             |  | $                 | (40,111    | ) |                   | $ | (184,675   | )
|Less preferred stock dividend and accreted dividends |  |                   |           |   |                   |   |           |  
|                                                     |  |                   |            |   |                   |   |            |  
|Net loss available to common stockholders            |  | $                 | (40,111    | ) |                   | $ | (184,675   | )
|                                                     |  |                   |            |   |                   |   |            |  
|Denominator:                                         |  |                   |            |   |                   |   |            |  
|Weighted average basic shares outstanding            |  |                   | 16,618,453 |   |                   |   | 16,253,509 |  
|Stock options                                        |  |                   |           |   |                   |   |           |  
|                                                     |  |                   |            |   |                   |   |            |  
|Warrants                                             |  |                   |           |   |                   |   |           |  
|                                                     |  |                   |            |   |                   |   |            |  
|Weighted average fully diluted shares outstanding    |  |                   | 16,618,453 |   |                   |   | 16,253,509 |  
|                                                     |  |                   |            |   |                   |   |            |  
|Net loss per common shareBasic and diluted          |  | $                 | (0.00      | ) |                   | $ | (0.01      | )
|                                                     |  |                   |            |   |                   |   |            |  

New Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS 159 permits the measurement of specified financial
instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. We do not anticipate that adoption of this statement will have a material impact
on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),
Business Combinations (SFAS 141R). SFAS 141R establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree; 2) in a business combination achieved in stages, sometimes referred to as a step acquisition, recognizes the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at
the full amounts of their fair values; 3) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS 141R establishes disclosure requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. This Statement is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or
after December 15, 2008. The adoption of SFAS 141R will have an impact on our accounting for future business combinations; however, the materiality of that impact cannot be determined.

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (SAB 110) which allows companies that do
not have sufficient historical experience for estimating the expected term of plain vanilla share option grants to provide a reasonable estimate and to continue use of the simplified method after December 31, 2007. SAB 110
extends the opportunity to use the simplified method beyond December 31, 2007, as was allowed by Staff Accounting Bulletin No. 107 (SAB 107). Adoption of SAB 110 will not impact our financial statements as we did not use the
simplified method to estimate lives of share-based awards.

Other recent accounting pronouncements issued by the FASB
(including its EITF), the 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 2 GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America,
which contemplates continuation of Vertical Health Solutions, Inc. (VHS) as a going concern. However, VHS has sustained operating losses in recent years and following the sale of Drug Depot has no operating revenue. Further for the year ended
December 31, 2007, VHS had negative working capital of $91,893. The Company has incurred losses in previous years resulting in an accumulated deficit of approximately $2,769,437. These factors raise substantial doubt about the ability of
Vertical Health Solutions, Inc. to continue as a going concern.

The Company is pursuing equity financing for the further growth of the
business and other acquisitions: failure to secure such financing or to raise additional capital may result in the Company depleting its available funds and not being able to pay its obligations.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets of the
amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



NOTE 3 RELATED PARTY TRANSACTIONS

On January 18, 2006, the Company entered into an agreement with Vitality Systems, Inc. (Vitality), pursuant to which Vitality purchased
all of the outstanding stock of the Companys wholly-owned subsidiary Labelclick, Inc. The purchase price consisted of a 7% promissory note in the principal amount of $300,000, together with the assumption of all debt and personal guarantee of
the outstanding bank debt included in the estimated amount of $1,800,000. The promissory note has a term of three years and is payable monthly in the amount of $9,263, accrued and unpaid interest. The Agreement is effective as of January 4,
2006. Vitality is owned by Stephen Watters, our former Chief Executive Officer and a director, Brian Nugent, our former President and a director, and Jugal K. Taneja, a former consultant and a director. In connection with the sale, the Company
received an independent valuation of LabelClick which supported the price paid by Vitality and the sale was approved by the Companys independent directors.

In connection with the agreement to sell Labelclick, Stephen Watters and Brian Nugent resigned as officers of the Company and Jugal K. Taneja agreed to the termination of his consulting agreement with the Company.
Each of the employment agreements and the consulting agreement were terminated effective as of January 18, 2006, without further payment or obligation beyond those which have accrued through and including January 18, 2005, but excluding
any termination payments otherwise payable pursuant to the agreements. Messrs. Watters, Nugent and Taneja remain members of the Companys Board of Directors. However, Stephen Watters was reinstated as CEO and CFO in April 2006 as a result of
the resignation of Thaddeus Shalek former CEO and CFO.

As of December 31, 2006, the Company applied $51,877 of an obligation to
Vitality Systems, Inc., owned by Stephen M. Watters, an officer of the Company, Jugal K. Taneja and Brian T. Nugent, principal shareholders and Directors of the Company, to the note receivable, related party. Amounts due from and to affiliates
represent balances owed to or from the Company for sales or purchases occurring in the normal course of business. Amounts due from and to these affiliates are in the nature of trade payables or receivables and fluctuate based on sales and purchasing
volume and payments received. Any future transactions between the Company and its officers, directors or affiliates will be subject to approval by a majority of disinterested directors or shareholders in accordance with Florida law.

NOTE 4ACCOUNTS RECEIVABLE, NET

For the years
ended December 31, 2007 and 2006, bad debt expense charged to operations for estimated uncollectible accounts receivable was $0 and $2,350, respectively.



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



NOTE 5INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2007 and 2006 is as follows:



|                                      |  |      |   |      |   |  
|------------------------------------- |  | ---- | - | ---- | - | -
|                                      |  | 2007 |   | 2006
|Current income tax expense (benefit)  |  | $    | 0 |      | $ | 0
|Deferred income tax expense (benefit) |  |      | 0 |      |   | 0
|                                      |  |      |   |      |   |  
|Income tax expense (benefit)          |  | $    |  |      | $ | 
|                                      |  |      |   |      |   |  

Income taxes for the years ended December 31, 2007 and 2006 differs from the amounts computed
by applying the effective income tax rate of 34% to income before income taxes as a result of the following:



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##### Table of Contents

VERTICAL HEALTH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

DECEMBER 31, 2007 AND 2006



NOTE INCOME TAXES (continued)



|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2007 |         |   | 2006 |  
|Computed tax benefit at the statutory rate 34% |  | $    | (28,800 | ) |      | $ | (62,790 | )
|Increase (decrease) in taxes resulting from:   |  |      |         |   |      |   |         |  
|Gain on extinguishment of debt                 |  |      | 0       |   |      |   | (49,800 | )
|Goodwill                                       |  |      | 0       |   |      |   | 302,260 |  
|Derivative Income                              |  |      | 0       |   |      |   | (63,900 | )
|Deferred Tax Asset Valuation Reserve           |  |      | 28,800  |   |      |   | 125,770 |  
|                                               |  |      |         |   |      |   |         |  
|Current income tax expense (benefit)           |  | $    |        |   |      | $ |        |  
|                                               |  |      |         |   |      |   |         |  

Temporary differences that give rise to deferred tax assets and liabilities:



|                                |  |      |          |   |      |   |          |  
|------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                |  | 2007 |          |   | 2006 |  
|Deferred tax assets:            |  |      |          |   |      |   |          |  
|Net operating loss carryforward |  | $    | 544,700  |   |      | $ | 460,000  |  
|Less valuation allowance        |  |      | (544,700 | ) |      |   | (460,000 | )
|                                |  |      |          |   |      |   |          |  
|Gross deferred tax asset        |  |      |         |   |      |   |         |  
|Gross deferred tax liability    |  |      |         |   |      |   |         |  
|                                |  |      |          |   |      |   |          |  
|Net deferred tax asset          |  | $    |         |   |      | $ |         |  
|                                |  |      |          |   |      |   |          |  

The Company has available at December 31, 2007, approximately $1,390,100 of unused operating
loss carryforwards that may be applied against future taxable income and that expire in various years from 2020 to 2025. The Company does not have a reasonable expectation of utilizing the tax benefit of the net operating loss carryforward and
therefore has provided a full valuation allowance against the deferred tax asset.





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##### Table of Contents

NOTE 6 STOCK OPTIONS

During 2001, the Company adopted a stock option plan to be administered by the board of directors. Under the plan, the exercise price of any options granted may not be less than 100% of the fair market value of the
Companys common stock on the date of the grant (110% for holders of more than 10% of the total combined voting power of all classes of capital stock then outstanding).

In October 2003, the Board of Directors approved the issuance of options to purchase 650,000 units (130,000 pre-split) to members of the Board of
Directors. The options are exercisable at $1.02 per unit ($5.10 pre-split), each consisting of one share of common stock and one redeemable Class A warrant.

On February 11, 2004, the Company granted qualified options to purchase 20,425 shares of its common stock and non-qualified options to purchase 79,575 shares of our common stock to employees. Half of the options
vest on February 11, 2005 and half vest on February 11, 2006. The options are exercisable at a price of $1.20 per share.

On
May 10, 2004, the Company granted 550,000 options to our officers and directors. The options were vested upon grant and are exercisable at a price of $1.01 per share.



|                                               |  |                |  |                              |   |                |            |   |                              |   |     
|---------------------------------------------- |  | -------------- |  | ---------------------------- | - | -------------- | ---------- | - | ---------------------------- | - | ----
|                                               |  | 2007           |  | 2006                        
|                                               |  | NumberofShares |  | WeightedAverageExercisePrice |   | NumberofShares |            |   | WeightedAverageExercisePrice
|Outstanding at January 1,                      |  |               |  | $                            |  |                | 1,200,000  |   |                              | $ | 1.02
|Granted                                        |  |               |  |                              |  |                |           |   |                              |   |    
|Exercised/exchanged                            |  |               |  |                              |  |                | (1,200,000 | ) |                              |   | 1.02
|Forfeited                                      |  |               |  |                              |  |                |           |   |                              |   |    
|                                               |  |                |  |                              |   |                |            |   |                              |   |     
|Outstanding at December 31,                    |  |               |  | $                            |  |                |           |   |                              |   |    
|                                               |  |                |  |                              |   |                |            |   |                              |   |     
|Options exercisable at December 31,            |  |               |  | $                            |  |                |           |   |                              |   |    
|                                               |  |                |  |                              |   |                |            |   |                              |   |     
|Weighted average fair value of options granted |  |                |  | $                            |  |                |            |   |                              | $ |    
|                                               |  |                |  |                              |   |                |            |   |                              |   |     

NOTE SALE OF SUBSIDIARIES

On January 18, 2006, the Company entered into an agreement with Vitality Systems, Inc. (Vitality), pursuant to which Vitality purchased all of the outstanding stock of the Companys wholly-owned
subsidiary Labelclick, Inc. The purchase price consisted of a 7% promissory note in the principal amount of $300,000, together with the assumption of all debt and personal guarantee of the outstanding bank debt included in the estimated amount of
$1,800,000. The promissory note has a term of three years and is payable monthly in the principal amount of $9,263, together with accrued and unpaid interest. The Agreement is effective as of January 4, 2006. Vitality is owned by Stephen
Watters, our Chief Executive Officer and a director, Brian Nugent, our former President and a director, and Jugal K. Taneja, a former consultant and a director. In connection with the sale, the Company received an independent valuation of LabelClick
which supported the price paid by Vitality and the sale was approved by the Companys independent directors.

In connection with the
agreement to sell Labelclick, Stephen Watters and Brian Nugent resigned as officers of the Company and Jugal K. Taneja agreed to the termination of his consulting agreement with the Company. Each of the employment agreements and the consulting
agreement were terminated effective as of January 18, 2006, without further payment or obligation beyond those which have accrued through and including January 18, 2005, but excluding any termination payments otherwise payable pursuant to
the agreements. Messrs. Watters, Nugent and Taneja remain members of the Companys Board of Directors. However, Stephen Watters was reinstated as CEO and CFO in April 2006 as a result of the resignation of Thaddeus Shalek former CEO and CFO.

On June 1, 2007, Vertical Health Solutions, Inc. (the Company), its wholly-owned subsidiary Drug Depot, Inc. (Drug
Depot) and T&L, Inc. (T&L), pursuant to which the Company agreed to sell all of the outstanding capital stock of Drug Depot to T&L (the Agreement). The purchase price for the sale is (i) the payment of
$67,000 in cash, and (ii) the cancellation of an outstanding promissory note issued by the Company to T&L in the current principal amount of $146,206.

Assets and liabilities to be disposed of comprise the following at June 1, 2007:



|                            |  |   |          |  
|--------------------------- |  | - | -------- | -
|Cash                        |  | $ | 231,448  |  
|Accounts receivable, net    |  |   | 108,639  |  
|Inventories                 |  |   | 84,499   |  
|Other current assets        |  |   | 538      |  
|Property and equipment, net |  |   | 13,127   |  
|Intangible assets, net      |  |   | 8,621    |  
|Other assets                |  |   | 2,858    |  
|                            |  |   |          |  
|                            |  | $ | 449,730  |  
|                            |  |   |          |  
|Accounts payable            |  |   | (145,252 | )
|Due to related parties      |  |   | (45,352  | )
|Accrued interest            |  |   | (3,743   | )
|Note payable                |  |   | (146,206 | )
|                            |  |   |          |  
|Book value of net assets    |  | $ | 109,177  |  
|                            |  |   |          |  

Drug Depot constitutes substantially all of the Companys assets and operations. The
Statement of Operations for the year ended December 31, 2007, reflects only the portion of the income and expenses of Drug Depot through the date of the sale, June 1, 2007, and $42,177 is recorded as a loss on the disposal.