**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington
        D.C., 20549**
 
 **FORM
        10-KSB**
 
 **[** Ö **] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF
        1934**
 **For
        the fiscal year ended February 28, 2007**
 
 **[
        ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF
        1934**
 **For
        the transition period from to**
 
 **Commission
        File No. 333-86706**
 
 **PAPERFREE
        MEDICAL SOLUTIONS, INC.**
 (Exact
        name of registrant as specified in its charter)
  
 **Nevada**
              **7389**
              **98-0375957**(State
                  or Other Jurisdiction of Incorporation)
              (Primary
                  Standard Industrial Classification Code Number)
              (IRS
                  Employer Identification. No.)**121
                  West Sycamore St. Kokomo, Indiana 46901**(Address
                  of Principal Executive Offices) (Zip
                  Code)
 
 
 **Registrant’s
        telephone number, including area code:**  **** (765)
        456-1089
  **Securities
        registered pursuant to Section 12 (b) of the Act:** NONE
 
 **Securities
        registered pursuant to Section 12 (g) of the Act:** Common
        Stock $0.001 par value
 
  
  
 
 Check
        whether the Issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Securities 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 R    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
        information statements incorporated by reference in Part III of this Form
        10-KSB
        or any amendment to this Form 10-KSB.
 Yes R       No
 ̈
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non−accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b−2 of the Exchange Act. (Check
        one):
  Large
        accelerated filer  ̈ ð     Accelerated filer  ̈         Non−accelerated
        filer R
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b−2 of the Exchange Act). Yes  ̈ ð No R
  The
        registrant had 82,561,908 shares of common stock, $.001 par value, outstanding
        at May 23, 2007.
 State
        issuer’s revenues for its most recent fiscal year:
    $867,208
  State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the price at which the common equity
        was
        sold, or the average bid and asked price of such common equity, as of a
        specified date within the past 60 days. (See definition of affiliate in Rule
        12b-2 of the Exchange Act.): $825,619 as of April 23, 2007 based on the last
        sale price of our shares.
  Transitional
        Small Business Disclosure Format (Check one): Yes  ̈ ð No R
   
  
  **NOTE
        REGARDING FORWARD-LOOKING STATEMENTS**
   This
        Form
        10-KSB may contain certain forward-looking statements within the meaning
        of the
        Private Securities Litigation Reform Act of 1995. For this purpose, any
        statements contained in this Form 10-KSB that are not statements of historical
        fact, may be deemed to be forward-looking statements. Without limiting the
        foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
        "estimate” and "continue” or comparable terminology is intended to identify
        forward-looking statements. It is important to note that our actual results
        could differ materially from those anticipated from the forward-looking
        statements depending on various important factors. These important factors
        include our history of losses and ability to continue as a going concern,
        the
        uncertainty of acceptance of current and new products in our markets,
        competition in our markets, our dependence on our distributors, and the other
        factors discussed in our "Risk Factors" found below.
 
  **FORWARD-LOOKING
        STATEMENTS**
  Portions
        of this Form 10-KSB, including disclosure under "Management's Discussion
        and
        Analysis or Plan of Operation," contain forward-looking statements within
        the
        meaning of Section 27A of the Securities Act of 1933, as amended (the
        "Securities Act"), Section 21E of the Securities and Exchange Act of 1934,
        as
        amended (the "Exchange Act"), and the Private Securities Litigation Reform
        Act
        of 1995, as amended. These forward-looking statements are subject to risks
        and
        uncertainties and other factors that may cause our actual results, performance,
        or achievements to be materially different from the results, performance,
        or
        achievements expressed or implied by the forward-looking statements. You
        should
        not unduly rely on these statements. Forward-looking statements involve
        assumptions and describe our plans, strategies, and expectations. You can
        generally identify a forward-looking statement by words such as may, will,
        should, expect, anticipate, estimate, believe, intend, contemplate or project.
        Factors, risks, and uncertainties that could cause actual results to differ
        materially from those in the forward-looking statements include, among others:
  ·
            our
                ability to raise capital, 
 ·
            our
                ability obtain and retain customers, 
 ·
            our
                ability to provide our products and services at competitive
                rates, 
 ·
            our
                ability to execute our business strategy in a very competitive business
                environment, 
 ·
            our
                degree of financial leverage, 
 ·
            risks
                associated with our acquiring and integrating other companies into
                our
                own, 
 ·
            risks
                related to market acceptance and demand for our
                services, 
 ·
            the
                impact of competitive services, 
 ·
            other
                risks referenced from time to time in our SEC
                filings.  With
        respect to any forward-looking statement that includes a statement of its
        underlying assumptions or bases, we caution that, while we believe such
        assumptions or bases to be reasonable and have formed them in good faith,
        assumed facts or bases almost always vary from actual results, and the
        differences between assumed facts or bases and actual results can be material
        depending on the circumstances. When, in any forward-looking statement, we
        or
        our management express an expectation or belief as to future results, that
        expectation or belief is expressed in good faith and is believed to have
        a
        reasonable basis, but there can be no assurance that the stated expectation
        or
        belief will be achieved or accomplished. All subsequent written and oral
        forward-looking statements attributable to us, or anyone acting on our behalf,
        are expressly qualified in their entirety by the cautionary statements. We
        do
        not undertake any obligations to publicly release any revisions to any
        forward-looking statements to reflect events or circumstances after the date
        of
        this report or to reflect unanticipated events that may occur.
   
  
 **PART
        I**
  
 **ITEM
        1: DESCRIPTION OF BUSINESS**
  (a)
        Business Development
  PaperFree
        Medical Solutions, Inc. (the "Company") was incorporated on January 29th,
        2002
        under the laws of the State of Nevada under the name of Link Media Publishing
        Ltd.
  From
        the
        date of its last Annual Report (10KSB) to February 28 th ,
        2007
        the Company has undertaken the following activity:
  (1)
        On September 28, 2006, PaperFree acquired 100% of the shares issued and
        outstanding of Doctors Billing Corporation, in exchange for the issuance
        of
        175,000 shares of common stock valued at $1,750 and $74,308 in cash. Doctors
        Billing Corporation is a developer, licensor and maintenance supporter of
        proprietary Practice Management and Occupational Medicine software applications.
        Doctors Billing Corporation at the time of acquisition held customer contracts
        with annual revenues less than $15,000; proprietary rights to its software
        and
        fixed assets with a fair market value of $5,000; and no liabilities. The
        primary
        reason for the acquisition was to mitigate revenue risk. Without this pro-active
        acquisition, PaperFree may have been put in the position of seeking a new
        software package, re-training all billing services personnel, and migrating
        clients within a very short window. The purchase price allocation is preliminary
        awaiting a final valuation of the assets and liabilities acquired. The estimated
        fair values of the assets and liabilities acquired at September 28, 2006
        are as
        follows:
  Property
                  and equipment
              
              
              $
                  5,000Goodwill
              
              
              71,058Total
              
              
              $76,058
  (2)
        On
        February 28, 2007, PaperFree completed the valuation analysis of the goodwill
        as
        required by FASB Statement No. 142, “Goodwill and other Intangible Assets.”
Based on this analysis, we concluded that the goodwill associated with the
        acquisition of Doctors Billing Corporation was impaired. As a result, the
        entire
        goodwill of $76,058 was written off at February 28, 2007.
 
 (b)
        Business of Issuer
 
 GENERAL
 
 The
        Company is in the business of providing medical practitioners with billing
        services, software and associated hardware solutions that meet or exceed
        security levels specified by the Health Insurance Portability and Accountability
        Act of 1996.
 
 
 (1)  Distribution
        Method of Services
 The
        Company contracts its services through a combination of direct and indirect
        sales channels. The services are delivered through three modes: 1) Direct,
        on-site implementation of hardware, software, and connection to services;
        2)
        Application Service Provider (“ASP”) delivery of software services through
        broadband connectivity; and, 3) Managed Services Provision (“MSP”) wherein the
        Company delivers services through a combination of direct, on-site
        implementation and software services through broadband
        connectivity.
 
 (2)   Principal
        Products or Services and Their Markets:
 (i)  Principal
        Products or Services
 The
        Company’s principal products and/or services are contained in two divisions -
        Billing Services & MDPaperFreeTM. Billing Services is a managed accounts
        receivable service provided to Medical Provider Practices in return for
        compensation based either on collections or submissions. MDPaperFreeTM is the
        provisioning of a Medical Provider(s) Practice with complete digital office
        technology that includes; but is not limited to, Electronic Medical Record
        (EMR), Practice Management, internet presence, electronic mail, software
        productivity applications, and disaster recovery services.
 
 (ii)  Markets
 Inside
        the medical provider marketplace, the Company’s focus is upon sole
        practitioners, doctors and other health providers operating in clinics of
        up to
        ten providers. Our primary market geography is the core Mid-western states
        with
        a preference for clients that reside outside the geography’s major metropolitan
        areas; e.g. Chicago, Minneapolis/St. Paul, Detroit, etc.
 
 (iii)  Business
        Applications of Services
 Pursuant
        to the Health Insurance Portability and Accountability Act of 1996, and
        subsequent regulatory filings, medical providers that bill or receive
        compensation from the Federal Government are required to move onto a digital
        office environment no later than the Federal Fiscal Year 2014. Many states
        have
        mandated earlier compliance dates; e.g. Arizona set their date as 2010.
        MDPaperFreeTM Complete Medical Office Environment is the Company’s proprietary
        suite of integrated software used by Medical Practitioners to comply with
        these
        regulatory requirements. MDPaperFreeTM replaces paper-based work processes within
        a medical practice and is available as a managed services provision
        solution.
 
 Contained
        with MDPaperFreeTM are software applications from iMedica Corporation, Microsoft
        Corporation, iLinc Communications Corporation, and other Software Vendors.
        The
        Company considers the integration, interfaces, enhanced workflow, and delivery
        methods of this solution to be proprietary knowledge and trade secret
        information. Additional vendor relationship encompass the provisioning of
        broadband connectivity (greater than 750 kbps bi-directional), electronic
        interfaces and portals to payers, electronic interface(s) to pharmaceutical
        prescription clearinghouse(s), and secure document management
        capabilities.
 
 (3)  Status
        of Any Publicly Announced New Product or Service
 The
        company has an active website at http://www.mdpaperfree.com that contains
        both
        regulatory filings and press releases.
 
 Effective
        May 24, 2006 the Company entered into an Engagement Agreement for Revenue
        Cycle
        Management Services with Saint John’s Health System in Andersen Indiana,
        pursuant to which KMS Computer Services, Inc. (a wholly owned subsidiary
        of
        PaperFree Medical Solutions, Inc) is to provide outsourced billing and
        collections services.
 
 Effective
        September 18, 2006, the Company acquired Doctors Billing Corporation, a Michigan
        Corporation, in order to bring in-house the Practice Management and Occupational
        Medicine software the Company uses to deliver Billing Management
        Services.
 
 Effective
        December 1, 2006, the Company entered into a Billing Management Service contract
        with Bona Vista Programs of Kokomo, Indiana pursuant to which KMS Computer
        Services, Inc. (a wholly owned subsidiary of PaperFree Medical Solutions,
        Inc)
        is to provide outsourced billing and collections services.
 
 Effective
        December 1, 2006, the Company purchased and put into service web-conferencing
        software from iLinc Communications as part of its MDPaperFreeTM digital office
        solution.
 
 (4)
              Competitive
                  Business Conditions, The Small Business Issuer’s Competitive Position in
                  the Industry and Methods of Competition
 Healthcare
        provider markets are highly competitive and characterized by rapid changes
        due
        to regulation and technological improvements. The healthcare industry is
        currently being driven by process optimization initiatives especially as
        it
        relates to HIPAA compliance, reducing medical errors and improving financial
        performance.
 
 The
        Company’s products and services compete with other healthcare software-based
        companies currently in the market, as well as other companies that may enter
        the
        market with emerging technologies. While the Company is more limited in terms
        of
        operating history, financial resources, facilities and personnel relative
        to its
        competitors, its strategy is to compete with larger companies on the basis
        on
        providing an integrated software, hardware and service solution and its ability
        to provide integration, implementation and ongoing system and database
        maintenance through its Managed Services Provision (MSP) model.
  (5)  Sources
        and availability of raw materials and the names of principal suppliers:
 The
        components and technical commodity services required to provide all of the
        Company’s services are readily available in the marketplace.
 
 (8)  Need
        for
        any government approval of principal products or services:
 At
        this
        time there is no direct required government approval of the services offered.
        However, the Company’s ultimate customers operate in the highly regulated
        Medical sector.
 
 (9)  Effect
        of
        existing or probable governmental regulations on the business:
 Existing
        Federal and State governmental regulations in our area of business increase
        the
        requirement for medical provider to purchase, lease, or have provided to
        them
        under Managed Service Provision models the solution provided by the
        Company.


(10)
              Estimate
                  of the amount spent during each of the last two fiscal years on
                  research
                  and development activities, and if applicable the extent to which
                  the cost
                  of such activities are borne directly by
                  customers:
  None.
 
 (11)  Costs
        and
        effects of compliance with environmental laws (federal, state and
        local):
 
 There
        are
        no costs and effects of compliance with any environmental laws.
 
 (12)  Number
        of
        total employees and number of full time employees:
  As
        of
        February 28, 2007, PaperFree and had approximately 20 full-time employees,
        and 4
        part-time employees. None of our employees is represented by a labor
        organization. We maintain various employee benefit plans and we believe we
        have
        excellent relations with our employees. Company Officers are full-time employees
        and all of our directors provide their services on an as needed
        basis.
 
 **Risk
        Factors**
 In
        addition to the other information in this current report, the following factors
        should be carefully considered in evaluating our business and
        prospects:
 
 RISKS
        SPECIFIC TO OUR COMPANY
 
 Unsuccessful
        Operating History
 
 We
        have a
        limited operating history upon which an evaluation of our future prospects
        can
        be made. Our prior business history has been limited to the publication and
        distribution of industry and profession specific wall planners. Currently
        we are
        engaged in the provision of Billing Services as well as the sale of computerized
        Practice Management and Electronic Medical Record solutions to medical
        practioners. We are not yet profitable. There is no guarantee that we will
        be
        able to raise the financing necessary to develop any future business plan
        we may
        adopt.
 
 If
        We
        Do Not Obtain Additional Financing, We Will Not Be Able to Acquire Any
        Assets
 
 As
        of
        February 28, 2007, we had cash on hand in the amount of $286,293. We will
        likely
        have to raise funds to acquire new assets and finance operation or acquire
        new
        assets and to finance operations. If we are not able to raise the funds
        necessary to fund our business objectives, we may have to delay the
        implementation of any future business plan.
 We
        do not
        have any arrangements for financing and we can provide no assurance that
        we will
        be able to obtain the required financing when needed. Obtaining additional
        financing will be subject to a number of factors, including:
 
 *  Market
        conditions;
 *  Investor
        acceptance of potential business assets; and
 *  Investor
        sentiment.
 
 These
        factors may make the timing, amount, terms and conditions of additional
        financing unattractive or unavailable to us. If we are not successful in
        achieving financing id operation or acquire business assets, our development
        will be delayed.
 
 If
        We
        Are Unable To Generate Significant Revenues From Our Operations, Our Business
        Will Fail.
 
 If
        we are
        unable to generate significant revenues from operations, we will not be able
        to
        achieve profitability or continue operations.
 
 RISKS
        SPECIFIC TO OUR INDUSTRY
 
 Changes
        in the health care delivery, financing or reimbursement systems could adversely
        affect our business.
 
 The
        healthcare industry in the United States may be entering a period of change
        and
        uncertainty. Health care organizations, public or private, may dramatically
        change the way they operate and pay for services. Our business is designed
        to
        function within the current health care financing and reimbursement system.
        During the past several years, the health care industry has been subject
        to
        increasing levels of government regulation of, among other things, reimbursement
        rates and relationships with referring physicians. In addition, proposals
        to
        reform the health care system have been considered by Congress. In light
        of the
        continued increases in the cost of health care and the current economic
        weakness, there may be new proposals to change the health care system and
        control costs. These proposals, if enacted, could further increase the
        government’s oversight role and involvement in health care, lower reimbursement
        rates and otherwise change the operating environment for health care companies.
        We cannot predict the likelihood of those events or what impact they may
        have on
        our business.
 
 We
        operate in highly competitive businesses.
 
 The
        healthcare industry is characterized by rapidly developing technology and
        increased competition. In all of our product and service lines, we compete
        with
        companies, large and small, located in the United States and abroad. Competition
        is strong in all of our lines without regard to the number and size of the
        competing companies involved. Some of our competitors and potential competitors
        have significantly greater financial, technical and sales resources than
        we do
        and may, in some locations, possess licenses or certificates that permit
        them to
        provide products and services that we cannot currently provide. We compete
        on a
        number of factors, including innovative products and services, customer loyalty
        and price.
 There
        can
        be no assurance that we will not encounter increased or more effective
        competition in the future which could limit our ability to maintain or increase
        our business and adversely affect our operating results.
 
 Our
        Industry Is Competitive and As Such Competitive Pressures Could Prevent Us
        From
        Obtaining Profits, Forcing Us to Abandon or Curtail Our Business Plan and
        Possibly Liquidate Our Assets.
 
 One
        of
        the main factors in determining in whether the Company will be able to realize
        any profits and/or be able to continue its business plan will be whether
        or not
        the Company is able to successfully compete in the medical billing and software
        services industry. The industry is highly competitive and the Company may
        be
        competing against companies with greater resources and more experience in
        the
        industry. If the Company is unable to compete in the marketplace and fails
        to
        generate any profits, the Company may be forced to liquidate its assets and
        any
        investment in our Company could be lost.
 
 RISKS
        RELATED TO OUT SECURITIES
 
 Our
        Securities May Be Subject to Penny Stock Regulation .
 If
        an
        active trading market for our securities develops and the price of our common
        stock falls below $5.00 per share, then we will be subject to "penny stock"
        regulation. "Penny stock" rules impose additional sales practice requirements
        on
        broker-dealers who sell such securities to persons other than established
        customers and accredited investors (generally those with assets in excess
        of
        $1,000,000 or annual income exceeding $200,000 or $300,000 together with
        a
        spouse). For transactions covered by these rules, the broker-dealer must
        make a
        special suitability determination for the purchase of such securities and
        have
        received the purchaser's written consent to the transaction prior to the
        purchase. Additionally, for any transaction involving a penny stock, unless
        exempt, the rules require the delivery, prior to the transaction, of a
        disclosure schedule prescribed by the Commission relating to the penny stock
        market. The broker-dealer also must disclose the commissions payable to both
        the
        broker-dealer and the registered representative and current quotations for
        the
        securities. Finally, monthly statements must be sent disclosing recent price
        information on the limited market in penny stocks. Consequently, the "penny
        stock" rules may restrict the ability of broker-dealers to sell our shares
        of
        common stock. The market price of our shares would likely suffer as a result.
 
 Our
        share price may be highly volatile.
 
 The
        market prices of equity securities of small companies have experienced extreme
        price volatility in recent years not necessarily related to the individual
        performance of specific companies. Factors such as announcements by us, or
        our
        competitors concerning products, technology, governmental regulatory actions,
        other events affecting healthcare companies generally and general market
        conditions may have a significant impact on the market price of our shares
        and
        could cause it to fluctuate substantially.
 
 The
        National Association of Securities Dealers Inc., or NASD, has adopted sales
        practice requirements, which may limit a stockholder’s ability to buy and sell
        our shares.
 
 In
        addition to the “penny stock” rules described above, the NASD has adopted rules
        requiring that in recommending an investment to a customer, a broker-dealer
        must
        have reasonable grounds for believing that the investment is suitable for
        that
        customer. Prior to recommending speculative low-priced securities to their
        non-institutional customers, broker dealers must make reasonable efforts
        to
        obtain information about the customer’s financial status, tax status, investment
        objectives and other information. Under interpretations of these rules, the
        NASD
        believes that there is a high probability that speculative low-priced securities
        will not be suitable for at least some customers. The NASD requirements make
        it
        more difficult for broker-dealers to recommend that their customers buy our
        common stock, which may limit our shareholders’ ability to buy and sell our
        stock and which may have an adverse effect on the market for our
        shares.
 
 Forward-Looking
        Statements
 
 This
        prospectus contains forward-looking statements that involve risks and
        uncertainties. We use words such as anticipate, believe, plan, expect, future,
        intend and similar expressions to identify such forward-looking statements.
        You
        should not place too much reliance on these forward-looking statements. Our
        actual results are most likely to differ materially from those anticipated
        in
        these forward-looking statements for many reasons, including the risks faced
        by
        us described in the this Risk Factors section and elsewhere in this prospectus.
 
 **Item
        2. Description Of Property**
 
 The
        Company’s primary office facility is located at 121 West Sycamore Street in
        Kokomo Indiana. The Company leases this premise from a related party for
        $10,000
        per month. The lease term expires in 2023.
 
 **Item
        3. Legal Proceedings**
 
 From
        time
        to time, we may become party to litigation or other legal proceedings that
        we
        consider to be a part of the ordinary course of our business.
 We
        are
        not currently involved in legal proceedings that could reasonably be expected
        to
        have a material adverse effect on our business, prospects, financial condition
        or results of operations. We may become involved in material legal proceedings
        in the future.
 
 No
        directors, officer or affiliate of the Company, and no owner of record or
        beneficial owner of more than 5% of the securities of the Company, or an
        associate of any such director, officer or security holder is a party adverse
        to
        the Company or has a material interest adverse to the Company in reference
        to
        any litigation.
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 No
        matters were submitted to a vote of security holders during the fiscal
        year.
 
  
  
 **PART
        II**
  **ITEM
        5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS**
  Market
        Information
  The
        company’s common stock is quoted on the Pink Sheets under the symbol “PFMS.PK”
(formerly “PFMS.OB”, prior to that “CWMS”, and prior to that “LKME”). The table
        below gives the high and low bid information for each fiscal quarter for
        the
        past year. The bid information was obtained from OTC Bulletin Board, and
        reflects inter-dealer prices, without retail mark-up, mark-down or commission,
        and may not represent actual transactions.
  ***Period
                  Ended***
              ***High***
              ***Low***
              ***Source***February
                  28, 2007
              $0.004
              $0.0035
              bigcharts.marketwatch.com/November
                  30, 2006
              0.006
              0.0055
              bigcharts.marketwatch.com/August
                  30, 2006
              0.0175
              0.012
              bigcharts.marketwatch.com/May
                  31, 2006
              0.015
              0.015
              bigcharts.marketwatch.com/February
                  28, 2006
              0.07
              0.02
              Yahoo
                  FinanceNovember
                  30, 2005
              0.08
              0.02
              Yahoo
                  FinanceAugust
                  31, 2005
              0.93
              0.07
              Yahoo
                  FinanceMay
                  31, 2005
              1.47
              0.65
              Yahoo
                  Finance
 
  We
        have
        approximately 323 shareholders of record as at the date of this annual
        report.
   Dividends
  There
        are
        no restrictions in our articles of incorporation or bylaws that prevent us
        from
        declaring dividends. The Nevada Revised Statutes, however, do prohibit us
        from
        declaring dividends where, after giving effect to the distribution of the
        dividend:
  1.
        we
        would not be able to pay our debts as they become due in the usual course
        of
        business; or
  2.
        our
        total assets would be less than the sum of our total liabilities plus the
        amount
        that would be needed to satisfy the rights of shareholders who have preferential
        rights superior to those receiving the distribution.
  
 We
        have
        not declared any dividends, and we do not plan to declare any dividends in
        the
        foreseeable future.
  Equity
        Compensation Plan Information
  Effective
        December 21, 2006 the Board of Directors enacted the 2006 DIRECTORS, OFFICERS,
        EMPLOYEES AND CONSULTANTS STOCK OPTION, STOCK WARRANT AND STOCK AWARD PLAN.
        This
        action is detailed in the SEC S-8 filing from that date
  Recent
        Sales of Unregistered Securities
  We
        did
        not issue any equity securities that were not registered under the Securities
        Act of 1933 during the fiscal year ended February 28, 2007 that were not
        otherwise disclosed in a quarterly report on Form 10-QSB or in a current
        report
        on Form 8-K.
 
  **ITEM
        6: MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION**
  *Management’s
        Discussion and Analysis is the company’s analysis of its business performance
        for the fiscal year past.  It should be read in conjunction with the
        financial statements and notes, and supplemental disclosures contained within
        the entire annual report.  It contains forward-looking statements
        including, without limitation, statements relating to the company’s plans,
        strategies, objectives, expectations, and intentions, that are made pursuant
        to
        the “safe harbor” provisions of the Private Securities Litigation Reform Act of
        1995.  The words “intends,” “believes,” “expects,” “plans,” “scheduled,”
“should,” “anticipates,” “estimates,” and similar expressions identify
        forward-looking statements.  The company does not undertake to update,
        revise or correct any of the forward-looking information unless required
        to do
        so under the federal securities laws.  Readers are cautioned that such
        forward-looking statements should be read in conjunction with the company’s
        disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE
‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
        1995,” beginning on page 96.*
  **BUSINESS
        ENVIRONMENT AND EXECUTIVE OVERVIEW**
  PaperFree
        Medical Solutions is a services company delivering business functions to
        the
        healthcare market through the managed services of integrated software
        applications.  Our target client base is the medical provider practice of
        ten providers or less with fifty employees or less.  We concentrate on the
        market geography of the central Midwest states; excluding the major metropolitan
        areas.  Our stock is listed on the Pink Sheets under the symbol “PFMS.”
 
 Our
        business is organized around two product-service offerings:
 
 MDPaperFreeTM-
                  This service offering is a service bureau providing integrated
                  digital
                  office technologies to the medical provider practice on a managed
                  services
                  provisioning basis. The technologies provided include, but are
                  not limited
                  to: a) Electronic Medical Record; b) Secure Document Management;
                  c) Office
                  Productivity Tools; d) Internet Presence; e) Data and Computing
                  Security;
                  f) Information Security; and g) Back-up/Restore/Contingency Services.
 LEAP
                  prn-
                  This service offering provides three categories of revenue cycle
                  management services: a) Complete billing management services; b)
                  Shared
                  billing management services wherein the client performs data entry
                  only;
                  and, c) Licensed/Hosted billing management software wherein the
                  client
                  performs all data and payer business processes using our
                  software.
 
 During
        the first quarter of fiscal year 2007, the Board of Directors contracted
        operational management to execute the new strategy of the company. Contract
        management streamlined technical operations in Billing Services, discontinued
        software development on proprietary applications that were duplicates of
        existing software in the market, and stabilized the cash flow of the company.
        Increases in operating margin were overshadowed by historical debt.
 
 During
        the second quarter of fiscal year 2007, contract management began services
        development of the new product-service offering while moving billing services
        into a wholly-owned subsidiary. The existing technical and operational
        infrastructure was streamlined, thus reducing labor costs that did not
        contribute to revenue generation. Management brought the company into compliance
        with the debt covenants from our line of financing which allowed the company
        to
        draw additional tranches against the primary note. The company’s employees were
        transitioned to a Professional Employer Organization (Tilson HR) during the
        quarter. This transition increased benefits, provided professional human
        resource management, outsourced payroll and reporting functions, and allowed
        the
        company to focus on market penetration and customer support. Finally, on
        August
        24th the Board of Directors converted contract management to officers of
        the
        company.
 
 Also
        during the second quarter of fiscal year 2007, we signed new contracts with
        St.
        John’s Healthcare Network and Bona Vista Programs. Under these new agreements,
        we will perform billing management services for these customers. In addition,
        we
        continued our emphasis on technical integration to support our Service Bureau
        business model. The results were: a) secure, web-based conferencing capability
        was secured through the purchase of the iLinc software application suite
        which
        will enable the company to deliver training and provider office support over
        the
        Internet; b) electronic payments posting software extensions were developed;
        and, c) we achieved Microsoft Certified Partner status in our reseller efforts.
 
 During
        the third quarter of fiscal year 2007, the company stabilized revenue risk
        through acquisition of Doctors Billing Corporation., an independent software
        development company that held the proprietary medical billing management
        software which provided the majority of our revenue. New sales in the quarter
        for billing services supported the stabilization of revenue.  The company
        brought the service offering MDPaperFreeTM to production status and began the
        regional marketing research for customer-market penetration.
 In
        the
        fourth quarter of fiscal year 2007, PaperFree Medical Solutions re-engineered
        internal processes for accounting, operations, and technology to support
        organizational growth. The management team supported field audits by Indiana
        State agencies of our business. The technology team achieved Certified Partner
        status with Microsoft, upgraded our Data & Network Operating Center (DNOC),
        and gained Certified Trainer/Sale status with other vendors integral to our
        solution.
 
 **RESULTS
        OF OPERATIONS**
 
 Revenue
        decreased $112,173 to $867,208 for the year ended February 28, 2007 compared
        to
        the same period in 2006. This decrease is primarily due to the loss of several
        customers. Cost of revenue for the year ended February 28. 2007 was $39,249
        compared to $167,260 for the same period in 2006. This decrease is primarily
        due
        to a decline in revenue and a change in the mix of services provided.
 
 General
        and administrative expenses decreased $529,612 for the year ended February
        28,
        2007 compared to the same period in 2006. This decrease is primarily due
        to
        fewer purchases. We incurred $8,876 related to the settlement of lawsuits
        for
        the year ended February 28, 2007 compared to $393,075 incurred in fiscal
        year
        2006. This decrease is primarily due to the decrease in the number of lawsuits
        settled.
 
 In
        fiscal
        year 2007, we recorded an impairment charge of $1,703,560 related to our
        goodwill, compared to an impairment charge of $1,709,442 in fiscal year 2006.
        These impairment charges were a result of our analysis of goodwill as required
        by SFAS No. 142.
 
 For
        the
        year ended February 28, 2007, we recorded a gain on derivatives of $166,196
        compared to a gain on derivatives of $501,593 in fiscal year 2006. The gain
        or
        loss on derivatives is based on the fair value of the derivatives at the
        end of
        each respective period.
 
 Interest
        expense was $300,856 for the year ended February 29, 2007 compared to $182,223
        for the comparable period in 2006. This increase is primarily due to increased
        borrowings.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 In
        February 2007, additional funding of $500,000 was provided by NIR Group with
        terms consistent with the November 2005 financing. The total amount of the
        Convertible Debenture held by NIR is $2,000,000.
 
 As
        shown
        in the accompanying financial statements, PaperFree incurred net losses of
        $2,760,570 and $3,242,071 in fiscal 2007 and 2006, respectively, has an
        accumulated deficit of $63,575,329 and a working capital deficit of $325,663
        at
        February 28, 2007. These conditions raise substantial doubt as to PaperFree’s
        ability to continue as a going concern. Management’s plans include obtaining
        additional capital through debt or equity financing.
 
 We
        intend
        to seek financing necessary to fund future operations and to fund our
        investigation, negotiation and acquisition of other business acquisition
        opportunities. Currently, we have no anticipated source of
        financing.
 
 We
        anticipate that additional funding will be required in the form of equity
        financing from the sale of our common stock or from director loans. However,
        we
        cannot provide investors with any assurance that we will be able to raise
        sufficient funding from the sale of our common stock or arrange director
        loans
        in order to continue operations.
 
 PaperFree
        is presently operating at a loss. PaperFree’s ability to continue as an ongoing
        concern is dependent on its ability to generate revenues from software sales.
        Failing that, PaperFree may need to raise additional capital, either debt
        or
        equity capital, to fund future operation and ultimately to attain profitable
        operation.
 
 **COMMITMENTS**
 
 The
        following table presents the Operating Lease and Debt Obligations for the
        next
        five fiscal years:
 
 
 **2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **2012**
              
              **Thereafter**Notes
                  payable
              
              -
              
              787,718
              
              700,000
              
              500,000
              
              -
              
              -Operating
                  leases
              
              120,000
              
              120,000
              
              120,000
              
              120,000
              
              120,000
              
              960,000Preferred
                  Stock
              
              75,600
              
              -
              
              -
              
              -
              
              -
              
              -TOTAL
              
              983,318
              
              820,000
              
              620,000
              
              120,000
              
              120,000
              
              960,000
  **CRITICAL
        ACCOUNTING POLICIES**
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to select appropriate accounting
        policies and to make estimates and assumptions that affect the reported amounts
        of assets, liabilities, revenues and expenses.  See Note 1—Accounting
        Policies, in the Notes to Consolidated Financial Statements, for descriptions
        of
        our major accounting policies.  Certain of these accounting policies
        involve judgments and uncertainties to such an extent that there is a reasonable
        likelihood that materially different amounts would have been reported under
        different conditions, or if different assumptions had been used.  These
        critical accounting policies are discussed with the Board of Directors at
        least
        annually.  We believe the following discussions of critical accounting
        policies, along with the discussions of contingencies and of deferred tax
        asset
        valuation allowances in this report, address all important accounting areas
        where the nature of accounting estimates or assumptions is material due to
        the
        levels of subjectivity and judgment necessary to account for highly uncertain
        matters or the susceptibility of such matters to change.
 
 ***Revenue
        Recognition***
 
 PaperFree
        recognizes revenues in accordance with the provisions of Statement of Position,
        or SOP, No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-9
        and
        clarified by Staff Accounting Bulletin, or SAB, 101 "Revenue Recognition
        in
        Financial Statements." SOP No. 97-2, as amended, generally requires revenue
        earned on software arrangements involving multiple elements to be allocated
        to
        each element based on the relative fair values of those elements.
 
 ***Impairment
        of Assets/Goodwill***
 
 Long-lived
        assets used in operations and goodwill are assessed for impairment whenever
        changes in facts and circumstances indicate a possible significant deterioration
        in the future cash flows expected to be generated by an asset group.  If,
        upon review, the sum of the undiscounted pretax cash flows is less than the
        carrying value of the asset group, the carrying value is written down to
        estimated fair value.  Individual assets are grouped for impairment
        purposes based on a judgmental assessment of the lowest level for which there
        are identifiable cash flows that are largely independent of the cash flows
        of
        other groups of assets.  Because there usually is a lack of quoted market
        prices for long-lived assets; and especially so for goodwill, the fair value
        usually is based on the present values of expected future cash flows using
        discount rates commensurate with the risks involved in the asset group. 
The expected future cash flows used for impairment reviews and related
        fair-value calculations are based on judgmental assessments of future revenue
        based on current clients or market demands.  The result of this analysis
        for PFMS required that all goodwill associated with both the KMS and DBC
        acquisitions be written off completely.
 
 ***Uncertain
        Liabilities***
 
 *Federal
        Income Tax Filings*
 The
        current officers of the company discovered in September 2006 that while federal
        income tax liability has been non-existent due to historic chronic losses,
        the
        requisite annual filings have never been filed for the company since its
        inception (2002). This compliance requirement is currently being addressed
        with
        the assistance of Plante & Moran PLLC and should be satisfied during the
        second quarter of the current fiscal year.
 
 *Federal
        Withholding Taxes*
 The
        company is currently reconciling outstanding payable items for payroll
        withholding taxes from the fiscal 2003 and the first three (3) quarters of
        fiscal 2007. PFMS joined the Tilson HR PEO during the third quarter of fiscal
        year 2007 (ending February, 2007) and has no outstanding withholding liability
        since that time. There is an expected balance owed to the US Treasury, but
        this
        amount will be non-material.
 
 **Governance
        Issues**
 
 The
        Board
        of Directors and the voting majority of shareholders have met and decided
        not to
        form either an Audit Committee or a Compensation Committee.
 
 **RECENTLY
        ISSUED ACCOUNTING STANDARDS**
 
 PaperFree
        does not expect the adoption of any other recently issued accounting
        pronouncements to have a significant impact on their consolidated financial
        position, results of operations or cash flow.
 
  **CAUTIONARY
        STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE
        SECURITIES LITIGATION REFORM ACT OF 1995**
  This
        report includes forward-looking statements within the meaning of Section
        27A of
        the Securities Act of 1933 and Section 21E of the Securities Exchange Act
        of 1934.  You can identify our forward-looking statements by the words
“anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,”
“plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,”
“projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and
        similar expressions.
  We
        based
        the forward-looking statements relating to our operations on our current
        expectations, estimates and projections about ourselves and the industries
        in
        which we operate in general.  We caution you that these statements are not
        guarantees of future performance and involve risks, uncertainties and
        assumptions that we cannot predict.  In addition, we based many of these
        forward-looking statements on assumptions about future events that may prove
        to
        be inaccurate.  Accordingly, our actual outcomes and results may differ
        materially from what we have expressed or forecast in the forward-looking
        statements.  Any differences could result from a variety of factors,
        including the following:
  **w**
            Changes
                in the regulatory environment for healthcare technology and billing
                services. **w**
            Potential
                failure or delays in achieving expected integrated application performance
                within the client base. **w**
            Failure
                of new products and services to achieve market acceptance. **w**
            Unexpected
                changes in costs or technical requirements for constructing, modifying
                or
                operating facilities for delivering Software as a Service (SaaS)
                to a
                dispersed client base. **w**
            Lack
                of, or disruptions in, adequate and reliable broadband links from
                our
                operation centers to our clients. **w**
            Potential
                disruption or interruption of our operations due to accidents,
                extraordinary weather events, civil unrest, political events or terrorism. **w**
            Liability
                resulting from litigation. **w**
            Failure,
                bankruptcy, or acquisition of our vendors providing software applications
                that are elements of our solution. **w**
            Changes
                in tax and other laws, regulations, or operating rules applicable
                to our
                business. **w**
            Inability
                to obtain economical financing for projects, construction or modification
                of facilities and general corporate purposes.  
  
  
 **ITEM
        7: FINANCIAL STATEMENTS**
 
  REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To
        the
        Board of Directors
 PaperFree
        Medical Solutions, Inc.
 Kokomo,
        Indiana
 
 We
        have
        audited the accompanying consolidated balance sheet of PaperFree Medical
        Solutions, Inc. (“PaperFree”) as of February 28, 2007 and the related
        consolidated statements of operations, changes in stockholders’ equity and cash
        flows for the two years then ended. These consolidated financial statements
        are
        the responsibility of PaperFree’s management. Our responsibility is to express
        an opinion on these consolidated financial statements based on our
        audits.
 
 We
        conducted our audits in accordance with standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatements. An
        audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the consolidated financial statements. An audit also includes
        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 consolidated financial position of PaperFree
        as of
        February 28, 2007 and the consolidated results of its operations and its
        cash
        flows for the two 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
        PaperFree will continue as a going concern. As discussed in Note 2 to the
        consolidated financial statements, PaperFree has suffered recurring losses
        from
        operations, which raises substantial doubt about its ability to continue
        as a
        going concern. Management’s plans regarding those matters are described in Note
        2. The consolidated financial statements do not include any adjustments that
        might result from the outcome of this uncertainty.
 
  MALONE
        & BAILEY, PC
 www.malone-bailey.com
 Houston,
        Texas
 
 May
        15,
        2007
 
  
  
 **PAPERFREE
        MEDICAL SOLUTIONS, INC.**
 **CONSOLIDATED
        BALANCE SHEET**
 
 ASSETS
              **February
                  28, 2007**Current
                  assets:Cash
              $
                  286,293Accounts
                  receivable, net allowance for bad debts of $80,558
              82,798Prepaid
                  and other current assets
              24,974Total
                  current assets
              394,065Fixed
                  assets, net accumulated depreciation of $134,014
              150,366Deferred
                  financing costs
              82,050Other
                  assets
              3,569Total
                  assets
              $630,050
 
 
 LIABILITIES
                  AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
                  liabilities:Account
                  payable and accrued liabilities
              $
                  275,000Stock
                  payable
              112,725Notes
                  payable - related parties
              249,808Line
                  of credit
              6,594Mandatory
                  redeemable Series C PreferredStock,
                  $0.001 par value, 90,000 shares authorized, issued and outstanding
              75,600Total
                  current liabilities
              719,727Derivative
                  liability
              103,469Callable
                  secured convertible notes payable
              1,433,849Total
                  liabilities
              2,257,045Commitments
                  and contingenciesStockholders’
                  deficit:Series
                  A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares
                  authorized, 0 shares issued and outstanding
              -Series
                  B Preferred Stock, $0.001 par value, 5,000,000 shares authorized,0
                  shares
                  issued and outstanding
              -Common
                  stock, $0.001 par value, 500,000,000 shares authorized, 76,561,857
                  shares
                  issued and outstanding
              76,561Additional
                  paid-in capital
              61,871,773Accumulated
                  deficit
              (63,575,329)Total
                  stockholders’ deficit
              (1,626,995)Total
                  liabilities and stockholders’ deficit
              $
                  630,050
  See
        accompany summary of accounting policies and notes to the consolidated financial
        statements.
 
  
  
 **PAPERFREE
        MEDICAL SOLUTIONS, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **Years
        ended February 28, 2007 and 2006**
  2007
              
              2006Revenue
              $
                  867,208
              
              $
                  979,381Cost
                  of Revenue
              (39,249)
              
              (167,260)Gross
                  profit
              827,959
              
              812,121Operating
                  expenses:General
                  and administrative
              1,741,433
              
              2,271,045Goodwill
                  impairment
              1,703,560
              
              1,709,442Lawsuit
                  settlement
              8,876
              
              393,075Loss
                  from continuing operations
              (2,625,910)
              
              ($3,561,441)Other
                  income (expense):Gain
                  (loss) on derivatives
              166,196
              
              501,593Interest
                  expense
              (300,856)
              
              (182,223)Net
                  loss
              $
                  (2,760,570)
              
              $(3,242,071)Basic
                  and diluted loss per share
              $(0.04)
              
              $
                  (0.06)Weighted
                  average shares outstanding - basic and diluted
              69,988,483
              
              52,872,258
 
 See
        accompanying summary of accounting policies and notes to financial
        statements.
 
 
 
  
  
 **PAPERFREE
        MEDICAL SOLUTIONS, INC.**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)**
 **Years
        ended February 28, 2007 and 2006**
 
 **Common**
              **Additional
                  Paid-in Capital**
              **Retained
                  Deficit**
              **Total****Shares**
              **Amount**Balances
                  02/28/05
              47,732,214
              $
                  47,732
              $57,283,839
              $(57,572,688)
              $
                  (241,117)Shares
                  issued for KMS acquisition
              2,400,000
              2,400
              2,997,600
              -
              3,000,000Shares
                  issued for cash
              682,416
              682
              109,201
              -
              109,883Shares
                  issued for services
              8,547,227
              8,547
              579,777
              -
              588,324Shares
                  issued for exercise of warrants
              1,200,000
              1,200
              401,800
              -
              403,000Shares
                  issued for lawsuit settlement
              8,000,000
              8,000
              368,000
              -
              376,000Imputed
                  interest on related party loan
              -
              -
              9,671
              -
              9,671Net
                  Loss
              -
              -
              -
              (3,242,071)
              (3,242,071)Balances
                  02/28/06
              68,561,857
              68,561
              61,749,888
              (60,814,759)
              1,003,690Shares
                  issued for DBC acquisition
              175,000
              175
              1,575
              -
              1,750Shares
                  issued for services
              3,575,000
              3,575
              27,825
              -
              31,400Shares
                  issued for debt repayment
              4,250,000
              4,250
              7,908
              -
              12,158Imputed
                  interest on related party loan
              
              
              17,922
              
              17,922Stock
                  options and warrants for services
              
              
              66,655
              
              66,655Net
                  Loss
              -
              -
              -
              (2,760,570)
              (2,760,570)Balances
                  02/28/07
              76,561,857
              $
                  76,561
              $61,871,773
              $
                  (63,575,329)
              $
                  (1,626,995)
 
 
 See
        accompanying summary of accounting policies and notes to financial
        statements.
 
   
  **PAPERFREE
        MEDICAL SOLUTIONS, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **Years
        ended February 28, 2007 and 2006**
  2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              $
                  (2,760,570)
              
              $(3,242,071)Adjustments
                  to reconcile net loss to cash used in operating
                  activities:Depreciation
                  expense
              22,293
              
              20,106Amortization
                  expense
              213,717
              
              41,498Goodwill
                  impairment
              1,703,560
              
              1,709,442Shares
                  issued for services
              98,055
              
              588,324Shares
                  issued for lawsuit settlement
              -
              
              376,000Imputed
                  interest
              17,922
              
              9,671Gain
                  on derivatives
              (166,196)
              
              (501,593)Changes
                  in assets and liabilities:Accounts
                  receivable
              (28,944)
              
              58,807Other
                  asset
              (17,481)
              
              (100,000)Stock
                  payable
              8,876
              
              (66,551)Accounts
                  payable and accrued liabilities
              (66,862)
              
              (135,540)CASH
                  USED IN OPERATING ACTIVITIES
              (975,630)
              
              (1,241,907)CASH
                  FLOWS FROM INVESTING ACTIVITIES:Acquisition
                  of DBC
              (74,308)
              
              (1,947)Purchase
                  of fixed assets
              (113,404)
              
              -CASH
                  USED IN INVESTING ACTIVITIES
              (187,712)
              
              (1,947)CASH
                  FLOWS FROM FINANCING ACTIVITIES:Advances
                  from related party
              142,272
              
              170,612Repayment
                  to related party
              (78,993)
              
              (35,049)Proceeds
                  from exercise of warrants
              -
              
              403,000Shares
                  issued for cash
              -
              
              109,883Repayment
                  on line of credit
              (10,319)
              
              (113,061)Borrowings
                  on notes payable
              1,180,000
              
              800,000Repayment
                  of note receivable
              3,307
              
              -CASH
                  PROVIDED BY FINANCING ACTIVITIES
              1,236,267
              
              1,335,385NET
                  INCREASE IN CASH
              72,925
              
              91,531Cash,
                  beginning of year
              213,368
              
              121,837Cash,
                  end of year
              $
                  286,293
              
              213,368Cash
                  paid for:Interest
              $10,945
              
              $
                  107,707Income
                  tax
              -
              
              -Non-cash
                  investing and financing activities:Shares
                  issued for purchase of KMS
              $-
              
              $
                  3,000,000Shares
                  issued for purchase of DBC
              1,750
              
              -Conversion
                  of notes payable into common stock
              12,158
              
              -Discount
                  on derivatives
              109,358
              
              672,860
 
 See
        accompanying summary of accounting policies and notes to financial
        statements.
  
  
 **PAPERFREE
        MEDICAL SOLUTIONS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 
 
 **NOTE
        1 - SUMMARY OF ACCOUNTING POLICIES**
 
 PaperFree
        Medical Solutions, Inc. (the "Company") was incorporated on January 29th,
        2002
        under the laws of the State of Nevada under the name of Link Media Publishing
        Ltd. PaperFree is engaged, through its subsidiaries, in providing paper-free
        turnkey medical solutions for small to large multi-physician, and
        multi-specialty offices. During the year the company created LEAPprn (“LEAP”) as
        the customer facing sales and marketing arm.
 
 **Principles
        of Consolidation**
 **---------------------------**
 The
        accompanying consolidated financial statements include the accounts of
        PaperFree, its wholly owned subsidiaries, LEAPprn, KMS Computer Services
        and
        Doctor’s Billing Corporation (DBC). We do not have any variable interests where
        we are the primary beneficiary. All significant inter-company accounts and
        balances have been eliminated in consolidation.
 
 **Reclassifications**
 -----------------
 Certain
        amounts in the 2006 financial statements have been reclassified to conform
        to
        the 2007 financial statement presentation.
 
 **Use
        of Estimates**
 **----------------**
 The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities, the disclosure of contingent assets and liabilities
        at
        the date of the consolidated financial statements, and the reported amounts
        of
        revenues and expenses during the reporting period. Actual results could differ
        from those estimates.
 
 **Revenue
        Recognition**
 **-------------------**
 PaperFree
        recognizes revenues in accordance with the provisions of Statement of Position,
        or SOP, No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-9
        and
        clarified by Staff Accounting Bulletin, or SAB, 101 "Revenue Recognition
        in
        Financial Statements." SOP No. 97-2, as amended, generally requires revenue
        earned on software arrangements involving multiple elements to be allocated
        to
        each element based on the relative fair values of those elements.
 
 PaperFree’s
        contractual arrangements are evaluated on a contract-by-contract basis and
        often
        require judgment and estimates that affect the timing of revenue recognized
        in
        PaperFree’s statements of operations. Specifically, PaperFree may be required to
        make judgments about:
 
 **w**
            whether
                the fees associated with PaperFree products and services are fixed
                or
                determinable; **w**
            whether
                or not collection of PaperFree’ fees is reasonably
                assured; **w**
            whether
                professional services are essential to the functionality of the related
                software product; **w**
            whether
                PaperFree has the ability to make reasonably dependable estimates
                in the
                application of the percentage-of- completion method;
                and **w**
            whether
                PaperFree have verifiable objective evidence of fair value for PaperFree
                products and services. 
 **Basic
        and Diluted Net Loss per Share**
 **------------------------------------**
 The
        basic
        net loss per common share is computed by dividing the net loss by the weighted
        average number of common shares outstanding. Diluted net loss per common
        share
        is computed by dividing the net loss adjusted on an “as if converted” basis, by
        the weighted average number of common shares outstanding plus potential dilutive
        securities. For the years ended February 28, 2007 and 2006, potential dilutive
        securities had an anti-dilutive effect and were not included in the calculation
        of diluted net loss per common share.
 
 **Cash
        and Cash Equivalents**
 **-------------------------**
 Cash
        equivalents include all highly liquid investments with original maturities
        of
        three months or less.
 
 **Goodwill**
 -------------------------
 Goodwill
        is the excess of the acquisition cost of businesses over the fair value of
        the
        identifiable net assets acquired. In July 2001, the FASB issued Statement
        of
        Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Intangible
        Assets”, which revises the accounting for purchased goodwill and intangible
        assets. Under SFAS 142, goodwill and intangible assets with indefinite lives
        will no longer be amortized and will be tested for impairment annually or
        whenever events or circumstances indicate that the estimated fair value is
        less
        than the related carrying value as determined on a reporting unit
        basis.
 
 Effective
        February 28, 2007, we reviewed goodwill for impairment consistent with the
        guidelines of SFAS 142 using a discounted future cash flow approach to
        approximate fair value. The result of testing our goodwill for impairment
        was a
        non-cash charge of $1,703,560.
 
 **Derivative
        Financial Instruments**
 **--------------------------------**
 PaperFree
        does not use derivative instruments to hedge exposures to cash flow, market,
        or
        foreign currency risks. PaperFree evaluates all of it financial instruments
        to
        determine if such instruments are derivatives or contain features that qualify
        as embedded derivatives. For derivative financial instruments that are accounted
        for as liabilities, the derivative instrument is initially recorded at its
        fair
        value and is then re-valued at each reporting date using the Black-Scholes
        pricing model, with changes in the fair value reported as charges or credits
        to
        income. For option-based derivative financial instruments, PaperFree uses
        the
        Black-Scholes option-pricing model to value the derivative instruments at
        inception and subsequent valuation dates. The classification of derivative
        instruments, including whether such instruments should be recorded as
        liabilities or as equity, is re-assessed at the end of each reporting period.
        Derivative instrument liabilities are classified in the balance sheet as
        current
        or non-current based on whether or not net-cash settlement of the derivative
        instrument could be required within 12 months of the balance sheet
        date.
 
 **Income
        Taxes**
 ------------
 PaperFree
        recognizes deferred tax assets and liabilities based on differences between
        the
        financial reporting and tax bases of assets and liabilities using the enacted
        tax rates and laws that are expected to be in effect when the differences
        are
        expected to be recovered. PaperFree provides a valuation allowance for deferred
        tax assets for which it does not consider realization of such assets to be
        more
        likely than not.
 
 **Recently
        Issued Accounting Pronouncements**
 ------------
 PaperFree
        does not expect the adoption of any other recently issued accounting
        pronouncements to have a significant impact on their consolidated financial
        position, results of operations or cash flow.
 
 **NOTE
        2 - GOING CONCERN**
 
 As
        shown
        in the accompanying financial statements, PaperFree incurred net losses of
        $2,760,570 and $3,242,071 in fiscal 2007 and 2006, respectively, has an
        accumulated deficit of $63,575,329 and a working capital deficit of $325,662
        at
        February 28, 2007. These conditions raise substantial doubt as to PaperFree’s
        ability to continue as a going concern. Management’s plans include obtaining
        additional capital through debt or equity financing. The financial statements
        do
        not include any adjustments that might be necessary if PaperFree is unable
        to
        continue as a going concern.
 
 **NOTE
        3 - DBC ACQUISITION**
 
 On
        September 28, 2006, PaperFree acquired all of the shares issued and outstanding
        of Doctors Billing Corporation, in exchange for the issuance of 175,000 shares
        of common stock valued at $1,750 and $74,308 of cash due in three installments
        payable September 28, 2006, October 28, 2006 and November 28, 2006. As of
        February 28, 2007, all three all three installments have been made. The third
        payment was made subsequent to November 30, 2006. Doctors Billing Corporation
        is
        a developer, licensor and maintenance supporter of proprietary Practice
        Management and Occupational Medicine software applications. Doctors Billing
        Corporation at the time of acquisition held customer contracts with annual
        revenues less than $15,000; proprietary rights to its software and fixed
        assets
        with a fair market value of $5,000; and no liabilities. The estimated fair
        values of the assets acquired at September 28, 2006 are as follows:
 
 Property
                  and equipment
              
              $
                  5,000Goodwill
              
              71,058Total
              
              $76,058
 
 Effective
        February 28, 2007, we review goodwill for impairment consistent with the
        guidelines of SFAS 142. As a result of this analysis, we recorded a non-cash
        impairment charge for the full balance of goodwill.
 
 **NOTE
        4 - LAWSUIT SETTLEMENT**
 
 On
        September 12, 2005 Paperfree approved a settlement of a lawsuit launched
        by PW
        Management in connection with the return of funding provided to Crown Medical
        Systems, Inc. [Delaware]. Although Paperfree abandoned its merger with Crown
        [Delaware], it was deemed expedient to settle the lawsuit. Accordingly, on
        January 4, 2006 Paperfree issued 2,000,000 shares to each of four entities
        for a
        total consideration of 8,000,000 shares. Paperfree issued 4,100,000 shares
        of
        common stock valued at $127,405 for professional fees incurred due to the
        settlement resulting in an aggregate settlement expense of
        $376,000.
 
 **NOTE
        5 - STOCK PAYABLE**
 
 During
        the year ended February 28, 2006, a former director of PaperFree sold 179,000
        shares of common stock to investors for proceeds of $89,500. These stock
        sales
        were not approved by the board prior to their occurrence and the director
        never
        transferred the proceeds to PaperFree. PaperFree has agreed to issue the
        investors the stock in exchange for indemnification. As of February 28, 2007,
        claims had been received for $2,726 resulting in the issuance of 54,500 shares.
        It is unknown if the 179,000 shares represent all shares sold by the former
        director without the board’s approval. PaperFree may have further liabilities to
        accrue and stock to issue if future claims are made. As of February 28, 2007,
        PaperFree had $86,774 accrued as a stock payable for future claims.
 
 In
        September 2005, PaperFree entered into a settlement agreement with PW
        Management. See Note 4 for details. Pursuant to the agreement, any additional
        issuances of common stock in excess of the number of shares outstanding as
        of
        the settlement date will activate an anti-dilution right for PW Management.
        This
        right, which applies for a period of five years from the settlement date,
        entitles PW Management to additional shares to keep their ownership percentage
        at 14.7%. As of February 28, 2007, PaperFree owed 1,620,341 shares to PW
        Management valued at $25,951.
 
 **NOTE
        6 - CALLABLE SECURED CONVERTIBLE NOTES PAYABLE**
 
 PaperFree
        entered into a securities purchase agreement with four investors (the “Note
        Holders”) on November 30, 2005, for the sale of (i) $1,500,000 in callable
        secured convertible notes and (ii) warrants to purchase 3,000,000 shares
        of
        common stock at an exercise price of $0.10 per share. The securities purchase
        agreement required the purchase of an aggregate of $1,500,000 of the callable
        secured convertible notes and 3,000,000 warrants occurring in three tranches
        as
        follows:
 
 (i)  $800,000
        on November 30, 2005 and 1,599,600 warrants to purchase common
        stock;
 
 (ii)  $400,000
        within two days after filing a registration statement covering the number
        of
        shares of common stock underlying the callable secured convertible notes
        and
        800,000 warrants to purchase common stock; and
 
 (iii)  $300,000
        within two days of the effectiveness of the registration statement and 600,000
        warrants to purchase common stock.
 
 On
        August
        31, 2006, PaperFree received $200,000 and issued 400,000 warrants related
        to the
        second tranche of convertible notes detailed above. On October 27, 2006,
        Paperfree received $200,000 and issued 400,000 warrants also related to the
        second tranche of convertible notes. These notes mature on August 31, 2009
        and
        October 27, 2009, respectively.
 
 The
        callable secured convertible notes bear interest at 8% per annum from the
        date
        of issuance and is payable quarterly. The callable secured convertible notes
        mature three years from the date of issuance and are convertible into common
        stock at the note holders' option, at the lower of (i) $2.00 or (ii) 65%
        of the
        average of the three lowest intraday trading prices for the common stock
        on the
        OTC Bulletin Board for the 20 trading days before but not including the
        conversion date. Accordingly, there is no limit to the number of shares into
        which the callable secured convertible notes may be converted. The callable
        secured convertible notes are secured by PaperFree's assets, including
        inventory, accounts receivable and intellectual property.
 
 The
        agreement restricts the note holder’s ability to convert their callable secured
        convertible notes or exercise their warrants and receive shares of common
        stock
        such that the number of shares of common stock held by them in the aggregate
        and
        their affiliates after such conversion or exercise does not exceed 4.99%
        of the
        then issued and outstanding shares of common stock. However, the note holders
        may repeatedly sell shares of common stock in order to reduce their ownership
        percentage, and subsequently convert additional callable secured convertible
        notes.
 
 PaperFree
        incurred direct financing costs of $120,000 associated with the issuance
        of the
        convertible notes. These costs were recorded as an “other long term asset” to be
        amortized over the life of the notes using the effective interest method.
        Costs
        incurred included:
 
 Debt
                  arrangement fees
              
              $
                  45,000Broker
                  fees
              
              40,000Key
                  man life insurance single premium
              
              20,000Legal
                  fees
              
              15,000Total
                  associated fees
              
              120,000Less
                  amortization
              
              (37,950)Deferred
                  financing costs
              
              $
                  82,050
 
 
 PaperFree
        analyzed the Convertible Notes and the Warrants for derivative financial
        instruments, in accordance with SFAS No. 133. The Convertible Notes are hybrid
        instruments which contain more than one embedded derivative feature. These
        embedded derivatives require separate accounting SFAS 133. The various embedded
        derivative features have been bundled together as a single, compound embedded
        derivative instrument that has been bifurcated from the debt host contract,
        and
        referred to as the "Single Compound Embedded Derivatives within the Convertible
        Notes. The single compound embedded derivative features include the conversion
        feature within the Convertible Notes, the early redemption option and the
        Contract Rate adjustment. PaperFree valued the compound embedded derivatives
        based on a probability weighted discounted cash flow model. The value of
        the
        single compound embedded derivative liability was bifurcated from the debt
        host
        contract and recorded as a derivative liability, which resulted in a reduction
        of the initial carrying amount (as unamortized discount) of the Convertible
        Notes of $555,809 at inception on November 30, 2005. The unamortized discount
        will be amortized to interest expense using the effective interest method
        over
        the life of the Convertible Notes, or 36 months.
 
 The
        Stock
        Purchase Warrants are freestanding derivative financial instruments which
        were
        valued using the Black-Scholes method. The fair value of the derivative was
        computed at $106,089 for the 1 st tranche
        at inception on November 30, 2005 and $18,830 for the 2nd tranche at August
        31,
        2006 and $9,311 at October 27, 2006. The fair value of both was recorded
        as a
        derivative liability which resulted in a reduction of the initial carrying
        amount (as unamortized discount) of the Convertible Notes. The unamortized
        discount will be amortized to interest expense using the effective interest
        method over the life of the Convertible Notes, or 36 months.
 
 Both
        the
        embedded and freestanding derivative financial instruments were recorded
        as
        liabilities in the consolidated balance sheet and measured at fair value.
        These
        derivative liabilities will be marked-to-market each quarter with the change
        in
        fair value recorded in the income statement.
 
 Variables
        used in the Black-Scholes option-pricing model including (1) 4.41% to 5.35%
        risk-free interest rate, (2) expected warrant life is the actual remaining
        life
        of the warrant as of each period end, (3) expected volatility is from 176%
        to
        222% and (4) zero expected dividends.
 
 The
        impact of the application of SFAS 133 and EITF 00-19 on the balance sheets
        and
        statements of operations as of and through February 28, 2007 was as
        follows:
 
 **Liability
                  as of February 28, 2006**
              
              **Discount
                  related to 2****nd****tranche**
              
              **Discount
                  related to 2****nd****tranche**
              
              **Gain
                  for year ended February 28, 2007**
              
              **Liability
                  as of February 28, 2007**Convertible
                  notes
              
              $130,115
              
              35,465
              
              35,351
              
              $(128,995)
              
              $71,936Warrants
              
              30,190
              
              18,830
              
              19,713
              
              (37,200)
              
              31,533Total
              
              $160,305
              
              $54,295
              
              $55,064
              
              $(166,195)
              
              $103,469
 
 
 The
        following summarizes the financial presentation of the Convertible Notes
        at
        February 28, 2007:
 
 Face
                  value of convertible notes
              
              $2,000,000Adjustments:Discount
                  for derivative liability - convertible notes with compound embedded
                  derivatives
              
              (626,626)Discount
                  for derivative liability - investors warrant
              
              (144,630)Amortization
                  of debt discount
              
              217,263Conversion
              
              (12,158)Convertible
                  Notes balance, as adjusted
              
              $1,433,849
 
 
 **NOTE
        7 - RELATED PARTY TRANSACTIONS**
 
 PaperFree
        leases office space from a related party at a rate of $10,000 per month.
        This
        lease expires in 2023. In addition, certain minority shareholders have made
        cash
        advances to the Company at various times. These advances are due on demand,
        bear
        no interest and are unsecured. Interest expense is imputed at a rate of 8.25%
        and $17,922 of imputed expense was recorded during the year ended February
        28,
        2007. At February 28, 2007, the total amount owed to related parties in
        connection with these transactions was $249,808.
 
 **NOTE
        8 - MANDATORILY REDEEMABLE PREFERRED STOCK**
 
 On
        September 16, 2004 PaperFree issued 90,000 shares of Series C preferred stock
        for cash consideration of $60,000. These shares, as a class, carry the number
        of
        votes equal to the number of votes of all outstanding Common Stock plus one
        additional vote such that the holders of shares of Preferred Stock shall
        always
        constitute a majority of the voting rights of the Corporation. The Preferred
        Stock was mandatorily redeemable ninety days after issuance for the cash
        redemption price of $0.84 per share or a total of $75,600 for all such shares.
        However, the shares were not redeemed and remain outstanding at February
        28,
        2007.
 
 **NOTE
        9 - INCOME TAXES**
 
 PaperFree
        uses the liability method, where deferred tax assets and liabilities are
        determined based on the expected future tax consequences of temporary
        differences between the carrying amounts of assets and liabilities for financial
        and income tax reporting purposes. During fiscal 2007 and 2006, PaperFree
        incurred net losses and, therefore, has no tax liability. The net deferred
        tax
        asset generated by the loss carry-forward has been fully reserved. The
        cumulative net operating loss carry-forward is approximately $59,500,000
        at
        February 28, 2007, and will expire in the years 2023 through 2027.
 
 At
        February 28, 2007, deferred tax assets consisted of the following:
 
 Deferred
                  tax assets:Net
                  operating losses
              $
                  (20,219,217)Less:
                  valuation allowance
              20,219,217Net
                  deferred tax asset
              $                   
                  -
  **NOTE
        10 - COMMON STOCK**
 
 During
        the year ended February 28, 2007:
 
 PaperFree
        issued 175,000 shares of its common stock to the stockholders of Doctors
        Billing
        Corporation. These shares were recorded at their fair value of
        $1,750.
 
 PaperFree
        issued 4,250,000 shares related to the conversion of certain notes payable.
        These shares were converted at approximately $0.003 per share or $12,158.
 
 PaperFree
        issued 3,575,000 shares of its common stock to several consultants for their
        services. There shares were recorded at their fair value of
        $31,400.
 
 During
        the year ended February 28, 2006:
 
 PaperFree
        issued 2,400,000 shares of its common stock to the stockholders of KMS. These
        shares were recorded at their fair value of $3,000,000.
 
 PaperFree
        issued 682,416 shares for cash consideration of $122,093 through several
        Reg S
        stock sales and incurred an offering cost of $12,210 to its broker.
 
 PaperFree
        issued 8,547,227 shares of its common stock to several consultants for their
        services. There shares were recorded at their fair value of
        $588,324.
 
 Several
        investors exercised 1,200,000 warrants to PaperFree's common stock. PaperFree
        received $403,000 in cash.
 
 PaperFree
        issued 8,000,000 shares of its common stock to settle a lawsuit launched
        by PW
        Management. See Note 4 for details. There shares were recorded at their fair
        value of $376,000.
 
 
 **NOTE
        11 - WARRANTS AND OPTIONS**
 
 During
        the year ended February 28, 2007:
 
 PaperFree
        granted 2,000,000 stock options, exercisable at $0.012, valued at $21,287
        to its
        CFO. The options were valued using a Black-Scholes model with the following
        assumptions: Risk free rate of 4.8%, volatility of 219%, and expected option
        term of 2.08 years.
 
 PaperFree
        granted 2,000,000 stock options, exercisable at $0.015 valued at $27,882
        to its
        CEO. The options were valued using a Black-Scholes model with the following
        assumptions: Risk free rate of 4.8%, volatility of 254% and expected option
        term
        of 1.16 years.
 
 PaperFree
        granted 500,000 options to each of its non-Executive directors for a total
        of
        2,000,000 stock options, exercisable at $0.05 valued at $17,486. The options
        were valued using a Black-Scholes model with the following assumptions Risk
        free
        rate ranging from 4.52% to 4.8%, volatility ranging from 220% to 2,196%,
        and
        expected option term of 5 years.
 
 The
        following table provides a summary of warrants and options:
 
 
 Warrants
              
              Weighted
                  average exercise price
              
              Aggregate
                  intrinsic value
              
              Weighted
                  Average remaining contractual life (years)Outstanding
                  at February 28, 2006
              
              2,019,600
              
              $
                  0.22
              
              $-
              
              4.5Granted
              
              4,500,000
              
              0.02
              
              -
              
              2.0Exercised
              
              -
              
              -
              
              -
              
              -Forfeited
              
              -
              
              -
              
              -
              
              -Expired
              
              -
              
              -
              
              -
              
              -Outstanding
                  at February 28, 2007
              
              6,519,600
              
              $0.08
              
              $-
              
              2.8Exercisable
                  at February 28, 2007
              
              6,519,600
              
              -
              
              -
              
              -
 
 We
        adopted SFAS No. 123R effective March 1, 2006. In our statement of
        operations for the year ended February 28, 2007, we recorded $66,655 of
        compensation cost for share-based payment arrangements. No stock options
        or
        warrants were exercised during the year ended February 28, 2007.
 
 **NOTE
        12 - COMMITMENTS**
 
 PaperFree
        leases its premises from a related party, pursuant to an 18-year lease expiring
        February 28, 2023. Under the terms of the lease, the rent amount is set at
        $10,000 per month without escalation. The lease is net of utilities, taxes
        and
        insurance.
 
 On
        March
        6, 2006, PaperFree entered into an employment agreement with its CEO. The
        terms
        of the agreement are one year, salary of $100,000 and 2,000,000 stock options
        valued at $27,882. The options vest 500,000 immediately and 500,000 every
        for
        each successive three month period. In addition, the agreement contains a
        put
        option from March 7, 2007 through September 6, 2007 that allows the CEO to
        require the company to purchase up to 2,000,000 shares from him from options
        he
        exercises at 90% of the closing price on March 7, 2007.
 
 On
        August
        28, 2006, PaperFree entered into an employment agreement with its CFO. The
        terms
        of the agreement are for four months, renewable month to month thereafter,
        salary of $12,000 per month and 2,000,000 stock options valued at $21,287.
        The
        options vest 1,000,000 immediately and 1,000,000 on January 1,
        2007.
 
 **NOTE
        13 - CONTINGENCY**
 
 Paperfree
        has recorded $223,194 owed to a related party as of February 28, 2007. The
        related party has disputed this amount and claims the amount owed is $335,194.
        Paperfree believes a settlement of the disputed amount is not probable or
        reasonably estimable at this time.
 
 **NOTE
        14 - SUBSEQUENT EVENTS**
 
 Subsequent
        to February 28, 2007:
 
 Paperfree
        issued 5,250,000 shares for conversion of $9,000 of notes payable.
 
 Paperfree
        issued 750,000 shares to a consultant for services valued at
        $5,250.
 
 
 **ITEM
        8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
  None.
 
  **Item
        8A. Controls and Procedures**
  We
        maintain disclosure controls and procedures that are designed to ensure that
        information required to be disclosed in our Exchange Act reports is recorded,
        processed, summarized, and reported within the time periods specified in
        the
        Securities and Exchange Commission's rules and forms, and that such information
        is accumulated and communicated to our management, including our Chief Executive
        Officer and Chief Financial Officer, as appropriate, to allow timely decisions
        regarding required disclosure based on the definition of “disclosure controls
        and procedures” in Rule 13a-15(e). In designing and evaluating the disclosure
        controls and procedures, our management recognized that any controls and
        procedures, no matter how well designed and operated, can provide only
        reasonable assurance of achieving the desired control objectives, and management
        necessarily was required to apply its judgment in evaluating the cost-benefit
        relationship of possible controls and procedures.
 
 At
        the
        end of the period covered by this Annual Report on Form 10-KSB, we carried
        out
        an evaluation, under the supervision and with the participation of our
        management, including our Chief Executive Officer and Chief Financial Officer,
        of the effectiveness of the design and operation of our disclosure controls
        and
        procedures. Based on the foregoing, our Chief Executive Officer and our Chief
        Financial Officer concluded that our disclosure controls and procedures were
        not
        effective to ensure that all material information required to be disclosed
        in
        this Annual Report on Form 10-KSB has been made known to them in a timely
        fashion. **** Specifically, our independent auditors identified deficiencies in our interval
        controls and disclosure controls related to goodwill impairment, valuation
        of
        shares issued for services, valuation of derivative liabilities, expense
        recognition, related party transactions and disclosure control deficiencies
        related to transactions involving goodwill and derivatives. Appropriate
        adjustments and footnote disclosures have been recorded and disclosed in
        our
        Annual Report on Form 10-KSB. Additional effort is needed to fully remedy
        these
        deficiencies and we are continuing our efforts to improve and strengthen
        our
        control processes and procedures. We are in the process of improving our
        internal control over financial reporting in an effort to remediate these
        deficiencies by improving supervision and increasing training of our accounting
        staff with respect to generally accepted accounting principles, providing
        additional training to our management regarding use of estimates in accordance
        with generally accepted accounting principles, adding additional accounting
        personnel to assist daily transactions, and increasing the frequency of internal
        financial statement review.
 
 Our
        Chief
        Executive Officer and Chief Financial Officer have also evaluated whether
        any
        change in our internal controls occurred during the fourth fiscal quarter
        and
        have concluded that there were no changes in our internal controls or in
        other
        factors that occurred during the fourth fiscal quarter that has materially
        affected, or is reasonably likely to materially affect, these
        controls.
 
  PART
        III
   **ITEM
        9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
        PERSONS**
  As
        of 28
        February 2007, the following are the directors and executive officers of
        the
        Company.
  
 **Directors:**
 Name
                  of Director
              
              AgeDavid
                  L. Bailey
              
              66Stephen
                  Hawksworth
              
              52Richard
                  J. Paver
              
              46William
                  L. Sklar
              
              59T.
                  Marshall Wilde
              
              43
  **Executive
        Officers:**
 
 Name
                  of Officer
              Age
              OfficeStephen
                  Hawksworth
              52
              President
                  & Chief Executive OfficerCraig
                  S. Barrow
              55
              Chief
                  Financial Officer
  Set
        forth
        below is a brief description of the background and business experience of
        each
        of our executive officers and directors for the past five years:
 
 David
        L
        Bailey, Director - Mr. Bailey served as Chairman of the Board, President
        and
        Chief Executive Officer of CeriStar, Inc., a publicly traded company whose
        principal product is the delivery of voice, video and data services over
        a fiber
        network, from December 1999 until October 9, 2003. From May 1997 to December
        1999, Mr. Bailey served as Managing Partner of DL Group, a limited liability
        corporation, which marketed computer software and telecommunications products.
        From 1993 to 1997, he was Chairman and Chief Executive Officer of VZ Corp.,
        a
        software development company. Mr. Bailey has also been Chairman and Chief
        Executive Officer of Clyde Digital Systems and Cericor, and was the lead
        founder
        and Chief Executive Officer of Iomega, Inc.
 
 Stephen
        Hawksworth, President, Chief Executive Officer and a Director since August
        30,
        2006. Age 52. Mr. Hawksworth has a diversified background in telecommunications,
        computing, data networks, ERP, Project/Program Management, Professional
        Services, Strategy and Management with pre-incorporation start-ups through
        Global Fortune 50 companies. Mr. Hawksworth has been in the roles of Practice
        Director, Partner-track Senior Manager (EY), Chief Operations Officer for
        a
        Services Start-up, and Director of Technology of a global sourcing firm.
        He has
        multiple degrees in Electronic Engineering, Computer Information Systems
        and a
        Master’s of International Management from the American Graduate School of
        International Management.
 
 Dr.
        Richard J. Paver, Director - Dr. Paver is a Family Practice Physician who
        currently serves with the US Navy. In 1988, Commander Paver was commissioned
        in
        the Medical Corps under the HPSP program, graduating from the College of
        Osteopathic Medicine of the Pacific in 1992. He performed his internship
        at
        Naval Hospital Camp Pendleton and completed his Residency in Family Practice
        in
        1995. Immediately thereafter he reported for duty to Branch Medical Clinic,
        Sasebo, Japan where he served as staff physician. In October 1998, he reported
        to Naval Hospital, Okinawa, Japan where he served as Department Head of Evans
        and Bush Branch Medical Clinics. In July 2002, he reported to Naval Hospital,
        Rota, Spain where he has served in a variety of capacities of steadily
        increasing responsibility, and in his current role as Director of Medical
        Services since June 2004. Dr. Paver is an actively practicing physician with
        both outpatient and in-patient responsibilities, including obstetrics. He
        brings
        an interest and experience in performance improvement activities such as:
        IM/IT
        utilization in the practice setting; HIPPA implementation; cost, productivity
        and workload analyses; JCAHO sustainment and coding. Current appointments
        include the Executive Committee of the Medical Staff and the Executive Steering
        Committee. He has maintained board certification with the American Academy
        of
        Family Practice since 1995 with re-certification in July 2001.
 
 William
        L. Sklar, Director - Mr. Sklar has operated Willmar Management Corp., a
        consultancy providing business and financial services since 1988. Since 1999,
        he
        has acted as a consultant to Secure Electrans Ltd., a UK provider of domestic
        electric meters. He served as director and Vice Chairman for Metro Toronto
        Housing Authority a Provincial-Federal board overseeing 32,000 rental units
        in
        Toronto from 1983-1989 Mr. Sklar was appointed a Director on January 17,
        2004.
 
 T.
        Marshall Wilde Director - has been a marketing consultant since February
        2006.
        From June 2005 to January 2006 Marshall was VP Sales for Clarity Systems
        in
        Toronto. Marshall was the Managing Director Canada between February 2003
        and
        June 2005, for Sybase Canada a $1 billion software Industry leader with
        technology and solutions that integrate platforms, databases and applications.
        Between February 2000 and September 2002 Marshall was Director, Field Operations
        for SAP Canada, Inc. SAP is the Global leader in inter-enterprise business
        application software with over 28,000 employees and revenues of $6
        billion.
 
 Craig
        S.
        Barrow - Mr. Barrow has been Chief Financial Officer since August 30, 2006.
        Mr.
        Barrow served as Vice President of Finance and Chief Financial Officer of
        North
        Coast Health Systems (1985-1986) where he restructured the organizations
        debt
        financing to significantly reduce debt service to improve profitability and
        cash
        flow. He has been launching successful technology businesses for over fifteen
        years. While at Owens Illinois (1973 - 1985), Craig developed an advanced
        computer system for reviewing and analyzing corporate reporting information.
        This system revolutionized the way Fortune 500 companies managed their business.
        Comshare commercialized this system with Mr. Barrow leading the way as Vice
        President of Marketing from 1986 to 1991. During that time the company’s
        software sales grew from around $10M to over $150M while its stock grew by
        over
        300%. The company came to control more than 50% of the global market. From
        1991
        to 1996 Craig was the Principal at Barrow & Associates, a Sales and
        Marketing consulting firm, and worked with numerous technology companies
        to
        launch products that gained significant market share. These companies included
        Dun & Bradstreet, Pilot Software, IRI Software and Oracle. In 1996 Oracle
        hired Mr. Barrow to help launch its Data Warehousing business. Craig was
        responsible for Data Warehousing in the Americas. During his five years at
        Oracle (1996 - 2000) Data Warehousing grew to become a $1B business for the
        company.
 
 TERM
        OF OFFICE
 
 Our
        Directors are appointed for a one-year term to hold office until the next
        annual
        general meeting of our shareholders or until removed from office in accordance
        with our bylaws. Our officers are appointed by our board of directors and
        hold
        office until removed by the board.
 
 EMPLOYEES
 
 As
        of
        February 28, 2007, PaperFree and had approximately 20 full-time employees,
        and 4
        part-time employees. None of our employees is represented by a labor
        organization. We maintain various employee benefit plans and we believe we
        have
        excellent relations with our employees.
 
 FAMILY
        RELATIONSHIPS
 
 There
        are
        no other family relationships among our officers, directors, promoters, or
        persons nominated for such positions.
 
 LEGAL
        PROCEEDINGS
 
 No
        officer, director, or persons nominated for such positions, promoter or
        significant employee has been involved in legal proceedings that would be
        material to an evaluation of our management.
 
 Our
        directors, executive officers and control persons have not been involved
        in any
        of the following events during the past five years:
 
 1.
        any
        bankruptcy petition filed by or against any business of which such person
        was a
        general partner or executive officer either at the time of the bankruptcy
        or
        within two years prior to that time;
 
 2.
        any
        conviction in a criminal proceeding or being subject to a pending criminal
        proceeding (excluding traffic violations and other minor offences);
 
 3.
        being
        subject to any order, judgement, or decree, not subsequently reversed, suspended
        or vacated, of any court of competent jurisdiction, permanently or temporarily
        enjoining, barring, suspending or otherwise limiting his involvement in any
        type
        of business, securities or banking activities; or
 
 4.
        being
        found by a court of competent jurisdiction (in a civil action),the Commission
        or
        the Commodity Futures Trading Commission to have violated a federal or state
        securities or commodities law, and the judgement has not been reversed,
        suspended, or vacated.
 
 COMMITTEES
        OF THE BOARD OF DIRECTORS
 
 We
        presently do not have an audit committee, compensation committee, nominating
        committee, an executive committee of our board of directors, stock plan
        committee or any other committees. Currently, our Board of Directors makes
        the
        decisions regarding compensation, our audit, the appointment of auditors,
        and
        the inclusion of financial statements in our periodic reports.
 
 AUDIT
        COMMITTEE
 
 The
        Board
        of Directors does not believe that an audit committee is required at this
        time.
 
 Identification
        of Audit Committee
 
 The
        Company does not have a separately-designated standing audit committee.
 
 CODE
        OF
        ETHICS
 
 As
        part
        of our shift to a Professional Employer Organization relationship, the company
        adopted the Code of Ethics shown as Exhibit A to this report.
 
 **ITEM
        10: EXECUTIVE COMPENSATION**
 
 The
        table
        below summarizes all compensation awarded to, earned by, or paid to our
        executive officers by any person for all services rendered in all capacities
        to
        us for the fiscal year ended February 28, 2007 and 2006.
 
  Annual
                  Compensation
              Long
                  Term Compensation AwardsName
                  & Position
              Year
              Salary
              Bonus
              Other
                Compensation
              Restricted
                  Stock Awards
              Securities
                  Underlying Options/SARWilliam
                  L. Sklar -Director/CFO from 3/1/06 - 8/1/06
              2007
                2006
              $
                  20,000
                $
                  10,000
              -
                -
              -
                -
              -
                -
              -
                -Stephen
                  Hawksworth - President & CEO
              2007
              $100,000
              20,000
              -
              -
              -Craig
                  S. Barrow - Chief Financial Officer
              2007
              $
                  84,0001
              -
              -
              -
              -
 
 
 1 Salary
        since August 30, 2006
  Section
        16(A) Beneficial Ownership Reporting Compliance
  Section
        16(a) of the Exchange Act requires our executive officers and directors,
        and
        persons who beneficially own more than 10% of our equity securities, to file
        reports of ownership and changes in ownership with the Securities and Exchange
        Commission. Officers, directors and greater than 10% shareholders are required
        by SEC regulation to furnish us with copies of all Section 16(a) forms they
        file. Based on our review of the copies of such forms we received, we believe
        that during the fiscal year ended February 28, 2007 only the corporate officers
        had complied with this regulation. Subsequent to year end adequate filings
        were
        received by board members Bailey and Paver.
   
  
 **ITEM
        11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT**
  The
        following table sets forth information regarding the beneficial ownership
        of our
        shares of common stock at May 23, 2007, by (i) each person known by us to
        be the
        beneficial owner of more than 5% of our outstanding shares of common stock,
        (ii)
        each of our directors, (iii) our executive officers, and (iv) by all directors
        and executive officers as a group. Each person named in the table, has sole
        voting and investment power with respect to all shares shown as beneficially
        owned by such person and can be contacted at our executive office address.
 
 Title
                  of Class
              Name
                  and Address of Beneficial Owner
              Amount
                  and Nature of Beneficial Ownership
              Percent
                  of ClassCommon
                  StockWilliam
                  L. Sklar, Director
                513
                  Roselawn Ave.
                Toronto,
                  Ontario
                M5N
                  1K2
              1,944,643
              2.4%T.
                  Marshall Wilde, Director
              20,667
              0%All
                  current executive officers and directors as a group
              1,965,310
              2.4%Class
                  C Preferred
              William
                  L. Sklar, Director
              30,000
              33%David
                  L. Bailey, Director
              30,000
              33%Richard
                  J. Paver, Director
              30,000
              33%All
                  current executive officers and directors as a group
              90,000
              100%
 
  The
        percent of class is based on 82,561,908 shares of common stock issued and
        outstanding as of May 23, 2007.
 
 **ITEM
        12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 PaperFree
        leases office space from a related party at a rate of $10,000 per month.
        This
        lease expires in 2023. In addition, certain minority shareholders have made
        cash
        advances to the Company at various times. These advances are due on demand,
        bear
        no interest and are unsecured. Interest expense is imputed at a rate of 8.25%
        and $17,922 of imputed expense was recorded during the year ended February
        28,
        2007. At February 28, 2007, the total amount owed to related parties in
        connection with these transactions was $249,808.
 
 Except
        as
        disclosed below, during our most recently completed fiscal year, none of
        our
        directors or officers, nor any proposed nominee for election as a director,
        nor
        any person who beneficially owns, directly or indirectly, shares carrying
        more
        than 10% of the voting rights attached to all of our outstanding shares,
        nor any
        promoter, nor any relative or spouse of any of the foregoing persons has
        any
        material interest, direct or indirect, in any transaction since our
        incorporation or in any presently proposed transaction which, in either case,
        has or will materially affect us.
 
 Our
        management is involved in other business activities and may, in the future
        become involved in other business opportunities. If a specific business
        opportunity becomes available, such persons may face a conflict in selecting
        between our business and their other business interests. In the event that
        a
        conflict of interest arises at a meeting of our directors, a director who
        has
        such a conflict will disclose his interest in a proposed transaction and
        will
        abstain from voting for or against the approval of such
        transaction.
 
  **ITEM
        13: EXHIBITS AND REPORTS**
  a.  During
        the year two (2) form 8-Ks were filed. The first on September 1, 2006 announced
        the resignation of Mr. William Sklar as President, CEO and CFO and the
        appointment of Mr. Stephen Hawksworth as President and CEO and Mr. Craig
        S.
        Barrow as CFO. The second form 8-K filed February 4, 2007 announced the renewal
        of Mr. Hawksworth’s emloyment agreement as President and CEO.
  b.  In
        October 2006 a form SB-2 was filed registering 19,428,000 shares of common
        stock
        to support both the convertible debenture and the DBC acquisition (see Note
        10).
  c.  On
        December 21, 2006 the company filed form S-8 registering the 2006 directors,
        officers, employees and consultants Stock option, stock warrant and stock
        award
        plan.
  d.  Exhibit
        A
        is the company’s Code of Ethics and Principles for Senior Officers
  **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
  **Audit
        Fees**
  The
        aggregate fees billed for the fiscal year ended February 28, 2007 for
        professional services rendered by the principal accountant for the audit
        of our
        annual financial statements included in our Form 10-KSB and review of the
        quarterly financial statements included in our Form 10-QSB for services that
        are
        normally provided by the accountant in connection with statutory and regulatory
        filings for engagements for these fiscal periods were approximately
        $15,707.
 
 **Audit-Related
        Fees**
 None.
  **Tax
        Fees**
  None
  **All
        Other Fees**
  None.
 
 Exhibit
              DescriptionA
              Corporate
                  Code of Ethics and Standards of Conduct31.1
              Certification
                  required by Rule 13a-14(b) or Rule 15d-14(b)31.2
              Certification
                  required by Rule 13a-14(b) or Rule 15d-14(b)32.1
              Certification
                  required by section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                  Section 1350.32.2
              Certification
                  required by section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                  Section 1350.
  Pursuant
        to the requirements of Section 13 and 15 (d) of the Securities Exchange Act
        of
        1934, the Registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
  **PAPERFREE
                  MEDICAL SOLUTIONS, INC.**Dated:
                  May 25, 2007
              By:
                  /s/ Stephen HawksworthStephen
                  Hawksworth, President & Chief Executive
                  Officer
 
  In
        accordance with the Securities Exchange Act, this report has been signed
        below
        by the following persons on behalf of the registrant and in the capacities
        and
        on the dates indicated.
  Date:
                  May 25, 2007
              By:/s/
                  William L Sklar
              By:/s/ David BaileyWilliam
                  L. Sklar, Director
              David
                  Bailey, Director
  Date:
                  May 25, 2007
              By/
                  s/ Richard Paver
              By:/s/
                  T. Marshall WildeRichard
                  Paver , Director
              T.
                  Marshall Wilde , Director
 
  
  
 **Exhibit
        A: Code of Ethics and Standards of Conduct**
  **BUSINESS
        ETHICS POLICY**
 
 1.
        PURPOSE:
 
 Company
        associates will maintain the highest ethical standards in the conduct of
        Company
        affairs. Intent of this policy is that each associate will conduct the Company's
        business with integrity and comply with all applicable laws in a manner that
        excludes considerations of personal advantage or gain.
  The
        following is a summary of the Company's policy with respect to (1) gifts,
        favors, entertainment and payments given or received by Company associates,
        (2)
        potential conflicts of interest and (3) certain other matters:
  2.
        GENERAL POLICY APPLICATION:
 A.
        Gifts, Favors, and Payments by the Company:
 Gifts,
        favors, and payments may be given to others at Company expense, if they meet
        all
        of the following criteria:
 1.
        They are consistent with accepted business practices
 2.
        They are of sufficiently limited value and in a form that will not be construed
        as a bribe or payoff
 3.
        They are not in violation of applicable law and generally accepted ethical
        standards; and
 4.
        Public disclosure of the facts will not embarrass the Company
 5.
        Payments, commissions or other compensation to or for the benefit of associates
        of customers (or their family members or associates) not required by written
        contract are contrary to Company policy.
 B.
        Gifts, Favors, Entertainment and Payments Received by Company Associates:
 1.
        Associates shall not seek or accept for themselves or others any gifts, favors,
        entertainment, payments without a legitimate business purpose nor shall they
        seek or accept personal loans than conventional loans at market rates from
        lending institutions) from any persons or business organizations that do
        or seek
        to do business with or is a competitor of the Company. In the application
        of
        this policy:
  Associates
        may accept for themselves and members of their families common courtesies
        usually associated with customary business practices. These include but are
        not
        limited to:
 •
        Lunch and/or dinner with vendors sometimes including spouses as long as the
        invitation is extended by the vendor.
 •
        Gifts of small value from vendors such as calendars, pens, pads, knives,
        etc.
 •
        Tickets to events (such as sports, arts, etc.) are acceptable if offered
        by the
        vendor and the vendor accompanies the associate to the event. These are not
        to
        be solicited by the company associate and must be approved by the appropriate
        company officer.
 •
        Overnight outings are acceptable under the condition that individuals from
        either other companies or the vendor are in attendance. The associate must
        have
        prior approval from the appropriate company officer.
 •
        The receipt of alcoholic beverages is discouraged.
 •
        Gifts of perishable items usually given during the holidays such as hams,
        cookies, nuts, etc., are acceptable.
  A
        strict
        standard is expected with respect to gifts, services, discounts, entertainment
        or considerations of any kind from suppliers.
  Day
        outings such as golf, fishing, and hunting are acceptable with prior approval
        from the appropriate company official. The vendor must be in attendance and
        participation by the associate's family members is not acceptable.
  Use
        of
        vendor's facilities (vacation homes, etc.) by associates or families for
        personal use is prohibited. In the event the vendor is present for the duration
        of the visit such a situation is acceptable as long as it is only once per
        year
        and for limited duration, i.e. a long weekend. The associate must have prior
        approval from the appropriate company officer.
  It
        is
        never permissible to accept a gift in cash or cash equivalent such as stocks
        or
        other forms of marketable securities of any amount.
  2.
        Management associates should not accept gifts from those under their supervision
        of more than limited value.
  C.
        Conflicts of Interest:
 
 Associates
        should avoid any situation which involves or may involve a conflict between
        their personal interest and the interest of the Company. As in all other
        facets
        of their duties, associates dealing with customers, suppliers, contractors,
        competitors or any person doing or seeking to do business with the company
        are
        to act in the best interest of the company Each associate shall make prompt
        and
        full disclosure in writing to their manager of any potential situation which
        may
        involve a conflict of interest. Such conflicts include:
  1.
        Ownership by associate or by a member of their family of a significant interest
        in any outside enterprise which does or seeks to do business with or is a
        competitor of the company.
 
 2.
        Serving as a director, officer, partner, consultant, or in a managerial or
        technical capacity with an outside enterprise which does or is seeking to
        do
        business with or is a competitor of the company. Exceptions to this can be
        approved by the Chief Executive Officer of PaperFree Medical Solutions.
 
 3.
        Acting
        as a broker, finder, go-between or otherwise for the benefit of a third party
        in
        transactions involving or potentially involving the Company or its
        interests.
 
 4.
        Any
        other arrangements or circumstances, including family or other personal
        relationships, which might dissuade the associate from acting in the best
        interest of the company.
  D.
        Compliance:
 Any
        violation of this policy will subject the associate to Administrative
        disciplinary action or immediate discharge. Any Company associate having
        knowledge of any violation of the policy shall promptly report such violation
        to
        the appropriate level of management. Each vice president and company officer
        of
        PaperFree Medical Solutions is responsible for compliance in their area of
        responsibility. When questions arise concerning any aspect of this policy,
        contact the corporate Chief Financial Officer.
 
 CODE
        OF
        ETHICS FOR SENIOR OFFICERS
 
 1.
        Introduction and Scope.
 
 This
        Code
        of Ethics for Senior Officers (the “Code”) applies to all executive officers of
        PaperFree Medical Solutions, Inc. a Nevada corporation (“PaperFree” or the
“Company”), and their respective subsidiaries and affiliates (collectively, the
“Consolidated Company”), specifically including the Chief Executive Officer,
        Chief Financial Officer and Comptroller, as well as the heads of each operating
        unit and the senior financial officers of each operating unit (each a “Senior
        Officer” and, collectively, the “Senior Officers”). Agents, representatives and
        consultants of the Consolidated Company are expected to act in the Consolidated
        Company's best interests and in accordance with high ethical standards. Conduct
        that is improper for the Consolidated Company or its Senior Officers to engage
        in directly may not be engaged in by the use of agents, representatives or
        consultants.
  Each
        officer, director and employee is expected to act in good faith and with
        integrity in the performance of his/her responsibilities on behalf of the
        Consolidated Company and in compliance with all applicable laws, rules and
        regulations. The Senior Officers are committed to:
 •  Honest
        and ethical conduct, including the ethical handling of actual or apparent
        conflicts of interest between personal and professional relationships;
 •  Full,
        fair, accurate, timely and understandable disclosure in reports and documents
        that the Consolidated Company files with, or submits to, the Securities and
        Exchange Commission and in other public communications;
 •  Compliance
        with applicable laws, rules and regulations; and
 •  Maintaining
        the Consolidated Company's books and records in accordance with applicable
        accounting policies, laws, rules and regulations.
  The
        Consolidated Company intends not just to comply with legal requirements but
        to
        conduct its business in accordance with a high level of honesty and integrity.
        This Code is intended to supplement the Consolidated Company's existing business
        conduct compliance policies (including, specifically, those listed in Appendix
        A
        hereto). The Senior Officers must comply with these policies and with all
        applicable rules and standards of the Securities and Exchange Commission,
        the
        Financial Accounting Standards Board, the New York Stock Exchange, and other
        regulatory bodies. Those who violate this Code will be subject to disciplinary
        action, up to and including termination of employment. Violations and waivers
        of, and amendments to, this Code will be disclosed as required by law.
  This
        Code
        sets forth the basic principles that guide the business conduct of the
        Consolidated Company, and is intended to comply with the provisions of the
        Sarbanes-Oxley Act of 2002 and its implementing regulations, as the same
        may be
        amended from time to time. This Code is a statement of the fundamental
        principles that govern Senior Officers in the conduct of the
  Consolidated
        Company's business .
        It is
        not intended to, and does not, constitute an employment contract or assurance
        of
        continued employment, and does not create any rights in any employee, client,
        supplier, competitor, shareholder or any other person or entity.
  2.
        Application.
 
 In
        performing his or her duties, each of the Senior Officers must:
 •
              Maintain
                  high standards of honest and ethical conduct and avoid any actual
                  or
                  apparent conflict of interest as defined in this Code or in the
                  applicable
                  Conflicts of Interest Policy of the Consolidated Company;
 •
              Report
                  to the Audit/Conflicts Committee of the Board of Directors any
                  conflict of
                  interest that may arise and any material transaction or relationship
                  that
                  reasonably could be expected to give rise to a conflict;
 •
              Provide,
                  or cause to be provided, full, fair, accurate, timely, and understandable
                  disclosure in reports and documents that the Consolidated Company
                  files
                  with or submits to the Securities and Exchange Commission and in
                  other
                  public communications;
 •
              Comply
                  and take all reasonable actions to cause others to comply with
                  applicable
                  governmental laws, rules, and regulations; and
 •
              Promptly
                  report violations of this Code to the Audit/Conflicts Committee.
  3.
        Books
        and Records
 
 Full,
        fair, accurate, timely and understandable disclosures in the Consolidated
        Company's periodic reports filed with the Securities and Exchange Commission
        and
        in the Consolidated Company's public documents are both legally required
        and
        essential to the success of the Consolidated Company's business. Accordingly,
        Senior Officers will use their best efforts to provide shareholders with
        information that is accurate, complete, timely and understandable. They will
        cause all books and records of the Consolidated Company to be kept accurately
        in
        accordance with generally accepted accounting principles (“GAAP”), and in a
        manner designed to reflect fully and fairly all Consolidated Company
        transactions, and to permit the Consolidated Company's filings with the
        Securities and Exchange Commission and other public disclosures to be complete
        and accurate in all material respects.
  The
        Consolidated Company will maintain internal controls to ensure that:
 •
              Transactions
                  are properly authorized;
 •
              Assets
                  are safeguarded;
 •
              Operations
                  are conducted in accordance with directives of the PaperFree Medical
                  Solutions, Inc. Board of Directors and management; and
 •
              Financial
                  records are reliable.
 
 All
        of
        the Consolidated Company's books, records, accounts, and financials must
        conform
        both to applicable legal requirements and to the Consolidated Company's system
        of internal controls. The Consolidated Company will maintain disclosure controls
        to ensure that required information is recorded, processed, summarized and
        reported as required by law and regulation and within the time periods
        specified.
  Each
        Senior Officer will promptly bring to the attention of the Board of Directors
        any material information of which he or she may become aware that could affect
        such disclosures. The Chief Executive Officer and each senior financial officer
        shall promptly bring to the attention of the Board of Directors any information
        he or she may have regarding:
 
 •
              Significant
                  deficiencies in the design or operation of internal controls which
                  could
                  adversely affect the ability to record, process, summarize and
                  report
                  financial data;
 •
              Any
                  fraud, whether material or not, that involves management or any
                  other
                  employee who has a significant role in financial reporting, disclosure
                  or
                  internal controls; or
 •
              Any
                  material violation of any law, rule or regulation (including the
                  securities laws) applicable to the Consolidated Company or the
                  operation
                  of its businesses; or
 •
              This
                  Code.
  4.
        Conflicts of Interest.
 
 Senior
        Officers should avoid all possible conflicts of interest. A conflict of interest
        exists when the private interest of a Senior Officer interferes with that
        person's ability to advance the legitimate interests of the Consolidated
        Company. A conflict may arise when a senior officer takes actions or has
        interests that may make it difficult to perform his or her Consolidated Company
        duties objectively and effectively, or when or members of such officer's
        family
receive improper personal benefits as a result of the Senior Officer's position
        in the Consolidated Company. Confidential information acquired by a Senior
        Officer during the performance of his or her work must not to be used for
        personal advantage. Senior Officers must avoid any investment, interest,
        or
        association that interferes, might interfere, or might appear to interfere
        with
        such officer's independent exercise of judgment in the Consolidated Company's
        best interests.
  The
        Consolidated Company will take such actions as are necessary and proper to
        remove the conflict, which may include procedural safeguards, removal of
        a
        Senior Officer's discretion in the area of conflict, reassignment of job
        responsibilities, reassignment of such officer, or prohibition against continued
        participation in the conflicting activity. The resolution of a potential
        conflict situation is not a violation or waiver of this Code or the Consolidated
        Company's Conflict of Interest Policy.
  5.
        Compliance with Laws, Rules and Regulations.
 
 The
        Consolidated Company is committed to conducting business in accordance with
        all
        applicable laws, rules and regulations and in accordance with the highest
        standards of business ethics. Senior Officers must use their best efforts
        to
        become well informed as to the laws and regulations applicable to the
        Consolidated Company's business and apply such knowledge to their business
        conduct. Senior Officers must conduct themselves in a manner to avoid even
        the
        appearance of improper behavior. If a local custom or law requires less
        stringent standards than this Code or applicable Consolidated Company policy,
        such officers still must comply with the Code and Consolidated Company policy.
        If a local law or regulation actually conflicts with this Code, Senior Officers
        must comply with the law or regulation. However, if local custom or policy
        conflicts with this Code, then such officers must comply with the Code.
  6.
        Internal Reporting and Administration
 
 Any
        questions regarding application of the law or the appropriateness of a
        particular course of conduct should be referred to the General Counsel of
        PaperFree Medical Solutions, Inc., the General Auditor of PaperFree Medical
        Solutions, Inc. or other appropriate personnel. Suspected violations of law
        or
        policy should be reported to the General Counsel of PaperFree Medical Solutions,
        Inc. the General Auditor of PaperFree Medical Solutions, Inc. It is the
        Consolidated Company's policy to provide a working environment free from
        retaliation based on an employee's good faith reporting or disclosing of
        any
        violation of law, this Code or other policy. Reports may be made anonymously.
  7.
        Waivers of the Code.
 
 Changes
        in, and waivers of, this Code may be made only by the Board of Directors
        of
        PaperFree Medical Solutions, Inc. (or a duly authorized Committee thereof)
        and
        will be disclosed promptly as required by applicable law or stock exchange
        regulation.
  8.
        Enforcement
 
 Those
        who
        violate this Code will be subject to disciplinary action, up to and including
        termination of employment.