UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549





FORM
      10-KSB


ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934


For
      the
      fiscal year ended December 31, 2006


Commission
      file number 000-24681





HEALTH
      SYSTEMS SOLUTIONS, INC.


(Exact
      name of small business issuer as in its charter)





Nevada
            82-0513245(State
                or other jurisdiction
            (IRS
                Employerof
                incorporation or organization)
            Identification
                No.)





405
      N.
      Reo Street, Suite 300, Tampa, Florida 33609


(Address
      of principal executive offices) (Zip Code)





(813)
      282-3303


(Issuer’s
      telephone number, including area code)





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par
      value





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  o




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes xNo o





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




Indicate
      by check mark whether the issuer is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act). Yes oNo x




State
      issuer's revenues for its most recent fiscal year. $6,576,991





State
      the
      aggregate market value of 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. On March 22, 2007, 1,288,627 shares
      had
      an aggregate market value of $1,224,196 based on last sales price at which
      the
      common stock was sold on March 8, 2007 as reported by the OTCBB.





As
      of
      December 31, 2006, the issuer had 6,270,907 shares of common stock
      outstanding.




Documents
      Incorporated By Reference: Not Applicable.





Transitional
      Small Business Disclosure Form (check one): Yes oNo x









HEALTH
      SYSTEMS SOLUTIONS, INC.


FORM
      10-KSB


INDEX


PART
                  IItem
                  1.
              Description
                  of Business
              
              1Item
                  2.
              Description
                  of Property
              
              13Item
                  3.
              Legal
                  Proceedings
              
              13Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              
              13PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              
              14Item
                  6.
              Management's
                  Discussion and Analysis or Plan of Operation
              
              15Item
                  7.
              Financial
                  Statements
              
              31Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and
                  Financial Disclosure
              
              31Item
                  8A.
              Controls
                  and Procedures
              
              31Item
                  8B.
              Other
                  Information
              
              32PART
                  IIIItem
                  9.
              Directors
                  and Executive Officers, Promoters, Control Persons and Corporate
                  Governance; Compliance with Section 16(a) of theExchange
                  Act
              
              33Item
                  10.
              Executive
                  Compensation
              
              37Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              
              40Item
                  12.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              
              41Item
                  13.
              Exhibits
              
              43Item
                  14.
              Principal
                  Accountant Fees and Services
              
              45SIGNATURES
              
              46




**PART
      I**




**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**Overview**




Health
      Systems Solutions, Inc., through its wholly-owned subsidiaries, designs,
      develops, markets, sells and supports both licensed and web-based, management
      information and business intelligence information technology systems and related
      services. These products are designed to assist home health care companies
      more
      effectively to manage the clinical, operational and financial aspects of their
      business and to compete effectively in the Medicare, Medicaid, private pay
      and
      managed care environments. Our focus is to help home health care providers
      streamline their operations and better serve their patients. In this regard,
      we
      offer several comprehensive software solutions including *HSS
      Advantage* , *HSS
      Analyzer* , *HSS
      VividNet* and *HSS
      VividCare* .




*HSS
      Advantage* enables
      Medicare home health agencies to collect, manage and transmit data in a way
      that
      meets federal mandates for data management. *HSS
      VividNet* tracks
      and manages information necessary to address financial and operational needs,
      including patient intake, clinical data, worker management, scheduling and
      accounting functions. Both of these solutions utilize the software as a service
      model where customers use their standard personal computers and Microsoft
      Internet Explorer to access the Internet to utilize software services that
      reside on our servers. The architecture and fee structure enables our customers
      to rapidly and cost-effectively implement our services for a modest
      transactional fee charged when a customer uses our programs to process patient
      clinical assessments and obtain management reports.




*HSS
      VividCare,* which is
      an earlier version of *HSS
      VividNet* ,
      enables
      home health agencies to effectively manage private pay, Medicaid and Medicare
      divisions. *HSS
      Analyzer* integrates data from throughout the enterprise to create a clinical and
      financial data repository that can be used as an analytical tool. Both of these
      solutions deliver software using a software license model where the software
      is
      purchased up front and is installed on customer-owned servers under the
      customer’s control. In the future we expect to reduce the number of customers
      using the software license model, and convert them to our *VividNet* product
      (our web-based product).




These
      services have been designed to assist our customers in or by:




·
            Increasingrevenue;




·
            Reducing
                cost;




·
            Improving
                the quality of patient outcomes;




·
            Standardizingprocesses;




·
            Minimizing
                regulatorycompliancerisk;




·
            Identifyingdrug, food and herb interactions;and




·
            Providingpatient andcaregiverscheduling and clinical data
                management.




In 2006, there
      were approximately 9,000 Medicare certified home health agencies nationally
      that
      provided short-term (60 days or less) primarily skilled services (for example,
      registered nurse, physical therapy, occupational therapy, speech therapy and
      social counseling) to over 2.8 million patients. In addition, there were
      approximately 40,000 private duty home care companies delivering skilled and
      unskilled services to patients and non-clinical customers in the home that
      were
      paid by other reimbursement sources including commercial insurance and private
      citizens. It is estimated that there are approximately 12,000 companies
      providing services specifically to Medicaid qualified recipients. In 2004,
      there
      were 27 million recipients of Medicaid home care services, up from 2.7 million
      in the early 1990s.




The
      Medicaid home health benefit is largely federally-funded by the Centers for
      Medicare and Medicaid Services, or CMS (up to 90% for some programs), with
      additional contributions from each state responsible for administering the
      programs. Medicare, on the other hand, is funded and administered exclusively
      by
      CMS. As a result, Medicaid-related regulations are more complex to keep up
      with
      than those in Medicare as Medicaid is regulated by both federal and state
      regulatory agencies.









The
      Balanced Budget Act of 1997 included mandates to the Centers for Medicare and
      Medicaid Services to establish a prospective payment system, or PPS, to reduce
      the cost of the home health benefit and to measure the effectiveness of the
      care
      delivered. The regulations are being implemented in phases over time and include
      a requirement that home health agencies collect assessment data on each patient
      at start-of-care, recertification and at discharge (OASIS Data). HSS
      services and software are designed to respond to these expanded PPS regulations.




Our
      management information software and service solutions are designed for use
      in
      connection with the many key clinical, administrative and financial functions
      that home health care companies require. Our technology solutions are designed
      to meet the rapidly changing requirements necessitated by a rapidly increasing
      aging population, legislation at the federal and state level and an information
      technology environment. Our strategy is to offer a broad spectrum of products
      to
      home health care companies in an integrated seamless platform. In this fashion,
      we would have an opportunity to cross-sell our various products to our users.
      We
      intend to seek out and consummate acquisitions that will allow us to quickly
      expand our product offerings.




We
      are a
      Nevada corporation which was incorporated on July 31, 2001. Our executive
      offices are located at 405 N. Reo Street, Suite 300, Tampa, Florida 33609 and
      our telephone number is 813-282-3303. Our website is located at www.HSSonline.net .
      Information on our website is not a part of this report.




References
      throughout this annual report to “Health Systems Solutions,” “HSS,” “the
      Company,” “we,” “us” and “our” refer to Health Systems Solutions, Inc., and
      unless otherwise indicated, to our operating subsidiaries, Healthcare Quality
      Solutions, Inc. ,
      VHT
      Acquisition Company ,
      and
      Carekeeper Solutions, Inc .




**Recent
      Events**




On
      April
      6, 2006, VHT Acquisition Company (“VHT”), a wholly-owned subsidiary of
      Healthcare Quality Solutions, Inc., purchased substantially all of the assets
      of Vanta
      Health Technologies, LLC (“Vanta”). Pursuant
      to the asset purchase
      agreement, VHT acquired the assets of Vanta in consideration for $850,000
      in cash, the
      assumption of certain liabilities of Vanta in the approximate amount of $70,000,
      and the
      issuance of an aggregate of 100,000 shares of our  common
      stock, to the members of Vanta. VHT
      services assist homecare businesses manage their daily operations, primarily
      through its flagship software product, *The
      Analyzer* .




On
      May
      15, 2006, ,our wholly-owned subsidiary,  Carekeeper
      Solutions, Inc. (“CKS”) purchased all of the stock of Carekeeper Software, Inc. (“Carekeeper”) p ursuant
      to the stock purchase
      agreement .
      In
      consideration for the
      stock of Carekeeper, we agreed to:




·
            Makeavailableto
                CKSan
                operating line of credit in an amount of up to $1,500,000 to beused
                solely to pay (i) CKS’accounts payable, (ii) certain amounts due to the former shareholders
                of
                Carekeeper up to $143,000 and (iii) operating expenses pursuant to
                an
                annual budget pre-approved by us;




·
            payan
                earn out payment based on a percentage ofCKS’operating revenues in 2006, 2007 and 2008;
                and




·
            makea
                contingent payment in the amount of up to 400,000 shares of ourcommon
                stock based on CKSachieving certain milestones regarding its operating revenues during
                2006,
                2007 and 2008.




Carekeeper
      is a pioneer in schedule driven financial management solutions for the homecare
      and medical staffing industries. Carekeeper’s *VividNet* software
      benefits providers throughout all aspects of their operations with a workflow
      oriented system based on a single entry design that drives information from
      the
      front-office service delivery to the back-office financial management.




2




**Industry
      Background**




The
      health care system is the largest industry in the United States. The
      following statements regarding national health care spending are
      excerpts from a
      Statement by Dr. Henry E. Simmons National Coalition on Health Care on April
      19,
      2006 at the Third Annual
      World Health Care Congress Sponsored by *The
      Wall Street Journal* :




·
            In
                2004, healthcarespending in the United States reached $1.9 trillion, and was projected
                to
                reach $2.9 trillion in2009.




·
            Health
                carespendingis
                4.3 times the amount spent on national defense.




·
            In
                2004, the United States spent 16%of
                its gross domestic product (GDP) on health care. It is projected
                that the
                percentagewill reach 20%in
                the next decade.




·
            Although
                nearly 46 million Americans are uninsured, the United States spends
                more
                on health care than otherindustrializednations, and those countries provide health insurance to all their
                citizens.




The
      system includes a broad array of private and public purchasers, insurers,
      providers, manufacturers, and suppliers. The United States invests more per
      capita than any other nation for the delivery of health care, yet it
      consistently falls short of providing quality care. There are wide variations
      in
      the type of care delivered, and studies have shown that many patients do not
      receive the recommended care, which appears to occur across medical conditions
      and regardless of whether the care is preventive, acute or chronic.




The
      Institute of Medicine issued a stern warning in 2001 in its ground-breaking
      publication, *Crossing
      the Quality Chasm* .
      This
      report urged change at all levels of the health delivery system, with particular
      emphasis on redesigning the system to improve quality. In particular, the
      publication recommended creating and aligning incentives for quality and making
      information available to enhance quality, accountability and consumer
      choice.




Our
      mission is to assist the post acute segment of the U.S. healthcare system in
      addressing these issues. For purposes of describing its business, HSS has
      segmented the healthcare industry into physician practices, acute care
      (hospital) facilities, pharmaceutical and supply companies and post acute care.
      Post acute healthcare providers include home health agencies, inpatient and
      outpatient rehabilitation facilities, skilled nursing facilities, nursing homes,
      hospice providers, long term acute care hospitals, assisted living facilities,
      continuing care retirement communities, infusion therapy, medical/social adult
      day care, respite care, home medical equipment (HME), personal care,
      comprehensive outpatient rehab facilities (CORF) and enriched
      housing. Our
      business is currently directed to the home health segment of the post acute
      industry, although it is our intention to expand our information technology service businesses into other areas of post acute
      including hospice and nursing home facilities. Home
      health is a rapidly growing component of healthcare. Factors that we
      believe have contributed and will contribute to the need for improved home
      health services include :




·
            Recognitionthat home health services can be a cost-effective alternative to
                more
                expensive institutional care;




·
            agingdemographics;




·
            changingfamily structures in which more aging people will be living alone
                and may
                be in need of assistance;




·
            increasingconsumer and physician awareness and interest in home health
                services;




·
            thepsychological benefits of recuperating from an illness or accident
                or
                receiving care for a chronic condition in one’s own home;
                and




·
            medicaland technological advances that allow more health care procedures
                and
                monitoring to be provided at home.




In
      March
      2006, the Medicare Payment Advisory Commission, or MedPAC, reported to the
      United States Congress about the growth and profitability of post acute care
      including the home health industry. As of October 2006, there were more than
      9,000 Medicare certified agencies providing skilled nursing, therapy, home
      health aide, or medical social worker services to beneficiaries in their homes.
      According to CMS, post-acute expenditures were over $36 billion in 2004 which
      accounts for 12% of Medicare spending. The number of certified home health
      agencies has grown 10% in the last year alone and growth is expected to
      continue. Home care currently represents approximately one-third of all
      post-acute spending. MedPAC studies show that home care is a more favorable
      setting for post-acute care proven by cost analysis and higher clinical
      outcomes. Further examination of efficiency of home care versus other post-acute
      models continue to be a top priority for the government.




3




We
      expect
      further consolidation of the industry, which has accelerated after the passage
      of the Balanced Budget Act of 1997 (“BBA”). We believe home health agencies are
      expanding their service delivery to encompass more of the existing home care
      opportunities. Specifically, Medicare-focused providers are expanding into
      the
      private duty space and private duty agencies are expanding into Medicare. We
      believe that in the process of consolidation, home care management will require
      solutions that reach across these heretofore independent venues and need help
      to
      streamline their operations, standardize the delivery of care, maximize the
      reimbursement under the regulations, improve the quality of care delivered,
      and
      minimize compliance and other risks. By providing outsourced services, we help
      reduce the information technology burdens of our customers, enabling them to
      focus on their core businesses and react quickly to dynamic market
      conditions.




In
      October 2000, the federal government introduced the Medicare Home Health
      Prospective Payment System (“PPS”). These rules require the collection and
      reporting of vast amounts of patient data that must be extracted, edited,
      corrected, formatted, exported and reported on rigorous schedules. The
      importance of ensuring the data is accurate and timely cannot be overstated,
      as
      the very success of a home health company participating in Medicare is dependent
      on meeting these requirements. Under these rules, home health agencies are
      mandated to prove that the care delivered improves the patient’s functional
      ability. The mandates introduce reimbursement levels calculated in advance
      based
      upon the assessed need of the patient. An error in collecting the data on the
      initial patient assessment can cost thousands of dollars in missed
      reimbursement, and an error in collecting the data on the final assessment
      can
      result in the rejection of an entire claim, or worse, an audit survey by a
      regulatory agency that could result in fraud and abuse charges.




The
      data
      must be collected using a standardized tool called the “outcome and assessment
      information set” (“OASIS”) to collect 109 data elements that must be reported to
      government agencies on rigorous schedules and must meet an extensive editing
      process. It is critical for the home health business that the data is accurate
      and valid as the data is used to determine the level of reimbursement received
      for the care provided and is used by the government to measure, and publicly
      report on, the quality of care delivered.




Methods
      for capturing data include filling out paper forms, then key entering the
      required data into a workstation or personal computer using free,
      government-supplied software, or directly into information management systems
      supplied by another party. The data is subsequently transmitted to the
      government, where computers edit the answers highlighting errors. The home
      health agency must dial into the government site to retrieve its reports, then
      in an off-line procedure correct the errors and resubmit the data. Either
      approach has minimal data validation capabilities, particularly as it relates
      to
      determining any clinical anomalies that might exist in the data.




In
      addition, the nature of home health care is such that the field nurse and the
      data entry staff, nursing supervisor, quality assurance staff, clinical manager
      and operations management are typically remote from one another, making
      collaboration over identified issues difficult if not impossible to resolve.
      The
      result is increasing overnight courier, fax and telephone costs combined with
      rejected claims, extended accounts receivable days outstanding and inconsistent
      care delivery. Often, the clinical staff struggles to satisfy various
      regulations (including regulatory deadlines), while management pushes for faster
      turnaround to improve cash flow. Multiple sites compound the management
      problems.




Among
      responses to these and other issues, the Robert Wood Johnson Foundation and
      the
      California HealthCare Foundation funded the California-based Integrated
      Healthcare Association's (“IHA”) Pay for Performance (“P4P”) Program. This is
      the largest P4P project in the U.S. The project provides medical groups with
      incentive payments based upon performance against quality benchmarks. Seven
      large California health plans participate: Aetna, Blue Cross, Blue Shield,
      CIGNA, Health Net, PacifiCare, and Western Health Advantage. The program uses
      evidence-based measures to assess the performance of over 35,000 physicians
      in
      225 medical groups caring for more than 6.2 million commercial HMO enrollees.
      The program's data is collected and analyzed by the National Committee for
      Quality Assurance (NCQA), a Washington non-profit dedicated to improving health
      care quality.




4




In
      addition to IHA’s P4P Program ,
      CMS has
      launched several demonstration projects and recently announced that it intends
      to incorporate P4P into its Medicare program. CMS
      has
      announced it plans to introduce P4P into the home health industry in 2008 or
      2009. CMS
      has
      stated that the foundation of effective P4P initiatives is collaboration with
      providers and other stakeholders to ensure that valid quality measures are
      used,
      that providers are not being pulled in conflicting directions, and that
      providers have support for achieving actual improvement. Consequently, to
      develop and implement these initiatives, CMS is collaborating with a wide range
      of other public agencies and private organizations who have a common goal of
      improving quality and avoiding unnecessary health care costs, including the
      National Quality Forum, the Joint Commission of the Accreditation of Health
      Care
      Organizations, the National Committee for Quality Assurance, the Agency for
      Health Care Research and Quality, the American Medical Association and many
      other organizations. CMS is also providing technical assistance to a wide range
      of health care providers through its Quality Improvement
      Organizations.




CMS
      has
      published that it is developing and implementing a set of P4P initiatives to
      support quality improvement in the care of Medicare beneficiaries. In addition
      to the initiatives for hospitals, physicians and physician groups, CMS is also
      exploring opportunities in nursing home care and is considering approaches
      for
      home health as well. In addition, recognizing that many of the best
      opportunities for quality improvement are patient-focused and cut across
      settings of care, CMS is pursuing P4P initiatives to support better care
      coordination for patients with chronic illnesses.





From
      published reports we believe the P4P initiatives by CMS for home healthcare
      will
      be applied over the next two years, which will further increase homecare’s
      dependence on information technology services such as those delivered by HSS.
      HSS is investigating approaches that will enable us to assist homecare providers
      operate effectively under the P4P regulations if and when they become
      effective.




As
      the
      baby boomers entering the healthcare system begin to have a greater financial
      impact on the cost of healthcare, we believe that a number of things will happen
      that may affect our business:




·
            there
                will be public and political pressure to rationalize and consolidate
                many
                of the myriad of post-acute healthcare delivery venues currently
                protected
                under Medicare and Medicaid
                regulations;




·
            there
                will be consolidation within post acute verticals such as home care,
                nursing homes, rehabilitation facilities, hospices, etc.; as well
                as
                consolidation or elimination of some of the types of
                providers;




·
            consolidation
                of providers will be preceded by an evolving introduction of data
                standards that enable ready exchange of patient data and measurement
                of
                performance;




·
            ongoing
                changes will make obsolete proprietary, closed system designs and
                require
                flexible, open source approaches; and




·
            there
                will be increased need to devise automated patient plans of care
                to manage
                details of specific disease states that can be updated electronically.




We
      believe that most providers of services in post-acute healthcare do not have
      the
      resources to invest in or manage the technology required to meet this new
      environment. We
      believe the opportunity exists to consolidate information technology vendors
      in
      the post acute arena in advance of the rationalization of the healthcare
      providers themselves. We believe that:




·
            the
                baby boomers entering their post-65 years will place unprecedented
                demands
                on the healthcare system of our
                country;




·
            current
                public demand for accountability in balancing the quality and cost
                of
                healthcare will increase as healthcare costs for the baby boomers
                consume
                an increasing portion of the Country’s gross domestic
                product;




·
            improved
                and standardized processes will be implemented and managed at all
                points
                of patient contact;




5




·
            identifying
                and eliminating duplication of clinical services, waste and paper
                in
                administrative systems will force the adoption of business process
                management techniques already implemented in other industries;
                and




·
            increased
                dependency on information technology will be the
                norm.




**Our
      Solution**




We
      offer
      a comprehensive set of product and service solutions to address the changing
      needs of home health providers and caregivers through:




·
            information
                technology services and software systems;




·
            training;




·
            deployment
                resources; and




·
            consulting
                and customer support.




Our
      solutions, when used together, provide a comprehensive set of home health
      enterprise software . HSS
      services and systems are designed to enable home health care
      providers to produce
      and utilize comprehensive information reports to optimize the performance of
      their organizations. These reports include financial, operational and clinical
      information designed to help customers make informed business decisions, more
      cost effectively operate their businesses, generate more revenues, continually
      manage toward best practice and more effectively compete in a cost-contained
      regulatory environment. Management believes these information technology
      solutions help home health care providers:




·
            increase
                revenue;




·
            improve
                cash flow;




·
            reduce
                operating expense;




·
            improve
                risk management;




·
            increase
                policy decision effectiveness;




·
            improve
                the quality of patient outcomes;




·
            accelerate
                payment reimbursement; and




·
            handle
                rapidly changing reimbursement rules and privacy regulations.




In
      addition, utilization of our *HSS
      Advantage* software
      and services provides the following advantages:




·
            *HSS
                Advantage*provides a variety of services that enable Medicare home health agenciestomeet
                federal mandates for collecting data. Customers can transmit data
                to us
                using a variety of approaches.
                Data from handwritten forms that have been scanned and the image
                can be
                transmitted to us by email or facsimile. The image received by us
                is then
                electronically converted from handwriting to digital data. Our staff
                verifies the accuracy of the data and works with the customer to
                resolve
                unreadable segments.Customers
                canalsokey enter the data online.
                Finally, customerscan collect data on a point of care device and upload the data to
                our
                website. On receipt,the data is processed by servers through over 400 Medicare-mandated
                edits
                and over 200 proprietary edits. The resulting edits are typically
                available for viewing on the Internet withintwohours of receipt. Upon completion of the editing process,we
                transmit the required data to appropriate government agencies as
                required
                under the regulations.




·
            Using
                the edited data,
                a
                     variety of real time reports are provided that highlight clinical,
                financial and operational issues/guidelines to ensure optimum clinical
                and
                financial results. Other reports enable a customer to evaluate the
                efficacy of the proposed clinical interventions as they relate to
                the
                Medicare regulations.




6




·
            *HSS
                Advantage*provides reports that enable customers to evaluate the effectiveness
                of
                their services by measuring the clinical outcome of the patient against
                national norms, guiding the customer to improvedprocessesand bestpractices.




·
            *HSS
                Advantage*provides services that deliver medication teaching sheets that are
                required to be left with the patient that describe how to use the
                drug and
                any possible risks. The software compares all drugs that have been
                entered
                into the system for a patient to determine possible interactions
                between
                and among the drug, food and selected herbs.




·
            We
                provide software to be implemented in customer operations that extract
                data from a variety ofvendors’software systems that provide decision support information thatenablesthe user to improve clinical and claims operating performance. The
                collected data is used to provide detailed analysis of the results
                obtained from clinical diagnoses relative to Medicare reimbursement.
                These
                analyses are reported against the cumulative database of all customers
                to
                provide a benchmark of clinical practice, extent of clinical interventions
                and the effect on reimbursement. The*HSS
                Advantage*software extracts data from software programs supplied by 12 other
                vendors
                including: McKesson Corporation, Cerner Corporation, Misys, Inc.,
                Carecentric, Inc. and Delta, Inc. Together, these companies control
                an
                estimated 40% of the software market in home
                health.




Utilization
      of the *HSS
      VividNet* software
      provides the following advantages:




·
            Provides
                Web-based software thatis
                designed to handle all types of homecare payers including Medicare,
                Medicaid, private pay andmedical
                staffing agencies.*HSS
                VividNet*is
                designed to track and manage information necessary for a healthcare
                company’s operations and profitability. The system provides the
                flexibility to easily incorporate an agency’s own business rules and
                logic, ensuring a tailored solution. Information is managed according
                to
                the natural workflow of an agency’s operations - from front office client
                intake and workforce management, through an integrated scheduling
                function, to back office accounting and reporting.We
                provide services to private duty, Medicaid, staffing and managed
                care, and
                Medicare home health agencies. The systems provide caregiver/patient
                scheduling, tracking of patient visits, and accounts andprovidefor reimbursement of services for the home health
                agency.




·
            The
                heart of the system is a color-coded scheduling calendar, which drives
                other essential business operations such as:




·  Client
      management ;




·  Human
      resources ;




·  Billing ;




·  Accounts
      receivable ;




·  Payroll ;




·  General
      ledger ;
      and




·Management
      reports.




·
            As
                a result of our Carekeeper acquisition, we are one of a limited number
                of
                homecare software companies in the United States that is licensed
                to use
                certain patented technology for home health telephony services. The
                patent
                provides for the use of 800 numbers to identify the company receiving
                the
                call, dialed number identification to recognize the phone that is
                initiating the call, and processes for confirming time, expense,
                activity
                and attendance reporting.




*HSS
      VividCare* is an
      earlier version of the *VividNet* Software. We currently have over 125 customers utilizing our *VividCare* product.
      However, over the next 18 months, we expect to convert these customers to our *VividNet* product
      which is web-based. This
      integration of operations through a single user interface, coupled with
      extensive reporting, enables agencies to reduce costs, improve employee
      retention, enhance profitability and deliver quality care.




7




Utilization
      of the HSS Analyzer system provides the following advantages: The Analyzer
      has
      15 interfaces to virtually all of the homecare industry’s major billing and
      financial systems. These interfaces extract financial data from the billing
      system and combine this data with clinical utilization data to provide an
      integrated view of a homecare agency’s status identifying its strengths and
      weaknesses. Another module provides web-based benchmarking information that
      compares one agency of office with others in the HSS data base. We believe
      the
      Analyzer is the most comprehensive decision-support product available for the
      home healthcare industry.




We
      believe opportunities exist for u s to
      extend our
      products and services to
      current and future customers. We
      plan
      to continue
      to leverage  our software
      and services applications and related services by acquiring or
      developing a
      growing suite of tools that we
      expect
      to generate new
      revenues from an
      existing customer base .




In
      addition to the software and online services we deliver, we
      also
      provide support
      services relating to effective implementation and ongoing use on
      a fee
      basis. We offer
      training and
      education services either
      on the customer’s site or over the web. We also offer consulting services
      relating to the effective use of the available decision support and operations
      analysis information for a nominal increase in transaction fees or on a daily
      fee basis. ****




**Growth
      Strategy**




It
      is  our objective to extend our position as a leading provider of management solutions
      for home health care and enter the market for solutions to other post acute
      care
      industries both by developing new systems and by acquiring existing companies
      that currently provide services to these venues and possess broad domain
      expertise. Acquired businesses will have already made the investment to migrate
      their solutions to the web in order to minimize the complex task of integrating
      disparate systems into our network.




Key
      elements of this strategy include:




*Leverage
      Our Existing Customer Base*




We
      believe significant opportunities exist to leverage our existing customer base
      by selling more applications to customers that utilize less than the full suite
      of programs, as well as by expanding our suite of programs to provide our
      customers with enhanced functionality and increased transactional volumes.
      We
      intend to continue to develop our current service offerings and to introduce
      new
      solutions that assist in the management of specific disease states and
      complementary products. We may offer our services to other post acute
      providers.




*Offer
      Our Services to Other Segments of the Post-Acute Industry*




We
      believe that the interest in tools to assist in the management of diseases
      and
      other adverse health conditions will provide us with opportunities to further
      develop our platform to provide solutions to nursing homes, skilled nursing
      facilities and inpatient rehabilitation facilities.




*Strategic
      Acquisitions Allowing Further Expansion of our Platform of Solutions and
      Customer Base*




Management
      endeavors to increase our platform of solutions to the home health agencies
      we
      serve. Management believes there may be opportunities to expand our product
      offerings and/or customer base through strategic acquisitions. As a result,
      we
      regularly evaluate such opportunities.




**Customers**




Our
      product offerings are provided to home health customers ranging in size from
      single to large multi-site organizations. As
      of
      December 31, 2006, we had approximately 310 customers in 44 states using one
      or
      more of our services.




8




One
      customer, Amedisys, accounted for approximately 45% of our revenue in 2005
      and
      35% of our revenue in 2006. In March 2006, Amedisys advised us that it had
      developed a proprietary clinical software system to collect assessment data,
      schedule and log patient visits, generate medical orders and monitor treatments
      and outcomes in accordance with established medical standards. Amedisys has
      notified us that they will be distributing hand held computers to their full
      time nursing staff which will eliminate the need for our verification services
      on the assessments processed on the hand-held computer. Amedisys has advised
      us
      that they plan to continue to use verification services for contract and part
      time staff that are not issued the hand held computers. In addition, Amedisys
      has also advised us that they currently plan to continue to use our data
      transmission product and CMS reporting. As a result, we anticipate that the
      revenue received from Amedisys will decrease by approximately 80% by the end
      of
      the third quarter of 2007.




**Sales
      and Marketing**




We
      sell
      our services primarily through direct sales forces. We currently have seven
      sales staff members. In
      addition to regularly targeting new customers, we also target existing customers
      for additional sales, as our product lines expand. Since the VHT and CKS
      acquisitions, our sales team has been working on introducing existing clients
      to
      our new product offerings.




We
      currently have year long advertisements placed in the two prominent industry
      publications: *Success
      In Home Care* and *The
      Remington Report* . In the
      first
      quarter of 2006,
      we engaged Magellan Business Partners to assist us in repositioning our company
      from a marketing perspective. As a result, we have initiated new and coordinated
      marketing materials, trade show booth displays, website designs and advertising
      layouts. These
      changes were implemented in the
      fourth quarter of 2006.




**Product
      Development**




We
      develop service applications based on requirement specifications produced by
      our
      product management department and related task forces. These groups are
      comprised of clinicians and other domain experts (including regulatory). We
      determine our product direction and product feature requirements by maintaining
      regular contact with customers and experts in the field and tracking the
      regulatory activity of CMS and the states’ Medicaid activities.




The
      system architecture lends itself to rapid delivery of improved software and
      product functionality. Key systems are typically modified every 45 to 60 days.
      The systems are designed as very "thin-client" (customers need only a browser
      to
      access the services) minimizing the information technology infrastructure
      required at the customer site. Customer system requirements are limited to
      a PC
      with a standard Internet browser and an Internet connection.




The
      HSS
      Advantage system architecture is based on the widely accepted J2EE architecture
      that ensures "openness" and "scalability.” The HHS Vivid Net system architecture
      is based on the Microsoft “.net” model that also ensures "openness" and
      "scalability." Both approaches provide scalable architectures and lend
      themselves to integration of databases and communications. The designs and
      the
      centralized hosting approach facilitates managing and delivering changes and
      enhancements to the software and service.




In
      2004,
      we initiated development projects to produce new and enhanced products. The
      first such product, the *HSS
      Medications Risk Manager* ,
      was
      introduced into beta test with one of our large customers in October 2005,
      and
      released during the fourth quarter of 2006. This product did not contribute
      material revenue during 2006. We introduced our hand-held data collection tool
      into beta testing at two customer sites in the first quarter of 2007 .  This
      product is not expected to add material revenue during 2007, but is expected
      to
      increase retention of customers of the *HSS
      Advantage* product
      since many of our customers are looking for a data input device that the
      clinician can use in the patient’s home. Development of the underlying software
      will be produced with existing staff. Other research and development expenses
      associated with these products are not material and will increase slightly
      to
      cover costs related to short term software development contractors or
      consultants that will be used in the development cycle.




9




Upon
      acquisition of Carekeeper, our plan was to integrate their *VividNet* software
      solutions with our existing software solutions; however, after the acquisition,
      it became evident that significant improvements were needed to the Carekeeper
      software before their suite of products would be ready for integration. Since
      May 2006, we have worked to make the necessary improvements to the CKS software.
      We have incurred approximately $435,000 in research and development as of
      December 31, 2006, and anticipate approximately $250,000 in further expenditures
      in 2007 to complete the integration of the software programs.




We
      continue to work on the enhancements to the CKS software and are currently
      in
      the process of completing the first of three phases of the integration. The
      CKS
      and HQS technology, integrated through Phase I will be test piloted in the
      second quarter of 2007. Upon completion of the product testing and any necessary
      enhancements to the programs, we will begin marketing the fully-integrated
      suite
      of products. We anticipate that sales for the new products will begin late
      in
      the second quarter of 2007 and that the revenue generated from these sales
      will
      be realized in late 2007.




In
      addition, we continue to seek new and innovative products that complement our
      existing suite of products. Once these products are identified and acquired,
      we
      will continue to expend resources for research and development to integrate
      these products into our existing product offerings. In light of this business
      strategy, we expect that we will always incur significant research and
      development expense. We will continue to run the risk that the release dates
      for
      new and improved products will be delayed in light of the complex technological
      issues involved.




**Operations**




Our
      customer service department **** provides
      a variety of operational support to customers. Customer Service includes a
      verification service that ensures the accuracy of automated optical character
      recognition translation of hand-written patient assessment information to
      digital data, assistance with customer data communications, upload data to/from
      our website, transmitting customer's patient data to appropriate State
      Departments of Health, acquiring customer reports from CMS, posting these
      reports to our website for access by the customer and producing customer
      benchmark reports from our national database **.**




The
      systems infrastructure department **** manages
      and supports the computer and communications infrastructure used by our
      customers including hosting services, Web services administration,
      communications administration, application administration, database
      administration, systems administration and LAN administration.




Our
      products and services are critical to our customers’ operations. As a result,
      our infrastructure requires a high level of service availability. To minimize
      the risk to our customers, we have servers that support customer activities
      installed in two very secure facilities in Tampa, Florida and Sterling,
      Virginia, both of which are managed by Qwest Communications International Inc.
      at its Qwest CyberCenters. These two servers provide redundant power and air
      conditioning, redundant Internet connections and redundant
      telecommunications.




**Encryption
      and Security from Hackers**




Our
      company-owned servers, software and communications equipment and the customer
      data integral to our service delivery are hosted at a Qwest CyberCenter in
      Tampa, Florida. Qwest reports that its facilities are designed to withstand
      up
      to Category 5 hurricanes. Notwithstanding these assurances, there can be no
      guarantee that we would be able to operate effectively were the Qwest site
      to be
      damaged by a terrorist event or act of nature.




We
      have
      implemented various layers of security to ensure appropriate, controlled access
      to our services, including establishing user level password systems and
      encryption schemes based on 1024 bit keys. We have implemented Secure Sockets
      Layer (SSL), an industry standard protocol for providing authentication and
      encryption, verified through the use of certificates provided through Verisign,
      an industry provider of secure Internet communications. Firewalls are
      implemented to protect against unauthorized entry and address translation
      schemes adds a further level of access protection from unauthorized access
      attempts. Our services agreements generally contain limitations on liability
      and
      we maintain insurance with coverage limits of $2,000,000 for general liability.
      However, the contractual provisions and insurance coverage may not provide
      adequate coverage against all possible claims that may be asserted.




10




**Competition**




The
      market for healthcare information systems is intensely competitive. The
      competitive factors affecting the market for our services include:




·
            Vendor
                and product reputation;


·
            reliability
                of the service;


·
            availability
                of products on preferred computer and communications
                platforms;


·
            scalability;


·
            integration
                with other applications;


·
            functionality
                and features;


·
            ease-of-use;


·
            quality
                of support,documentation
                and training;


·
            product
                quality and performance;


·
            product
                innovation;


·
            price;
                and


·
            effectiveness
                of our marketing and sales efforts.




Some
      of
      our competitors in the home health care market, such as our customer’s own
      internal IT departments, McKesson Corporation, Siemens AG, Eclipsys Corporation
      and Keane, Inc., have significantly greater financial, technical, research
      and
      development and marketing resources. As a result, they may be able to respond
      more quickly to new or emerging technologies and changes in customer
      requirements, or to devote greater resources to the development, promotion,
      sales and support of their products than our company. In addition, consolidation
      in the healthcare information systems industry may permit our competitors to
      have access to increased financial and administrative resources, greater
      technological capabilities and to realize other operational efficiencies and
      competitive advantages.




**Proprietary
      Rights and Licenses**




We
      depend
      significantly upon proprietary technology. We rely on a combination of
      copyright, trade secret and trademark laws, confidentiality procedures and
      nondisclosure and other contractual provisions to protect our proprietary
      rights. We seek to protect our software, documentation and other written
      materials under trade secret and copyright laws, which afford only limited
      protection. We believe that, because of the rapid pace of innovation within
      the
      computer software industry, factors such as the technological and creative
      skills of our personnel, frequent product enhancements, and reliable service
      delivery and ongoing reliable product maintenance and support are more important
      in establishing and maintaining a leadership position within the industry than
      are the various legal protections of our technology.




We
      distribute our products under services agreements that grant a customer a
      nonexclusive right to use our services for the customer's internal operation
      by
      designated users at designated sites. The service agreements may require us
      to
      make arrangements for hot standby systems or to deposit the source code and
      data
      necessary to deliver our services in an escrow account that may be accessed
      by
      the customer in the event of our company's liquidation, dissolution or
      bankruptcy, or if we fail to cure a material breach of contract.




11




**Governmental
      Regulation**




The
      healthcare industry is subject to changing political, economic and regulatory
      influences that may affect the procurement practices and operation of healthcare
      providers. Many federal and state legislators have announced that they intend
      to
      propose programs to reform the United States healthcare system at both the
      federal and state level. These programs may contain proposals to increase
      governmental involvement in healthcare, lower reimbursement rates, revise
      regulatory requirements and otherwise change the environment in which providers
      operate. Healthcare providers may react to these proposals and the uncertainty
      surrounding such proposals by curtailing or deferring investments, including
      investments in our products and related services.




The
      Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
      establishes rules, regulations and penalties for ensuring the privacy of patient
      health information. In addition, HIPAA requires standards for the electronic
      interchange of healthcare and claims data though HIPAA affects all
      aspects of all healthcare providers' operations, the greatest impact will be
      in
      the information technology area. The patient health information privacy phase
      of
      HIPAA went into effect in April 2003 and the standards for electronic
      interchange went into effect in October 2003. Conforming to these requirements
      is a difficult and expensive task.




We
      have
      taken various steps to comply with HIPAA. Employees have been educated on the
      law's effects and a policy and procedure manual has been developed. We have
      appointed a privacy officer and a compliance officer whose duties
      include:




·
            Tracking
                regulatory changes;


·
            performing
                initial and ongoing privacy risk
                assessments;


·
            identifying
                all sources of Protected Health
                Information;


·
            conducting
                compliance monitoring activities;


·
            providing
                guidance for Product Management;


·
            managing
                education and training;


·
            managing
                and ensuring sanctions for failure to comply; and


·
            monitoring
                and reviewing all system-related information security plans to ensure
                compliance.




We
      have
      also updated our process for customers to sign onto the Web site by assigning
      individual passwords to each authorized user at customer sites.




It
      is
      difficult to assess the costs related to HIPAA compliance because these are
      sweeping changes for which we have no historical experience. Overall, costs
      of
      implementation and risk management may be significant as policy and process
      development is based on extensive assessment, staff training, IT solution
      purchases and ongoing compliance evaluation. There will be continuing costs
      to
      ensure compliance with the law over time.




**Employees**




As
      of
      December 31, 2006, we had 84 full
      time
      employees, including:




·
            7
                in sales;


·
            6
                in product management;


·
            10
                in education and implementation;


·
            34
                in operations and customer service;


·
            16
                in software development;


·
            2
                in hardware support; and


·
            9
                in administrative and finance
                positions.


12


Our
      employees are not represented by a labor union, nor governed by any collective
      bargaining agreements.




**Available
      Information**





We
      file
      annual reports, quarterly reports, proxy statements and other documents with
      the
      U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange
      Act of 1934 (the “Exchange Act”). The public may read and copy any materials
      that we file with the SEC at the SEC’s Public Reference Room at 100 F. Street,
      N.E., Room 1580, Washington, D.C. 20549. The public may obtain information
      on
      the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
      Also, the SEC maintains a website that contains reports, proxy and information
      statements and other information regarding issuers, including the Company,
      that
      file electronically with the SEC. The public can obtain any documents that
      we
      file with the SEC at http://www.sec.gov .






**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**




We
      currently rent approximately 13,617 square feet of executive office space
      located at 405 Reo Street, Suite 300, Tampa, Florida 33609. We rent this space
      for $22,395 per month and the lease expires August 31, 2013. We also rent
      approximately 7,147 square feet of executive office space located at One
      Dunwoody Park, Suite 240, Dunwoody, Georgia 30338. Rent for this space is
      $11,001 per month and the lease expires June 30, 2007. In December 2006, we
      leased an additional 6,236 square feet of executive office space located at
      405
      Reo Street, Tampa, Florida 33609, for an additional $9,830 per month. With
      the
      addition of the space in Tampa we have adequate executive space and do not
      anticipate renewing the Dunwoody lease upon expiration, but expect to negotiate
      for a lesser amount of space in the Atlanta area to house our Georgia-based
      development staff. In the opinion of management, these properties are adequately
      insured.




We
      also
      have a one-year agreement (commencing July 1, 2006) with Qwest for space for
      a
      co-location of our servers that process and store all customer data and support
      all Internet connections to these customers at two Qwest CyberCenter locations,
      Tampa, Florida and Stirling, Virginia. Qwest CyberCenters are specifically
      designed to provide state-of-the-art hosting for mission-critical Web sites
      and
      enterprise applications. Qwest CyberCenter facilities provide a secure, reliable
      and scalable foundation that is more cost effective than constructing and
      maintaining our own Internet data center. The c ost
      is
      approximately $10,000 per month. The current co-location services agreement
      with
      Qwest expires June 30, 2007 and is automatically renewable for additional one
      year terms. The agreement may be terminated by either party upon at least 80
      days written notice prior to the end of a term. We believe that if our agreement
      with Qwest is terminated there are several alternative data server
      providers.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




There
      are
      currently no material legal proceedings involving our company.




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




No
      matters were submitted to a vote of security holders during the fourth quarter
      of the fiscal year covered by this report.




13


**PA** **R** **T
      II**




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




**Market
      Information**




Our
      common stock has been listed for trading on the OTC Bulletin Board ("OTCBB")
      since June 3, 2002. Until March 23, 2005, there was no trading activity for
      our
      common stock since it became eligible for trading on the OTCBB. Effective
      February 21, 2006, our trading symbol changed to “HSSO.” The
      following table sets forth the range of high and low bid prices for our common
      stock for the periods indicated.


**2005**
              
              **High**
              
              **Low**Quarter
                  ended March 31, 2005
              
              $
              2.30
              
              $
              0.25Quarter
                  ended June 30, 2005
              
              $
              2.45
              
              $
              1.05Quarter
                  ended September 30, 2005
              
              $
              1.25
              
              $
              0.30Quarter
                  ended December 31, 2005
              
              $
              0.55
              
              $
              0.30


**2006**
              
              **High**
              
              **Low**Quarter
                  ended March 31, 2006
              
              $
              0.60
              
              $
              0.25Quarter
                  ended June 30, 2006
              
              $
              1.25
              
              $
              0.35Quarter
                  ended September 30, 2006
              
              $
              1.20
              
              $
              0.75Quarter
                  ended December 31, 2006
              
              $
              1.01
              
              $
              0.55


**2007**
              
              **High**
              
              **Low**Quarter
                  ended March 31, 2007
              
              $
              1.01
              
              $
              0.80




These
      prices may not be accurate indicators of the value of our common stock. Bid
      and
      asked prices entered by market makers are inter-dealer price quotations and
      do
      not reflect retail markup, markdown or commissions.




Trading
      of our common stock is covered by an SEC rule that imposes additional sales
      practice requirements on broker-dealers who sell such securities to persons
      other than established customers and accredited investors, which are generally
      institutions with assets in excess of $5,000,000, or individuals with net worth
      in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
      with their spouses. For transactions covered by the rule, the broker-dealer
      must
      make a special suitability determination for the purchaser and transaction
      prior
      to the sale. Consequently, the rule may affect the ability of broker-dealers
      to
      sell our securities, and also may affect the ability of purchasers of our stock
      to sell their shares in the secondary market. It may also cause less
      broker-dealers to be willing to make a market in our common stock, and it may
      affect the level of news coverage we receive.




**Holders**




As
      of
      December 31, 2006, there were 71 holders of record of our common
      stock.




**Dividend
      Policy**




We
      have
      never paid cash dividends on our common stock. We presently intend to retain
      future earnings, if any, to finance the expansion of our business and do not
      anticipate that any cash dividends on our common stock will be paid in the
      foreseeable future. The future dividend policy will depend on our earnings,
      capital requirements, expansion plans, financial condition and other relevant
      factors.




14




**Recent
      Sales of Unregistered Securities**




On
      November 8, 2005, we entered into a Preferred Stock Purchase Agreement
      with our principal stockholder, Stanford International Bank Ltd.
      (“Stanford”). We agreed to issue to Stanford Series C Convertible Preferred
      Stock at a price of $2.00 per share, together with warrants exercisable for
      3/10
      of a share of common stock for each share of Series C Convertible Preferred
      Stock purchased. Each share of Series C Convertible Preferred Stock is
      convertible into one half share of common stock and is entitled to one half
      vote
      per share. The warrants are exercisable at a price of $0.002 per share. On
      November 8, 2005, the Company refinanced the outstanding amount of $1,250,000
      payable under a loan from Stanford by issuing 625,000 shares of Series C
      Convertible Preferred Stock. In 2006, we issued an additional 2,325,000 shares
      of preferred stock to Stanford to meet working capital needs through December
      31, 2006. The Company has an additional 250,000 shares to sell to Stanford
      (upon
      two weeks’ notice) under the Preferred Stock Purchase Agreement. The agreement
      also provides for an additional 1,325,000 shares of Series C Convertible
      Preferred Stock that may be sold to Stanford to provide it with funds to
      complete acquisitions or additional working capital uses, as approved by
      Stanford in its sole discretion. The sale of these shares and warrants were
      deemed to be exempt from registration under the Securities Act of 1933, as
      amended (the “Securities Act”), in reliance on Section 4(2) of the Securities
      Act as a transaction by an issuer not involving a public offering.




As
      required under the Preferred Stock Purchase Agreement, warrants to purchase
      up
      to an aggregate of 697,500 shares of our common stock at an exercise price
      of
      $0.002 per share were issued in conjunction with the issuance of our Series
      C
      Convertible Preferred Stock in the year ended December 31, 2006. Of the warrants
      issued, 348,750 were issued to five of Stanford’s assignees. Of the warrants
      issued in the year ended December 31, 2006, 555,000 were exercised and
      555,000 shares of common stock were issued. The number of warrants unexercised
      at December 31, 2006 was 142,500.




On
      March
      29, 2006, our Board of Directors authorized that incentive stock options to
      purchase an aggregate of 118,750 shares of our common
      stock be
      granted to employees
      under our 2003
      Management and Director Equity Incentive Compensation Plan ( the
      “ Plan”) .
      The
      options have an exercise price of $0.33 per share and shall vest to the extent
      of 25% of the respective aggregate number of options granted for each 12
      continuous months of employment subsequent to January 1, 2005, with the
      unexercised portion of such respective options to expire should the employee
      leave our employment. Also, 98,000 previously issued options were cancelled.
      The
      sales and issuances of these securities were deemed to be exempt from
      registration under the Securities Act by virtue of Rule 701 promulgated under
      Section 3(b) of the Securities Act as transactions pursuant to compensation
      benefits plans and contracts relating to compensation.




Further,
      on March 29, 2006, our Board of Directors unanimously voted to grant
      non-qualified stock options to purchase an aggregate of 5,000 shares
      of  common
      stock to our
      two outside **** directors
      under the Plan. Such options have an exercise price of $0.33 per share and
      shall
      vest to the extent of 25% of the respective aggregate number of options granted
      for each 12 continuous months of board membership subsequent to January 1,
      2005,
      with the unexercised portion of such respective options to expire should the
      director leave our Board of Directors. The sales and issuances of these
      securities were deemed to be exempt from registration by virtue of Rule 701
      promulgated under Section 3(b) of the Securities Act as transactions pursuant
      to
      compensation benefits plans and contracts relating to compensation.




On
      May
      12, 2006, our Board of Directors authorized the grant of incentive stock options
      to purchase 39,125 shares of our common
      stock to
      employees under the Plan .
      The
      options have an
      exercise price of $1.01 per share and shall vest to the extent of 25% of the
      respective aggregate granted for each 12 continuous months of employment
      subsequent to April 1, 2006, with the unexercised portion of such respective
      options to expire should the employee leave our employment. The sales and
      issuances of these securities were deemed to be exempt from registration
      pursuant to Rule 701 of the Securities Act promulgated under Section 3(b) of
      the
      Securities Act as transactions pursuant to compensation benefits plans and
      contracts relating to compensation.


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


**Overview**




We
      design, develop, market, sell and support both licensed and web-based management
      information and business intelligence information technology systems and related
      services. These products are designed to assist home health care companies
      more
      effectively manage the clinical, operational and financial aspects of their
      business and compete effectively in the Prospective Payment System
      (PPS) ,
      P4P and
      managed care environments. Our focus is to help home health care providers
      streamline their operations and better serve their patients. In this regard,
      we
      offer several comprehensive software solutions.




15




We
      currently derive our revenues from:




·
            per
                transaction charges applied to processing patient clinical assessments
                made by our customers during a month;


·
            per
                clinical episode completed during care
                delivery;


·
            monthly
                hosting service charges based on the size of data storage
                utilized;


·
            one-time
                sales of software licenses;


·
            software
                maintenance on licensed software;
                and


·
            consulting
                fees relating to education of customers on best practice processes
                that
                will contribute to their clinical, financial and operational success
                under
                PPS and P4P regulations.




As
      of
      December 31, 2006, we had approximately 310 customers in 44 states using one
      or
      more of our services.




**Evaluation
      of Company Performance and Financial Condition**




Since
      our
      administrative staffing levels and fixed expenses are relatively stable, the
      principle factor our management analyzes in evaluating our performance is
      changes in our principal sources of revenue. Management, therefore, focuses
      primarily on the volume of transactions per site added and the type of
      transactions processed to evaluate our performance. To a lesser extent,
      management evaluates the efficiency of our operation and our staffing levels
      by
      reviewing changes in our revenue per employee (which is determined by dividing
      revenue during a period by the weighted average headcount). To evaluate the
      effectiveness of our finance department and the strength of our financial
      position, management reviews our days of sales outstanding for each
      period.




Management
      believes that as we grow and expand our hosted on line services, we may
      increasingly encroach on the market of larger, more established vendors ’ software
      offerings. It is likely that one or more of these more financially capable
      companies will develop a competing service.




We
      also
      bear the cost and risks associated with meeting regulatory compliance. For
      example, meeting the demands of future changes to these regulations will require
      modifications to existing software and the development of new software to meet
      these regulations. We also assist our customers that must comply with
      Sarbanes-Oxley in demonstrating proper internal control processes. These are
      both complex issues requiring measured responses. In addition, they both expose
      us to an additional level of legal scrutiny.




**Research
      and Development**




In
      January 2006, in response to an announcement by CMS that a significant change
      would occur in Medicare rules relating to establishing P4P by late 2008 and
      to
      an initiative announced by the federal government to
      establish interchangeable medical record data, we initiated a research and development
      project to define requirements that will ensure our services meet our customers’
needs under these anticipated new mandates and that we maintain our competitive
      position in the market.




This
      project included engaging Magellan Business Partners to assist us in selecting
      an outsourcing development partner to design and develop a new database and
      application architecture. We selected the firm i-flex Solutions, Inc. as our
      partner and began documenting requirements in February 2006. i-flex Solutions,
      which is 60% owned by Oracle Corporation, is rated as one of the top 10 software
      development outsourcing companies in the world. i-Flex Solutions operates in
      over 110 countries with over 8,000 employees .




16




The
      acquisition of CareKeeper included an ongoing research and development project
      that CKS initiated in late 2002 that entailed redeveloping the CKS *VividCare* client
      server-based software system to a web-based system known as *VividNet.* This
      project has cost in excess of $4,100,000 since inception. The project is in
      the
      final stages of completion and is currently in use by approximately 304 of
      our
      HSS Vivid Net customers.




Slow
      response times were experienced by early adopters of the software. As a result,
      we suspended further sales of *VividNet* until
      these issues could be resolved. We have identified the issues and are in the
      process of resolving them. Based upon early testing of performance-related
      improvements to the *VividNet* software
      code, we expect to be able to deliver a product with significant performance
      improvements in the second quarter of 2007. However, we will continue to monitor
      the product and make improvements.




The
      urgent need to resolve these issues with the *VividNet* product
      resulted in the re-allocation of internal research and development efforts
      from
      other projects. As a result, these issues delayed the schedule for integrating
      the newly acquired *VividNet* and *Analyzer* products
      with the *Advantage* , *Medication
      Risk Manager* and our
      other product offerings. We expect these delays to result in the deferral of
      material sales and revenue from the fully-integrated products until the fourth
      quarter of 2007.




The
      acquisition of Vanta Health’s product, *Analyzer* ,
      included a development project in partnership with Montefiore Home Health,
      a
      division of Montefiore Medical Center of New York City. This project represents
      an initial effort to develop a predictive modeling technique that will enable
      Montefiore management to better negotiate authorizations for care with HMOs.
      Phase 1 of the project was delivered for beta testing in the fourth quarter
      of
      2006. In late 2006, we made additional enhancements to *Analyzer* that
      will significantly improve the user’s ability to be presented automatically with
      selected financial information preferences without the need to prepare reports
      or depend on a technical resource for assistance in mining management
      information. The enhancement is scheduled to enter beta testing in the second
      quarter of 2007.




In
      2004,
      we initiated development projects to produce new and enhanced products. The
      first such product, the *HSS
      Medications Risk Manager* ,
      was
      introduced into beta test with one of our large customers in October 2005,
      and
      released during the fourth quarter of 2006. This product did not contribute
      material revenue during 2006. We introduced our hand-held data collection tool
      into beta testing at two customer sites in the first quarter of 2007. This
      product is not expected to add material revenue during 2007, but is expected
      to
      increase retention of customers of the HSS Advantage product since many of
      our
      customers are looking for a data input device that the clinician can use in
      the
      the patient’s home. Development of the underlying software will be produced with
      existing staff. Other research and development expenses associated with these
      products are not material and will increase slightly to cover costs related
      to
      short term software development contractors or consultants that will be used
      in
      the development cycle.




17




**Results
      of Operations**




*Overview*




The
      following table sets forth certain financial data expressed as a percentage
      of
      net sales for
      each
      of the periods indicated.




**For
                the Year Ended**
              **December
                31,****2006**
            
            **2005**Net
                sales
            
            
            100
            %
            
            100
            %Cost
                of sales
            
            
            58
            %
            
            46
            %Gross
                profit
            
            
            42
            %
            
            54
            %Operating
                expenses:Selling
                and marketing
            
            
            26
            %
            
            16
            %Research
                and development
            
            
            19
            %
            
            15
            %General
                and administration
            
            
            31
            %
            
            29
            %Depreciation
                and amortization
            
            
            2
            %
            
            4
            %Interest
            
            
            1
            %
            
            2
            %Total
                operating expenses
            
            
            79
            %
            
            66
            %Deemed
                preferred stock dividend
            
            
            8
            %
            
            6
            %Net
                loss
            
            
            (45
            )%
            
            (17
            )%





The
      following tables set forth certain statistical data for each of the periods
      indicated.




**For
                the Year Ended December 31,****2006**
            
            **2005**Total
                customers (weighted average)
            
            
            319
            
            
            86Total
                customers (end of period)
            
            
            310
            
            
            79Weighted
                average headcount
            
            
            78
            
            
            50Days
                sales outstanding
            
            
            70
            
            
            53




**For
                the Year Ended****December 31,****2006**
            
            **2005****Recurring
                Revenue**Clinicalassessmentrevenue
            
            $
            4,599,258
            
            $
            3,967,151Hostingrevenue
            
            
            98,605
            
            
            —IVR
            
            
            248,940
            
            
            —Softwaremaintenance
                revenue
            
            
            774,015
            
            
            —Other
            
            
            23,255
            
            
            —Totalrecurringrevenue
            
            $
            5,744,072
            
            $
            3,967,151




**Non**********-****Recurring
                Revenue**Licensedsoftwaresales
            
            $
            186,706
            
            $
            —Training
                and implementation
            
            
            581,246
            
            
            195,283Other
            
            
            64,966
            
            
            50,385Totalnon-recurring
                revenue
            
            $
            832,918
            
            $
            245,668Totalrevenue
            
            $
            6,576,991
            
            $
            4,212,819




18





*Year
      Ended December 31, 2006 Compared to the Year Ended December 31, 2005*




Net
      sales
      increased $2,364,172 or 56% for the year ended December 31, 2006 to $6,576,991, compared
      to $4,212,819 during the same period in 2005. This
      increase resulted primarily from :





·
            $429,680
                of revenue from VHT,
                which we acquired in April 2006;




·
            $1,018,025
                of revenue from CKS,
                which we acquired in May 2006;and




·
            $916,379
                in revenue from patients clinical assessments, resulting primarily
                fromprice
                increasesandincreases
                in assessment transaction volume from existing and new
                customers.




Overall
      revenue increased despite a steady decline in revenue from Amedisys, who
      accounted for approximately 35% of our revenue for the year ended December
      31 ,
      2006 and
      45%
      of our revenues for the year ended December 31, 2005. We
      anticipate that the revenue generated from this customer will decrease by
      approximately 80% by the end of the third quarter of 2007; however, the portion
      of the business that we will be losing from this customer has traditionally
      produced very low margins. We are working to replace this revenue with revenue
      from other and new customers and revenue that is more profitable.




Cost
      of
      sales for the year ended December 31, 2006 and 2005 were $3,838,965 and
      $1,941,735, respectively. These amounts include
      the employee costs incurred from our customer service department, our data
      verification department, our implementation department and our training and
      education department as part of our cost of sales. Other costs include travel
      for our customer service people, professional fees, accreditation fees,
      teleconferencing, rent, assessment forms, depreciation expense for our
      internally developed software, hosted data center expense and shipping. The increase
      in the cost of sales can
      be attributed, in large part, to the following
      increases:




·
            Salaries
                and related expenses increased $753,995, of which $316,440 resulted
                from
                the business operations of VHT and CKS and the remaining $437,555
                was from
                increased staffing needed to service new customers from the existing
                product lines.




·
            Professional
                services increased $187,265,of
                which $45,166 was due to contract employees handling training and
                implementation at CKS and VHT and the remaining $142,099 was due
                to
                contract employees who were required to handle the verification,
                training
                and implementation of several large new customers for
                HQS.




·
            Depreciationincreased
                $603,093, whereby $902,429, due to the amortization of internally
                developed software for CKS and VHT, was offset in part by a decrease
                of
                $299,336 in amortization of internally developed software for
                HQS.




·
            Communicationsincreased
                $212,207, of which $205,331 was due to the addition of Internet and
                hosting services used by CKS and VHT
                products.




·
            Occupancy
                increased $76,515. A portion of the occupancy expenses were applied
                to
                cost of sales during the year endedDecember
                31, 2006,
                whereas this amount was applied fully to general and administrative
                expenses during the first three quarters of 2005, and applied to
                the
                various expense classifications****in
                the fourth quarter of 2005.




In
      2005,
      cost of sales represented approximately 46% of revenues, as compared to
      approximately 58% of revenues in 2006. This significant increase is a result
      of
      the fact that we have not yet fully integrated the operations of VHT and CKS
      into our own operations and are not realizing the economic benefits of these
      acquisitions. Once we fully integrate the products and improve product
      performance and functionality, we expect that cost of sales as a percent of
      revenue will decline.




Total
      operating expenses were $5,193,850 for the year ended December
      31, 2006 ,
      compared to $2,760,679 for the year ended December 31, 2005, resulting in an
      increase in operating expenses of $2,433,171 or approximately 88%. For the
      year
      ended December 31, 2005, total operating expenses represented 66% of net sales.
      For the year ended December 31, 2006, total operating expenses represented
      approximately 79% of net sales. Operating
      expenses were comprised of selling and marketing expenses, research and
      development and general and administration expenses. As described in more detail
      below, the significant increase in operating expenses as a percentage of sale
      was due, in large part, from the issues we experienced completing the
      improvements to the *VividNet* product
      and the difficulties in integrating the *VividNet* and *Analyzer* products
      with the *Advantage* , *Medication
      Risk Manager* and
      other components of our products. We expect to realize the results of these
      efforts in the middle of 2007 as we begin to actively market these improved
      products; however, we do not expect that these efforts will result in revenue
      until late 2007.




19




For
      the
      year ended December 31, 2006, s elling
      and marketing expenses increased by $1,079,850 or 164%.  This
      increase in selling and marketing expense is attributable primarily
      to the
      increases in :




·
            professional
                servicesexpenses
                by$410,973, primarily as a result of $296,000 in professional services
                related to the management of our marketing and sales department,
                $75,244
                for the development of collateral materials and corporate web
                site,
                $30,600 for recruitment fees for sales staff, and $4,204 attributable
                to
                the VHT and CKS product lines;




·
            salaries
                and benefits expenses by $292,313, due to an increase of $316,951
                from VHT
                and CKS, offset by a decrease in salary expense of $24,637 within
                the HQS
                product lines as salary expense was shifted to professional services
                for
                the management of our sales department;****




·
            travel
                expensesby
                $108,867 for employees and contracted employees, due to the management
                of
                our marketing and sales departments,
                of which $23,248 was attributable to the CKS and VHT product lines,
                and
                $85,618 was for the existing product lines;and




·
            marketing
                and promotional expenses by$196,371, due to increased attendance at regional trade shows and
                the
                development of collateral materials and corporate web sites,
                $103,790 of which was attributable to the VHT and CKS product lines
                and
                $92,581 of which was for the HQS product lines.




For
      the
      year ended December 31, 2005, selling and marketing expenses represented
      approximately 16% of
      net
      sales. For the year ended December 31, 2006, selling and marketing expenses
      represented 26% of net
      sales. These expenses for 2005 were extremely low as we believe we were
      understaffed in our sales and marketing department. In 2006, we increased the
      size of our sales and marketing team to a more reasonable level and in
      anticipation of being able to market our new products. Based on anticipated
      new
      product release dates which are expected in the third quarter of 2007,
      w e
      anticipate adding an additional sales person by that time to cover the western
      United States, and we are reassigning one salesperson to work on customer
      retention and add on sales to existing customers in an effort to increase our
      customer retention. As we begin to release new products in 2007, we hope to
      increase revenue and reduce our selling and marketing expenses as a percentage
      of net sales; however, we do not anticipate that our sales and marketing
      expenses as a percentage of net sales will be as low as the level we experienced
      in 2005.




Research
      and development expenses were $1,230,207 for the year ended December
      31 ,
      2006,
      as compared to $629,473 for the year ended December
      31 ,
      2005.
      Research and development expenses, as a percentage of net sales, increased
      from
      approximately 15% for the year ended December 31, 2005 to approximately 19%
      for
      the year ended December 31, 2006. The
      increase in research and development expenses was due to the increase
      in:




·
            Salaries
                and benefitsexpenses
                by$332,977,
                which primarily results from the hiring of the CKS and VHT development
                employees to address changes in our product offerings and integration
                of
                our different product offerings;




·
            professional
                servicesexpenses by $165,091, which consisted of an increase of $73,529 following
                the acquisitions of VHT and CKS and an increase of $91,562 for the
                HQS
                product line for outside contractors to manage the integration and
                development of our products;




·
            occupancyexpenses
                by$38,146due
                to expenses being allocated to departments during the year endedDecember
                31,
                2006, whereas this amount was applied fully to general and administrative
                expenses during the first three quarters of 2005, and applied to
                the
                various expense classifications in the fourth quarter of 2005;




·
            travel
                expenses
                by $42,152,
                which consisted primarily of an increase of $3,838 from the acquisitions
                of Vanta and Carekeeper and an increase of $38,335 associated with
                the
                consultants hired to manage the HQS product line;and




20




·
            other
                expenses by$14,152,
                which consisted of an increase of $1,755 following the acquisitions
                of VHT
                and CKS and an increase of $12,718 from the HQS product line resulting
                primarily from an increase in software license and support
                fees.




We
      anticipate that research and development expenses will remain at the current
      level over the next 12 months as we continue to improve and integrate our
      products and prepare for the P4P regulations. We do not anticipate the need
      to
      increase the size of our development staff to accomplish this work. Since our
      industry is characterized by rapidly evolving technology, research and
      development will always be a significant expense.




General
      and administration expenses were $2,037,868 for the year ended December
      31 ,
      2006
      and $1,221,470 for the year ended December
      31 ,
      2005,
      representing 29% of net sales for the year ended December 31, 2005 and 31%
      of
      net sales for the year ended December 31, 2006. The increase in general
      administration expenses is due to an increase in:




·
            salaries
                and benefits expenses by $405,484, primarily due to the hiring of
                the CKS
                and VHT CEOs and the hiring of two full time employees, namely, a
                finance
                analyst and a human resources
                generalist;




·
            travelexpenses by $50,131,due
                primarily from customer visits to our new customers, most of which
                were
                obtained as a result of the Carekeeper and Vanta acquisitions; and




·
            other
                expenses by $308,239, primarily due to an increase in bad debt expenses,
                resulting primarily from two large accounts totaling $199,530.Management
                is focused on the increase in bad debts and anticipates that the
                bad debt
                expenses will decrease in the first quarter of 2007, due to increased
                collections activity and the utilization of an outside collection
                agency
                to collect one of the large outstanding
                accounts.




Depreciation
      expense was $139,484 for the
      year
      ended December
      31, 2006 and $167,713 for t he
      year
      ended December
      31, 2005, resulting in a decrease of $28,229 or 17%. The principal reason for
      the decrease in depreciation expense is due to a decrease of $44,743 to the
      fixed assets that were acquired at the inception of the business in October
      of
      2002, which are now fully depreciated, which is offset, in part, by an increase
      of $16,514 resulting from the
      depreciation expenses associated with CKS and VHT assets .




Interest
      expense was $46,403 for the
      year
      ended December
      31, 2006 and $81,986 for the
      year
      ended December
      31, 2005, representing a decrease of $35,583 or 43%. The principal reason is
      a
      $79,974 decrease in HQS and HSS due to the payoff of the loan and security
      agreement in November 2005, which was offset, in part, by an increase of $44,391
      interest expense associated with CKS and VHT.




**Liquidity
      and Capital Resources**




At
      December 31, 2006, we had incurred an accumulated deficit of $15,966,398
      compared to $13,012,275 at December 31, 2005. At December 31, 2006, we had
      a
      working capital deficit of $902,092, compared to working capital of $619,775
      at
      December 31, 2005. We had incurred net operating losses for the year  ended  December
      31 ,
      2006
      and the year ended December 31, 2005 of $2,455,824 and $489,595,
      respectively.




During
      the year ended December 31, 2006, we drew down an additional $4,650,000 from
      the
      facility provided by Stanford for a total draw of $6,100,000. Among other
      things, the proceeds were used to finance the acquisitions of Vanta and
      Carekeeper. As of December 31, 2006, there is $3,150,000 that has not been
      advanced to us. We have $500,000 of additional availability under the Preferred
      Stock Purchase Agreement, which can be drawn down on two weeks’ notice. An
      additional $2,650,000 is available to complete acquisitions or for additional
      working capital purposes in the sole discretion of Stanford. We believe that
      the
      $500,000 available to us with two weeks notice and the additional $1,500,000
      from the Preferred Stock Purchase Agreement for working capital, together with
      funds collected from operations, will be sufficient to meet our working capital
      needs over the next year.




We
      anticipate that working capital requirements will decrease from the current
      level over the next year as we begin to:




·
            Consolidate
                business processes such as customer support, sales and marketing
                and
                implementation services;




21




·
            eliminate
                duplicate processes or systems;




·
            evaluate
                current products for duplication of services between companies;
                and




·
            complete
                the improvements to our
                infrastructure.




We
      currently anticipate proceeds made available from Stanford will be sufficient
      to
      meet presently anticipated working capital and capital expenditure requirements
      through December 31, 2007.




As
      of
      December 31, 2006, we had cash totaling $558,764. Significant cash flow
      activities for the year ended December 31, 2006 are as follows:




Cash
      used
      in operating activities amounted to $1,918,638 for the
      year
      ended December
      31 ,
      2006,
      as compared to $74,671 for such activities in 2005. This increase is primarily
      attributable to:




·
            a
                net loss of $2,455,824;




·
            a
                net increase in accounts receivable of $37,577;




·
            a
                decrease in accounts payable of $85,983;




·
            a
                decrease in the reserve for customer refunds of $573,361;




·
            a
                decrease in deferred revenues of $41,221;
                and




·
            a
                decrease in customer deposits of
                $21,914.




However,
      these uses were partially offset by an increase in accrued expenses of $39,258.
      In addition, there were certain non-cash items such as depreciation and
      amortization of $1,242,088, and an increase in stock based compensation of
      $35,825.




Cash
      used
      in investing activities was $2,247,824 for the
      year
      ended December
      31 ,
      2006,
      as compared to $273,505 for the
      year
      ended December
      31 ,
      2005.
      Cash used in investing activities in 2006 is attributable to acquisitions of
      Vanta for $1,052,034 and Carekeeper for $91,753, and increases in property
      and
      equipment of $127,203 and capitalized software development costs of $1,003,254.
      These were minimally offset by the receipt of $26,420 in cash as a result of
      the
      acquisition of Carekeeper.




Cash
      provided from financing activities was $4,386,296 for the
      year
      ended December
      31 ,
      2006,
      whereas such activities provided $386,885 during the same period of 2005. The
      increase in cash provided by financing activities in 2006 is primarily
      attributed to $4,650,000 in proceeds from the Preferred Stock Purchase
      Agreement, proceeds from the exercise of warrants of $1,110 and is offset by
      the
      repayment of $17,311 of capital lease obligations and the repayment of $247,503
      of loans payable.




Accounts
      receivable at December 31, 2006 was $914,032, net of allowance for doubtful
      accounts of $302,607, as compared to $686,164 at December 31, 2005, net of
      allowance for doubtful accounts of $17,058, an increase of approximately 33%.
      The increase in accounts receivable is due to an increase in the aging of our
      receivables (70 days for the
      year
      ended December
      31 ,
      2006
      compared with 42 days for the year ended December 31, 2005), the acquisition
      of
      $352,100 of accounts receivable from VHT and CKS and an increase of $561,933
      in
      HQS customers. At December 31, 2006, Amedisys, LLC and Intrepid USA Health
      Services accounted for 18.3% and 14.6% of the net accounts receivable,
      respectively. The loss of Amedisys will materially decrease our revenues, unless
      that business is replaced from new or existing customers.




Software
      development cost, net of accumulated amortization, was $3,880,577 at December
      31, 2006 compared to $218,310 at December 31, 2005. The accumulated amortization
      at December 31, 2006 and December 31, 2005 was $2,693,434 and $1,590,830,
      respectively. The increase in software development is primarily attributable
      to
      the VHT and CKS acquisitions and the issues encountered with the software
      integration and the earn out payment payable to the sellers of CKS, in
      accordance with the Stock Purchase Agreement as of December 31,
      2006.




22




Other
      assets at December 31, 2006 were $496,946 compared to $333,924 at December
      31,
      2005. These amounts consisted of property and equipment, net of depreciation,
      of
      $275,145 and $228,956, prepaid expenses and current assets of $127,141 and
      $81,484, security deposits and other assets of $94,661 and $23,484 at December
      31, 2006 and December 31, 2005, respectively.




Accounts
      payable and accrued expenses at December 31, 2006 and December 31, 2005 were
      $889,640 and $249,859, respectively. The $639,781 increase in accounts payable
      is due primarily to the increased accounts payable associated with the
      businesses of CKS and VHT payables and accrued expenses of $301,023, an increase
      in accounts payable of $89,317 due to professional fees for legal, accounting
      and acquisition services, $114,454 for off shore development of our products,
      $27,867 for development of our marketing collateral and web site, and $37,856
      for management of our sales and development departments.




*Special
      Note Regarding Forward Looking Statements*




Certain
      statements in this Annual Report on Form 10-KSB constitute “forward-looking
      statements” within the meaning of Section 27A of the Securities Act and Section
      21E of the Exchange Act. Such statements are based on current expectations,
      and
      are not strictly historical statements. Forward-looking statements include,
      without limitation, statements set forth in this document and elsewhere
      regarding, among other things:





·
            the
                willingness or ability of our principal shareholder and leader to
                continue
                financing our operations or access to sufficient working capital
                to meet
                our operating and financial needs;




·
            integration
                of our recent acquisitions;




·
            market
                acceptance of new product
                introductions;




·
            plans
                related to our capital expenditures;




·
            expectations
                of future financial performance;
                and




·
            statements
                of our expectations, beliefs, future plans and strategies, anticipated
                developments and other matters that are not historical
                facts.




These
      statements may be made expressly in this document or may be incorporated by
      reference to other documents we have filed or will file with the SEC. You can
      find many of these statements by looking for words such as “may,” “would,”
“could,” “should,” “plan,” “believes,” “expects,” “anticipates,” “estimates,” or
      similar expressions used in this document or in documents incorporated by
      reference in this document.




These
      forward-looking statements are subject to numerous assumptions, risks and
      uncertainties that may cause our actual results to be materially different
      from
      any future results expressed or implied by us in those statements. Some of
      these
      risks are described in “Risk Factors” set forth immediately below in this
      report.




These
      risk factors should be considered in connection with any written or oral
      forward-looking statements that we or persons acting on our behalf may issue.
      Given these uncertainties, we caution investors not to unduly rely on our
      forward-looking statements. We do not undertake any obligation to review or
      confirm analysts’ expectations or estimate or to release publicly any revisions
      to any forward-looking statements to reflect events or circumstances after
      the
      date of this document or to reflect the occurrence of unanticipated events.
      Further, the information about our intentions contained in this document is
      a
      statement of our intention as of the date of this document and is based upon,
      among other things, the existing regulatory environment, industry conditions,
      market conditions and prices, the economy in general and our assumptions as
      of
      such date. We may change our intentions at any time and without notice, based
      upon any changes in such factors, in our assumptions or otherwise.




**Risk
      Factors**




You
      should carefully consider the risks described below before making an investment
      decision in us.




23




*We
      have a history of losses and if these losses continue it will materially
      negatively impact the value of our company.*




We
      have
      incurred significant net losses since our inception. For the year ended December
      31 ,
      2006,
      we incurred net losses of $2,455,824. At December
      31 ,
      2006,
      we had an accumulated deficit of $15,966,398. Our
      continued operating losses have contributed to the deterioration of our cash
      position and the decline of our working capital. We expect that cash on hand,
      together with funds available to us under our agreement with Stanford will
      permit us to fund our operations for the next year. If we experience
      unanticipated increases in negative cash flow from operations or Stanford does
      not make funds available to us, over which Stanford has discretion, we will
      require additional external funding. If we are unable to secure additional
      external financing on a timely basis, we will not have sufficient cash to fund
      our working capital and capital expenditure requirements and we will be forced
      to cease operations.




*We
      may fail to realize the anticipated synergies, cost savings and other benefits
      expected from the VantaHealth Technologies, LLC and Carekeeper Software, Inc.
      acquisitions* *and
      this* *could cause the value of our company and our* ** *common
      stock* *to
      decline.*




We
      acquired Carekeeper and Vanta,
      two companies that have previously operated independently, into a Vanta with
      the expectation
      that these acquisitions would create opportunities to leverage the combined
      product offerings and other benefits from operating the combination of
      businesses with our historical operations; however, in order to realize this,
      we must
      successfully integrate their operations and technology into
      HSS . To date,
      the integration of financial operations, human resources and administrative
      functions has been completed; however, the integration of customer service,
      technology and implementation services ( *e.g.* product
      management, training and education) has been difficult, expensive and
      time-consuming. We have not yet maximized the financial benefits from these
      acquisitions, and there can be no assurance that we ever will. Our results
      of
      operation and the value of our  common
      stock may
      decline if we are unable to achieve the benefits expected from integration of these businesses.




*We
      expect that changes to the pricing models for the products of the acquired
      companies will negatively affect the operating results of our new CKS and VHT
      subdivisions.*




We
      are
      changing the pricing models for our *HSS
      Analyzer* and *HSS* *VividNet* products
      from an up-front charge for the software license to a transaction pricing model.
      Management believes that this change may, for a period of time, result in a
      decline in revenues from these divisions compared to the results that would
      have
      been attained under the  historic
      license pricing
      model (which contemplates an annual fee, based on the software license price).
      However, based on our experience with the *HSS
      Advantage* transaction pricing model, we anticipate that our revenues will increase, over
      time, as our customers pay monthly for the transactions they process (compared
      to the historic license model).




*We
      expect to lose a significant amount of business from a current customer that
      accounts for approximately 35% of our total revenue, the result of which may
      be
      increased loss from operations.*




We
      have
      one customer, Amedisys, Inc., that accounted for approximately 35% of our
      revenue for the year ended December
      31 ,
      2006 and
      45%
      of our revenues for the year ended December 31, 2005. Amedisys has developed
      a
      proprietary clinical software system to collect assessment data, schedule and
      log patient visits, generate medical orders and monitor treatments and outcomes
      in accordance with established medical standards. This product has similar
      functionality to our *Advantage* product
      that Amedisys is currently utilizing. Amedisys has notified us that they will
      be
      distributing hand held computers to their full time nursing staff which will
      eliminate the need for verification services on the assessments processed on
      the
      hand held computer, a service for which Amedisys currently utilizes us. We
      anticipate that revenue generated by Amedisys will decrease by approximately
      80%
      by the end of the third quarter of 2007. The loss of revenue from this customer
      will materially decrease our revenues and may result in additional operating
      losses.




*Our
      products have a long sales cycle and we may not be able to increase revenues
      as
      quickly as we must increase staffing to support additional activity. If we
      increase our staffing in anticipation of additional revenues that are delayed,
      we may incur losses which could result in you losing your investment in our
      company.*




24




Although
      most home health care agencies use some form of management information system
      to
      enhance their financial and clinical performance, selling our web-based
      solutions requires us to educate potential customers on our solutions’ uses and
      benefits, and to educate them with respect to their surrender of on-site control
      of their computer servers. As a result, selling our services requires a long
      sales cycle, which can take up to eight months. Consequently, we face difficulty
      predicting the quarter in which revenues from expected customers may be
      realized. The sale of our services is also subject to delays from the lengthy
      budgeting, approval and competitive evaluation processes of our customers that
      typically accompany significant information technology commitments. If we
      increase our staffing in anticipation of additional revenues and those revenues
      are delayed, we may require additional working capital, which may or may not
      be
      available, and we may suffer losses.




*A
      loss or material deterioration of our service availability could result in
      significant damage to our customers and may result in customers initiating
      legal
      proceedings against us.*




HQS
      has
      installed its customer-facing computing and communications control equipment
      at
      a Qwest CyberCenter in Tampa, Florida. CKS has a similar installation at a
      Qwest
      facility in Sterling, Virginia. Notwithstanding the history of high availability
      associated with the Qwest CyberCenters, it is possible that a catastrophic
      event
      could damage either of these sites rendering our services unavailable for an
      extended period. Should this occur we could be subject to lawsuits by our
      customers, which would be expensive and time-consuming to defend.




*If
      we
      fail to properly manage our growth, we may lose customers and our revenues
      would
      decrease.*




We
      expanded our computer operations infrastructure in anticipation of our current
      and potential customer growth potential. Additionally, we must continue to
      develop and expand our services and operations infrastructure as the number
      of
      individual users accessing our services increases. Our anticipated expansion
      demands an unusual amount of focus on the transaction processing needs of our
      current and future customers for quality, on-line response time and reliability,
      as well as timely delivery of information and support. This development and
      expansion has placed, and we expect it to continue to place, strain on our
      managerial, operational and financial resources. Any material failure on our
      part to develop and maintain our service levels could
      significantly adversely affect our reputation and brand name which could reduce
      demand for our services and adversely affect our business financial condition
      and operating results.




*Healthcare
      providers are highly regulated. If we fail to properly implement regulatory
      requirements in an effective and timely manner, we will lose customers, our
      reputation will be damaged and our revenues will decrease.*




Ensuring
      our services are compliant with changes in Medicare’s “Conditions of
      participation,” the provisions of HIPPA, and other regulatory requirements, are
      challenging and expensive. If we do not maintain an appropriate level of
      regulatory compliance, or we incorrectly implement a required regulatory change,
      we may experience negative publicity, the loss of customers, the slowing down
      of
      sales cycles, any and all of which would decrease our revenues.




*Technology
      changes rapidly. If we are unable to respond in an effective and timely manner
      to technological change, our products may become obsolete* *,
      we
      will lose customers, and our revenues would decrease* , *any
      or all of* ** *which
      would greatly reduce the value of our company.*




The
      market for management information tools is characterized by rapid technological
      change, frequent new product introductions and enhancements, uncertain product
      life cycles, changes in customer demands and evolving industry standards and
      government regulation. The introduction of products embodying new technologies,
      changes in applicable government regulation and the emergence of new industry
      standards can render existing products obsolete and unmarketable. Our future
      success will depend upon our ability to continue to enhance our current products
      while developing and introducing new products on a timely basis that keep pace
      with technological developments and government regulations and satisfy
      increasingly sophisticated customer requirements. If we experience material
      delays in introducing new products and enhancements, our prospects for growth
      will be impaired and our reputation with our customers may be damaged.




25




*Competition
      in the healthcare information systems industry is intense and if we are unable
      to compete we will lose significant customers or be unable to attract customers
      and our revenues could decrease.*




The
      market for healthcare information systems is intensely competitive, rapidly
      changing and undergoing consolidation. Our competitors in the field include: McKesson
      Corporation, Siemens AG, Eclipsys Corporation and Keane, Inc .,
      among
      others. These competitors have substantially greater resources and more
      experience than us. We anticipate increased competition in the future as new
      companies enter the market in response to recent HIPAA regulations. If we are
      unable to compete we will lose significant customers or be unable to attract
      customers and our revenues could decrease.




*If
      our customers lose confidence in the security of data on the Internet, they
      will
      be less inclined to purchase our products and our revenues could
      decrease.*




Maintaining
      the security of computers, computer networks and patient data is an issue of
      critical importance for our customers. Our customers may be exposed to claims
      by
      federal healthcare regulators if they use our Internet based services and we
      do
      not protect sensitive patient data from penetration by Internet hackers. A
      compromise in the privacy of patient data could result in customers pursuing
      claims against us which would be expensive and time-consuming to defend.




*We
      have limited protection over our intellectual property rights. As a result,
      we
      may not be able to protect against misappropriation of our intellectual
      property, which could result in loss of revenues.*




We
      rely
      upon a combination of service agreements, confidentiality procedures, employee
      and customer nondisclosure agreements and technical measures to maintain the
      confidentiality and trade secrecy of our proprietary information. We also rely
      on trademark and copyright laws to protect our intellectual property. We have
      not initiated a patent program. As a result, we may not be able to protect
      against misappropriation of our intellectual property.




*If
      we
      are subject to a claim that we infringe a third-party’s intellectual property,
      we may have to replace our current products, pay royalties to competitors or
      suspend operations, any of which could significantly increase our
      expenses.*




Substantial
      litigation regarding intellectual property rights and brand names exists in
      the
      software industry. We expect that software product developers increasingly
      will
      be subject to infringement claims as the number of products and competitors
      in
      this industry segment grows and the functionality of products in related
      industry segments overlaps. However, third parties, some with far greater
      financial resources than ours, may claim infringement of their intellectual
      property rights by our products. Any
      such
      claims, with or without merit, could:




·
            Be
                time consuming to defend;




·
            Result
                in costly litigation;




·
            Divert
                management’s attention and
                resources;




·
            Cause
                product shipment delays;




·
            Require
                us to redesign products;




·
            Require
                us to enter into royalty or licensing agreements;
                or




·
            Cause
                others to seek indemnity from us.




A
      successful claim of product infringement against us, or failure or inability
      to
      either license the infringed or similar technology or develop alternative
      technology on a timely basis, could harm our operating results, financial
      condition or liquidity.




26


*Our
        future success is dependent on the services of our key management and personnel,
        whose knowledge of our business and technical expertise would be difficult
        to
        replace.*


All
      of t he
      members of key management
      and personnel may
      resign at any time. The loss of the services of one or more of these key
      employees could slow product development processes or sales and marketing
      efforts or otherwise harm our business. The market for these highly skilled
      employees is characterized by intense competition, which is heightened by their
      high level of mobility. These factors make it particularly difficult to attract
      and retain the qualified technical personnel required. We have experienced,
      and
      expect to continue to experience, difficulty in hiring and retaining highly
      skilled employees with appropriate technical qualifications. If we fail to
      recruit and retain a significant number of qualified technical personnel, we
      may
      not be able to develop, introduce or enhance products on a timely basis. Even
      if
      we are able to expand our staff of qualified technical personnel, they may
      require greater than expected compensation packages that would increase
      operating expenses. If we are unable to retain or hire qualified employees,
      our
      business will fail and you may lose your entire investment.




*We
      depend upon software and a patent that we license from, and products provided
      by, third parties and the loss of these licenses or an increase in cost of
      these
      licenses would require us to suspend our operations until we obtain replacements
      and redesign our products.*




We
      rely
      upon certain software and a patent licensed from third parties. The loss of
      or
      inability to retain the use of any such intellectual property could result
      in
      shipment delays or reductions until equivalent intellectual property could
      be
      developed, identified, licensed and integrated.




*Our
      shares of common stock are thinly traded and you may find it difficult to
      dispose of your shares of our stock, which could cause you to lose all or a
      portion of your investment in our company.*




Our
      shares of common stock are currently quoted on the OTC Bulletin Board. Trading
      in shares of our common
      stock has been
      limited and we
      expect to have only a limited trading market for our common stock in the
      foreseeable future. As a result, you may find it difficult to dispose of shares
      of our common stock and you may suffer a loss of all or a substantial portion
      of
      your investment in our common stock.




*Our
      common stock is covered by SEC “penny stock” rules which may make it more
      difficult for you to sell or dispose of our common stock, which could cause
      you
      to lose all or a portion of your investment in our company.*




Our
      common stock is covered by an SEC rule that imposes additional sales practice
      requirements on broker-dealers who sell such securities to persons other than
      established customers and accredited investors, which are generally institutions
      with assets in excess of $5,000,000, or individuals with net worth in excess
      of
      $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
      spouse. For transactions covered by the rule, the broker-dealer must make a
      special suitability determination for the purchaser and transaction prior to
      the
      sale. Consequently, the rule may affect the ability of broker-dealers to sell
      our securities, and also may affect the ability of purchasers of our stock
      to
      sell their shares in the secondary market. It may also diminish the number
      of
      broker-dealers that may be willing to make a market in our common stock, and
      it
      may affect the level of news coverage we receive.




*The
      interests of our controlling shareholders could conflict with those of our
      other
      shareholders resulting in the approval of corporate actions that are not in
      your
      interests.*




Our
      principal shareholder, Stanford, controls approximately 80 %
      of our
      common stock. This shareholder is able to control the outcome of shareholder
      votes, including votes concerning amendments to our charter and by-laws and
      the
      approval of significant corporate transactions like a merger or sale of our
      assets. Although none of our directors or officers are affiliated with Stanford
      or have any relationships with Stanford, Stanford is able to control the
      election of the board of directors through its ownership of a majority of our
      common stock. In addition, Stanford has provided us with significant financing.
      This controlling influence could have the effect of delaying or preventing
      a
      change in control, even if our other shareholders believe it is in their best
      interest.




27




*We
      may issue additional shares of preferred stock that could defer a change of
      control or dilute the interests of our common shareholders and our charter
      documents could defer a takeover effort, which could inhibit your ability to
      receive an acquisition premium for your shares or your ability to sell your
      shares of common stock* .




Our
      articles of incorporation permit our Board of Directors to issue
      up to 15,000,000 shares of Preferred
      Stock without
      shareholder approval. Currently, 3 ,050,000 shares
      of the Preferred
      Stock (consisting of Series A, B and C) are issued and outstanding. Shares of Preferred
      Stock ,
      if
      issued, could contain dividend, liquidation, conversion, voting or other rights
      which could adversely affect the rights of our common shareholders and which
      could also be utilized, under some circumstances, as a method of discouraging,
      delaying or preventing our change in control. Provisions of our articles of
      incorporation, bylaws and applicable Nevada law could make it more difficult
      for
      a third party to acquire us, even if many of our shareholders believe it is
      in
      their best interest. These provisions may decrease your ability to sell your
      shares of our common stock.




**Significant
      Accounting Policies**




*Revenue
      Recognition*




We
      follow
      the provisions of Staff Accounting Bulletin No. 104. We recognize revenue when
      persuasive evidence of an arrangement exists, the product or service has been
      delivered, fees are fixed or determinable, collection is reasonably assured
      and
      all other significant obligations have been fulfilled.




Our
      corporate strategy is to provide our services on a recurring transaction pricing
      basis. We believe this is a value-based model that more directly relates to
      our customers’ recognition of revenue. The transaction pricing model differs from the typical
      licensed software model in that the implementation of transaction-priced
      services does not result in large up front software license fee revenues but
      results in a gradual recognition of revenue earned on a transaction by
      transaction basis over time. This is a similar model to that used by the mobile
      phone industry. The benefit occurs in the future years where leverage is
      obtained as a customer grows and continues to pay transaction fees year over
      year, whereas under the licensed sale model the only revenue realized in the
      future years is quarterly support and maintenance fees.




Our
      revenue is classified into two categories: recurring and non-recurring. For
      the
      year ended December 31, 2006, approximately 87% of our total revenue was
      recurring and 13% was non-recurring.




We
      generate recurring revenue from several sources, including the processing of
      clinical assessments which, as mandated by Medicare, require home health care
      agencies to collect assessment data on all patients requiring home health care
      at the start-of-care and at discharge, the
      processing of data related to Medicare clinical
      episodes completed during care delivery, the
      provision of outsourcing services, such as software hosting and other business
      services, and the sale of maintenance and support for our proprietary software
      products. Recurring services revenue is typically billed and recognized monthly
      over the contract term, typically two to three years. Recurring software
      maintenance revenue is typically based on one-year renewable contracts. Software
      maintenance and support revenues are recognized ratably over the contract
      period. We record cash payments received in advance or at the beginning of
      a
      contract as deferred revenue.




We
      generate non-recurring revenue from transactions in which we license our
      software. Under SOP 97-2, software license revenue is recognized upon the
      execution of a license agreement, upon delivery of the software, when fees
      are
      fixed or determinable, when collectibility is probable and when all other
      significant obligations have been fulfilled. For software license agreements
      in
      which customer acceptance is a significant condition of earning the license
      fees, revenue is not recognized until acceptance occurs. For software license
      agreements that require significant customizations or modifications of the
      software, revenue is recognized as the customization services are performed.
      For
      multiple element arrangements, such as software license, consulting services,
      outsourcing services and maintenance, and where vendor-specific objective
      evidence (“VSOE”) of fair value exists for all undelivered elements, we account
      for the delivered elements in accordance with the “residual method.” Under the
      residual method, the total
      fair value of the undelivered elements, as indicated by VSOE, is deferred and
      subsequently recognized in accordance with the relevant sections of SOP
      97 -2 .
      Also, the
      difference between the total arrangement fee and the amount deferred for the
      undelivered elements is recognized as revenue related to the delivered elements.
      For arrangements in which VSOE does not exist for each undelivered element,
      including specified upgrades, revenue for the delivered element is deferred
      and
      not recognized until VSOE is available for the undelivered element or delivery
      of each element has occurred. When multiple products are sold within a
      discounted arrangement, a proportionate amount of the discount is applied to
      each product based on each product’s fair value or relative list price.




28




We
      also
      generate non-recurring revenue from implementation fees, consulting, training
      and customer support services and this non-recurring revenue is charged to
      customers on a fee basis usually based upon time spent. We recognize software
      licensing fees and implementation fees in the month that the customer goes
      live
      and we recognize training, consultation, advisory and support revenue in the
      month that the service is performed. Implementation costs consisting of payroll
      and travel are expensed in the same period implementation fees are
      recognized.




We
      currently recognize cancellations, allowances or discounts as they occur. This
      practice is based on factors that include, but are not limited to, historical
      cancellations and analysis of credit memo activities. Cancellations, allowances
      and discounts are not material.




*Allowance
      for Doubtful Accounts*




The
      allowance for doubtful accounts is based on our assessment of the collectibility
      of customer accounts and the aging of the accounts receivable. If there is
      a
      deterioration of a major customer’s credit worthiness or actual defaults are
      higher than our historical experience, our estimates of the recoverability
      of
      amounts due could be adversely affected. We regularly review the adequacy of
      our
      allowance for doubtful accounts through identification of specific receivables
      where it is expected that payment will not be received. We also establish an
      unallocated reserve that is applied to all amounts that are not specifically
      identified. In determining specific receivables where collections may not be
      received, we review past due receivables and give consideration to prior
      collection history and changes in the customer’s overall business condition. The
      allowance for doubtful accounts reflects our best estimate as of the reporting
      dates. Changes may occur in the future, which may require us to reassess the
      collectibility of amounts at which time we may need to provide additional
      allowances in excess of those currently provided.




*Stock
      Based Compensation*




Effective
      January 1, 2006, we began recording compensation expenses associated with
      stock-based awards and other forms of equity compensation in accordance with
      FASB Statement No. 123-R, *Share-Based
      Payment* (“SFAS
      123R”) as
      interpreted by SEC Staff Accounting Bulletin No. 107. We adopted
      the modified prospective transition method provided under SFAS 123R, and
      consequently have not retroactively adjusted results from prior periods. Under
      this transition method, compensation costs associated with stock-based awards
      recognized in the fourth quarter of 2006 include ( a )
      quarterly amortization related to the remaining unvested portion of stock-based
      awards granted prior to January 1, 2006 based on the grant-date fair value
      estimated in accordance with the original provisions of FASB No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”), and ( b )
      quarterly amortization related to stock-based awards granted subsequent to
      January 1, 2006 based on the grant-date fair value estimated in accordance
      with
      the provisions of SFAS 123R. Prior to January 1, 2006, we accounted for stock-based awards using the “disclosure only” alternative
      described in SFAS 123 and FASB Statement No. 148, *Accounting
      for Stock-Based Compensation* .




*Software
      Development Costs*




We
      capitalize certain costs of software developed or obtained for internal use
      in
      accordance with AICPA SOP 98-1, Accounting for the Costs of Corporate Software
      Developed or Obtained for Internal Use (“SOP 98-1”). We capitalize software
      development costs when application development begins, if it is probable that
      the project will be completed and the software will be used as intended. Costs
      associated with preliminary project stage activities, training, maintenance
      and
      all other post implementation stage activities are expensed as incurred. Our
      policy provides for the capitalization of certain payroll and payroll-related
      costs for employees who are directly associated with developing or obtaining
      internal use software. Capitalized
      personnel costs are limited to the time directly spent on such projects.
      Capitalized costs are ratably amortized using the straight-line method over
      the
      estimated useful lives of the related applications of three years. We make
      ongoing evaluations of the recoverability of our capitalized software by
      comparing the amount capitalized for each product to the estimated net
      realizable value of the product. If such evaluations indicate that the
      unamortized software development costs exceed the net realizable value, we
      write
      off the amount that the unamortized software development costs exceed net
      realizable value.




29




**Recent
      Accounting Pronouncements**




In
      February 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      155, *Accounting
      for Certain Hybrid Financial Instruments - an amendment of FASB Statements
      No.
      133 and 140* .
      This
      statement permits fair **** value
      re-measurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation, clarifies which
      interest-only strips and principal-only strips are not subject to the
      requirements of SFAS 133, establishes a requirement to evaluate interests in
      securitized financial assets that are freestanding derivatives or that are
      hybrid financial instruments that contain an embedded derivative requiring
      bifurcation, clarifies that concentrations of credit risk in the form of
      subordination are not embedded derivatives, and amends SFAS 140 to eliminate
      the
      prohibition on a qualifying special-purpose entity from holding a derivative
      financial instrument that pertains to a beneficial interest other than another
      derivative instrument. This Statement is effective for all financial instruments
      acquired or issued after the beginning of an entity’s first fiscal year that
      begins after September 15, 2006. We do not expect the adoption of SFAS 155
      to
      materially affect our financial position or results of operations.




In
      March
      2006, the FASB issued Statement of Financial Accounting Standards No. 156, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* .
      This
      Statement requires an entity to recognize a servicing asset or servicing
      liability each time it undertakes an obligation to service a financial asset
      by
      entering into a service contract, requires all separately recognized servicing
      assets and servicing liabilities to be initially measured at fair value, if
      practicable, permits an entity to choose either the amortization method or
      fair
      value measurement method for each class of separately recognized servicing
      assets and servicing liabilities, and requires separate presentation of
      servicing assets and servicing liabilities subsequently measured at fair value
      in the statement of financial position and additional disclosures for all
      separately recognized servicing assets and servicing liabilities. We do not
      expect to be impacted by the adoption of SFAS 156, which will be effective
      for
      fiscal years beginning after September 15, 2006.




In
      June
      2006, the FASB issued Financial Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109* (“FIN
      48”). This interpretation prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. The evaluation of a tax position in accordance with this
      interpretation is a two step process. The first step is recognition: the
      enterprise determines whether it is more likely than not that a tax position
      will be sustained upon examination, including resolution of any related appeals
      or litigation processes, based on the technical merits of the position. In
      evaluating whether a tax position has met the more-likely-than-not recognition
      threshold, the enterprise should presume that the position will be examined
      by
      the appropriate taxing authority that would have full knowledge of all relevant
      information. The second step is measurement: a tax position that meets the
      more-likely-than-not recognition threshold is measured to determine the amount
      of benefit to recognize in the financial statements. The tax position is
      measured at the largest amount of benefit that is greater than 50% likely of
      being realized upon ultimate settlement. This interpretation is effective for
      fiscal years beginning after December 15, 2006. We do not expect the adoption
      of
      FIN 48 to materially affect our financial position or results of
      operations.




In
      September, 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurements* .
      This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles (GAAP), and expands disclosures
      about fair value measurements. The definition of fair value retains the exchange
      price notion in earlier definitions of fair value. The exchange price is the
      price in an orderly transaction between market participants to sell the asset
      or
      transfer the liability in the market in which the reporting entity would
      transact for the asset or liability. Fair value is a market-based measurement,
      not an entity-specific measurement. Therefore, a fair value measurement should
      be determined based on the assumptions that the market would use in pricing
      the
      asset or liability. This Statement expands disclosures about the use of fair
      value to measure assets and liabilities in interim and annual periods subsequent
      to initial recognition. The disclosures focus on the inputs used to measure
      the
      fair value and the effect of the measurements on earnings. This Statement is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. We do not expect the adoption of SFAS 157 to materially
      affect our financial position or results of operations.




30




In
      September, 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      Amendment of FASB Statements No. 87, 88, 106, and 132(R)* (“SFAs
      158”). This Statement improves financial reporting by requiring an employer to
      recognize the over-funded or under-funded status of a defined benefit
      post-retirement plan (other than a multiemployer plan) as an asset or liability
      in its statement of financial position and to recognize changes in that funded
      status in the year in which the changes occur through changes in comprehensive
      income of a business entity or the unrestricted net assets of a not-for-profit
      organization. This Statement also requires an employer to measure the funded
      status of a plan as of the date of its year-end statement of financial position,
      with limited exceptions. An employer with publicly traded equity securities
      is
      required to initially recognize the funded status of a defined benefit
      post-retirement plan and to provide the required disclosures as of the end
      of
      the fiscal year ending after December 15, 2006. As we do not currently have
      a
      defined benefit post-retirement plan, we do not expect to be impacted by the
      adoption of SFAS 158.




Management
      does not believe that any recently issued, but not yet effective, accounting
      pronouncements, if currently adopted, would have a material effect on the
      accompanying consolidated financial statements.




**ITEM
              7.**
            **FINANCIAL
                STATEMENTS**




Our
      financial statements and the related notes are set forth commencing on page
      F-1
      attached hereto.




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




None.




**ITEM
              8A.**
            **CONTROLS
                AND PROCEDURES**




**Disclosure
      Controls and Procedures**




As
      of
      December 31, 2006, we carried out an evaluation under the supervision and with
      the participation of our management, including our Chief Executive Officer
      and
      our Chief Financial Officer, of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Rule 13a-15(e) under
      the
      Exchange Act, as amended). Based upon that evaluation, our chief executive
      officer and chief financial officer have concluded that, as of December 31,
      2006, we have a material weakness associated with the inadequacy of our
      accounting software to handle consolidation of multiple entities requiring
      us to
      extract data into spreadsheets for manual intervention. Management is currently
      evaluating other accounting software that would eliminate this weakness and
      anticipates making a decision on the acquisition of this accounting software
      in
      the fourth quarter of 2007. In the interim, we are addressing this weakness
      with
      increased review of these schedules by another employee to verify that the
      information is complete and accurate and ties back to the source
      documents.




**Internal
      Controls over Financial Reporting**




This
      annual report does not include a report of management’s assessment regarding
      internal control over financial reporting or an attestation report of the
      company’s registered public accounting firm due to the transition period
      established by rules of the Securities and Exchange Commission for newly public
      companies. There has been no change in our internal control over financial
      reporting identified in connection with the quarterly evaluation that occurred
      during our last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




31


**ITEM
      8B.**  **OTHER
      INFORMATION**




None.




32


**PART
      III**




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




**Directors
      and Officers**




Our
      executive officers and directors and their ages as of the date of this report
      are as follows:




**Name**
              
              **Age**
              
              **Position**B.
                  M. Milvain
              
              70
              
              Chief
                  Executive Officer, President and DirectorSteven
                  Katz
              
              59
              
              DirectorBatsheva
                  Schreiber
              
              60
              
              DirectorWayne
                  LeRoux
              
              64
              
              DirectorRandall
                  J. Frapart
              
              48
              
              DirectorSusan
                  Baxter Gibson
              
              49
              
              Vice
                  President and Chief Financial
                  Officer





B.
      M.
      Milvain is our Chief Executive Officer and President and has been since October
      2002. He has been a director of our company since April 2003. Mr. Milvain has
      been a senior officer of HQS, PAL and its predecessor company, Provider
      Solutions Corp., since 1993. From August 1988 until November 1992, Mr. Milvain
      was Chief Operating Officer of LPA, Inc., a subsidiary of NYNEX Corporation,
      and
      a supplier of on-line transaction processing software for electronic payment
      services. From March 1988 until September 1997, Mr. Milvain was also a
      consultant to the Chairman of the Board of BancTec, Inc. (a global provider
      of
      solutions for automation capture, processing and archiving of paper and
      electronic forms). From 1985 to 1988, he was Vice
      President of Marketing at Systeme Corporation (an innovator and developer of
      wide area network and PC technology for b ranch
      automation products for retail banking applications). From 1982 to 1984, Mr.
      Milvain was President of George K. Baum Leasing, Inc. From 1972 to 1982, he
      was
      co-founder of Unimark, Inc., a computer leasing and used computer dealer. Prior
      positions were with Marsh & McLennan Companies (1969 to 1972), Waddell &
Reed (1966 to 1969) and IBM (1960 to 1966). Mr. Milvain graduated with a
      Bachelors of Business Administration degree from the University of Oklahoma
      in
      1960.




Steven
      Katz has been a director of the company since April 2003. Since 1982, he has
      been President of Steven Katz & Associates, Inc. (a health care and
      technology-based management consulting firm specializing in strategic planning,
      corporate development, new product planning, technology licensing, and
      structuring and securing various forms of financing). From January 2000 to
      October 2001, Mr. Katz was also President and Chief Operating Officer of Senesco
      Technologies, Inc. (an American Stock Exchange company engaged in the
      identification and development of proprietary gene technology with application
      to human, animal and plant systems). From 1983 to 1984, he was a co-founder
      and
      Executive Vice President of S.K.Y. Polymers, Inc. (a bio-materials company).
      Prior to this, Mr. Katz was Vice President and General Manager of a non-banking
      division of Citicorp. From 1976 to 1981, he held various senior management
      positions at National Patent Development Corporation, including President of
      three subsidiaries. Prior positions were with Revlon, Inc. (1975) and Price
      Waterhouse & Co. (1969 to 1974). Mr. Katz received a Bachelors of Business
      Administration degree in Accounting from the City College of New York in 1969.
      He is presently a member of the Board of Directors of Natural Nano, Inc.,
      Gammacan International, Inc., USA Technologies, Inc. and several private
      companies.




33




Batsheva
      Schreiber has been a director of the company since April 2003. Since 1998,
      she
      has been the President and CEO of CareManagers Inc. (a health care advocacy
      and
      consulting company focusing on supporting individuals and their families in
      all
      aspects of services during changes in health status). From 1996 to 1997, Ms.
      Schreiber was Director of Operations at Master Care, a case management company
      that focused on efficiency and quality care in the workers compensation and
      group health areas. From 1994 to 1996, Ms. Schreiber was a co-founder and
      principal of Revival Home Health Care, a certified home care company serving
      the
      Metropolitan New York City area. Other home care experience includes senior
      positions at Olsten KQC (1992 to 1994) and Nursefinders (1988 to 1992). From
      1970 to 1988, Ms. Schreiber established and developed various medical programs
      and services at Ohel Children’s Home & Family Services in New York City.
      Prior experience includes medical/surgical nursing and in-patient psychiatry
      (1966 to 1970) at Maimonides Medical Center in New York. Ms. Schreiber is a
      Registered Nurse in New York and New Jersey and has her BSN from the University
      of the State of New York. She is active in various community programs and is
      a
      member of the
      Board of
      Directors of
      United Way .




Wayne
      LeRoux has been a director of the company since June 2006. He was most recently
      Executive Vice President for Chase Paymentech Solutions, LLC (an electronic
      payments front-end processing system that processed over 13 billion transactions
      in 2005), from March 1998 through April 2006. Mr. LeRoux’s primary
      responsibility was as General Manager for Chase Paymentech’s proprietary
      front-end network. Prior to that, beginning in October 1992, Mr. LeRoux was
      retired. From October 1987 through October 1992, Mr. LeRoux was President and
      Chairman of TransNet (another payment processing company that was ultimately
      acquired by Paymentech). From 1978 until 1992, Mr. LeRoux was President of
      LeRoux, Pitts and Associates (a software company specializing in electronic
      payments that was purchased by NYNEX in 1990). Prior to his positions with
      TransNet and LeRoux, Pitts and Associates, Mr. LeRoux held a variety of
      positions with IBM Canada. Mr. LeRoux holds a diploma of technology from British
      Columbia Institute of Technology in Vancouver, British Columbia.




Randall
      J. Frapart has been a director of the company since June 2006. He is currently
      Executive Vice President and Chief Financial Officer of ForeFront Holdings,
      Inc.
      (a company that manufactures, designs, assembles and distributes golf bags
      and
      golf accessories for sale to on-course golf pro shops and off-course golf
      specialty shops, sporting goods stores, corporate premium customers, golf event
      sponsoring organizations, and mass merchandisers, mainly in the United States
      and Canada). From September 2002 until December 2005, Mr. Frapart served as
      Senior Vice President and Chief Financial Officer of HyperFeed Technologies,
      Inc. (a publicly traded provider of software which provides ticker plant and
      smart order routing technologies and managed services to exchanges, hedge funds
      and other financial institutions). Mr. Frapart served as Chief Financial Officer
      and later as Chief Executive Officer of Cyvent Technologies (a software and
      consulting company serving large health insurers) from April 1995 to July 2001.
      Mr. Frapart began his career at KPMG, where he held various positions in the
      Information, Communication and Entertainment Assurance practice for over 12
      years. Mr. Frapart received a B.S.B.A. in Accounting from Washington University
      in 1980 and an MBA in Business Management from the University of Texas in 1982.




Susan
      Baxter Gibson is our Vice President and Chief Financial Officer. She served
      as a
      Branch Manager of Advanced Home Care (a home health, infusion and durable
      medical provider) from January 2001 through September 2003. From February 1999
      to January 2001, she was a financial consultant with Dixon Odom P.L.C. From
      February 1998 to January 1999, Ms. Gibson was Chief Financial Officer of Baptist
      Hospital Home Care, a subsidiary of the Wake Forest University Medical Center.
      While she was there, she also served as Interim Agency Director. From June
      1992
      to February 1998, Mrs. Gibson was the Chief Financial Officer/Vice President
      Finance at the Visiting Nurse Association of the Treasure Coast. Susan's
      experience includes budgeting, creating internal policies and procedures, home
      health care financial and operational management and strategic planning. Prior
      to serving at the Visiting Nurse Association of the Treasure Coast, she was
      with
      Greenwich International and Edwards & Curtis, certified public accountants.
      Mrs. Gibson holds a Bachelor of Business Administration in Accounting (1992)
      and
      a Masters of Business Administration degree from the University of Central
      Florida (1997). She is a certified public accountant (North
      Carolina).




**Compliance
      with Section 16(a) of the Exchange Act**




Based
      solely upon a review of Forms 3, 4 and 5, and amendments thereto furnished
      to us
      under Rule 16a-3(d) of the Exchange Act, each of B.M. Milvain, Steven Katz,
      Batsheva Schreiber, Susan Baxter-Gibson , Wayne LeRoux, Randall J. Freeport
      (“Officers and Directors”) and Stanford International Bank Ltd. failed to file
      on a timely basis reports required by Section 16(a) of the Exchange Act during
      the fiscal year ended December 31, 2006.  Both Mr. LeRoux and Mr. Freeport
      failed to timely file their initial statement of beneficial ownership. Each
      of Mr. Milvain, Mr. Katz and Ms. Baxter-Gibson failed to timely file one
      statement of change in beneficial ownership on Form 4 and Ms. Schreiber failed
      to timely file two statements of change of beneficial ownership on Form 4.
      Stanford failed to timely file seven statements of change in beneficial
      ownership on Form 4. The officers and Directors and Stanford failed to timely
      file their annual statement of changes in beneficial ownership on Form 5. Each
      reporting person has since filed the appropriate forms and is now current.




34




**Code
      of Ethics**




During
      the year ended December 31, 2003, we adopted a Code of Ethics. The code applies
      to our officers and directors. The code provides written standards that are
      designed to deter wrongdoing and promote:




·
            honest
                and ethical conduct;




·
            full,
                fair, accurate, timely and understandable
                disclosure;




·
            compliance
                with applicable laws and
                regulations;




·
            promptreporting of internal violations of the code; and




·
            accountabilityfor the adherence to the code.




The
      code
      is filed as Exhibit 14.0 to our Annual Report on Form 10-K for the year ended
      December 31, 2003 and is publicly available on the Company’s website at www.HSSonline.net .
      We will
      provide any person, without charge, upon request, a copy of the Code. Please
      address such requests to us in writing.




**Board
      Meetings**




There
      were four Board meetings in 2006. These meetings were attended by all of the
      serving board members.




**Committees
      of the Board of Directors**




*Audit
      Committee*




Our
      Audit
      Committee currently consists of Steven Katz, Wayne LeRoux and Randall Frapart
      which reviews:




·
            theprofessionalservices provided by our independent
                auditors;




·
            theindependence of our auditors from our
                management;




·
            ourannual financial statements and our system of internal accounting
                controls;and




·
            suchother
                matters with respect to our accounting, auditing and financial reporting
                practices and procedures as it determines to be appropriate or may
                be
                brought to its attention.




Mr.
      Katz
      is considered by us to be a “financial expert” and is the Chairman of this
      Committee ( *see* Mr.
      Katz’
biography in the Directors and Officers section, above. Mr.
      Katz,
      Mr. LeRoux and Mr. Frapart are deemed to be “independent,” as defined in the
      listing standards of The Nasdaq Stock Market .
      The
      Audit Committee met on four occasions during the year ended December 31, 2006 .




*Nominating
      Committee*




We
      do not
      have a formal nominating committee. Our full Board of Directors serves in this
      capacity and a majority of our Directors are “independent” as defined in the
      listing standards of The Nasdaq Stock Market. **** The
      Board
      nominates persons to serve as management’s slate of directors in connection with
      their election.




35




In
      May
      2004, the Board adopted a general policy setting forth qualifications of
      directors, procedures for identification and evaluation of candidates for
      nomination, and procedures for recommendation of candidates by shareholders. A
      candidate for director should meet the following criteria:




·
            above
                all, be of proven integrity with a record of substantial
                achievement;




·
            have
                demonstrated ability and sound judgment that usually will be based
                on
                broad experience;




·
            be
                able and willing to devote the required amount of time to our affairs,
                including attendance at Board and committee meetings and the annual
                shareholders’ meeting;




·
            possess
                a judiciousandsomewhat critical temperament that will enable objective appraisal
                of
                management’s plans and programs; and




·
            be
                committed to our company, building sound, long-term
                growth.




Other
      than the foregoing, the Board does not believe there is any single set of
      qualities or skills that an individual must possess to be an effective director
      or that it is appropriate to establish any specific, minimum qualifications
      for
      a candidate for election as a director. Rather, the Committee will consider
      each
      candidate in light of the strengths of the other members of the Board and the
      needs of the Board and our company at the time of the election. The Board will
      also consider candidates for directors nominated by shareholders.




*Compensation
      Committee*




Our
      compensation committee currently consists of Batsheva Schreiber, Steven Katz
      and
      Wayne LeRoux. Ms. Schreiber, Mr. Katz and Mr. LeRoux are deemed to be be
“independent” as defined in the listing standards of The Nasdaq Stock
      Market.




36




**ITEM
              10.**
            **EXECUTIVE
                COMPENSATION**




**Summary
      Compensation**





The
      following table presents a summary of the compensation paid to our Chief
      Executive Officer and Chief Financial Officer during the year ended December
      31,
      2006 Except as listed below, there are no bonuses, other compensation,
      restricted stock awards or stock options/SARS or any other compensation paid
      to
      the named executive officers.




**Summary
      Compensation Table**




**Name
                  & Principal Position**
              
              **Year**
              
              **Salary**
                **$**
              
              **Bonus**
                **$**
              
              **Stock**
                **Awards**
                **$**
              
              **Option
                  Awards***
                **$**
              
              **Non-Equity**
                **Incentive
                  Plan**
                **Compensation**
                **$**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **$**
              
              **All
                  Other**
                **Compensation**
                **$**
              
              **Total**
                **$**B.M.
                  Milvain
              
              
              2006
              
              $
              179,168
              
              
              —
              
              
              —
              
              $
              1,828
              
              
              —
              
              
              —
              
              
              —
              
              $
              180,996President
                    and Chief Executive Officer
              
              
              2005
              
              $
              150,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              150,000Susan
                  Baxter Gibson
              
              
              2006
              
              $
              121,166
              
              
              —
              
              
              —
              
              $
              731
              
              
              —
              
              
              —
              
              
              —
              
              $
              121,897Chief
                  Financial Officer
              
              
              2005
              
              $
              104,670
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              104,670





*
            Represents
                the total “fair market value” of options granted during the year ended
                December 31, 2006, calculated using the Black-Scholes option pricing
                model
                and related assumptions as disclosed in Note 11,*Stock
                Based Compensation and Warrants,*to
                our consolidated financial statements for the year ended December
                31,
                2006, as contained herein.




37


**Outstanding
      Equity Awards at Fiscal Year End**




The
        following table sets forth information concerning the outstanding equity
        awards
        granted to the named executive officers at December 31, 2006.




**Option
                  Awards**
              
              **Stock
                  Awards****Number
                  of Securities Underlying Unexercised Options (#)**
              
              **Equity
                  Incentive Plan Awards: Number of Securities Underlying Unexercised,
                  Unearned**
              
              **Option
                    Exercise Price**
              
              **Option
                  Expiration**
              
              **Number
                    of Shares or Units of Stock That Have Not Vested**
              
              **Market
                    Value of Shares or Units of Stock That Have not
                    Vested**
              
              **Equity
                    Incentive Plan Awards: Number of Unearned Shares that Have Not
                    Vested**
              
              **Equity
                    Incentive Plan Awards: Market or Payout Value of Unearned Shares
                    That Have
                    Not Vested****Name**
              
              **Exercisable**
              
              **Unexercisable**
              
              **Options
                  (#)**
              
              **($/Sh)**
              
              **Date**
              
              **(#)**
              
              **($)***
              
              **(#)**
              
              **($)**56,250
              
              
              18,750
              
              
              18,750
              
              $
              2.00
              
              
              06-01-09
              
              
              0
              
              
              0
              
              
              0
              
              
              0B.
                  M. Milvain
              
              
              18,750
              
              
              18,750
              
              
              18,750
              
              $
              .33
              
              
              03-29-11
              
              
              0
              
              
              0
              
              
              0
              
              
              0—
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              75,000
              
              
              75,750
              
              
              0
              
              
              0Susan
                  Baxter
              
              
              22,500
              
              
              7,500
              
              
              7,500
              
              $
              2.00
              
              
              06-01-09
              
              
              0
              
              
              0
              
              
              0
              
              
              0Gibson
              
              
              7,500
              
              
              7,500
              
              
              7,500
              
              $
              .33
              
              
              03-29-11
              
              
              0
              
              
              0
              
              
              0
              
              
              0









*****
            ****Based
                on closing “bid” price of our common stock on December 31, 2006 of
                $1.01.




38




**Director
      Compensation**




Prior
      to
      June 30, 2006, all of our
      directors, other than those who are also officers , received
      an annual fee of $ 5,000.
      Effective June 30, 2006,
      the annual
      fee increased to **** $10,000 **.** We do
      not pay fees to directors for their attendance at meetings. The following
      Director Compensation Table summarizes the compensation of our non-employee
      directors for services rendered to us during the year ended December 31,
      2006:




**Director
      Compensation Table**




**Name**
              
              **Fees**
                **Earned**
                **or**
                **Paid in**
                **Cash**
                **$**
              
              **Stock**
                **Awards**
                **$**
              
              **Option**
                **Awards***
                **$**
              
              **Non-Equity**
                **Incentive**
                **Plan**
                **Compensation**
                **$**
              
              **Change**
                **in
                  Pension**
                **Value
                  and**
                **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **$**
              
              **All**
                **Other**
                **Compensation**
                **$**
              
              **Total****
                **$**Steven
                  Katz
              
              $
              7,500
              
              
              —
              
              $
              122
              
              
              —
              
              
              —
              
              
              —
              
              $
              7,622Batsheva
                  Schreiber
              
              $
              7,500
              
              
              —
              
              $
              122
              
              
              —
              
              
              —
              
              
              —
              
              $
              7,622Wayne
                  LeRoux
              
              $
              5,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              5,000Randall
                  J. Frapart
              
              $
              5,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              5,000







*
            Represents
                “fair market value” of options granted during the year ended December 31,
                2006, calculated using the Black-Scholes option pricing model and
                related
                assumptions as disclosed in Note 11,*Stock
                Based Compensation and Warrants*,
                to**our
                consolidated financial statements for the year ended December 31,
                2006, as
                contained herein.




**
            Only
                received payment for the third and fourth quarter of
                2006.




In
      addition to the fees listed above, we reimbursed the directors for their travel
      expenses incurred in attending meetings of the Board or its committees. The
      directors do not receive any other compensation or personal
      benefits.




39




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




**Security
      Ownership**





As
      of
      December 31, 2006, there were 6,270,907 shares of our common stock and 3,050,000
      shares of Series C Convertible Preferred Stock, issued and outstanding. The
      following table sets forth information as of the close of business on December
      31, 2006, including (1) the name and number of voting stock of each person
      known
      by us to be the beneficial owner of more than 5% of the class of stock; and
      (2)
      the number of shares of these securities owned by each director and all officers
      and directors as a group, together with their respective percentage holdings
      of
      such shares. Beneficial ownership is determined in accordance with the rules
      of
      the SEC, and generally includes voting or investment power with respect to
      securities, and includes any securities, which the person has the right to
      acquire within 60 days of the date of the filing of this report. Unless
      otherwise indicated, the address for each person is 405 N. Reo Street, Suite
      300, Tampa, Florida 33609.




**Common
                Stock****Names
              and Addresses1**
            
            **Shares**
              **Beneficially**
              **Owned**
            
            **Percent
                of**
              **Share****Outstanding****Directors
                and Named Executive Officers**B.
                M. Milvain2
            
            
            181,941
            
            
            1.9
            %Steven
                Katz3
            
            
            2,500
            
            
            *Batsheva
                Schreiber4
            
            
            2,500
            
            
            *Wayne
                LeRoux
            
            
            0
            
            
            0
            %Randall
                J. Frapart
            
            
            0
            
            
            0
            %Susan
                Baxter Gibson5
            
            
            30,000
            
            
            *All
                executive officers and Directors as a Group (4 persons)
            
            
            216,941
            
            
            2.3
            %**Beneficial
                Owners of More than 5%**Stanford
                International Bank, Ltd.6
            
            
            7,495,339
            
            
            79.6
            %





*
        Less
        than 1%.
  1 Unless
        Otherwise indicated, the address for each person is 405 N Reo Street, Suite
        300,
        Tampa, FL 33609.
  2 Includes
        75,000 shares of common stock subject to a restricted stock agreement and
        75,000
        shares of common stock issuable in connection with currently exercisable
        stock
        options.
  3 Includes
        2,500 shares of common stock options in connection with currently exercisable
        stock options. Mr. Katz’ business address is Brian Ridge Plaza, 440 South Main
        Street, Milltown, NJ 08850.
  4 Includes
        2,500 shares of common stock in connection with currently exercisable stock
        options. Ms. Schreiber’s business address is 110 North Ninth Avenue, Highland
        Park, NJ 08904.
  5 Includes
        30,000 shares of common stock issuable in connection with currently exercisable
        shock options.
  6 5050
        Westheimer Road, Houston, TX 77056. The beneficial owner of those shares
        is R.
        Allen Stanford. This amount includes 2,312,500 shares of common stock issuable
        upon conversion of currently exercisable shares of Series C Convertible
        Preferred Stock and 307,500 shares of common stock issuable upon exercise
        of
        warrants held by Stanford. The Series C Convertible Preferred Stock may be
        voted, along with the common stock, with each share of preferred stock entitled
        to one-half vote.
  40




***Other
      Shareholder Matters***





The
      table
      below provides information pertaining to all compensation plans under which
      equity securities of our company are authorized for issuance as of December
      31,
      2006:




**Plan
                Category**
            
            **Number
                of securities to be issued upon exercise of outstanding
                options,****warrants and rights**
            
            **Weighted-average
                exercise price of outstanding options,****warrants
                and rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities****reflected
                in 1****st****column)**Equity
                compensation plans approved by security holders
            
            
            436,125
            
            $
            1.64
            
            
            63,875Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            N/A
            
            
            N/ATotal:
            
            
            436,125
            
            $
            1.64
            
            
            63,875




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




**Transactions
      with Stanford**




Stanford
      International Bank Ltd. (“Stanford”) is the
      owner of a majority of our issued and outstanding common stock and all of our
      issued and outstanding preferred stock. Each share of Series C Convertible
      Preferred Stock is convertible into one-half share of our common stock and
      is
      currently entitled to one-half vote per share.




On
      November 8, 2005, we sold to Stanford, pursuant to a Preferred Stock Purchase
      Agreement, 725,000 shares of our Series C Convertible Preferred Stock at a
      price
      of $2.00 per share, along with warrants to purchase 217,500 shares of common
      stock exercisable at $0.002 per share. The proceeds from this sale were used
      to
      satisfy in full the principal balance of our original credit line with Stanford,
      which was terminated, and to provide an additional $200,000 in working capital
      for general corporate purposes through December 31, 2005. Stanford also agreed
      to purchase (if requested by us) an additional 200,000 shares of preferred
      stock
      and will receive in connection therewith, an aggregate of 60,000 warrants.
      Stanford also has the right at any time within two years of the initial closing
      to purchase an additional 3,900,000 shares of Series C Convertible Preferred
      Stock at $2.00 per share, and to receive an aggregate of 1,170,000 warrants
      exercisable at $0.002 per share.




Pursuant
      to the Preferred Stock Purchase Agreement with Stanford, warrants to purchase
      up
      to an aggregate of 697,500 shares of our common stock at an exercise price
      of
      $0.002 per share were issued in conjunction with the issuance of our Series
      C
      Convertible Preferred Stock during the year ended December 31, 2006. Of these
      warrants, 348,750 were assigned to five of Stanford’s assignees. 555,000 of the
      warrants were exercised in the year ended December, 2006 (and 555,000 common
      stock shares were issued) and at December 31, 2006, the balance (142,500
      warrants) remain unexercised. There is no arrangement for voting or disposition
      between any of these employees and Stanford.




We
      are
      obligated to register the shares of common stock issuable upon conversion of
      the
      Series C Convertible Preferred Stock or exercise of the warrants pursuant to
      a
      registration rights agreement within 90 days after the date of demand by the
      security holders. If we do not timely file a required registration statement,
      we
      must issue upon default and each month thereafter that the registration
      statement is not filed warrants to purchase a number of shares of common stock
      equal to the number of shares of Series C Convertible Preferred Stock sold.




41




As
      of
      December 31, 2006, we have drawn down $6,100,000 under the Preferred Stock
      Purchase Agreement resulting in the issuance of 3,050,000 shares of Series
      C
      Convertible Preferred Stock. The
      issuance of these securities were exempt from registration pursuant to Section
      4(2) of the Securities Act as transactions by an issuer not involving any public
      offering.




On
      January 12 and January 19, 2007, an aggregate of 142,500 warrants were
      exercised, 142,500 shares of common stock were issued and we received $285.00
      representing the exercise price.




On
      February 14, 2007, we received $300,000 in proceeds from the Preferred Stock
      Purchase Agreement, and we issued 150,000 shares of our Series C Convertible
      Preferred Stock to Stanford. As required under the Preferred Stock Agreement,
      warrants to purchase an aggregate of 45,000 shares of our common stock were
      also
      issued.




On
      March
      12, 2007, we received $300,000 in proceeds from the Preferred Stock Purchase
      Agreement, and we issued 150,000 shares of our Series C Convertible Preferred
      Stock to Stanford. As required under the Preferred Stock Agreement, warrants
      to
      purchase an aggregate of 45,000 shares of our common stock were also
      issued.




On
      March
      23, 2007, we received $350,000 in proceeds from the Preferred Stock Purchase
      Agreement, and we issued 175,000 shares of our Series C Convertible Preferred
      Stock to our principal shareholder, Stanford International Bank Ltd. As required
      under the Preferred Stock Agreement, warrants to purchase an aggregate of 52,500
      shares of our common stock were also issued.




On
      March
      30, 2007, we received $350,000 in proceeds from the Preferred Stock Purchase
      Agreement, and we issued 175,000 shares of our Series C Convertible Preferred
      Stock to our principal shareholder, Stanford International Bank Ltd. As required
      under the Preferred Stock Agreement, warrants to purchase an aggregate of 52,500
      shares of our common stock were also issued.




**Other
      Related Transactions**





We
      have
      adopted a policy whereby all transactions between us and any of our affiliates
      must be approved in advance by a majority of our disinterested directors.




**Director
      Independence**




Our
      securities are currently listed for trading on the OTC Bulletin Board. There
      is
      no requirement that a majority of the members of our Board of Directors be
      independent. Nonetheless, our Board of Directors, in the exercise of reasonable
      business judgment, has determined that a majority of our directors qualify
      as
“independent” directors pursuant to SEC rules and regulations and the
      independence standards of the listing requirements of The Nasdaq Stock Market.
      Under these standards, a director is not considered independent if he or she
      has
      certain specified relationships with the company or any other relationships
      that, in the opinion of the Board, would interfere with his or her exercise
      of
      independent judgment as a director. Our independent directors are: Steven Katz,
      Batsheva Schreiber, Wayne LeRoux and Randall Frapart.




42




**ITEM
                13.**
              **EXHIBITS**




**Exhibit
                  No.**
              
              **Description
                  of Document**2.1
              
              Agreement
                  and Plan of Merger, dated as of October 16, 2002, among the Company,
                  certain principal shareholders
                  of the Company, HQS and PAL13.0
              
              Certificate
                  of Incorporation and Change of Domicile (filed on Definitive Proxy
                  Statement with the Securities
                  and Exchange Commission on August 23, 2001)3.1
              
              Certificate
                  of Amendment to the Company's Articles of Incorporation (effectuating
                  the
                  Reverse Stock  Split)13.2
              
              Certificate
                  of Amendment to the Company's Articles of Incorporation (designation
                  of
                  Series A Preferred Stock)13.3
              
              Certificate
                  of Amendment to the Company's Articles of Incorporation (name
                  change)23.4
              
              Certificate
                  of Designation of Series B Preferred Stock33.5
              
              Certificate
                  of Amendment to the Company’s Articles of Incorporation (increasing the
                  authorized number of shares
                  of common stock and Preferred Stock)43.6
              
              Certificate
                  of Amendment to the Company's Articles of Incorporation (effectuating
                  the
                  Reverse Stock Split)73.7
              
              Bylaws94.1
              
              2003
                  Management and Director Equity Incentive Compensation Plan410.1
              
              Securities
                  Purchase Agreement, dated as of October 16, 2002, by and among
                  the
                  Company, certain principal
                  shareholders of the Company and Stanford110.2
              
              Form
                  of Warrant Agreement and Warrant Assignment Form110.3
              
              Registration
                  Rights Agreement, dated as of October 22, 2002, among the Company,
                  Stanford, Daniel Boger,
                  Ronald Stein, Osvaldo Pi, William Fusselmann and Deluxe Investment
                  Company110.4
              
              Equity
                  Financing Commitment Letter, dated October 22, 2002, from Stanford
                  to the
                  Company110.5
              
              March
                  25, 2004 Amendment to Registration Rights Agreement, dated October
                  22,
                  2002, as amended610.6
              
              Securities
                  Purchase Agreement (Series B Preferred Stock), dated as of April
                  30, 2003,
                  among the Company and
                  Stanford Venture Capital Holdings, Inc.310.7
              
              Instrument
                  of Warrant Repricing dated April 30, 2003310.8
              
              Registration
                  Rights Agreement, dated as of April 30, 2003, among the Company
                  and
                  Stanford VentureCapital
                  Holdings, Inc.310.9
              
              March
                  25, 2004 Amendment to Registration Rights Agreement, dated April
                  30, 2003,
                  as amended610.10
              
              Loan
                  and Security Agreement, dated July 6, 2004810.11
              
              Warrant
                  Purchase Agreement, dated July 6, 2004810.12
              
              Amended
                  and Restated Investor Relations Agreement with American Capital
                  Ventures,
                  Inc., dated August 5,
                  2004910.13
              
              Registration
                  Rights Agreement, dated July 6, 2004810.14
              
              Warrant
                  Assignment Agreement, dated July 6, 2004810.15
              
              Escrow
                  Agreement with Deluxe Investment Company9




43




10.16
              
              Deluxe
                  Investment Company Purchase Agreement910.17
              
              First
                  Amendment to Loan and Security Agreement910.18
              
              Qwest
                  Hosting Services Agreement914.0
              
              Code
                  of Ethics616.1
              
              Letter
                  from Rogoff & Company (former independent accountant)531.1
              
              Rule
                  13a-14(a)/15d-4(a) Certification of Principal Executive
                  Officer31.2
              
              Rule
                  13a-14(a)/15d-4(a) Certification of Principal Financial
                  Officer32.1
              
              Section
                  1350 Certification of Principal Executive Officer32.2
              
              Section
                  1350 Certification of Principal Financial
                  Officer







1
              Previously
                  filed on Form 8-K Current Report with the Securities and Exchange
                  Commission on November 1, 2002.
  44
  2
              Previously
                  filed on the Company's Definitive Information Statement with the
                  Securities and Exchange Commission on November 15,
                  2002.
 3
              Previously
                  filed on Form 8-K Current Report with the Securities and Exchange
                  Commission on May 15, 2003.
 4
              Previously
                  filed within the Company’s Definitive Information Statement filed with the
                  Securities and Exchange Commission on June 3,
                  2003.
 5
              Previously
                  filed on Form 8-K/A Current Report with the Securities and Exchange
                  Commission on February 17, 2004.
 6
              Previously
                  filed on the Company’s Form 10-KSB Annual Report for the year ended
                  December 31, 2003.
 7
              Previously
                  filed on the Company's Definitive Information Statement with the
                  Securities and Exchange Commission on June 17,
                  2004.
 8
              Previously
                  filed on Form 8-K Current Report with the Securities and Exchange
                  Commission on July 6, 2004.
 9
              Previously
                  filed on Form SB-2 with the Securities and Exchange Commission
                  on July 8,
                  2004.




**ITEM
                      14.**
                    **PRINCIPAL****ACCOUNTANT
                        FEES AND
                        SERVICES**




The
      following table summarizes the aggregate fees billed and expected to be billed
      to us by Sherb and Company PLC for fiscal years ended December 31, 2006 and
      2005:




**Principal
                Accountant Fees and Service****2006**
            
            **2005**Audit
                Fees1
            
            $
            31,000
            
            $
            23,300Audit
                Related Fees2
            
            
            0
            
            
            0Tax
                Fees3
            
            
            5,000
            
            
            5,000All
                Other Fees4
            
            
            96,750
            
            
            11,100**Total**
            
            $
            132,750
            
            $
            39,400




1
            Audit
                Fees include the aggregate fees billed by our auditors for professional
                services rendered for the audit of our annual financial statement
                and fees
                for the reviews of the financial statements included in our Quarterly
                Reports on Form 10-Q during those fiscal
                years.




2
            Audit
                Related Fees include the aggregate of fees billed for services related
                to
                our audit for those fiscal years.




3
            Tax
                Fees include the aggregate fees billed by our auditors for taxation
                compliance related services.




4
            All
                Other Fees include the aggregate fees billed by our auditors for
                services
                rendered to us in connection with our acquisitions of Carekeeper
                and
                Vanta. The fees primarily related to non-audit acquisition services
                relating to our due diligence review and other due diligence
                engagements.




**Audit
      Committee Pre-Approved Policies and Procedures.**




The
      Audit
      Committee on an annual basis reviews audit and non-audit services performed
      by
      the independent auditors. All audit and non-audit services are pre-approved
      by
      the Audit Committee, which considers, among other things, the possible effect
      of
      the performance of such services on the auditor’s independence.




45




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 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.




Dated
      April 16, 2007




HEALTH
                SYSTEMS SOLUTIONS, INC./s/
                B. M. MilvainB.
                M. Milvain,President
                and Chief Executive Officer(Principal
                Executive Officer)




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on April 16, 2007.




SIGNATURE
            
            
            TITLE/s/ B.
              M. Milvain
            
            
            Principal
                Executive Officer, President and DirectorB.
                M. Milvain






/s/
                Susan Baxter Gibson
            
            
            Principal
                Financial OfficerSusan
                Baxter Gibson






/s/
                Steven Katz
            
            
            DirectorSteven
                Katz


/s/
                  Batsheva Schreiber
              
              
              DirectorBatsheva
                  Schreiber  /s/
                        Wayne LeRoux
                    
                    
                    DirectorWayne
                        LeRoux  /s/
                              Randall J. Frapart
                          
                          
                          DirectorRandall
                              J. Frapart  46




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Stockholders and Board of Directors


Health
      Systems Solutions, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Health Systems Solutions,
      Inc. as of December 31, 2006 and the related consolidated statements of
      operations, shareholders' deficit and cash flows for the years ended December
      31, 2006 and 2005. These consolidated financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these consolidated financial statements based on our
      audit.





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





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








/s/
      Sherb
& Co., LLP





Sherb
      & Co., LLP


Certified
      Public Accountants





New
      York,
      New York


March
      6,
      2007





F-1




**HEALTH
        SYSTEMS SOLUTIONS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **DECEMBER
        31, 2006**
  **ASSETS**
  **Current
                  assets:**Cash
              
              $
              558,764Accounts
                  receivable, net of allowance for doubtful accountsof
                  $302,607
              
              
              914,031Prepaids
                  and other current assets
              
              
              116,024**Total
                  current assets**
              
              
              1,588,819Property
                  and equipment, net of accumulated depreciationand
                  amortization of $544,143
              
              
              275,145Software
                  development costs, net of accumulated amortizationof
                  $2,693,434
              
              
              3,880,577Security
                  deposits and other assets
              
              
              94,661**Total
                  assets**
              
              $
              5,839,202**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities:**Current
                  portion of capital lease obligation
              
              $
              8,965Accounts
                  payable
              
              
              549,318Accrued
                  expenses
              
              
              340,322Deferred
                  revenue
              
              
              917,494Customer
                  deposits
              
              
              90,780Note
                  payable - bank
              
              
              229,000Loans
                  payable
              
              
              355,032**Total
                  current liabilities**
              
              
              2,490,911**Total
                  liabilities**
              
              
              2,490,911**Stockholders'
                  equity**Preferred
                  Stock; 15,000,000 shares authorized;Series
                  C $2.00 Convertible; 4,625,000 authorized,3,050,000
                  shares issued and outstanding
              
              
              6,100,000Common
                  Stock; $.001 par value; 150,000,000 shares authorized;6,270,907
                  shares issued and outstanding
              
              
              6,271Additional
                  paid-in capital
              
              
              13,208,418Accumulated
                  deficit
              
              
              (15,966,398
              )**Total
                  stockholders' equity**
              
              
              3,348,291**Total
                  liabilities and stockholders' equity**
              
              $
              5,839,202




See
        accompanying notes to the consolidated financial statements.




F-2




**HEALTH
        SYSTEMS SOLUTIONS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  **For
                      The Year**
                    **Ended
                      December 31,**
              
              **For
                    The Year**
                  **Ended
                    December 31,****2006**
              
              **2005****Net
                  sales**
              
              $
              6,576,991
              
              $
              4,212,819**Cost
                  of sales**
              
              
              3,838,965
              
              
              1,941,735**Gross
                  profit**
              
              
              2,738,026
              
              
              2,271,084**Operating
                  expenses**Selling
                  and marketing
              
              
              1,739,887
              
              
              660,037Research
                  and development
              
              
              1,230,207
              
              
              629,473General
                  and administrative
              
              
              2,037,869
              
              
              1,221,470Depreciation
                  and amortization
              
              
              139,484
              
              
              167,713Interest
              
              
              46,403
              
              
              81,986**Total
                  operating expenses**
              
              
              5,193,850
              
              
              2,760,679**Net
                  loss**
              
              
              (2,455,824
              )
              
              (489,595
              )Deemed
                  preferred stock dividend
              
              
              498,299
              
              
              237,789**Net
                  loss applicable to common shareholders**
              
              $
              (2,954,123
              )
              $
              (727,384
              )**Basic
                  and diluted net loss per share**
              
              $
              (0.50
              )
              $
              (0.13
              )**Basic
                  and diluted weighted average shares outstanding**
              
              
              5,947,526
              
              
              5,449,138


See
        accompanying notes to the consolidated financial statements.
  F-3




**HEALTH
        SYSTEMS SOLUTIONS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY**
 **YEARS
        ENDED 2006 AND 2005**
  **Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Additional
                    Paid-in**
              
              **Accumulated**
              
              **Total**
                  **Stockholders'****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Equity****Balance,
                  December 31, 2004**
              
              
              -
              
              $
              -
              
              
              5,523,406
              
              $
              5,523
              
              $
              12,400,708
              
              $
              (12,284,891
              )
              $
              121,340Shares
                  Cancelled Back to Unissued
              
              
              -
              
              
              -
              
              
              (125,001
              )
              
              (125
              )
              
              125
              
              
              -
              
              
              -Issuance
                    of Series C Convertible Preferred Stock
              
              
              725,000
              
              
              1,450,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,450,000Deemed
                  Preferred Stock Dividend
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              237,789
              
              
              (237,789
              )
              
              -Issuance
                  of Common Stock by the Exercising of Warrants
              
              
              -
              
              
              -
              
              
              217,500
              
              
              218
              
              
              217
              
              
              -
              
              
              435Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (489,595
              )
              
              (489,595
              )**Balance
                  December 31, 2005**
              
              
              725,000
              
              
              1,450,000
              
              
              5,615,905
              
              
              5,616
              
              
              12,638,839
              
              
              (13,012,275
              )
              
              1,082,180Issuance
                    of Series C Convertible Preferred Stock
              
              
              2,325,000
              
              
              4,650,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,650,000Deemed
                  Preferred Stock Dividend
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              498,299
              
              
              (498,299
              )
              
              -Issuance
                    of Common Stock by the Exercising of Warrants
              
              
              -
              
              
              -
              
              
              555,000
              
              
              555
              
              
              555
              
              
              -
              
              
              1,110Issuance
                  of Common Stock to Members of VantaHealth
              
              
              -
              
              
              -
              
              
              100,000
              
              
              100
              
              
              34,900
              
              
              -
              
              
              35,000Issuance
                  of Round-up Common Stock
              
              
              -
              
              
              -
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              -Stock
                  Based Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              35,825
              
              
              -
              
              
              35,825Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,455,824
              )
              
              (2,455,824
              )**Balance
                  December 31, 2006**
              
              
              3,050,000
              
              $
              6,100,000
              
              
              6,270,907
              
              $
              6,271
              
              $
              13,208,418
              
              $
              (15,966,398
              )
              $
              3,348,291


See
        accompanying notes to the consolidated financial statements.
  F-4




**HEALTH
      SYSTEMS SOLUTIONS, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
                  the Year**
                **Ended
                  December 31,**
            
            **For
                  the Year**
                **Ended
                  December 31,****2006**
            
            **2005**Cash
                flows from operating activities:Net
                loss
            
            $
            (2,455,824
            )
            $
            (489,595
            )Adjustments
                to reconcile net loss to net cash used inoperating
                activities:Stock
                based compensation expense
            
            
            35,825
            
            
            -Depreciation
                and amortization of property and equipment
            
            
            139,484
            
            
            167,713Amortization
                of software development costs
            
            
            1,102,604
            
            
            499,511(Gain)
                or loss on fixed assets disposals
            
            
            -
            
            
            479Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (223,412
            )
            
            (242,783
            )Allowance
                for doubtful accounts
            
            
            185,835
            
            
            12,058Royalties
                and referral fees receivable
            
            
            (2,465
            )
            
            (2,785
            )Prepaid
                expenses and other current assets
            
            
            (17,464
            )
            
            (6,450
            )Security
                deposits
            
            
            -
            
            
            (500
            )Accounts
                payable
            
            
            (85,983
            )
            
            13,209Accrued
                expenses
            
            
            39,258
            
            
            (5,452
            )Deferred
                revenue
            
            
            (41,221
            )
            
            (20,076
            )Reserve
                for customer refunds
            
            
            (573,361
            )
            
            -Customer
                deposits
            
            
            (21,914
            )
            
            -Net
                cash used in operating activities
            
            
            (1,918,638
            )
            
            (74,671
            )Cash
                flow from investing activities:Purchase
                of VantaHealth Technologies, LLC.
            
            
            (1,052,034
            )
            
            -Purchase
                of CareKeeper Software, Inc.
            
            
            (91,753
            )
            
            -Acquisition
                of cash
            
            
            26,420
            
            
            -Purchase
                of property and equipment
            
            
            (127,203
            )
            
            (93,798
            )Increase
                in software development costs
            
            
            (1,003,254
            )
            
            (179,707
            )Net
                cash used in investing activities
            
            
            (2,247,824
            )
            
            (273,505
            )Cash
                flow from financing activities:Repayment
                of capital lease obligation
            
            
            (17,311
            )
            
            (13,550
            )Repayment
                of loans payable
            
            
            (247,503
            )
            
            (1,250,000
            )Proceeds
                from loans payable
            
            
            -
            
            
            200,000Proceeds
                from the exercise of warrants
            
            
            1,110
            
            
            -Proceeds
                from the issuance of Common Stock
            
            
            -
            
            
            435Proceeds
                from the issuance of Series C Preferred Stock
            
            
            4,650,000
            
            
            1,450,000Net
                cash provided by financing activities
            
            
            4,386,296
            
            
            386,885Increase
                in cash
            
            
            219,834
            
            
            38,709Cash,
                beginning of year
            
            
            338,930
            
            
            300,221Cash,
                end of year
            
            $
            558,764
            
            $
            338,930Supplemental
                cash flow data:Cash
                paid during the year for interest expense
            
            $
            46,403
            
            $
            81,986Cash
                paid during the year for income taxes
            
            $
            -
            
            $
            -Issuance
                of Common Stock to members of an acquired company
            
            $
            35,000
            
            $
            -Increase
                in software development costs as a result of an accruedearn
                out payment to sellers of an acquired company
            
            $
            77,207
            
            $
            -


See
        accompanying notes to the consolidated financial statements.




F-5


**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
        to Consolidated Financial Statements**
 **December
        31, 2006 and 2005**


**1.
      Description of Business, Acquisitions and Consolidation**




Health
      Systems Solutions, Inc. (“HSS”) through its wholly owned subsidiaries,
      Healthcare Quality Solutions, Inc. (“HQS”) and Carekeeper Solutions, Inc.
      (“CKS”), designs, develops, markets, sells and supports web-based, management
      information and business intelligence services that assist home health care
      companies effectively manage the clinical, operational and financial aspects
      of
      their business.




On
      September 17, 2002 Provider Acquisition, LLC (“PAL”), which was formed in the
      State of Florida on June 28, 2002, acquired certain assets of Provider Solutions
      Corp. (“PSC”) for $250,000 in cash, subject to certain liabilities. The
      principal reason for the acquisition was to purchase the technology that the
      Company currently employs in its business. Total consideration paid has been
      allocated as follows:


Current
                  Assets
              
              $
              357,820Goodwill
              
              
              6,838,135Software
                  Development Costs
              
              
              1,325,000Fixed
                  Assets
              
              
              68,206Other
                  Assets
              
              
              15,654Accounts
                  Payable and Accrued Expenses
              
              
              (557,362
              )Deferred
                  Revenue
              
              
              (438,131
              )Secured
                  Debt
              
              
              (7,357,322
              )Other
                  Liabilities
              
              
              (2,000
              )Purchase
                  price
              
              $
              250,000




Following
      PAL’s acquisition of the assets of PSC, the holder of PSC’s secured indebtedness
      converted all of the indebtedness into equity of PAL. The debt was converted
      to
      relieve the Company of the obligation. The debt conversion was recorded as
      additional paid-in capital.




This
      acquisition created $6,954,927 of purchased goodwill that includes other excess
      costs of approximately $116,800. As of September 17, 2002 PAL determined that
      this goodwill was impaired and subsequently wrote off the entire
      balance.




Silver
      Key Mining Company, Inc. (“Silver Key”), the predecessor to HSS, was originally
      incorporated in the State of Idaho on June 25, 1971. On September 17, 2002
      Silver Key changed its domicile from Idaho to Nevada by filing Articles of
      Merger between Silver Key (Idaho) and Silver Key Mining Company, Inc. a Nevada
      corporation. The surviving entity Silver Key (Nevada) (the “Company”), which was
      incorporated in the State of Nevada on July 31, 2001, acquired 100% of the
      outstanding common stock of Silver Key (Idaho).




On
      October 11, 2002 the Board of Directors of the Company approved a five to one
      reverse stock split with a record date of October 21, 2002. After the reverse
      stock split the Company had 512,601 shares of common stock outstanding. All
      share and per share amounts have been adjusted to reflect the reverse stock
      split.




On
      October 15, 2002, the Company formed HQS, a Florida corporation, which was
      and
      remains wholly owned by the Company.




On
      October 22, 2002 PAL entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) with the Company, HQS and certain principal stockholders of the
      Company, as defined in the Merger Agreement. Pursuant to the Merger Agreement,
      PAL was merged with and into HQS and HQS survived as the Company’s wholly owned
      subsidiary.





F-6




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**




**1.
      Description of Business, Acquisitions and Consolidation -
      continued**




The
      merger became effective on October 24, 2002, (the “Effective Date”) concurrent
      with the Articles of Merger being filed with the Secretary of State of Florida.
      As a result of the former members of PAL acquiring a controlling interest (58%)
      of the outstanding common stock of the Company the transaction was accounted
      for
      as a “reverse merger.” Pursuant to the Merger Agreement the Company issued
      1,071,429 shares of its common stock to the members of PAL. Upon completion
      of
      the acquisition, the Company issued an additional 237,399 shares of its common
      stock to parties who were instrumental in arranging the merger. These shares
      of
      common stock were considered part of the cost of the acquisition and have been
      recorded at the fair value of $4,750 (quoted market price - $.02 per share)
      on
      the date of the transaction with a corresponding reduction of additional paid
      in
      capital. The acquisition was accounted for using the purchase method of
      accounting.




Although
      Silver Key is the legal survivor in the merger and remains the registrant,
      until
      November 2002 (see below) with the Securities and Exchange Commission, under
      accounting principles generally accepted in the United States of America because
      the stockholders of PAL acquired more than 50% of the post transaction
      consolidated entity, PAL is considered to be the “acquirer” of Silver Key for
      financial reporting purposes. Accordingly, this requires Silver Key, among
      other
      things, to present in all future financial statements and other public filings
      after completion of the merger, prior historical financial information and
      other
      information of PAL and requires a retroactive restatement of PAL’s historical
      stockholders’ investment for the equivalent number of shares of common stock
      received in the merger.




On
      December 10, 2002, the Company filed an articles of amendment to its articles
      of
      incorporation changing its name from Silver Key (Nevada) to Health Systems
      Solutions, Inc.





On
      April
      6, 2006, VHT Acquisition Company (“VHT”), a wholly owned subsidiary of
      Healthcare Quality Solutions, Inc., consummated an Asset Purchase Agreement
      (the
“Purchase Agreement”) with VantaHealth Technologies, LLC (“Vanta”) and the
      members of Vanta. Under the Purchase Agreement, VHT acquired substantially
      all
      of the assets of Vanta in consideration for: (a) $850,000 in cash, (b) the
      assumption of certain liabilities of Vanta in the approximate amount of $70,000,
      and (c) the issuance, to the members of Vanta, of an aggregate of 100,000 shares
      of the Company’s common stock.




In
      connection with the issuance of the Company’s Common Stock, the Company entered
      into a Lock Up Agreement with the members of Vanta. Under the Lock Up Agreement,
      the members of Vanta are prohibited from transferring the shares of the
      Company’s common stock for a period of three years expiring on April 1,
      2009.




In
      connection with the acquisition of the assets of Vanta, VHT entered into a
      Transition Services Agreement with ZAC Capital Partners, LLC (“ZAC”). ZAC is a
      member of Vanta. Under the Transition Services Agreement, ZAC agreed to provide
      to VHT certain transition services for a period of 150 days after the closing
      including transition assistance with respect to existing clients, assistance
      with access to books and records, introduction to Vanta’s existing sales leads,
      assistance in connection with the collection of existing accounts receivable,
      and other services that VHT may reasonably request. In consideration of these
      services, VHT paid ZAC $100,000 on April 19, 2006.




On
      May
      15, 2006, the Company executed and consummated a Stock Purchase Agreement (the
      “Purchase Agreement”) with all of the shareholders of Carekeeper Software, Inc.
      (“Carekeeper”). Under the Purchase Agreement, Carekeeper Solutions, Inc.
      (“CKS”), the Company’s wholly owned subsidiary, acquired all of the issued and
      outstanding capital stock of Carekeeper. In consideration for the stock of
      Carekeeper: (a) the Company will make available to Carekeeper an operating
      line
      of credit in an amount of up to $1,500,000 to be made available at such times
      and in such amounts as the Company shall pre-approve and will be used solely
      to
      pay Carekeeper’s accounts payable, certain amounts due to the former
      shareholders of Carekeeper up to $143,000 and to pay operating expenses pursuant
      to an annual budget pre-approved by us; (b) an earn out payment based on a
      percentage of Carekeeper’s operating revenues in 2006, 2007 and 2008; and (c) a
      contingent payment in the amount of up to 400,000 shares of the Company’s common
      stock based on Carekeeper achieving certain milestones with respect to its
      operating revenues during 2006, 2007 and 2008.




F-7




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**




**1.
      Description of Business, Acquisitions and Consolidation -
      continued**




With
      respect to the earn out payment for the year ended December 31, 2006 which
      is
      based on a percentage of the cash collected relating to the gross revenue earned
      from May 15, 2006 to December 31, 2006, the Company has provided for $77,207
      that will be paid to the sellers of Carekeeper in accordance to the purchase
      agreement. Such amount has also been included in the Company’s intangible assets
      as of December 31, 2006.




In
      connection to the contingent payment for the year ended December 31, 2006,
      consisting of the Company’s shares of Common Stock as described above, this
      payment is based on the achieving of certain pre approved milestones relating
      to
      the operating revenues of Carekeeper from May 15, 2006 to December 31, 2006.
      In
      accordance with the agreement, the former shareholders are entitled to 50,704
      shares of the Company’s Common Stock which will be issued in April 2007. The
      value of these shares will be recorded as an addition to the Company’s
      intangible assets in the second quarter 2007.




In
      connection with the possible issuance of the Company’s common stock under the
      terms of the Purchase Agreement, the Company entered into a Lock Up Agreement
      with each of the shareholders of Carekeeper. Under the Lock Up Agreement, the
      shareholders of Carekeeper are prohibited from transferring the shares of the
      Company’s common stock for a period of three years expiring on or about February
      15, 2010.




In
      connection with this transaction, Carekeeper Solutions, Inc. entered into
      employment agreements with Jake C. Levy and Dorothy A. Levy. Pursuant to his
      employment agreement, Mr. Levy will serve as the chief executive officer of
      Carekeeper Solutions, Inc. The employment agreement provides for an annual
      base
      salary of $156,000 and has an initial term of three years. The employment
      agreement also provides for annual bonuses as determined by the Company’s Board
      of Directors and options to purchase 15,000 shares of the Company’s Common
      Stock. Pursuant to her employment agreement, Ms. Levy will serve as the director
      of quality assurance of Carekeeper Solutions, Inc. The employment agreement
      provides for an annual base salary of $105,000 and has an initial term of three
      years. The employment agreement also provides for annual bonuses as determined
      by the Company’s Board of Directors and options to purchase 7,500 shares of the
      Company’s Common Stock.




The
      following table summarizes the estimated fair values of the assets and
      liabilities assumed at the date of acquisition:


CKS
              
              VHTPurchase
                  price
              
              $
              91,753
              
              $
              1,087,034Total
                  assets
              
              
              (242,122
              )
              
              (129,965
              )Total
                  liabilities
              
              
              2,466,358
              
              
              411,351Identifiable
                  intangible assets
              
              $
              2,315,989
              
              $
              1,368,420





The
      following unaudited pro forma consolidated results of operations have been
      prepared as if the acquisition of Vanta and Carekeeper had occurred as of the
      following period:





For
                the Year Ended
            
            For
                the Year EndedDecember
                31, 2005
            
            December
                31, 2006Net
                revenues
            
            $
            7,894,639
            
            $
            7,613,974Net
                loss applicableto
                common shareholders
            
            $
            (2,387,950
            )
            $
            (3,788,749
            )Basic
                and dilutednet
                loss per share
            
            $
            (0.44
            )
            $
            (0.64
            )





F-8




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**2.
      Summary of Significant Accounting Policies**




Basis
      of presentation and consolidation: The
      accompanying consolidated financial statements which present the results of
      operations of HSS and its wholly owned subsidiaries, HQS and CKS, for the years
      ended December 31, 2006 and 2005 have been prepared using accounting principals
      generally accepted in the United States of America. All material intercompany
      transactions and accounts have been eliminated in consolidation.




Allowance
      for doubtful accounts: The
      allowance for doubtful accounts is based on the Company’s assessment of the
      collectibilty of customer accounts and the aging of the accounts receivable.
      If
      there is a deterioration of a major customer’s credit worthiness or actual
      defaults are higher than the Company’s historical experience, the Company’s
      estimates of the recoverability of amounts due it could be adversely affected.
      The Company regularly reviews the adequacy of the Company’s allowance for
      doubtful accounts through identification of specific receivables where it is
      expected that payments will not be received. The Company also establishes an
      unallocated reserve that is applied to all amounts that are not specifically
      identified. In determining specific receivables where collections may not be
      received, the Company reviews past due receivables and gives consideration
      to
      prior collection history and changes in the customer’s overall business
      condition. The allowance for doubtful accounts reflects the Company’s best
      estimate as of the reporting dates. Changes may occur in the future, which
      may
      require the Company to reassess the collectibility of amounts and at which
      time
      the Company may need to provide additional allowances in excess of that
      currently provided.





Cash
      and cash equivalents: The
      Company considers all highly liquid short-term investments, with a remaining
      maturity of three months or less when purchased, to be cash
      equivalents.





Property
      and equipment: Property
      and equipment are stated at cost less accumulated depreciation and amortization.
      Depreciation and amortization are computed using the straight-line method over
      the estimated useful lives of the assets. Estimated useful lives of three years
      are used for computer equipment and related software and five years for office
      equipment and furniture and fixtures. Amortization of leasehold improvements
      is
      computed using the shorter of the remaining lease terms or five years. The
      Company uses an accelerated method of depreciation for tax reporting which
      is
      not materially different from financial reporting. Normal maintenance and
      repairs of property and equipment are expensed as incurred while renewals,
      betterments and major repairs that materially extend the useful life of property
      and equipment are capitalized.




Software
      development costs: The
      Company capitalizes certain costs of software developed or obtained for internal
      use in accordance with AICPA SOP 98-1, Accounting for the Costs of Corporate
      Software Developed or Obtained for Internal Use (“SOP 98-1”). We capitalize
      software development costs when application development begins, it is probable
      that the project will be completed, and the software will be used as intended.
      Costs associated with preliminary project stage activities, training,
      maintenance and all other post implementation stage activities are expensed
      as
      incurred. Our policy provides for the capitalization of certain payroll and
      payroll-related costs for employees who are directly associated with developing
      or obtaining internal use software and consulting fees directly associated
      with
      the development of the Company’s software. Capitalizable personnel costs and
      consulting fees are limited to the time directly spent on such projects.
      Capitalized costs are ratably amortized using the straight-line method, over
      the
      estimated useful lives of the related applications of three years. The Company
      makes on-going evaluations of the recoverability of its capitalized software
      by
      comparing the amount capitalized for each product to the estimated net
      realizable value of the product. If such evaluations indicate that the
      unamortized software development costs exceed the net realizable value, the
      company writes off the amount that the unamortized software development costs
      exceed net realizable value.




F-9




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**




**2.
      Summary of Significant Accounting Policies - continued**





Goodwill
      and other intangibles: Goodwill
      represents the excess of costs over fair value of assets of businesses acquired.
      The Company adopted the provisions of SFAS No. 142, “Goodwill and Other
      Intangible Assets” (“SFAS 142”), as of January 1, 2002. SFAS 142 requires
      goodwill to be tested for impairment on an annual basis and between annual
      tests
      in certain circumstances, and written down when impaired, rather than being
      amortized as previous accounting standards required. Furthermore, SFAS 142
      requires purchased intangible assets other than goodwill to be amortized over
      their useful lives unless these lives are determined to be indefinite. In
      accordance with SFAS 142, the Company performed impairment
      tests on all goodwill and purchased intangible assets from the acquired assets
      and liabilities of Provider Solutions Corp. on September 17, 2002.  The
      goodwill was written off after the company performed these impairment tests
      and
      determined that the fair value of the goodwill exceeded its carrying
      value.  Fair value was determined by estimates of future cash flows. 
At September 17, 2002, the state of the business, the projected shortage of
      short term and future cash, the anticipation of continued losses and the reduced
      level of sales indicated that without ongoing investment, a source for which
      had
      not been identified, the business was not a going concern and that there was
      no
      utility to the value of the goodwill. We determined the company's projections
      for cash flow from the acquired assets was insufficient to support the goodwill
      as an asset and that an immediate goodwill impairment write-off was in
      order.


Pursuant
      to the impairment tests, all goodwill and purchased intangibles of $6,954,927
      was written off as of September 17, 2002.




Impairment
      of long-lived assets: In
      accordance with SFAS 144 “Accounting for the Impairment or Disposal of
      Long-Lived Assets”, the Company reviews long-lived assets for impairment
      whenever circumstances and situations change such that there is an indication
      that the carrying amounts may not be recovered. In such circumstances, the
      Company will estimate the future cash flows expected to result from the use
      of
      the asset and its eventual disposition. Future cash flows are the future cash
      inflows expected to be generated by an asset less the future outflows expected
      to be necessary to obtain those inflows. If the sum of the expected future
      cash
      flows (undiscounted and without interest charges) is less than the carrying
      amount of the asset, the Company will recognize an impairment loss to adjust
      to
      the fair value of the asset. At December 31, 2006 no long-lived assets were
      impaired.




Concentration
      of credit risk: Concentrations of credit risk with respect to trade receivables are limited
      to
      customers dispersed across the United States of America. All trade receivables
      are concentrated in the healthcare segment of the economy; accordingly the
      Company is exposed to business and economic risk. Although the Company does
      not
      currently foresee a concentrated credit risk associated with these trade
      receivables, repayment is dependent upon the financial stability of the
      healthcare industry.




Income
      taxes: The
      Company uses the liability method for income taxes as required by SFAS No.
      109
“Accounting for Income Taxes.” Under this method, deferred tax assets and
      liabilities are determined based on differences between financial reporting
      and
      tax basis of assets and liabilities. Deferred tax assets and liabilities are
      measured using enacted tax rates and laws that will be in effect when the
      differences are expected to reverse. Valuation allowances are established when
      necessary to reduce deferred tax assets to the amount expected to be
      realized.





Revenue
      recognition and deferred revenue:  The
      Company follows
      the provisions of the Securities and Exchange Commission Staff Accounting
      Bulletin No. 104. The Company recognizes revenue when persuasive evidence of
      an
      arrangement exists, the product or service has been delivered, fees are fixed
      or
      determinable, collection is reasonably assured and all other significant
      obligations have been fulfilled. The corporate strategy is to provide services
      on a recurring transaction pricing basis. The Company believes this is a
      value-based model that more directly relates to our customers’ recognition of
      revenue. The transaction pricing model differs from the typical licensed
      software model in that the implementation of transaction-priced services does
      not result in large up front software license fee revenues but results in a
      gradual recognition of revenue earned on a transaction by transaction basis
      over
      time. This is a similar model to that used by the mobile phone industry. The
      benefit occurs in the future years where leverage is obtained as a customer
      grows and continues to pay transaction fees year over year, whereas under the
      licensed sale model the only revenue realized in the future years is quarterly
      support and maintenance fees.





F-10




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**




**2.
      Summary of Significant Accounting Policies - continued**





The
      Company’s revenue is classified into two categories: recurring and
      non-recurring. The
      Company generates recurring revenue from several sources, including the
      processing of clinical assessments which, as mandated by Medicare, require
      home
      health care agencies to collect assessment data on all patients requiring home
      health care at the start-of-care and at discharge, the
      processing of data related to Medicare clinical episodes completed during care
      delivery, the
      provision of outsourcing services, such as software hosting and other business
      services, and the sale of maintenance and support for our proprietary software
      products. Recurring services revenue is typically billed and recognized monthly
      over the contract term, typically two to three years. Recurring software
      maintenance revenue is typically based on one-year renewable contracts. Software
      maintenance and support revenues are recognized ratably over the contract
      period. The Company records cash payments received in advance or at the
      beginning of a contract as deferred revenue. The Company generates non-recurring
      revenue from the licensing of our software. Under SOP 97-2, software license
      revenue is recognized upon the execution of a license agreement, upon delivery
      of the software, when fees are fixed or determinable, when collectibility is
      probable and when all other significant obligations have been fulfilled. For
      software license agreements in which customer acceptance is a significant
      condition of earning the license fees, revenue is not recognized until
      acceptance occurs. For software license agreements that require significant
      customizations or modifications of the software, revenue is recognized as the
      customization services are performed. For multiple element arrangements, such
      as
      software license, consulting services, outsourcing services and maintenance,
      and
      where vendor-specific objective evidence (“VSOE”) of fair value exists for all
      undelivered elements, the Company accounts for the delivered elements in
      accordance with the “residual method.” Under the residual method, the total
      fair value of the undelivered elements, as indicated by VSOE, is deferred and
      subsequently recognized in accordance with the relevant sections of SOP
      97 -2 .
      Also,
      the difference between the total arrangement fee and the amount deferred for
      the
      undelivered elements is recognized as revenue related to the delivered elements.
      For arrangements in which VSOE does not exist for each undelivered element,
      including specified upgrades, revenue for the delivered element is deferred
      and
      not recognized until VSOE is available for the undelivered element or delivery
      of each element has occurred. When multiple products are sold within a
      discounted arrangement, a proportionate amount of the discount is applied to
      each product based on each product’s fair value or relative list price. The
      Company also generates non-recurring revenue from implementation fees,
      consulting, training and customer support services and this non-recurring
      revenue is charged to customers on a fee basis usually based upon time spent.





The
      Company recognizes software licensing fees and implementation fees in the month
      that the customer goes live and we recognize training, consultation, advisory
      and support revenue in the month that the service is performed. Implementation
      costs consisting of payroll and travel are expensed in the same period
      implementation fees are recognized. The Company currently recognize
      cancellations, allowances or discounts as they occur. This practice is based
      on
      factors that include, but are not limited to, historical cancellations and
      analysis of credit memo activities. Cancellations, allowances and discounts
      are
      not material.





Advertising
      costs: The
      Company expenses all advertising costs as incurred. Advertising costs for the
      year ended December 31, 2006 were $277,772 and for the year ended December
      31,
      2005 were $79,884, and are included in selling and marketing expense in the
      accompanying consolidated statement of operations.




Research
      and development costs: The
      Company expenses all research and development expenses, which consist of payroll
      and other related costs, as incurred. Research and development costs for the
      year ended December 31, 2006 were $1,230,207 and for the year ended December
      31,
      2005 were $629,473.




Computation
      of net income (loss) per share: The
      Company presents basic earnings (loss) per share and, if appropriate, diluted
      earnings per share in accordance with SFAS 128, “Earnings Per Share (“SFAS
      128”). Under SFAS 128 basic net income (loss) per share is computed by dividing
      net income (loss) for the period by the weighted-average number of shares
      outstanding during the period. Diluted net income per share is computed by
      dividing net income for the period by the weighted-average number of common
      share equivalents during the period. At December 31, 2006, the Convertible
      Preferred Stocks were convertible into 1,525,000 Common Stock shares and there
      were stock warrants and options to purchase 142,500 and 436,125 Common Stock
      shares, respectively.




F-11




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**




**2.
      Summary of Significant Accounting Policies - continued**





Financial
      instruments: The carrying
      amounts of financial instruments, including cash, accounts receivable, prepaid
      expenses, customer deposits and deferred revenue approximate fair value as
      of
      December 31, 2006, due to the relatively short maturity of the instruments.
      The
      capital lease obligation approximates fair value based upon debt terms available
      to Company’s under similar terms.




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




Stock
      based compensation: Effective January 1, 2006, the Company began recording compensation expense
      associated with stock-based awards and other forms of equity compensation in
      accordance with FASB Statement No. 123-R, *Share-Based
      Payment* (“SFAS
      123R”) as interpreted by SEC Staff Accounting Bulletin No. 107. The Company
      adopted the modified prospective transition method provided under SFAS 123R,
      and
      consequently has not retroactively adjusted results from prior periods. Under
      this transition method, compensation cost associated with stock-based awards
      recognized in the fourth quarter of 2006 includes 1) quarterly amortization
      related to the remaining unvested portion of stock-based awards granted prior
      to
      January 1, 2006, based on the grant-date fair value estimated in accordance
      with
      the original provisions of FASB No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”); and 2) quarterly amortization related to stock-based awards granted
      subsequent to January 1, 2006, based on the grant-date fair value estimated
      in
      accordance with the provisions of SFAS 123R. Prior to January 1, 2006, the
      Company accounted for stock-based awards using the “disclosure only” alternative
      described in SFAS 123 and FASB Statement No. 148, *Accounting
      for Stock-Based Compensation* .





Recent
      accounting pronouncements: In
      February 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      155, *Accounting
      for Certain Hybrid Financial Instruments - an amendment of FASB Statements
      No.
      133 and 140* .
      This
      statement permits fair value remeasurement for any hybrid financial instrument
      that contains an embedded derivative that otherwise would require bifurcation;
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of Statement 133; establishes a requirement to evaluate
      interests in securitized financial assets that are freestanding derivatives
      or
      that are hybrid financial instruments that contain an embedded derivative
      requiring bifurcation; clarifies that concentrations of credit risk in the
      form
      of subordination are not embedded derivatives; and amends Statement 140 to
      eliminate the prohibition on a qualifying special-purpose entity from holding
      a
      derivative financial instrument that pertains to a beneficial interest other
      than another derivative instrument. This Statement is effective for all
      financial instruments acquired or issued after the beginning of an entity’s
      first fiscal year that begins after September 15, 2006. The Company does not
      expect the adoption of Statement 155 to materially effect the Company’s
      financial position or results of operations.





In
      March
      2006, the FASB issued Statement of Financial Accounting Standards No. 156, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* .
      This
      Statement requires an entity to recognize a servicing asset or servicing
      liability each time it undertakes an obligation to service a financial asset
      by
      entering into a service contract; requires all separately recognized servicing
      assets and servicing liabilities to be initially measured at fair value, if
      practicable; permits an entity to choose either the amortization method or
      fair
      value measurement method for each class of separately recognized servicing
      assets and servicing liabilities; and requires separate presentation of
      servicing assets and servicing liabilities subsequently measured at fair value
      in the statement of financial position and additional disclosures for all
      separately recognized servicing assets and servicing liabilities. The Company
      does not expect to be impacted by the adoption of SFAS 156, which will be
      effective for fiscal years beginning after September 15, 2006.





F-12





**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**




**2.
      Summary of Significant Accounting Policies - continued**





In
      June
      2006, the FASB issued Financial Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* .
      This
      interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. The evaluation of a tax position in
      accordance with this interpretation is a two step process. The first step is
      recognition : The enterprise determines whether it is more likely than not
      that
      a tax position will be sustained upon examination, including resolution of
      any
      related appeals or litigation processes, based on the technical merits of the
      position. In evaluating whether a tax position has met the more-likely-than-not
      recognition threshold, the enterprise should presume that the position will
      be
      examined by the appropriate taxing authority that would have full knowledge
      of
      all relevant information. The second step is measurement : A tax position that
      meets the more-likely-than-not recognition threshold is measured to determine
      the amount of benefit to recognize in the financial statements. The tax position
      is measured at the largest amount of benefit that is greater than 50 percent
      likely of being realized upon ultimate settlement. This interpretation is
      effective for fiscal years beginning after December 15, 2006. The Company does
      not expect the adoption of FIN 48 to materially effect the Company’s financial
      position or results of operations.





In
      September, 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurements* .
      This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principals (GAAP), and expands disclosures
      about fair value measurements. The definition of fair value retains the exchange
      price notion in earlier definitions of fair value. The exchange price is the
      price in an orderly transaction between market participants to sell the asset
      or
      transfer the liability in the market in which the reporting entity would
      transact for the asset or liability. Fair value is a market-based measurement,
      not an entity-specific measurement. Therefore, a fair value measurement should
      be determined based on the assumptions that market would use in pricing the
      asset or liability. This Statement expands disclosures about the use of fair
      value to measure assets and liabilities in interim and annual periods subsequent
      to initial recognition. The disclosures focus on the inputs used to measure
      the
      fair value and the effect of the measurements on earnings. This Statement is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. The Company does not expect the adoption of SFAS 157 to
      materially effect the Company’s financial position or results of
      operations.





In
      September, 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      Amendment of FASB Statements No. 87, 88, 106, and 132(R)* .
      This
      Statement improves financial reporting by requiring an employer to recognize
      the
      overfunded or underfunded status of a defined benefit postretirement plan (other
      than a multiemployer plan) as an asset or liability in its statement of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income of a business entity or
      changes in the unrestricted net assets of a not-for-profit organization. This
      Statement also requires an employer to measure the funded status of a plan
      as of
      the date of its year-end statement of financial position, with limited
      exceptions. An employer with publicly traded equity securities is required
      to
      initially recognize the funded status of a defined benefit post-retirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after December 15, 2006. As the Company does not currently have a defined
      benefit post-retirement plan, it does not expect to be impacted by the adoption
      of FAS 158.





Management
      does not believe that any recently issued, but not yet effective accounting
      pronouncements if currently adopted would have a material effect on the
      accompanying consolidated financial statements.




**3.
      Loan and Security Agreement**




On
      July
      6, 2004, HQS entered into a $1,600,000 loan and security agreement with Stanford
      Venture Capital Holdings, Inc., the majority stockholder of the Company. Under
      this agreement, interest accrued at the rate of 8% per annum and principal
      was
      to mature and become payable three years from the date of the loan. The loan
      was
      secured by a security interest in all of the assets of the Company and HQS
      and a
      corporate guaranty of the Company that had been executed in favor of Stanford.
      HQS had borrowed $1,250,000 against the loan and security agreement when on
      November 8, 2005, the Company refinanced the outstanding amount of $1,250,000
      by
      entering into the Preferred Stock Purchase Agreement with Stanford and thus
      terminating the loan and security agreement.





F-13





**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**4.
      Preferred Stock Purchase Agreement**





On
      November 8, 2005, the Company entered into a Preferred Stock Purchase Agreement
      with its principal stockholder, Stanford International Bank Ltd. The Company
      agreed to issue to Stanford its Series C Convertible Preferred Stock at a price
      of $2.00 per share together with warrants to purchase 3/10 of a share of common
      stock for each share of Series C Preferred Stock purchased. Each share of
      Preferred Stock is convertible into one half share of Common Stock and is
      entitled to one half vote per share. In the event of liquidation, holders of
      the
      Series C Preferred Stock shall be entitled to receive, prior and before any
      distribution of assets shall be made to the holders of any Common Stock, an
      amount equal to the Stated Value per share. The Warrants are exercisable at
      a
      price of $0.002 per share. At December 31, 2006, the Company has an availability
      of $500,000 to draw down under the Preferred Stock Purchase Agreement on two
      week’s notice and the agreement calls for an additional $2.65 million that may
      be sold to Stanford to provide it with funds to complete acquisitions or
      additional working capital uses that may be approved by Stanford in its sole
      discretion.





**5.
      Property and Equipment and Software Development Costs**




Property
      and equipment and software development costs consist of the
      following:




December
                31, 2006($
                In Thousands)Office
                equipment
            
            $
            362Purchased
                computer software
            
            
            217Furniture
                and fixtures
            
            
            64Leasehold
                improvements
            
            
            176819Less
                accumulated depreciation and amortization
            
            
            544Total
            
            $
            275Software
                development costs
            
            $
            6,574Less
                accumulated amortization
            
            
            2,693Total
            
            $
            3,881




Depreciation
      expense for property and equipment for the years ended December 31, 2005 and
      December 31, 2006 for the Company was $167,713 and $139,484
      respectively.





Amortization
      expense for software development costs for the years ended December 31, 2005
      and
      December 31, 2006 for the Company was $499,511 and $1,102,604, respectively,
      and
      is included in cost of sales.




The
      unamortized balance of software development costs was $3,880,577 at December
      31,
      2006 and the future amortization expense amounts are as follows:





Fiscal
                Year
            
            Amount2007
            
            $
            1,663,2102008
            
            $
            1,615,5982009
            
            $
            601,769Total
                future amortization expense
            
            $
            3,880,577




F-14




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**5.
      Property and Equipment and Software Development Costs -
      continued**





During
      the periods ended December 31, 2002 and 2004, the Company entered into capital
      leases for $64,735 and $8,920 to acquire office equipment. For the years ended
      December 31, 2005 and December 31, 2006 the Company recorded depreciation of
      $12,947 and $12,947 respectively.





**6.
      Income Taxes**




For
      Federal income tax purposes, the Company has a net operating loss of
      approximately $8,339,000. The net operating loss expires in the year 2026.
      The
      Company recorded a 100% valuation allowance on its deferred tax asset since
      it
      is more likely than not that their benefit will not be realized in the future.





The
      significant components of the Company’s deferred tax asset as of December 31,
      2006 are as follows:




Operating
                loss carryforward
            
            $
            3,336,000Goodwill
                amortization
            
            
            2,008,000Depreciation
                and other
            
            
            247,000Valuation
                allowance
            
            
            (5,591,000
            )Total
                deferred tax asset
            
            $
            -




Reconciliation
      between the statutory Federal income tax rate (35%) and the effective income
      tax
      rates based on continuing operations is as follows:




Year
                ended
              December
                31, 2006
            
            Year
                ended
              December
                31, 2005Statutory
                Federal income tax (benefit)
            
            $
            (859,000
            )
            $
            (172,000
            )State
                tax (benefit), net of federal effect
            
            
            (123,000
            )
            
            (24,000
            )Permanent
                difference, principally CKS acquired software
            
            
            206,000
            
            
            -Other
            
            
            90,000
            
            
            -Increase
                in valuation allowance
            
            
            686,000
            
            
            196,000$
            -
            
            $
            -





**7.
      Capital Lease Obligations**




The
      Company has entered into capital leases for certain office equipment.
      Obligations under the capital leases have been recorded in the accompanying
      consolidated financial statements at the present value of future minimum lease
      payments.




Future
      minimum payments under capital lease obligation are as follows at December
      31,
      2006:




Fiscal
                Year
            
            Amount2007
            
            
            9,273Total
                future payments
            
            
            9,273Less
                amount representing interest
            
            
            308Present
                value of future payments
            
            
            8,965Less
                current portion
            
            
            8,965$
            -





F-15





**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**8.
      Equity Transactions**




Common
      Stock Issued: On April
      6, 2006, 100,000 shares of Common Stock were issued in connection with the
      asset
      purchase of Vantahealth Technologies, LLC.




Preferred
      Stock Issued: On
      November 8, 2005, the Company entered into a Preferred Stock Purchase Agreement
      with its principal stockholder, Stanford International Bank Ltd. The Company
      agreed to issue to Stanford its Series C Convertible Preferred Stock at a price
      of $2.00 per share together with warrants exercisable for 3/10 of a share of
      common stock for each share of Series C Preferred Stock purchased. Each share
      of
      Preferred Stock is convertible into one half share of Common Stock and is
      entitled to one half vote per share. The Warrants are exercisable at a price
      of
      $0.002 per share. On November 8, 2005, the Company refinanced the outstanding
      amount of $1,250,000 under the loan and security agreement with Stanford by
      issuing 625,000 shares of preferred stock and has issued an additional 2,425,000
      shares of preferred stock to meet working capital needs through December 31,
      2006. $736,088 of the Series C purchases has been attributed to the fair value
      of the warrants and included in additional paid in capital. The Company has
      an
      additional 250,000 shares to draw upon under the Preferred Stock Purchase
      Agreement on two weeks’ notice and the agreement provides for an additional
      1.325 million preferred shares that may be sold to Stanford to provide it with
      funds to complete acquisitions or additional working capital uses that may
      be
      approved by Stanford in its sole discretion.




Warrants
      Issued and Exercised: As
      required under the Preferred Stock Purchase Agreement between the Company and
      its principal stockholder, Stanford International Bank Ltd., warrants to
      purchase up to an aggregate of 697,500 shares of the Company’s common stock
      $0.001 par value per share at an exercise price of $0.002 per share were issued
      in conjunction with the issuance of its Series C Preferred Stock in the year
      ended December 31, 2006. $498,299 of the Series C purchases has been attributed
      to the fair value of the warrants and included in additional paid in capital.
      348,750 of the warrants were issued to five of Stanford’s assignees. 555,000 of
      the warrants were exercised in the year ended December, 2006, and 555,000 Common
      Stock shares issued. The number of warrants unexercised at December 31, 2006
      is
      142,500.





**9.
      Contingencies**




Operating
      Leases: The
      Company leases office space in Tampa, Florida, and Dunwoody, Georgia. Rent
      expense totaled $363,972 and $245,777 for the years ended December 31, 2006
      and
      2005 and is included in general and administrative expenses in the accompanying
      consolidated financial statements. The Company also leases certain pieces of
      office and communication equipment as well as a co-location site for its
      application and data base servers. The Company’s leases for its office space
      have durations through August 31, 2013 in Tampa and June 30, 2007 in Dunwoody
      with monthly payments approximating $33,000 and $11,000, respectively.




Future
      minimum annual payments under all lease agreements are as
      follows:





2007
            
            $
            600,6292008
            
            $
            423,1772009
            
            $
            419,2782010
            
            $
            431,9172011
            
            $
            444,9292012
            
            $
            461,5492013
            
            $
            321,185





Legal
      Proceedings: There
      are presently no material pending legal proceedings to which the Company is
      a
      party or to which any of its property is subject and, to the best of
      management’s knowledge, no such actions against the Company are contemplated or
      threatened.





F-16




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**10.
      Employee Savings Plans**




The
      Company has a savings plan, which qualifies under Section 401(k) of the Internal
      Revenue Code. Participating employees may contribute up to the maximum amount
      allowed by law. The Company will match 25% of the first 6% of salary the
      participants contribute provided they are here at year end or have worked the
      required amount of hours per the plan.





**11.
      Stock Based Compensation**




On
      March
      29, 2006, the Company’s Board of Directors unanimously voted to authorize that
      incentive stock options to purchase 118,750 shares of the Company’s common stock
      be granted to its employees under the 2003 Management and Director Equity
      Incentive and Compensation Plan (the “Plan”). The options have an exercise price
      of $0.33 per share and shall vest to the extent of 25% of the respective
      aggregate granted for each twelve continuous months of employment subsequent
      to
      January 1, 2005, with the unexercised portion of such respective options to
      expire March 29, 2011 or should the employee leave the employ of the Company.
      Also, 98,000 previously issued options were cancelled.




Further,
      on March 29, 2006, the Board of Directors unanimously voted under the Plan
      to
      grant non-qualified stock options to purchase an aggregate of 5,000 shares
      of
      common stock to the Company’s two outside directors. Such options have an
      exercise price of $0.33 per share and shall vest to the extent of 25% of the
      respective aggregate granted for each twelve continuous months of board
      membership subsequent to January 1 2005, with the unexercised portion of such
      respective options to expire March 29, 2011 or should the director leave the
      Board Of Directors of the Company.




On
      May
      12, 2006, the Company’s Board of Directors unanimously voted to authorize that,
      incentive stock options to purchase 39,125 shares of the Company’s common stock
      are granted to its employees under the 2003 Management and Director Equity
      Incentive and Compensation Plan (the “Plan”). The options have an exercise price
      of $1.01 per share and shall vest to the extent of 25% of the respective
      aggregate granted for each twelve continuous months of employment subsequent
      to
      April 1, 2006, with the unexercised portion of such respective options to expire
      May 12, 2011 or should the employee leave the employ of the
      Company.




As
      of
      December 31, 2006, 436,125 stock options were issued leaving an unissued stock
      option balance of 63,875.





Effective
      January 1, 2006, the Company began recording compensation expense associated
      with stock-based awards and other forms of equity compensation in accordance
      with FASB Statement No. 123-R, *Share-Based
      Payment* (“SFAS
      123R”) as interpreted by SEC Staff Accounting Bulletin No. 107. The Company
      adopted the modified prospective transition method provided under SFAS 123R,
      and
      consequently has not retroactively adjusted results from prior periods. Under
      this transition method, compensation cost associated with stock-based awards
      recognized in the fourth quarter of 2006 includes 1) quarterly amortization
      related to the remaining unvested portion of stock-based awards granted prior
      to
      January 1, 2006, based on the grant-date fair value estimated in accordance
      with
      the original provisions of FASB No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”); and 2) quarterly amortization related to stock-based awards granted
      subsequent to January 1, 2006, based on the grant-date fair value estimated
      in
      accordance with the provisions of SFAS 123R. Prior to January 1, 2006, the
      Company accounted for stock-based awards using the “disclosure only” alternative
      described in SFAS 123 and FASB Statement No. 148, *Accounting
      for Stock-Based Compensation* .





The
      Company utilizes the Black-Scholes option-pricing model to calculate the fair
      value of each individual issuance of options. The following assumptions were
      used for grants during the years ended December 31, 2006 and 2005:


2006
              
              2005Expected
                  dividend yield
              
              
              0.0
              %
              
              0.0
              %Risk-free
                  interest rate
              
              
              5.0
              %
              
              5.0
              %Expected
                  volatility
              
              
              163.3
              %
              
              68.2
              %


F-17




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**11.
      Stock Based Compensation - continued**





The
      Company recorded $35,825 of stock-based compensation expense relative to stock
      options for the year ended December 31, 2006, in accordance with SFAS 123R.
      As
      of December 31, 2006, the total future compensation expense related to
      non-vested and vested options not yet recognized in the Consolidated Statement
      of Operations is $145,165. A summary of stock option activity for the years
      ended December 31, 2005 and 2006 is presented as follows:





Number
                ofOptions
            
            Weighted
                AverageExercise
                PriceBalance
                at December 31, 2004
            
            
            338,250
            
            $
            2.000Granted
            
            
            286,250
            
            
            0.868Exercised
            
            
            (217,500
            )
            
            0.001Forfeited
            
            
            (35,750
            )
            
            2.000Balance
                at December 31, 2005
            
            
            371,250
            
            $
            2.299Granted
            
            
            162,875
            
            
            0.493Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (98,000
            )
            
            2.194Balance
                at December 31, 2006
            
            
            436,125
            
            $
            1.648Options
                exercisable at December 31, 2006
            
            
            219,259
            
            $
            1.643Weighted
                average fair value of options granted during the year
            
            
            
            
            $
            0.48




The
      following table summarizes information about employee stock options outstanding
      at December 31, 2006:





Options
                Outstanding
            
            Options
                ExercisableWeightedNumber
            
            Average
            
            Weighted
            
            Number
            
            WeightedRange
                of
            
            Outstanding
                at
            
            Remaining
            
            Average
            
            Exercisable
                at
            
            AverageExercise
            
            December
                31,
            
            Contractual
            
            Exercise
            
            December
                31,
            
            ExercisePrice
            
            2006
            
            Life
            
            Price
            
            2006
            
            Price$
            2.00
            
            
            217,000
            
            
            2.4
                years
            
            $
            2.00
            
            
            148,251
            
            $
            2.003.50
            
            
            37,500
            
            
            3.4
                years
            
            
            3.50
            
            
            9,375
            
            
            3.503.90
            
            
            18,750
            
            
            3.4
                years
            
            
            3.90
            
            
            2,937
            
            
            3.900.33
            
            
            123,750
            
            
            4.4
                years
            
            
            0.33
            
            
            58,696
            
            
            0.331.01
            
            
            39,125
            
            
            4.3
                years
            
            
            1.01
            
            
            -
            
            
            1.01436,125
            
            
            
            
            $
            1.648
            
            
            219,259
            
            $
            1.643





F-18




**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**11.
      Stock Based Compensation - continued**





The
      table
      below sets out the pro forma amounts of net income and earnings per share that
      would have resulted for the year ended December 31, 2005, if the Company had
      accounted for its stock options under the fair value recognition provisions
      of
      SFAS 123:


Year
                  EndedDecember
                  31, 2005Net
                  loss applicable to common shareholders
              
              $
              (727,384
              )Deduct:
                  Total stock based compensation expense determined under the fair
                  value
                  based method for all awards granted modified or settled during
                  the period,
                  net of related taxes
              
              
              21,563Pro
                  forma net loss
              
              $
              (748,947
              )Basic,
                  as reported
              
              $
              (.13
              )Basic,
                  pro forma
              
              $
              (.13
              )





**12.
      Other Assets**





Included
      in other assets is a receivable due from a former stockholder of Carekeeper
      in
      the amount of $71,177 at December 31, 2006, representing unsecured advances
      to a
      related party, which are non-interest bearing and due on demand.





**13.
      Note Payable - Bank**





The
      Company has a demand commercial loan with Wachovia Bank with a balance of
      $229,000 at December 31, 2006. Interest on the loan is at the Bank’s prime rate
      (8.25% at December 31, 2006) plus 0.5% per annum and the loan is collateralized
      by security provided by a stockholder in the form of a money market account.
      The
      note is due July 15, 2007, and payable in consecutive monthly payments of
      accrued interest only, commencing August 15, 2005.





**14.
      Loans Payable**





On
      January 10, 2006, Carekeeper converted an accounts payable of $389,892 owed
      to
      its primary software developer into a promissory note payable. The Company
      is
      required to pay a minimum of $1,000 per week to the note holder under the note
      payable. Interest on the note is equal to the Wall Street Journal Prime Rate
      of
      interest (8.25% at December 31, 2006) plus four percent (4%). If the Company
      during any single month should pay at least $20,000 against the note payable,
      the interest charged will be equal to the Wall Street Prime Rate of Interest
      (8.25% at December 31, 2006) plus two percent (2%). If during any period in
      which the Company is in default under the terms of the note, the interest
      charged is equal to one and one half percent (1.5%) per month.





Carekeeper
      and the software developer to which it is obligated under the promissory note
      entered into a Master Service Agreement dated as of January 9, 2006 regarding
      software services to be provided. If this agreement should be canceled, by
      either party, the minimum payment for the promissory note is then increased
      to
      $8,000 per week. In addition, if Carekeeper should achieve certain contractual
      payment milestones from certain major customers, the Company is obligated to
      remit 50% of such contractual payment milestones.





The
      note
      is secured by a security interest in Carekeeper’s software products. The Company
      is obligated to pay any unpaid portion of the promissory note, including
      interest, on or before June 30, 2007. The balance of this note is $355,032
      at
      December 31, 2006.





F-19





**Health
      Systems Solutions, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006 and 2005**





**15.
      Concentrations**




Cash: The
      Company maintains cash balances with commercial financial institutions which
      at
      times, may exceed the FDIC insured limits of $100,000. Management has placed
      these funds in high quality institutions in order to minimize the
      risk.




Accounts
      Receivable: The
      Company’s two largest customers represent 18.3% and 14.6% of the Company’s
      accounts receivable net of allowance for doubtful accounts at December 31,
      2006.
      The Company’s largest customer represents 62.2% of the Company’s accounts
      receivable net of allowance at December 31, 2005.




Revenue: The
      Company’s largest customer accounted for 35.4% and 45.0% of the Company’s
      revenue for the years ended December 31, 2006 and December 31, 2005
      respectively.





**16.
      Subsequent Events**





Warrants
      Exercised: On
      January 12 and January 19, 2007, the 142,500 outstanding warrants were
      exercised, 142,500 shares of Common Stock were issued by the Company, and the
      Company received $285.00 representing the exercise price.





Preferred
      Stock Issued: On
      February 14, March 12, March 23 and March 30, 2007, the Company issued 150,000,
      150,000, 175,000 and 175,000 shares, respectively, of its Series C Preferred
      Stock to its principal shareholder, Stanford International Bank Ltd. As required
      under the Preferred Stock Agreement, warrants to purchase an aggregate of
      195,000 shares of the Company’s Common Stock were also issued.





F-20