Overview

During 2008, we shifted our focus from the electronic medical claims processing, funding and collection solutions and began focusing our efforts of purchasing leases for digital medical equipment that provide a low cost solution to physicians for converting medical records to a digital format. The Company will also begin selling the digital medical equipment leases directly to the healthcare industry as part of our licensing arrangement with the outside vendor that we are currently purchasing the leases from. To date we have not sold any digital medical equipment; however we have financed six leases of such equipment and will derive approximately $410,000 in revenue from such financing activities.

We also can provide term loans and purchase medical claims to improve our client's cash flows and to finance certain leases.

To date, all of our revenue has been derived from our prior line of business, the electronic medical claims processing, funding and collection solution business. From the Company's inception, we offered a comprehensive technology-based selection of electronic medical claims processing, funding and collection solutions to the healthcare provider industry through an internet web browser. Our services helped doctors, hospital based practices, and other healthcare providers and their vendors to significantly improve daily insurance claims transaction administration and management. This part of our business was not deemed viable any longer and was discontinued on February 27, 2009.

There was no major hardware or software investment required to use the Company's Web-based systems. All transactions were designed to comply with the Health Insurance Portability and Accountability Act of 1996 (''HIPAA''). We offered our services to physician and clinical service group practices, hospitals, rehabilitation centers, nursing homes and certain related practice vendors, by using internal and external resources. Internal resources consisted mainly of specialized sales executives with industry knowledge and/or a portfolio of contacts. External resources consisted primarily of independent sales representatives as well as channel associates, such as vendors of practice management systems and medical industry specific sales groups such as office management consultants. These sales resources can leverage an existing customer base and contacts. Our marketing was based on prioritizing potential subscribers by size, location and density, need for our products and services and distribution opportunities. Accordingly, we focused our marketing efforts in geographic areas such as California, Florida, Texas, New York, Philadelphia, Illinois and New Jersey, each of which has a high concentration of prospective healthcare clients.

Our future operations will continue to be subject to risks inherent in the establishing and acquiring of new businesses, including, among other things, efficiently deploying our capital, developing our product and services offerings, developing and implementing our marketing campaigns and strategies and developing awareness and acceptance of our products. Our ability to generate future revenue will be dependent on a number of factors, many of which are beyond our control, including the pricing of other services, overall demand for our products, market competition and government regulation.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We apply the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectibility is reasonably assured. We have identified the policy below as critical to our business operations and understanding of our financial results:

Revenue derived from fees related to claims and contract management services are generally recognized when services are provided to the customer. We provide advance funding for medical claims and term loan services to unaffiliated healthcare providers. These arrangements typically require us to advance funds to these unaffiliated healthcare providers (our customers) in exchange for liens on the receivables related to invoices remitted to their clients for services performed. The advances are generally repaid through the remittance of payments of receivables by their payors directly to us. We may withhold from these advances interest, a fee charged in consideration of administration of advance funding and loans and other charges as well as the amount of receivables relating to prior advances that remain unpaid after a specified number of days. These interest charges, administrative fees and other charges are recognized as revenue when earned and are calculated on a daily basis.

Revenue derived from term loans to unaffiliated companies are generally recognized as revenue is earned. Revenue from term loans can include interest, administrative fees and other charges.

Revenue derived from fees related to billing and collection services are generally recognized when the customer's accounts receivable are collected. Revenue from implementation fees are generally recognized over the term of the customer agreement. Revenue derived from maintenance, administrative and support fees are generally recognized at the time the services are provided to the customer.

Revenue derived from claims purchased from unaffiliated healthcare providers are generally recognized when the claims are paid and the funds are collected.

Results of Operations

For the Year Ended December 31, 2008 Versus the Year Ended December 31, 2007

Revenue

For the year ended December 31, 2008, we recorded total revenue of $881,656. Of this total, we recorded service fee revenue of $493,805, accounting for 56.0% of total revenue, financing income of $288,935, accounting for 32.8% of total revenue and claims purchase revenue of $98,916, accounting for 11.2% of total revenue. For the year ended December 31, 2007, we recorded total revenue of $577,251. Of this total, we recorded service fee revenue of $470,149, accounting for 81.4% of total revenue and financing income of $107,102, accounting for 18.6% of total revenue. The increases in revenue from 2007 resulted primarily from additional funding to and claims purchased from new and existing clients.

Operating Expenses

For the year ended December 31, 2008, total operating expenses were $8,216,344 as compared to $8,022,031 for the year ended December 31, 2007, an increase of $194,313 or 2.4%, primarily due to a decrease in compensation and consulting expense partially offset by an increase in professional fees and selling, general and administrative expenses. Included in this net increase for the year ended December 31, 2008 is the following:

1. We recorded compensation expense of $4,885,000 as compared to $5,286,985 for the year ended December 31, 2007. This $401,985 or 7.6% decrease was mainly attributable to stock options granted of $2,374,905 and executive bonuses of $479,034 paid during the year ended December 2008 versus amortization of prior year stock option grants of $3,196,046 and executive bonuses of $163,128 during the year ended December 2007; and

2. Consulting expense amounted to $239,124 as compared to $760,284 for the year ended December 31, 2007, a decrease of $521,160, or 68.6%. This decrease resulted primarily from a decrease of $152,670 related to consultants used to assist with obtaining financing for the company, and a decrease of $139,869 for the hiring of information technology consultants in the current year; and

3. Professional fees amounted to $725,107 as compared to $411,917 for the year ended December 31, 2007, an increase of $313,190, or 76.0%. This expense was attributable to an increase in legal fees related to additional SEC filings, and Series B Convertible Preferred Stock offerings, new client agreements and other corporate matters; and

4. Selling, general and administrative expenses were $2,367,113 as compared to $1,562,845 for the year ended December 31, 2007, an increase of $804,268, or 51.5%. This increase resulted from bad debt expense partially offset by a reduction of outside sales consultants, advertising, sales travel, trade shows and investor relation expenses.

For the year ended December 31, 2008 and 2007, selling, general and administrative expenses consisted of the following:

                                             December 31,     December 31,
                                                 2008             2007
Employee benefits and payroll taxes         $      424,401   $      385,678
Information technology                             505,786          179,281
Occupancy and office expenses                      219,308          203,084
Other selling, general and administrative        1,217,618          794,802
                                            $    2,367,113   $    1,562,845

Other Income (Expenses)

For the year ended December 31, 2008, interest income was $1,088,270 as compared to $46,978 for the year ended December 31, 2007, an increase of $1,041,292. This increase was principally due to restructuring the notes receivable described below.

On June 16, 2008, the Company restructured one healthcare vendor's notes receivable which was due and payable to the Company on June 15, 2008. Notes receivables of $175,000 were paid off and the remaining balance was consolidated into a new promissory note totaling $395,835 with a new maturity date of June 15, 2009. As consideration for the changes to the terms of these notes, among other fees, the Company was given 920,000 shares of the healthcare vendor's common stock when the stock was valued at $0.69 per share, 1,000,000 shares when the stock was valued at $0.31 per share and 550,000 shares when the stock was valued at $0.20 per share as quoted on the OTC Bulletin Board. These stock receipts were recorded as interest income of $1,054,800. At December 31, 2008, the stock price decreased to $0.025 per share resulting in a $993,050 decrease in the value of the Available-for-sale securities. The Company will revalue these securities on a quarterly basis. These revaluations will correspondingly adjust the Accumulated other comprehensive income/loss reported in the Equity section of the Balance Sheet.

For the year ended December 31, 2008, interest expense was $1,561,908 as compared to $2,484,835 for the year ended December 31, 2007, a decrease of $922,927. This decrease was primarily due to non-cash interest amortization of debt discount, accrued dividends, and deferred fees related to our notes payable as well as an increase in borrowings.

On November 6, 2008, the Company temporarily reduced the conversion price set forth in the Senior Note issued to Gottbetter on October 19, 2006 (the "October Note") from $0.75 per share to $0.303 per share with respect to a one-time conversion of $433,333 of Conversion Amount (as defined in the October Note). After the conversion price was reduced, Gottbetter converted $433,333 of Conversion Amount into 1,430,143 shares of Common Stock of the Company. This resulted in a debt conversion expense of $371,265.

Net Loss

We reported a net loss of $8,179,102 for the year ended December 31, 2008 as compared to net loss of $9,882,330 for the year ended December 31, 2007. The loss per share was $0.62 for the year ended December 31, 2008 as compared to a per share loss of $0.77 for the year ended December 31, 2007.

Liquidity and Capital Resources

We used the proceeds from the sales of preferred stock and notes and loans payable through December 31, 2008 for working capital purposes and for funding our notes and accounts receivables of which we have $1,277,722 and $388,048 owed to us at December 31, 2008. We will continue to advance funds under certain digital pen lease agreements.

As of December 31, 2008, we had a cash balance of $1,223,807 which is insufficient for us to service our current indebtedness and implement our business plan as anticipated. Thus we require additional debt or equity financing in the absence of which we would be unable to generate sufficient cash flow from our operations. Our ability to continue to implement our revenue and profit growth strategy will be adversely affected and the Company will have to curtail operations if we are unable to consummate a sufficient amount of additional private placement transactions or debt financing, which we are currently pursuing.

Subsequent to year end, the possible transaction with a new client, for which funds from DOF had been escrowed, was aborted and the Company discussed the DOF escrowed funds with Vicis Capital, the manager of DOF. It was suggested that a portion of such funds be loaned to the Company for use in further developing and promoting its new digital pen and paper business. Terms of a loan in the amount of $3,200,000 were agreed upon in March 2009 and a closing is anticipated no later than April 17, 2009. The loan will be reflected as a Senior Secured Promissory Note in the amount of $3,856,925 which, in addition to the loan proceeds, includes a $300,000 advance made to the Company in December 2008, $236,000 for fees related to the cancelled transaction, $27,925 of accrued interest and $93,000 for professional and other fees. An original issue discount of 2% is payable upon takedown and annual interest of 13% will accrue through September 2009 and is payable on October 1, 2009 at which time monthly interest payments will commence and are payable in arrears on the first business day of each following month. Monthly principal payments of $40,000 will also commence on October 1, 2009 and the Note balance is due on October 30, 2011. In addition, Vicis will receive 10 year warrants to purchase 3,043,142 shares of Company common stock at $0.35 per share. The warrants include piggy back registration rights and the right to cashless exercise. There are no prepayment penalties on this loan.

A Form 8-K fully describing this loan transaction will be filed with the SEC upon closing.

We currently have no material commitments for capital expenditures.

Cash flows

At December 31, 2008, we had cash of $1,223,807.

Net cash used in operating activities was $4,953,666 for the year ended December 31, 2008 as compared to $4,967,641 for the year ended December 31, 2007, a decrease of $13,975. This decrease is primarily attributable to a net decrease in the following:

1. Gottbetter and Vicis debt offering costs of $259,638 and debt discount costs of $1,202,003, compared to debt related costs during the year ended December 31, 2007 of $2,239,552 mainly related to the less debt discount amortized in 2008;

2. Stock-based compensation of $2,374,905 versus stock-based compensation expense of $3,196,046 for the year ended December 31, 2007 due to less amortization and fewer stock-based compensation issued in 2008;

3. A net increase in notes receivable, accounts receivable, lease receivable, and prepaid expenses aggregating $1,492,888 principally related to the increases in customer receivables;

4. A net decrease in accounts payable, accrued expenses, and deferred revenue related to a decrease in operating activities aggregating $287,167.

Net cash used in investing activities was $18,434 for the year ended December 31, 2008 as compared to $5,209 for the year ended December 31, 2007 mainly due to purchase of computer equipment.

Net cash provided by financing activities was $5,875,004 due to the proceeds from the sale of Series B Preferred Stock for the year ended December 31, 2008 as compared to net cash provided by financing activities of $2,146,912 for the year ended December 31, 2007.

Off Balance Sheet Arrangements

We had no off balance sheet arrangements as of December 31, 2008.