UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM 10-QSB/A

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

As of November 22, 2006, 33,960,450 shares, $0.001 par value of the Company’s common stock (“Common Stock”) of the issuer were outstanding.

Table of Contents

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1.

At closing on June 29, 2006 (“Closing”), the Investors purchased Notes aggregating $700,000 and warrants to purchase 50,000,0000 shares of our common stock;

2.

Upon the filing of a registration statement registering the shares of common stock underlying the Notes (“Registration Statement”), the Investors will purchase Notes aggregating $600,000; and,

3.

Upon effectiveness of the Registration Statement, the Investors will purchase Notes aggregating $700,000.

The Notes carry an interest rate of 6% and a maturity date of June 27, 2009. The notes are convertible into our common shares at the Applicable Percentage of the average of the lowest three (3) trading prices for our shares of common stock during the twenty (20) trading day period prior to conversion. The “Applicable Percentage” means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the Closing.

The Company has an option to prepay the Notes in the event that no event of default exists, there are a sufficient number of shares available for conversion of the Notes and the market price is at or below $.05 per share. In addition, in the event that the average daily price of the common stock, as reported by the reporting service, for each day of the month ending on any determination date is below $.05, the Company may prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month’s interest. Exercise of this option will stay all conversions for the following month. The full principal amount of the Notes is due upon default under the terms of Notes. In addition, the Company has granted the investors a security interest in substantially all of its assets and intellectual property as well as registration rights.

The Company simultaneously issued to the Investors seven year warrants to purchase 50,000,000 shares of common stock at an exercise price of $0.07.

The Investors have contractually agreed to restrict their ability to convert the Notes and exercise the Warrants and receive shares of the Company’s common stock such that the number of shares of the Company’s common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s common stock.

The Company has received the $ 1,300,000 through September 30, 2006.

The Company recorded the note at $ 87,135 net of unamortized discount of $ 1,212,865.

The Company computed the beneficial conversion liability of $ 1,300,000 and warrant liability of $ 720,224 based on Black Scholes model. These amounts have been reflected on the financials as derivative liability in amount of $ 2,020,224.

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The Company prepaid lender attorney fees and broker commission of $ 180,000. The Company has amortized $ 15,000 in the accompanying financials and the balance of  $165,000 has been reflected as prepaid expenses.

The Company is in default of the note as its registration statement has not become effective as stipulated by the agreement. The note is immediately due and payable and has been shown as a current liability in the accompanying financials.

NOTE 8  RELATED PARTY TRANSACTION

The Company recorded $ 33,750 as officer compensation for 750,000 shares to be issued pursuant to the employment agreement. The Company has note payable of $ 150,352 to the officer as of September 30, 2006. The note is interest free, unsecured and due on demand.

NOTE 9  STOCKHOLDERS' DEFICIENCY

Common Stock

The Company increased its authorized capital to 750,000,000 shares from 50,000,000 shares of common stock $0.001 par value as of September 30, 2006. The Company currently has 33,960,450 common shares issued and outstanding.  

During the nine month period ended September 30, 2006, the Company issued 300 shares to consultants for services rendered. The Company recorded expense in the books based on the market value of the shares on the date of issuance of shares to the consultants.

The Company recorded $ 33,750 as officer compensation for 750,000 shares to be issued pursuant to the employment agreement. The officer is entitled to 1,000,000 shares every year pursuant to the employment agreement. The value of the stock is based on the market rate.

Class B Preferred Stock

The Company’s Articles of Incorporation (Articles”) authorize the issuance of 50,000,000 shares of no par value Class B Preferred Stock.  No shares of Preferred Stock are currently issued and outstanding.  

NOTE 10  COMMITMENTS AND CONTINGENCIES

During the nine month period ended September 30, 2006, the Company leased its corporate offices space in Upland, California under operating lease agreements.  The Upland facility lease calls for a monthly rent of $3,387. The operating lease expires in November 2006 and has renewal options.  Rent expense under operating leases for the nine month period ended September 30, 2006 was $ 37,669.

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Future minimum lease payments are as follows:

NOTE 11  GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern. As of September 30, 2006 the accumulated deficit amounting to $ 5,423,886, net loss amounting $ 1,749,881 and working capital deficit amounting to $3,945,425. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future operations.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern.  The Company is actively pursuing additional funding and seeking new clients for medical billings, which would enhance stockholders’ investment.  Management believes that the above actions will allow the Company to continue operations through the next fiscal year.

NOTE 12  LITIGATION

The Company is defendant in multiple lawsuits initiated either by the company or former clients of the Company. The complaints allege that the Company and its officers improperly withheld monies from the clients. The complaints allege, among others, claims for breach of contract and breach of fiduciary duty. The plaintiffs seek compensatory and punitive damages, prejudgment interest, costs and attorney fees. The parties have conducted discovery and permission to take additional discovery is being sought.

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1.

On July 12, 2004, Nimish Shah, M.D. d/b/a New Horizon Medical, Inc. (“New Horizon”) initiated a lawsuit against the Company in the Superior Court of California, County of Los Angeles, Case No. VC 042695, styled New Horizon Medical, Inc. v. HBSGI, et al. The complaint raises a claim for breach of contract against the Company. The complaint alleges that the Company failed to remit sums due to New Horizon. On April 8, 2005, the court dismissed the action and referred it to arbitration. Since May 2005, there have been a number of telephonic conferences held with the assigned arbitrator. Each of these calls has focused on the voluntary exchange of insurance payment records by the parties. In connection with arbitration, the Company has claimed against New Horizon the compensatory damages in the amount of $75,000 (subject to amendment), prejudgment interest, costs and attorneys’ fees in an unspecified amount. New Horizon has not submitted a cross-complaint against the Company for the breach of contract alleging that there is substantial discrepancy between the amounts of bills provided by New Horizon to the Company, for the purpose of securing payment from various insurance companies, and the funds actually received from the Company.  The arbitrator has suspended this case for non payment of arbitration fees.

New Horizon contends that the there are amounts in controversy of around $ 1,000,000. The Company has denied the allegations. The matter is in its initial stages. Healthcare contends that it does not hold or owe any money to defendant and has made counter claim. Hearing on this is suspended due to non payment.  

2.

On July 11, 2002, Plaintiff Kamran Ghadimi initiated a lawsuit against HBSGI and others in the Superior Court of California, County of San Bernardino, Case No. RCV 064904, styled Karman Ghadimi v. Chandana Basu, et al.

The complaint alleges that HBSGI, its president and certain affiliated companies, improperly withheld approx. $ 400,000 from Ghadimi. The complaint alleges, among others, claims for breach of contract and breach of fiduciary duty. Plaintiff seeks compensatory and punitive damages, prejudgment interest, costs and attorney’s fees. HBSGI refutes Ghadimi’s claim and denied the allegations and filed counter claim. Company settled this dispute on May 17, 2006 for an amount of $95,000. $50,000 paid on May 17, 2006 and we have been paying $5,000 per month. As of September 30, 2006 the Company owes $25,000 which has bee accrued.

3.

In January 2004, Claimant Leonard J. Soloniuk, MD initiated an arbitration against HBSGI with the American Arbitration Association, Case No. 72 193 00102 04 TMS, styled Leonard J. Soloniuk, MD v. HBSGI

The complaint alleges that HBSGI failed to properly bill and collect fees, intentionally miscoded bills, intentionally withheld collection proceeds due to Soloniuk, breached its billings agreement, and otherwise engaged in fraudulent conduct.

HBSGI refuted Soloniuk’s claims and filed a counter claim.

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In a decision dated April 5, 2006, the arbitrator awarded HBSGI nothing against Soloniuk. The arbitrator further awarded Soloniuk $ 275,000 against the HBSGI as well as interest accruing from June 1, 2006, at the rate of ten percent per annum on the unpaid balance. The arbitrator further ordered HBSGI to reimburse Soloniuk costs in the amount of $ 1,875.  

The Company filed motion to vacate this judgment.  This motion was denied; however, the Company is challenging the decision on other grounds.  Specifically, the Company argues that of this $275,000, $210,000 was already paid to Soloniuk since November 4, 2002, last date of payment were considered by arbitrator and therefore the judgment should be reduced accordingly.  The Company can provide no assurances that it will be successful in this argument.

4.

On September 20, 1999, Mohammad Tariq, MD was granted a default judgment in the  District  Court  of  Collin  County,  Texas, 380th Judicial District in the amount  of  $280,835.10,  plus  prejudgment  and  post-judgment interest against Healthcare  Business  Services  Group,  Inc., d/b/a/ Peacock Healthcare.  This entity is unrelated to HBSGI.  Accordingly, we never received notice of this action or judgment nor have we paid any money with respect to such default judgment. The default judgment relates to a contract for billing services between Healthcare and Dr. Tariq entered into in 1996. After termination of the contract, Dr. Tariq requested an accounting of the amounts collected from his patients by Healthcare in  connection  with  the  billing  services.  In  July 1999, Healthcare sent an accounting  to Dr. Tariq in the amount of $275,355 collected, $42,512 charged by Healthcare  as  its  fee, and $222,298 paid to Dr. Tariq. Tariq diverted the rest of the collection from Healthcare billing and did not pay Healthcare fees. Although Healthcare has not taken legal  steps  to  defend  itself against the default judgment, Healthcare claims  to  have not received proper notice from Dr. Tariq of the civil action and default judgment.  

Kamran Ghadimi bought the Tariq judgment in April 28, 2006 and pursuing collection in California. Healthcare now attacked the complaint on the basis of improper service, misconducts committed by Tariq and interlocutory judgment was not final and filed answer to the original complaints and filed claims for fees and damages and seeking a new trial in Texas. Hearing for interlocutory judgment is set for Friday Oct 13, 2006. Healthcare filed motion to vacate the sister state judgment in California on the grounds of defective service and misconducts by Tariq. Hearing in California is not set as of this date

This matter was settled on November 8, 2006 for $185,000. The Company paid $15,000 as of September 30, 2006, $110,000 to be paid on or before February 7, 2007 and $3,000 per month for 60 months starting January 1st, 2007.

From  time  to  time,  we  may  become  party  to litigation or other legal proceedings  that  we  consider  to  be  a  part  of  the ordinary course of our business.  Other  than  the legal proceedings listed below, we are not currently involved  in  legal  proceedings  that  could  reasonably  be expected to have a material  adverse  effect  on  our  business,  prospects, financial condition or results  of  operations.  However, we  may  become  involved  in material legal proceedings in the future.

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NOTE 13  RESTATEMENTS

Subsequent to the issuance of the Company's  financial  statements for the nine month periods ended September 30, 2006 and 2005, the Company determined that certain transactions and  presentation  in the financial  statements had not been accounted for properly in the Company's financial statements.  Specifically, the amount of derivative liability arising from the issuance of convertible notes was not recorded correctly.

The Company has restated its financial statements for these adjustments as of September 30, 2006 and 2005.

The effect of the restatement is as follows:

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ITEM  2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This report contains forward looking statements within the meaning of section 27a of the securities act of 1933, as amended and section 21e of the securities exchange act of 1934, as amended. The company's actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the company's filings with the securities and exchange commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

OVERVIEW

Winfield Financial Group, Inc. (the “Registrant”) was incorporated in the State of Nevada on May 2, 2000.  Prior to the Acquisition, discussed below, the Registrant was a business broker, primarily representing sellers and offering its clients' businesses for sale.  As a result of the Acquisition, the Registrant changed its business focus.  

On April 7, 2004, the Registrant filed Articles of Exchange with the State of Nevada to take effect on such date.  Under the terms of the Articles of Exchange, the Registrant was to acquire Vanguard Commercial, Inc., a Nevada corporation (“Vanguard”) whereby the Registrant was to issue 197,000 of its shares of Common Stock in exchange for all of the issued and outstanding Common Stock of Vanguard.  Robert Burley, a former Director of the Registrant and the Registrant’s former President, Chief Executive Officer and Treasurer is also an officer and director of Vanguard.  Subsequent to the effective date of the exchange with Vanguard, the Registrant and Vanguard mutually agreed to rescind the transaction.  The Registrant filed a Certificate of Correction with the State of Nevada rescinding the exchange with Vanguard, which never took place and the Registrant never issued any of its shares with respect thereto.

On April 22, 2004, the Registrant amended its Articles of Incorporation to increase the authorized shares to Fifty Million (50,000,000) shares of Common Stock, to reauthorize the par value of $.001 per share of Common Stock and to reauthorize 5,000,000 shares of preferred stock with a par value of $.001 per share of preferred stock.

On April 23, 2004, the Registrant acquired 100% of the issued and outstanding shares of Healthcare Business Services Groups, Inc., a Delaware corporation (“Healthcare”).  As part of the same transaction on May 7, 2004, the Registrant acquired 100% of the issued and outstanding shares of AutoMed Software Corp., a Nevada corporation (“AutoMed”), and 100% of the membership interests of Silver Shadow Properties, LLC, a Nevada single member limited liability company (“Silver Shadow”).  The transactions are collectively referred to herein as the “Acquisition.”  The Registrant acquired Healthcare, AutoMed, and Silver Shadow from Chandana Basu, the sole owner, in exchange for 25,150,000 newly issued treasury shares of the Registrant’s Common Stock. The term “Company” shall include a reference to Winfield Financial Group, Inc., Healthcare, AutoMed and Silver Shadow unless otherwise stated.  Healthcare, AutoMed and Silver Shadow are sometimes collectively referred to herein as “HBSGII.”

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On June 21, 2004, the Registrant entered into an agreement with Robert Burley (former Director, President and Chief Executive Officer of the Registrant) and Linda Burley (former Director and Secretary of the Registrant) whereby the Registrant agreed to transfer certain assets owned by the Registrant immediately prior to the change in control in consideration for Mr. and Mrs. Burley’s cancellation of an aggregate of 2,640,000 of their shares of the Registrant’s Common Stock.  The Registrant transferred the following assets to Mr. and Mrs. Burley:  i) the right to the name “Winfield Financial Group, Inc.”; and ii) any contracts, agreements, rights or other intangible property that related to the Registrant’s business operations immediately prior to the change in control whether or not such intangible property was accounted for in the Registrant’s financial statements.  After the issuance of shares to Ms. Basu and the cancellation of 2,640,000 shares of Mr. and Mrs. Burley, there were 28,774,650 shares of the Registrant’s Common Stock outstanding.  As a result of these transactions, control of the Registrant shifted to Ms. Basu.  Ms. Basu currently owns 25,150,000 shares (or approximately 81.1%) out of 31,040,150 of the Registrant’s issued and outstanding Common Stock.

On January 5, 2005, the Registrant changed its name to Healthcare Business Services Groups, Inc.  The Registrant is a holding company for HBSGI.  The business operations discussed herein are conducted by HBSGI.  The Registrant, through HBSGI, is engaged in the business of providing medical billing services to healthcare providers in the United States.

The Company is a medical billing service provider that for over fourteen years has assisted various healthcare providers to successfully enhance their billing function.  The Company has a diversified market base with operations in Providence, Rhode Island and Upland, California.   The Company has developed a proprietary medical billing software system named AutoMed™.  The Company has installed, and is currently ready to market and install, AutoMed™ at some of the Company’s existing medical billing clients.  The Company expects that after this software is launched, revenues will grow substantially over the next three to five years extending its billing model into the technology era.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2005

Revenue for the three months ended September 30, 2006 were $ 254,800 compared to $ 380,782 for the same period in 2005.  The decrease in revenues was due to reduction in collections from the customers and hence decrease in commissions earned during the three months ended September 30, 2006 as compared to same period in 2005. The Company expects to earn higher revenues in future since it has hired more marketing representatives.

General & administrative (“G&A”) expense for the three months ended September 30, 2006 was $ 620,720 compared to $ 358,357 for the same period in 2005.  The increase in G&A expenses in 2006 was due to increase in costs incurred by the Company in marketing the company’s business as well as legal fees paid against settlement of various litigations.

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Depreciation and amortization was $ 26,554 for the three months ended September 30, 2006 as compared to $ 26,347 for the same period in 2005.  The depreciation and amortization expense is consistent with the prior year since the assets are being depreciated straight line over the life.

Interest expense and financing costs for the three months ended September 30, 2006 was $ 771,391 compared to $ 5,769 for the same period in 2005.  The increase in interest expense and financing costs are due to $ 1,300,000 note that Company borrowed during the quarter.

Net loss was $ 1,330,760 (or basic and diluted net loss per share of $(0.04) for the three months ended September 30, 2006 as compared to net loss of $ 133,609 (or basic and diluted net loss per share of $0.00 for the same period in 2005.

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2005

Revenue for the nine months ended September 30, 2006 were $ 900,417 compared to $ 1,107,612 for the same period in 2005.  The decrease in revenues was due to reduction in collections from the customers and hence decrease in commissions earned during the nine months ended September 30, 2006 as compared to same period in 2005. The Company expects to earn higher revenues in future since it has hired more marketing representatives. The revenues are recognized on accrual basis of accounting.

General & administrative (“G&A”) expense for the nine months ended September 30, 2006 was $ 1,284,733 compared to $ 1,215,732 for the same period in 2005.  The increase in G&A expenses in 2006 was also due to increase in costs incurred by the Company in marketing the company’s business as well as legal fees paid against settlement of various litigations.

Depreciation and amortization was $ 85,205 for the nine months ended September 30, 2006 as compared to $ 81,520 for the same period in 2005.  The depreciation and amortization expense is consistent with the prior year since the assets are being depreciated straight line over the life

Interest expense and financing costs for the nine months ended September 30, 2006 was $ 800,515 compared to $ 58,001 for the same period in 2005.  The increase in interest expense and financing costs are due to $ 1,300,000 note that Company borrowed during the year.

Net loss was $ 1,749,881 (or basic and diluted net loss per share of $(0.05) for the nine months ended September 30, 2006 as compared to net loss of $ 673,959 (or basic and diluted net loss earnings per share of $(0.02) for the same period in 2005.  Net loss for the nine month period ended September 30, 2006 was higher as compared to the corresponding period in the last year since the Company incurred more expenses in marketing the business.

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LIQUIDITY AND CAPITAL RESOURCES

The Company had $ 304,455 in current assets and a working capital deficiency of $ 3,945,425 as of September 30, 2006.  The Company had total assets of $ 519,203 as of September 30, 2006, which consisted of $ 244,455 of cash, $ 45,578 of property and equipment, $ 60,520 of intangible assets from the Company’s website technology costs, $3,650 of deposits and $ 165,000 in prepaid expenses.

The Company had total current liabilities of $ 4,249,880 as of September 30, 2006, consisting of accounts payable and accrued expenses of $ 1,388,259, litigation accrual of $ 575,747, line of credit of $96,360, note payable to third parties of $ 18,938, due to officer of $ 150,352 and $ 2,020,724 in derivative liability related to $ 1,300,000 note and 50,000,000 warrants associated with the note.

The Company has two revolving lines of credit from two financial institutions for $50,000 and $75,000.  The credit lines are unsecured and bear an annual interest rate of 10.75% and 16.24%, respectively.  The credit lines are personally guaranteed by the CEO of the Company.  The Company has borrowed $22,412 and $73,948 from the credit lines as of September 30, 2006.

Net cash used in operating activities was $ 993,748 during the nine months ended September 30, 2006, as compared to net cash used in operating activities of $ 495,904 during the same period in 2005.

There was no investing activity during the nine months ended September 30, 2006 as compared to net cash used in investing activities of $ 40,830 during the same period in 2005.

Net cash provided by financing activities was $ 935,080 during the nine months ended September 30, 2006, as compared to net cash provided by financing activities of $ 348,872 for the same period in 2005.

The Company does not have any commitments or identified sources of additional capital  from  third  parties  or  from  its  officers,  directors  or  majority shareholders.  There is no assurance that additional financing will be available on favorable terms, if at all. If the Company is unable to raise such additional financing,  it would have a materially adverse effect upon the Company's ability to  implement  its  business  plan and may cause the Company to curtail or scale back  its  current  operations.

On June 27, 2006, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (collectively, the “Investors”). Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $2,000,000 in callable convertible secured notes (the “Notes”) and (ii) warrants to purchase 50,000,0000 shares of our common stock (the “Warrants”).

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Pursuant to the Securities Purchase Agreement, the Investors will purchase the Notes and Warrants in three tranches as set forth below:

1.

At closing on June 29, 2006 (“Closing”), the Investors purchased Notes aggregating $700,000 and warrants to purchase 50,000,0000 shares of our common stock;

2.

Upon the filing of a registration statement registering the shares of common stock underlying the Notes (“Registration Statement”), the Investors will purchase Notes aggregating $600,000; and,

3.

Upon effectiveness of the Registration Statement, the Investors will purchase Notes aggregating $700,000.

The Notes carry an interest rate of 6% and a maturity date of June 27, 2009. The notes are convertible into our common shares at the Applicable Percentage of the average of the lowest three (3) trading prices for our shares of common stock during the twenty (20) trading day period prior to conversion. The “Applicable Percentage” means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the Closing.

The Company has an option to prepay the Notes in the event that no event of default exists, there are a sufficient number of shares available for conversion of the Notes and the market price is at or below $.05 per share. In addition, in the event that the average daily price of the common stock, as reported by the reporting service, for each day of the month ending on any determination date is below $.05, the Company may prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month’s interest. Exercise of this option will stay all conversions for the following month. The full principal amount of the Notes is due upon default under the terms of Notes. In addition, the Company has granted the investors a security interest in substantially all of its assets and intellectual property as well as registration rights.

The Company simultaneously issued to the Investors seven year warrants to purchase 50,000,000 shares of common stock at an exercise price of $.07.

The Investors have contractually agreed to restrict their ability to convert the Notes and exercise the Warrants and receive shares of the Company’s common stock such that the number of shares of the Company’s common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s common stock.

The Company has received the $ 1,300,000 through September 30, 2006.

The Company recorded the note at $ 87,135 net of unamortized discount of $ 1,212,865.

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The Company computed the beneficial conversion liability of $ 1,300,000 and warrant liability of $ 720,224 based on Black Scholes model. These amounts have been reflected on the financials as derivative liability in amount of $ 2,020,224.

The Company prepaid lender attorney fees and broker commission of $ 180,000. The Company has amortized $ 15,000 in the accompanying financials and the balance of  $165,000 has been reflected as prepaid expenses.

RISK  FACTORS

WE  NEED  A  SUBSTANTIAL AMOUNT OF ADDITIONAL FINANCING.

In  addition  to  its  continued medical billing operation, the Company has planned to begin marketing AutoMed. The Company believes that it can satisfy the current  cash  requirements  for  Medical  Billing, if the Company maintains its operations as they are currently. The Company needs to raise $3 to $5 million of additional  financing  to  implement its business plan with respect to AutoMed .

The Company intends to raise the additional capital in one or more private placements. The Company does not have any commitments or identified  sources  of  additional  capital  from  third  parties  or  from its officers,  directors  or  majority  shareholders.  There  is  no  assurance that additional  financing  will  be  available on favorable terms, if at all. If the Company  is  unable  to raise such additional financing, or accepts financing on unfavorable terms to the Company, it could have a materially adverse effect upon the  Company's  ability  to implement its business plan with respect to AutoMed, and  may  force the Company to curtail or scale back its current Medical Billing operations.

WE PAY A SUBSTANTIAL SALARY TO OUR CHIEF EXECUTIVE OFFICER AND TREASURER.

Chandana  Basu,  our  Chief  Executive  Officer and Treasurer, receives a substantial amount of $50,000 per month (or $600,000 per year) for her services, which  includes  approximately  $5,000  of salary and a minimum bonus of $45,000 each month. Ms. Basu also serves as the Chief Executive Officer and President of AutoMed, and the manager of Silver Shadow, both wholly-owned subsidiaries of the Company. The amount of salary that Ms. Basu receives relative to the Company's revenue and other expenses reduces the likelihood that the Company will  make a profit, and increases the possibility that the Company be forced to curtail or abandon its business plan in the future if the Company fails to raise additional capital.

WE MAY NOT BE SUCCESSFUL IN SELLING AUTOMED SOFTWARE

Currently the Company is in the process of marketing the AutoMed software through distributors.  There is no revenue generated as of the date of this report and there’s no guarantee that the Company will be successful in selling AutoMed. The Company need additional capital to market the software.

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A SUBSTANTIAL AMOUNT  OF OUR REVENUES COME FROM FOUR MAIN CLIENTS.

The three major customers of the Company provided $ 201,549 or 79% of the revenues of the Company for the three month period ended September 30, 2006.. If the Company were to lose any or all of these  four clients, it would have a materially adverse effect on the Company's revenue,  and  if  the  Company is unable to gain a new large client to take its place,  of a sufficient number of smaller clients to take the place of the major client  or  clients  who  are  lost,  the  Company could be forced to abandon or curtail its business plan.

ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

As of September 30, 2006 the Company has accumulated deficit amounting to $ 5,423,886, net loss amounting $ 1,749,881, working capital deficit amounting to $3,945,425. and net cash used in operations of $ 993,748. The accompanying financial statements have been prepared assuming  that  the  Company  will  continue  as  a going concern. The financial statements  do  not include any adjustments that might result from our inability to continue as a going concern. Our continuation as a going concern is dependent upon  future  events,  including  obtaining  financing  (discussed  above)  for expansion and to implement our business plan with respect to AutoMed and Surgery Centers.  If  we  are  unable to continue as a going concern, you will lose your entire investment.

WE  MAY  FACE  POTENTIAL  LIABILITY  IN  CONNECTION  WITH  PENDING  LEGAL PROCEEDINGS  AND  ARBITRATION  PROCEEDINGS  WHICH  HAVE BEEN BROUGHT AGAINST THE COMPANY.

As  of  the  filing of this report, the Company is a party to several legal  proceedings  and/or  arbitration (See Item 1, Part II). If the Company is unable to settle  or  defend  against  claims  made  by former clients and a law firm, the plaintiffs  in  those  matters may obtain judgments against the Company. If this happens  Company  does  not  have  enough  cash  on  hand  to  pay amount of the judgments,  which  may  be  substantial, the Company may be forced to abandon or curtail its business operations.

WE  RELY  ON  KEY  MANAGEMENT.

The  success of the Company depends upon the personal efforts and abilities of  Chandana  Basu.  The  Company faces competition in retaining Ms. Basu and in attracting new personnel should Ms. Basu chose to leave the Company. There is no assurance  that the Company will be able to retain and/or continue to adequately motivate Ms. Basu in the future. The loss of Ms. Basu or the Company's inability to  continue  to adequately motivate her could have a material adverse effect on the Company's business and operations.

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BECAUSE  MS.  CHANDANA BASU OWNS 81.1% OF OUR OUTSTANDING COMMON STOCK, SHE WILL  EXERCISE  CONTROL  OVER  CORPORATE  DECISIONS THAT MAY BE ADVERSE TO OTHER MINORITY  SHAREHOLDERS.

Chandana  Basu, a Director of the Company and the Company's Chief Executive Officer  and  Treasurer,  owns approximately 81.1% of the issued and outstanding shares  of  our  common  stock.  Accordingly, she  will  exercise  control  in determining  the  outcome  of  all  corporate  transactions  or  other  matters, including  mergers,  consolidations  and the sale of all or substantially all of our  assets,  and  also  the  power to prevent or cause a change in control. The interests  of  Ms.  Basu may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other shareholders.

IF  THERE'S A MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY BE VOLATILE.

If  there's  a market for our common stock, we anticipate that such market would be  subject  to wide fluctuations in response to several factors, including, but not limited to:

(1)

actual or anticipated variations in our results of operations;

(2)

our ability or inability to generate new revenues;

(3)

increased competition; and

(4)

conditions and trends in the medical billing industry.

Further,  because  our  common  stock  is  traded  on  the NASD over the counter bulletin board, our stock price may be impacted by factors that are unrelated or disproportionate  to  our  operating  performance. These market fluctuations, as well  as  general economic, political and market conditions, such as recessions, interest  rates  or international currency fluctuations may adversely affect the market price of our common stock.

CRITICAL ACCOUNTING POLICIES

Our  discussion  and  analysis  of  our  financial condition and results of operations  is  based upon our financial statements, which have been prepared in accordance  with  accounting principals generally accepted in the United States. The  preparation of these financial statements requires us to make estimates and judgments  that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities. On an on-going  basis,  we  evaluate  our  estimates. We base our estimates on various assumptions  that  we  believe  to  be  reasonable  under the circumstances, the results  of  which  form the basis for making judgments about 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 believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

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ITEM 3.  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Our chief executive officer and principal financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report (the "Evaluation Date"), has concluded that as of the Evaluation Date, our disclosure controls and procedures were effective and designed to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act of 1934 is 1) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and 2) accumulated and communicated to her as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There were no significant changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is defendant in multiple lawsuits initiated either by the company or former clients of the Company. The complaints allege that the Company and its officers improperly withheld monies from the clients. The complaints allege, among others, claims for breach of contract and breach of fiduciary duty. The plaintiffs seek compensatory and punitive damages, prejudgment interest, costs and attorney fees. The parties have conducted discovery and permission to take additional discovery is being sought.

1.

On July 12, 2004, Nimish Shah, M.D. d/b/a New Horizon Medical, Inc. (“New Horizon”) initiated a lawsuit against the Company in the Superior Court of California, County of Los Angeles, Case No. VC 042695, styled New Horizon Medical, Inc. v. HBSGI, et al. The complaint raises a claim for breach of contract against the Company. The complaint alleges that the Company failed to remit sums due to New Horizon. On April 8, 2005, the court dismissed the action and referred it to arbitration. Since May 2005, there have been a number of telephonic conferences held with the assigned arbitrator. Each of these calls has focused on the voluntary exchange of insurance payment records by the parties. In connection with arbitration, the Company has claimed against New Horizon the compensatory damages in the amount of $75,000 (subject to amendment), prejudgment interest, costs and attorneys’ fees in an unspecified amount. New Horizon has not submitted a cross-complaint against the Company for the breach of contract alleging that there is substantial discrepancy between the amounts of bills provided by New Horizon to the Company, for the purpose of securing payment from various insurance companies, and the funds actually received from the Company.  The arbitrator has suspended this case for non payment of arbitration fees.   

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New Horizon contends that the there are amounts in controversy of around $ 1,000,000. The Company has denied the allegations. The matter is in its initial stages. Healthcare contends that it does not hold or owe any money to defendant and has made counter claim. Hearing on this is suspended due to non payment.

2.

On July 11, 2002, Plaintiff Kamran Ghadimi initiated a lawsuit against HBSGI and others in the Superior Court of California, County of San Bernardino, Case No. RCV 064904, styled Karman Ghadimi v. Chandana Basu, et al.

The complaint alleges that HBSGI, its president and certain affiliated companies, improperly withheld approx. $ 400,000 from Ghadimi. The complaint alleges, among others, claims for breach of contract and breach of fiduciary duty. Plaintiff seeks compensatory and punitive damages, prejudgment interest, costs and attorney’s fees. HBSGI refutes Ghadimi’s claim and denied the allegations and filed counter claim. Company settled this dispute on May 17, 2006 for an amount of $95,000. $50,000 paid on May 17, 2006 and we have been paying $5,000 per month. As of September 30, 2006 the Company owes $25,000 which has bee accrued.

3.

In January 2004, Claimant Leonard J. Soloniuk, MD initiated an arbitration against HBSGI with the American Arbitration Association, Case No. 72 193 00102 04 TMS, styled Leonard J. Soloniuk, MD v. HBSGI

The complaint alleges that HBSGI failed to properly bill and collect fees, intentionally miscoded bills, intentionally withheld collection proceeds due to Soloniuk, breached its billings agreement, and otherwise engaged in fraudulent conduct.

HBSGI refuted Soloniuk’s claims and filed a counter claim.

In a decision dated April 5, 2006, the arbitrator awarded HBSGI nothing against Soloniuk. The arbitrator further awarded Soloniuk $ 275,000 against the HBSGI as well as interest accruing from June 1, 2006, at the rate of ten percent per annum on the unpaid balance. The arbitrator further ordered HBSGI to reimburse Soloniuk costs in the amount of $ 1,875.  

The Company filed motion to vacate this judgment.  This motion was denied; however, the Company is challenging the decision on other grounds.  Specifically, the Company argues that of this $275,000, $210,000 was already paid to Soloniuk since November 4, 2002, last date of payment were considered by arbitrator and therefore the judgment should be reduced accordingly.  The Company can provide no assurances that it will be successful in this argument.

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4.

On September 20, 1999, Mohammad Tariq, MD was granted a default judgment in the  District  Court  of  Collin  County,  Texas, 380th Judicial District in the amount  of  $280,835.10,  plus  prejudgment  and  post-judgment interest against Healthcare  Business  Services  Group,  Inc., d/b/a/ Peacock Healthcare.  This entity is unrelated to HBSGI.  Accordingly, we never received notice of this action or judgment nor have we paid any money with respect to such default judgment. The default judgment relates to a contract for billing services between Healthcare and Dr. Tariq entered into in 1996. After termination of the contract, Dr. Tariq requested an accounting of the amounts collected from his patients by Healthcare in  connection  with  the  billing  services.  In  July 1999, Healthcare sent an accounting  to Dr. Tariq in the amount of $275,355 collected, $42,512 charged by Healthcare  as  its  fee, and $222,298 paid to Dr. Tariq. Tariq diverted the rest of the collection from Healthcare billing and did not pay Healthcare fees. Although Healthcare has not taken legal  steps  to  defend  itself against the default judgment, Healthcare claims  to  have not received proper notice from Dr. Tariq of the civil action and default judgment.  

Kamran Ghadimi bought the Tariq judgment in April 28, 2006 and pursuing collection in California. Healthcare now attacked the complaint on the basis of improper service, misconducts committed by Tariq and interlocutory judgment was not final and filed answer to the original complaints and filed claims for fees and damages and seeking a new trial in Texas. Hearing for interlocutory judgment is set for Friday Oct 13, 2006. Healthcare filed motion to vacate the sister state judgment in California on the grounds of defective service and misconducts by Tariq. Hearing in California is not set as of this date

This matter was settled on November 8, 2006 for $185,000. The Company paid $15,000 as of September 30, 2006, $110,000 to be paid on or before February 7, 2007 and $3,000 per month for 60 months starting January 1st, 2007.

From  time  to  time,  we  may  become  party  to litigation or other legal proceedings  that  we  consider  to  be  a  part  of  the ordinary course of our business.  Other  than  the legal proceedings listed below, we are not currently involved  in  legal  proceedings  that  could  reasonably  be expected to have a material  adverse  effect  on  our  business,  prospects, financial condition or results  of  operations.  However,  we  may  become  involved  in material legal proceedings in the future.

ITEM 2.  CHANGES IN SECURITIES

The Company increased its authorized capital to 750,000,000 shares from 50,000,000 shares of common stock $0.001 par value as of  September 30, 2006.

During the nine month period ended September 30, 2006, the Company issued 300 shares to consultants for services rendered. The Company recorded expense in the books based on the market value of the shares on the date of issuance of shares to the consultants.

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The Company recorded $ 33,750 as officer compensation for 750,000 shares to be issued pursuant to the employment agreement. The officer is entitled to 1,000,000 shares every year pursuant to the employment agreement. The value of the stock is based on the market rate.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5.  OTHER INFORMATION

None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

* Filed Herein.

(b) Reports on Form 8-K

The Company filed no Reports on Form 8-K during the fiscal quarter ended September 30, 2006.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Healthcare Business Services Group, Inc.

Dated: June 10, 2007

By: /s/ Chandana Basu

Chandana Basu,

Chief Executive Officer and

Principal Financial Officer

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